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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.

The following table shows the allocation of Centennial’s allowance for loan losses and the percent of loans in each category to total loans as of the dates indicated.

⁽¹⁾

Each percentage represents the percent of the loans in the applicable category to total loans.

LandAmerica Assessment Corporation.  LandAmerica Assessment Corporation, a subsidiary of the Company, offers due diligence services to assist clients in determining the initial feasibility of commercial real estate transactions and ongoing due diligence requirements. LandAmerica Assessment Corporation has more than 300 field professionals in the United States and Canada, providing national coverage for a variety of due diligence services including real estate engineering services, environmental assessment services, construction monitoring services and surveillance services.

Real estate engineering services typically involve the assessment of the condition of a property and its systems including structural integrity, HVAC, mechanical and electrical, fire and

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safety, as well as zoning, building code and handicap compliance. LandAmerica Assessment Corporation also will assess seismic vulnerability providing its clients with a statement of probable maximum loss based on field observation, geotechnical information, seismicity, liquefaction and slope gradient.

Environmental assessment services are used to determine the environmental liability risk of a given property. LandAmerica Assessment Corporation is well-versed in a wide variety of scope variations and has experience with most major lending institutions and investment banking criteria including ASTM E 1528, Fannie Mae, Freddie Mac, Thrift Bill 16, and Standard & Poors.

Construction lending services include construction cost analysis and construction progress monitoring on all types of projects such as commercial/retail, residential tract development and assisted living, hospitality, and industrial developments.

Surveillance services primarily include property inspections. LandAmerica Assessment Corporation offers its Industrial Tenant Audit for surveillance purposes as well as its Commercial Mortgage Backed Securities Annual Property Inspections. These services are designed to assess property condition and potential environmental risk and determine maintenance requirements.

Inspectech.  Inspectech, Inc., a subsidiary of the Company, provides commercial and residential inspections for real estate transactions in various states.  In 2003, these states included Arizona, California, Florida, Georgia, Illinois, Indiana, New Jersey and Wisconsin.  In January 2004, Inspectech acquired ABA Inspections and Consulting, a Missouri–based home inspection business to continue its geographic expansion.  

Commercial Appraisal Operations.  LandAmerica Valuation Corporation (formerly known as LandAmerica Commercial Appraisal Corporation), a subsidiary of the Company, offers commercial appraisals and valuations through the Commercial Services division.  These operations offer appraisals and valuations on all types of property including office, retail, industrial, multi-family, special purpose, and hospitality. We offer custom report formats based on lender specifications as well as all standard commercial reports.

Investment Policies  

The Company earns investment income from its portfolio consisting primarily of fixed-maturity debt securities issued principally by corporations and United States, state and local jurisdictions, as well as by United States government agencies.  Additionally, through its acquisition of Orange County Bancorp and its wholly-owned subsidiary Centennial Bank, the Company earns investment income through its portfolio of loans receivable.  The investment portfolio primarily resides in the Company’s title underwriting subsidiaries, while the loan portfolio is reported in the Company’s Corporate and Other group of businesses.  At December 31, 2003, significantly all of the Company’s investment portfolio consisted of investment grade securities.  Under the Company’s investment guidelines, up to 20% of the investment portfolio may be invested in non-fixed maturity investments.  The Company’s portfolio is managed to comply with the various state regulatory requirements while maximizing net after-tax yield.  The Company generally does not invest in common stock issued by unaffiliated entities other than a 2% allocation to REIT securities.  The investment portfolio is managed by professional investment advisors under guidelines that govern the types of permissible investments, investment quality, maturity, duration, and concentration of issuer.  These guidelines, and the Company’s investment strategies, are established and periodically re-examined by the Investment Funds Committee of the Company’s Board of Directors.  This Committee also reviews the performance of the investment advisors on a quarterly basis.  See Notes 2 and 5 to the Consolidated Financial Statements.

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Employees

As of December 31, 2003, the Company had 11,273 full time and 254 part time employees.  The Company’s relationship with its employees is good.  No employees of the Company are covered by any collective bargaining agreements, and the Company is not aware of any union organizing activity relating to its employees.

ITEM 2.

PROPERTIES

The Company owns an office building and adjacent real estate in Richmond, Virginia that it uses for its corporate headquarters.  This property consists of approximately 128,000 square feet of office space and parking facilities.  In addition, the Company and its subsidiary, LERETA, own certain properties that, in the aggregate, are not material to the Company’s business taken as a whole. The Company’s subsidiaries conduct their business operations primarily in leased office space.  As of December 31, 2003, the Company had numerous leases for its branch offices and subsidiaries throughout the states in which they operate.  

The Company’s title plants constitute a principal asset.  Title plants consist of copies of public records, maps, documents, previous reports and policies indexed to specific properties in an area.  The title plants are generally located at the office which serves a particular locality or in “service centers” serving multiple localities in major metropolitan areas.  They enable title personnel to examine title matters relating to a specific parcel of real property as reflected in the title plant, and eliminate or reduce the need for a separate search of the public records.  They contain material dating back a number of years and are updated (with the exception of certain title plants) through the addition of copies of documents filed of record which affect real property.  The Company maintains title plants covering many of the areas in which it operates, although certain offices utilize title plants jointly owned and maintained with other title insurers.  The Company capitalizes only the initial cost of title plants.  The cost of maintaining such plants is charged to expense as incurred. The title plants and title examination procedures have been automated and computerized to a large extent in many areas.

On February 23, 1998, the Company entered into an Agreement Containing Consent Order (the “Consent Order”) with the Federal Trade Commission (the “FTC”) in connection with the acquisition of Commonwealth and Transnation.  The Consent Order required, and the Company completed, the divestiture of certain title plants in 12 localities named in the Consent Order.  Seven of such localities were in Florida, three were in Michigan, and one each was in Washington, D.C. and St. Louis, Missouri.  Pursuant to the terms of the Consent Order, the Company may not acquire, without prior notice to the FTC, any interest in a title plant in any of the named localities for a period of 10 years following the date of the Consent Order.  

The Company believes that its properties are maintained in good operating condition and are suitable and adequate for its purposes.

ITEM 3.

LEGAL PROCEEDINGS  

General

The Company and its subsidiaries are involved in certain litigation arising in the ordinary course of their businesses.  Although the ultimate outcome of these matters cannot be ascertained at this time, and the results of legal proceedings cannot be predicted with certainty, the Company believes, based on current knowledge, that the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.

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Litigation Not in the Ordinary Course of Business

On October 7, 2002, the People of the State of California filed an action (the “Attorney General Suit”) in the Sacramento Superior Court against the Company and its subsidiaries, Lawyers Title Insurance Corporation, Commonwealth Land Title Insurance Company, Commonwealth Land Title Company and Lawyers Title Company (Case No. 02AS06111) (collectively, the “Defendants”) alleging that the Defendants (i) failed to escheat unclaimed property to the Controller of the State of California on a timely basis, (ii) charged California home buyers and other escrow customers fees for services which were never performed, or which cost less than the amount charged, and (iii) devised and carried out schemes with financial institutions to receive interest, or monies in lieu of interest, on escrow funds deposited by the Defendants with financial institutions in demand deposits. A final judgment was entered against the Defendants on October 8, 2002 (the “Final Judgment”), pursuant to a settlement agreement with the Attorney General of the State of California and the District Attorney and City Attorney of the City and County of San Francisco.  The Final Judgment provides for (i) injunctive relief, (ii) aggregate cash payments and future discounts to eligible customers of up to $8 million and (iii) a cash payment of $1.6 million for penalties, attorneys’ fees, costs and cy-pres restitution. The Company made the $1.6 million cash payment and has accrued its best estimates of the aggregate cash payments. Discounts on future escrow and title services will be treated as reductions of revenue during the period in which they occur.  The Final Judgment is subject to the verification of information provided by the Defendants during settlement negotiations.  The verification process has been completed and the report of the independent accountant as verifier accepted by the Attorney General of the State of California, with no change in the amounts payable by the Defendants under the settlement agreement approved in the Final Judgment.

On or about June 16, 2000, Norman E. Taylor, Connie S. Taylor, Lynne Thompson Jones-Brittle, Colin R. Callaghan and Miriam J. Callaghan (collectively, the “Plaintiffs”) filed a putative class action suit (the “Taylor Suit”) in the Superior Court of Los Angeles, California (Case No. BC 231917) against the Company, Commonwealth Land Title Insurance Company, Commonwealth Land Title Company, Lawyers Title Insurance Corporation and Lawyers Title Company (collectively, the “Defendants”). The Plaintiffs purport to represent the general public and a class defined in the Third Amended Complaint dated March 20, 2002 (the “Third Amended Complaint”) as “[a]ll persons or entities who, from June 16, 1996 to the present, incident to purchase, sale or refinancing of real property located in California, deposited funds in escrow accounts controlled by the Defendants and were not paid interest on their funds and/or were charged fees for services not rendered by Defendants or excessive fees for the services Defendants performed.” The Plaintiffs allege in the Third Amended Complaint that the Defendants unlawfully (a) received interest, other credits or payments that served as the functional equivalent of interest, on customer escrow funds; (b) charged and retained fees for preparing and recording reconveyances that they did not prepare or record, and charged and retained excessive fees for other escrow-related services; and (c) swept or converted funds in escrow accounts based upon contrived charges prior to the time the funds escheated or should have escheated to the State of California pursuant to the Unclaimed Property Law.  The Plaintiffs assert claims for relief against the Defendants based on (i) violation of California’s Unfair Business Practices Act, California Business and Professions Code §§ 17200, et. seq.; (ii) violation of California’s Deceptive, False and Misleading Advertising Act, California Business and Professions Code §§ 17500, et. seq.; and (iii) unjust enrichment. The Plaintiffs seek injunctive relief, restitution of improperly collected charges and interest and the imposition of an equitable constructive trust over such amounts, damages according to proof, punitive damages, costs and expenses, attorneys’ fees, pre- and post-judgment interest and such other and further relief as the Court may deem necessary and proper.  On February 4, 2003, the Court granted the Defendants’ Motion for Judgment on the Pleadings relating to the claims brought on behalf of the general public, thereby limiting the relief that the Plaintiffs may recover to restitution and attorneys’ fees on behalf of the putative class.  In December 2003, the parties entered into a settlement agreement with materially the same settlement procedures as and to be coordinated with the procedures in the settlement agreement approved in the Final Judgment and providing for the addition of $1,000,000 to the restitution fund provided for in the settlement of the

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Attorney General Suit, a cash payment of $500,000 to the Plaintiff’s counsel and $1,000 to each of two class representatives. On February, 20, 2004, the Superior Court gave final approval to the settlement agreement reached with the Plantiffs in the Taylor Suit.

The settlements of the Attorney General Suit and the Taylor Suit provide that they do not constitute an admission of liability or wrongdoing by the Defendants.  Notice of the settlement in the Attorney General Suit and the Taylor Suit was published in a number of California newspapers in December 2003.  The claims process for cash payments commenced December 17, 2003 and will end March 16, 2004.  The charge reduction program through which eligible customers may receive a $20 reduction in title and/or escrow services is scheduled to begin in June 2004, after the close of the cash claims process.  The charge reduction program will continue until the earlier of the exhaustion of the combined $9 million fund or ten years, with the charge reduction to be adjusted after seven years if necessary, to insure full use of the fund.

On September 5, 2002, Thomas Branick filed a representative suit on behalf of the general public against Lawyers Title Company (“LTC”), a subsidiary of the Company, in the Los Angeles Superior Court (Case No. BC 2811015). The complaint pleads causes of action for unfair competition (California Business and Professions Code §§ 17200, et. seq.) and unfair business practices (California Business and Professions Code §§ 17500, et. seq.) and generally alleges that LTC improperly charged its customers for recording documents incident to real estate transactions and overcharged its customers for administrative fees. Plaintiffs seek injunctive relief and restitution. On January 3, 2003, the Court (i) granted LTC’s motion to strike portions of the complaint and (ii) sustained LTC’s demurrer, abating the action pending completion of the verification process in the Attorney General Suit and final resolution of the action of the Taylor Suit. Based on the stay, and the fact that the suit is still in its initial stages, at this time no estimate of the amount or range of loss that could result from an unfavorable outcome can be made.

On May 9, 2000, Romeo Jergess filed a putative class action suit (the “Jergess Suit”) in the United States District Court for the Eastern District of Michigan, Southern Division (Case No. 00-72124) against Transnation Title Insurance Company (“Transnation”), a subsidiary of the Company.  The suit alleges that Transnation’s rate for an owner’s title insurance policy, charged in accordance with rates for new construction filed with the Insurance Bureau of the State of Michigan, are less than the rate paid by the lender for a simultaneously issued lender’s title insurance policy, and that the lower rate paid by the builder/developer for the owner’s policy involves an illegal kickback for a referral and an illegal splitting of fees in violation of the Real Estate Settlement Procedures Act (“RESPA”). On April 27, 2001, a similar suit was filed by Elaine Miller (the “Miller Suit”) in the same court (Case No. 01-71647) against Lawyers Title Insurance Corporation (“Lawyers Title”), a subsidiary of the Company. The plaintiffs in both suits seek an unspecified amount of damages equal to three times the amount of the charge for each simultaneously issued lender’s title insurance policy in connection with a new home purchase commencing with the period one year before the filing of each complaint, plus costs, interest and attorneys’ fees. The Jergess Suit and the Miller Suit were consolidated on July 18, 2002 with cases pending against First American Title Insurance Company and Chicago Title Insurance Company.  On December 5, 2002, the court certified a class defined as all individuals who, during the period commencing prior to one year of the filing of the applicable suit and ending on October 30, 2002, purchased a newly constructed one to four family dwelling or condominium and were charged for a lender’s title insurance policy allegedly in violation of RESPA. On February 12, 2003, the United States Court of Appeals for the Sixth Circuit denied Transnation’s and Lawyers Title’s petitions for an interlocutory appeal of the class certification order.  On October 30, 2003, the judge ordered that individuals otherwise meeting the class definition, but who closed transactions involving relevant policies between October 31, 2002 through October 30, 2003, would not be subject to a statute of limitations defense raised by Transnation Title or Lawyers Title between October 30, 2003 and October 31, 2004.  Discovery is currently underway.  Transnation and Lawyers Title intend to defend vigorously the

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consolidated suits.  A trial date has not been set.  At this early stage in the litigation, no estimate can be made of the impact on the Company that could result from an unfavorable outcome at trial.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

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EXECUTIVE OFFICERS

Senior management changes effective January 1, 2004 included the promotion of Janet A. Alpert to Vice Chairman and Theodore L. Chandler, Jr. to President and Chief Operating Officer of the Company.  Michelle H. Gluck was appointed Executive Vice President, General Counsel and Secretary to replace Russell W. Jordan, III, who retired on the same date, and Melissa A. Hill was appointed as Executive Vice President – Production Resources of the Company to oversee the development of methods to increase the efficiency of the Company’s production facilities.

On November 18, 2003, the Company announced a new customer-focused strategy to improve service quality and operational excellence for customers.  In conjunction with that strategy, leadership positions and teams were created to support our primary customer groups:  agents, direct, commercial and national lenders.  Effective January 1, 2004, three new executive officers were appointed to head the Agency Services, Commercial Services and Direct Services customer teams. These new executive officers are Kenneth Astheimer, Jeffrey C. Selby and Glyn J. Nelson.  Charles H. Foster, Jr., the Chairman and Chief Executive Officer, has been designated to oversee the National Lender Services team.

Set forth below are the persons who serve as executive officers of the Company, their ages and positions as of March 1, 2004, and their business experience during the prior five years.  There are no family relationships between any of such persons and any director, executive officer or person nominated or chosen to become a director or executive officer.

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Market Price of Common Stock and Dividends

The Common Stock of the Company trades on the New York Stock Exchange (“NYSE”) under the symbol “LFG.”  

The following table sets forth the reported high and low sales prices per share of the Common Stock on the NYSE Composite Tape, based on published financial sources, and the cash dividends per share declared on the Common Stock for the calendar quarter indicated.

The Company’s current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment of dividends to holders of Common Stock will be in the discretion of the Board of Directors, will be subject to contractual restrictions contained in a Company loan agreement, as described below, and will be dependent upon the future earnings, financial condition and capital requirements of the Company and other factors.

Because the Company is a holding company, its ability to pay dividends will depend largely on the earnings of, and cash flow available from, its subsidiaries.  In a number of states, certain of the Company’s insurance subsidiaries are subject to regulations that require minimum amounts of statutory surplus.   Under these and other such statutory regulations, approximately $103.1 million of the net assets of the Company’s consolidated insurance subsidiaries are available for dividends, loans or advances to the Company during 2004.

In addition to the minimum statutory surplus requirements described above, these insurance subsidiaries are also subject to state regulations that require approval of the insurance regulators of such states prior to payment of any extraordinary dividends or distributions. The Company received approval from the Virginia Bureau of Insurance for an extraordinary dividend of $100.0 million from Lawyers Title Insurance Corporation in connection with the acquisition of LERETA Corp. on October 1, 2003.

The following table summarizes the insurance laws and regulations that restrict the amount of dividends or distributions that Commonwealth, Lawyers Title and Transnation are permitted to distribute to the Company in the 12-month period ending December 31, 2004 without prior regulatory approval:

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(1)

Based on statutory financial results for the year ended December 31, 2003.

In addition to regulatory restrictions, the Company’s ability to declare dividends is subject to restrictions under a Revolving Credit Agreement, dated as of November 6, 2003, between the Company and a syndicate of banks led by SunTrust Bank, that generally limit the aggregate amount of all cash dividends and stock repurchases by the Company to 30% of its cumulative consolidated net income arising after December 31, 2002.  As of December 31, 2003, approximately $49.6 million was available for the payment of dividends by the Company under the Revolving Credit Agreement.  Management does not believe that the restrictions contained in the Revolving Credit Agreement will, in the foreseeable future, adversely affect the Company’s ability to pay cash dividends at the current dividend rate.

Number of Shareholders of Record

As of March 1, 2004, there were approximately 1,258 shareholders of record of the Company’s Common Stock, including the Depository Trust Corporation, which acts as a clearinghouse and nominee for multiple brokerage and custodial accounts.

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Recent Sales of Unregistered Securities  

On November 26, 2003, the Company sold $100.0 million of its 3.125% Convertible Senior Debentures due 2033 (the “Debentures”) in a private placement transaction to J.P. Morgan Securities, Inc., Banc of America Securities LLC, Deutsche Bank Securities Inc., Ferris, Baker Watts Incorporated, Fleet Securities, Inc. and SunTrust Capital Markets, Inc., as initial purchasers.  On December 5, 2003, the Company sold an additional $15.0 million of the Debentures to the initial purchasers in a private placement transaction pursuant to an option to purchase additional Debentures granted by the Company to the initial purchasers.  The Debentures were sold by the Company for cash at a 2.0% discount to their principal face amount, which equaled a total discount to the initial purchasers of approximately $2.3 million on an aggregate sale of $115.0 million of Debentures.  The net proceeds to the Company, after deducting the initial purchasers’ discount and estimated offering expenses, were approximately $112.3 million.

The Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 in connection with the offer and sale of the Debentures to the initial purchasers.   Each initial purchaser has agreed that (i) the Debentures may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act of 1933 or in transactions not subject to those registration requirements and that (ii) during the initial distribution of the Debentures, it will offer or sell Debentures only to qualified institutional buyers in compliance with Rule 144A under the Securities Act of 1933.

The Debentures are convertible by the holders prior to stated maturity under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter) commencing after December 31, 2003 and before December 31, 2028, if the last reported sale price of the Company’s Common Stock is greater than or equal to 125% of the conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (ii) at any time on or after January 1, 2029 if the last reported sale price of the Company’s Common Stock on any date on or after December 31, 2028 is greater than or equal to 125% of the conversion price; (iii) subject to certain limitations, during the five business day period after any five consecutive trading day period in which the trading price per Debenture for each day of that period was less than 98% of the product of the conversion rate and the last reported sale price of the Company’s Common Stock; (iv) if the Company calls the Debentures for redemption; (v) upon the occurrence of certain corporate transactions; or (vi) if the Company obtains credit ratings for the Debentures, at any time when the credit ratings assigned to the Debentures are below the levels specified in the offering memorandum dated November 20, 2003. Upon conversion, the Company will have the right to deliver, in lieu of common stock, cash or a combination of cash and common stock.

The Debentures are convertible into shares of Company Common Stock at an initial conversion rate of 14.9162 shares per $1,000 principal amount of Debentures, which is equivalent to a conversion price of $67.04 per share of Common Stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events.

In February 2004, the Company filed a registration statement on Form S-3 to register both the debentures and common stock associated with this transaction.

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ITEM 6.

SELECTED FINANCIAL DATA

The information set forth in the following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto.

(1)

In 2003, the Company recorded exit and termination costs, net of tax of $170 related to facility rationalization programs with an offset related to reductions in the Primis accruals established in 2002.  Additionally, the Company recorded title plant impairments net of tax of $3,191.

(2)

In 2002 the Company recorded exit and termination costs net of tax of $8,690 related to its Primis operations.

(3)

In the fourth quarter of 2001, the Company reassessed the carrying value of intangibles and capitalized software which resulted in net of tax charges to earnings of $32,893.  See Note 18 to the Consolidated Financial Statements.

(4)

The net loss reported by the Company for the fiscal year ended December 31, 2000 resulted from a change in the Company’s method for assessing the recoverability of goodwill (not associated with impaired assets) during the fourth quarter of 2000 which resulted in net of tax charges of $110,369.  

.

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

During 2003, the Company expanded the breadth of services that it provides to its customers.  As a result, the Company is providing information regarding the Company’s two major business segments, Title Insurance and Lender Services. Other non-reportable business segments are reported in a category called Corporate and Other.  These groupings of business units are used by Company management to manage the Company’s operations.  The Company’s dominant segment is Title Insurance, which in 2003 accounted for 97.4% of the Company’s operating revenues.

Title Insurance

Our Title Insurance segment is influenced by the level of real estate activity and the cost and availability of mortgage funds.  Revenue for this segment results primarily from resales and refinancing of residential real estate and, to a lesser extent, from commercial transactions and the construction and sale of new housing.  In addition, Title Insurance revenue is affected by the Company’s sales and marketing efforts and its strategic decisions based on the rate structure and claims environment in particular markets.

Premiums and fees are determined both by competition and by state regulation. Revenue from direct title operations is recognized at the time real estate transactions close. There can be a several month delay between the time that a title order is opened and the real estate transaction closes.  Operating revenues from independent agents are recognized when the Company receives notification from the agent that a policy has been issued. The delay in notification varies from agent to agent and between regions of the country. During 2003, the Company had an average delay from policy issuance to reporting of 120 days.  There can be a significant lag between changes in general real estate activity and their impact on the portion of the Company’s revenues attributable to agents.

The demand for our title insurance products and services is dependent upon, among other things, the volume of commercial and residential real estate transactions, including mortgage refinancing transactions. The volume of these transactions has historically been influenced by factors such as interest rates and the state of the overall economy.  For example, when interest rates are increasing or during an economic downturn or recession, real estate activity typically declines and we experience lower revenues and profitability.  The cyclical nature of our business has caused fluctuations in revenues and profitability in the past and is expected to do so in the future.   

The Company’s profit margins are affected by several factors, including the volume of real estate and mortgage refinance activity, title policy type and amount. Volume is an important determinant of profitability because the Company, like any other real estate services company, has a significant level of fixed costs arising from personnel, occupancy costs and maintenance of title plants. The Company utilizes orders opened as a forward looking indicator of business volume. Because premiums are based on the face amount of the policy, larger policies generate higher premiums although expenses of issuance do not necessarily increase in proportion to policy size.  Cancellations affect profitability because costs incurred both in opening and in processing orders typically are not offset by fees.

The Company’s largest expense is commissions paid to independent agents. The Company regularly reviews the profitability of its agents, adjusting commission levels or canceling certain agents where profitability objectives are not being met and expanding operations where acceptable levels of profitability are available.  The Company continually monitors its operating expenses which are the sum of salaries and employee benefits, agency

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commissions and other expenses (exclusive of interest, amortization and certain other items) as a percentage of operating revenues.

Generally title insurance claims rates are lower than other types of insurance because title insurance policies insure against prior events affecting the quality of real estate titles rather than against unforeseen, and therefore less predictable, future events.  See “Critical Accounting Estimates – Policy and Contract Claims” for further discussion.  In addition, the Company may be subject to claims and litigation other than in the ordinary course of business.  For a discussion of pending legal proceedings, see “Item 3 – Legal Proceedings.”

Operating revenues in 2002 and the early part of 2003 increased primarily due to a favorable residential mortgage interest rate environment and a large volume of mortgage refinancing transactions. However, the Company began to experience a decline in refinancing transactions during the third quarter of 2003 and the level of refinancing transactions continued to decline during the fourth quarter of 2003. For fiscal year 2004, the Company expects that the level of refinancing transactions will be substantially below that experienced in recent years. This decline in the volume of refinancing transactions is the result of an extended period of declining mortgage interest rates followed by recent increases in those rates.

A significant challenge facing management of the Title Insurance segment is management of the revenue reductions expected to occur due to the decline in refinancing activity.  As a result, operating results for the years ended 2002 and 2003 should not be viewed as indicative of results for any future period.  The Company has been reducing staffing levels in response to the reduction in refinance transactions.  The Company expects to realize the full effect of expense savings from these staffing level reductions in 2004.  Continuing staff reductions and expense management will be an ongoing focus for senior management.  

Integration of recent and planned future acquisitions, and evaluating new potential acquisitions will also be a significant challenge and opportunity for this segment in 2004.

Lender Services

Our Lender Services segment provides services to regional and national lending institutions which complement those offered in our title insurance business.  These services consist primarily of real estate tax processing and flood certification services, mortgage credit reporting and default management services.  With the exception of default management, the services provided by this segment are the result of businesses acquired by the Company during 2003.  The Company expanded into the business of providing flood certification and real estate tax services to mortgage lenders by purchasing LERETA Corp. (“LERETA”), one of the largest, most advanced service companies in its industry, on October 1, 2003.  The Company also entered the credit information business for the mortgage lending industry through its acquisition in August 2003 of INFO1 Holding Company, Inc.

The Lender Services segment realizes a majority of its income through service revenues associated with tracking and reporting of real estate tax payments and flood zone certificiations related to mortgage loans for lending institutions.  The lenders pay for these services at the time they add a loan to their servicing portfolio.  The Company defers a significant portion of its revenue received for these services.  As a result, revenue reported in the financial statements represents the amortization of both current and prior service fees and is not representative of new contract sales levels.  Expenses on the other hand are charged to the income statement as incurred and are not deferred.   Thus, an understanding of the levels of deferred revenues in this area is critical to understanding the relative strength of business related to tax services.  The amortization rates are reviewed regularly to determine if there have been changes in contract lives and/or changes in the number or timing of prepayments, and adjusted to reflect current

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trends.  The Company is required in certain instances to reimburse part of the fees should the lender sell the loan to another party.  

Revenues in the mortgage credit reporting area and default management services are recognized when the report or service is delivered to the customer.

This segment has a substantial opportunity to leverage the Company’s title insurance business relationships to cross-sell services to other financial institutions.  A significant challenge for these businesses will be integration into the Company’s overall structure without jeopardizing their current business relationships.  

Corporate and Other

This group represents business segments that are not significant enough in size to be reported separately.  The businesses reported in this group include residential inspection and commercial appraisals and assessments, Orange County Bancorp and its wholly-owned subsidiary, Centennial Bank, a California industrial bank that the Company acquired in November 2003 (“Centennial”) as well as the unallocated portion of the corporate expenses (including unallocated interest expense) related to the Company’s corporate offices in Richmond, Virginia.  

Centennial provides and purchases in bulk commercial real estate loans to businesses primarily in the Southern California marketplace and is dependent on the viability of businesses in the Southern California markets in which it operates.  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 Company’s assessment business is managed by the Company’s LandAmerica Assessment Corporation subsidiary that was acquired in 2002 and which is headquartered in California.  This business provides due diligence services to commercial customers throughout the country.  Revenue is recognized upon completion of the services to the customer.

The Company’s residential inspection services are run by the Company’s Inspectech subsidiary.  This rapidly growing subsidiary is one of the largest providers of residential real estate inspections in the country.  Its business is highly dependent on the real estate industry and the levels of residential home sales and refinancings.  Inspectech charges a flat fee for each transaction which is generally collected at the time of service.

The Company’s commercial appraisal operations are run by the Company’s LandAmerica Valuation Corporation.  Its business is highly dependent on the Commercial real estate market.  They charge a fee based on the type and complexity of work performed.

Critical Accounting Estimates

This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States.  The Company considers the following accounting estimates to be critical in preparing and understanding the consolidated financial statements.  Actual results could differ from these estimates.  Significant accounting policies are disclosed in Note 1 to the accompanying Consolidated Financial Statements.  

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•

Policy and Contract Claims.  A provision for estimated future claims payments is recorded at the time policy revenue is recorded.  The Company’s payment experience as well as the industry’s extends for more than 20 years after the issuance of a policy.  Due to the length of time over which claim payments are made and regularly occurring changes in underlying economic conditions, these estimates are subject to variability.  As general economic conditions decline, claims experience has been shown to deteriorate, leading to increases in such losses as mechanics liens and defalcations.  These factors tend to diminish as economic conditions improve.  Loss provision rates are reviewed periodically and adjusted by management as experience develops or new information becomes known.  In establishing loss provision rates, management considers historical experience, current economic conditions and the mix of business.  The Company’s independent consulting actuaries perform projections of required reserves as considered necessary during the year and at year-end.  These projections are compared to recorded reserves to evaluate the adequacy of such recorded reserves and any necessary adjustments are included in current operations.  The impact of a 1% change in the loss rate on current year business volumes is as follows:

Increase in Loss Rate of 1%

$

(32,598)

Decrease in Loss Rate of 1%

$

32,598

•

Purchase Accounting, Impairment of Goodwill and Long-Lived Assets.  The Company, as a normal part of its business, acquires agencies and other title related operations.  In addition, in 2003 the Company purchased three businesses which were outside its traditional business expertise but primarily focused in the real estate industry.  As a result of these acquisitions, the Company assigned fair values to the assets and liabilities purchased and increased the amount of goodwill and other intangibles recorded on its balance sheet.  The Company utilizes the services of an independent appraisal company to assist with the allocation of purchase price to acquired assets (including goodwill) and liabilities.  On January 1, 2002 the Company adopted Financial Accounting Standards Board (“FASB”) Statements of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, No. 142, Goodwill and Other Intangible Assets and No. 144, Accounting for the Impairment or Disposal of Long-Lived Fixed Assets. SFAS No. 141 established new rules for accounting for business combinations and requires that all business combinations be accounted for using the purchase method.  SFAS No. 142 eliminated the requirement to amortize goodwill and other identified indefinite life intangibles and instead requires that impairment testing be performed at least annually.  SFAS No. 144 requires that long-lived assets (other than goodwill and indefinite life intangibles) be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.   Determination of the amount, if any, of impairment associated with goodwill or other long-lived assets is subject  to a number of individual criteria, each of which is difficult to value.

•

Deferred Tax Asset.  Net deferred tax assets at December 31, 2003 and 2002 relate primarily to policy and contract claims, pension liability, deferred service arrangements, allowance for doubtful accounts and employee benefit plans.   A valuation allowance is provided for deferred tax assets if it is more likely than not that some portion or all of the assets will not be realized. The most significant factor in this determination is the projected future timing and amounts of taxable income.  The provision of a valuation allowance would reduce net income in the period recorded. Based upon our historical results of operations, the existing financial condition of the