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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                      For the Year Ended December 31, 2002

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

                           Commission File No. 0-21417

                            CAPITAL TITLE GROUP, INC.
                 (Name of Small Business Issuer in its charter)

                 Delaware                                 87-0399785
    (State or other jurisdiction of            (IRS Employer Identification No.)
     incorporation or organization)

       2901 East Camelback Road                             85016
(Address of principal executive offices)                  (Zip Code)

         Issuer's telephone number, including area code: (602) 954-0600

              Securities registered under Section 12(b) of the Act:
                                      NONE

              Securities registered under Section 12(g) of the Act:
                          Common Stock, $.001 par value
                                (Title of class)

Check  whether  the issuer  (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 [ ].

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates of the registrant was approximately $44,483,000.  This figure was
estimated  based on the last  business  day of the  registrant's  most  recently
completed second fiscal quarter which was June 28, 2002. The number of shares of
Common Stock outstanding on June 28, 2002 was 17,444,374.

Indicate by check mark if there is no disclosure of delinquent  filers  pursuant
to Item 405 of Regulation  S-K is not contained in this form,  and no disclosure
will 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. [ ].

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Proxy  Statement  for the 2003 Annual  Meeting of
Stockholders to be held on May 21, 2003 are  incorporated by reference into Part
III hereof.

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                                     PART I

ITEM 1. BUSINESS

COMPANY HISTORY

     Capital Title Group, Inc. (the "Company"), a Delaware corporation,  through
its subsidiaries, is engaged in the business of issuing title insurance policies
and  performing  other  title-related  services,  such as escrow  activities, in
connection  with real estate  transactions.  The Company views its operations as
one  operating  business  segment  and is the parent  company  of the  following
subsidiaries:

     Capital Title  Agency,  Inc.  ("Capital  Title") is an Arizona  corporation
     which has  operated  under  the  authority  of the  Arizona  State  Banking
     Commission  since  November  1981.  Capital Title is an  independent  title
     agency that provides escrow services and issues title insurance policies to
     the real estate industry in Maricopa, Yavapai, Mohave and Pinal Counties in
     Arizona.  Capital Title currently  operates 37 offices  located  throughout
     Maricopa, Yavapai and Mohave Counties in Arizona.

     New Century Title Company ("New  Century"),  a California  corporation that
     commenced  operations  in July 1998,  is an  independent  title agency that
     provides  escrow and title services to the real estate industry in selected
     California  counties.  New  Century  currently  has 17 offices in  southern
     California where it is licensed to conduct  business in San Diego,  Orange,
     Riverside,  San Bernardino and Los Angeles  Counties.  New Century also has
     operations  in northern  California,  which it obtained by  acquisition  in
     November 1998 and expanded  through another  acquisition in April 2002. New
     Century  has 20 offices in  northern  California,  where it is  licensed to
     conduct business in Sonoma,  Sacramento,  Contra Costa,  Alameda, San Mateo
     and Santa Clara Counties.

     Nations Holding Group ("Nations"),  a California corporation,  was acquired
     in September 2002 and includes the following wholly-owned subsidiaries;

          United Title Company ("United Title"),  a California  corporation that
          commenced  operations  in 1978,  is an  independent  title agency that
          provides  escrow and title  services  to the real  estate  industry in
          Southern California. United Title currently has 35 offices serving Los
          Angeles,  Riverside,  San Bernardino,  Orange, San Diego,  Ventura and
          Santa Barbara Counties in California.

          First  California  Title Company  ("First  California"),  a California
          corporation  that  commenced  operations  in 1964 and was  acquired by
          Nations in 1997,  is an  independent  title  agency  serving  the real
          estate  industry with escrow and title  services from seven offices in
          the northern California Counties of Alameda and Contra Costa.

          United  Title  Insurance   Company  ("United  Title   Insurance"),   a
          California domiciled title insurance underwriter,  was formed in 1991.
          United Title Insurance is the predominant  underwriter for both United
          Title and First  California  and  underwrites  a portion  of the title
          insurance policies sold by Capital Title and New Century.

     In  January  2003,  Nations  acquired  Land Title of  Nevada,  Inc.  ("Land
Title"),  an  independent  title agency  operating five offices in Clark County,
Nevada,  which  comprises  the  metropolitan  area of Las Vegas.  Land Title was
established  in 1978 and provides  escrow and title  services to the real estate
industry.

     The Company plans to continue its growth in Arizona,  California and Nevada
and as conditions  merit,  to expand into other states.  The Company  intends to
accomplish this planned expansion primarily through acquisitions and recruitment
of escrow officers and sales  representatives  with significant existing revenue
production  based upon their  relationships  with real estate brokers,  mortgage
lenders and other  industry  participants.  The Company  will attempt to attract
these significant producers through employment packages that include commissions
based on generated revenue.

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     The  executive  offices of the Company  are located at 2901 East  Camelback
Road,  Phoenix,  Arizona 85016,  the telephone  number is (602) 954-0600 and the
website is www.capitaltitlegroup.com.

COMPANY OVERVIEW

     The  Company  derives  revenue  by issuing  title  insurance  policies  and
providing  escrow services to the real estate  industry.  In addition to issuing
title insurance underwritten by United Title Insurance,  the Company may utilize
third party title insurance  underwriters  depending upon various factors. Those
factors vary, but may include customer  preference,  market concentration or the
size of the transaction may also dictate the use of third party  underwriters as
well.

     The Company's  operations  have been  influenced by the markets in which it
operates.  Arizona,  California and Nevada rank high in relation to other states
in the nation in the rate of new job creation and population growth. The Company
operates  in some of the largest  single  family  housing  markets in the nation
including the greater Los Angeles,  San Diego,  Oakland, San Jose, Las Vegas and
Phoenix metropolitan areas.

INDUSTRY OVERVIEW

     The title insurance process has become accepted as the most efficient means
of  determining  ownership  of, and the priority of interests in, real estate in
nearly all markets of the United  States.  Virtually  all lenders  require their
borrowers to obtain title insurance policies at the time mortgage loans are made
on real property.

     The major expense of a title company is the search and examination function
in  preparing  preliminary  title  reports,   commitments  and  title  policies.
Companies have focused on advancing technology in order to reduce costs, improve
accuracy and respond to the continuing pressures within the real estate industry
for faster and more cost effective processing of transactions.

     The Company  possesses  advanced  title report  generation  and  processing
technology that combines title  information from multiple sources via electronic
data exchange. This technology facilitates expansion of the Company's operations
in existing markets, and management believes it provides a competitive advantage
compared to the technology of competing title companies.

     TITLE  POLICIES.  Title  insurance  policies state the terms and conditions
upon  which a  title  underwriter  will  insure  title  to  real  property.  The
beneficiaries of title insurance  policies are generally buyers of real property
or secured lenders.

Title insurance is different from other types of insurance because it relates to
past  events  that  affect  title to  property  at the time of  closing  and not
unforeseen  future  events.   Prior  to  issuing   policies,   underwriters  can
significantly  reduce  or  eliminate  future  losses  by  accurately  performing
searches and examinations. The premium for title insurance is due in full on the
closing date of the real estate transaction and is based upon the purchase price
of the  property  insured or the amount of the  secured  loan.  Title  insurance
policies are issued on the basis of a preliminary  report or  commitment.  These
reports are prepared after a search of public  records,  maps and other relevant
documents  to  ascertain   title  ownership  and  the  existence  of  easements,
restrictions, rights of way, conditions, encumbrances or other matters affecting
the title to, or use of, real property.  A visual inspection of the property may
also be made prior to the issuance of certain title insurance policies.

     To facilitate the preparation of preliminary  reports without the necessity
of manually searching public records,  copies of public records,  maps and other
relevant  historical  documents are compiled and indexed in a title plant.  Each
title plant  relates to a  particular  county and is kept  current on a daily or
other frequent basis by the addition of copies of recorded documents that affect

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rights  in  real  property  in the  particular  county.  Title  companies  often
subscribe to independent title information services to assist in the preparation
of preliminary title reports.

     The Company has entered into multi-year  service agreements for title plant
access in the counties in which it operates.  In certain  counties,  the Company
may be a partial owner in a title plant or own a title plant which contains data
prior to the time period  covered by a third party  title  plant  provider.  The
Company  believes it will be able to obtain  access to title plants on terms and
conditions  that are acceptable to it as the Company expands into other markets;
however there can be no assurance in this regard.

     THE TITLE POLICY PROCESS.  A brief  description of the process of issuing a
title insurance policy is as follows:

     (i)   The customer,  typically a real estate salesperson or broker,  escrow
           agent or lender, places an order for a title policy.

     (ii)  After the relevant  historical data on the property is compiled,  the
           title officer  prepares a preliminary  report that  documents (a) the
           current  status  of  title  to  the  property,  (b)  any  exemptions,
           exceptions  and/or  limitations  that might be attached to the policy
           and (c) specific issues that need to be addressed and resolved by the
           parties to the  transaction  before the title  policy  will be issued
           (such as removal of prior tax liens and payment of prior loans on the
           property). The preliminary report is circulated to all parties of the
           transaction for satisfaction of any specific issues.

     (iii) After all specific issues  identified in the  preliminary  report are
           satisfied, the escrow agent closes the transaction in accordance with
           the instructions of the parties and the policy conditions.

     (iv)  Once the  transaction is closed and all monies have been released,  a
           final  policy  is issued  (a) to the  owner and the  lender on a sale
           transaction or (b) to the lender only on a refinancing transaction.

     DIRECT VS.  AGENCY  SALES.  Preliminary  reports and  commitments  to issue
policies are prepared by title  underwriters  (direct  sales) or by  independent
agents on behalf of the  underwriters  (agency sales).  The terms and conditions
upon which the real property will be insured are  determined in accordance  with
the standard policies and procedures of the title underwriter.  In direct sales,
the title underwriter  issues the preliminary  report and commitment and retains
the entire title  premium paid in  connection  with the  transaction.  In agency
sales, the search and examination function is performed by the independent agent
and the vast  majority of the premium  collected is retained by the agent,  with
the balance remitted to the title underwriter. The Company competes against both
title underwriters and independent title agencies.

     LOSSES  AND  RESERVES.  The  maximum  amount  of  liability  under  a title
insurance  policy issued by a title  insurance  underwriter  is usually the face
amount of the policy plus the cost of defending the  insurer's  title against an
adverse  claim.  The reserve for claim losses is based upon known claims as well
as losses the insurer expects to incur based on historical  experience and other
factors,  including  industry  averages,  claims  loss  history,  current  legal
environment, geographic considerations and type of policy written.

     ECONOMIC FACTORS AFFECTING INDUSTRY.  Title insurance and escrow revenue is
related to the level of activity in the real estate market and the price of real
estate sales.  Real estate sales are directly  affected by the  availability  of
money to finance purchases. Other factors affecting real estate activity include
demand,  mortgage  interest  rates,  family income  levels and general  economic
conditions.  Overall economic conditions in the states of Arizona and California
have been  favorable  to the real  estate  market the past few  years.  Dramatic
interest  rate  decreases,   particularly   during  2002,  helped  to  fuel  the
residential  resale and  refinance  market,  which in turn  provided real estate
services  like title and  escrow  services  with high  transaction  volume.  The
relatively  low interest rate  environment  provided the entire title and escrow

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services industry with tremendous volume,  however,  due to the unpredictability
of the interest rate environment,  it is impossible to predict the impact future
higher  interest rates will have on the overall real estate market and title and
escrow services industry.

COMPANY STRATEGY

     The  Company's  strategy  is to  pursue  aggressive  growth  in  the  title
insurance industry. Essential elements of the Company's strategy are as follows:

     COMMITMENT TO SERVICE. The Company is built on three basic  entrepreneurial
premises: (1) every employee is a salesperson for the Company; (2) the Company's
services are a one-stop,  computer-based  contact point for complete real estate
transactions;  and (3)  success  is  achieved  through  a focus on an  unequaled
quality  of  customer  service.  Because  title  insurance  policies  and escrow
functions are generally  standardized,  management believes the level of service
provided  is the key  differentiating  factor  among  competitors  in the  title
industry. Through its commitment to customer service, the Company seeks to build
lasting relationships with its real estate industry clients.

     MARKET  FOCUS.  While the  Company  serves all  segments of the real estate
market,  the Company's market focus is on real estate brokers,  mortgage lenders
and developers as the existing  residential re-sale market has historically been
more consistent and less prone to fluctuation  than commercial real estate,  new
home sales or  refinancing  segments  of the  market.  To set itself  apart as a
service company,  the Company continues to enhance industry specific information
technology to better serve its clients in all segments of the industry.

     MANAGEMENT. The Company recognizes that its growth plan calls for executive
management with extensive industry,  operational and expansion  experience.  The
Company was  co-founded by Donald R. Head,  and he has served as Chairman of the
Board  and  Chief  Executive  Officer  since  inception  in 1981.  Mr.  Head has
extensive experience as a real estate developer and entrepreneur within the real
estate  industry  and has over 20 years of  experience  in the  title  insurance
industry.

     Milt  Ferrantelli,  President and CEO of Capital  Title Agency,  joined the
Company in 1997.  Prior to joining the  Company,  Mr.  Ferrantelli  co-owned and
served as President  and Chief  Executive  Officer of a large  Phoenix,  Arizona
based title insurance  agency from 1986 until it was acquired in 1994 by Norwest
Financial.  Mr.  Ferrantelli  has over 20 years of  experience  in the title and
escrow industry in the Arizona marketplace.

     Mervyn L.  Morris,  President  of New  Century  Title  Company,  joined New
Century in September  1999.  Mr.  Morris has over 25 years of  experience in the
title and  escrow  industry.  Prior to  joining  New  Century,  Mr.  Morris  was
Executive  Vice  President,  Southern  Division  Manager for Old Republic  Title
Company.

     Jerome M.  Smolar is  President  of  Nations  Holding  Group and CEO of its
largest  wholly-owned  subsidiaries,  United  Title and United  Title  Insurance
Company.  Mr. Smolar joined Nations in 1996,  and previously  served as Nation's
Vice President and Chief Financial  Officer and as President and Chief Operating
Officer of United Title Company.  Prior to joining Nations, Mr. Smolar served in
several  capacities  with  Safeco  Title  Insurance   Company,   including  Vice
President,  Treasurer and Chief Financial Officer and as a Director.  Mr. Smolar
has over 15 years of experience  in the title and escrow  industry and is also a
certified public accountant.

     In addition,  the Company  employs  managers that are seasoned in the title
and escrow and overall real estate  industries to run the day-to-day  operations
in the counties the Company operates.

COMPANY OPERATIONS

     The Company  reported revenue of $127.7 million for the year ended December
31, 2002  compared to $64.4 million for the year ended  December 31, 2001.  (See
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations).

     MARKETING.  The Company believes that the primary source of its business is
from referrals from participants in the real estate industry such as real estate
brokers,  mortgage  lenders and developers.  In addition to the referral market,

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the Company markets its services directly to larger brokerages and real property
lenders.  Marketing  activities  are  performed  by the escrow  officers  of the
Company and marketing representatives whose sole function is the solicitation of
business from major real estate brokers, developers, owners and lenders.

     ESCROW  SERVICE.  The Company's  escrow  departments  are  responsible  for
handling the consummation of real estate transactions.

     The escrow  officers and  assistants  typically  prepare  escrow  documents
pursuant to the real estate contract.  The escrow instructions  provide guidance
to all  concerned  parties as to the  conditions  required  for the real  estate
transaction.  The escrow  officers then receive funds and disburse them pursuant
to the escrow instructions.

     The escrow officers are held accountable by state governmental agencies for
strict compliance with their fiduciary  responsibilities  outlined by the escrow
instructions.  The  escrow  officers  must  possess  a  high  degree  of  skill,
professionalism and confidentiality in the handling, preparation, collecting and
recordation of all escrow matters between the buyer, seller, real estate brokers
and their agents, developers, lenders and investors.

     TITLE  DEPARTMENT.  The  primary  function of the title  department  is the
accumulation  and analysis of various  documents from the many sources that make
up the public record and to prepare and issue a preliminary  report  showing the
present condition of title.

     CLAIMS  AND  UNDERWRITING.  The  Company's  title  agencies  provide  title
insurance  through  United  Title  Insurance,  a  wholly-owned  subsidiary.  The
Company's  title agencies also act as an  independent  agent of five other third
party title insurance companies.  Services are provided pursuant to underwriting
agreements with each of the underwriters which state the conditions on which the
Company's  title  agencies are authorized to issue a title  insurance  policy on
behalf of the  underwriter  and  prescribe  the  circumstances  under  which the
Company's  title  agencies may be liable to the  underwriter if a policy loss is
attributable to errors made by the Company's title agencies.

     Claims against title insurance  policies normally arise out of human error.
During the process of  accumulation  and analysis of the public record,  certain
inaccuracies  and  inconsistencies  are encountered  that sometimes  result in a
situation in which  interpretation of these documents could lead to a claim. The
exposure  for the  Company's  title  agencies is  typically  limited to a $5,000
deductible for any loss resulting from a title  insurance  claim.  The Company's
title agencies  assume the entire risk of losses  incurred in errors made during
the escrow process;  however,  have secured insurance coverage up to $1 million,
subject to a deductible, to limit any significant losses.

     Claims  against the Company's  wholly-owned  title  insurance  underwriter,
United Title Insurance, are typically limited to $500,000 for any loss resulting
from a title  insurance  claim.  Losses are limited as a result of a reinsurance
arrangement United Title Insurance has with a third party underwriter.

CUSTOMERS

     The Company is not  dependent  upon any single  customer or single group of
customers. The loss of any one customer would not have a material adverse effect
on the Company.

SEASONALITY

     The title  insurance  business is closely related to overall levels of real
estate sales  activity.  Historically,  real estate sales activity slows down in
the winter months with volumes  showing  significant  improvements in the spring
and summer months. In addition,  the title insurance business is cyclical due to
the effect of  interest  rate  fluctuations  on the level of real  estate  sales
activity.  Periods of high interest rates adversely  effect real estate activity
and therefore title and escrow revenues.

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COMPETITION

     The  title  insurance  business  is  highly  competitive.   Companies  with
significant  market  share in  Arizona,  California  and  Nevada  include  First
American,  Chicago  Title,  Old  Republic,  Stewart  Title,  Fidelity  Title and
LandAmerica.  The number and size of  competing  companies  varies in  different
geographic  markets.  In those markets where the Company operates and intends to
operate the Company will face  competition from other  independent  agencies and
major national  insurance  underwriters,  many of which have financial and other
resources  significantly greater than those of the Company. The Company believes
that quality and  timeliness of service are the key  competitive  factors in the
industry because parties to a real estate transaction are usually concerned with
time schedules and costs associated with delays in the closing of transactions.

REGULATION

     The Company  conducts  its  business  under  licenses  granted by the State
Banking and Insurance Departments of the State of Arizona and the Departments of
Insurance in California and Nevada.  The title  insurance and escrow  businesses
generally  are subject to  extensive  regulation  under  applicable  state laws,
including, in California,  requirements to maintain  minimum levels of net worth
and  working  capital.  These laws  establish  supervisory  agencies  with broad
administrative  powers  relating to issuing and  revoking  licenses,  regulating
trade  practices,  licensing  agents,  approving policy forms and approving rate
schedules. Failure to comply with these regulations or an inability to secure or
maintain any required  licenses could materially  adversely affect the Company's
business. The Company believes that it is in compliance with applicable laws and
regulations  and that it will maintain and obtain all licenses  required for the
conduct of its business.

     Title  insurance  underwriters  are also  typically  subject  to a  holding
company act in their  state of  domicile  that  regulates,  among other  issues,
payment of dividends  and  investment  policies.  As a condition to continue its
authority  to  underwrite  title  insurance  policies in the states in which our
title insurance subsidiary conducts its business,  it is required to pay certain
fees and file  information  regarding  its  officers,  directors  and  financial
results and condition. Further, pursuant to statutory regulations,  United Title
Insurance must defer a portion of  underwriting  premium as an unearned  premium
reserve  as well as  maintain  qualified  assets in an amount  set by  statutory
requirements.  The level of unearned  premium reserve  required to be maintained
any time is  determined  on a  quarterly  basis by  statutory  formula  based on
several factors including the number, age and dollar amount of policies written.
At December  31, 2002,  the  statutory  unearned  premium  reserve  required and
reported by the Company's title insurance subsidiary was $6.8 million.

     The Company's title insurance  subsidiary had statutory capital and surplus
of $8.5 million at December 31, 2002.  For the year ended December 31, 2002, the
Company's  title  insurance  subsidiary  also  had  statutory  earnings  of $1.7
million.

     United  Title  Insurance  is  regulated  by the  California  Department  of
Insurance  ("DOI").  Examinations  by the  DOI  typically  occur  at  three-year
intervals  and an  examination  of United  Title  Insurance  for the years ended
December 31, 1999,  2000 and 2001,  concluded in late 2002.  Although not final,
the DOI shared a preliminary report of their examination and the findings in the
report did not have a material  impact to the statutory  results of United Title
Insurance at December 31, 2002.

RATINGS

     United  Title  Insurance is  regularly  reviewed  and  assigned  ratings by
independent rating agencies designed to indicate its financial  condition and/or
claims paying ability.  Financial data and other similar information is supplied
to the rating  agencies,  as requested, and analysis is performed by agencies to
arrive at a particular  rating. At December 31, 2002, United Title Insurance was
rated as noted below by the following rating agencies:

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                                        Demotech, Inc.         Lace Title Rating
                                 (Financial stability rating)     Corporation
                                 ----------------------------     -----------
United Title Insurance Company          "A-Exceptional"               "A"

INVESTMENTS

     The Company's subsidiary,  United Title Insurance, derives a portion of its
income  from  investments.   The  Company's  investment  portfolio  consists  of
short-term  investments,  predominately  certificates of deposit with maturities
greater than 90 days, but less than one year, and  investments in fixed maturity
bonds and equity securities.  The investment policy of United Title Insurance is
to maintain a diversified  investment portfolio and to purchase investment grade
fixed  maturity  bonds and preferred  and common  stocks of large,  seasoned and
well-managed companies. The investment policy is designed to maximize investment
income,  maintain  adequate cash flow and provide  financial  stability within a
limited  risk  tolerance.   The  carrying  amount  of  all  investments,   which
approximates the fair value of the investments,  was approximately $11.5 million
at December 31, 2002. During 2002, the Company's average yield on its investment
portfolio was approximately 4.6%.

     The following table sets forth certain information regarding the investment
ratings of the Company's fixed maturity portfolio at December 31, 2002:

                                Amortized                Estimated
                                   Cost     % of Total   Fair Value   % of Total
                                 --------   ----------   ----------   ----------
Ratings (1)                                     ($ in thousands)
AAA, AA, and A                   $  6,036        85.0%    $  6,348         85.6%
BBB                                   966        13.6          967         13.0
B                                      97         1.4          101          1.4
                                 --------    --------     --------     --------
                                 $  7,099       100.0%    $  7,416        100.0%
                                 ========    ========     ========     ========

(1)  Ratings as assigned by Standard and Poor's.

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     The following table sets forth contractual maturities at December 31, 2002,
which may differ from expected  maturities  because  certain  borrowers have the
right to call or prepay obligations with or without prepayment penalties:

                                                         Amortized    Estimated
         Maturity dates                                     Cost      fair value
         --------------                                   --------    ----------
                                                            ($ in thousands)
One year or less                                          $    100     $    101
After one year through five years                            3,345        3,500
After five years through ten years                           1,318        1,394
After ten years                                              2,336        2,421
                                                          --------     --------
                                                          $  7,099     $  7,416
                                                          ========     ========

     Fixed  maturity  bonds with an  amortized  cost of $3.6  million and a fair
value of $3.8 million have provisions  which give borrowers the right to call or
prepay their obligations with or without prepayment penalties.

     Equity  securities  at December  31,  2002  consist of  investments  in the
following category:

                                                                      Estimated
                                                           Cost       Fair value
                                                          --------    ----------
                                                             ($ in thousands)
Preferred and common stocks of banks,
  trust and insurance companies                           $    842     $    904
Preferred stocks of public utilities                            85           94
Preferred and common stocks of industrial
  and miscellaneous companies                                1,955        1,958
                                                          --------     --------
                                                          $  2,882     $  2,956
                                                          ========     ========

EMPLOYEES

     As of December 31,  2002,  the Company had a total of 1,679  employees,  of
which 412 were located in Arizona and 1,267 in California.  In January 2003, the
Company  acquired Land Title of Nevada,  Inc,  adding 94 employees.  The Company
believes that its relations with its employees are excellent.

ITEM 2. PROPERTIES

     The Company  conducts its business  operations  primarily in leased  office
space.  The Company  currently  leases  offices at 114 locations  with remaining
lease periods  ranging from one to  eighty-four  months.  The Company's  monthly
rental payments at the foregoing  locations are approximately $0.8 million.  The
Company owns a 24,000 square foot building in Phoenix,  Arizona,  which includes
its  corporate  headquarters,  its  Maricopa  County  administration  and  title
department,  and two  escrow  branches.  The  Company  also  owns  and  occupies
approximately  one-half of a 16,200 square foot  building in Colton,  California
which houses a title and escrow  branch  office of its wholly-owned  subsidiary,
United Title.

ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in certain  legal actions which arise in the normal
course of its title and escrow  business.  The  Company  believes,  based on the
advice of legal counsel,  that none of these claims are material to the Company,
either  individually or in the aggregate,  and the final outcome will not have a
material  adverse  affect  on  the  Company's  financial  position,  results  of
operations or liquidity.

     The Attorney General of the State of California filed suit on behalf of the
California  Controller  against a number of major title  insurers  operating  in
California,  alleging  irregularities  in billings for charges and violations of
title and escrow  practices.  The Company and its subsidiaries have not received

                                       9
<PAGE>
any  communication  from the Attorney General  regarding this litigation and was
not named in the suit. Each of the defendants in the State of California lawsuit
has entered  into a  settlement  with the State,  which  includes an  injunction
prohibiting certain practices allegedly engaged in by those companies.  A matter
raised in the State of California  litigation has resulted in a separate lawsuit
brought  by  individuals  purporting  to act in a  representative  capacity  for
consumers  doing  business  with  lenders  and title  companies  in the State of
California. United Title has been named in this lawsuit, which seeks restitution
of  alleged  wrongful  gains  obtained  through  excessive  recording  fees  and
reconveyance  tracking fees,  injunctive  relief,  and attorney fees. An initial
lawsuit was served on United  Title in November  2001 and in that  lawsuit,  the
court  dismissed  the  complaint.  The recent  litigation  referred to above was
subsequently  refiled in February 2003. The results of legal proceedings  cannot
be predicted with certainty,  but United Title intends to vigorously  defend the
lawsuit.

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 the fiscal year ended December 31, 2002.

                                       10
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is quoted on The Nasdaq  SmallCap  Market under
the symbol "CTGI".

     The following  table sets forth the high and low closing bid prices for the
Company's common stock.

                    Date                                 High        Low
                    ----                                ------     ------
     2001  First Quarter                                $ 1.59     $ 0.94
           Second Quarter                                 2.74       1.06
           Third Quarter                                  2.90       1.95
           Fourth Quarter                                 2.54       2.00
     2002  First Quarter                                  2.30       1.85
           Second Quarter                                 3.30       2.00
           Third Quarter                                  2.50       1.50
           Fourth Quarter                                 2.75       2.00
     2003  First Quarter (through March 14)               3.06       2.04

     As of December 31, 2002, the Company had issued and outstanding  17,923,968
shares of common stock. In addition,  4,900,000 shares are reserved for issuance
under the Company's  1996 Stock Option Plan and 600,000  shares are reserved for
issuance under the Company's  Non-Employee Directors Plan. At December 31, 2002,
there were approximately 1,601 holders of record of the Company's common stock.

     In March 1998, the Company issued  463,500  warrants in conjunction  with a
private placement. Each warrant entitled the holder to purchase one share of the
Company's  common stock at $2.50 until December 31, 2002.  During 2002,  268,000
warrants  were  exercised  with the balance of the warrants  expiring.  In April
1998,  the Company issued  308,642  warrants to an investment  banking firm that
acted as placement  agent in connection  with another  private  placement.  Each
warrant  entitled the holder to purchase one share of the Company's common stock
at $1.62 until May 1, 2002. Pursuant to terms of the warrant agreement,  125,793
shares of common stock were issued prior to the  expiration  date.  In September
2002, the Company issued 300,000 warrants valued at $213,000 in conjunction with
an  acquisition.  Each warrant  entitles the holder to purchase one share of the
Company's  common stock at $2.27 until September 18, 2007. The Company  utilized
the Black-Scholes  model, a commonly used option pricing model, to determine the
fair value of these warrants.

     The Company has never paid a dividend  on its Common  Stock.  At this time,
the Company anticipates that its earnings,  if any, will be retained to fund the
Company's working capital needs, debt repayment and the planned expansion of its
business.  The  payment of any  dividends  may be  restricted  by the  covenants
contained in the Company's seven-year term loan agreement with Comerica Bank and
will be dependent  upon the  discretion of the Board of Directors.  Furthermore,
under Delaware  corporate  law, in the absence of current or retained  earnings,
the  Company  may be  prohibited  from  paying  dividends  (whether  in  cash or
otherwise).

                                       11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

Selected Financial Data-Five Year Summary
  ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
For The Year:                                      2002          2001          2000          1999          1998
                                                ----------    ----------    ----------    ----------    ----------
<S>                                             <C>           <C>           <C>           <C>           <C>
Title service revenue, net                      $   81,239    $   41,161    $   22,628    $   20,808    $   13,175
Escrow and related fees                             42,632        20,468        11,447        11,088         7,535
Other income                                         3,840         2,807         2,823         2,080         1,037
                                                ----------    ----------    ----------    ----------    ----------
Total revenue                                      127,711        64,436        36,898        33,976        21,747
Net income (loss)                                    7,282         5,070        (2,252)       (1,969)        1,676
Earnings (loss) attributable to common shares        6,879         5,070        (2,252)       (1,969)        1,676
Net cash flows provided by (used in)
  operating activities                              15,650         9,674           121        (2,075)        2,472
Net cash flows used in investing activities        (17,885)         (583)       (1,369)       (3,674)       (3,080)
Net cash flows provided by (used in)
  financing activities                              14,173        (2,190)          140         2,799         5,243

Per share data:
Net income (loss) per common share - Diluted          0.38          0.28         (0.13)        (0.12)         0.11
Weighted average shares outstanding - Diluted       18,121        18,031        17,158        16,868        15,938

At Year End:
Total assets                                    $   83,287    $   21,025    $   14,301    $   15,199    $   16,528
Long term debt                                      16,542         3,083         5,016         4,891         2,299
Preferred stock                                     17,516            --            --            --            --
Stockholders' equity                                19,452        11,104         6,730         8,544        10,790
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

     The  following  discussion of the results of the  operations  and financial
condition  of the  Company  should  be read in  conjunction  with the  Company's
Consolidated  Financial  Statements and Notes thereto included elsewhere in this
report.  Historical results and percentage  relationships among accounts are not
necessarily an indication of trends in operating results for any future period.

     CRITICAL ACCOUNTING POLICIES

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

     Management  believes  that  the  estimates  and  assumptions  that are most
important to the portrayal of the Company's  financial  condition and results of
operations,  in that they require  management's  most  difficult,  subjective or
complex judgments,  form the basis for the accounting policies deemed to be most
critical to the Company. These critical accounting policies relate to impairment
of intangible assets and long lived assets,  reserves related to title insurance
and escrow  losses,  determination  of fair values of fixed  maturity  bonds and
equity securities, and contingencies and litigation.  Management performs a test
of each  reporting  unit for which  goodwill is  attributed  to evaluate for any
impairment of intangible  assets at least annually.  This includes,  among other

                                       12
<PAGE>
things, a review of events or  circumstances  which would indicate an impairment
of goodwill.  Future losses from reporting  units that goodwill is attributed to
may lead to an  impairment  charge  in future  periods.  When  evaluating  title
insurance and escrow losses  management  estimates  reserves for known claims as
well as a  provision  for  incurred  but not  reported  losses  based on several
factors including,  but not limited to, historical loss experience,  and current
industry and legal environments.  Management  determines the fair value of fixed
maturity  bonds  and  equity  securities  by  obtaining  quoted  market  prices.
Contingencies and litigation are reviewed by management on an ongoing basis and,
in conjunction with legal counsel,  determinations are made as to the outcome of
any  lawsuits  and  advice of claims.  Based on this  assessment,  any  required
reserves  are  reflected  in  the  Company's  financial  statements.  Management
believes estimates and assumptions related to these critical accounting policies
are  appropriate  under the  circumstances;  however,  should  future  events or
occurrences  result in  unanticipated  consequences,  there  could be a material
impact on the Company's future financial condition or results of operations.

OVERVIEW

     The Company is engaged in the business of issuing title insurance  policies
and  performing  other  title-related  services,  such as escrow  activities  in
connection with real estate transactions.  Operating results in 2002 reflect the
acquisition  of  Nations,  effective  September  1,  2002.  As a  result  of the
acquisition of Nations, the Company also underwrites title insurance policies in
California and Arizona.

     Capital  Title  Group,  Inc.  reported  net income of $7.3 million and $5.1
million for the years ended December 31, 2002 and 2001,  respectively,  compared
to a net  loss of $2.3  million  for the  year  ended  December  31,  2000.  The
significant  improvement  in  earnings  was due in part  to the  acquisition  of
Nations  in  September  2002,  a strong  housing  market  and a record  level of
refinance transactions resulting from low mortgage interest rates.

TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS OF OPERATIONS

     In April 2002,  the Company  increased its presence in northern  California
with the  acquisition  of five  branch  offices  that  perform  title and escrow
services  in the  counties  of  Santa  Clara,  San  Mateo  and  Sacramento.  The
acquisition  also  included  ownership  interest in joint title plants for these
counties and had a total  purchase  price of  approximately  $4.3  million.  The
acquisition  was accounted for using the purchase  method and the  operations of
these branch  offices have been  integrated  into New Century Title  Company,  a
wholly-owned subsidiary of the Company.

     In September 2002, the Company acquired Nations, including its wholly-owned
subsidiaries of United Title Company,  First California Title Company and United
Title Insurance Company, among other subsidiaries. The purchase price, including
direct  transaction costs was approximately  $37.2 million and was accounted for
using the purchase method.

     Included  in  the  results  of  operations   during  2002  was  revenue  of
approximately  $35.7 million and pre-tax income of $1.0 million related to these
two acquisitions.

                                       13
<PAGE>
RESULTS OF OPERATIONS

     The following table sets forth, for the periods  indicated,  the components
of the Company's  revenue and expenses  along with the  percentage  they bear to
total revenue:

<TABLE>
<CAPTION>
                                                        For The Years Ended December 31,
                                --------------------------------------------------------------------------------
                                   2002           %            2001           %            2000           %
                                ----------    ----------    ----------    ----------    ----------    ----------
                                                ($ in thousands, except revenue per order data)
<S>                             <C>           <C>           <C>           <C>           <C>           <C>
Title service revenue, net      $   81,239          63.6%   $   41,161          63.9%   $   22,628          61.3%
Escrow and related fees             42,632          33.4        20,468          31.8        11,447          31.0
Other income                         3,840           3.0         2,807           4.3         2,823           7.7
                                ----------    ----------    ----------    ----------    ----------    ----------
                                $  127,711         100.0%   $   64,436         100.0%   $   36,898         100.0%
                                ==========    ==========    ==========    ==========    ==========    ==========

Personnel costs                 $   79,149          62.0%   $   38,976          60.4%   $   25,467          69.0%
Rent                                 7,936           6.2         4,226           6.6         3,298           8.9
Interest expense                       443           0.4           277           0.4           335           0.9
Provision for title insurance
  and escrow losses                  3,176           2.4           540           0.9           105           0.4
Other operating expenses            24,724          19.4        14,579          22.6         9,978          27.0
                                ----------    ----------    ----------    ----------    ----------    ----------
                                $  115,428          90.4%   $   58,598          90.9%   $   39,183         106.2%
                                ==========    ==========    ==========    ==========    ==========    ==========

Opened orders                      185,349                     110,620                      49,616
Closed orders                      122,471                      69,320                      33,789
Average revenue per
  closed order                  $    1,011                  $      889                  $    1,008
</TABLE>

     FISCAL 2002 COMPARED TO FISCAL 2001

     The  Company's  revenues  increased by $63.3  million or 98.2% for the year
ended  December 31, 2002 as compared to the year ended  December  31, 2001.  The
increase is primarily  attributable  to the  acquisition of Nations in September
2002, a favorable real estate and refinance market, the Company's  expansion and
increased market share.

     On a proforma basis, assuming the Company had acquired Nations and the five
branch offices in northern  California  effective January 1, 2001, the Company's
revenues  would have  increased by $60.1 million or 51.3% to $177.3  million for
the year ended December 31, 2002 from $117.2 million for the year ended December
31, 2001.

     The  Company's  revenue from title  insurance  and escrow fees is primarily
from three sources:  residential  resale,  lender/refinance  and commercial real
estate transactions. The Company's marketing plan is to have the majority of the
Company's  title and  escrow  revenue be derived  from the resale  business  and
lender transactions.  Historically, the resale business has been more consistent
and less subject to fluctuations than commercial, new home sales, or refinancing
segments of the market. The commercial,  new home sales and refinancing segments
tend to be more influenced by interest rates and other economic conditions.

     The increase in open orders in 2002 compared to the prior year reflects the
favorable  residential  mortgage  refinance and resale  environment  experienced
during 2002 as well as the result of  including  Nations'  order  counts for the
final four months of 2002.  The Company  experienced  an increase in the average
fee per  closed  order  during  2002  when  compared  to the  prior  year due to
increases in property  values in the Company's  markets and, to a lesser extent,
due to increases in fees charged for title and escrow services.

     Title  service revenue is net of  underwriting  fees paid pursuant to title
insurance  underwriting  agreements  the  Company has with five  national  title

                                       14
<PAGE>
companies.  Underwriting fees were approximately $5.4 million,  $4.4 million and
$2.5 million for the years ended December 31, 2002, 2001 and 2000, respectively.

     Other  income  decreased  as a  percentage  of  revenue  in the year  ended
December 31, 2002 to 3.0% from 4.3% in 2001. This decrease was the result of the
larger  increase to revenue  resulting from title service revenue and escrow and
related  fees.  The  increase  in other  income  overall  was  primarily  due to
additional operations resulting from the acquisition of Nations.

     Personnel  costs,  including  commissions  and  incentives,  are  the  most
significant component of the Company's operating expenses.  The number of people
employed by the Company  increased  from 710 as of December 31, 2001 to 1,679 as
of December 31, 2002.  The increase is primarily  due to  additional  operations
resulting from the  acquisition of Nations in September 2002. For the year ended
December 31, 2002,  personnel  costs  including  commissions and incentives were
62.0% of total  revenue  compared  to 60.4% of total  revenue for the year ended
December 31, 2001.  The  increase in  personnel  costs as a percentage  of total
revenue is the result of an increase in the number of  employees  in  geographic
markets that require higher compensation.

     Rent  expense  decreased  as a  percentage  of  revenue  in the year  ended
December 31, 2002 to 6.2% from 6.6% in 2001. This decrease was the result of the
relatively fixed nature of these costs coupled with the increase in revenue. The
increase in rent  expense  overall is the result of the increase in offices from
58 as of  December  31,  2001  to  116 in  2002,  primarily  due  to  additional
operations resulting from the acquisition of Nations.

     Provision for title  insurance and escrow losses  increased as a percentage
of revenue in the year ended  December 31, 2002 to 2.4% from 0.9% in 2001.  This
increase  was  primarily a result of the  inclusion  of United  Title  Insurance
Company,  a title  insurance  underwriter,  in the 2002  operating  results as a
result of the Nations  acquisition.  In addition,  the Company  experienced a $1
million loss resulting from providing  title and escrow  services to a developer
which later filed for bankruptcy protection.

     The significant  components of other operating  expenses include  supplies,
utilities, insurance,  depreciation, title plant maintenance and access, postage
and  professional  fees. Other operating  expenses  decreased as a percentage of
total  revenue  to 19.4% in 2002  from  22.6% in  2001.  While  other  operating
expenses grew in 2002, primarily due to additional operations resulting from the
Nations  acquisition and other branch openings,  the decrease in other operating
expenses as a percentage of total revenue was the result of the fixed components
of these costs coupled with the increase in revenue.

     Interest  expense  increased  to $0.4  million  for 2002  compared  to $0.3
million  for 2001  primarily  as a result of a $14.0  million  term loan used to
partially fund the Nations acquisition.

     Income tax expense of $5.0 million was recorded for the year ended December
31, 2002 at an  effective  tax rate of 40.7%,  which  closely  approximates  the
statutory income tax rate for corporations. Income tax expense for 2001 was $0.8
million, or an effective rate of 13.1%,  resulting from the utilization of prior
year tax loss carryforwards.

FISCAL 2001 COMPARED TO FISCAL 2000

     The  Company's  revenues  increased by $27.5  million or 74.6% for the year
ended  December 31, 2001 as compared to the year ended  December  31, 2000.  The
increase is  primarily  attributable  to a favorable  real estate and  refinance
market, the Company's  expansion and increased market share. The decrease during
2001 in the revenue  per closed  order  resulted  from an increase in the mix of
refinance orders, which have lower fee per order than the Company's  residential
resale orders.

     Title  service revenue is net of  underwriting  fees paid pursuant to title
insurance  underwriting  agreements  the  Company has with five  national  title
companies.  Underwriting fees were approximately $4.4 million,  $2.5 million and
$2.2 million for the years ended December 31, 2001, 2000 and 1999, respectively.

                                       15
<PAGE>
     Personnel  costs,  including  commissions  and  incentives,  are  the  most
significant component of the Company's operating expenses.  The number of people
employed  by the  Company  increased  from 493 on  December  31,  2000 to 710 on
December  31,  2001.  For the year ended  December  31,  2001,  personnel  costs
including  commissions  and incentives  were 60.4% of total revenue  compared to
69.0% of total revenue for the year ended December 31, 2000. This decrease was a
result of higher productivity coupled with the increase in revenue.

     Rent  expense  decreased  as a  percentage  of  revenue  in the year  ended
December 31, 2001 to 6.6% from 8.9% in 2000. This decrease was the result of the
relatively fixed nature of these costs coupled with the increase in revenue.

     Provision for title  insurance and escrow losses  increased as a percentage
of revenue in the year ended  December 31, 2001 to 0.9% from 0.4% in 2000.  This
increase  was  primarily a result in an  increase in the mix of title  insurance
business in relation to total revenue.

     The significant  components of other operating  expenses include  supplies,
utilities, insurance,  depreciation, title plant maintenance and access, postage
and  professional  fees. Other operating  expenses  decreased as a percentage of
total revenue to 22.6% in 2001 from 27.0% in 2000.  This decrease was the result
of cost  containment  efforts and the  relatively  fixed nature of many of these
expenses in relation to the overall increase in revenues.

     An income tax  provision  of $0.8  million was  recorded for the year ended
December 31, 2001. The availability of net operating loss carryforwards resulted
in a much lower tax provision in 2001 than would be expected  based on statutory
income tax rates. No provision was recorded for 2000 as a result of the net loss
reported that year. As of December 31, 2001,  the Company had fully utilized its
net operating loss carryforward.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company  requires  capital to expand its  geographical  base,  further
implement its market  penetration  program,  recruit and train new personnel and
purchase  additional  property and equipment to implement its expansion program.
During the year ended December 31, 2002, the Company  financed its operating and
business development activities through operating cash flows and through the use
of cash on hand. The Company funded its  acquisition of Nations  through a seven
year term loan,  cash,  issuance of preferred stock and issuance of warrants for
common stock.

     The  Company has two $3.0  million  revolving  lines of credit,  which bear
interest on any  outstanding  balance at the prime rate  (4.25% at December  31,
2002).  (See  Quantitative  and  Qualitative  Disclosure  About Market Risk). At
December  31,  2002,  there were no cash draws  against  either of these  credit
facilities.  There is $75,000  committed  against one of the credit  lines for a
standby letter of credit  pursuant to an office lease.  These credit  facilities
mature in May 2003, but the Company  anticipates  renewing these lines of credit
for an additional one-year term.

     Cash flows provided by operating activities were $15.6 million for the year
ended December 31, 2002 compared to cash flows provided by operating  activities
of $9.7  million in 2001.  The increase in 2002 was  primarily  the result of an
improvement  in  operating  results with net income of $7.3 million for the year
ended  December  31, 2002  compared  to net income of $5.1  million in the prior
year.  Additionally,  an increase in accounts payable and accrued expenses,  and
non-cash items such as  depreciation  and increased loss reserves also increased
cash flow from  operating  activities  compared to the prior year. The principal
non-operating  uses of cash for the year  ended  December  31,  2002 were  $14.1
million  related to  acquisitions  and $3.8 million for property and  equipment.
Other sources of non-operating cash for 2002 came from a seven year term loan of
$14.0 million which was utilized to partially fund the acquisition of Nations.

                                       16
<PAGE>
     In September  2001,  the  Company's  Board of Directors  authorized a stock
repurchase  program of up to one million shares of its outstanding common stock.
During 2002, a total of 362,637 shares were repurchased under this program,  all
of which were  cancelled.  In total 696,533 shares have been  repurchased  under
this program at prices ranging from $1.97 to $2.30 per share.

     The Company is the custodian of cash  deposited by customers  with specific
instructions  as to its  disbursement  from  active  escrow,  trust and  account
servicing  files. The balances in these accounts have not been included in these
consolidated financial statements. As of December 31, 2002, the accounts contain
balances  of  approximately  $727.6  million.  In the  case of a loss in  escrow
accounts, the Company has financial exposure for these balances.

     The Company's  future debt and lease  obligations are summarized by year as
follows ($ in thousands):

                                              Payments due by period
                                  ---------------------------------------------
                                  less than                           more than
Contractual Obligations           one year    1-3 years   3-5 years    5 years
-----------------------           --------    ---------   ---------    -------

Debt maturities                   $ 2,032     $ 6,113     $ 8,397      $    --

Minimum lease
commitments                         7,660      14,303       3,214        4,881
                                  -------     -------     -------      -------
Total                             $ 9,692     $20,416     $11,611      $ 4,881
                                  =======     =======     =======      =======

     In addition, the Company has preferred stock which is redeemable after 2023
for $17.516  million.  The preferred stock has an 8% cumulative  dividend,  paid
quarterly.

     Management believes that cash on hand, anticipated future cash receipts and
borrowings  available under its credit facilities will be sufficient to meet the
Company's  expansion plans and to pay all obligations as they become due for the
next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 141,  BUSINESS  COMBINATIONS,  and Statement No. 142, GOODWILL AND
OTHER  INTANGIBLE  ASSETS.  Statement 141 requires  that the purchase  method of
accounting be used for all business combinations  initiated after June 30, 2001.
Statement 141 also specifies  criteria  intangible assets acquired in a purchase
method business  combination  must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be  accounted  for  separately.  Statement  142 requires  that  goodwill and
intangible  assets with  indefinite  useful  lives no longer be  amortized,  but
instead  tested  for  impairment  at  least  annually  in  accordance  with  the
provisions of Statement 142.

                                       17
<PAGE>
     The following table presents prior period income and income per share as if
the  nonamortization  provisions  of Statement 142 had been applied in the prior
period:

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                     ------------------------------------
                                                       2002          2001          2000
                                                     --------      --------      --------
                                                     (in thousands, except per share data)
<S>                                                  <C>           <C>           <C>
Reported earnings attributable to common shares      $  6,879      $  5,070      $ (2,252)
Add back goodwill amortization                             --            13            13
                                                     --------      --------      --------
Adjusted earnings attributable to common shares      $  6,879      $  5,083      $ (2,239)

Diluted income per share:
Reported income per share                            $   0.38      $   0.28      $  (0.13)
Add back goodwill amortization                             --            --            --
                                                     --------      --------      --------
Adjusted earnings attributable common shares         $   0.38      $   0.28      $  (0.13)
                                                     ========      ========      ========
</TABLE>

     The  Company  was  required  to  adopt  the  provisions  of  Statement  141
immediately  and  Statement  142  effective  January 1, 2002.  Furthermore,  any
goodwill and any intangible asset  determined to have an indefinite  useful life
that is acquired in a purchase  business  combination  completed  after June 30,
2001 will not be amortized,  but will continue to be evaluated for impairment in
accordance with the appropriate  pre-Statement 142 accounting literature.  As of
December 31,  2002,  the Company had $18.8  million of goodwill,  which has been
evaluated in  accordance  with  Statement  142 and no  impairment  adjustment is
warranted at this time.

     In  June  2001,  the  FASB  issued  Statement  No.  143,  ASSET  RETIREMENT
OBLIGATIONS,  which addresses financial accounting and reporting for obligations
associated with the retirement of tangible  long-lived assets and the associated
asset  retirement  costs.  Statement  No.  143 is  effective  for  fiscal  years
beginning after June 15, 2002, although earlier  application is encouraged.  The
adoption of this statement  effective  January 1, 2002 did not have any material
impact on the Company's financial position, results of operations or liquidity.

     In October  2001,  the FASB issued  Statement No. 144,  ACCOUNTING  FOR THE
IMPAIRMENT  OR  DISPOSAL  OF  LONG-LIVED  ASSETS,   which  addresses   financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
While  Statement  No. 144  supersedes  Statement  No.  121,  ACCOUNTING  FOR THE
IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it
retains many of the fundamental provisions of that Statement.

     Statement No. 144 also  supersedes the accounting and reporting  provisions
of APB  Opinion  No. 30,  Reporting  the  Results of  Operations--Reporting  the
Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a  business.  However,  it retains the  requirement  in Opinion No. 30 to report
separately  discontinued operations and extends that reporting to a component of
an entity  that  either  has been  disposed  of (by sale,  abandonment,  or in a
distribution  to owners) or is classified  as held for sale.  By broadening  the
presentation of discontinued  operations to include more disposal  transactions,
the FASB has enhanced  management's  ability to provide  information  that helps
financial statement users to assess the effects of a disposal transaction on the
ongoing operations of an entity. Statement No. 144 is effective for fiscal years
beginning  after December 15, 2001 and the adoption of this statement on January
1, 2002 did not have any material  impact on the Company's  financial  position,
results of operations or liquidity.

     In April  2002,  the FASB issued  Statement  No.  145,  RESCISSION  OF FASB
STATEMENTS NO. 4, 44, AND 64,  AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS,  which rescinds and amends the  aforementioned  FASB Statements and
amends other existing  authoritative  pronouncements  to make various  technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  Statement No. 145 is effective for fiscal years beginning after May
15, 2002. Management is evaluating this accounting standard but does not believe
that  adopting  this  Statement  will have a  material  impact on the  Company's
consolidated financial statements.

                                       18
<PAGE>
     In June 2002,  the FASB  issued  Statement  No. 146,  ACCOUNTING  FOR COSTS
ASSOCIATED  WITH  EXIT  OR  DISPOSAL   ACTIVITIES,   which  addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain  Costs  Incurred in  Restructuring)."  Statement  No. 146 is
effective for exit or disposal  activities that are initiated after December 31,
2002,  with  early  application   encouraged.   Management  is  evaluating  this
accounting  standard but does not believe that adopting this Statement will have
a material impact on the Company's consolidated financial statements.

     In October 2002, the FASB issued Statement No. 147, ACQUISITIONS OF CERTAIN
FINANCIAL INSTITUTIONS - AN AMENDMENT OF FASB STATEMENTS NO. 72 AND 144 AND FASB
INTERPRETATION  NO.  9.  Except  for  transactions  between  two or more  mutual
enterprises,  this Statement removes acquisitions of financial institutions from
the scope of both  Statement No. 72 and  Interpretation  No. 9 and requires that
those  transactions  be accounted for in accordance with FASB Statements No. 141
and No. 142. Statement No. 147 is effective for acquisitions on or after October
1, 2002.  Management has evaluated this accounting standard but does not believe
application  of this  standard  would  have a material  impact on the  Company's
consolidated financial statements.

     In  November  2002,  the FASB  issued  Interpretation  No. 45,  GUARANTOR'S
ACCOUNTING  AND  DISCLOSURE  REQUIREMENTS  FOR  GUARANTEES,  INCLUDING  INDIRECT
GUARANTEES OF INDEBTEDNESS TO OTHERS,  AND INTERPRETATION OF FASB STATEMENTS NO.
5, 57 AND 107 AND A RECISSION OF FASB INTERPRETATION NO. 43. This Interpretation
elaborated  on the  disclosures  to be made by a  guarantor  in its  interim and
annual financial  statements about its obligations under guarantees  issued. The
Interpretation  also  clarifies  that a guarantor is required to  recognize,  at
inception  of a  guarantee,  a  liability  for the fair value of the  obligation
undertaken.   The  initial   recognition  and  measurement   provisions  of  the
Interpretation  are  applicable to guarantees  issued or modified after December
31,  2002  and are not  expected  to have a  material  effect  on the  Company's
financial  statements.  The disclosure  requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002.

     In  December  2002,  the FASB issued  Statement  No.  148,  ACCOUNTING  FOR
STOCK-BASED  COMPENSATION  - TRANSITION  AND  DISCLOSURE,  AND AMENDMENT OF FASB
STATEMENT NO. 123. This Statement amends FASB Statement No. 123,  ACCOUNTING FOR
STOCK-BASED  COMPENSATION,  to provide  alternative  methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation.  In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require  prominent  disclosures  in both annual and interim
financial statements.  Certain of the disclosure  modifications are required for
fiscal  years  ending  after  December 15, 2002 and are included in the notes to
these consolidated financial statements.

     In January 2003, the FASB issued  Interpretation  No. 46,  CONSOLIDATION OF
VARIABLE   INTEREST   ENTITIES,   AND   INTERPRETATION   OF  ARB  NO.  51.  This
Interpretation  addresses the consolidation by business  enterprises of variable
interest entities as defined in the Interpretation.  The Interpretation  applies
immediately to variable  interests in variable  interest  entities created after
January 31,  2003,  and to variable  interests  in  variable  interest  entities
obtained after January 31, 2003. For public enterprises with a variable interest
in  a  variable   interest   entity  created   before   February  1,  2003,  the
Interpretation  applies to that  enterprise  no later than the  beginning of the
first interim or annual  reporting  period  beginning  after June 15, 2003.  The
application of this  Interpretation  requires  certain  disclosures in financial
statements  issued after January 31, 2003 if it is reasonably  possible that the
Company  will  consolidate  or  disclose  information  about  variable  interest
entities when the Interpretation becomes effective.

FORWARD-LOOKING STATEMENTS

     This  Annual   Report  on  Form  10-K  contains   certain   forward-looking
statements. The forward-looking statements contained herein are based on current

                                       19
<PAGE>
expectations  that involve a number of risks and  uncertainties.  Among  others,
these  forward-looking  statements are based on  assumptions  that (a) volume of
real estate transactions in the Company's market areas will remain at sufficient
levels to  support  the  Company's  business,  (b) the  Company  will be able to
successfully  integrate  acquired  businesses  and  the  results  of  operations
therefrom will support the  acquisition  price,  (c) the Company will be able to
retain,  and when needed,  add key personnel,  (d) the Company's  forecasts will
accurately  anticipate  market  demand,  (e) there will be no  material  adverse
changes in the Company's existing operations and (f) the Company will be able to
obtain  sufficient  equity or debt funding to increase its capital  resources by
the amount needed for new business acquisitions,  if any. Assumptions related to
the foregoing  involve  judgments  with respect to, among other  things,  future
economic,  competitive and market conditions, and future business decisions, all
of which are beyond the control of the Company.  Although  the Company  believes
that the assumptions  underlying the forward-looking  statements are reasonable,
any of the assumptions  could prove inaccurate and,  therefore,  there can be no
assurance that the results  contemplated in  forward-looking  statements will be
realized. In addition, the business and operations of the Company are subject to
substantial   risks,   which   increase   the   uncertainty   inherent  in  such
forward-looking  statements.  In light of the significant uncertainties inherent
in the  forward-looking  information  included  herein,  the  inclusion  of such
information  should not be regarded as a representation  by the Company,  or any
other person, that the Company's plans or objectives will be achieved.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The  Company's  business  is cyclical  due to the effect of  interest  rate
fluctuations  on the level of real  estate  activity.  Periods of high  interest
rates  adversely  effect real estate  activity  and  therefore  title and escrow
revenues. In addition, the amount of interest income derived from available cash
is subject to interest rate fluctuations. The Company's investment portfolio and
borrowings  are  subject to  interest  rate risk.  An  increase  or  decrease in
prevailing  interest  rates  typically  translate into a decrease or increase in
fair values of interest sensitive financial instruments.

     At December  31,  2002,  the  carrying  amounts  reported in the  Company's
consolidated   balance  sheets  for  cash  and  cash  equivalents,   short  term
investments,  fixed maturity bonds and equity securities,  accounts  receivable,
accounts payable and debt approximate fair value.  Fair values of fixed maturity
bonds  may be  affected  by the  credit  worthiness  of the  issuer,  prepayment
options,  relative  values of  alternative  investments,  the  liquidity  of the
security and other  general  market  conditions.  The Company's  investments  in
equity  securities  are based on quoted  market  prices by third party  sources.
Market prices are subject to variability and as a result, the amount the Company
may realize  from a sale of an equity  security  investment  may  ultimately  be
significantly  different than the reported market values.  Variability in market
prices may occur as a result of changes in economic  conditions,  relative price
of similar,  alternative investment choices and the market's perceived change in
the value of the security itself.

     The Company's  long-term debt is comprised of two term loans,  one of which
provides for a variable interest rate. Had interest rates increased  (decreased)
100 basis points,  interest  expense on  outstanding  debt would have  increased
(decreased) approximately $40,600 for the year ended December 31, 2002.

                                       20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS

                          INDEPENDENT AUDITORS' REPORT

Stockholders and Board of Directors
Capital Title Group, Inc.:

     We have audited the  accompanying  consolidated  balance  sheets of Capital
Title Group,  Inc. and  subsidiaries  (the  Company) as of December 31, 2002 and
2001,  and the related  consolidated  statements  of  operations,  stockholders'
equity  and  comprehensive  income,  and cash flows for each of the years in the
three-year  period  ended  December  31,  2002.  These  consolidated   financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of the Company
as of December 31, 2002 and 2001, and the results of their  operations and their
cash flows for each of the years in the  three-year  period  ended  December 31,
2002, in conformity with accounting  principles generally accepted in the United
States of America.

     As  discussed  in  note 1 to the  consolidated  financial  statements,  the
Company  adopted the provisions of Statement of Financial  Accounting  Standards
(SFAS) No. 141,  "Business  Combinations" and SFAS No. 142,  "Goodwill and Other
Intangible Assets" which changed the Company's method of accounting for goodwill
and other intangible assets effective January 1, 2002.

                                        /s/ KPMG LLP

Phoenix, Arizona
March 3, 2003

                                       21
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   December 31,
                                                             ------------------------
                                                                2002          2001
                                                             ----------    ----------
                                                                 ($ in thousands)
<S>                                                          <C>           <C>
ASSETS
  Cash and cash equivalents                                  $   19,615    $    7,677
  Short term investments                                          1,150            --
  Restricted cash                                                 2,130            --
  Fixed maturity bonds, available-for-sale                        7,416            --
  Equity securities, available-for-sale                           2,956            --
                                                             ----------    ----------
    Cash and invested assets                                     33,267         7,677

  Accounts receivable, net                                        3,998           463
  Notes and other receivables                                     2,316           309
  Property and equipment, net                                    16,279        10,075
  Title plant                                                     3,853           678
  Goodwill                                                       18,835           205
  Deposits and other assets                                       4,739         1,281
  Deferred income taxes, net                                         --           337
                                                             ----------    ----------
       Total Assets                                          $   83,287    $   21,025
                                                             ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

  Accounts payable and accrued expenses                      $   22,386    $    5,696
  Reserve for title insurance and escrow losses                   6,450           524
  Long-term debt                                                 16,542         3,083
  Deferred income taxes, net                                        253            --
  Other liabilities                                                 688           618
                                                             ----------    ----------
       Total Liabilities                                         46,319         9,921

Redeemable preferred stock, 8% cumulative dividend,
  redeemable after 2023 for redemption value of
  $100 per share, $.001 par value, 10,000,000
  shares authorized, 175,162 shares issued and
  outstanding in 2002                                            17,516            --

Stockholders' Equity:
  Common stock, $.001 par value, 50,000,000 shares
    authorized; 17,923,968 and 17,065,381 shares
    issued and outstanding in 2002 and 2001, respectively            18            17
  Additional paid-in capital                                     12,560        10,911
  Retained earnings                                               6,616           176
  Accumulated other comprehensive income                            258            --
                                                             ----------    ----------
       Total Stockholders' Equity                                19,452        11,104
                                                             ----------    ----------
              Total Liabilities and Stockholders' Equity     $   83,287    $   21,025
                                                             ==========    ==========
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                       22
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              Years ended December 31,
                                                    --------------------------------------------
                                                        2002            2001            2000
                                                    ------------    ------------    ------------
                                                      ($ in thousands, except per share data)
<S>                                                 <C>             <C>             <C>
REVENUE:
  Title service revenue, net                        $     81,239    $     41,161    $     22,628
  Escrow and related fees                                 42,632          20,468          11,447
  Other income                                             3,840           2,807           2,823
                                                    ------------    ------------    ------------
       Total Revenue                                     127,711          64,436          36,898
                                                    ------------    ------------    ------------

EXPENSES:
  Personnel costs                                         79,149          38,976          25,467
  Rent                                                     7,936           4,226           3,298
  Interest expense                                           443             277             335
  Provision for title insurance and escrow losses          3,176             540             105
  Other operating expenses                                24,724          14,579           9,978
                                                    ------------    ------------    ------------
       Total Expenses                                    115,428          58,598          39,183
                                                    ------------    ------------    ------------

  Income (loss) before income taxes                       12,283           5,838          (2,285)

  Income tax expense (benefit)                             5,001             768             (33)
                                                    ------------    ------------    ------------

  Net income (loss)                                        7,282           5,070          (2,252)

  Dividends on preferred stock                               403              --              --
                                                    ------------    ------------    ------------
Earnings (loss) attributable to common shares       $      6,879    $      5,070    $     (2,252)
                                                    ============    ============    ============

  Net income (loss) per common share:
       Basic                                        $       0.39    $       0.29    $      (0.13)
                                                    ============    ============    ============
       Diluted                                      $       0.38    $       0.28    $      (0.13)
                                                    ============    ============    ============

  Weighted average shares outstanding:
       Basic                                          17,417,061      17,230,950      17,158,414
                                                    ============    ============    ============
       Diluted                                        18,121,419      18,031,252      17,158,414
                                                    ============    ============    ============
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                       23
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                 Common Stock                            Retained      Accumulated
                                          ---------------------------    Additional      Earnings         Other
                                                                          Paid-in      (Accumulated   Comprehensive
                                             Shares       Par Value       Capital        Deficit)         Income         Total
                                          ------------   ------------   ------------   ------------    ------------   ------------
                                                                             ($ in thousands)
<S>                                       <C>            <C>            <C>            <C>             <C>            <C>
Balance at December 31, 1999                16,947,901   $         17   $     10,667   $     (2,140)   $         --          8,544

  Shares issued in connection with
    options exercised                           20,500             --             18             --              --             18

  Shares issued in connection with
    a cost basis investment, net               424,448             --            420             --              --            420

  Net loss                                          --             --             --         (2,252)             --         (2,252)
                                          ------------   ------------   ------------   ------------    ------------   ------------
Balance at December 31, 2000                17,392,849             17         11,105         (4,392)             --          6,730

  Shares issued in connection with
    options exercised                          438,300             --            458             --              --            458

  Shares cancelled in connection with
    rescission of cost basis investment
    and return of escrowed shares
    from a 1998 acquisition                   (431,872)            --           (439)            --              --           (439)

  Shares repurchased and cancelled            (333,896)            --           (213)          (502)             --           (715)

  Net income                                        --             --             --          5,070              --          5,070
                                          ------------   ------------   ------------   ------------    ------------   ------------
Balance at December 31, 2001                17,065,381             17         10,911            176              --         11,104

  Shares issued in connection with
    options and warrants                     1,131,543              1          1,567             --              --          1,568

  Shares issued in connection with
    acquisition of a subsidiary                 89,681             --            197             --              --            197

  Warrants issued in connection with
    acquisition of a subsidiary                     --             --            213             --              --            213

  Shares repurchased and cancelled            (362,637)            --           (328)          (439)             --           (767)

  Dividends on preferred stock                      --             --             --           (403)             --           (403)

  Comprehensive income:
  Net income                                        --             --             --          7,282              --          7,282
  Change in unrealized gain
    on investments available-for-sale,
    net of tax effect of $133                       --             --             --             --             258            258
                                                                                                                      ------------
  Comprehensive income:                                                                                                      7,540
                                          ------------   ------------   ------------   ------------    ------------   ------------
Balance at December 31, 2002                17,923,968   $         18   $     12,560   $      6,616    $        258   $     19,452
                                          ============   ============   ============   ============    ============   ============
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                       24
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                            --------------------------------------
                                                               2002          2001          2000
                                                            ----------    ----------    ----------
                                                                       ($ in thousands)
<S>                                                         <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                           $    7,282    $    5,070    $   (2,252)
Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
  Depreciation and amortization                                  3,073         1,982         1,679
  Benefit for deferred income taxes                               (722)         (337)          (40)
Increase (decrease) in cash resulting from changes in:
  Accounts receivable                                           (1,317)         (102)         (250)
  Notes and other receivables                                   (1,005)           94           (62)
  Deposits and other assets                                     (1,086)         (713)          217
  Accounts payable and accrued expenses                          6,929         3,420           861
  Reserve for title insurance and escrow losses                  2,401           287            57
  Other liabilities                                                 95           (27)          (89)
                                                            ----------    ----------    ----------
Net Cash Flows provided by Operating Activities                 15,650         9,674           121
                                                            ----------    ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net additions to property and equipment                       (3,796)       (2,179)       (1,417)
  Proceeds from sale of property and equipment                      --         1,749            --
  Purchase of title plant                                           --          (156)           --
  Purchase of subsidiaries, net of acquired cash               (13,801)           --            --
  Purchase of investment securities                             (2,713)           --            --
  Sales of investment securities                                   732            --            --
  Collection of notes receivable                                 1,693             3            48
                                                            ----------    ----------    ----------
Net Cash Flows used in Investing Activities                    (17,885)         (583)       (1,369)
                                                            ----------    ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings                                                    14,000          (900)          400
  Repayment of debt                                               (541)       (1,033)         (274)
  Proceeds from the issuance of common stock, net                1,765           458            14
  Purchase of treasury stock                                      (767)         (715)           --
  Payment of preferred dividends                                  (284)           --            --
                                                            ----------    ----------    ----------
Net Cash Flows provided by (used in) Financing Activities       14,173        (2,190)          140
                                                            ----------    ----------    ----------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                   11,938         6,901        (1,108)

CASH AND CASH EQUIVALENTS
  AT THE BEGINNING OF THE YEAR                                   7,677           776         1,884
                                                            ----------    ----------    ----------
CASH AND CASH EQUIVALENTS
  AT THE END OF THE YEAR                                    $   19,615    $    7,677    $      776
                                                            ==========    ==========    ==========
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements

                                       25
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     NATURE OF OPERATIONS:

Capital Title Group, Inc. (the "Company"),  a Delaware corporation,  through its
subsidiaries, is engaged in the business of issuing title insurance policies and
performing other title-related services, such as escrow activities in connection
with real estate transactions.  The Company is the parent holding company of the
following subsidiaries:

Capital Title Agency,  Inc. ("Capital Title") is an Arizona  corporation,  which
has operated under the authority of the Arizona State Banking  Commission  since
November 1981. Capital Title is an independent title agency that provides escrow
services  and issues  title  insurance  policies to the real estate  industry in
Maricopa, Yavapai, Mohave and Pinal Counties in Arizona. Capital Title currently
operates 37 offices located throughout Maricopa,  Yavapai and Mohave Counties in
Arizona.

New Century  Title  Company  ("New  Century"),  a  California  corporation  that
commenced  operations in July 1998, is an independent title agency that provides
escrow and title  services  to the real estate  industry in selected  California
counties.  New Century currently has 17 offices in southern  California where it
is licensed to conduct business in San Diego, Orange,  Riverside, San Bernardino
and  Los  Angeles  Counties.   New  Century  also  has  operations  in  northern
California,  which it obtained by  acquisition  in November  1998,  and expanded
through  another  acquisition  in April  2002.  New  Century  has 20  offices in
northern  California,  where it is  licensed  to  conduct  business  in  Sonoma,
Sacramento, Contra Costa, Alameda, San Mateo and Santa Clara Counties.

Nations Holding Group  ("Nations"),  a California  corporation,  was acquired in
September 2002 and includes the following wholly-owned subsidiaries;

     United  Title  Company  ("United  Title"),  a California  corporation  that
     commenced  operations in 1978, is an independent title agency that provides
     escrow  and  title  services  to  the  real  estate  industry  in  southern
     California.  United  Title  currently  has 35 offices  serving Los Angeles,
     Riverside,  San Bernardino,  Orange,  San Diego,  Ventura and Santa Barbara
     Counties in California.

     First   California  Title  Company  ("First   California"),   a  California
     corporation  that commenced  operations in 1964 and was acquired by Nations
     in 1997, is an independent  title agency  serving the real estate  industry
     with  escrow  and  title  services  from  seven  offices  in  the  northern
     California Counties of Alameda and Contra Costa.

     United Title Insurance  Company  ("United Title  Insurance"),  a California
     domiciled title insurance underwriter, commenced operations in 1997. United
     Title  Insurance is the  predominant  underwriter for both United Title and
     First California and underwrites a portion of the title insurance  policies
     sold by Capital Title and New Century.

In January 2003, Nations acquired Land Title of Nevada,  Inc. ("Land Title"), an
independent title agency operating five offices in Clark County,  Nevada,  which
comprises the metropolitan area of Las Vegas. Land Title was established in 1978
and provides escrow and title services to the real estate industry.

                                       26
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     SIGNIFICANT ACCOUNTING POLICIES:

The accompanying  consolidated  financial statements include the accounts of the
Company  and its  wholly-owned  subsidiaries.  All  inter-company  accounts  and
transactions have been eliminated in consolidation.

     USE OF ESTIMATES:

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

Management  believes that the estimates and assumptions  that are most important
to the portrayal of the Company's financial condition and results of operations,
in  that  they  require  management's  most  difficult,  subjective  or  complex
judgments, form the basis for the accounting policies deemed to be most critical
to the Company.  These  critical  accounting  policies  relate to  impairment of
intangible assets and long lived assets, reserves related to title insurance and
escrow losses,  determination  of fair values of fixed maturity bonds and equity
securities, and contingencies and litigation.  Management believes estimates and
assumptions  related to these critical accounting policies are appropriate under
the  circumstances;  however,  should  future  events or  occurrences  result in
unanticipated  consequences,  there  could be a  material  impact on our  future
financial condition or results of operations.

     CASH AND CASH EQUIVALENTS:

Cash and cash equivalents  include all highly liquid investments  purchased with
an initial maturity of three months or less.

     ACCOUNTS RECEIVABLE:

Accounts receivable are reported, net of an allowance for doubtful accounts. The
allowance is established  based on management's  estimate  including a review of
individual accounts and the Company's collection history.

     INVESTMENTS:

Short  term  investments  consist  of  certificates  of  deposit  with  original
maturities of 91 days to one year.

Investments  in fixed  maturity  bonds and equity  securities  are classified as
available-for-sale  and, accordingly,  are carried at fair value. Fair values of
fixed maturity bonds and equity securities are based on quoted market prices.

                                       27
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Realized  gains and losses on  investments  are  determined  using the  specific
identification basis and are recognized on a trade-date basis.  Unrealized gains
and losses on  investments,  net of deferred income tax expense  (benefit),  are
excluded  from income and  included  as a separate  component  of  stockholders'
equity.  If unrealized  losses on  investments  are  determined to be other than
temporary during the reporting period, they are recognized as realized losses.

     REVENUE RECOGNITION:

Title premiums earned and title and escrow fees are recognized as revenue at the
time of closing the related real estate  transaction.  The Company reports title
service revenue net of underwriting fees paid pursuant to agreements the Company
has with third party title  insurance  underwriters.  Underwriting  fees for the
years ended December 31, 2002, 2001 and 2000 were $5.4 million, $4.4 million and
$2.5 million,  respectively.  Revenue from account  servicing and other fees are
recognized when the service is performed.

     PROPERTY AND EQUIPMENT:

Property  and  equipment  are  recorded at cost and are being  depreciated  on a
straight-line basis over the estimated useful lives of the related assets, which
range from three to forty  years.  Leasehold  improvements  are  amortized  on a
straight-line  basis over the lesser of the lease term or the  estimated  useful
lives of such assets.

     TITLE PLANT:

Title  plants are  recorded  at the cost  incurred  to  construct  and  organize
historical  title  information  to the  point  it can be used to  perform  title
searches.  Cost  incurred  to  maintain,  update and  operate  title  plants are
expensed as incurred.  Title plants are not amortized as they are  considered to
have an indefinite life if maintained.

     GOODWILL:

At  December  31,  2002,  goodwill  consisted  of cost in excess  of net  assets
acquired related to three acquisitions,  two of which occurred in 2002. Prior to
2002,  goodwill was amortized  ratably over twenty years.  Effective  January 1,
2002,  goodwill is no longer amortized,  but impairment of goodwill is monitored
for recoverability based on guidance set forth by Financial Accounting Standards
Board ("FASB") Statement No. 142.

     COMPREHENSIVE INCOME:

Comprehensive income consists of net income and net unrealized gains (losses) on
investments  and is presented in the  consolidated  statements of  stockholders'
equity and comprehensive income.

     IMPAIRMENT OF LONG-LIVED ASSETS:

The Company records  impairment  losses on long-lived  assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted  cash flows estimated to be generated by those assets are less than
the carrying  amounts of those assets.  As of December 31, 2002,  management has
not  identified any events or  circumstances  which indicate that any long-lived
assets are impaired.

                                       28
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     SELF INSURANCE:

The  Company's  subsidiaries,  Capital  Title and New  Century,  were  partially
self-insured  for their group health program for employees.  Under this program,
which was funded by employee and Company contributions,  the Company paid health
insurance  claims for  eligible  employees  up to $50,000 per  employee and a $2
million  aggregate  limit. A provision for incurred but not reported  claims was
recorded by monthly charges to the statements of operations  based on enrollment
date,  claims  experience and pending  claims.  As of December 31, and 2001, the
Company had accrued $0.6 million and $0.4  million,  respectively,  for incurred
but not  reported  claims,  which  is  included  with  accrued  expenses  on the
accompanying consolidated balance sheets. Effective January 1, 2003, the Company
no longer  has a  self-insurance  component  of its  group  health  program  for
employees.

     RESERVE FOR TITLE INSURANCE AND ESCROW LOSSES:

The Company's  reserve for title insurance  losses includes known claims as well
as a provision  of losses  expected to be  incurred,  net of  recoveries.  Known
claims are reserved  for,  based on a review of the claim  amount and  estimated
costs  associated with settling the claim.  The Company also reserves for claims
arising  from errors made during the escrow  process.  Reserves for claims which
are  incurred,  but not reported to the Company,  are recorded  based on several
factors including,  but not limited to, historical loss experience,  and current
industry and legal environments. The occurrence of a significant title or escrow
claim in any given period could have a material  adverse effect on the Company's
financial condition and results of operations during that period.

The Company also operates under agency agreements with various third party title
insurance companies.  In the event of a title insurance policy loss, under these
agreements, the Company is generally responsible for the first $5,000 of loss. A
provision  for future  title  losses is  maintained  by periodic  charges to the
statements  of  operations  based  on  historical  title  loss  experience.  The
acquisition of Nations  provided an increase to the reserve for title and escrow
losses particularly due to the addition of United Title Insurance.

     REINSURANCE:

In the  ordinary  course  of  business,  the  Company  reinsures  certain  title
insurance  risks with  another  insurer for the purpose of limiting  its maximum
loss exposure.  The Company cedes a portion of certain policy  liabilities under
an excess loss reinsurance agreement. Reinsurance agreements provide that in the
event of loss  (including  costs,  attorneys'  fees and expenses)  exceeding the
retained  amounts,  the  reinsurer  is liable  for the  excess  amount  assumed.
However,  the ceding company remains primarily liable in the event the reinsurer
does  not  meet   its   contractual   obligations.   Ceded   premiums,   expense
reimbursements,  and benefits are accounted for on a basis consistent with those
used in  accounting  for the  original  policies  issued  and the  terms  of the
reinsurance  contracts.  Premiums ceded have been reported as reduction of title
service revenue.

     INCOME TAXES:

The Company and its subsidiaries file consolidated  federal and state income tax
returns.  Deferred tax assets and  liabilities are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
basis, net of valuation allowances.

                                       29
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.

     STOCK OPTION PLAN:

The Company applies the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES,  and related  interpretations  including FASB  Interpretation No. 44,
ACCOUNTING  FOR  CERTAIN   TRANSACTIONS   INVOLVING  STOCK   COMPENSATION,   AND
INTERPRETATION  OF APB  NO.  25,  issued  in  March  2000,  to  account  for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant  only if the  current  market  price of the  underlying  stock
exceeded  the  exercise  price.   SFAS  No.  123,   ACCOUNTING  FOR  STOCK-BASED
COMPENSATION,   established  accounting  and  disclosure  requirements  using  a
fair-value-based  method of accounting  for  stock-based  employee  compensation
plans.  As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic-value-based  method of accounting described above, and has adopted
only  the  disclosure   requirements  of  SFAS  No.  123.  The  following  table
illustrates the effect on the net income of the fair-value-based method had been
applied to all outstanding and unvested awards in each period.

<TABLE>
<CAPTION>
                                                             2002        2001        2000
                                                           --------    --------    --------
<S>                                                        <C>         <C>         <C>
Earnings attributable to common shares                     $  6,879    $  5,070    $ (2,252)
Deduct pro forma total stock-based employee
  compensation determined under fair-value-based method
  for all rewards, net of tax                                  (402)       (354)       (686)
                                                           --------    --------    --------
     Pro forma earnings attributable to common shares      $  6,477    $  4,716    $ (2,938)
                                                           ========    ========    ========
Pro forma earnings attributable to common shares per
  share - basic                                            $   0.37    $   0.27    $  (0.17)

Pro forma earnings attributable to common shares per
  share - diluted                                          $   0.36    $   0.26    $  (0.17)
</TABLE>

Although not applicable in these  financial  statements,  in accordance with the
disclosure  requirements  of SFAS No.  123,  as amended by SFAS No.  148,  these
amounts only  indicate  awards  granted,  modified or settled in fiscal  periods
beginning after December 15, 1994.

Pro forma  information  regarding  net  income and  earnings  per share has been
determined as if the Company had accounted for its employee  stock options under
the fair value method of that  statement.  The fair value for these  options was
estimated at the date of grant using a  Black-Scholes  option pricing model with
the following weighted-average assumptions:  risk-free interest rate of 1.6% for
2002,  2.0% for 2001 and 4.5% for 2000;  dividend  yields  of 0% for all  years;
volatility  factors of the expected  market price of the Company's  common stock
was 67% for  2002,  118%  for  2001  and 49% for  2000;  and a  weighted-average
expected life of the options for 2002, 2001 and 2000 of four years.

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

                                       30
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

     SEGMENT REPORTING:

The Company  views its  operations as one operating  business  segment,  issuing
title insurance policies and performing other title-related services.

     EARNINGS PER SHARE:

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

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

<TABLE>
<CAPTION>
                                                               Years ended December 31,
                                                     --------------------------------------------
                                                         2002            2001            2000
                                                     ------------    ------------    ------------
                                                        ($ in thousands, except per share data)
<S>                                                  <C>             <C>             <C>
Earnings (loss) attributable to common stock         $      6,879    $      5,070    $     (2,252)
                                                     ============    ============    ============
Basic EPS - weighted average shares outstanding        17,417,061      17,230,950      17,158,414
                                                     ============    ============    ============
     Basic earnings per share                        $       0.39    $       0.29    $      (0.13)
                                                     ============    ============    ============
Basic EPS - weighted average shares outstanding        17,417,061      17,230,950      17,158,414
Effect of dilutive securities                             704,358         800,302              --
                                                     ------------    ------------    ------------
Dilutive EPS - weighted average shares outstanding     18,121,419      18,031,252      17,158,414
                                                     ============    ============    ============
     Diluted earnings per share                      $       0.38    $       0.28    $      (0.13)
                                                     ============    ============    ============
Stock options not included in diluted EPS since
  antidilutive                                          1,568,200       1,301,850       2,298,100
                                                     ============    ============    ============
Stock warrants not included in diluted EPS since
  antidilutive                                                 --         463,500         772,142
                                                     ============    ============    ============
</TABLE>

     FAIR VALUE OF FINANCIAL INSTRUMENTS:

The Company discloses fair value  information about financial  instruments where
it is  practicable  to estimate  their  value.  The Company  estimates  that the
carrying  value  of its  financial  instruments,  consisting  of cash  and  cash
equivalents,  short term  investments,  notes  receivable,  accounts payable and
accrued expenses approximate their fair values at December 31, 2002 and 2001 due
to the short  term  nature  of these  items.  Fixed  maturity  bonds and  equity
securities are classified as available-for-sale and accordingly,  are carried at
fair value.  The terms of one of the Company's long term debt  instruments has a
variable  interest rate tied to a market index,  while the other  component is a
fixed rate loan.  Both are  comparable to what they could be replaced for in the
current market,  therefore the carrying value  approximates  their fair value at
December 31, 2002 and 2001.

                                       31
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     NEW ACCOUNTING PRONOUNCEMENTS:

In July 2001,  the FASB issued  Statement No. 141,  BUSINESS  COMBINATIONS,  and
Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.  Statement 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated after June 30, 2001.  Statement 141 also specifies criteria intangible
assets  acquired  in a  purchase  method  business  combination  must meet to be
recognized  and reported  apart from  goodwill,  noting that any purchase  price
allocable  to an  assembled  workforce  may  not be  accounted  for  separately.
Statement  142 requires  that  goodwill and  intangible  assets with  indefinite
useful lives no longer be amortized,  but instead tested for impairment at least
annually in accordance with the provisions of Statement 142.  Statement 142 also
requires that  intangible  assets with definite  useful lives be amortized  over
their respective  estimated useful lives to their estimated residual values, and
reviewed for  impairment in  accordance  with FASB No. 144,  ACCOUNTING  FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.

The following  table presents prior period income and income per share as if the
nonamortization  provisions  of  Statement  142 had been  applied  in the  prior
period:

                                                   Year Ended December 31,
                                             ----------------------------------
                                               2002         2001         2000
                                             --------     --------     --------
Reported earnings attributable to
  common shares                              $  6,879     $  5,070     $ (2,252)
Add back goodwill amortization                     --           13           13
                                             --------     --------     --------
Adjusted earnings attributable to
  common shares                              $  6,879     $  5,083     $ (2,239)

Diluted income per share:
Reported income per share                    $   0.38     $   0.28     $  (0.13)
Add back goodwill amortization                     --           --           --
                                             --------     --------     --------
Adjusted earnings attributable to
  common shares                              $   0.38     $   0.28     $  (0.13)
                                             ========     ========     ========

The Company was required to adopt the  provisions of Statement  141  immediately
and Statement 142 effective January 1, 2002.  Furthermore,  any goodwill and any
intangible asset determined to have an indefinite useful life that were acquired
in a purchase business  combination  completed after June 30, 2001 have not been
amortized,  but will continue to be evaluated for impairment in accordance  with
the appropriate pre-Statement 142 accounting literature.

Statement 141 requires that the Company evaluate its existing  intangible assets
and goodwill that were acquired in a prior purchase business combination, and to
make any necessary  reclassifications  in order to conform with the new criteria
in Statement 141 for recognition  apart from goodwill.  The Company was required
to  reassess  the useful  lives and  residual  values of all  intangible  assets
acquired in purchase business combinations,  and make any necessary amortization
period  adjustments  by the end of the first interim period after  adoption.  In
addition,  to the  extent  an  intangible  asset  was  identified  as  having an
indefinite  useful life, the Company was required to test the  intangible  asset
for  impairment  in accordance  with the  provisions of Statement 142 within the
first interim  period.  Any  impairment  loss would have been measured as of the
date of  adoption  and  recognized  as the  cumulative  effect  of a  change  in
accounting  principle  in  the  first  interim  period.   However,  the  Company
determined through assessments  conducted at the end of the first interim period
after adoption that no adjustments were necessary.

                                       32
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In connection with the transitional  goodwill impairment  evaluation,  Statement
142  required  the  Company  to perform an  assessment  of whether  there was an
indication  that  goodwill  was  impaired  as  of  the  date  of  adoption.  Any
transitional impairment loss would have been recognized as the cumulative effect
of a change in accounting  principle in the Company's  statements of operations.
However,  there was no  indication  that goodwill was impaired as of the date of
adoption.

The  adoption of Statement  No. 142 had no material  impact on the Company as of
January 1, 2002,  except that the Company's  goodwill and intangible assets with
indefinite  useful  lives will no longer be  amortized,  but instead  tested for
impairment at least annually.

Statement 142 requires the Company test each of its reporting  units, as defined
by Statement  142, for an indicator of goodwill  impairment  at least  annually.
Management  performed its required test for  impairment in the fourth quarter of
2002.  Management  believes  that no events or  circumstances  were  present  to
indicate an impairment of goodwill may exist at December 31, 2002.

In June 2001, the FASB issued Statement No. 143, ASSET  RETIREMENT  OBLIGATIONS,
which addresses  financial  accounting and reporting for obligations  associated
with the  retirement  of tangible  long-lived  assets and the  associated  asset
retirement  costs.  Statement  No. 143 is effective  for fiscal years  beginning
after June 15, 2002, although earlier application is encouraged. The adoption of
this statement effective January 1, 2002 did not have any material impact on the
Company's financial position, results of operations or liquidity.

In  October  2001,  the  FASB  issued  Statement  No.  144,  ACCOUNTING  FOR THE
IMPAIRMENT  OR  DISPOSAL  OF  LONG-LIVED  ASSETS,   which  addresses   financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
While  Statement  No. 144  supersedes  Statement  No.  121,  ACCOUNTING  FOR THE
IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, it
retains many of the fundamental provisions of that Statement.

Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30,  Reporting the Results of  Operations--Reporting  the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions,  for the disposal of a segment of a business.
However,  it retains  the  requirement  in Opinion  No. 30 to report  separately
discontinued  operations  and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment,  or in a distribution to
owners) or is classified as held for sale. By  broadening  the  presentation  of
discontinued  operations  to include more  disposal  transactions,  the FASB has
enhanced  management's  ability to  provide  information  that  helps  financial
statement  users to assess the effects of a disposal  transaction on the ongoing
operations  of an entity.  Statement  No.  144 is  effective  for  fiscal  years
beginning after December 15, 2001. The Company adopted  Statement No. 144 and it
did  not  have  a  material  impact  on  the  Company's  consolidated  financial
statements.

In April 2002, the FASB issued Statement No. 145,  RESCISSION OF FASB STATEMENTS
NO.  4,  44,  AND  64,  AMENDMENT  OF  FASB  STATEMENT  NO.  13,  AND  TECHNICAL
CORRECTIONS,  which rescinds and amends the  aforementioned  FASB Statements and
amends other existing  authoritative  pronouncements  to make various  technical
corrections,  clarify meanings,  or describe their  applicability  under changed
conditions.  Statement No. 145 is effective for fiscal years beginning after May
15, 2002. Management is evaluating this accounting standard but does not believe
that  adoption of this  Statement  will have a material  impact on the Company's
consolidated financial statements.

                                       33
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In June 2002, the FASB issued Statement No. 146, ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL  ACTIVITIES,  which  addresses  financial  accounting  and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging  Issues Task Force Issue No. 94-3,  "Liability  Recognition for Certain
Employee  Termination  Benefits  and Other Costs to Exit an Activity  (including
Certain Costs  Incurred in  Restructuring)."  Statement No. 146 is effective for
exit or disposal  activities  that are initiated  after December 31, 2002,  with
early application  encouraged.  The Company adopted Statement No. 146 and it did
not have a material impact on the Company's consolidated financial statements.

In October  2002,  the FASB issued  Statement No. 147,  ACQUISITIONS  OF CERTAIN
FINANCIAL INSTITUTIONS - AN AMENDMENT OF FASB STATEMENTS NO. 72 AND 144 AND FASB
INTERPRETATION  NO.  9.  Except  for  transactions  between  two or more  mutual
enterprises,  this Statement removes acquisitions of financial institutions from
the scope of both  Statement No. 72 and  Interpretation  No. 9 and requires that
those  transactions  be accounted for in accordance with FASB Statements No. 141
and No. 142. Statement No. 147 is effective for acquisitions on or after October
1, 2002.  Management has evaluated this accounting standard but does not believe
application  of this  standard  would  have a material  impact on the  Company's
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S  ACCOUNTING
AND DISCLOSURE  REQUIREMENTS FOR GUARANTEES,  INCLUDING  INDIRECT  GUARANTEES OF
INDEBTEDNESS TO OTHERS,  AND INTERPRETATION OF FASB STATEMENTS NO. 5, 57 AND 107
AND A RECISSION OF FASB INTERPRETATION NO. 43. This Interpretation elaborated on
the  disclosures  to be made by a guarantor in its interim and annual  financial
statements about its obligations  under guarantees  issued.  The  Interpretation
also  clarifies  that a guarantor  is required to  recognize,  at inception of a
guarantee,  a liability  for the fair value of the  obligation  undertaken.  The
initial  recognition  and  measurement  provisions  of  the  Interpretation  are
applicable to guarantees  issued or modified after December 31, 2002 and are not
expected to have a material effect on the company's  financial  statements.  The
disclosure  requirements  are effective for financial  statements of interim and
annual periods ending after December 31, 2002.

In December  2002,  the FASB issued SFAS No.  148,  ACCOUNTING  FOR  STOCK-BASED
COMPENSATION  - TRANSITION AND  DISCLOSURE,  AND AMENDMENT OF FASB STATEMENT NO.
123. This Statement  amends FASB Statement No. 123,  ACCOUNTING FOR  STOCK-BASED
COMPENSATION,  to provide  alternative  methods of  transition  for a  voluntary
change  to  the  fair  value  method  of  accounting  for  stock-based  employee
compensation.  In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require  prominent  disclosures  in both annual and interim
financial statements.  Certain of the disclosure  modifications are required for
fiscal  years  ending  after  December 15, 2002 and are included in the notes to
these consolidated financial statements.

In  January  2003,  the FASB  issued  Interpretation  No. 46,  CONSOLIDATION  OF
VARIABLE   INTEREST   ENTITIES,   AND   INTERPRETATION   OF  ARB  NO.  51.  This
Interpretation  addresses the consolidation by business  enterprises of variable
interest entities as defined in the Interpretation.  The Interpretation  applies
immediately to variable  interests in variable  interest  entities created after
January 31,  2003,  and to variable  interests  in  variable  interest  entities
obtained after January 31, 2003. For public enterprises with a variable interest
in  a  variable   interest   entity  created   before   February  1,  2003,  the
Interpretation  applies to that  enterprise  no later than the  beginning of the
first interim or annual  reporting  period  beginning  after June 15, 2003.  The
application of this  Interpretation  requires  certain  disclosures in financial
statements issued after January 31, 2003 if its is reasonably  possible that the
Company  will  consolidate  or  disclose  information  about  variable  interest
entities when the Interpretation becomes effective.

                                       34
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     RECLASSIFICATIONS:

Certain  reclassifications  have  been  made to the 2000  and 2001  consolidated
financial  statements to conform to the 2002  presentation.  In September  2002,
with the acquisition of Nations,  the Company's  balance sheet  presentation has
been changed to an unclassified  presentation,  which is more customary to other
companies in the industry.

2.   CASH HELD AS A FIDUCIARY:

The Company is the  custodian  of cash  deposited  by  customers  with  specific
instructions  as to its  disbursement  from  active  escrow,  trust and  account
servicing  files.  The balances in these  accounts have not been included in the
consolidated  financial  statements.  As of  December  31,  2002 and  2001,  the
accounts contain  balances of  approximately  $727.6 million and $254.8 million,
respectively.  As a result of holding these  deposits in escrow,  the Company is
involved in programs  for  realizing  economic  benefit  during the year through
favorable   borrowing  and  vendor   arrangements  with  the  various  financial
institutions where the deposits are held.

3.   CONCENTRATION OF CREDIT RISK:

The  Company   maintains  cash  and  cash  equivalents  with  various  financial
institutions. Deposits which exceed $100,000 at each institution are not insured
by the Federal Deposit Insurance Corporation.  At December 31, 2002, the Company
had uninsured cash and cash equivalents of approximately $18.6 million.

The  Company's  revenue is  generated  solely from  activities  in the states of
Arizona  and   California,   and   accounts   receivable   are   typically   not
collateralized.  The Company is not dependent upon any single customer or single
group of  customers.  The loss of any one  customer  would  not have a  material
adverse effect on the Company.

4.   ACQUISITIONS:

In April 2002, the Company  completed the acquisition of a five branch title and
escrow operation in the northern  California  counties of Santa Clara, San Mateo
and  Sacramento.   This  transaction  was  accounted  for  as  a  purchase,  and
accordingly  the  financial  statements  of the Company  include  the  operating
results of these branch offices beginning April 1, 2002.

The purchase  price and direct  acquisition  costs were  allocated to the assets
purchased based on their respective fair market values at the acquisition  date.
The following  table  summarizes the estimated fair value of the assets acquired
at the date of purchase ($ in thousands):

Assets Acquired:
  Property and equipment                          $    416
  Title plant                                        2,828
  Goodwill                                           1,110
                                                  --------
      Total                                       $  4,354
                                                  ========

In September 2002, the Company  completed the acquisition of Nations pursuant to
an Agreement and Plan of Merger (the "Merger  Agreement").  This transaction was
accounted for as a purchase,  and  accordingly  the financial  statements of the
Company include the operating results of Nations beginning September 1, 2002.

                                       35
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Under the terms of the Merger  Agreement,  the stockholders of Nations exchanged
all of their outstanding  shares of common stock for an allocation of the merger
proceeds,  which  consisted  of $18.2  million  in cash  and  $17.5  million  in
preferred  stock  issued by the  Company.  The  preferred  stock  includes an 8%
cumulative  dividend,  payable quarterly in cash; provided that the Company may,
in its  discretion,  pay the  dividends  in shares of common stock if the income
before  provision for income taxes of the Company for the immediately  preceding
quarter is less than $1.0  million.  After  September  2023,  the Company may be
required,  upon  notification  by  the  preferred  stockholder,  to  redeem  the
preferred stock at a total redemption value of approximately $17.5 million.

In addition,  the Company issued  warrants to a major  stockholder of Nations to
purchase  up to 300,000  shares of common  stock of the  Company at an  exercise
price of $2.27 per share. The warrants, which expire five years from the date of
issuance,  had a fair market value of approximately  $0.2 million at the date of
the transaction.  The Company utilized the Black-Scholes  Model, a commonly used
option  pricing  model,  to  determine  the  fair  value of  these  warrants.  A
seven-year  term loan obtained by the Company  provided $14 million to assist in
the  financing  of this  transaction.  The term loan will incur  interest at the
prime rate or LIBOR plus 2.75% (as of December  31, 2002,  the interest  rate on
this note was 4.16%).

The following  table  summarizes the total  acquisition  cost of Nations and the
components  of  proceeds  paid  to the  former  shareholders  of  Nations  ($ in
thousands):

Cash                                              $ 18,231
Preferred stock                                     17,516
Warrants for common Stock                              213
                                                  --------
                                                    35,960
Direct transaction costs                             1,271
                                                  --------
                                                  $ 37,231
                                                  ========

The purchase  price and direct  acquisition  costs were  allocated to the assets
purchased based on their  respective  fair values at the  acquisition  date. The
following  table  summarizes  the estimated  fair value of the allocation of the
purchase  price and  direct  acquisition  costs to the  assets  and  liabilities
acquired at the date of purchase ($ in thousands):

Assets and (Liabilities) Acquired:
  Cash and cash equivalents                       $ 10,879
  Receivables and other current assets               3,817
  Property and equipment, net                        4,972
  Marketable securities, available-for-sale          8,532
  Title plant                                          417
  Notes receivable and other assets                  4,011
  Accounts payable and accrued expenses             (7,823)
  Reserves for title and escrow losses              (3,525)
  Other liabilities                                 (2,083)
  Goodwill                                          17,520
  Intangible assets                                    514
                                                  --------
       Total                                      $ 37,231
                                                  ========

                                       36
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Selected  unaudited pro forma combined results of operations for the years ended
December 31, 2002 and 2001,  assuming the acquisitions  discussed above occurred
on January 1, 2001, are as follows:

                                                 Year ended December 31,
                                             -------------------------------
                                                2002                2001
                                             -----------         -----------
                                         ($ in thousands, except per share data)
Total revenue                                $   177,777         $   137,429
Income before income taxes                        14,976               9,907
Net income                                         8,952               7,233
Earnings attributable to common shares             7,548               5,831

Net income per common share:
Basic                                        $      0.43         $      0.34
                                             ===========         ===========
Diluted                                      $      0.42         $      0.32
                                             ===========         ===========
Weighted average shares outstanding:
Basic                                         17,417,061          17,230,950
Diluted                                       18,134,651          18,041,456

5.   INVESTMENTS:

Under FASB  Statement No. 115,  ACCOUNTING  FOR CERTAIN  INVESTMENTS IN DEBT AND
EQUITY SECURITIES,  securities are generally  classified as  available-for-sale,
held-to-maturity,  or  trading.  The  Company has  classified  its entire  fixed
maturity  bonds  and  equity   securities   portfolios  as   available-for-sale.
Securities  classified as  available-for-sale  are reported at fair value in the
consolidated  statements  of  financial  position  with the  related  unrealized
holding  gains and losses on such  available-for-sale  securities  reported as a
separate  component of equity after  adjustments for related changes in deferred
income  taxes.  The cost,  gross  unrealized  gains and losses and fair value of
fixed maturity bonds  available-for-sale as of December 31, 2002, are as follows
($ in thousands):

                                                Gross       Gross
                                   Amortized  unrealized  unrealized  Estimated
                                      cost      gains       losses    fair value
                                    --------   --------    --------   ----------
U.S. government and agencies        $  2,370   $     64    $     --    $  2,434
State and political subdivisions       1,878         84          --       1,962
Corporate securities                   2,851        193         (24)      3,020
                                    --------   --------    --------    --------
                                    $  7,099   $    341    $    (24)   $  7,416
                                    ========   ========    ========    ========

                                       37
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contractual  maturities  at December  31, 2002,  which may differ from  expected
maturities   because  certain  borrowers  have  the  right  to  call  or  prepay
obligations  with  or  without  prepayment  penalties,  are  as  follows  ($  in
thousands):

                                                  Amortized     Estimated
     Maturity dates                                  Cost       fair value
     --------------                                --------     ----------

     2003                                          $    100      $    101
     2004-2008                                        3,345         3,500
     2009-2013                                        1,318         1,394
     After 2013                                       2,336         2,421
                                                   --------      --------
                                                   $  7,099      $  7,416
                                                   ========      ========

Fixed  maturity bonds with an amortized cost of $3.6 million and a fair value of
$3.8 million have  provisions  which give  borrowers the right to call or prepay
their obligations with or without prepayment penalties.

Investment in equity  securities at December 31, 2002 consists of investments in
the following ($ in thousands):

                                                                Estimated
                                                     Cost       fair value
                                                   --------     ----------
     Preferred and common stock of banks, trust
       and insurance companies                     $    842      $    904
     Preferred stock of public utilities                 85            94
     Preferred and common stock of industrial
       and miscellaneous companies                    1,955         1,958
                                                   --------      --------
                                                   $  2,882      $  2,956
                                                   ========      ========

The Company's  investment portfolio originated as a result of the acquisition of
Nations and its title insurance subsidiary, United Title Insurance. As a result,
sales  of  investments  and net  investment  income  related  to the  investment
portfolio reflects activity from September 2002, the date of acquisition.

Gross realized gains on sales of fixed maturity bonds,  available-for-sale  were
$58,000;  and there were no gross realized  losses;  for the year ended December
31, 2002. Gross realized gains on sales of equity securities, available-for-sale
were  $5,000;  and  there  were no gross  realized  losses;  for the year  ended
December 31, 2002.

Other income includes net investment income related to the Company's  investment
portfolio of approximately $0.2 million.

                                       38
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.   PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                              Useful Lives       2002         2001
                                              ------------     --------     --------
                                                                 ($ in thousands)
<S>                                            <C>             <C>          <C>
     Land                                             N/A      $    325     $    108
     Buildings and leasehold improvements      3-40 years         7,522        5,842
     Office equipment and software              3-7 years        12,095        8,391
     Furniture and fixtures                       7 years         4,941        1,349
     Vehicles                                     5 years            90           62
                                                               --------     --------
                                                                 24,973       15,752
     Less: Accumulated depreciation
           and amortization                                      (8,694)      (5,677)
                                                               --------     --------
                                                               $ 16,279     $ 10,075
                                                               ========     ========
</TABLE>

7.   INCOME TAXES:

The income tax expense (benefit) consists of the following:

                                               Year Ended December 31,
                                          --------------------------------
                                            2002        2001        2000
                                          --------    --------    --------
                                                  ($ in thousands)
     Current:
       Federal                            $  4,660    $    918    $     --
       State                                 1,063         187           7
     Deferred:
       Federal                                (623)       (283)        (40)
       State                                   (99)        (54)         --
                                          --------    --------    --------
                                          $  5,001    $    768    $    (33)
                                          ========    ========    ========

Total  current  income tax payable was $2.4 million and $0.4 million at December
31, 2002 and 2001,  respectively,  which are included in accrued expenses on the
accompanying consolidated balance sheets.

                                       39
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax  assets/liabilities  as of December 31, 2002 and 2001
are as follows:

                                                       2002         2001
                                                     --------     --------
                                                       ($ in thousands)
     Deferred tax assets:
       Accounts receivable                           $    197     $     78
       Alternative minimum credit                          --           77
       Reserve for losses                               1,186          234
       Deferred gain on sales-leaseback                   191          222
       Accrued vacation                                   459          178
       Other                                              137           84
                                                     --------     --------
     Total deferred tax assets                          2,170          873

     Deferred tax liabilities:
       Property and equipment                            (781)        (536)
       Unearned premium reserves                         (592)          --
       Investments                                       (971)          --
       Other                                              (79)          --
                                                     --------     --------
     Total deferred tax liabilities                    (2,423)        (536)
                                                     --------     --------
     Net deferred tax assets/(liabilities)           $   (253)    $    337
                                                     ========     ========

The  reconciliation  of the provision for income taxes with the expected  income
taxes based on the statutory federal income tax rate is as follows:

                                                   Year Ended December 31,
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
                                                       ($ in thousands)
Expected income tax expense (benefit) at
  the federal statutory rate                   $  4,176    $  2,044    $   (799)
State income taxes net of federal benefit           636          71           5
Other                                               189         158         (39)
Change in valuation reserve, net of state
  change in valuation reserve                        --      (1,505)        800
                                               --------    --------    --------
    Income tax expense (benefit)               $  5,001    $    768    $    (33)
                                               ========    ========    ========

8.   SUMMARY OF RESERVE FOR TITLE INSURANCE AND ESCROW LOSSES:

                                                    Year Ended December 31,
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
                                                       ($ in thousands)
Beginning balance                              $    524    $    237    $    180
  Provision for claim losses                      3,176         540         105
  Reserves acquired                               3,525          --          --
  Claims paid, net of recoveries                   (775)       (253)        (48)
                                               --------    --------    --------
Ending balance                                 $  6,450    $    524    $    237
                                               ========    ========    ========

                                       40
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.   LONG TERM DEBT:

Long term debt consists of the following:

                                                        Years Ended December 31,
                                                        ------------------------
                                                          2002            2001
                                                        --------        --------
                                                            ($ in thousands)
Seven year term loan with Comerica Bank, with
  interest at the prime rate or London Inter-Bank
  Offered Rate ("LIBOR") plus 2.75%, with quarterly
  installments of principal and interest, due
  September 2009. At December 31, 2002, the
  interest rate was 4.16%.                              $ 13,500        $     --

8.32% term loan with GMAC Commercial Mortgage,
  with monthly installments of $23,940 including
  principal and interest, due August 2009; secured
  by a building.                                           3,042           3,071

Capital lease obligations, with varying rates of
  9% to 13%, duein 2002; secured by equipment.                --              12
                                                        --------        --------
                                                        $ 16,542        $  3,083
                                                        ========        ========

The Company has two $3 million revolving lines of credit, which bear interest on
any outstanding  balance at the prime rate. As of December 31, 2002,  there were
no cash draws against either credit line. There is $75,000 committed against one
credit line for a standby letter of credit required pursuant to an office lease.

The  Company's  lines  of  credit  and  term  loan  agreements  are  secured  by
substantially  all of the Company's assets and contain certain  provisions which
may restrict the Company's  ability to incur additional debt, make  acquisitions
or dispose of significant  assets,  as well as certain  covenants related to the
Company's financial position and operating results.

The  maturities of long-term  debt after December 31, 2002 were as follows ($ in
thousands):

                  2003                                  $  2,032
                  2004                                     2,034
                  2005                                     2,038
                  2006                                     2,041
                  2007                                     2,044
               Thereafter                                  6,353
                                                        --------
                                                        $ 16,542
                                                        ========

In January 2001, the Company sold an office  building in Santa Rosa,  California
under a sale-leaseback arrangement, which provided approximately $0.8 million in
cash and retired $1.0 million in debt related to the building.  This transaction
resulted in a gain of approximately $0.6 million,  which is being amortized over
the 10 year leaseback term.

                                       41
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10.  OPERATING LEASE COMMITMENTS:

The Company leases office  equipment and offices at 114  locations.  These lease
periods  range  from one month to 84 months  with  renewal  options of up to ten
years.  In addition,  the Company has a 50 year ground lease,  through  December
2047, for its corporate office with annual payments of  approximately  $115,000,
subject to adjustments  based on the consumer  price index.  For the years ended
December 31, 2002,  2001 and 2000 rental expense was $7.9 million,  $4.2 million
and $3.3 million, respectively.

The Company's future minimum lease  commitments  after December 31, 2002 were as
follows ($ in thousands):

                  2003                                  $  7,660
                  2004                                     6,430
                  2005                                     4,479
                  2006                                     3,394
                  2007                                     2,524
               Thereafter                                  5,571
                                                        --------
                                                        $ 30,058
                                                        ========

11.  COMMITMENTS AND CONTINGENCIES:

In the ordinary course of business,  the Company's title insurance  subsidiaries
are  subject to claims and are named as  defendants  in  litigation  relating to
policies of insurance or other related  services  performed on behalf of insured
policyholders  and other  customers.  While the results of insurance  claims and
litigation cannot be predicted with certainty, management believes, based on the
advice of legal counsel, that the final outcome of such lawsuits and claims will
not have a material adverse effect on the Company's financial position,  results
of operations, or liquidity.

The  Attorney  General  of the State of  California  filed suit on behalf of the
California  Controller  against a number of major title  insurers  operating  in
California,  alleging  irregularities  in billings for charges and violations of
title and escrow  practices.  The Company and its subsidiaries have not received
any  communication  from the Attorney General  regarding this litigation and was
not named in the suit. Each of the defendants in the State of California lawsuit
has entered  into a  settlement  with the State,  which  includes an  injunction
prohibiting certain practices allegedly engaged in by those companies.  A matter
raised in the State of California  litigation has resulted in a separate lawsuit
brought  by  individuals  purporting  to act in a  representative  capacity  for
consumers  dong  business  with  lenders  and  title  companies  in the State of
California. United Title has been named in this lawsuit, which seeks restitution
of  alleged  wrongful  gains  obtained  through  excessive  recording  fees  and
reconveyance  tracking fees,  injunctive  relief,  and attorney fees. An initial
lawsuit lawsuit was served on United Title in November 2001 and in that lawsuit,
the court dismissed the complaint.  The recent litigation  referred to above was
subsequently refiled in February 2003. The results of legal proceeding cannot be
predicted  with  certainty,  but United Title intends to  vigorously  defend the
lawsuit.

                                       42
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12.  RESTRICTED CASH:

As of December 31, 2002,  the Company had $2.1 million held as  restricted  cash
pending the final resolution on an indemnification matter related to the sale in
1995 of a wholly-owned subsidiary of Nations.

13.  SUPPLEMENTAL CASH FLOW INFORMATION:

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

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                             --------------------------------
                                                               2002        2001        2000
                                                             --------    --------    --------
                                                                     ($ in thousands)
<S>                                                          <C>         <C>         <C>
Cash paid (refunded) during the year:
  Interest                                                   $    418    $    277    $    335
  Income taxes                                                  3,080         665        (142)
Non-cash investing and financing activities:
  Issuance of preferred stock to acquire Nations               17,516          --          --
  Issuance of warrants for common stock to acquire Nations        213          --          --
  Issuance of common stock in connection with acquisition
    of Nations                                                    197          --          --
  Issuance/(recission) of equity exchange                          --        (424)        424
</TABLE>

In  September  2001,  the  Company's  Board  of  Directors  authorized  a  stock
repurchase  program of up to one million shares of its outstanding common stock.
As of December 31, 2002,  696,533 shares had been repurchased under this program
at prices ranging from $1.97 to $2.30 per share.

In March 2001, the Company rescinded an equity exchange which took place in June
2000.  This recission  resulted in 424,488 shares of the Company's  common stock
issued to a third-party real estate  organization  being returned to the Company
and cancelled.

14.  EMPLOYEE BENEFIT PLANS:

     PROFIT SHARING PLAN:

As a result of the  acquisition  of Nations,  the Company  maintains  two profit
sharing plans under Section 401(k) of the Internal  Revenue Code.  Substantially
all  employees of Nations and its  subsidiaries  may elect to defer up to 15% of
their salary. The Company  contributes 1% of each participant's  compensation up
to $500 per participant for those who defer at least 2% of their compensation.

Substantially  all of the Company's other employees may elect to defer up to 15%
of their  salary as well.  Under this plan,  the Company  contributes  $0.33 for
every  $1.00 the  employee  contributes,  up to a maximum of $1,000.  Vesting of
matching  contributions is based on certain service requirements.  Employees are
fully vested after six years of service.

The Company's matching contributions for the years ended December 31, 2002, 2001
and 2000  were  approximately  $0.2  million,  $0.2  million  and $0.1  million,
respectively.

                                       43
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     CAFETERIA PLAN:

The Company  maintains an Internal  Revenue Code Section 125 Cafeteria Plan as a
benefit to its employees.  The plan provides for employee and dependent coverage
to be paid from  before  tax  compensation.  As such,  there is no effect on the
consolidated financial statements.

15.  STOCK OPTION PLANS:

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related  Interpretations
in  accounting  for its 1996 Stock  Option Plan and the  Company's  Non-Employee
Directors  Stock Option Plan.  Under APB 25,  because the exercise  price of the
Company's  stock options equals the market price of the underlying  stock on the
date  of  grant,  no  compensation   expense  is  recognized  in  the  Company's
consolidated financial statements.

The Company's  1996 Stock Option Plan ("The Plan") has  authorized  the grant of
common stock options to all the Company's employees. Currently, 4,900,000 shares
of Common Stock are authorized for issuance pursuant to the Plan. As of December
31, 2002,  3,383,000 options are outstanding under the Plan. All options granted
have 5-year terms. Fifty percent of each option grant can be exercised after two
years from the date granted;  the remaining options can be exercised after three
years  provided the optionee  remains  employed with the Company at such vesting
date.  Options  granted  under the Plan are not  transferable  and the per share
exercise  price of an incentive  stock option  granted under the Plan may not be
less than the fair market value of the common stock on the date of grant.

The Company's  Non-Employee  Directors Stock Option Plan ("Directors  Plan") has
authorized  the  grant  of  options  to  non-employee  members  of the  Board of
Directors and advisory  boards.  Currently,  600,000  shares of Common Stock are
authorized for issuance pursuant to the Directors Plan. As of December 31, 2002,
400,000  options are  outstanding  under the Directors Plan. All options granted
have 5-year terms. Fifty percent of each option grant can be exercised after two
years from the date granted;  the remaining  shares can be exercised after three
years provided the optionee  remains an eligible  director at such vesting date.
Upon election to the Board of Directors  each board member is granted the option
to purchase 15,000 shares of common stock.  In addition to the foregoing  option
grants, each year every non-employee director  automatically  receives an option
to acquire 10,000 shares of the Company's common stock on the third business day
following the date the Company publicly  announces its annual financial results,
provided  that such  director  has  attended at least 75% of the meetings of the
Board of Directors and the Board Committees of which such non-employee  director
is a member in the preceding fiscal year.

In December  2000,  the Company gave all employees the option to cancel  options
they currently held with the intent to have a like number of options  granted on
July 2, 2001 (more than six months  after the date of the  cancellation)  at the
greater of $1.00 or the then-current  market price. A total of 1,073,100 options
with a  weighted  average  price  of  $2.24  were  cancelled  pursuant  to  this
arrangement.  On July 2, 2001, 1,039,050 options were regranted pursuant to this
agreement at an option price of $2.45.

                                       44
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the Company's  stock option  activity  pursuant to its stock option
plans, and related information for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                      2002                     2001                    2000
                             ----------------------   ----------------------   ----------------------
                                           Weighted                 Weighted                 Weighted
                                            Average                  Average                  Average
                               Options       Price     Options        Price     Options        Price
                             -----------   --------   -----------   --------   -----------   --------
<S>                          <C>           <C>        <C>           <C>        <C>            <C>
Outstanding-
  Beginning of year            3,418,000    $ 1.82      2,298,100    $ 1.42      3,224,400    $ 1.84
Granted                        1,664,300      2.20      1,834,700      2.14        574,600      1.20
Exercised                       (737,750)     1.20       (435,600)     1.05        (30,500)     1.00
Forfeited                       (561,550)     1.92       (279,200)     1.71     (1,470,400)     2.19
                             -----------              -----------              -----------
Outstanding-
  End of year                  3,783,000      2.09      3,418,000      1.82      2,298,100      1.42
                             ===========              ===========              ===========

Exercisable at end of year       530,575      1.83      1,154,500      1.48      1,494,300      1.23
                             ===========              ===========              ===========
Weighted average
  fair value of options
  granted during the year    $      1.25              $      1.34              $      0.51
                             ===========              ===========              ===========
</TABLE>

Stock options outstanding at December 31, 2002 were as follows:

<TABLE>
<CAPTION>
                            Options Outstanding                       Options Exercisable
                 ----------------------------------------------   ---------------------------
                              Weighted Average      Weighted                      Weighted
   Range of                       Remaining          Average                       Average
Exercise price    Options     Contractual life   Exercise Price    Options     Exercise Price
--------------   ----------   ----------------   --------------   ----------   --------------
<S>              <C>             <C>                 <C>          <C>              <C>
 $1.00-$2.00      1,208,100       2.8 years          $ 1.50          387,625       $ 1.40
 $2.03-$2.55      2,503,050       4.0 years            2.33           71,100         2.45
 $3.00-$3.63         71,850       1.2 years            3.53           71,850         3.53
                 ----------      ----------          ------       ----------       ------
                  3,783,000       3.6 years          $ 2.09          530,575       $ 1.83
                 ==========      ==========          ======       ==========       ======
</TABLE>

16.  ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE:

Changes in the allowance for  uncollectible  accounts  receivable  for the years
ended December 31, 2000 2001 and 2002 are as follows ($ in thousands):

Balance as of December 31, 1999                   $     14
  Provision charged to operations                       16
  Write-offs, net of recoveries                         --
                                                  --------
Balance as of December 31, 2000                         30
  Provision charged to operations                      170
  Write-offs, net of recoveries                         (7)
                                                  --------
Balance as of December 31, 2001                        193
  Provision charged to operations                       64
  Balance resulting from acquisition                   514
  Write-offs, net of recoveries                       (285)
                                                  --------
Balance as of December 31, 2002                   $    486
                                                  ========

                                       45
<PAGE>
                   CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

17.  SELECTED QUARTERLY FINANCIAL DATA:

The following table sets forth unaudited selected  quarterly  financial data for
each quarter of the years ended December 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                  March 31    June 30     September 30   December 31    Total
                                  --------    --------    ------------   -----------   --------
2002                                                    ($ in thousands)
----
<S>                               <C>         <C>           <C>           <C>          <C>
Total revenue                     $ 19,395    $ 20,679      $ 31,442      $ 56,195     $127,711
Net income                           1,119         646         1,410         4,107        7,282
Earnings attributable to
  common shares                      1,119         646         1,360         3,754        6,879
Earnings attributable to common
  shares per common share:
    Basic                             0.07        0.04          0.08          0.21         0.39
    Diluted                           0.06        0.04          0.08          0.21         0.38

2001
----
Total revenue                     $ 12,323    $ 17,568      $ 16,600      $ 17,945     $ 64,436
Net income                             502       2,101         1,452         1,015        5,070
Net income per common share:
    Basic                             0.03        0.12          0.08          0.06         0.29
    Diluted                           0.03        0.12          0.08          0.06         0.28
</TABLE>

18.  SUBSEQUENT EVENT:

In  January  2003,  the  Company  acquired  Land  Title  of  Nevada,   Inc.  for
approximately $3.5 million,  consisting of $1.25 million in cash and a five-year
note for $2.25 million issued to the seller. The acquisition marks the Company's
entrance into the Las Vegas,  Nevada  market  adding five branch  offices and 94
employees.

                                       46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not Applicable.

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required by this Item is incorporated by reference to the
Company's Proxy Statement for its 2003 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by this Item is incorporated by reference to the
Company's Proxy Statement for its 2003 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this Item is incorporated by reference to the
Company's Proxy Statement for its 2003 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Not Applicable.

ITEM 14. CONTROLS AND PROCEDURES

     Within the 90-day period prior to the filing of this report,  an evaluation
was  carried  out  under  the  supervision  and  with the  participation  of the
Company's  management,  including the Chief Executive  Officer ("CEO") and Chief
Financial Officer ("CFO"),  of the effectiveness of our disclosure  controls and
procedures  (as  defined  in  Exchange  Act Rules  13a -  14(c)).  Based on that
evaluation,  the  CEO and CFO  have  concluded  that  the  Company's  disclosure
controls and procedures are effective to ensure that information  required to be
disclosed  by the  Company  in  reports  that it  files  or  submits  under  the
Securities Exchange Act of 1934 is recorded, processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.

     Subsequent  to the  date of their  evaluation,  there  were no  significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly affect the disclosure  controls,  including any corrective actions
with regard to significant deficiencies and material weaknesses.

                                     PART IV

ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  1. & 2. Financial Statements and Financial Statement Schedules

The  Financial  Statements  filed as part of this report are listed in Item 8 of
Part II of this report.

          3.   Index to Exhibits

Exhibit No.    Description                                      Method of Filing
-----------    -----------                                      ----------------
   2           Share Exchange Agreement between Capital Title
               Agency, Inc. and Norvex, Inc. dated May 23, 1996        (1)
   3.1         Certificate of Incorporation                            (1)
   3.2         Amended and Restated Bylaws                             (1)
  10.1         Underwriting Agreement between Capital Title
               Agency, Inc. and Old Republic National Title
               Insurance Company dated March 1, 1996                   (1)

                                       47
<PAGE>
Exhibit No.    Description                                      Method of Filing
-----------    -----------                                      ----------------
  10.2         Underwriting Agreement between Capital Title
               Agency, Inc. and First American Title Insurance
               Company dated August 16, 1996                           (1)
  10.3         Underwriting Agreement between Capital Title
               Agency, Inc. and United General Insurance Company
               dated January 21, 1998.                                 (2)
  10.4         Placement Agent Agreement between Registrant and
               Sanders Morris Mundy Inc. dated April 13, 1998.         (3)
  10.5         Title Plant Agreement between Registrant and Security
               Union Title Insurance Company dated April 29, 1998      (3)
  10.6         Purchase and Sale Agreement between Registrant and
               KDC-AZ, LLC dated July 1, 1998                          (3)
  10.7         Merger Agreement among Registrant, Northwestern
               Consolidated Corporation and related subsidiaries
               dated September 1, 1998.                                (4)
  10.8         Credit Agreement between Registrant and Imperial
               Bank dated February 1, 1999.                            (3)
  10.9         Access Agreement By and Between Security Union Title
               Insurance Company and New Century Title Company
               Company dated September 30, 1999.                       (5)
  10.10        Title Plant Lease and Service Agreement by and
               between Security Union Title Insurance Company and
               Capital Title Agency Inc. dated May 19, 1999.           (5)
  10.11        Promissory Note between CTG Building Co. and GMAC
               Commercial Mortgage Corporation dated July 30, 1999.    (5)
  10.12        Amendment to Underwriting Agreement by and between
               Stewart Title Guaranty Company and New Century          (5)
  10.13        Asset Purchase and Sale Agreement by and among New
               Century Title Company, BridgeSpan Title Company,
               BridgeSpan, Inc. and the Registrant.                    (6)
  10.14        Agreement and Plan of Merger dated June 11, 2002,
               among the Registrant, Nations Holding Group, and
               Capital One Merger Corporation.                         (7)
  10.15        Variable Rate Installment Note and Business Loan
               Agreement between Comerica Bank - California and
               the Registrant.                                         (7)
  21           Subsidiaries                                            (*)
  23.1         Consent of KPMG LLP                                     (*)
  99.1         Certification pursuant to Section 906 of
               Sarbanes-Oxley Act of 2002 (Subsections (a) and (b)
               of Section 1350, Chapter 63 of Title 18, United
               States Code)                                            (*)

*    Filed herewith
(1)  Incorporated  by reference to the  Registrant's  Form 10-QSB filed with the
     Securities and Exchange Commission on September 20, 1996.
(2)  Incorporated  by  reference  to the  Registrant's  Form 10-KSB for the year
     ended December 31, 1997, filed with the Securities and Exchange  Commission
     on March 25, 1998.
(3)  Incorporated  by  reference  to the  Registrant's  Form 10-KSB for the year
     ended December 31, 1998, filed with the Securities and Exchange  Commission
     on March 23, 1999.
(4)  Incorporated  by  reference  to the  Registrant's  Form 8-K filed  with the
     Securities and Exchange Commission on December 10, 1998.
(5)  Incorporated  by  reference  to the  Registrant's  Form 10-KSB for the year
     ended December 31, 1999, filed with the Securities and Exchange  Commission
     on March 27, 2000.
(6)  Incorporated  by  reference  to the  Registrant's  Form 8-K filed  with the
     Securities and Exchange Commission on April 1, 2002.
(7)  Incorporated  by  reference  to the  Registrant's  Form 8-K filed  with the
     Securities and Exchange Commission on September 23, 2002.

     (b)  Reports on Form 8-K

During the year ended December 31, 2002, the Company filed the following reports
on Form 8-K:

Current  Report on Form 8-K dated  September  23, 2002 - Pursuant to Item 2, the
Company  reported the  completion of the  acquisition  of Nations  Holding Group
pursuant to an Agreement  and Plan of Merger  dated June 11, 2002,  by and among
the Company,  Nations Holding Group and CTG One Merger Corporation.  Pursuant to
Item 7(a) of Form 8-K,  all  required  historical  statements  and all  required
proforma  financial  statements  were filed pursuant to an amendment to the Form
8-K on December 2, 2002.

Current Report on Form 8-K dated June 14, 2002 - Pursuant to Item 5, the Company
reported that it had signed a definitive  merger  agreement with Nations Holding
Group.  In addition,  the Company  disclosed  terms of the preferred stock to be
issued as well as terms of a term loan agreement the Company plans to enter into
as part of the merger transaction.

                                       48
<PAGE>
Current  Report on Form 8-K date April 1, 2002 - Pursuant to Item 2, the Company
reported the  consummation  of a  transaction  under an Asset  Purchase and Sale
Agreement  dated  September  8,  2001  between  New  Century  Title  Company,  a
wholly-owned  subsidiary of the Company and BridgeSpan  Title Company, a wholly-
owned subsidiary of BridgeSpan,  Inc. Pursuant to Item 7(a)(4) of Form 8-K, all
required  historical  financial  statements and all required proforma  financial
statements were filed pursuant to an amendment to the Form 8-K on June 14, 2002.

SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  Registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.

                                        CAPITAL TITLE GROUP, INC.

                                        By /s/ Donald R. Head
                                           -------------------------------------
                                           Donald R. Head
                                           Chief Executive Officer

Date: March 17, 2003

In accordance with the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                  <C>                                 <C>                          <C>
Donald R. Head       Chairman of the Board, President    /s/ Donald R. Head           March 17, 2003
                        and Chief Executive Officer      --------------------------

Mark C. Walker        Vice President, Chief Financial    /s/ Mark C. Walker           March 17, 2003
                      Officer, Secretary and Treasurer   --------------------------


David C. Dewar                   Director                /s/ David C. Dewar           March 17, 2003
                                                         --------------------------
Terry S. Jacobs                  Director                /s/ Terry S. Jacobs          March 17, 2003
                                                         --------------------------

Theo F. Lamb                     Director                /s/ Theo F. Lamb             March 17, 2003
                                                         --------------------------

Robert B. Liverant               Director                /s/ Robert B. Liverant       March 17, 2003
                                                         --------------------------

Stephen A McConnell              Director                /s/ Stephen A McConnell      March 17, 2003
                                                         --------------------------

Ben T. Morris                    Director                /s/ Ben T. Morris            March 17, 2003
                                                         --------------------------
</TABLE>

                                       49
<PAGE>
                Certification of the Principal Financial Officer
                     Pursuant to 15 U.S.C. 78m(a) or 78o(d)
                 (Section 302 of the Sarbanes-Oxley Act of 2002)

I, Mark C. Walker,  Vice  President,  Chief  Financial  Officer,  Secretary  and
Treasurer of Capital Title Group, Inc. (the "Company"), certify that:

(1)  I have reviewed this annual report on Form 10-K of the Company;

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

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

(4)  The  Company's  other   certifying   officer  and  I  are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13A-14 and 15d-14) for the Company and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material   information   relating  to  the  Company,   including   its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  evaluated the effectiveness of the Company's  disclosure  controls and
          procedures  as of a date  within 90 days prior to the  filing  date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

(5)  The Company's other certifying  officer and I have disclosed,  based on our
     most recent  evaluation,  to the Company's auditors and the audit committee
     of the Company's  board of directors (or persons  performing the equivalent
     function );

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls which could adversely affect the Company's ability to record,
          process,  summarize and report  financial data and have identified for
          the Company's  auditors any material  weaknesses in internal controls;
          and

     (b)  any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          controls; and

(6)  The Company's other certifying  officer and I have indicated in this annual
     report whether or not there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

/s/ Mark C. Walker
-----------------------------
Mark C. Walker
Capital Title Group, Inc.
Vice President, Chief Financial Officer, Secretary and Treasurer
March 17, 2003

                                       50
<PAGE>
                Certification of the Principal Executive Officer
                     Pursuant to 15 U.S.C. 78m(a) or 78o(d)
                 (Section 302 of the Sarbanes-Oxley Act of 2002)

I, Donald R. Head, Chairman of the Board,  President and Chief Executive Officer
of Capital Title Group, Inc. (the "Company"), certify that:

(1)  I have reviewed this annual report on Form 10-K of the Company;

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

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

(4)  The  Company's  other   certifying   officer  and  I  are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13A-14 and 15d-14) for the Company and we have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material   information   relating  to  the  Company,   including   its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  evaluated the effectiveness of the Company's  disclosure  controls and
          procedures  as of a date  within 90 days prior to the  filing  date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

(5)  The Company's other certifying  officer and I have disclosed,  based on our
     most recent  evaluation,  to the Company's auditors and the audit committee
     of the Company's  board of directors (or persons  performing the equivalent
     function );

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls which could adversely affect the Company's ability to record,
          process,  summarize and report  financial data and have identified for
          the Company's  auditors any material  weaknesses in internal controls;
          and

     (b)  any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          controls; and

(6)  The Company's other certifying  officer and I have indicated in this annual
     report whether or not there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

/s/ Donald R. Head
-----------------------------
Donald R. Head
Capital Title Group, Inc.
Chairman of the Board, President, Chief Executive Officer
March 17, 2003

                                       51