Edgar Filing: AMERICAN NATIONAL FINANCIAL INC

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


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


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

For the Quarter Ended September 30, 2002

Commission File Number 0-24961

AMERICAN NATIONAL FINANCIAL, INC.

(Exact name of registrant as specified in its charter)


California		33-0731548

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


1111 E. Katella Avenue, Suite 220, Orange, California		92867

(Address of principal executive offices)		(Zip Code)

(714) 289-4300

(Registrant’s telephone number, including area code)

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

YES ( X ) NO ( )

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Common stock, no par value, 9,526,083 shares as of November 4, 2002

TABLE OF CONTENTS


Part I: FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
		CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Market Risk Disclosures
	Item 4. Controls and Procedures
Part II: OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EXHIBIT 99.1
EXHIBIT 99.2

FORM 10-Q

QUARTERLY REPORT
Quarter Ended September 30, 2002

TABLE OF CONTENTS


			Page Number

Part I:	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements
		A. Condensed Consolidated Balance Sheets as of
		September 30, 2002 and December 31, 2001	3
		B. Condensed Consolidated Statements of Earnings
		for the three-month and nine month periods ended
		September 30, 2002 and 2001	4
		C. Condensed Consolidated Statements of Comprehensive Earnings
		for the three-month and nine-month periods
		ended September 30, 2002 and 2001	5
		D. Condensed Consolidated Statement of Shareholders’ Equity
		for the nine-month period ended September 30, 2002	6
		E. Condensed Consolidated Statements of Cash Flows
		for the nine-month periods ended September 30, 2002 and 2001	7
		F. Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial
		Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Market Risk Disclosures	15
	Item 4.	Controls and Procedures	15
Part II:	OTHER INFORMATION
	Item 1.	Legal Proceedings	15
	Item 2.	Changes in Securities	15
	Items 3., 4 and 5. of Part II have been omitted because they are not applicable with respect
	to the current reporting period		15
	Item 6.	Exhibits and Reports on Form 8-K	16

Part I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)


			September 30,			December 31,
			2002			2001

			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	17,658		$	9,400
Short-term investments, at cost, which approximates fair market value				1,290			618
Accrued investment interest				412			383
Trade receivables, net of allowance for doubtful accounts of $1,936 in 2002 and $2,011 in 2001				4,174			3,803
Notes receivables — related party, net				—			1,812
Deferred tax asset, current				2,869			1,791
Prepaid expenses and other current assets				2,299			507

		Total current assets		28,702			18,314
Investment securities available for sale, at fair market value				26,620			24,721
Deferred tax asset, long-term				2,328			1,946
Property and equipment, net				10,315			7,614
Title plants				4,132			2,699
Deposits with the Insurance Commissioner				133			133
Cost in excess of net assets acquired, net of accumulated amortization of $2,022 in 2002 and 2001				11,226			11,226

		Total assets	$	83,456		$	66,653

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses			$	17,051		$	15,092
Customer advances				5,090			4,802
Current portion of long-term debt				521			566
Current portion of obligations under capital leases with affiliates				109			102
Current portion of obligations under capital leases with non-affiliates				177			146
Reserve for claim losses				3,570			2,730
Income tax payable				2,940			—
Due to affiliate				2,776			2,712

	Total current liabilities			32,234			26,150
Long-term debt				595			2,962
Obligations under capital leases with affiliates				636			722
Obligations under capital leases with non-affiliates				822			906

	Total liabilities			34,287			30,740
Shareholders’ equity:
Preferred stock, no par value; authorized 5,000,000 shares; issued and outstanding, none				—			—
Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding, 9,516,535 in 2002 and 8,869,714 in 2001				—			—
Additional paid in capital				23,442			20,905
Retained earnings				26,578			13,741
Accumulated other comprehensive (loss) income				(851	)		1,267

	Total shareholders’ equity			49,169			35,913

	Total liabilities and shareholders’ equity		$	83,456		$	66,653

See accompanying notes to condensed consolidated financial statements

AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)


		Three months ended				Nine months ended
		September 30,				September 30,

		2002		2001		2002		2001

		(Unaudited)
Revenues:
Net title service revenue — related party		$	28,280	$	18,885	$	75,320	$	54,062
Escrow fees			11,474		7,844		30,692		23,335
Underwriting premiums			5,795		2,354		13,763		5,698
Ancillary service fees			5,167		4,317		15,547		12,717
Gain on sale/exchange of equity security			72		3		2,461		1,003
Investment revenue			351		335		1,137		910

	Total revenues		51,139		33,738		138,920		97,725

Expenses:
Personnel costs			25,846		18,505		70,338		53,238
Other operating expenses including $603 and $851, and $1,561 and $2,914 with affiliate for the three-month and nine-month periods ended September 30, 2002 and 2001, respectively			13,926		8,608		35,259		24,247
Title plant rent and maintenance			2,221		1,733		6,457		5,748

	Total expenses		41,993		28,846		112,054		83,233

Earnings before income taxes			9,146		4,892		26,866		14,492
Income taxes			3,396		2,055		11,015		5,991

Net earnings		$	5,750	$	2,837	$	15,851	$	8,501

Basic earnings per share		$	0.61	$	0.32	$	1.73	$	0.89

Weighted average shares outstanding, basic			9,479		8,779		9,147		9,568

Diluted earnings per share		$	0.52	$	0.29	$	1.50	$	0.82

Weighted average shares outstanding, diluted			11,048		9,946		10,584		10,399

Cash dividends per share, actual		$	0.125	$	0.125	$	0.375	$	0.325

Cash dividends per share after giving retroactive effect to 10% stock dividend and 25% stock split		$	0.125	$	0.10	$	0.325	$	0.305

See accompanying notes to condensed consolidated financial statements

AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)


		Three months ended						Nine months ended
		September 30,						September 30,

		2002			2001			2002			2001

		(Unaudited)
Net earnings		$	5,750		$	2,837		$	15,851		$	8,501
Other comprehensive earnings (loss):
	Unrealized gain (loss) on investment, securities available for sale (1)		(1,192	)		339			(710	)		1,267
	Reclassification adjustment for (gains) in net earnings (2)		(46	)		(2	)		(1,408	)		(592	)

Other comprehensive earnings (loss)			(1,238	)		337			(2,118	)		675

Comprehensive earnings		$	4,512		$	3,174		$	13,733		$	9,176

(1)		Net of income taxes (benefit) of ($779) and $198, and ($446) and $990 for the three-month and nine-month periods ended September 30, 2002 and 2001, respectively.

(2)		Net of income taxes (benefit) of $26 and $1, and $1,053 and $411 for the three-month and nine-month periods ended September 30, 2002 and 2001, respectively.

See accompanying notes to condensed consolidated financial statements

AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)


													Accumulated
		Common Stock					Additional						Other			Total
							Paid In			Retained			Comprehensive			Shareholders'
		Shares			Amount		Capital			Earnings			(Loss) Earnings			Equity

Balance, December 31, 2001			8,869,714		$	—	$	20,905		$	13,741		$	1,267		$	35,913
	Exercise of stock options, including associated tax benefit		793,394			—		4,292			—			—			4,292
	Redemption of director and/or officer notes receivable in exchange for common stock retired		(146,573	)		—		(1,755	)		—			—			(1,755	)
	Unrealized loss on investment securities available for sale		—			—		—			—			(2,118	)		(2,118	)
	Dividends ($0.325 per share)		—			—		—			(3,014	)		—			(3,014	)
	Net earnings		—			—		—			15,851			—			15,851

Balance, September 30, 2002			9,516,535		$	—	$	23,442		$	26,578		$	(851	)	$	49,169

See accompanying notes to condensed consolidated financial statements

AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


				Nine months ended
				September 30,

				2002			2001

Cash flows from operating activities:
Net earnings				$	15,851		$	8,501
	Adjustments to reconcile net earnings to cash provided by operating activities:
	Depreciation and amortization				1,916			2,023
	Gain on sale/exchange of investments				(2,461	)		(1,003	)
	Loss on sale of property and equipment				3			14
	Changes in:
		Accounts receivables, net			(371	)		415
		Interest receivable			(29	)		(126	)
		Tax benefit associated with the exercise of stock options			1,847			81
		Prepaid expenses and other assets			(1,736	)		(15	)
		Income taxes receivable and deferred income taxes			1,480			1,300
		Accounts payable and other accrued expenses			1,656			6,243
		Net increase in reserve for claim losses			840			185
		Due to (from) affiliates			64			(11	)
		Customer advances			288			929

			Net cash provided by operating activities		19,348			18,536

Cash flow from investing activities:
	Proceeds from sale of investment securities				12,673			1,870
	Proceeds from maturity investment securities				2,300			—
	Proceeds from short term investments				480			—
	Collections of notes receivable				—			552
	Additions to property and equipment				(4,620	)		(2,092	)
	Additions to notes receivable				—			(214	)
	Purchase of investment securities available for sale				(15,982	)		(7,342	)
	Purchase of short term investments				(1,699	)		(2,175	)
	Purchase of title plants				(1,433	)		—

			Net cash used in investing activities		(8,281	)		(9,401	)

Cash flows from financing activities:
	Repayment of long-term debt				(2,412	)		(506	)
	Payments of capital lease obligations				(197	)		(188	)
	Proceeds from exercise of stock options				2,445			275
	Additions to capital lease obligations				65			—
	Proceeds from issuance of common stock				—			218
	Dividends paid				(2,710	)		(2,169	)
	Purchase of treasury stock				—			(6,188	)

			Net cash used in financing activities		(2,809	)		(8,558	)

Increase in cash and cash equivalents					8,258			577
Cash and cash equivalents at the beginning of period					9,400			9,450

Cash and cash equivalents at end of period				$	17,658		$	10,027

Supplemental disclosure of cash flow information:
	Cash paid during the year:
		Interest		$	239		$	328
		Income taxes			6,699			5,050
	Non-cash investing activities:
		Dividend declared and unpaid		$	1,185		$	881

See accompanying notes to condensed consolidated financial statements

Notes to Condensed Consolidated Financial Statements

Note A — Basis of Financial Statements

The financial information included in this report includes the accounts of American National Financial, Inc. and its subsidiaries (collectively, the “Company”) and has been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments, consisting of normal recurring accruals considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

Certain reclassifications have been made to the 2001 Condensed Consolidated Financial Statements to conform to classifications used in 2002.

Note B — Share and Per Share Restatement

On June 27, 2002, our Board of Directors declared a five-for-four (5:4) stock split effective July 18, 2002. All data with respect to earnings per share, dividends per share and share information, including price per share where applicable, have been retroactively adjusted to reflect the effects of the stock split.

Note C — Department of Insurance

In June 2001, auditors from the State of California Department of Insurance commenced a market conduct examination of American Title Company (“ATC”). Similar examinations have been or are being conducted at virtually all companies in the title insurance business. The examination is not yet completed. We are unable to determine if an unfavorable outcome is either probable or remote, however, management does not believe that any outcome will have a material effect on our condensed consolidated financial statements.

NOTE D — Earnings Per Share

The Company presents “basic” earnings per share representing net earnings divided by the weighted average shares outstanding (excluding all common stock equivalents), and “diluted” earnings per share, representing the dilutive effect of all common stock equivalents. The following table illustrates the computation of basic and diluted earnings per share.


	Three months ended				Nine months ended
	September 30,				September 30,

	2002		2001		2002		2001

	(In thousands, except per share amounts)
Net earnings, basic and diluted basis	$	5,750	$	2,837	$	15,851	$	8,501

Weighted average shares outstanding during the period, basic		9,479		8,779		9,147		9,568
Plus: Common stock equivalent shares assumed from conversion of options		1,569		1,167		1,437		831

Weighted average shares outstanding during the period, diluted		11,048		9,946		10,584		10,399

Basic earnings per share	$	0.61	$	0.32	$	1.73	$	0.89

Diluted earnings per share	$	0.52	$	0.29	$	1.50	$	0.82

NOTE E — Cash Dividend

On September 25, 2002, our Board of Directors declared a quarterly cash dividend of $.125 per share, paid on October 21, 2002, to stockholders of record on October 7, 2002.

NOTE F — Recent Accounting Pronouncements

Pursuant to the Employee Stock Purchase Plan and the Non-Employee Director Stock Purchase Plan adopted September 29, 1999 by the Board of Directors of ANFI (collectively, the “Purchase Plan”), ANFI was authorized to loan to certain employees and non-employee directors an aggregate of $2,000,000 for the purchase of ANFI common stock, no par value (“Common Stock”). The Purchase Plan made open market purchases of Company common stock through a broker dealer designated by the Company. All loans were full recourse and unsecured, and had a five-year term with interest at six and one quarter percent (61/4%). In January 2002, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board issued EITF 02-1 “Classification of Assets Received in Exchange for Equity Instruments.” Through March 31, 2002, the notes recorded in connection with these loans have been classified as notes receivable. Recent interpretations of EITF 02-1 require that such loans and accrued interest be classified as contra equity. Accordingly, at June 30, 2002, $1.8 million was reclassified to reduce stockholders’ equity.

On July 10, 2002, the Company agreed to accept shares of its common stock as full payment of the notes. The price per share ($14.97 pre-stock split) was determined using the 20-day average closing price on the NASDAQ through July 10, 2002. On a post stock split basis ($11.99 per share), the Company received 146,575 shares of common stock, which shares were retired.

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”) and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria. The statement applies to all business combinations initiated after June 30, 2001.

SFAS No. 142 requires an intangible asset that we acquire to be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill was amortized through December 31, 2001, after which time amortization ceased. We performed a goodwill impairment test in accordance with SFAS No. 142 and there was no impairment of goodwill. Excluding amortization expense of $140,000 and $420,000 for the three and nine-month periods ended September 30, 2001, net earnings, basic earnings per share and diluted earnings per share would have been $3.0 million, $8.9 million, $0.34, $0.93 and $0.30, $0.86, respectively, for the three and nine-month periods ended September 30, 2001.

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS No. 144”) which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supercedes Statement of Financial Accounting Standards 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. SFAS No. 144 does not have a material impact on our financial statements or results of operations.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, (“SFAS No. 146”). This standard is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard is not expected to have a material effect on the Company’s financial position or results of operations.

NOTE G — Transactions with Affiliates

On July 5, 2002, senior management of the Company, in a private transaction sold 627,982 shares, on a pre-split basis, of their personal holdings of the Company’s common stock to Fidelity National Financial, Inc. (“FNF”) at a negotiated price of $15.00 per share. Adjusted for the stock split, FNF received 784,978 shares at a price of $12.00 per share. FNF’s ownership in the Company is 28.5% as of September 30, 2002 compared to 19.9% as of June 30, 2002. Senior management ownership of the Company (excluding vested and unvested stock options) after this transaction is 25.1%.

NOTE H — Note Payable

In September 2002, we paid in full a $1.9 million mortgage note payable and accrued interest in the amount $3,000.

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

Factors That May Affect Operating Results

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company’s expectations, hopes, intentions or strategies regarding the future.

Forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could differ materially from those in such forward-looking statements. The reader should consult the risk factors listed from time to time and other information disclosed in our reports on Forms 10-K and filings under the Securities Act of 1933, as amended.

The following discussion provides information to help understand and assess significant changes and trends related to our financial condition and results of operations. You should read this discussion and analysis in conjunction with the consolidated financial statements and the notes thereto.

Overview

Our revenues include net title service revenue, escrow fees, underwriting premiums, ancillary service fees, gain on sale/exchange of equity securities and investment income. Our operations generate escrow fees from holding and disbursing funds and documents in connection with the closing of real estate transactions. Escrow fees generally fluctuate in a pattern consistent with the fluctuation in net title service revenue. We also provide title insurance services through direct operations and through independent title insurance agents utilizing our underwriter, National Title Insurance of New York Inc. (“National”). Our ancillary services complement title and escrow services. In addition, many of our real estate related services are counter-cyclical to our title insurance and escrow services.

Net title service revenue and escrow fee revenues are recognized as income at the time the underlying real estate transaction closes. Expenses directly related to the title and escrow process are recognized as they are incurred throughout the duration of the transaction. As a result, our recognition of revenue lags approximately 45-90 days behind the recognition of the corresponding expenses. Other fees and revenue are generally recognized as income at the time the underlying transaction closes; however, certain other fees and revenue are recognized as income over the period during which the service is provided. These factors may result in fluctuations in gross margins. Net title service revenues consist of gross title insurance premiums less an 11% underwriting fee paid to the underwriter. Investment revenue consists of revenues received from our investment portfolio in addition to the gain on sale/exchange of equity securities.

While the number of orders that are closed affects our revenue, personnel costs are the largest component of our expenses. Since personnel costs are relatively fixed over the short term, in a rapidly declining market, reductions in the number of orders can adversely affect margins. Gross margins are also affected by the relative numbers of orders that relate to refinancing transactions as compared to those relating to real estate sale transactions.

The average fee per file and corresponding gross margins are higher for real estate sale and resale transactions than refinance transactions for three principal reasons: (i) a larger percentage of sale and resale orders close as compared to refinance orders, (ii) typically two policies are issued in a resale transaction (one each to the buyer and lender) whereas only one is issued in a refinance transaction, (iii) the base rate charged on sale and resale transactions is typically higher than that charged on refinance transactions. As title insurance premiums are calculated with regard to the purchase price of the property or the amount of the related mortgage, average fees per file will also increase during periods in which real estate prices and corresponding mortgage loans are increasing.

Results of Operations

Revenue

The following table presents information regarding the components of our revenue:


	Three months ended				Nine months ended
	September 30,				September 30,

	2002		2001		2002		2001

	(Unaudited)
Gross title premiums	$	37,537	$	23,561	$	98,344	$	66,430

Net title service revenue — related party		28,280		18,885		75,320		54,062
Escrow fees		11,474		7,844		30,692		23,335
Underwriting premiums		5,795		2,354		13,763		5,698
Ancillary services fees		5,167		4,317		15,547		12,717
Gain on sale/exchange of equity securities		72		3		2,461		1,003
Investment revenue		351		335		1,137		910

Total revenue	$	51,139	$	33,738	$	138,920	$	97,725

Orders closed		50,500		30,500		123,300		90,450

Average fee per file	$	902	$	913	$	971	$	919

Total Revenue Total revenue for the third quarter ended September 30, 2002 increased 51.6% to $51.1 million from $33.7 million in the comparable 2001 period. Total revenues for the nine-month period ended September 30, 2002 increased 42.2% to $138.9 million from $97.7 million for the same prior year period. The increase in total revenue for the three-month and nine-month periods is primarily the result of strength in our title, escrow, underwriting premiums and ancillary services, which were positively impacted by favorable market conditions, especially the favorable real estate market aided in part by reduced interest rates and increased money supply.

Net Title Service Revenue — related party. Net title service revenue for the three-month and nine-month periods ended September 30, 2002 compared to the same 2001 periods increased $9.4 million, or 49.7% to $28.3 million from $18.9 million, and $21.3 million or 39.3% to $75.3 million from $54.1 million, respectively, which is the result of the increase in both closed title orders and in the refinance activity businesses. In the three-month periods ended September 30, 2002 and 2001, the average fee per file decreased to $902 and $913. The fee per file decrease in the three months ended September 30, 2002 and 2001, respectively, is consistent with the lower fee per file refinance market compared to the higher fee per file resale real estate market. In the nine-month periods ended September 30, 2002 and 2001 the average fee per file were $971 and $919. The fee per file increase is consistent with the mix of title orders closing in the higher fee per file resale business compared to a lower fee per file refinance driven market in comparable nine-month period.

The following table depicts monthly title and escrow orders opened and closed for the first, second and third quarter of 2002 and 2001.


	Orders		Orders
Month	Opened		Closed

January 2002		15,300		12,600
February 2002		14,100		11,900
March 2002		14,300		12,900

First Quarter 2002		43,700		37,400

April 2002		15,500		12,200
May 2002		16,700		11,700
June 2002		18,800		11,500

Second Quarter 2002		51,000		35,400

July 2002		25,600		13,900
August 2002		37,200		18,000
September 2002		32,100		18,600

Third Quarter 2002		94,900		50,500

Nine-months ended 2002		189,600		123,300

January 2001		19,100		6,900
February 2001		20,000		8,200
March 2001		20,400		11,100

First Quarter 2001		59,500		26,200

April 2001		16,200		10,900
May 2001		15,900		11,900
June 2001		13,400		10,950

Second Quarter 2001		45,500		33,750

July 2001		12,600		10,900
August 2001		15,000		10,800
September 2001		14,000		8,800

Third Quarter 2001		41,600		30,500

Nine months ended 2001		146,600		90,450

Escrow Fees. Escrow fees for the third quarter of 2002 were $11.5 million, an increase of $3.6 million, or 46.3% from the third quarter of 2001. The nine months ended September 30, 2002, escrow fees were $30.7 million, an increase of $7.4 million, or 31.5% from the comparable 2001 period. Escrow fees are primarily related to real estate transactions activity in the Company’s direct operations. The increase in escrow fees is primarily the result of market conditions fueled by continued interest rate decreases and our recent broadened market in Phoenix, Arizona and our newest market in Clark County, Nevada.

Underwriting Premiums. Revenues from underwriting premiums for the third quarter of 2002 were $5.8 million, an increase of $3.4 million, or 146.2% from the third quarter of 2001. For the nine months ended September 30, 2002, underwriting premiums were $13.8 million, an increase of $8.1 million, or 141.5% from the comparable 2001 period. In 2002 the increase in underwriting premiums was indicative of the expansion of our underwriter both through direct operations in Clark County, Nevada and independent agency relationships.

Ancillary Service Fees. Ancillary service fees, such as document preparation services, appraisal services, inspections services, notary signing services and property management services relate partly to the level and mix of business, as well as the performance of certain ancillary service businesses. Ancillary service fees for the third quarter of 2002 increased $850,000, or 19.7% to $5.2 million from $4.3 million in the comparable 2001 period. Ancillary service fees totaled $15.5 million for the nine-month period ended September 30, 2002, an increase of $2.8 million, or 22.3% from ancillary service fees of $12.7 million for the 2001 period. The increase in both periods ended September 30, 2002 is attributed to the Company’s strategy to strengthen its ancillary service business. The Company continues to leverage its core title and escrow businesses and its national presence to expand ancillary service businesses.

Gain On Sale/Exchange of Equity Securities. Gain on sale/exchange of equity securities in the nine-month period ended September 30, 2002 arose from our receiving 322,318 shares of CKE Restaurant Inc.’s (“CKE”) common stock for the remaining 656,453 shares of Santa Barbara Restaurant Group, Inc. (“SBRG”) common stock which we owned. SBRG and CKE concluded a merger in March 2002. The CKE stock price on the closing date of the transaction was $9.45 per share. In accordance with APB Opinion 29, Accounting for Nonmonetary Transactions, even though the shares received were not sold, a realized gain of $2.4 million was required to be recorded. The market price of the 322,318 shares of CKE common stock still owned by the Company was $4.00 per share on November 4, 2002. The $1.0 million gain in 2001 is the result of the sale of a large block of SBRG common stock at the then current market price.

Investment Revenue. Investment revenue is primarily a function of securities markets, interest rates and the amount of cash available for investment. Investment income in the third quarter of 2002 increased $16,000 or 4.8% to $351,000 from $335,000 in the corresponding 2001 period. Investment revenue for the nine-month period ended September 30, 2002 totaled $1.1 million compared with $910,000 in the same 2001 period. The increase in investment and interest revenue earned in the third quarter ended September 30, 2002 is primarily the result of an increase in average invested assets.

Expenses

The following table presents the components of our expenses:


	Three months ended				Nine months ended
	September 30,				September 30,

	2002		2001		2002		2001

	(Unaudited)
Personnel costs	$	25,846	$	18,505	$	70,338	$	53,238
Other operating expenses		13,926		8,608		35,259		24,247
Title plant rent and maintenance		2,221		1,733		6,457		5,748

Total expenses	$	41,993	$	28,846	$	112,054	$	83,233

Our principal costs include personnel costs, other operating expenses and title plant rent and maintenance. Personnel costs include both base salaries and commission expense paid to employees and are the most significant operating expense incurred. These expenses fluctuate with the level of orders opened and closed and the mix of revenue.

Other operating expenses consist of facilities expenses, postage and courier services, computer services, professional services, advertising expense, general insurance, trade and note receivable allowances, depreciation expense and interest expense.

Title plant rent and maintenance costs consist of payments to access title plants and the costs of updating these plants. Title plant rent and maintenance costs include daily update expenses that are dependent on the volume of real estate transaction activity and a rental charge that is based on actual usage.

Personnel Costs. Personnel costs totaled $25.8 million, $18.5 million, $70.3 million and $53.2 million for the three-month and nine-month periods ended September 30, 2002 and 2001, respectively. Personnel costs, as a percentage of total revenue, exclusive of investment revenue and gain on sale/exchange of equity securities, decreased to 51.0% for the three-month period ended September 30, 2002 compared with 55.4% for the corresponding period in 2001. For the nine-month periods ended September 30, 2002 and 2001, personnel expenses as a percentage of total revenue, exclusive of investment revenue and gain on sale/exchange of equity securities, were 52.0% and 55.6%, respectively. Our ability to handle increased resale and refinance activity without a significant increase in staffing resulted in the decreased

personnel expense as a percentage of revenue. We continue to take significant measures to maintain appropriate personnel levels and costs relative to the volume and mix of business and revenues. We continue to monitor the prevailing market conditions and will respond as necessary.

Other Operating Expenses. Other operating expenses, as a percentage of total revenue, exclusive of investment income and gain on sale/exchange of equity securities, increased to 27.5% in the three-month period ended September 30, 2002 compared with 25.8% for the corresponding 2001 period. Other operating expenses, as a percentage of total revenue, exclusive of investment revenue and gain on sale/exchange of equity securities, increased to 26.1% for the nine-month period ended September 30, 2002 compared with 25.3% for the corresponding 2001 period. Our new market in Nevada and our expansion in Arizona caused the increase in other operating expenses for both the three-month and nine-month periods, however, certain fixed costs are incurred regardless of revenue levels, resulting in fluctuations year over year. In addition, expenses paid to affiliates declined due to the implementation of our own employee benefit programs, the costs of which are included in other operating expenses. We continuously review and evaluate operating expenses relative to existing and projected market conditions.

Plant Rent and Maintenance Expense. Title plant rent and maintenance expense totaled $2.2 million and $1.7 million for the three month periods ended September 30, 2002 and 2001, respectively, and $6.5 million and $5.7 million for the nine-month periods ended September 30, 2002 and 2001, respectively. Title plant rent and maintenance expense decreased as a percentage of total revenue, exclusive of investment income and gain on sale/exchange of equity securities, to 4.4% from 5.2% in the three-month periods ended September 30, 2002 and 2001, respectively, and to 4.8% from 6.0% as a percentage of total revenue, exclusive of investment revenue and gain on sale/exchange of equity securities for the nine-month periods ended September 30, 2002 and 2001, respectively. The decrease in both the three and nine-month periods in title plant expense is primarily a result of renegotiations within several counties in California and Arizona resulting in maintaining consistent cost reductions for the Company as well as our increase in independent agency underwriting premiums.

Income Taxes. Income taxes as a percentage of earnings, for the three-month and nine-month periods ended September 30, 2002, as a percentage of earnings, were 37.2% and 41.0%, income taxes for the three-month and nine-month periods ended September 30, 2001, were 42.0% and 41.4%, respectively. The fluctuations with income taxes as a percentage of earnings, is attributable to the effect of state income taxes on our wholly-owned underwritten title company and our ancillary service companies; the change in the amount and the characteristics of net revenue, operating income versus investment revenue; and the tax treatment of certain items.

Liquidity and Capital Resources

Cash Flows. Our current cash requirements include debt service, debt relating to capital leases, personnel and other operating expenses, taxes and dividends on common stock. We believe that all anticipated cash requirements for current and long-term operations will be met from internally generated funds and through cash received from our subsidiaries. Our cash requirements include expenses relating to the development and expansion of National’s agency business. We presently have in place much of the infrastructure (principally consisting of personnel) that will be used for this development.

Two significant sources of our funds are dividends and distributions from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. These reimbursements are executed within the guidelines of various management agreements between the Company and our subsidiaries. Our insurance underwriting subsidiary is restricted by state regulations in their ability to pay dividends and make distributions. Our underwritten title company and our ancillary companies collect premiums and fees and pay underwriting fees and operating expenses. These companies are restricted only to the extent of maintaining minimum levels of working capital and net worth, but are not restricted by state regulations or banking authorities in their ability to pay dividends and make distributions. The restrictions to maintain minimum levels of working capital and net worth have not changed since December 31, 2001.

In March 2002, we completed the purchase of an ownership interest in a title plant located in Clark County, Nevada, for a purchase price of $1.3 million, paid in cash. Also, in March, we acquired the right to access a title plant located in San Francisco, California for $115,000, paid in cash.

In April 2002, we completed the purchase of an office building located in the County of Orange, California, for a purchase price of $1.1 million, paid in cash. This building will house our growing American Documents division and a new escrow office.

In September 2002, we paid in full a $1.9 million mortgage note payable and accrued interest in the amount $3,000.

Capital Stock Transactions. On September 26, 2002, our Board of Directors approved a stock repurchase program. Under the program, the Company is authorized to repurchase up to an aggregate of $5 million of our common stock in the open market, in block purchases or in privately negotiated transactions, depending upon market conditions and other factors.

Critical Accounting Policies. There have been no material changes in our critical accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2001.

Item 3. Quantitative and Qualitative Market Risk Disclosures

There have been no material changes in the market risk disclosure described in our annual report on Form 10-K for the year ended December 31, 2001.

Item 4. Controls and Procedures

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

In addition, we reviewed our internal controls, and there have no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation.

Part II: OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. We believe that no actions depart from customary litigation incidental to our business and that the resolution of all such litigation will not have a material adverse effect on the Company.

Item 2. Changes in Securities and Use of Proceeds

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits:


99.1		Certification of Periodic Financial Reports pursuant to 18 U.S.C. §1350 signed by Michael C. Lowther, Chief Executive Officer.

99.2		Certification of Periodic Financial Reports pursuant to 18 U.S.C. §1350 signed by Carl A. Strunk, Chief Financial Officer.

(b) Reports on Form 8-K:

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN NATIONAL FINANCIAL, INC.

(Registrant)


By:	/s/ Carl A. Strunk

	Carl A. Strunk Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) and Director	Date: November 7, 2002

CERTIFICATIONS

I, Michael C. Lowther, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American National Financial, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

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

4. The registrant’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 registrant and we have:

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’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 registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’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 registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly 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.


Date: November 7, 2002		/s/ Michael C. Lowther

		Michael C. Lowther Chairman and Chief Executive Officer

CERTIFICATION

I, Carl A. Strunk, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American National Financial, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

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

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


Date: November 7, 2002		/s/ Carl A. Strunk

		Carl A. Strunk Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) and Director

Exhibit Index


Exhibit		Description
99.1		Certification of Periodic Financial Reports pursuant to 18 U.S.C. §1350 signed by Michael C. Lowther, Chief Executive Officer.

99.2		Certification of Periodic Financial Reports pursuant to 18 U.S.C. §1350 signed by Carl A. Strunk, Chief Financial Officer.

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