We occupy a leased facility of approximately 8,700 square feet in Scottsdale, Arizona, in which our executive offices are located. In addition, we have a 50-year ground lease, through December 2047, for a 24,000 square foot building in Phoenix, Arizona, which includes our Arizona administration, a title department, and two escrow branches. See Note 10 to our consolidated financial statements for additional information relating to our lease commitments.
(1) Appraisal service revenue was a new revenue stream in 2004, resulting from providing appraisal services to customers through Nationwide, our newly acquired subsidiary.
Our Lender Services segment encompasses our bundled services strategy, which currently includes real estate appraisal and valuation services, title insurance and escrow related services and flood zone determination services which are marketed to regional and national lenders and mortgage brokers. The significant subsidiaries within this segment include Nationwide Appraisal Services Corporation, Nationwide TotalFlood and Real Estate Appraisal Services, Inc. Unlike our traditional title and escrow services division, this segment typically conducts its business on a national scope from centralized processing centers. This segment generates its revenue principally from providing appraisal and valuation services, issuing title insurance policies, providing escrow services and flood zone determination services primarily for lenders involved in residential real estate transactions.
We reported net income of $15.6 million, $16.6 million and $7.3 million for the years ended December 31, 2004, 2003 and 2002, respectively. The Company experienced a decline in net income during 2004 resulting primarily from an increase in the mix of business toward our traditional title and escrow operations in California where we experience historically lower margins due to the highly competitive market within California. Additionally, we did not achieve anticipated margins in our Lender Services segment primarily resulting from short-term transition and integration costs subsequent to the acquisition of Nationwide and TotalFlood. Despite the decline in net income, we did post earnings that reflected the continued strong residential real estate market during 2004 and the additional operations acquired during 2004. The operations acquired during 2004 provided $2.0 million of pre-tax earnings to consolidated results.
Our revenue from title insurance, escrow and related real estate services is primarily from three sources: residential resale, lender/refinance and commercial real estate transactions. We typically recognize revenue for the services we perform when the corresponding real estate transaction closes. In the case of
When evaluating title insurance and escrow losses we estimate 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 the current industry and legal environments. Settlement of claims for known, as well as incurred but not reported losses, for amounts greater than what has been provided for in these financial statements would require additional provision in future periods.
In July of 2004, we acquired DPSI, since renamed Nationwide TotalFlood. TotalFlood, through a centralized processing center located in Los Angeles, California, is a provider of residential and commercial flood determinations on property throughout the United States. The transaction included payment of $1.7 million in cash for the total amount of the purchase price.
Included in the results of operations during 2003 was revenue of approximately $10.2 million and pre-tax income of $0.8 million related to the acquisition of Land Title of Nevada, Inc.
Our revenue, which is reported net of underwriting fees paid to third party title insurance underwriters, increased by $40.6 million, or 16.2%, for the year ended December 31, 2004 compared to the same period ended December 31, 2003. Operations acquired during 2004 contributed $38.3 million of the increase in revenue for the year ended December 31, 2004 compared to 2003. The remaining $2.3 million of the increase was primarily the result of strong demand for title insurance and related services, fueled by a strong housing market resulting from the low mortgage interest rate environment during 2004, as well as an increase in the average revenue per closed order and an increase in investment income due to improved investment returns and higher investment balances during 2004.
Personnel costs are the most significant component of our operating expenses, and consist of salaries and other related personnel expenses, commissions and incentives. Total personnel expenses increased $15.0 million, or 9.7%, to $169.6 million for the year ended December 31, 2004 compared to the prior year. Personnel costs were higher for the year ended December 31, 2004 resulting from the additional operations acquired as part of our Lender Services segment. Personnel costs were lower as a percentage of revenue for the year ended December 31, 2004 compared to the prior year as a result of the mix of revenue coming from the operations of Nationwide, which have lower personnel costs than our traditional title and escrow operations due to the use of third-party appraisers and abstractors rather than employees.
Rent expense increased as a percentage of revenue for the year ended December 31, 2004 to 6.0% from 5.7% for the prior year. The increase in relation to revenue is primarily related to the expansion of branches in Southern California during the year. Our growth in recent years in this market necessitated an increase in office space to accommodate current and anticipated future space requirements. Rent expense overall is higher in 2004 compared to 2003, resulting from additional office locations which were acquired during 2004, as previously discussed.
Provision for title insurance and escrow losses decreased as a percentage of revenue for the year ended December 31, 2004 to 2.1% from 3.7% for the prior year. This decrease was primarily due to favorable claim experience in both our traditional title and escrow agency operations and insurance underwriting operation. In addition, this percentage is expected to decline in 2005 as we increase revenue from our appraisal and real estate settlement services, which have no provision for such losses.
Our revenue, which is reported net of underwriting fees paid to third party title insurance underwriters, increased by $122.5 million, or 96%, for the year ended December 31, 2003 compared to the same period ended December 31, 2002. Operations acquired during 2002 and 2003 contributed $94.8 million of the increase in revenue for the year ended December 31, 2003 compared to 2002, including $5.2 million of title remittance fees generated by our agency operations that were retained by directing the underwriting of policies to United Title Insurance Company, for the year ended December 31, 2003. The remaining $27.7 million of the increase was primarily the result of increased demand for title insurance and related services, fueled by a strong housing market and a high level of mortgage refinance transactions, resulting from the low mortgage interest rate environment during 2003.
The increase in opened and closed orders in 2003 compared to the prior year reflects the inclusion of opened and closed orders for Nations Holding Group for the full year 2003, as these operations were acquired in September 2002. Additionally, the favorable housing market and high level of refinance transactions resulting from low mortgage interest rates also contributed to the increase in order activity. We experienced a slight decline in the average revenue per closed order during 2003 compared to the prior year reflecting the increase in business mix toward refinance transactions, which typically carry lower revenue in comparison to residential resale and commercial real estate transactions.
In April 2004, we completed a private placement of 2.8 million shares of common stock to select qualified institutional and other investors at a price of $3.60 per share. We also granted to the investors and placement agents warrants to acquire an aggregate 889,252 shares of common stock at an exercise price of $4.00 per share, exercisable for a period of five years. The net proceeds from the private placement of common stock were $8.7 million and were used to finance a portion of the purchase price for the acquisition of Nationwide in April 2004.
In April 2004, we acquired Nationwide. Under the terms of the acquisition, approved by the Board of Directors for each company, we paid $25.0 million in cash at closing, with $3.0 million in deferred cash consideration payable if certain conditions are satisfied after the closing of the transaction. We paid for this acquisition through a combination of cash on hand, proceeds from the private placement of common stock and warrants to purchase common stock, and proceeds from a $16.0 million credit facility with Comerica Bank. The Comerica Bank credit facility included a loan in the amount of $16.0 million bearing interest at a fixed rate of 4.75%. Under the terms of the Comerica Bank credit facility we made a $6.0 million payment of principal on September 30, 2004. The remaining $10.0 million balance outstanding under the Comerica Bank credit facility is being amortized over a five year period with monthly payments of approximately $166,667 plus interest and had an outstanding balance of $9.5 million at December 31, 2004. During 2004, it was determined that $1.0 million of the deferred cash consideration will not become payable as certain conditions surrounding milestones related to development of software were not met as previously required under terms of the agreement. Only $1.2 million of the contingent consideration discussed above has been earned and this amount will be paid in March 2005.
In November 2004, we acquired substantially all of the assets of Real Estate Appraisal Services, Inc. Under the terms of the asset purchase agreement, approved by the Board of Directors for each company, the purchase price was $0.8 million. The purchase price was financed by $0.3 million in cash and $0.5 million in a seller-financed note with a one year term bearing 5.5% interest.
Cash flows provided by operating activities were $22.9 million for the year ended December 31, 2004 compared to cash flows provided by operating activities of $26.4 million during the year ended December 31, 2003. The decrease in cash provided is the result of an increase in accounts receivable, reflecting less earnings being converted directly to cash during 2004. Additionally, the decrease in net income also impacted operating cash flow during 2004. The significant non-operating uses of cash for the year ended December 31, 2004 included the purchase of Nationwide Appraisal and Nationwide TotalFlood, the purchase of additional property and equipment related to expansion of new offices in our traditional title and escrow operations and net investment activity related to purchases of equity securities and fixed maturity bonds. Additionally, we invested $1.6 million in a partnership that will own an office building in Washington, Pennsylvania that will house Nationwide’s centralized processing center and administration. The company’s primary financing activities included debt borrowings and issuance of common stock to assist in the financing of acquisition activity in 2004, and have included repayment of $8.9 million toward outstanding debt.
Our title insurance underwriter, United Capital Title Insurance Company, is subject to regulations that limit its ability to pay dividends or make loans or advances to its parent, principally for the protection of policyholders. Generally, the total amount of dividends and distributions is limited to the greater of 10% of United Capital Title Insurance Company’s surplus, which amount was $16.8 million as of December 31, 2004, or 100% of net income, which was $3.4 million, for the year period ended December 31, 2004, provided that the amount does not exceed United Capital Title Insurance Company’s earned surplus. Under these restrictions, United Capital Title Insurance Company could pay, to its parent, dividends of $3.4 million during 2005 without prior regulatory approval. Of our $10.8 million in cash and cash equivalents at December 31, 2004, $1.7 million relates to United Capital Title Insurance Company and would be subject to the aforementioned restrictions. Of our $32.5 million investment portfolio, consisting of short term investments, fixed maturity bonds and equity securities, $30.8 million related to United Capital Title Insurance Company and would be subject to the aforementioned restrictions.
We believe that cash on hand, anticipated future cash receipts and borrowings available under our credit facilities will be sufficient to meet our operating plans and to pay all obligations as they become due for the next twelve months.
Historically, residential real estate activity has been generally slower in late autumn and winter, when fewer families move, buy or sell homes, with increased volume in the spring, summer and early autumn. Residential refinancing activity is generally more uniform throughout the year, subject to interest rate stability. Demand for our title insurance and related settlement services generally tracks these seasonal demand patterns of the residential real estate market, although acquisitions of other title insurance and related settlement service companies and changes in interest rates may alter these traditional seasonal demand patterns. We typically report our lowest revenue and earnings in the first quarter, with revenue and earnings increasing into the second quarter and through the third quarter and declining again in the fourth quarter. Operating results for the first quarter of 2005, which we anticipate will be profitable, will be negatively impacted by costs associated with expanding our northern California operations and lower than anticipated revenue levels from our recent acquisition of Real Estate Appraisal Services, Inc.
The following table sets forth our contractual commitments and commercial obligations as of December 31, 2004 ($ in thousands):
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capital Title Group, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
Land Title of Nevada, Inc. (“Land Title”) is a Nevada corporation established in 1978. Land Title provides escrow and title services to the real estate industry in Clark County, Nevada, which comprises the metropolitan area of Las Vegas.
Real Estate Appraisal Services, Inc., an Ohio corporation, was established in November 2004 as a result of an asset purchase and provides appraisal services in five states including Ohio, Pennsylvania, Michigan, Illinois and New York.
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Management believes the estimates and assumptions that require management’s most difficult, subjective or complex judgments form the basis of identifying the accounting policies that are most critical to the Company. The critical accounting policies to the Company include policies related to reserves for title insurance and escrow losses, related contingencies and litigation surrounding title and escrow losses and impairment of intangible assets. 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.
Certain reclassifications have been made in the 2003 and 2002 consolidated financial statements to conform to the presentation used in 2004.
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.
Short term investments consist of certificates of deposit with original maturities of 91 days to one year.
At December 31, 2004, goodwill consisted of cost in excess of net assets acquired. 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, Goodwill and Other Intangible 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, 2004, management has not identified any events or circumstances that indicate that any long-lived assets are impaired.
The Company’s reserve for title insurance losses from its title insurance underwriter 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.
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.
Pro forma information regarding net income and earnings per share has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 3.4 for 2004, 3.0% for 2003 and 1.6% for 2002; dividend yields of 1.5% for 2004, 1.6% for 2003 and 0% for 2002; volatility factors of the expected market price of the Company’s common stock was 40% for 2004, 48% for 2003 and 67% for 2002; and a weighted-average expected life at the date of grant of options of four years for 2004, 2003 and 2002.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.
Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
The Company’s two reportable segments are Title and Escrow Services and Lender Services. Additional information related to the Company’s segments are included in Note 17.
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, 2004 and 2003 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 the Company’s long term debt instruments provide for fixed rates of interest with the exception of one term loan which has a variable interest rate tied to a market index. All are comparable to what they could be replaced for in the current market, therefore the carrying value approximates their fair value at December 31, 2004 and 2003.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 153, Exchanges of Non-monetary Assets - an Amendment of Opinion No. 29. This Statement amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges on non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of Statement No. 153 will be effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We have evaluated this accounting standard and have determined it will not have an impact to our consolidated financial statements.
In December 2004, the FASB revised SFAS No. 123, Share-Based Payment (“SFAS 123R”). SFAS 123R replaces SFAS No. 123 and, although the two pronouncements are similar in most respects, a key difference among the pronouncements is that SFAS 123R generally requires companies to recognize the cost of employee services rendered in exchange for awards of equity instruments based on the grant-date fair value of those awards. SFAS 123R is effective as of the beginning of the first interim reporting period that begins after June 15, 2005 and may be adopted earlier. The Company did not adopt SFAS 123R as of December 31, 2004 and as a result, SFAS 123R has not affected the Company’s consolidated financial position or results of operations to date. The adoption of SFAS 123R is expected to result in an increase in the Company’s employee costs although the actual impact has not yet been determined as the Company has not yet determined which option valuation approach it will use to estimate the fair value of the stock option grants.
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, 2004 and 2003, the accounts contain balances of approximately $789.7 million and $486.7 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.
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. Of the $17.0 million in cash and cash equivalents and short-term investments on hand at December 31, 2004, $12.3 million was not insured by the Federal Deposit Insurance Corporation.
In July 2004, The Company acquired Determination Processing Services, Inc., which was subsequently renamed Nationwide TotalFlood Services, Inc. (“Nationwide TotalFlood”). Nationwide TotalFlood, based in Los Angeles, California, provides residential and commercial flood determinations on property throughout the United States, and increases the Company’s service capacity for our Lender Services segment. Under the terms of the acquisition, approved by the Board of Directors of each company, the purchase price was $1.7 million and was financed from cash on hand. The operations of Nationwide TotalFlood have been included in the consolidated financial statements of the Company since July 1, 2004, which was the effective date of the transaction.
The purchase price was allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. Included in this allocation of the purchase was approximately $2.0 million of goodwill. The following table summarizes the estimated fair values of the allocation of the purchase price and direct acquisition costs to the assets and liabilities acquired at the date of purchase ($ in thousands):
In May 2004, the Company acquired Nationwide Appraisal Services Corporation (“Nationwide”). Under the terms of the acquisition, approved by the Board of Directors for each company, the Company paid $25.0 million in cash at closing, with $3.0 million in deferred cash consideration payable if certain conditions are satisfied after the closing of the transaction. Subsequent to the closing, it was determined that certain conditions relating to $1.0 million of the deferred cash consideration will not be required to be paid, in accordance with provisions of the acquisition agreement. Nationwide provides real estate appraisal services and also issues title insurance policies throughout most large markets in the United States and is the cornerstone of the Company’s Lender Services segment. The purchase price was financed from cash on hand, proceeds from the private placement of common stock and warrants to purchase common stock, and a credit facility from a bank totaling $16.0 million. The credit facility included a loan currently bearing interest at a fixed rate of 4.75%. The terms of the credit facility required a $6.0 million payment of principal on September 30, 2004. The remaining balance outstanding under the credit facility is being amortized over a five year period with monthly payments of $166,667 plus interest. The operations of Nationwide have been included in the consolidated financial statements of the Company since May 1, 2004, which was the effective date of the transaction.
In January 2003, the Company acquired Land Title of Nevada, Inc. (“Land Title”). Land Title provides title insurance and escrow services to residential and commercial customers in the real estate industry. The acquisition marks the Company’s entrance into the Las Vegas, Nevada market adding five branch offices and 94 employees. The transaction, which was accounted for using guidance set forth in FASB Statement No. 141, Business Combinations, included payment of $1.25 million in cash and issuance of a $2.25 million, five-year note to the seller for a total purchase price of approximately $3.5 million. The note provides for monthly installments and accrues interest at prime, with a floor of 4.75% and a ceiling of 6.75%. The operations of Land Title have been included in the consolidated financial statements of the Company since January 1, 2003, which was the effective date of the transaction.
Selected unaudited pro forma combined results of operations for the years ended December 31, 2004 and 2003, assuming acquisitions made in 2004, discussed above, occurred January 1, 2003, are as follows ($ in thousands, except per share data):
Contractual maturities at December 31, 2004, 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):
At December 31, 2004 the Company had fixed maturity bonds with an amortized cost of $14.3 million and fair value of $14.5 million that have provisions, which give borrowers the right to call or prepay their obligations with or without prepayment penalties.
Investment in equity securities at December 31, 2004 and 2003 consists of investments in the following ($ in thousands):
Gross realized gains related to fixed maturity bonds, available-for-sale were $0, $27,000 and $58,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Gross realized gains related to equity securities, available-for-sale were $289,000, $279,000 and $5,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Gross realized losses related to equity securities, available-for-sale were $89,000, $0 and $0 for the years ended December 31, 2004, 2003 and 2002, respectively.
Gross unrealized losses on investment securities and the fair values of the related securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2004, were as follows ($ in thousands):
Other income includes net investment income related to the Company’s investment portfolio of approximately $0.9 million and $0.7 million for the years ended December 31, 2004 and 2003, respectively.
The income tax expense (benefit) consists of the following ($ in thousands):
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, 2004 and 2003 are as follows ($ in thousands):
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, 2004, there were no cash draws against either credit line. There is $791,000 committed against one credit line for standby letters of credit required pursuant to office leases and a group insurance policy.
The Company’s lines of credit and term loan agreements are secured by substantially all of the Company’s assets and contain certain provisions which may restrict the Company’s ability to incur additional debt, make acquisitions or dispose of significant assets, as well as certain covenants related to the Company’s financial position and operating results.
The maturities of long-term debt after December 31, 2004 were as follows ($ in thousands):
The Company leases office equipment and offices at approximately 130 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, 2004, 2003 and 2002 rental expense was $17.4 million, $14.3 million and $7.9 million, respectively.
United Title has been named in a 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 which seeks restitution of alleged violations of law in connection with title and escrow practices. Additionally, the California State Controller is conducting an audit of United Title including, among other things, its practices related to unclaimed property. In conjunction with the acquisition of Nations Holding Group in September, 2002 the Company has access to a funded indemnification account which we believe is sufficient to cover any potential exposure on these matters. Accordingly, management does not believe this potential exposure would have a material affect to our financial position, results of operations or cash flows. The results of legal proceedings cannot be predicted with certainty, but United Title intends to vigorously defend the lawsuit and any adverse findings of the State Controller.
Our title insurance underwriter, United Capital, is subject to regulations that limit its ability to pay dividends or make loans or advances to its parent, principally for the protection of policyholders. Generally, the total amount of dividends and distributions is limited to the greater of 10% of United Capital’s surplus, which amount was $16.8 million as of December 31, 2004, or 100% of net income for the previous calendar year which amount was $3.4 million for the year ended December 31, 2004. Under these restrictions, United Capital could pay, to its parent, dividends of $3.4 million during 2005 without prior regulatory approval. Of our $10.8 million in cash and cash equivalents at December 31, 2004, $1.7 million relates to United Capital and would be subject to the aforementioned restrictions. Of our $32.5 million investment portfolio, consisting of short term investments, fixed maturity bonds and equity securities, $30.8 million related to United Capital and would be subject to the aforementioned restrictions.
Substantially all of the Company’s employees may elect to defer up to 15% of their salary. Under this plan, the Company contributes $0.33 for every $1.00 the employee contributes, up to a maximum of $1,000. Vesting of matching contributions is based on certain service requirements. Employees are fully vested after three years of service.
The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related Interpretations in accounting for its 1996 Stock Option Plan and the Company’s Non-Employee Directors Stock Option Plan. Under APB 25, because the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s consolidated financial statements.
As a result, segment information is from May 1, 2004, the acquisition date of Nationwide. Summarized financial information concerning the Company’s reportable segments is presented as follows for the year ended December 31, 2004 ($ in thousands):