First American Financial Corp (Form: 10-Q, Received: 11/01/2010 17:06:51)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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

For the quarterly period ended September 30, 2010

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

For the transition period from to

Commission file number 001-34580

FIRST AMERICAN FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Incorporated in Delaware		26-1911571
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 First American Way, Santa Ana, California		92707-5913
(Address of principal executive offices)		(Zip Code)

(714) 250-3000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

On October 25, 2010, there were 104,244,923 shares of common stock outstanding.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

INFORMATION INCLUDED IN REPORT


Part I:	FINANCIAL INFORMATION	4

Item 1.	Financial Statements (unaudited)	4

	A. Condensed Consolidated and Combined Balance Sheets as of September 30, 2010 and December 31, 2009	4

	B. Condensed Consolidated and Combined Statements of Income for the three and nine months ended September 30, 2010 and 2009	5

	C. Condensed Consolidated and Combined Statements of Comprehensive Income for the three and nine months ended September 30, 2010 and 2009	6

	D. Condensed Consolidated and Combined Statements of Cash Flows for the nine months ended September 30, 2010 and 2009	7

	E. Condensed Consolidated Statement of Stockholders’ Equity	8

	F. Notes to Condensed Consolidated and Combined Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

Part II:	OTHER INFORMATION	46

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	47

Item 5.	Other Information	53

Item 6.	Exhibits	53

Items 2 through 4 of Part II have been omitted because they are not applicable with respect to the current reporting period.

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING BUT NOT LIMITED TO THOSE RELATING TO:

•

THE EXPENSES OF OPERATING THE COMPANY AS A SEPARATE PUBLICLY-HELD CORPORATION FOLLOWING THE SPIN-OFF TRANSACTION;

•

THE SALE OF DEBT SECURITIES IN THE COMPANY’S INVESTMENT PORTFOLIO AND IMPAIRMENT LOSSES RELATING THERETO;

•

CHANGES IN UNRECOGNIZED TAX POSITIONS AND THE EFFECT THEREOF ON THE COMPANY’S EFFECTIVE TAX RATE;

•

THE EFFECT OF LAWSUITS, REGULATORY AUDITS AND INVESTIGATIONS AND OTHER LEGAL PROCEEDINGS ON THE COMPANY’S FINANCIAL CONDITION, RESULTS OF OPERATIONS OR CASH FLOWS;

•

THE EFFECT OF PENDING AND RECENT ACCOUNTING PRONOUNCEMENTS ON THE COMPANY’S FINANCIAL STATEMENTS;

•

THE EFFECT OF THE ISSUES FACING THE COMPANY’S CUSTOMERS;

•

THE IMPACT OF TIGHT MORTGAGE CREDIT AND THE UNCERTAINTY IN THE OVERALL ECONOMY ON THE COMPANY’S LINES OF BUSINESS;

•

THE EFFECTS OF FORECLOSURE SUSPENSIONS AND POTENTIAL DEFICIENCIES IN LENDER FORECLOSURE PROCESSES;

•

THE LIKELIHOOD OF CHANGES IN EXPECTED ULTIMATE LOSSES AND CORRESPONDING LOSS RATES;

•

EXPECTED CONTRIBUTIONS TO DEFINED BENEFIT PENSION AND SUPPLEMENTAL BENEFIT PLANS;

•

THE EXTENT OF FOREIGN EXCHANGE EXPOSURE;

•

THE COMPANY’S COST CONTROL INITIATIVES;

•

THE REALIZATION OF TAX BENEFITS ASSOCIATED WITH CERTAIN LOSSES;

•

THE SUFFICIENCY OF THE COMPANY’S RESOURCES TO SATISFY OPERATIONAL CASH REQUIREMENTS; AND

•

FUTURE PAYMENT OF DIVIDENDS,

ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,” “WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES.

•

INTEREST RATE FLUCTUATIONS;

•

CHANGES IN THE PERFORMANCE OF THE REAL ESTATE MARKETS;

•

LIMITATIONS ON ACCESS TO PUBLIC RECORDS AND OTHER DATA;

•

GENERAL VOLATILITY IN THE CAPITAL MARKETS;

•

CHANGES IN APPLICABLE GOVERNMENT REGULATIONS;

•

HEIGHTENED SCRUTINY BY LEGISLATORS AND REGULATORS OF THE COMPANY’S TITLE INSURANCE AND SERVICES SEGMENT AND CERTAIN OTHER OF THE COMPANY’S BUSINESSES;

•

THE INABILITY TO REALIZE THE BENEFITS OF THE SPIN-OFF TRANSACTION AS A RESULT OF THE LANDSCAPE OF THE REAL ESTATE AND MORTGAGE CREDIT MARKETS, MARKET CONDITIONS, INCREASED BORROWING COSTS, COMPETITION OR CONFLICTS BETWEEN THE COMPANY AND CORELOGIC, INC., UNFAVORABLE REACTIONS FROM EMPLOYEES, THE INABILITY OF THE COMPANY TO PAY THE ANTICIPATED LEVEL OF DIVIDENDS, THE TRIGGERING OF RIGHTS AND OBLIGATIONS BY THE TRANSACTION OR ANY LITIGATION ARISING OUT OF OR RELATED TO THE SEPARATION;

•

INCREASES IN THE SIZE OF THE COMPANY’S CUSTOMERS;

•

UNFAVORABLE ECONOMIC CONDITIONS;

•

IMPAIRMENTS IN THE COMPANY’S GOODWILL OR OTHER INTANGIBLE ASSETS;

•

LOSSES IN THE COMPANY’S INVESTMENT PORTFOLIO;

•

EXPENSES OF AND FUNDING OBLIGATIONS TO THE PENSION PLAN;

•

WEAKNESS IN THE COMMERCIAL REAL ESTATE MARKET AND INCREASES IN THE AMOUNT OR SEVERITY OF COMMERCIAL REAL ESTATE TRANSACTION CLAIMS;

•

REGULATION OF TITLE INSURANCE RATES; AND

•

OTHER FACTORS DESCRIBED IN THE COMPANY’S INFORMATION STATEMENT ATTACHED AS EXHIBIT 99.1 TO THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED MAY 26, 2010, AS UPDATED IN PART II, ITEM 1A OF THE COMPANY’S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, 2010 AND JUNE 30, 2010, AND AS FURTHER UPDATED HEREIN.

THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.

PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated and Combined Balance Sheets

(in thousands, except par value)

(unaudited)


	September 30, 2010			December 31, 2009
Assets
Cash and cash equivalents	$	742,843		$	631,297
Accounts and accrued income receivable, net		247,561			239,166
Income taxes receivable		—			27,265
Investments:
Deposits with savings and loan associations and banks		68,272			75,505
Debt securities		1,959,445			1,838,719
Equity securities		284,094			51,020
Other long-term investments		189,451			275,275
Notes receivable from CoreLogic/The First American Corporation (“TFAC”)		19,348			187,825

		2,520,610			2,428,344

Loans receivable, net		163,105			161,897
Property and equipment, net		339,151			358,571
Title plants and other indexes		489,613			488,135
Deferred income taxes		80,305			101,818
Goodwill		802,146			800,986
Other intangible assets, net		71,520			78,892
Other assets		229,037			213,910

	$	5,685,891		$	5,530,281

Liabilities and Equity
Demand deposits	$	1,439,885		$	1,153,574
Accounts payable and accrued liabilities		696,856			699,766
Due to CoreLogic/TFAC, net		4,965			12,264
Deferred revenue		151,860			144,756
Reserve for known and incurred but not reported claims		1,132,775			1,227,757
Income taxes payable		21,005			—
Notes and contracts payable		296,675			119,313
Allocated portion of TFAC debt		—			140,000

		3,744,021			3,497,430

Commitments and contingencies
Stockholders’ equity or TFAC’s invested equity:
Preferred stock, $0.00001 par value, Authorized-500 shares; Outstanding-none		—			—
Common stock, $0.00001 par value:
Authorized - 300,000 shares
Outstanding - 104,238 shares		1			—
Additional paid-in capital		2,030,313			—
Retained earnings		31,242			—
TFAC’s invested equity		—			2,167,291
Accumulated other comprehensive loss		(133,211	)		(147,491	)

Total stockholders’ equity or TFAC’s invested equity		1,928,345			2,019,800
Noncontrolling interests		13,525			13,051

Total equity		1,941,870			2,032,851

	$	5,685,891		$	5,530,281

See notes to condensed consolidated and combined financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated and Combined Statements of Income

(in thousands, except per share amounts)

(unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues
Operating revenues	$	976,650		$	1,069,563		$	2,805,616		$	2,941,832
Investment income		27,309			26,160			71,280			89,163
Net realized investment gains		1,504			8,194			12,136			14,143
Net other-than-temporary impairment (“OTTI”) losses recognized in earnings:
Total OTTI losses on equity securities		—			(664	)		(1,722	)		(21,051	)
Total OTTI losses on debt securities		(2,658	)		(1,616	)		(5,348	)		(44,635	)
Portion of OTTI losses on debt securities recognized in other comprehensive loss		718			(1,056	)		(90	)		34,589

		(1,940	)		(3,336	)		(7,160	)		(31,097	)

		1,003,523			1,100,581			2,881,872			3,014,041

Expenses
Salaries and other personnel costs		308,046			302,484			892,390			912,920
Premiums retained by agents		320,398			363,408			916,975			881,571
Other operating expenses		200,258			244,294			597,975			706,125
Provision for policy losses and other claims		86,450			86,684			240,436			265,744
Depreciation and amortization		18,559			19,862			58,064			60,657
Premium taxes		9,767			10,349			28,289			26,765
Interest		4,057			4,979			10,220			17,058

		947,535			1,032,060			2,744,349			2,870,840

Income before income taxes		55,988			68,521			137,523			143,201
Income taxes		22,645			27,608			56,311			61,527

Net income		33,343			40,913			81,212			81,674
Less: Net income attributable to noncontrolling interests		210			2,088			477			9,355

Net income attributable to the Company	$	33,133		$	38,825		$	80,735		$	72,319

Net income per share attributable to the Company’s stockholders (Note 9):
Basic	$	0.32		$	0.37		$	0.78		$	0.70

Diluted	$	0.31		$	0.37		$	0.76		$	0.70

Cash dividends per share	$	0.06		$	—		$	0.12		$	—

Weighted-average common shares outstanding (Note 9):
Basic		104,173			104,006			104,064			104,006

Diluted		106,112			104,006			106,010			104,006

See notes to condensed consolidated and combined financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated and Combined Statements of Comprehensive Income

(in thousands)

(unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010			2009
Net income	$	33,343	$	40,913	$	81,212		$	81,674

Other comprehensive income, net of tax:
Unrealized gain on securities		17,129		11,898		20,259			51,810
Unrealized gain on securities for which credit-related portion was recognized in earnings		2,933		2,324		5,680			816
Foreign currency translation adjustment		10,464		12,348		4,331			26,966
Pension benefit adjustment		3,388		6,256		(11,869	)		12,562

Total other comprehensive income, net of tax		33,914		32,826		18,401			92,154

Comprehensive income		67,257		73,739		99,613			173,828
Less: Comprehensive income attributable to noncontrolling interests		232		1,403		4,598			10,358

Comprehensive income attributable to the Company	$	67,025	$	72,336	$	95,015		$	163,470

See notes to condensed consolidated and combined financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated and Combined Statements of Cash Flows

(in thousands)

(unaudited)


	For the Nine Months Ended September 30,
	2010			2009
Cash flows from operating activities:
Net income	$	81,212		$	81,674
Adjustments to reconcile net income to cash provided by operating activities:
Provision for policy losses and other claims		240,436			265,744
Depreciation and amortization		58,064			60,657
Share-based compensation expense		12,339			11,921
Net realized investment gains		(12,136	)		(14,143	)
Net OTTI losses recognized in earnings		7,160			31,097
Equity in earnings of affiliates		(7,098	)		(9,942	)
Dividends from equity method investments		2,108			1,856
Changes in assets and liabilities excluding effects of company acquisitions and noncash transactions:
Claims paid, including assets acquired, net of recoveries		(339,854	)		(338,468	)
Net change in income tax accounts		29,786			25,677
Decrease in accounts and accrued income receivable		2,289			11,671
Decrease in accounts payable and accrued liabilities		(44,094	)		(16,993	)
Net change in due to CoreLogic/TFAC		(7,299	)		42,695
Increase in deferred revenue		7,104			1,079
Other, net		(4,597	)		(25,606	)

Cash provided by operating activities		25,420			128,919

Cash flows from investing activities:
Net cash effect of company acquisitions		(2,645	)		(3,637	)
Purchase of subsidiary shares from / other decreases in noncontrolling interests		(3,565	)		(30,712	)
Sale of subsidiary shares to / other increases in noncontrolling interests		66			30,198
Net decrease in deposits with banks		7,794			78,950
Net increase in loans receivable		(1,208	)		(10,548	)
Purchases of debt and equity securities		(1,090,863	)		(541,586	)
Proceeds from sales of debt and equity securities		590,209			384,983
Proceeds from maturities of debt securities		427,765			278,318
Net decrease (increase) in other long-term investments		8,938			(20,153	)
Proceeds from notes receivable from CoreLogic/TFAC		3,906			8,645
Capital expenditures		(47,669	)		(28,555	)
Proceeds from sale of property and equipment		7,035			12,215

Cash (used for) provided by investing activities		(100,237	)		158,118

Cash flows from financing activities:
Net change in demand deposits		286,311			(122,950	)
Proceeds from issuance of debt		210,347			8,000
Proceeds from issuance of note payable to TFAC		29,087			—
Repayment of debt		(33,906	)		(47,637	)
Repayment of debt to TFAC		(169,572	)		—
Payments related to shares issued in connection with restricted stock unit, option and benefit plans		294			—
Distributions to noncontrolling interests		(870	)		(7,272	)
Excess tax benefits from share-based compensation		920			331
Dividends paid to TFAC		—			(53,000	)
Cash dividends		(6,248	)		—
Cash distribution to TFAC upon separation		(130,000	)		—

Cash provided by (used for) financing activities		186,363			(222,528	)

Net increase in cash and cash equivalents		111,546			64,509
Cash and cash equivalents—Beginning of period		631,297			723,651

Cash and cash equivalents—End of period	$	742,843		$	788,160

Supplemental information:
Cash paid during the period for:
Interest	$	12,391		$	8,624
Premium taxes	$	33,050		$	24,839
Income taxes	$	13,089		$	35,850
Noncash investing and financing activities:
Net noncash capital contributions from TFAC	$	2,097		$	8,706
Net noncash distribution to TFAC upon separation	$	(48,168	)	$	—

See notes to condensed consolidated and combined financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

(unaudited)


	First American Financial Corporation Stockholders
	Shares		Common stock		Additional paid-in capital			Retained earnings			TFAC’s invested equity			Accumulated other comprehensive loss			Noncontrolling interests			Total
Balance at December 31, 2009		—	$	—	$	—		$	—		$	2,167,291		$	(147,491	)	$	13,051		$	2,032,851
Net income earned prior to June 1, 2010 separation		—		—		—			—			36,777			—			147			36,924
Net contributions from TFAC		—		—		—			—			2,097			—			—			2,097
Distribution to TFAC upon separation		—		—		—			—			(178,168	)		(22,051	)		—			(200,219	)
Capitalization as a result of separation from TFAC		—		—		2,025,930			—			(2,025,930	)		—			—			—
Issuance of common stock at separation		104,006		1		(1	)		—			—			—			—			—
Net income earned following June 1, 2010 separation		—		—		—			43,958			—			—			330			44,288
Dividends on common shares		—		—		—			(12,502	)		—			—			—			(12,502	)
Shares issued in connection with restricted stock unit, option and benefit plans		232		—		349			(214	)		—			—			—			135
Share-based compensation expense		—		—		4,035			—			—			—			—			4,035
Purchase of subsidiary shares from /other decreases in noncontrolling interests		—		—		—			—			(2,067	)		—			(3,320	)		(5,387	)
Sale of subsidiary shares to /other increases in noncontrolling interests		—		—		—			—			—			—			66			66
Distributions to noncontrolling interests		—		—		—			—			—			—			(870	)		(870	)
Other comprehensive income (Note 13)		—		—		—			—			—			36,331			4,121			40,452

Balance at September 30, 2010		104,238	$	1	$	2,030,313		$	31,242		$	—		$	(133,211	)	$	13,525		$	1,941,870

See notes to condensed consolidated and combined financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)

Note 1 – Basis of Condensed Consolidated and Combined Financial Statements

Spin off

First American Financial Corporation (the “Company”) became a publicly traded company following its spin-off from its prior parent, The First American Corporation (“TFAC”) on June 1, 2010 (the “Separation”). On that date, TFAC distributed all of the Company’s outstanding shares to the record date shareholders of TFAC on a one-for-one basis (the “Distribution”). After the Distribution, the Company owns TFAC’s financial services businesses and TFAC, which reincorporated and assumed the name CoreLogic, Inc. (“CoreLogic”), continues to own its information solutions businesses. The Company’s common stock trades on the New York Stock Exchange under the “FAF” ticker symbol and CoreLogic’s common stock trades on the New York Stock Exchange under the ticker symbol “CLGX.”

To effect the Separation, TFAC and the Company entered into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) that governs the rights and obligations of the Company and CoreLogic regarding the Distribution. It also governs the relationship between the Company and CoreLogic subsequent to the completion of the Separation and provides for the allocation between the Company and CoreLogic of TFAC’s assets and liabilities. The Separation and Distribution Agreement identifies assets, liabilities and contracts that were allocated between CoreLogic and the Company as part of the Separation and describes the transfers, assumptions and assignments of these assets, liabilities and contracts. In particular, the Separation and Distribution Agreement provides that, subject to the terms and conditions contained therein:

•

All of the assets and liabilities primarily related to the Company’s business—primarily the business and operations of TFAC’s title insurance and services segment and specialty insurance segment—have been retained by or transferred to the Company;

•

All of the assets and liabilities primarily related to CoreLogic’s business—primarily the business and operations of TFAC’s data and analytic solutions, information and outsourcing solutions and risk mitigation and business solutions segments—have been retained by or transferred to CoreLogic;

•

On the record date for the Distribution, TFAC issued to the Company and its principal title insurance subsidiary, First American Title Insurance Company (“FATICO”) a number of shares of its common stock that resulted in the Company and FATICO collectively owning 12.9 million shares of CoreLogic’s common stock immediately following the Separation. See Note 17 Transactions with CoreLogic/TFAC to the condensed consolidated and combined financial statements for further discussion of the CoreLogic stock;

•

The Company effectively assumed $200.0 million of the outstanding liability for indebtedness under TFAC’s senior secured credit facility through the Company’s borrowing and transferring to CoreLogic of $200.0 million under the Company’s credit facility in connection with the Separation. See Note 7 Notes and Contracts Payable to the condensed consolidated and combined financial statements for further discussion of the Company’s credit facility.

The Separation resulted in a net distribution from the Company to TFAC of $178.2 million. In connection with such distribution, the Company assumed $22.1 million of accumulated other comprehensive loss, net of tax, which was primarily related to the Company’s assumption of the unfunded portion of the defined benefit pension obligation. See Note 10 Employee Benefit Plans to the condensed consolidated and combined financial statements for additional discussion of the defined benefit pension plan.

Basis of Presentation

The Company’s historical financial statements prior to June 1, 2010 include assets, liabilities, revenues and expenses directly attributable to the Company’s operations. The Company’s historical financial statements prior to June 1, 2010 reflect allocations of certain corporate expenses from TFAC. These expenses have been allocated to the Company on a basis that it considers to reflect fairly or reasonably the utilization of the services provided to or the benefit obtained by the Company’s businesses. The Company’s historical financial statements prior to June 1, 2010 do not reflect the debt or interest expense it might have incurred if it had been a stand-alone entity. In addition, the Company expects to incur other expenses, not reflected in its historical financial statements prior to June 1, 2010, as a result of being a separate publicly traded company. As a result, the Company’s historical financial statements prior to June 1, 2010 do not necessarily reflect what its financial position or results of operations would have been if it had been operated as a stand-alone public entity during the periods covered prior to June 1, 2010, and may not be indicative of the Company’s future results of operations and financial position.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The condensed consolidated and combined financial information included in this report has been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s combined annual financial statements as of December 31, 2009 and 2008, and for each of the three years ended December 31, 2009 included in the information statement filed as Exhibit 99.1 to the Company’s current report on Form 8-K dated May 26, 2010. The condensed consolidated and combined financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the consolidated and combined results for the interim periods.

Certain 2009 amounts have been reclassified to conform to the 2010 presentation.

Principles of Consolidation

The consolidated financial statements reflect the consolidated operations of the Company as a separate, stand-alone publicly traded company subsequent to June 1, 2010. The consolidated financial statements include the accounts of First American Financial Corporation and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in which the Company exercises significant influence, but does not control and is not the primary beneficiary, are accounted for using the equity method. Investments in which the Company does not exercise significant influence over the investee are accounted for under the cost method.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidelines relating to transfers of financial assets which amended existing guidance by removing the concept of a qualifying special purpose entity and establishing a new “participating interest” definition that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarifies and amends the derecognition criteria for a transfer to be accounted for as a sale, and changes the amount that can be recognized as a gain or loss on a transfer accounted for as a sale when beneficial interests are received by the transferor. Enhanced disclosures are also required to provide information about transfers of financial assets and a transferor’s continuing involvement with transferred financial assets. This guidance must be applied as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of this standard had no impact on the Company’s condensed consolidated and combined financial statements.

In June 2009, the FASB issued guidance amending existing guidance surrounding the consolidation of variable interest entities (“VIE”) to require an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the entity (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. This guidance also requires an ongoing reconsideration of the primary beneficiary, and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about an enterprise’s involvement in a VIE. This statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The adoption of this standard had no impact on the Company’s condensed consolidated and combined financial statements.

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. The updated guidance also requires that an entity provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. This updated guidance became effective for interim or annual financial reporting periods beginning after December 15, 2009. Except for the disclosure requirements, the adoption of this statement did not have an impact on the Company’s condensed consolidated and combined financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

In February 2010, the FASB issued updated guidance which amended the subsequent events disclosure requirements to eliminate the requirement for SEC filers to disclose the date through which they have evaluated subsequent events, clarify the period through which conduit bond obligors must evaluate subsequent events and refine the scope of the disclosure requirements for reissued financial statements. The updated guidance was effective upon issuance. Except for the disclosure requirements, the adoption of the guidance had no impact on the Company’s condensed consolidated and combined financial statements.

In March 2010, the FASB issued updated guidance that amends and clarifies the guidance on how entities should evaluate credit derivatives embedded in beneficial interests in securitized financial assets. The updated guidance eliminates the scope exception for bifurcation of embedded credit derivatives in interests in securitized financial assets, unless they are created solely by subordination of one financial instrument to another. The updated guidance is effective for interim financial reporting periods beginning after June 15, 2010, with adoption permitted at the beginning of each entity’s first fiscal quarter beginning after issuance. The adoption of this standard had no impact on the Company’s condensed consolidated and combined financial statements.

Note 2 – Escrow Deposits, Like-kind Exchange Deposits and Trust Assets

The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled $3.20 billion and $2.46 billion at September 30, 2010 and December 31, 2009, respectively, of which $1.0 billion and $0.9 billion, respectively, were held at the Company’s federal savings bank subsidiary, First American Trust, FSB. The escrow deposits held at First American Trust, FSB, are included in the accompanying condensed consolidated and combined balance sheets, in cash and cash equivalents and debt and equity securities, with offsetting liabilities included in demand deposits. The remaining escrow deposits were held at third-party financial institutions.

Trust assets totaled $2.79 billion and $2.93 billion at September 30, 2010 and December 31, 2009, respectively, and were held at First American Trust, FSB. Escrow deposits held at third-party financial institutions and trust assets are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated and combined balance sheets. However, the Company could be held contingently liable for the disposition of these assets.

In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate transactions. As a result of holding these customers’ assets in escrow, the Company has ongoing programs for realizing economic benefits, including investment programs, borrowing agreements, and vendor services arrangements with various financial institutions. The effects of these programs are included in the condensed consolidated and combined financial statements as income or a reduction in expense, as appropriate, based on the nature of the arrangement and benefit earned.

Like-kind exchange funds held by the Company totaled $460.1 million and $385.0 million at September 30, 2010 and December 31, 2009, respectively, of which $276.5 million and $186.1 million at September 30, 2010 and December 31, 2009, respectively, were held at the Company’s subsidiary, First Security Business Bank (“FSBB”). The like-kind exchange deposits held at FSBB are included in the accompanying condensed consolidated and combined balance sheets in cash and cash equivalents with offsetting liabilities included in demand deposits. The remaining exchange deposits were held at third-party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not considered assets of the Company under generally accepted accounting principles and, therefore, are not included in the accompanying condensed consolidated and combined balance sheets. All such amounts are placed in bank deposits with FDIC insured institutions. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the return on the proceeds.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Note 3 – Debt and Equity Securities

The amortized cost and estimated fair value of investments in debt securities, all of which are classified as available-for-sale, are as follows:


	Amortized		Gross unrealized					Estimated		Other-than- temporary impairments
(in thousands)	cost		gains		losses			fair value		in AOCI
September 30, 2010
U.S. Treasury bonds	$	84,029	$	3,387	$	—		$	87,416	$	—
Municipal bonds		247,066		9,695		(80	)		256,681		—
Foreign bonds		173,700		1,928		(181	)		175,447		—
Governmental agency bonds		288,141		3,296		(23	)		291,414		—
Governmental agency mortgage-backed securities		901,322		8,910		(589	)		909,643		—
Non-agency mortgage-backed and asset-backed securities (1)		68,709		1,824		(21,304	)		49,229		26,123
Corporate debt securities		180,604		9,045		(34	)		189,615		—

	$	1,943,571	$	38,085	$	(22,211	)	$	1,959,445	$	26,123

December 31, 2009
U.S. Treasury bonds	$	72,316	$	1,834	$	(297	)	$	73,853	$	—
Municipal bonds		132,965		2,484		(493	)		134,956		—
Foreign bonds		150,105		1,886		(83	)		151,908		—
Governmental agency bonds		326,787		1,816		(1,829	)		326,774		—
Governmental agency mortgage-backed securities		997,293		13,929		(6,080	)		1,005,142		—
Non-agency mortgage-backed and asset-backed securities (1)		94,454		1,546		(36,799	)		59,201		26,213
Corporate debt securities		86,911		1,204		(1,230	)		86,885		—

	$	1,860,831	$	24,699	$	(46,811	)	$	1,838,719	$	26,213

(1)

At September 30, 2010, the $68.7 million amortized cost is net of $5.4 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the nine months ended September 30, 2010. At December 31, 2009, the $94.5 million amortized cost is net of $18.8 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the year ended December 31, 2009. At September 30, 2010, the $21.3 million gross unrealized losses include $11.3 million of unrealized losses for securities determined to be other-than-temporarily impaired and $10.0 million of unrealized losses for securities for which an other-than-temporary impairment has not been recognized. At December 31, 2009, the $36.8 million gross unrealized losses include $17.2 million of unrealized losses for securities determined to be other-than-temporarily impaired and $19.6 million of unrealized losses for securities for which an other-than-temporary impairment has not been recognized. The $26.1 million and $26.2 million other-than-temporary impairments in accumulated other comprehensive income (“AOCI”) as of September 30, 2010 and December 31, 2009, respectively, represent the amount of other-than-temporary impairment losses recognized in AOCI which, from January 1, 2009, were not included in earnings due to the fact that the losses were not considered to be credit related. Other-than-temporary impairments were recognized in AOCI for non-agency mortgage-backed and asset-backed securities only.

The cost and estimated fair value of investments in equity securities, all of which are classified as available-for-sale, are as follows:


(in thousands)	Cost		Gross unrealized					Estimated fair value
(in thousands)	Cost		gains		losses			Estimated fair value
September 30, 2010
Preferred stocks	$	15,174	$	1,467	$	(34	)	$	16,607
Common stocks (1)		259,139		8,350		(2	)		267,487

	$	274,313	$	9,817	$	(36	)	$	284,094

December 31, 2009
Preferred stocks	$	31,808	$	1,523	$	(2,140	)	$	31,191
Common stocks		16,333		3,497		(1	)		19,829

	$	48,141	$	5,020	$	(2,141	)	$	51,020

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

(1)

CoreLogic common stock with a cost basis of $242.6 million and an estimated fair value of $247.8 million is included in common stocks at September 30, 2010. See Note 17 Transactions with CoreLogic/TFAC to the condensed consolidated and combined financial statements for additional discussion of the CoreLogic common stock.

The Company had the following net unrealized gains (losses) as of September 30, 2010 and December 31, 2009:


(in thousands)	As of September 30, 2010			As of December 31, 2009
Debt securities for which an other-than-temporary impairment has been recognized	$	(9,471	)	$	(15,690	)
Debt securities—all other		25,345			(6,422	)
Equity securities		9,781			2,879

	$	25,655		$	(19,233	)

Sales of debt and equity securities resulted in realized gains of $5.0 million and $10.2 million and realized losses of $1.3 million and $1.4 million for the three months ended September 30, 2010 and 2009, respectively. Sales of debt and equity securities resulted in realized gains of $13.1 million and $17.3 million and realized losses of $2.3 million and $3.6 million for the nine months ended September 30, 2010 and 2009, respectively.

The Company had the following gross unrealized losses as of September 30, 2010 and December 31, 2009:


	Less than 12 months					12 months or longer					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
September 30, 2010
Debt securities
U.S. Treasury bonds	$	—	$	—		$	—	$	—		$	—	$	—
Municipal bonds		9,279		(80	)		—		—			9,279		(80	)
Foreign bonds		72,041		(171	)		5,250		(10	)		77,291		(181	)
Governmental agency bonds		13,078		(17	)		4,144		(6	)		17,222		(23	)
Governmental agency mortgage-backed securities		221,815		(318	)		101,754		(271	)		323,569		(589	)
Non-agency mortgage-backed and asset-backed securities		333		(10	)		44,453		(21,294	)		44,786		(21,304	)
Corporate debt securities		6,950		(28	)		669		(6	)		7,619		(34	)

Total debt securities		323,496		(624	)		156,270		(21,587	)		479,766		(22,211	)
Equity securities		276		(10	)		983		(26	)		1,259		(36	)

Total	$	323,772	$	(634	)	$	157,253	$	(21,613	)	$	481,025	$	(22,247	)

December 31, 2009
Debt securities
U.S. Treasury bonds	$	44,382	$	(297	)	$	—	$	—		$	44,382	$	(297	)
Municipal bonds		42,428		(448	)		25,067		(45	)		67,495		(493	)
Foreign bonds		28,541		(82	)		1,091		(1	)		29,632		(83	)
Governmental agency bonds		185,351		(1,817	)		4,138		(12	)		189,489		(1,829	)
Governmental agency mortgage-backed securities		267,692		(3,048	)		319,375		(3,032	)		587,067		(6,080	)
Non-agency mortgage-backed and asset-backed securities		1,767		(176	)		54,733		(36,623	)		56,500		(36,799	)
Corporate debt securities		49,970		(443	)		23,500		(787	)		73,470		(1,230	)

Total debt securities		620,131		(6,311	)		427,904		(40,500	)		1,048,035		(46,811	)
Equity securities		1,362		(1,341	)		7,776		(800	)		9,138		(2,141	)

Total	$	621,493	$	(7,652	)	$	435,680	$	(41,300	)	$	1,057,173	$	(48,952	)

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Substantially all securities in the Company’s non-agency mortgage-backed and asset-backed portfolio are senior tranches and were investment grade at the time of purchase, however many have been downgraded below investment grade since purchase. The table below summarizes the composition of the Company’s non-agency mortgage-backed and asset-backed securities by collateral type, year of issuance and current credit ratings. Percentages are based on the amortized cost basis of the securities and credit ratings are based on Standard & Poor’s Ratings Group (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”) published ratings. If a security was rated differently by both rating agencies, the lower of the two ratings was selected. All amounts and ratings are as of September 30, 2010.


(in thousands, except percentages and number of securities)	Number of Securities		Amortized Cost		Estimated Fair Value		A-Ratings or Higher			BBB+ to BBB- Ratings			Non-Investment Grade
Non-agency mortgage-backed securities:
Prime single family residential:
2007		1	$	7,092	$	2,340		0.0	%		0.0	%		100.0	%
2006		7		33,701		24,388		0.0	%		0.0	%		100.0	%
2005		2		7,563		5,598		0.0	%		0.0	%		100.0	%
2003		1		342		333		100.0	%		0.0	%		0.0	%
Alt-A single family residential:
2007		2		20,011		16,570		0.0	%		0.0	%		100.0	%

		13	$	68,709	$	49,229		0.5	%		0.0	%		99.5	%

As of September 30, 2010, five non-agency mortgage-backed securities with an amortized cost of $31.0 million and an estimated fair value of $21.9 million were on negative credit watch by either S&P or Moody’s.

The amortized cost and estimated fair value of debt securities at September 30, 2010, by contractual maturities, are as follows:


(in thousands)	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
U.S. Treasury bonds
Amortized cost	$	9,669	$	71,480	$	2,746	$	134	$	84,029
Estimated fair value	$	9,879	$	74,048	$	3,306	$	183	$	87,416
Municipal bonds
Amortized cost	$	4,343	$	37,177	$	103,102	$	102,444	$	247,066
Estimated fair value	$	4,428	$	38,768	$	107,806	$	105,679	$	256,681
Foreign bonds
Amortized cost	$	74,245	$	97,029	$	2,426	$	—	$	173,700
Estimated fair value	$	74,294	$	98,706	$	2,447	$	—	$	175,447
Governmental agency bonds
Amortized cost	$	7,408	$	147,636	$	126,497	$	6,600	$	288,141
Estimated fair value	$	7,566	$	149,584	$	127,524	$	6,740	$	291,414
Corporate debt securities
Amortized cost	$	6,633	$	82,136	$	78,779	$	13,056	$	180,604
Estimated fair value	$	6,737	$	85,352	$	83,756	$	13,770	$	189,615

Total debt securities excluding mortgage-backed and asset-backed securities
Amortized cost	$	102,298	$	435,458	$	313,550	$	122,234	$	973,540
Estimated fair value	$	102,904	$	446,458	$	324,839	$	126,372	$	1,000,573

Total mortgage-backed and asset-backed securities
Amortized cost									$	970,031
Estimated fair value									$	958,872
Total debt securities
Amortized cost									$	1,943,571
Estimated fair value									$	1,959,445

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Other-than-temporary impairment—debt securities

Dislocations in the capital and credit markets continue to result in volatility and disruption in the financial markets. These and other factors including the decline in liquidity of credit markets, failures of significant financial institutions, declines in real estate values, uncertainty regarding the timing and effectiveness of governmental solutions, and a general slowdown in economic activity have contributed to decreases in the fair value of the Company’s investment portfolio as of September 30, 2010. As of September 30, 2010, gross unrealized losses on non-agency mortgage-backed and asset-backed securities for which an other-than-temporary impairment has not been recognized were $10.0 million (which represents 6 securities), of which $10.0 million related to 5 securities that have been in an unrealized loss position for longer than 12 months. The Company determines if a non-agency mortgage-backed and asset-backed security in a loss position is other-than-temporarily impaired by comparing the present value of the cash flows expected to be collected from the security to its amortized cost basis. If the present value of the cash flows expected to be collected exceed the amortized cost of the security, the Company concludes that the security is not other-than-temporarily impaired. The Company performs this analysis on all non-agency mortgage-backed and asset-backed securities in its portfolio that are in an unrealized loss position. The methodology and key assumptions used in estimating the present value of cash flows expected to be collected are described below. For the securities that were determined not to be other-than-temporarily impaired at September 30, 2010, the present value of the cash flows expected to be collected exceeded the amortized cost of each security.

If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is other-than-temporarily impaired and it is written down to fair value with all losses recognized in earnings. As of September 30, 2010, the Company does not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell debt securities before recovery of their amortized cost basis.

If the Company does not expect to recover the amortized cost basis of a debt security with declines in fair value (even if the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security before the recovery of its remaining amortized cost basis), the losses the Company considers to be the credit portion of the other-than-temporary impairment loss (“credit loss”) is recognized in earnings and the non-credit portion is recognized in other comprehensive income. The credit loss is the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted at the rate implicit in the security immediately prior to the recognition of the other-than-temporary impairment.

Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security, including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project expected future cash flows may be different depending on the nature of the individual debt security. Specifically, the cash flows expected to be collected for each non-agency mortgage-backed and asset-backed security are estimated by analyzing loan-level detail to estimate future cash flows from the underlying assets, which are then applied to the security based on the underlying contractual provisions of the securitization trust that issued the security (e.g. subordination levels, remaining payment terms, etc.). The Company uses third-party software to determine how the underlying collateral cash flows will be distributed to each security issued from the securitization trust. The primary assumptions used in estimating future collateral cash flows are prepayment speeds, default rates and loss severity. In developing these assumptions, the Company considers the financial condition of the borrower, loan to value ratio, loan type and geographical location of the underlying property. The Company utilizes publicly available information related to specific assets, generally available market data such as forward interest rate curves and CoreLogic’s securities, loans and property data and market analytics tools.

The table below summarizes the primary assumptions used at September 30, 2010 in estimating the cash flows expected to be collected for these securities.


	Weighted average	Range
Prepayment speeds	9.0%	5.0% – 15.0%
Default rates	6.1%	0.1% – 19.8%
Loss severity	34.9%	0.1% – 48.6%

As a result of the Company’s security-level review, it recognized $1.9 million and $5.4 million of other-than-temporary impairments in earnings for the three and nine months ended September 30, 2010, respectively. Total other-than-temporary impairments for the three and nine months ended September 30, 2010 were $2.7 million and $5.3 million,

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

respectively. No new material other-than-temporary impairments were recognized in other comprehensive income for the three and nine months ended September 30, 2010. The amounts remaining in other comprehensive income should not be recorded in earnings, because the losses were not considered to be credit related based on the Company’s other-than-temporary impairment analysis as discussed above.

It is possible that the Company could recognize additional other-than-temporary impairment losses on some securities it owns at September 30, 2010 if future events or information cause it to determine that a decline in value is other-than-temporary.

The following table presents the change in the credit portion of the other-than-temporary impairments recognized in earnings on debt securities for which a portion of the other-than-temporary impairments related to other factors was recognized in other comprehensive income (loss) for the three and nine months ended September 30, 2010 and 2009.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
*(in thousands)*	2010		2009		2010		2009
Credit loss on debt securities held at beginning of period	$	22,305	$	7,374	$	18,807	$	—
Addition for credit loss for which an other-than-temporary impairment was previously recognized		1,838		2,672		5,306		—
Addition for credit loss for which an other-than-temporary impairment was not previously recognized		102		—		132		10,046

Credit loss on debt securities held as of September 30	$	24,245	$	10,046	$	24,245	$	10,046

Credit loss on debt securities held as of January 1, 2009 was $0 as there was no cumulative effect adjustment recorded related to initially applying the newly issued accounting guidance that established a new method of recognizing and measuring other-than-temporary impairments of debt securities. There was no cumulative effect adjustment recorded because there were no other-than-temporary impairment adjustments previously recognized on the debt securities held by the Company at January 1, 2009.

Other-than-temporary impairment—equity securities

When, in the Company’s opinion, a decline in the fair value of an equity security, including common and preferred stock, is considered to be other-than-temporary, such equity security is written down to its fair value. When assessing if a decline in value is other-than-temporary, the factors considered include the length of time and extent to which fair value has been below cost, the probability that the Company will be unable to collect all amounts due under the contractual terms of the security, the seniority of the securities, issuer-specific news and other developments, the financial condition and prospects of the issuer (including credit ratings), macro-economic changes (including the outlook for industry sectors, which includes government policy initiatives) and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

When an equity security has been in an unrealized loss position for greater than twelve months, the Company’s review of the security includes the above noted factors as well as what evidence, if any, exists to support that the security will recover its value in the foreseeable future, typically within the next twelve months. If objective, substantial evidence does not indicate a likely recovery during that timeframe, the Company’s policy is that such losses are considered other-than-temporary and therefore an impairment loss is recorded. The Company recorded an other-than-temporary impairment of $1.7 million during the nine months ended September 30, 2010, relating to the Company’s preferred equity securities as a component of net other-than-temporary impairment losses recognized in earnings. During the prior year, the Company concluded that such evidence was not available on 58 common equity securities and 14 preferred equity securities. Accordingly, for the nine months ended September 30, 2009, the Company recorded an other-than-temporary impairment charge of $16.2 million and $1.9 million, relating to its common and preferred equity securities, respectively, as a component of net other-than-temporary impairment losses recognized in earnings. The prior year impairment loss includes a $2.9 million other-than-temporary impairment charge upon the Company’s election to convert its preferred stock in Citigroup Inc. into common stock of that entity under the terms of Citigroup’s publicly announced exchange offer.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Fair value measurement

The Company classifies the fair value of its debt and equity securities using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy level assigned to each security in the Company’s available-for-sale portfolio is based on management’s assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

Level 1 – Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of equity securities are classified as Level 1.

Level 2 – Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The Level 2 category includes U.S. Treasury bonds, municipal bonds, foreign bonds, governmental agency bonds, governmental agency mortgage-backed securities and corporate debt securities, many of which are actively traded and have market prices that are readily verifiable.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Level 3 category includes non-agency mortgage-backed and asset-backed securities which are currently not actively traded.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement. The valuation techniques and inputs used to estimate the fair value of the Company’s debt and equity securities are summarized as follows:

Debt Securities

The fair value of debt securities was based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established independent broker-dealers. The independent pricing service monitors market indicators, industry and economic events, and for broker-quoted only securities, obtains quotes from market makers or broker-dealers that it recognizes to be market participants. The pricing service utilizes the market approach in determining the fair value of the debt securities held by the Company. Additionally, the Company obtains an understanding of the valuation models and assumptions utilized by the service and has controls in place to determine that the values provided represent fair value. The Company’s validation procedures include comparing prices received from the pricing service to quotes received from other third party sources for securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing service.

Typical inputs and assumptions to pricing models used to value the Company’s U.S. Treasury bonds, municipal bonds, foreign bonds, governmental agency bonds, governmental agency mortgage-backed securities and corporate debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed and asset-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds. The fair value of non-agency mortgage-backed and asset-backed securities was obtained from the independent pricing service referenced above and subject to the Company’s validation procedures discussed above. However, due to the fact that these securities were not actively traded, there was less observable inputs available requiring the pricing service to use more judgment in determining the fair value of the securities, therefore the Company classified non-agency mortgage-backed and asset-backed securities as Level 3.

Equity Securities

The fair value of equity securities, including preferred and common stocks, was based on quoted market prices for identical assets that are readily and regularly available in an active market.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The following table presents the Company’s available-for-sale investments measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009, classified using the three-level hierarchy for fair value measurements:


(in thousands)	Estimated fair value as of September 30, 2010		Level 1		Level 2		Level 3
Debt securities
U.S. Treasury bonds	$	87,416	$	—	$	87,416	$	—
Municipal bonds		256,681		—		256,681		—
Foreign bonds		175,447		—		175,447		—
Governmental agency bonds		291,414		—		291,414		—
Governmental agency mortgage-backed securities		909,643		—		909,643		—
Non-agency mortgage-backed and asset-backed securities		49,229		—		—		49,229
Corporate debt securities		189,615		—		189,615		—

		1,959,445		—		1,910,216		49,229

Equity securities
Preferred stocks		16,607		16,607		—		—
Common stocks		267,487		267,487		—		—

		284,094		284,094		—		—

	$	2,243,539	$	284,094	$	1,910,216	$	49,229


(in thousands)	Estimated fair value as of December 31, 2009		Level 1		Level 2		Level 3
Debt securities
U.S. Treasury bonds	$	73,853	$	—	$	73,853	$	—
Municipal bonds		134,956		—		134,956		—
Foreign bonds		151,908		—		151,908		—
Governmental agency bonds		326,774		—		326,774		—
Governmental agency mortgage-backed securities		1,005,142		—		1,005,142		—
Non-agency mortgage-backed and asset-backed securities		59,201		—		—		59,201
Corporate debt securities		86,885		—		86,885		—

		1,838,719		—		1,779,518		59,201

Equity securities
Preferred stocks		31,191		31,191		—		—
Common stocks		19,829		19,829		—		—

		51,020		51,020		—		—

	$	1,889,739	$	51,020	$	1,779,518	$	59,201

The Company did not have any transfers in and out of Level 1 and Level 2 measurements during the three and nine months ended September 30, 2010. The Company’s policy is to recognize transfers between levels in the fair value hierarchy at the end of the reporting period.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The following table presents a summary of the changes in fair value of Level 3 available-for-sale investments for the three months ended September 30, 2010. The Company did not have any available-for-sale investments classified as Level 3 at September 30, 2009 or during the three months ended September 30, 2009.


(in thousands)	Non-agency mortgage-backed and asset-backed securities
Fair value as of June 30, 2010	$	50,398
Total gains/(losses) (realized and unrealized):
Included in earnings:
Net other-than-temporary impairment losses recognized in earnings		(1,940	)
Included in other comprehensive loss		6,025
Settlements and sales		(5,254	)
Transfers into Level 3		—
Transfers out of Level 3		—

Fair value as of September 30, 2010	$	49,229

Unrealized gains (losses) included in earnings for the period relating to Level 3 available-for-sale investments that were still held at the end of the period:
Net other-than-temporary impairment losses recognized in earnings	$	(1,940	)

The Company did not purchase any non-agency mortgage-backed and asset-backed securities during the three months ended September 30, 2010. Also, the Company did not have a material amount of gains or losses on sales of non-agency mortgage-backed and asset-backed securities for the three months ended September 30, 2010.

The following table presents a summary of the changes in fair value of Level 3 available-for-sale investments for the nine months ended September 30, 2010. The Company did not have any available-for-sale investments classified as Level 3 at September 30, 2009 or during the nine months ended September 30, 2009.


(in thousands)	Non-agency mortgage-backed and asset-backed securities
Fair value as of December 31, 2009	$	59,201
Total gains/(losses) (realized and unrealized):
Included in earnings:
Net other-than-temporary impairment losses recognized in earnings		(5,438	)
Included in other comprehensive loss		15,773
Settlements and sales		(20,307	)
Transfers into Level 3		—
Transfers out of Level 3		—

Fair value as of September 30, 2010	$	49,229

Unrealized gains (losses) included in earnings for the period relating to Level 3 available-for-sale investments that were still held at the end of the period:
Net other-than-temporary impairment losses recognized in earnings	$	(5,438	)

The Company did not purchase any non-agency mortgage-backed and asset-backed securities during the nine months ended September 30, 2010. Also, the Company did not have a material amount of gains or losses on sales of non-agency mortgage-backed and asset-backed securities for the nine months ended September 30, 2010.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Note 4 – Goodwill

A reconciliation of the changes in the carrying amount of goodwill by operating segment, for the nine months ended September 30, 2010, is as follows:


(in thousands)	Title Insurance		Specialty Insurance		Total
Balance as of December 31, 2009	$	754,929	$	46,057	$	800,986
Other/ post acquisition adjustments		1,160		—		1,160

Balance as of September 30, 2010	$	756,089	$	46,057	$	802,146

The Company’s four reporting units for purposes of testing impairment are title insurance, home warranty, property and casualty insurance and trust and other services. There is no accumulated impairment for goodwill as the Company has never recognized any impairment for its reporting units.

In accordance with accounting guidance and consistent with prior years, the Company’s policy is to perform an annual goodwill impairment test for each reporting unit in the fourth quarter. An impairment analysis has not been performed during the nine months ended September 30, 2010 as no triggering events requiring such an analysis occurred.

Note 5 – Other Intangible Assets

Other intangible assets consist of the following:


(in thousands)	September 30, 2010			December 31, 2009
Finite-lived intangible assets:
Customer lists	$	70,801		$	67,598
Covenants not to compete		30,881			42,459
Trademarks		10,287			10,525

		111,969			120,582
Accumulated amortization		(60,162	)		(61,385	)

		51,807			59,197
Indefinite-lived intangible assets:
Licenses		19,713			19,695

	$	71,520		$	78,892

Amortization expense for finite-lived intangible assets was $3.5 million and $10.7 million for the three and nine months ended September 30, 2010, and $3.6 million and $10.3 million for the three and nine months ended September 30, 2009, respectively.

Estimated amortization expense for finite-lived intangible assets anticipated for the next five years is as follows:


Year	(in thousands)
Remainder of 2010	$	3,869
2011	$	12,438
2012	$	10,388
2013	$	9,451
2014	$	5,372
2015	$	2,972

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Note 6 – Loss Reserves

A summary of the Company’s loss reserves, broken down into its components of known title claims, incurred but not reported claims (“IBNR”) and non-title claims, follows:


(in thousands, except percentages)	September 30, 2010				December 31, 2009
Known title claims	$	195,527	17.3	%	$	206,439	16.8	%
IBNR		897,556	79.2	%		978,854	79.7	%

Total title claims		1,093,083	96.5	%		1,185,293	96.5	%
Non-title claims		39,692	3.5	%		42,464	3.5	%

Total loss reserves	$	1,132,775	100.0	%	$	1,227,757	100.0	%

Note 7 – Notes and Contracts Payable

On April 12, 2010, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”) in its capacity as administrative agent and a syndicate of lenders.

The credit agreement is comprised of a $400.0 million revolving credit facility. The revolving loan commitments terminate on the third anniversary of the date of closing, or June 1, 2013. On June 1, 2010, the Company borrowed $200.0 million under the facility and transferred such funds to CoreLogic, as previously contemplated in connection with the Separation. Proceeds may also be used for general corporate purposes. At September 30, 2010, the interest rate associated with the $200.0 million borrowed under the facility is 3.06%. See Note 17 Transactions with CoreLogic/TFAC to the condensed consolidated and combined financial statements for additional discussion of the $200.0 million transferred to CoreLogic.

The Company’s obligations under the credit agreement are guaranteed by certain of the Company’s subsidiaries (the “Guarantors”). To secure the obligations of the Company and the Guarantors (collectively, the “Loan Parties”) under the credit agreement, the Loan Parties pledged all of the equity interests they own in each Data Trace and Data Tree company and a 9% equity interest in FATICO.

If at any time the rating by Moody’s or S&P of the senior, unsecured, long-term indebtedness for borrowed money of the Company that is not guaranteed by any other person or subject to any other credit enhancement is rated lower than Baa3 or BBB-, respectively, or is not rated by either such rating agency, then the loan commitments are subject to mandatory reduction from (a) 50% of the net proceeds of certain equity issuances by any Loan Party, (b) 50% of the net proceeds of certain debt incurred or issued by any Loan Party, (c) 25% of the net proceeds received by any Loan Party from the disposition of CoreLogic stock received in connection with the Separation and (d) the net proceeds received by any Loan Party from certain dispositions of assets, provided that the commitment reductions described above are only required to the extent necessary to reduce the total loan commitments to $200.0 million. The Company is only required to prepay loans to the extent that, after giving effect to any mandatory commitment reduction, the aggregate principal amount of all outstanding loans exceeds the remaining total loan commitments.

At the Company’s election, borrowings under the credit agreement bear interest at (a) the Alternate Base Rate plus the Applicable Rate or (b) the Adjusted LIBO Rate plus the Applicable Rate (in each case as defined in the agreement). The Company may select interest periods of one, two, three or six months or (if agreed to by all lenders) such other number of months for Eurodollar borrowings of loans. The Applicable Rate varies depending upon the rating assigned by Moody’s and/or S&P to the credit agreement, or if no such rating is in effect, the Index Debt Rating. The minimum Applicable Rate for Alternate Base Rate borrowings is 1.50% and the maximum is 2.25%. The minimum Applicable Rate for Adjusted LIBO Rate borrowings is 2.50% and the maximum is 3.25%.

The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the lenders may accelerate the loans and may exercise their remedies under the collateral documents. Upon the occurrence of certain insolvency and bankruptcy events of default the loans automatically accelerate.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Note 8 – Income Taxes

The effective income tax rate (income tax expense as a percentage of income before income taxes) was 40.4% and 40.9% for the three and nine months ended September 30, 2010, and 40.3% and 43.0% for the same periods of the prior year. The differences in the effective rates in the current year periods were primarily attributable to changes in the mix of taxable and non-taxable income for state tax purposes, decreased taxable income from foreign sources, and changes in the ratio of permanent differences to income before income taxes.

In connection with the Separation, the Company and TFAC entered into a Tax Sharing Agreement, dated June 1, 2010 (the “Tax Sharing Agreement”), which governs the Company’s and CoreLogic’s respective rights, responsibilities and obligations. Pursuant to the Tax Sharing Agreement, CoreLogic will prepare and file the consolidated federal income tax return, and any other tax returns that include both CoreLogic and the Company for all taxable periods ending on or prior to June 1, 2010. The Company will prepare and file all tax returns that include solely the Company for all taxable periods ending after that date. As part of the Tax Sharing Agreement, the Company is contingently responsible for 50% of certain Separation-related tax liabilities. At September 30, 2010, the Company has a $3.7 million payable to CoreLogic related to these matters which is included in due to CoreLogic/TFAC, net on the Company’s condensed consolidated balance sheet.

At September 30, 2010, the Company had a net payable to CoreLogic of $39.3 million related to tax matters prior to the Separation. This amount is included in the Company’s condensed consolidated balance sheet in income taxes payable and accounts payable and accrued liabilities. At December 31, 2009, the Company had a net receivable from TFAC of $14.2 million related to tax matters prior to the Separation. This amount is included in the Company’s condensed combined balance sheet in income taxes receivable and accounts payable and accrued liabilities.

As of September 30, 2010, the liability for income taxes associated with uncertain tax positions was $10.9 million. This liability can be reduced by $1.5 million of offsetting tax benefits associated with state income taxes and timing adjustments. The net amount of $9.4 million, if recognized, would favorably affect the Company’s effective tax rate. At December 31, 2009, the liability for income taxes associated with uncertain tax positions was $10.4 million.

The Company’s continuing practice is to recognize interest and penalties, if any, related to uncertain tax positions in tax expense. As of September 30, 2010 and December 31, 2009, the Company had accrued $2.3 million and $2.0 million, respectively, of interest and penalties (net of tax benefit) related to uncertain tax positions.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of items such as ongoing audits or the expiration of federal and state statute of limitation for the assessment of taxes.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various non-U.S. jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, and non-U.S. income tax examinations by taxing authorities for years prior to 2005.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Note 9 – Earnings Per Share


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
*(in thousands, except per share amounts)*	2010		2009		2010		2009
Numerator for basic and diluted net income per share attributable to the Company’s stockholders:
Net income attributable to the Company	$	33,133	$	38,825	$	80,735	$	72,319

Denominator for basic net income per share attributable to the Company’s stockholders:
Weighted-average common shares outstanding		104,173		104,006		104,064		104,006
Effect of dilutive securities:
Employee stock options and restricted stock units		1,939		—		1,946		—

Denominator for diluted net income per share attributable to the Company’s stockholders		106,112		104,006		106,010		104,006

Net income per share attributable to the Company’s stockholders:
Basic	$	0.32	$	0.37	$	0.78	$	0.70

Diluted	$	0.31	$	0.37	$	0.76	$	0.70

For the three and nine months ended September 30, 2010, basic earnings per share was computed using the number of shares of common stock outstanding immediately following the Separation, as if such shares were outstanding for the entire period prior to the Separation, plus the weighted average number of such shares outstanding following the Separation through September 30, 2010.

For the three and nine months ended September 30, 2010, diluted earnings per share was computed using (i) the number of shares of common stock outstanding immediately following the Separation, (ii) the weighted average number of such shares outstanding following the Separation through September 30, 2010, and (iii) if dilutive, the incremental common stock that the Company would issue upon the assumed exercise of stock options and the vesting of restricted stock units (“RSUs”) using the treasury stock method.

For the three and nine months ended September 30, 2009, basic and diluted earnings per share were computed using the number of shares of common stock outstanding immediately following the Separation, as if such shares were outstanding for the entire period.

For the three and nine months ended September 30, 2010, 1.4 million stock options and RSUs were excluded from the computation of diluted earnings per share due to their antidilutive effect.

Note 10 – Employee Benefit Plans

In connection with the Separation, the following occurred with respect to employee benefit plans that cover substantially all of the Company’s employees:

•

The Company adopted TFAC’s 401(k) Savings Plan, which is now the First American Financial Corporation 401(k) Savings Plan. The account balances of employees of CoreLogic who had previously participated in TFAC’s 401(k) Savings Plan were transferred to the CoreLogic, Inc. 401(k) Savings Plan.

•

The Company established the First American Financial Corporation 2010 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employees to purchase common stock of the Company at 85.0% of the closing price on the last day of each month.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

•

The Company assumed TFAC’s defined benefit pension plan, which was closed to new entrants effective December 31, 2001 and amended to “freeze” all benefit accruals as of April 30, 2008. The Company assumed the entire benefit obligation and all the plan assets associated with the defined benefit pension plan, including the portion attributable to participants who were employees of the businesses retained by CoreLogic in connection with the Separation, and CoreLogic issued a $19.9 million note payable to the Company which approximated the unfunded portion of the benefit obligation attributable to those participants. See Note 17 Transactions with CoreLogic/TFAC to the condensed consolidated and combined financial statements for further discussion of this note receivable from CoreLogic.

•

The Company adopted TFAC’s supplemental benefit plans. The Company assumed the portion of the benefit obligation associated with its employees and former employees of its businesses and CoreLogic assumed the portion of the benefit obligation associated with its employees and former employees of its businesses. The benefit obligation associated with certain participants was divided evenly between the Company and CoreLogic.

•

The Company adopted TFAC’s deferred compensation plan. The Company assumed the portion of the deferred compensation liability associated with its employees and former employees of its businesses and CoreLogic assumed the portion of the deferred compensation liability associated with its employees and former employees of its businesses. Plan assets were divided in the same proportion as liabilities.

No material changes were made to the terms and conditions of the employee benefit plans assumed by the Company in connection with the Separation.

Prior to the Separation, the Company’s employees participated in TFAC’s benefit plans, including a 401(k) savings plan, an employee stock purchase plan, a defined benefit pension plan, supplemental benefit plans and a deferred compensation plan. The Company recorded the expense associated with its employees that participated in TFAC’s benefit plans.

Net periodic cost related to (i) the Company’s employees’ participation in TFAC’s defined benefit pension and supplemental benefit plans prior to the Separation and (ii) the Company’s defined benefit pension and supplemental benefit plans following the Separation includes the following components:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
*(in thousands)*	2010			2009			2010			2009
Expense:
Service Cost	$	990		$	1,446		$	2,969		$	3,684
Interest Cost		8,215			7,178			22,974			21,633
Expected return on plan assets		(3,482	)		(4,261	)		(9,304	)		(12,801	)
Amortization of prior service credit		(261	)		(259	)		(784	)		(784	)
Amortization of net loss		5,840			4,959			16,249			14,996

	$	11,302		$	9,063		$	32,104		$	26,728

The Company contributed $20.7 million to the defined benefit pension and supplemental benefit plans during the nine months ended September 30, 2010, and expects to contribute an additional $7.3 million during the remainder of 2010. These contributions include both those required by funding regulations as well as discretionary contributions necessary to provide benefit payments to participants of certain of the Company’s non-qualified supplemental benefit plans.

Note 11 – Fair Value of Financial Instruments

Guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate that value. In the measurement of the fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, the guidance excludes certain financial instruments including those related to insurance contracts.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.

Accounts and accrued income receivable, net

The carrying amount for accounts and accrued income receivable, net is a reasonable estimate of fair value due to the short-term maturity of these assets.

Loans receivable, net

The fair value of loans receivable, net was estimated based on the discounted value of the future cash flows using the current rates being offered for loans with similar terms to borrowers of similar credit quality.

Investments

The carrying amount of deposits with savings and loan associations and banks is a reasonable estimate of fair value due to their short-term nature.

The methodology for determining the fair value of debt and equity securities is discussed in Note 3 Debt and Equity Securities to the condensed consolidated and combined financial statements.

As other long-term investments, which consist primarily of investments in affiliates, are not publicly traded, reasonable estimate of the fair values could not be made without incurring excessive costs.

The fair value of the notes receivable from CoreLogic/TFAC is estimated based on the discounted value of the future cash flows using the current rates being offered for loans with similar terms to third party borrowers of similar credit quality.

Demand deposits

The carrying value of escrow and passbook accounts approximates fair value due to the short-term nature of this liability. The fair value of investment certificate accounts was estimated based on the discounted value of future cash flows using a discount rate approximating current market rates for similar liabilities.

Accounts payable and accrued liabilities

The carrying amount for accounts payable and accrued liabilities is a reasonable estimate of fair value due to the short-term maturity of these liabilities.

Due to CoreLogic/TFAC, net

The carrying amount for due to CoreLogic/TFAC, net is a reasonable estimate of fair value due to the short-term maturity of this liability.

Notes and contracts payable and allocated portion of TFAC debt

The fair values of notes and contracts payable and allocated portion of TFAC debt were estimated based on the current rates offered to the Company for debt of the same remaining maturities.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The carrying amounts and fair values of the Company’s financial instruments as of September 30, 2010 and December 31, 2009 are presented in the following table.


	September 30, 2010				December 31, 2009
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and cash equivalents	$	742,843	$	742,843	$	631,297	$	631,297
Accounts and accrued income receivable, net	$	247,561	$	247,561	$	239,166	$	239,166
Loans receivable, net	$	163,105	$	151,720	$	161,897	$	165,130
Investments:
Deposits with savings and loan associations and banks	$	68,272	$	68,272	$	75,505	$	75,505
Debt securities	$	1,959,445	$	1,959,445	$	1,838,719	$	1,838,719
Equity securities	$	284,094	$	284,094	$	51,020	$	51,020
Other long-term investments	$	189,451	$	189,451	$	275,275	$	275,275
Notes receivable from CoreLogic/TFAC	$	19,348	$	19,154	$	187,825	$	189,830
Financial Liabilities:
Demand deposits	$	1,439,885	$	1,440,175	$	1,153,574	$	1,154,210
Accounts payable and accrued liabilities	$	696,856	$	696,856	$	699,766	$	699,766
Due to CoreLogic/TFAC, net	$	4,965	$	4,965	$	12,264	$	12,264
Notes and contracts payable	$	296,675	$	298,590	$	119,313	$	119,804
Allocated portion of TFAC debt	$	—	$	—	$	140,000	$	124,206

Note 12 – Share-Based Compensation

Prior to the Separation, the Company participated in TFAC’s share-based compensation plans and the Company’s employees were issued TFAC equity awards. The equity awards consisted of RSUs and stock options. At the date of the Separation, TFAC’s outstanding equity awards for employees of the Company and former employees of its businesses were converted into equity awards of the Company with adjustments to the number of shares underlying each such award and, with respect to options, adjustments to the per share exercise price of each such award, to maintain the pre-separation value of such awards. No material changes were made to the vesting terms or other terms and conditions of the awards. As the post-separation value of the equity awards was equal to the pre-separation value and no material changes were made to the terms and conditions applicable to the awards, no incremental expense was recognized by the Company related to the conversion.

In connection with the Separation, the Company established the First American Financial Corporation 2010 Incentive Compensation Plan (the “Incentive Compensation Plan”). The Incentive Compensation Plan was adopted by the Company’s board of directors and approved by TFAC, as the Company’s sole stockholder, on May 28, 2010. Eligible participants in the Incentive Compensation Plan include the Company’s directors and officers, as well as other employees. The Incentive Compensation Plan permits the granting of stock options, stock appreciation rights, restricted stock, RSUs, performance units, performance shares and other stock-based awards. Under the terms of the Incentive Compensation Plan, 16.0 million shares of common stock can be awarded from either authorized and unissued shares or previously issued shares acquired by the Company, subject to certain annual limits on the amounts that can be awarded based on the type of award granted. The Incentive Compensation Plan terminates 10 years from the effective date unless cancelled prior to that date by the Company’s board of directors.

On June 1, 2010, certain executive officers were granted performance based RSUs. Up to one third of the performance based RSUs will vest on each of the third, fourth and fifth anniversaries of the date of the grant if the employee remains employed by the Company and the Company, as of the prospective vesting date, has met the specified compounded annual total stockholder return criteria. Due to the existence of the market requirement, the Company calculated the fair value of the performance based RSUs on the grant date using a Monte-Carlo Simulation to simulate a range of possible future stock prices for the Company. The performance based RSUs have a service and market requirement and are therefore expensed using the graded-vesting method to record share-based compensation expense. The performance based RSUs receive dividend equivalents in the form of performance based RSUs having the same vesting requirements as the performance based RSUs initially granted.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The following table presents the share-based compensation expense associated with (i) the Company’s employees that participated in TFAC’s share-based compensation plans prior to the Separation and (ii) the Company’s share-based compensation plans following the Separation:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2010		2009		2010		2009
Stock options	$	93	$	158	$	229	$	444
Restricted stock units		2,929		2,146		9,313		9,824
Employee stock purchase plan		153		128		463		404

	$	3,175	$	2,432	$	10,005	$	10,672

The following table summarizes RSU activity related to the Company’s employees participating in TFAC’s equity award plans prior to the Separation and activity under the Company’s equity award plans subsequent to the Separation through September 30, 2010:


(in thousands, except weighted-average grant-date fair value)	Shares			Weighted-average grant-date fair value
Activity under TFAC plan:
RSUs unvested at December 31, 2009		1,145		$	30.40
Granted during 2010		260		$	33.93
Vested during 2010		(480	)	$	31.43
Forfeited during 2010		(3	)	$	28.02

RSUs unvested at May 31, 2010		922		$	30.86
Transfer of corporate employees at June 1, 2010		113		$	30.19

RSUs unvested at June 1, 2010		1,035		$	30.78

Activity under Company plan:
Conversion of TFAC RSUs to Company RSUs at June 1, 2010 (1)		2,415		$	13.24
Granted during 2010		864		$	8.29
Vested during 2010		(185	)	$	12.36
Forfeited during 2010		(34	)	$	14.59

RSUs unvested at September 30, 2010		3,060		$	11.88

(1)

At the date of the Separation, TFAC’s outstanding RSUs for employees of the Company and former employees of its businesses were converted into Company RSUs using a conversion ratio based on the closing price of TFAC common stock on June 1, 2010 divided by the closing price of the Company’s common stock on June 1, 2010.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The following table summarizes stock option activity related to the Company’s employees participating in TFAC’s equity award plans prior to the Separation and activity under the Company’s equity award plans subsequent to the Separation through September 30, 2010:


(in thousands, except weighted-average exercise price and contractual term)	Number outstanding			Weighted- average exercise price		Weighted- average remaining contractual term		Aggregate intrinsic value
Activity under TFAC plan:
Balance at December 31, 2009		1,127		$	30.81
Exercised during 2010		(180	)	$	18.08
Forfeited during 2010		(18	)	$	41.87

Balance at May 31, 2010		929		$	33.06
Transfer of corporate employees at June 1, 2010		362		$	36.57

Balance at June 1, 2010		1,291		$	34.04

Activity under Company plan:
Conversion of TFAC stock options to Company stock options at June 1, 2010 (1)		3,009		$	14.62
Exercised during 2010		(5	)	$	8.43
Forfeited during 2010		(28	)	$	16.56

Balance at September 30, 2010		2,976		$	14.61		3.7	$	5,497

Vested and expected to vest at September 30, 2010		2,975		$	14.61		3.7	$	5,497

Exercisable at September 30, 2010		2,841		$	14.35		3.6	$	5,497

(1)

At the date of the Separation, TFAC’s outstanding stock options held by employees of the Company and former employees of its businesses were converted into Company stock options using a conversion ratio based on the closing price of TFAC common stock on June 1, 2010 divided by the closing price of the Company’s common stock on June 1, 2010.

Note 13 – Other Comprehensive Income (Loss)

Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Components of other comprehensive income (loss) are as follows:

For the three months ended September 30, 2010:


(in thousands)	Net unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Accumulated other comprehensive income (loss)
Balance at June 30, 2010	$	(4,669	)	$	(878	)	$	(161,431	)	$	(166,978	)
Pretax change		30,027			10,464			5,435			45,926
Pretax change in other-than-temporary impairments for which credit-related portion was recognized in earnings		4,512			—			—			4,512
Tax effect		(14,477	)		—			(2,047	)		(16,524	)

Balance at September 30, 2010	$	15,393		$	9,586		$	(158,043	)	$	(133,064	)

Allocated to the Company	$	15,323		$	9,509		$	(158,043	)	$	(133,211	)
Allocated to noncontrolling interests		70			77			—			147

Balance at September 30, 2010	$	15,393		$	9,586		$	(158,043	)	$	(133,064	)

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

For the nine months ended September 30, 2010:


(in thousands)	Net unrealized gains (losses) on securities			Foreign currency translation adjustment		Pension benefit adjustment			Accumulated other comprehensive income (loss)
Balance at December 31, 2009	$	(10,546	)	$	5,255	$	(146,174	)	$	(151,465	)
Pretax change		35,596			4,331		16,036			55,963
Pretax change in other-than-temporary impairments for which credit-related portion was recognized in earnings		8,738			—		—			8,738
Pretax change in connection with the Separation		—			—		(36,752	)		(36,752	)
Tax effect		(18,395	)		—		8,847			(9,548	)

Balance at September 30, 2010	$	15,393		$	9,586	$	(158,043	)	$	(133,064	)

Allocated to the Company	$	15,323		$	9,509	$	(158,043	)	$	(133,211	)
Allocated to noncontrolling interests		70			77		—			147

Balance at September 30, 2010	$	15,393		$	9,586	$	(158,043	)	$	(133,064	)

Note 14 – Litigation and Regulatory Contingencies

The Company and its subsidiaries have been named in various lawsuits, most of which relate to their title insurance operations. In cases where it has been determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded. Actual losses may materially differ from the amounts recorded. The Company does not believe that the ultimate resolution of these cases, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

On March 5, 2010, Bank of America, N.A. filed a complaint in the North Carolina General Court of Justice, Superior Court Division against United General Title Insurance Company and First American Title Insurance Company. The plaintiff alleges that the defendants failed to pay or failed to timely respond to certain claims made on title insurance policies issued in connection with home equity loans or lines of credit that are now in default. According to the complaint, these title insurance policies, which did not require a title search, were intended to protect against the risks of certain defects in the title to real property, including undisclosed intervening liens, vesting problems and legal description errors, that would have been discovered if the plaintiff had conducted a full title search. As indicated in the complaint, Fiserv Solutions, Inc. (“Fiserv”), as agent for the defendants, was authorized to issue certificates evidencing that a given loan was insured. The complaint also indicates that plaintiff was required to satisfy certain criteria before title would be insured. This involved (a) reviewing borrower statements to the lender when applying for the loan, (b) reviewing the borrower’s credit report and (c) addressing secured mortgages appearing on the credit report which did not appear on the borrower’s loan application. The plaintiff alleges that the failure to pay or timely respond to the subject claims was done in bad faith and constitutes a breach of the title insurance policies issued to the plaintiff. The plaintiff is seeking monetary damages, punitive damages where permitted, treble damages where permitted, attorneys fees and costs where permitted, declaratory judgment and pre-judgment and post-judgment interest.

On April 1, 2010, the Company filed an answer to Bank of America’s complaint and filed a third party complaint within the same litigation against Fiserv for breach of contract, indemnification and other matters. The Company’s agreement with Fiserv required Fiserv, among other things, to ensure that the Company’s policies were issued in accordance with prudent practices, to refrain from issuing the Company’s policies unless it had determined the product could be properly issued in accordance with the Company’s standards and to provide reasonable assistance in claims handling. The agreement also required Fiserv to indemnify the Company for certain losses, including losses resulting from Fiserv’s failure to comply with its agreement with the Company or with Company instructions or from its negligence or misconduct.

While it is not feasible to predict with certainty the outcome of this litigation, the ultimate resolution could have a material adverse effect on the Company’s financial condition, results of operations or cash flows in the period of disposition.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The Company’s title insurance, property and casualty insurance, home warranty, thrift, trust and investment advisory businesses are regulated by various federal, state and local governmental agencies. Many of the Company’s other businesses operate within statutory guidelines. Consequently, the Company may from time to time be subject to audit or investigation by such governmental agencies. Currently, governmental agencies are auditing or investigating certain of the Company’s operations. These audits or investigations include inquiries into, among other matters, pricing and rate setting practices in the title insurance industry, competition in the title insurance industry, title insurance customer acquisition and retention practices and agency relationships. With respect to matters where the Company has determined that a loss is both probable and reasonably estimable, the Company has recorded a liability representing its best estimate of the financial exposure based on known facts. While the ultimate disposition of each such audit or investigation is not yet determinable, the Company does not believe that individually or in the aggregate, they will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. These audits or investigations could result in changes to the Company’s business practices which could ultimately have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

The Company’s subsidiaries also are involved in numerous ongoing routine legal and regulatory proceedings related to their operations. While the ultimate disposition of each proceeding is not determinable, the ultimate resolution of any of such proceedings, individually or in the aggregate, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows in the period of disposition.

Note 15 – Business Combinations

During the nine months ended September 30, 2010, the Company purchased the remaining noncontrolling interests in one company already included in the Company’s condensed consolidated and combined financial statements. The total purchase price of this transaction was $2.5 million in cash. In addition, the Company completed one acquisition during the nine months ended September 30, 2010, for $0.3 million in cash.

During the nine months ended September 30, 2009, the Company purchased the remaining noncontrolling interests in four companies already included in the Company’s condensed consolidated and combined financial statements. The total purchase price of these transactions was $11.3 million in cash.

Note 16 – Segment Information

The Company consists of the following reportable segments and a corporate function:

•

The Company’s title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar products and services internationally. This segment also provides escrow and closing services, accommodates tax-deferred exchanges of real estate and provides investment advisory, trust, lending and deposit services. This segment is also in the business of maintaining, managing and providing access to automated title plant records and images that may be owned by the Company or other parties. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. In Iowa, the Company provides title abstracts only because title insurance is not permitted by law. The Company also offers title insurance and similar products, as well as related services, either directly or through joint ventures in foreign countries, including Canada, the United Kingdom and various other established and emerging markets.

•

The Company’s specialty insurance segment issues property and casualty insurance policies and sells home warranty products. The property and casualty insurance business provides insurance coverage to residential homeowners and renters for liability losses and typical hazards such as fire, theft, vandalism and other types of property damage. This business is licensed to issue policies in all 50 states and actively issues policies in 43 states. In its largest market, California, it also offers preferred risk auto insurance to better compete with other carriers offering bundled home and auto insurance. The home warranty business provides residential service contracts that cover residential systems and appliances against failures that occur as the result of normal usage during the coverage period. This business actively issues contracts in 34 states and the District of Columbia.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

The corporate division consists of certain financing facilities as well as the corporate services that support the Company’s business operations. Eliminations consist of inter-segment revenues and related expenses included in the results of the operating segments. The Company did not record inter-segment eliminations for the three and nine months ended September 30, 2009, as there was no inter-segment income or expense.

Selected financial information by reporting segment is as follows:

For the three months ended September 30, 2010:


(in thousands)	Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	924,858		$	59,994		$	16,562	$	13,009
Specialty Insurance		74,385			12,276			1,053		657
Corporate		4,768			(16,282	)		944		2,739
Eliminations		(488	)		—			—		—

	$	1,003,523		$	55,988		$	18,559	$	16,405

For the three months ended September 30, 2009:


(in thousands)	Revenues		Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	1,028,672	$	69,973		$	16,974	$	7,175
Specialty Insurance		71,087		8,122			944		3,753
Corporate		822		(9,574	)		1,944		—

	$	1,100,581	$	68,521		$	19,862	$	10,928

For the nine months ended September 30, 2010:


(in thousands)	Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	2,667,038		$	150,613		$	51,870	$	42,269
Specialty Insurance		213,645			32,448			4,189		2,601
Corporate		2,037			(45,538	)		2,005		2,799
Eliminations		(848	)		—			—		—

	$	2,881,872		$	137,523		$	58,064	$	47,669

For the nine months ended September 30, 2009:


(in thousands)	Revenues		Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	2,807,199	$	156,623		$	54,520	$	22,255
Specialty Insurance		205,705		18,890			2,764		6,300
Corporate		1,137		(32,312	)		3,373		—

	$	3,014,041	$	143,201		$	60,657	$	28,555

Note 17 – Transactions with CoreLogic/TFAC

Prior to the Separation, the Company had certain related party relationships with TFAC. The Company does not consider CoreLogic to be a related party subsequent to the Separation. The related party relationships with TFAC prior to the Separation and subsequent relationships with CoreLogic following the Separation are discussed further below.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Transactions with TFAC prior to the Separation

Prior to the Separation, the Company was allocated corporate income and overhead expenses from TFAC for corporate-related functions based on an allocation methodology that considered the number of the Company’s domestic headcount, the Company’s total assets and total revenues or a combination of those drivers. General corporate overhead expense allocations include executive management, tax, accounting and auditing, legal and treasury services, payroll, human resources and certain employee benefits and marketing and communications. The Company was allocated general net corporate expenses of $23.3 million from TFAC during the current year prior to the June 1, 2010 Separation, and $14.0 million and $42.9 million for the three and nine months ended September 30, 2009, respectively, which are included within the investment income, net realized investment losses, salaries and other personnel costs, other operating expenses, depreciation and amortization and interest expense line items in the accompanying condensed consolidated and combined statements of income.

The Company considers the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by the Company during the pre-Separation periods presented. The allocations may not, however, reflect the expense the Company would have incurred as an independent publicly traded company for these periods. Actual costs that may have been incurred as a stand-alone company during these periods would have depended on a number of factors, including the chosen organizational structure, the functions outsourced versus performed by employees and strategic decisions in areas such as information technology and infrastructure. Following the Separation, the Company is no longer allocated corporate income and overhead expense, as the Company performs these functions using its own resources.

Prior to the Separation, a portion of TFAC’s combined debt, in the amount of $140.0 million, was allocated to the Company based on amounts directly incurred for the Company’s benefit. Net interest expense was allocated in the same proportion as debt. The Company believes the allocation basis for debt and net interest expense was reasonable. However, these amounts may not be indicative of the actual amounts that the Company would have incurred had it been operating as an independent publicly traded company for the period prior to June 1, 2010. Additionally, on January 31, 2010 the Company entered into a note payable with TFAC totaling $29.1 million. In connection with the Separation, the Company borrowed $200.0 million under its revolving credit facility and transferred such funds to CoreLogic, which fully satisfied the Company’s $140.0 million allocated portion of TFAC debt and the $29.1 million note payable to TFAC. The remaining $30.9 million transferred to CoreLogic was reflected as a distribution to CoreLogic in connection with the Separation. See Note 7 Notes and Contracts Payable to the condensed consolidated and combined financial statements for further discussion of the Company’s credit facility.

At December 31, 2009, the Company held notes receivable from TFAC totaling $187.8 million with a weighted average interest rate of 4.49%. The notes have maturity dates ranging from 2010 to 2020. In connection with the Separation, TFAC’s corresponding notes payable were assumed by the Company. Therefore, these notes receivable from TFAC eliminate in consolidation with TFAC’s notes payable assumed by the Company, resulting in no balance being reported on the Company’s condensed consolidated balance sheet as of September 30, 2010. Interest income earned on the notes receivable totaled $3.4 million in the current year prior to the June 1, 2010 Separation, and $2.9 million and $8.6 million for the three and nine months ended September 30, 2009, respectively. Following the Separation, there is no interest income reflected in connection with these notes receivable from TFAC.

During the year ended December 31, 2009, the Company made cash dividend payments of $83.0 million to TFAC which were recorded as a reduction of invested equity on the Company’s condensed combined balance sheet as of December 31, 2009. No cash dividends were paid to TFAC during 2010.

Transactions with CoreLogic following the Separation

In connection with the Separation, the Company and TFAC entered into various transition services agreements with effective dates of June 1, 2010. The agreements include transitional services in the areas of information technology, tax, accounting and finance, employee benefits and internal audit. Except for the information technology services agreements, the transition services agreements are short-term in nature. The Company incurred $2.9 million and $3.9 million for the three and nine months ended September 30, 2010, respectively, under these agreements which are included in other operating expenses in the condensed consolidated statement of income. No amounts were reflected in the condensed consolidated and combined statements of income prior to June 1, 2010, as the transition services agreements were not effective prior to the Separation.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Under the Separation and Distribution Agreement and other agreements, subject to certain exceptions contained in the Tax Sharing Agreement, each of the Company and CoreLogic agreed to assume and be responsible for 50% of certain of TFAC’s contingent and other corporate liabilities. All external costs and expenses associated with the management of these contingent and other corporate liabilities will be shared equally. These contingent and other corporate liabilities primarily relate to consolidated securities litigation and any actions with respect to the Separation or the Distribution brought by any third party. Contingent and other corporate liabilities that are related to only the information solutions or financial services businesses will generally be fully allocated to CoreLogic or the Company, respectively. At September 30, 2010, no reserves were considered necessary for such liabilities.

In connection with the Separation, TFAC issued to the Company and FATICO a number of shares of its common stock that resulted in the Company and FATICO collectively owning 12.9 million shares of CoreLogic’s common stock immediately following the Separation. Under the terms of the Separation and Distribution Agreement, if the Company chooses to dispose of 1% or more of CoreLogic’s outstanding common stock at a given date, the Company must first provide CoreLogic with the option to purchase the shares. The Company has agreed to dispose of the shares within five years after the Separation or to bear any adverse tax consequences arising as a result of holding the shares for a longer period. The CoreLogic common stock is classified as available-for-sale and carried at fair value with unrealized gains or losses classified as a component of accumulated other comprehensive loss. At September 30, 2010, the cost basis and estimated fair value of the CoreLogic common stock is $242.6 million and $247.8 million, respectively. The CoreLogic common stock is included in equity securities in the condensed consolidated balance sheet.

On June 1, 2010, the Company received a note receivable from CoreLogic in the amount of $19.9 million that accrues interest at 6.52%. Interest was first due on July 1, 2010 and is due quarterly thereafter. The note receivable is due on May 31, 2017. The note approximated the unfunded portion of the benefit obligation attributable to participants of the defined benefit pension plan who were employees of TFAC’s businesses that were retained by CoreLogic in connection with the Separation. See Note 10 Employee Benefit Plans to the condensed consolidated and combined financial statements for further discussion of the defined benefit pension plan.

At September 30, 2010 and December 31, 2009, the Company’s federal savings bank subsidiary, First American Trust, FSB, held $9.4 million and $20.1 million, respectively, of interest and non-interest bearing demand deposits owned by CoreLogic. These deposits are included in demand deposits in the condensed consolidated and combined balance sheets. Interest expense on the deposits was immaterial for all periods presented.

Prior to the Separation, the Company owned three office buildings that were leased to CoreLogic under the terms of formal lease agreements. In connection with the Separation, the Company distributed one of the office buildings to CoreLogic, and currently owns two office buildings that are leased to CoreLogic under the terms of formal lease agreements. Rental income associated with these properties totaled $1.1 million and $5.1 million for the three and nine months ended September 30, 2010, respectively, and $1.8 million and $6.1 million for the three and nine months ended September 30, 2009, respectively.

The Company and CoreLogic are also parties to certain ordinary course commercial agreements and transactions. The expenses associated with these transactions, which primarily relate to purchases of data and other settlement services totaled $4.6 million and $17.4 million for the three and nine months ended September 30, 2010, respectively, and $9.4 million and $32.9 million for the three and nine months ended September 30, 2009, respectively, and are included in other operating expenses in the Company’s condensed consolidated and combined statements of income.

Prior to the Separation, certain transactions with TFAC were settled in cash and the remaining transactions were settled by non-cash capital contributions between the Company and TFAC, which resulted in net non-cash contributions from TFAC to the Company of $2.1 million in the current year prior to June 1, 2010. Following the Separation, all transactions with CoreLogic are settled in cash.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated and Combined Financial Statements - (Continued)

(Unaudited)

Note 18 – Pending Accounting Pronouncements

In July 2010, the FASB issued updated guidance related to credit risk disclosures for finance receivables and the related allowance for credit losses. The updated guidance requires entities to disclose information at disaggregated levels, specifically defined as “portfolio segments” and “classes”. Expanded disclosures include, among other things, roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables (including their aging) as of the end of a reporting period. The updated guidance is effective for interim and annual reporting periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual reporting periods beginning after December 15, 2010. Except for the disclosure requirements, management does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated and combined financial statements.

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately, a reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2010 and for interim periods within the fiscal year. Except for the disclosure requirements, management does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated and combined financial statements.

Item 2.

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

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING BUT NOT LIMITED TO THOSE SET FORTH ON PAGES 3 AND 4 OF THIS QUARTERLY REPORT ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,” “WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES.

RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE THE FACTORS SET FORTH ON PAGES 3 AND 4 OF THIS QUARTERLY REPORT. THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.

This Management’s Discussion and Analysis contains certain financial measures, in particular, presentation of pre-tax margins excluding the impacts of certain non-operating revenues, that are not presented in accordance with generally accepted accounting principles (“GAAP”). The Company is presenting these non-GAAP financial measures because they provide the Company’s management and readers of the Quarterly Report on Form 10-Q with additional insight into the operational performance of the Company relative to earlier periods and relative to the Company’s competitors. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. Readers of this Quarterly Report on Form 10-Q should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those policies used in the preparation of First American Financial Corporation’s (the “Company”) financial statements that require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosure of contingencies. A summary of these policies can be found in the Management’s Discussion and Analysis section of the information statement filed as Exhibit 99.1 to the Company’s current report on Form 8-K dated May 26, 2010.

Recent Accounting Pronouncements:

In February 2010, the FASB issued updated guidance which amended the subsequent events disclosure requirements to eliminate the requirement for Securities and Exchange Commission (“SEC”) filers to disclose the date through which it has evaluated subsequent events, clarify the period through which conduit bond obligors must evaluate subsequent events and refine the scope of the disclosure requirements for reissued financial statements. The updated guidance was effective upon issuance. Except for the disclosure requirements, the adoption of the guidance had no impact on the Company’s condensed consolidated and combined financial statements.

Pending Accounting Pronouncements:

In January 2010, the FASB issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately, a reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2010 and for interim periods within the fiscal year. Management does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated and combined financial statements.

OVERVIEW

Corporate Update

The Company became a publicly traded company following its spin-off from its prior parent, The First American Corporation (“TFAC”) on June 1, 2010 (the “Separation”). On that date, TFAC distributed all of the Company’s outstanding shares to the record date shareholders of TFAC on a one-for-one basis (the “Distribution”). After the Distribution, the Company owns TFAC’s financial services businesses and TFAC, which reincorporated and assumed the name CoreLogic, Inc. (“CoreLogic”), continues to own its information solutions businesses. The Company’s common stock trades on the New York Stock Exchange under the “FAF” ticker symbol and CoreLogic’s common stock trades on the New York Stock Exchange under the ticker symbol “CLGX.”

•

Results of Operations

Summary of Third Quarter

The dollar amount of US mortgage originations decreased 22.1% in the third quarter of 2010, when compared with the same period of the prior year according to the Mortgage Bankers Association’s September 2010 Long-term Mortgage Finance Forecast (the “MBA Forecast”). This decrease in mortgage originations was due to a softening in the purchase market and a slight decline in the refinance market. According to the MBA Forecast, the dollar amount of purchase originations decreased 47.5% and refinance originations decreased 3.1%, in the third quarter of 2010 when compared with the same quarter of the prior year. The overall decline in mortgage originations impacted the Company’s title revenues (excluding net realized investment losses and net other-than-temporary impairment losses), which saw a decrease of 9.4% in the third quarter of 2010, when compared with the same period of the prior year. The decline in the Company’s revenues is less severe than the overall mortgage origination decline due to a number of factors, including market share gains, rate increases, and increased commercial activity.

Total expenses for the Company, before income taxes, decreased 8.2% in the third quarter of 2010 when compared with the same period of the prior year, which is primarily attributable to the Company’s cost containment efforts and increased operating efficiencies.

Net income was $33.3 million and $40.9 million for the three months ended September 30, 2010 and 2009, respectively. Net income attributable to the Company for the three months ended September 30, 2010 was $33.1 million, or $0.31 per diluted share, compared with net income attributable to the Company of $38.8 million, or $0.37 per diluted share, for the same period of the prior year. Net income attributable to noncontrolling interests was $0.2 million and $2.1 million for the three months ended September 30, 2010 and September 30, 2009, respectively.

Despite the low interest rate environment, which has had a favorable effect on the Company’s businesses, mortgage credit still remains generally tight, which together with the uncertainty in general economic conditions, continues to impact the demand for most of the Company’s products and services. These conditions have also had an impact on, and continue to impact, the performance and financial condition of some of the Company’s customers; should these parties continue to encounter significant issues, those issues may lead to negative impacts on the Company’s revenue, claims, earnings and liquidity.

Management expects the above mentioned conditions will continue impacting the Company. Given this outlook, the Company continues its focus on controlling costs by, among other cost containment initiatives, reducing employee counts and improving the efficiencies of previously centralized functions.

Additionally, beginning at the end of September 2010, several lenders announced that they would suspend certain foreclosures as a result of potential deficiencies in their foreclosure processes. Though the effects of these deficiencies and the foreclosure suspensions are currently unknown, it is possible that revenues tied to foreclosures will decline, especially in the short term, and the Company may incur costs associated with its duty to defend its insureds’ title to foreclosed properties they have purchased. At this time, management does not believe these matters will have a material adverse effect on the Company.

Title Insurance and Services


	Three Months Ended September 30,												Nine Months Ended September 30,
*(in thousands, except percentages)*	2010			2009			$ Change			% Change			2010			2009			$ Change			% Change
Revenues
Direct premiums and escrow fees	$	356,804		$	378,285		$	(21,481	)		(5.7	)%	$	1,012,108		$	1,134,726		$	(122,618	)		(10.8	)%
Agent premiums		397,389			450,829			(53,440	)		(11.9	)		1,139,439			1,100,196			39,243			3.6
Information and other		153,220			172,166			(18,946	)		(11.0	)		451,339			504,185			(52,846	)		(10.5	)
Investment income		19,962			21,931			(1,969	)		(9.0	)		60,416			76,677			(16,261	)		(21.2	)
Net realized investment (losses) gains		(577	)		8,309			(8,886	)		(106.9	)		10,785			15,730			(4,945	)		(31.4	)
Net other-than-temporary impairment losses recognized in earnings		(1,940	)		(2,848	)		908			31.9			(7,049	)		(24,315	)		17,266			71.0

		924,858			1,028,672			(103,814	)		(10.1	)		2,667,038			2,807,199			(140,161	)		(5.0	)

Expenses
Salaries and other personnel costs		285,643			286,380			(737	)		(0.3	)		832,834			858,435			(25,601	)		(3.0	)
Premiums retained by agents		320,398			363,408			(43,010	)		(11.8	)		916,975			881,571			35,404			4.0
Other operating expenses		182,301			230,130			(47,829	)		(20.8	)		545,186			661,619			(116,433	)		(17.6	)
Provision for policy losses and other claims		49,546			49,377			169			0.3			138,196			158,859			(20,663	)		(13.0	)
Depreciation and amortization		16,562			16,974			(412	)		(2.4	)		51,870			54,520			(2,650	)		(4.9	)
Premium taxes		8,609			9,133			(524	)		(5.7	)		25,056			23,406			1,650			7.0
Interest		1,805			3,297			(1,492	)		(45.3	)		6,308			12,166			(5,858	)		(48.2	)

		864,864			958,699			(93,835	)		(9.8	)		2,516,425			2,650,576			(134,151	)		(5.1	)

Income before income taxes	$	59,994		$	69,973		$	(9,979	)		(14.3	)%	$	150,613		$	156,623		$	(6,010	)		(3.8	)%

Margins		6.5	%		6.8	%		(0.3	)%		(4.6	)%		5.6	%		5.6	%		0.1	%		1.2	%

During the third quarter of 2010, the Company changed the presentation of its revenues for the title insurance and services segment. This change resulted in direct revenues from insured products being presented separately from direct revenues from non-insured products. Direct revenues from insured products are included in direct premiums and escrow fees, while direct revenues from non-insured products are included in information and other. Information and other is primarily comprised of revenues generated from fees associated with title search and related reports, title and other real property records and images, and other non-insured settlement services. This change also impacted the reporting of certain metrics discussed below, such as direct title orders closed, average revenues per direct title order closed and provision for title insurance policy losses as a percentage of title insurance premiums and escrow fees. The Company has reclassified prior period data to conform to the current presentation.

Direct premiums and escrow fees were $356.8 million and $1,012.1 million for the three and nine months ended September 30, 2010, decreases of $21.5 million, or 5.7%, and $122.6 million, or 10.8%, when compared with the respective periods of the prior year . These decreases were due to a decline in the number of title orders closed by the Company’s direct operations, offset in part by an increase in the average revenues per order closed. The Company’s direct operations closed 272,900 and 774,400 title orders during the current three and nine month periods, respectively, decreases of 13.0% and 23.9% when compared with the same periods of the prior year. The decrease in the number of closed orders was primarily due to the decline in mortgage originations. Mortgage originations declined by 22.1% and 23.6% for the three and nine months ended September 30, 2010, when compared with the respective prior year periods. The average revenues per order closed was $1,307 for the three and nine months ended September 30, 2010, increases of 8.4% and 17.3% when compared with the respective periods of the prior year. There were a number of factors contributing to the increase in average revenues per order closed including an increase in the mix of direct revenue coming from the commercial divisions and filed rate increases that have taken effect.

Agency premiums were $397.4 million and $1,139.4 million for the three and nine months ended September 30, 2010, a decrease of $53.4 million, or 11.9%, from the prior year three month period and an increase of $39.2 million, or 3.6%, when compared with the prior year nine month period. The decrease when compared to the prior year three month period reflects the decline in mortgage originations, consistent with the direct operations. The increase when compared to the prior year nine month period reflects the increased market share that the Company has achieved as well as increased premiums due to filed rate increases.

Information and other revenue was $153.2 million and $451.3 million for the three and nine months ended September 30, 2010, a decrease of $18.9 million, or 11.0%, from the prior year three month period and a decrease of $52.8 million, or 10.5%, when compared with the prior year nine month period. The decreases in the current periods when compared to the respective periods of the prior year are primarily attributable to the decline in mortgage origination volumes, which decreased by 22.1% and 23.6% for the three and nine months ended September 30, 2010, when compared with the respective prior year periods. The revenues included in information and other are generally impacted by mortgage origination volumes.

Investment income totaled $20.0 million and $60.4 million for the three and nine months ended September 30, 2010, respectively, decreases of $2.0 million, or 9.0%, and $16.3 million, or 21.2%, for the three and nine months ended September 30, 2010, when compared with the respective periods of the prior year. These decreases primarily reflect declining yields earned from the Company’s investment portfolio and decreased net interest income at the Company’s trust division.

Net realized investment losses totaled $0.6 million for the three months ended September 30, 2010, and net realized investment gains totaled $10.8 million for the nine months ended September 30, 2010, decreases of $8.9 million and $4.9 million when compared with the respective periods of the prior year. The decrease in net realized investment gains is primarily due to lower realized gains from the sale of investment securities in the current year periods when compared to the prior year periods.

Net other-than-temporary impairment losses recognized in earnings totaled $1.9 million and $7.0 million for the three and nine months ended September 30, 2010, respectively. Net other-than-temporary impairment losses recognized in earnings totaled $2.8 million and $24.3 million for the three and nine months ended September 30, 2009, respectively. The decrease reflects a reduction in impairment losses on debt and equity securities in the current periods compared with the respective periods of the prior year.

Salaries and other personnel costs for the title insurance and services segment were $285.6 million and $832.8 million for the three and nine months ended September 30, 2010, respectively, decreases of $0.7 million, or 0.3%, and $25.6 million, or 3.0%, when compared with the respective periods of the prior year. The decrease for the three and nine month periods is primarily due to a reduction in domestic headcount and overtime expense. The decrease was partially offset by increased salaries and other personnel costs recognized in the current year periods due to certain functions that were performed by TFAC prior to the Separation being performed internally by the Company following the Separation. This resulted in an increase in salaries and other personnel costs and a decrease in other operating expenses for the title segment, since prior to

the Separation the costs associated with these services were allocated to the Company from TFAC and charged to other operating expenses, however following the Separation the Company performs these functions with internal resources, which results in an increase in salaries and other personnel costs.

Agents retained $320.4 million and $917.0 million of title premiums generated by agency operations for the three and nine months ended September 30, 2010, which compares with $363.4 million and $881.6 million for the respective periods of the prior year. The percentage of title premiums retained by agents was 80.6% and 80.5% for the three and nine months ended September 30, 2010, flat when compared to the same three month period of the prior year and up from 80.1% when compared to the same nine month period of the prior year. Agent retention varies from state to state and the geographic mix of agent premiums has a significant impact on the agent retention. Agents in the western states typically have a higher retention than those in the eastern states. Agency revenues in 2010 have been stronger in the western states thereby leading to a higher retention percentage. The Company continues to focus on improving its agent retention by negotiating better splits as new agents are signed or as contracts come up for renewal.

Other operating expenses for the title insurance and services segment were $182.3 million and $545.2 million for the three and nine months ended September 30, 2010, respectively, decreases of $47.8 million, or 20.8%, and $116.4 million, or 17.6%, when compared with the same periods of the prior year. These decreases were primarily due to a decline in title production costs, office related expenses and other cost containment programs. As discussed above, the decrease in other operating expenses is partially attributable to certain functions that were performed by TFAC prior to the Separation being performed internally by the Company following the Separation. This resulted in a decrease in other operating expenses for the title segment, since prior to the Separation the costs associated with these services were allocated to the Company from TFAC and charged to other operating expenses, however following the Separation the Company performs these functions with internal resources.

The provision for title insurance policy losses as a percentage of title insurance premiums and escrow fees was 6.6% and 6.4% for the three and nine months ended September 30, 2010, respectively, compared with 6.0% and 7.1% for the respective three and nine month periods of the prior year. During the quarter ended September 30, 2010, the Company recorded $15.5 million of provision for title insurance policy losses due to higher than estimated claims experience for prior policy years, primarily policy years 2007 and 2006. This increase was partially offset by an improvement in the expected ultimate loss rate for policy year 2010, as a result of continued better than expected claims development. The expected ultimate loss rate for policy year 2010 was lowered to 5.2% during the quarter ended September 30, 2010, which resulted in a $4.2 million benefit recorded to provision for title insurance policy losses.

Premium taxes were $25.1 million and $23.4 million for the nine months ended September 30, 2010 and 2009, respectively. Premium taxes as a percentage of title insurance premiums and escrow fees were 1.2% and 1.0% for the current nine month period and for the same period of the prior year, respectively.

The title insurance business has a relatively high proportion of fixed costs. Accordingly, title insurance profit margins generally improve as closed order volumes increase. Title insurance profit margins are also affected by the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity. In addition, profit margins from refinance transactions vary depending on whether they are centrally processed or locally processed. Profit margins from resale, new construction and centrally processed refinance transactions are generally higher than from locally processed refinance transactions because in many states there are premium discounts on, and cancellation rates are higher for, refinance transactions. Title insurance profit margins are also affected by the percentage of title insurance premiums generated by agency operations. Profit margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. Pre-tax margins were 6.5% and 5.6% for the three and nine month period ending September 30, 2010, compared with pre-tax margins of 6.8% and 5.6% for the three and nine month period ending September 30, 2009, respectively. The decrease in margin for the quarter ended September 30, 2010 when compared to the prior year quarter is primarily due to the combined decline in net realized investment (losses) gains and net other-than-temporary impairment losses of $8.0 million. Net realized investment (losses) gains and net other-than-temporary impairment losses impacted pre-tax margin by (0.2%) and 0.5% for the three months ended September 30, 2010 and 2009, respectively. Excluding these non-operating revenue items, the adjusted pre-tax margin was 6.7% for the three months ended September 30, 2010, compared to 6.3% for the same period of the prior year. The increase in adjusted pre-tax margin was achieved despite a 9.4% revenue decline, which is attributable to the Company’s focus on expense management and increasing operational efficiencies.

Specialty Insurance


	Three Months Ended September 30,												Nine Months Ended September 30,
*( in thousands, except percentages)*	2010			2009			$ Change			% Change			2010			2009			$ Change			% Change
Revenues
Direct premiums	$	69,237		$	68,283		$	954			1.4	%	$	202,730		$	202,725		$	5			0.0	%
Investment income		2,974			3,337			(363	)		(10.9	)		9,155			10,212			(1,057	)		(10.4	)
Net realized investment gains (losses)		2,174			(45	)		2,219			N/M	¹		1,871			(450	)		2,321			515.8
Net other-than-temporary impairment losses recognized in earnings		—			(488	)		488			100.0			(111	)		(6,782	)		6,671			98.4

		74,385			71,087			3,298			4.6			213,645			205,705			7,940			3.9

Expenses
Salaries and other personnel costs		12,576			14,291			(1,715	)		(12.0	)		39,401			42,264			(2,863	)		(6.8	)
Other operating expenses		10,414			9,200			1,214			13.2			32,120			31,526			594			1.9
Provision for policy losses and other claims		36,904			37,307			(403	)		(1.1	)		102,240			106,885			(4,645	)		(4.3	)
Depreciation and amortization		1,053			944			109			11.5			4,189			2,764			1,425			51.6
Premium taxes		1,158			1,216			(58	)		(4.8	)		3,233			3,359			(126	)		(3.8	)
Interest		4			7			(3	)		(42.9	)		14			17			(3	)		(17.6	)

		62,109			62,965			(856	)		(1.4	)		181,197			186,815			(5,618	)		(3.0	)

Income before income taxes	$	12,276		$	8,122		$	4,154			51.1	%	$	32,448		$	18,890		$	13,558			71.8	%

Margins		16.5	%		11.4	%		5.1	%		44.4	%		15.2	%		9.2	%		6.0	%		65.4	%

(1)	Not meaningful

Direct premiums for the specialty insurance segment were $69.2 million and $202.7 million for the three and nine months ended September 30, 2010, respectively, an increase of $1.0 million, when compared with the same three month period of the prior year and flat when compared to the same nine month period of the prior year.

Investment income for the segment totaled $3.0 million and $9.2 million for the three and nine months ended September 30, 2010, respectively, decreases of $0.4 million, or 10.9%, and $1.1 million, or 10.4%, when compared with the same periods of the prior year. These decreases primarily reflected the decreased yields earned from the investment portfolio.

Net realized investment gains totaled $2.2 million and $1.9 million for the three and nine months ended September 30, 2010, respectively, an increase of $2.2 million and $2.3 million when compared with the same periods of the prior year. The increase for the three and nine month periods is primarily attributable to realized gains on investment securities that were sold during the three months ended September 30, 2010.

Specialty insurance recognized no net other-than-temporary impairment losses for the three months ended September 30, 2010, and $0.1 million for the nine months ended September 30, 2010, compared with net other-than-temporary impairment losses recognized in earnings of $0.5 million and $6.8 million for the respective periods of the prior year. The decrease reflects a reduction in impairment losses on debt and equity securities in the current periods compared with the respective periods of the prior year.

Specialty insurance salaries and other personnel costs and other operating expenses were $23.0 million and $71.5 million for the three and nine months ended September 30, 2010, respectively, decreases of $0.5 million, or 2.1%, and $2.3 million, or 3.1%, when compared with the same periods of the prior year. These decreases primarily related to a reduction in headcount and other cost containment initiatives.

For the home warranty business, the claims provision as a percentage of home warranty premiums was 51.6% for the current nine month period and 55.6% for the same period of the prior year. This decrease in rate was primarily due to a lower average cost per claim. For the property and casualty business, the claims provision as a percentage of property and casualty insurance premiums was 48.6% for the current nine month period, an increase when compared with 48.3% for the same period of the prior year. This increase was primarily due to $2.1 million in winter storm losses in January and February, with no comparable storm losses last year, partially offset by a decrease in core or routine losses .

Premium taxes were $3.2 million and $3.4 million for the nine months ended September 30, 2010 and 2009, respectively. Premium taxes as a percentage of specialty insurance segment premiums were 1.6% and 1.7% for the current nine month period and for the same period of the prior year, respectively.

A significant portion of the revenues for the specialty insurance businesses are not dependent on the level of real estate activity, with a large portion generated from renewals. With the exception of loss expense, the majority of the expenses for this segment are variable in nature and therefore generally fluctuate consistent with revenue fluctuations. Accordingly, profit margins for this segment (before loss expense) are relatively constant, although as a result of some fixed expenses, profit margins (before loss expense) should nominally improve as revenues increase. Pre-tax margins for the current three and nine month periods of 2010 were 16.5% and 15.2%, up from 11.4% and 9.2% for the three and nine month period ending September 30, 2009, respectively.

Corporate


	Three Months Ended September 30,												Nine Months Ended September 30,
*(in thousands, except percentages)*	2010			2009			$ Change			% Change			2010			2009			$ Change			% Change
Revenues
Investment income	$	4,861		$	892		$	3,969			445.0	%	$	2,557		$	2,274		$	283			12.4	%
Net realized investment losses		(93	)		(70	)		(23	)		(32.9	)		(520	)		(1,137	)		617			54.3

		4,768			822			3,946			480.0			2,037			1,137			900			79.2

Expenses
Salaries and other personnel costs		9,827			1,813			8,014			442.0			20,155			12,221			7,934			64.9
Other operating expenses		7,538			4,964			2,574			51.9			20,664			12,980			7,684			59.2
Depreciation and amortization		944			1,944			(1,000	)		(51.4	)		2,005			3,373			(1,368	)		(40.6	)
Interest		2,741			1,675			1,066			63.6			4,751			4,875			(124	)		(2.5	)

		21,050			10,396			10,654			102.5			47,575			33,449			14,126			42.2

Loss before income taxes	$	(16,282	)	$	(9,574	)	$	(6,708	)		(70.1	)%	$	(45,538	)	$	(32,312	)	$	(13,226	)		(40.9	)%

Investment income totaled $4.9 million and $2.6 million for the three and nine months ended September 30, 2010, respectively, compared with investment income of $0.9 million and $2.3 million for the respective periods of the prior year. The increases in the current year periods were primarily due to an increase in yields earned on investments associated with the Company’s deferred compensation plan.

Corporate salaries and other personnel costs totaled $9.8 million and $20.2 million for the three and nine months ended September 30, 2010, respectively, increases of $8.0 million and $7.9 million when compared with the respective periods of the prior year. These increases are primarily due to a higher level of corporate salaries and other personnel costs following the Separation when compared to the amounts allocated from TFAC prior to the Separation. Following the Separation, the Company is a separate publicly traded company, which resulted in a higher level of corporate costs. The increases were also due to an increase in costs associated with the Company’s deferred compensation plan. The increase in costs associated with the Company’s deferred compensation plan is offset by the increase in income earned on investments associated with the deferred compensation plan, as discussed above.

Other operating expenses were $7.5 million and $20.7 million for the three and nine months ended September 30, 2010, respectively, increases of $2.6 million, or 51.9%, and $7.7 million, or 59.2%, when compared with the same periods of the prior year. These increases are primarily due to a higher level of corporate other operating expenses following the Separation when compared to the amounts allocated from TFAC prior to the Separation. Following the Separation, the Company is a

separate publicly traded company, which resulted in a higher level of corporate costs. Other operating expenses also increased due to elevated professional services expenses incurred in the current year related to the Separation.

Interest expense was $2.7 million and $4.8 million for the three and nine months ended September 30, 2010, respectively, an increase of $1.1 million, or 63.6%, from the prior year three month period and a decrease of $0.1 million, or 2.5%, when compared with the prior year nine month period. Corporate interest expense decreased relative to the prior nine month period due to a reduction in the interest rate on the Company’s allocated portion of TFAC’s debt. The interest rate is a variable rate and interest rates have declined in 2010. Additionally, in connection with the Separation, the Company borrowed $200.0 million under its new credit facility and paid off the allocated portion of TFAC’s debt. The new credit facility bears interest at a higher rate, which partially offsets the benefit realized from the reduction in the interest rate associated with the allocated portion of TFAC’s debt.

Eliminations

Eliminations represent interest income and related interest expense associated with intercompany notes between the Company’s segments, which are eliminated in the condensed consolidated and combined financial statements. The Company’s inter-segment eliminations were not material for the three and nine months ended September 30, 2010. The Company did not record inter-segment eliminations for the three and nine months ended September 30, 2009, as there was no inter-segment income or expense.

INCOME TAXES

The effective income tax rate (income tax expense as a percentage of income before income taxes) was 40.4% and 40.9% for the three and nine months ended September 30, 2010, and 40.3% and 43.0% for the same periods of the prior year. The effective income tax rate includes a provision for state income and franchise taxes for noninsurance subsidiaries. The differences in the effective rates in the current year periods were primarily attributable to changes in the mix of taxable and non-taxable income for state tax purposes, decreased taxable income from foreign sources, and changes in the ratio of permanent differences to income before income taxes.

The Company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. The Company continues to monitor the realizability of recognized, impairment, and unrecognized losses recorded through September 30, 2010. The Company believes it is more likely than not that the tax benefits associated with those losses will be realized. However, this determination is a judgment and could be impacted by further market fluctuations.

NET INCOME AND NET INCOME ATTRIBUTABLE TO THE COMPANY

Net income was $33.3 million and $81.2 million for the three and nine months ended September 30, 2010. Net income was $40.9 million and $81.7 million for the three and nine months ended September 30, 2009. Net income attributable to the Company for the three and nine months ended September 30, 2010, was $33.1 million, or $0.31 per diluted share, and $80.7 million, or $0.76 per diluted share. Net income attributable to the Company for the three and nine months ended September 30, 2009, was $38.8 million, or $0.37 per diluted share, and $72.3 million, or $0.70 per diluted share. Net income attributable to noncontrolling interests was $0.2 million and $0.5 million for the three and nine months ended September 30, 2010. Net income attributable to noncontrolling interests was $2.1 million and $9.4 million for the three and nine months ended September 30, 2009. The decrease in net income attributable to noncontrolling interests for the three and nine months ended September 30, 2010 of $1.9 million and $8.9 million, respectively, when compared to the respective periods in the prior year is primarily due to the purchase of subsidiary shares from noncontrolling interests in the fourth quarter of 2009.

LIQUIDITY AND CAPITAL RESOURCES

Total cash and cash equivalents increased $111.5 million for the nine months ended September 30, 2010 and increased $64.5 million for the nine months ended September 30, 2009. The increase for the current year period was due primarily to an increase in demand deposits, proceeds from issuance of debt, as well as cash provided by operations. Offsetting the increase were uses of cash for repayment of debt, cash distributions to TFAC upon separation and capital expenditures. The increase for the prior year period was due primarily to net cash provided by operations and net proceeds from debt and equity securities. The increase was offset by a decrease in demand deposits, repayment of debt, dividends paid to TFAC and capital expenditures.

Notes and contracts payable (including allocated portion of TFAC debt) as a percentage of total capitalization was 13.3% at September 30, 2010 and 11.3% at December 31, 2009.

On April 12, 2010, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”) in its capacity as administrative agent and a syndicate of lenders.

If at any time the rating by Moody’s Investor Service, Inc. (“Moody’s”) or Standard & Poor’s Ratings Group (“S&P”) of the senior, unsecured, long-term indebtedness for borrowed money of the Company that is not guaranteed by any other person or subject to any other credit enhancement is rated lower than Baa3 or BBB-, respectively, or is not rated by either such rating agency, then the loan commitments are subject to mandatory reduction from (a) 50% of the net proceeds of certain equity issuances by any Loan Party, (b) 50% of the net proceeds of certain debt incurred or issued by any Loan Party, (c) 25% of the net proceeds received by any Loan Party from the disposition of CoreLogic stock received in connection with the Separation and (d) the net proceeds received by any Loan Party from certain dispositions of assets, provided that the commitment reductions described above are only required to the extent necessary to reduce the total loan commitments to $200.0 million. The Company is only required to prepay loans to the extent that, after giving effect to any mandatory commitment reduction, the aggregate principal amount of all outstanding loans exceeds the remaining total loan commitments.

The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the lenders may accelerate the loans and the Collateral Agent may exercise remedies under the collateral documents. Upon the occurrence of certain insolvency and bankruptcy events of default the loans automatically accelerate.

As of September 30, 2010, the Company’s debt and equity investment securities portfolio consists of approximately 88% of fixed income securities. As of that date, over 72% of the Company’s fixed income investments are held in securities that are United States government-backed or rated AAA and approximately 95% of the fixed income portfolio is rated or classified as investment grade. Percentages are based on the amortized cost basis of the securities. Credit ratings are based on S&P and Moody’s published ratings. If a security was rated differently by both rating agencies, the lower of the two ratings was selected.

The table below outlines the composition of the investment portfolio currently in an unrealized loss position by credit rating (percentages are based on the amortized cost basis of the investments). Credit ratings are based on S&P and Moody’s published ratings and are exclusive of insurance effects. If a security was rated differently by both rating agencies, the lower of the two ratings was selected:


September 30, 2010	A-Ratings or Higher			BBB+ to BBB- Ratings			Non- Investment Grade
U.S. Treasury bonds		0.0	%		0.0	%		0.0	%
Municipal bonds		100.0	%		0.0	%		0.0	%
Foreign bonds		99.6	%		0.4	%		0.0	%
Governmental agency bonds		100.0	%		0.0	%		0.0	%
Governmental agency mortgage-backed securities		100.0	%		0.0	%		0.0	%
Non-agency mortgage-backed and asset-backed securities		0.5	%		0.0	%		99.5	%
Corporate debt securities		100.0	%		0.0	%		0.0	%
Preferred stock		0.0	%		0.0	%		100.0	%

		85.8	%		0.1	%		14.1	%

Approximately 25% of the Company’s municipal bonds portfolio has third party insurance in effect.

Substantially all securities in the Company’s non-agency mortgage-backed and asset-backed portfolio are senior tranches and were investment grade at the time of purchase, however many have been downgraded below investment grade since purchase. The table below summarizes the composition of the Company’s non-agency mortgage-backed and asset-backed securities by collateral type, year of issuance and current credit ratings. Percentages are based on the amortized cost basis of the securities and credit ratings are based on S&P and Moody’s published ratings. If a security was rated differently by both rating agencies, the lower of the two ratings was selected. All amounts and ratings are as of September 30, 2010.


(in thousands, except percentages and number of securities)	Number of Securities		Amortized Cost		Estimated Fair Value		A-Ratings or Higher			BBB+ to BBB- Ratings			Non- Investment Grade
Non-agency mortgage-backed securities:
Prime single family residential:
2007		1	$	7,092	$	2,340		0.0	%		0.0	%		100.0	%
2006		7		33,701		24,388		0.0	%		0.0	%		100.0	%
2005		2		7,563		5,598		0.0	%		0.0	%		100.0	%
2003		1		342		333		100.0	%		0.0	%		0.0	%
Alt-A single family residential:
2007		2		20,011		16,570		0.0	%		0.0	%		100.0	%

		13	$	68,709	$	49,229		0.5	%		0.0	%		99.5	%

As of September 30, 2010, five non-agency mortgage-backed and asset-backed securities with an amortized cost of $31.0 million and an estimated fair value of $21.9 million were on negative credit watch by either S&P or Moody’s.

The Company assessed its non-agency mortgage-backed and asset-backed securities portfolio to determine what portion of the portfolio, if any, is other-than-temporarily impaired at September 30, 2010. Management’s analysis of the portfolio included its expectations of the future performance of the underlying collateral, including, but not limited to, prepayments, defaults and loss severity assumptions. In developing these expectations, the Company utilized publicly available information related to individual assets, analysts’ expectations on the expected performance of similar underlying collateral and certain of CoreLogic’s securities, loans and property data and market analytic tools. As a result of the Company’s security-level review, it recognized $1.9 million and $5.4 million of other-than-temporary impairments in earnings for the three and nine months ended September 30, 2010, respectively. Total other-than-temporary impairments for the three and nine months ended September 30, 2010 were $2.7 million and $5.3 million, respectively. No new material other-than-temporary impairments were recognized in other comprehensive income for the three and nine months ended September 30, 2010. The amounts remaining in other comprehensive income should not be recorded in earnings, because the losses were not considered to be credit related based on the Company’s other-than-temporary impairment analysis as discussed above.

In addition to its debt and equity investment securities portfolio, the Company maintains certain money-market and other short-term investments.

Due to the Company’s liquid-asset position and its ability to generate cash flows from operations, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months. The Company expects to pay an annual cash dividend of approximately $25.0 million to its shareholders.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

The Company’s primary exposure to market risk relates to interest rate risk associated with certain financial instruments. Although the Company monitors its risk associated with fluctuations in interest rates, it does not currently use derivative financial instruments on any significant scale to hedge these risks.

The Company is also subject to equity price risk related to its equity securities portfolio. In connection with the Separation, the Company received shares of CoreLogic common stock. At September 30, 2010, the cost basis and estimated fair value of the CoreLogic common stock was $242.6 million and $247.8 million, respectively. The Company manages its equity price risk, including the risk associated with its CoreLogic common stock, through an investment committee of key executives which is advised by an experienced investment management staff.

Although the Company is subject to foreign currency exchange rate risk as a result of its operations in certain foreign countries, the foreign exchange exposure related to these operations, in the aggregate, is not material to the Company’s financial condition or results of operations, and therefore, such risk is immaterial.

There have been no material changes in the Company’s market risks, except for its holding of CoreLogic common stock, since the filing of its information statement filed as Exhibit 99.1 to the Company’s current report on Form 8-K dated May 26, 2010.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s chief executive officer and chief financial officer have concluded that, as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) thereunder.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1.

Legal Proceedings.

treble damages where permitted, attorneys fees and costs where permitted, declaratory judgment and pre-judgment and post-judgment interest.

Item 1A.

Risk Factors.

You should carefully consider each of the following risk factors and the other information contained in this Quarterly Report on Form 10-Q. The Company faces risks other than those listed here, including those that are unknown to the Company and others of which the Company may be aware but, at present, considers immaterial. Because of the following factors, as well as other variables affecting the Company’s operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

1. Conditions in the real estate market generally impact the demand for a substantial portion of the Company’s products and services

Demand for a substantial portion of the Company’s products and services generally decreases as the number of real estate transactions in which its products and services are purchased decreases. The number of real estate transactions in which the Company’s products and services are purchased decreases in the following situations:

•

when mortgage interest rates are high or rising;

•

when the availability of credit, including commercial and residential mortgage funding, is limited; and

•

when real estate values are declining.

2. Unfavorable economic conditions may have a material adverse effect on the Company

Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and a general decline in the value of real property, historically have created a difficult operating environment for the Company’s businesses and other companies in its industries. In addition, the Company holds investments in entities, such as title agencies, settlement service providers and property and casualty insurance companies, and instruments, such as mortgage backed securities, which may be negatively impacted by these conditions. The Company also owns a federal savings bank into which it deposits some of its own funds and some funds held in trust for third parties. This bank invests those funds and any realized losses incurred will be reflected in the Company’s consolidated results. The

likelihood of such losses, which generally would not occur if the Company were to deposit these funds in an unaffiliated entity, increases when economic conditions are unfavorable. Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on the Company could be materially adverse, including a significant reduction in revenues, earnings and cash flows, challenges to the Company’s ability to satisfy covenants or otherwise meet its obligations under debt facilities, difficulties in obtaining access to capital, challenges to the Company’s ability to pay dividends at currently anticipated levels, deterioration in the value of its investments and increased credit risk from customers and others with obligations to the Company.

3. Unfavorable economic or other conditions could cause the Company to write off a portion of its goodwill and other intangible assets

The Company performs an impairment test of the carrying value of goodwill and other indefinite-lived intangible assets annually in the fourth quarter or sooner if circumstances indicate a possible impairment. Finite-lived intangible assets are subject to impairment tests on a periodic basis. Factors that may be considered in connection with this review include, without limitation, underperformance relative to historical or projected future operating results, reductions in the Company’s stock price and market capitalization, increased cost of capital and negative macroeconomic, industry and company-specific trends. These and other factors could lead to a conclusion that goodwill or other intangible assets are no longer fully recoverable, in which case the Company would be required to write off the portion believed to be unrecoverable. Total goodwill and other intangible assets reflected on the Company’s consolidated balance sheet as of September 30, 2010 is approximately $0.9 billion. Any substantial goodwill and other intangible asset impairments that may be required could have a material adverse effect on the Company’s results of operations, financial condition and liquidity.

4. A downgrade by ratings agencies, reductions in statutory surplus maintained by the Company’s title insurance underwriters or a deterioration in other measures of financial strength may negatively affect the Company’s results of operations and competitive position

Certain of the Company’s customers use measurements of the financial strength of the Company’s title insurance underwriters, including, among others, ratings provided by ratings agencies and levels of statutory surplus maintained by those underwriters, in determining the amount of a policy they will accept and the amount of reinsurance required. Each of the major ratings agencies currently rates the Company’s title insurance operations. The Company’s principal title insurance underwriter is currently rated “A3” by Moody’s, “A-” by Fitch, “BBB+” by Standard & Poor’s, “A-” by A.M. Best and “A’” by Demotech. These ratings provide the agencies’ perspectives on the financial strength, operating performance and cash generating ability of those operations. These agencies continually review these ratings and the ratings are subject to change. Statutory surplus, or the amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength. The Company’s principal title insurance underwriter maintained approximately $822.9 million of statutory surplus capital as of September 30, 2010. The current minimum statutory surplus capital required to be maintained by California law is $500,000. Accordingly, if the ratings or statutory surplus of these title insurance underwriters are reduced from their current levels, or if there is a deterioration in other measures of financial strength, the Company’s results of operations, competitive position and liquidity could be adversely affected.

5. Failures at financial institutions at which the Company deposits funds could adversely affect the Company

The Company deposits substantial funds in financial institutions. These funds include amounts owned by third parties, such as escrow deposits. Should one or more of the financial institutions at which deposits are maintained fail, there is no guarantee that the Company would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise. In the event of any such failure, the Company also could be held liable for the funds owned by third parties.

6. Changes in government regulation could prohibit or limit the Company’s operations or make it more burdensome to conduct such operations

Many of the Company’s businesses, including its title insurance, property and casualty insurance, home warranty, thrift, trust and investment businesses, are regulated by various federal, state, local and foreign governmental agencies. These and other of the Company’s businesses also operate within statutory guidelines. Changes in the applicable regulatory environment, statutory guidelines or interpretations of existing regulations or statutes, enhanced governmental oversight or efforts by governmental agencies to cause customers to refrain from using the Company’s products or services could prohibit or limit its future operations or make it more burdensome to conduct such operations. The impact of these changes would be more significant if they involve states in which the Company generates a greater portion of its title premiums, such as California, Arizona, Texas, Florida and Pennsylvania. These changes may compel the Company to reduce its prices, may

restrict its ability to implement price increases or acquire assets or businesses, may limit the manner in which the Company conducts its business or otherwise may have a negative impact on its ability to generate revenues, earnings and cash flows.

7. Scrutiny of the Company’s businesses and the industries in which it operates by governmental entities and others could adversely affect its operations and financial condition

The real estate settlement services industry, an industry in which the Company generates a substantial portion of its revenue and earnings, has become subject to heightened scrutiny by regulators, legislators, the media and plaintiffs’ attorneys. Though often directed at the industry generally, these groups may also focus their attention directly on the Company’s businesses. In either case, this scrutiny may result in changes which could adversely affect the Company’s operations and, therefore, its financial condition and liquidity.

Governmental entities have inquired into certain practices in the real estate settlement services industry to determine whether certain of the Company’s businesses or its competitors have violated applicable laws, which include, among others, the insurance codes of the various jurisdictions and the Real Estate Settlement Procedures Act and similar state and federal laws. Departments of insurance in the various states, either separately or in conjunction with federal regulators, also periodically conduct inquiries, generally referred to at the state level as “market conduct exams,” into the practices of title insurance companies in their respective jurisdictions. Further, from time to time plaintiffs’ lawyers may target the Company and other members of the Company’s industry with lawsuits claiming legal violations or other wrongful conduct. These lawsuits may involve large groups of plaintiffs and claims for substantial damages. Any of these types of inquiries or proceedings may result in a finding of a violation of the law or other wrongful conduct and may result in the payment of fines or damages or the imposition of restrictions on the Company’s conduct which could impact its operations and financial condition. Moreover, these laws and standards of conduct often are ambiguous and, thus, it may be difficult to ensure compliance. This ambiguity may force the Company to mitigate its risk by settling claims or by ending practices that generate revenues, earnings and cash flows.

8. The Company may find it difficult to acquire necessary data

Certain data used and supplied by the Company are subject to regulation by various federal, state and local regulatory authorities. Compliance with existing federal, state and local laws and regulations with respect to such data has not had a material adverse effect on the Company’s results of operations, financial condition or liquidity to date. Nonetheless, federal, state and local laws and regulations in the United States designed to protect the public from the misuse of personal information in the marketplace and adverse publicity or potential litigation concerning the commercial use of such information may affect the Company’s operations and could result in substantial regulatory compliance expense, litigation expense and a loss of revenue. The suppliers of data to the Company face similar burdens and, consequently, the Company may find it financially burdensome to acquire necessary data.

9. Regulation of title insurance rates could adversely affect the Company’s results of operations

Title insurance rates are subject to extensive regulation, which varies from state to state. In many states the approval of the applicable state insurance regulator is required prior to implementing a rate change. This regulation could hinder the Company’s ability to promptly adapt to changing market dynamics through price adjustments, which could adversely affect its results of operations, particularly in a rapidly declining market.

10. As a holding company, the Company depends on distributions from its subsidiaries, and if distributions from its subsidiaries are materially impaired, the Company’s ability to declare and pay dividends may be adversely affected; in addition, insurance and other regulations may limit the amount of dividends, loans and advances available from the Company’s insurance subsidiaries

The Company is a holding company whose primary assets are investments in its operating subsidiaries. The Company’s ability to pay dividends is dependent on the ability of its subsidiaries to pay dividends or repay funds. If the Company’s operating subsidiaries are not able to pay dividends or repay funds, the Company may not be able to fulfill parent company obligations and/or declare and pay dividends to its stockholders. Moreover, pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available is limited. Under such regulations, the maximum amount of dividends, loans and advances available in 2010 from these insurance subsidiaries is $258.0 million.

11. The Company’s pension plan is currently underfunded and pension expenses and funding obligations could increase significantly as a result of the weak performance of financial markets and its effect on plan assets

The Company is responsible for the obligations of its defined benefit pension plan, which it assumed from its former parent, The First American Corporation, on June 1, 2010 in connection with the spin-off transaction which was consummated on that date. The plan was closed to new entrants effective December 31, 2001 and amended to “freeze” all benefit accruals as of April 30, 2008. The Company’s future funding obligations for this plan depend, among other factors, upon the future performance of assets held in trust for the plan. The pension plan was underfunded as of September 30, 2010 by approximately $89.6 million and the Company may need to make significant contributions to the plan. In addition, pension expenses and funding requirements may also be greater than currently anticipated if the market values of the assets held by the pension plan decline or if the other assumptions regarding plan earnings and expenses require adjustment. On June 1, 2010, CoreLogic, Inc. issued a $19.9 million promissory note to the Company which approximated the unfunded portion of the liability attributable to the plan participants that were employed in the information solutions group of The First American Corporation. There is no guarantee that CoreLogic, Inc. will fulfill its obligation under the note or that the amount of the note will be sufficient to ultimately cover the unfunded portion of the liability attributable to these employees. The Company’s obligations under this plan could have a material adverse effect on its results of operations, financial condition and liquidity.

12. Weakness in the commercial real estate market or an increase in the amount or severity of claims in connection with commercial real estate transactions could adversely affect the Company’s results of operations

The Company issues title insurance policies in connection with commercial real estate transactions. Premiums paid and limits on these policies are large relative to policies issued on residential transactions. Because a claim under a single policy could be significant, title insurers often seek reinsurance or coinsurance from other insurance companies, both within and outside the industry. The Company both receives and provides such coverage. Additionally, the pretax margin derived from these policies generally is higher than on other policies. Disruptions in the commercial real estate market, including limitations on available credit and defaults on loans secured by commercial real estate, may result in a decrease in the number of commercial policies issued by the Company and/or an increase in the number of claims it incurs on commercial policies. As a reference, commercial premiums earned by the Company in 2009 decreased nearly 50 percent compared with the amount earned in 2006. A further decrease in the number of commercial policies issued by the Company or an increase in the amount or severity of claims it incurs on commercial policies could adversely affect the Company’s results of operations.

13. Actual claims experience could materially vary from the expected claims experience reflected in the Company’s reserve for incurred but not reported (“IBNR”) title claims

Title insurance policies are long-duration contracts with the majority of the claims reported within the first few years following the issuance of the policy. Generally, 70 to 80 percent of claim amounts become known in the first five years of the policy life, and the majority of IBNR reserves relate to the five most recent policy years. A material change in expected ultimate losses and corresponding loss rates for policy years older than five years, while possible, is not considered reasonably likely. However, changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss rates for the most recent policy years, positive or negative, is believed to be reasonably likely given the long duration nature of a title insurance policy. For example, if the expected ultimate losses for each of the last five policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of $101.3 million. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be inaccurate and actual claims experience may vary from the expected claims experience.

14. Systems interruptions and intrusions may impair the delivery of the Company’s products and services

System interruptions and intrusions may impair the delivery of the Company’s products and services, resulting in a loss of customers and a corresponding loss in revenue. The Company’s businesses depend heavily upon computer systems located in its data centers. Certain events beyond the Company’s control, including natural disasters, telecommunications failures and intrusions into the Company’s systems by third parties could temporarily or permanently interrupt the delivery of products and services. These interruptions also may interfere with suppliers’ ability to provide necessary data and employees’ ability to attend work and perform their responsibilities.

15. The Company may not be able to realize the benefits of its offshore strategy

The Company utilizes lower cost labor in foreign countries, such as India and the Philippines, among others. These countries are subject to relatively high degrees of political and social instability and may lack the infrastructure to withstand natural disasters. Such disruptions could decrease efficiency and increase the Company’s costs in these countries. Weakness of the U.S. dollar in relation to the currencies used in these foreign countries may also reduce the savings achievable through this strategy. Furthermore, the practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States and, as a result, some of the Company’s customers may require it to use labor based in the United States. Laws

or regulations that require the Company to use labor based in the United States or effectively increase the cost of the Company’s foreign labor also could be enacted. The Company may not be able to pass on these increased costs to its customers.

16. Product migration may result in decreased revenue

Customers of many real estate settlement services the Company provides increasingly require these services to be delivered faster, cheaper and more efficiently. Many of the traditional products it provides are labor and time intensive. As these customer pressures increase, the Company may be forced to replace traditional products with automated products that can be delivered electronically and with limited human processing. Because many of these traditional products have higher prices than corresponding automated products, the Company’s revenues may decline.

17. Increases in the size of the Company’s customers enhance their negotiating position vis-à-vis the Company and may decrease their need for the services offered by the Company

Many of the Company’s customers are increasing in size as a result of consolidation or the failure of their competitors. For example, the Company believes that three lenders collectively originate more than 50 percent of mortgage loans in the United States. As a result, the Company may derive a higher percentage of its revenues from a smaller base of customers, which would enhance the negotiating power of these customers with respect to the pricing and the terms on which these customers purchase the Company’s products and other matters. Moreover, these larger customers may prove more capable of performing in-house some or all of the services the Company provides or, with respect to the Company’s title insurance products, more willing to assume the risk of title defects themselves and, consequently, the demand for the Company’s products and services may decrease. These circumstances could adversely affect the Company’s revenues and profitability. Changes in the Company’s relationship with any of these customers or the loss of all or a portion of the business the Company derives from these customers could have a material adverse effect on the Company.

18. Certain provisions of the Company’s bylaws and certificate of incorporation may reduce the likelihood of any unsolicited acquisition proposal or potential change of control that the Company’s stockholders might consider favorable

The Company’s bylaws and certificate of incorporation contain provisions that could be considered “anti-takeover” provisions because they make it harder for a third-party to acquire the Company without the consent of the Company’s incumbent board of directors. Under these provisions:

•

election of the Company’s board of directors is staggered such that only one-third of the directors are elected by the stockholders each year and the directors serve three year terms prior to reelection;

•

stockholders may not remove directors without cause, change the size of the board of directors or, except as may be provided for in the terms of preferred stock the Company issues in the future, fill vacancies on the board of directors;

•

stockholders may act only at stockholder meetings and not by written consent;

•

stockholders must comply with advance notice provisions for nominating directors or presenting other proposals at stockholder meetings; and

•

the Company’s board of directors may without stockholder approval issue preferred shares and determine their rights and terms, including voting rights, or adopt a stockholder rights plan.

While the Company believes that they are appropriate, these provisions, which may only be amended by the affirmative vote of the holders of approximately 67 percent of the Company’s issued voting shares, could have the effect of discouraging an unsolicited acquisition proposal or delaying, deferring or preventing a change of control transaction that might involve a premium price or otherwise be considered favorably by the Company’s stockholders.

19. The Company’s investment portfolio is subject to certain risks and could experience losses

The Company maintains a substantial investment portfolio, primarily consisting of fixed income securities (including mortgage-backed and asset-backed securities) and, as of September 30, 2010, $247.8 million in common stock of CoreLogic that was issued to the Company in connection with its spin-off separation from CoreLogic. The investment portfolio also includes money-market and other short-term investments, as well as some preferred and other common stock. Securities in the Company’s investment portfolio are subject to certain economic and financial market risks, such as credit risk, interest rate (including call, prepayment and extension) risk and/or liquidity risk. Because a substantial proportion of the portfolio consists of the common stock of a single issuer, CoreLogic, the risk of loss in the portfolio also is impacted by factors that influence the value of CoreLogic’s stock, including, but not limited to, CoreLogic’s financial results and the market’s perception of CoreLogic’s and its industry’s prospects. Additionally, the risk of loss associated with the portfolio is increased

during periods, such as the present period, of instability in credit markets and economic conditions. If the carrying value of the investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, the Company will be required to write down the value of the investments, which could have a material adverse effect on the Company’s results of operations, statutory surplus and financial condition.

20. The Company could have conflicts with CoreLogic

The Company and CoreLogic were part of a single publicly traded company, The First American Corporation, until the Company’s spin-off separation from CoreLogic on June 1, 2010. Conflicts with CoreLogic may arise as a result of the Company’s agreements with CoreLogic. Competition between the companies also could result in conflicts. While current competition between the companies is not material, the extent of future competition is unknown. In addition, Parker S. Kennedy serves as the executive chairman of both the Company and CoreLogic and therefore has obligations to both companies. As such, conflicts of interest with respect to matters potentially or actually affecting both companies may arise. Conflicts, competition or conflicts of interest pertaining to the Company’s relationship with CoreLogic could adversely affect the Company.

Item 5.

Other Information.

On October 27, 2010, the Company entered into an amended change in control agreement with, among other participants, each of its named executive officers, other than Mr. Kennedy who entered into his agreement on October 29, 2010. The amendments were entered into with a view to significantly reducing the overall benefit payable by the Company to participants and eliminating certain circumstances under which the benefit could become payable. The principal modifications were as follows:

Reduction of the benefit payable upon trigger by providing that the executive receives twice, instead of three times, the executive’s base salary and bonus amount;

Using the executive’s target bonus for the year in which the change in control occurs rather than the highest of the previous four years’ bonuses in the calculation. In the event there is no target bonus, the average of the previous three years’ bonuses is to be utilized;

Eliminating the ability of the executive to receive a reduced benefit by voluntarily terminating employment during the thirty-day period following the first anniversary of the change in control; and

Eliminating the Company’s obligation to gross-up the amount paid to the executive in the amount of any applicable excise tax. Instead, the executive will pay any applicable excise tax or, if the resulting after-tax benefit to the executive is higher, that the executive will receive $1 less than the amount that would trigger the excise tax.

The description above is qualified by reference to the amended form of agreement, a complete copy of which is attached hereto as Exhibit 10(c) and is hereby incorporated by reference.

With respect to the Company’s agreement with Mr. Kennedy, certain modifications have been made to avoid a duplication of benefits, given Mr. Kennedy’s service as executive chairman of the Company and CoreLogic, Inc. Mr. Kennedy’s agreement is attached hereto as Exhibit 10(d) and is hereby incorporated by reference. In connection with Mr. Kennedy’s entrance into such agreement, the Company, Mr. Kennedy and CoreLogic, Inc. also entered into a letter agreement terminating Mr. Kennedy’s prior change in control agreement. The letter agreement is attached hereto as Exhibit 10(e) and is hereby incorporated by reference.

Item 6.

Exhibits.

See Exhibit Index.

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.


FIRST AMERICAN FINANCIAL CORPORATION (Registrant)

By		/s/ Dennis J. Gilmore
		Dennis J. Gilmore Chief Executive Officer (Principal Executive Officer)

By		/s/ Max O. Valdes
		Max O. Valdes Chief Financial Officer (Principal Financial Officer)

Date: November 1, 2010

EXHIBIT INDEX


Exhibit No.	Description	Location

10(a)	Arrangement regarding salaries, bonuses and long term incentive restricted stock units for named executive officers, approved August 25, 2010 and August 31, 2010, respectively.	Incorporated by reference herein to the description contained in the Current Report on Form 8-K, dated August 31, 2010.

10(b)	First American Financial Corporation Executive Supplemental Benefit Plan, amended and restated effective as of June 1, 2010. (superseding Exhibit 10(h) filed with Amendment No. 3 to Form 10 on April 30, 2010)	Attached.

10(c)	First American Financial Corporation Form of Amended and Restated Change in Control Agreement to be effective as of December 31, 2010.	Attached.

10(d)	Change in Control Agreement to be effective as of December 31, 2010, by and between First American Financial Corporation and Parker S. Kennedy.	Attached.

10(e)	Letter agreement dated October 29, 2010 among First American Financial Corporation, CoreLogic, Inc. and Parker S. Kennedy.	Attached.

31(a)	Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.	Attached.

31(b)	Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.	Attached.

32(a)	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.	Attached.

32(b)	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.	Attached.

101.INS	XBRL Instance Document.	Attached.

101.SCH	XBRL Taxonomy Extension Schema Document.	Attached.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.	Attached.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.	Attached.

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Exhibit 10(b)

First American Financial Corporation

Executive Supplemental Benefit Plan

Amended and Restated Effective as of June 1, 2010

Contents



	Article 1. Introduction	1
1.1	Background and History	1
1.2	Purpose of the Plan	1
1.3	Gender and Number	1

	Article 2. Definitions	2
2.1	Affiliate	2
2.2	Annuity Starting Date	2
2.3	Basic Plan	2
2.4	Beneficiary	2
2.5	Board of Directors	3
2.6	Change of Control	3
2.7	Code	3
2.8	Committee	3
2.9	Company	3
2.10	Competing Business	3
2.11	Competition	4
2.12	Covered Compensation	4
2.13	Deferred Retirement Date	4
2.14	Disabled	5
2.15	Early Retirement Date	5
2.16	Employee	5
2.17	Employer	5
2.18	ERISA	5
2.19	Executive	5
2.20	Final Average Compensation	6
2.21	Good Cause	6
2.22	Hours of Service	6
2.23	In Pay Status	7
2.24	Incumbent Directors	7
2.25	Joint and Survivor Annuity	7
2.26	Management Plan	8
2.27	Normal Retirement Date	8
2.28	Person	8
2.29	Plan	8
2.30	Pre-Retirement Death Benefit	8


2.31	Retirement Income Benefit	8
2.32	Separation from Service	9
2.33	Specified Employee	9
2.34	Spouse	10
2.35	Surviving Spouse	10
2.36	Years of Credited Service	10

	Article 3. Retirement Income Benefits	11
3.1	Eligibility to Participate	11
3.2	Normal Retirement	11
3.3	Early Retirement	12
3.4	Disabled Executive	12
3.5	Six-Month Delay for Specified Employees	12
3.6	Rehired Executive Not In Pay Status	13
3.7	Rehired Executive In Pay Status	13

	Article 4. Pre-Retirement Death Benefit	14

	Article 5. Vesting of Benefits	15
5.1	General Rule	15
5.2	Change of Control	15
5.3	Forfeiture in the Event of Competition	15

	Article 6. Funding of Benefits	17

	Article 7. Plan Administration	19
7.1	Committee	19
7.2	Operation of the Committee	19
7.3	Agents	20
7.4	Compensation and Expenses	20
7.5	Committee’s Powers and Duties	20
7.6	Committee’s Decisions Conclusive/Exclusive Benefit	21
7.7	Indemnity	21
7.8	Insurance	23
7.9	Notices	23
7.10	Data	23
7.11	Claims Procedure	24
7.12	Effect of a Mistake	26

	Article 8. Amendment and Termination	27
8.1	Amendment and Termination Generally	27
8.2	Amendment and Termination Following a Change of Control	27

	Article 9. Miscellaneous	28
9.1	No Enlargement of Employee Rights	28
9.2	Benefit Agreement	28


9.3	Exclusion for Suicide or Self-Inflicted Injury	28
9.4	Leave of Absence	28
9.5	Termination for Good Cause	28
9.6	Monthly Payments	28
9.7	Actuarial Equivalence	29
9.8	Withholding	29
9.9	No Examination or Accounting	29
9.10	Records Conclusive	29
9.11	Section 409A	29
9.12	Service of Legal Process	29
9.13	Governing Law	29
9.14	Severability	29
9.15	Missing Persons	30
9.16	Facility of Payment	30
9.17	General Restrictions Against Alienation	30
9.18	Counterparts	31
9.19	Effect of Amendment on Vested Executives	31
9.20	Assignment	31

iii

Article 1. Introduction

1.1

Background and History

The First American Financial Corporation Executive Supplemental Benefit Plan was established by the Board of Directors of The First American Corporation (“FAC”), effective as of July 1, 1985. The Plan was amended and restated, effective November 1, 2007, to comply with final regulations under Code section 409A. The Plan was again amended and restated, effective as of January 1, 2009, to amend and clarify certain Plan provisions and to clarify compliance with certain aspects of the final regulations under Code section 409A.

On June 1, 2010, FAC transferred sponsorship and administration of the Plan to the First American Financial Corporation (the “Company”). As a part of this transfer, the Company assumed the liabilities under the portion of the Plan covering the Company’s employees and former employees and FAC remained responsible for liabilities under the portion of the Plan relating to FAC employees and former FAC employees.

The Company is now restating the Plan to incorporate prior amendments and to reflect that it is the sole sponsor thereof, effective as of June 1, 2010 (“Effective Date”). The provisions of this Plan are intended to govern the benefits payable to a Participant under this Plan both before and after June 1, 2010.

The adoption of this Plan is not intended to grant additional benefits to the Plan Participants hereof, rather, is intended to be consistent with the historical practice of the Plan. Accordingly, all elections by Company employees and former employees that were in effect under the terms of the Plan immediately prior to June 1, 2010, shall continue in effect from and after such date until a new election that by its terms supersedes the prior election is made by such Company employee or former employee in accordance with the terms of the Plan and consistent with the provisions of Code Section 409A to the extent applicable. As a result thereof, nothing herein is intended to constitute a “material modification” (within the meaning of Code Section 409A) of the Plan.

1.2

Purpose of the Plan

The Plan is designed to provide supplemental retirement income and death benefits for certain Executives.

1.3

Gender and Number

Except as otherwise indicated by the context, any masculine or feminine terminology shall also include the opposite gender, and the definition of any term in the singular or plural shall also include the opposite number.

Article 2. Definitions

The following definitions, set forth in alphabetical order, are used throughout the Plan and have the meaning set forth below.

2.1

Affiliate

“Affiliate” means

(a)	Any entity or organization that, together with the Company, is part of a controlled group of corporations, within the meaning of Code section 414(b);

(b)	Any trade or business that, together with the Company, is under common control, within the meaning of Code section 414(c); and

(c)	Any entity or organization that is required to be aggregated with the Company, pursuant to Code sections 414(m) or 414(o).

For purposes of this Plan, however, the term “Affiliate” shall be interpreted such that the phrase “at least 50 percent” will be substituted for the phrase “at least 80 percent” in each place that it appears in Code section 1563. Additionally, an entity shall be an Affiliate only during the period when the entity has the required relationship, under this Plan section 2.1, with the Company.

2.2

Annuity Starting Date

“Annuity Starting Date” means the first day of the first period for which an amount is paid as an annuity.

2.3

Basic Plan

“Basic Plan” means the First American Financial Corporation Pension Plan, a defined benefit pension plan qualified under Code section 401(a), as amended from time to time.

2.4

Beneficiary

“Beneficiary” means the person, persons or entity designated in writing by the Executive on forms provided by the Company to receive the Pre-Retirement Death Benefit set forth under Article 4 of the Plan in the event of the Executive’s death. An Executive may change the designated Beneficiary from time to time by filing a new written designation with the Company, and such designation shall be effective upon receipt by the Company, provided that the Company has determined that such change in Beneficiary will not result in an “impermissible acceleration” under Code section 409A. If the Company determines that such change in Beneficiary will result in an “impermissible acceleration,” such intended change will be null and void and the Beneficiary on file prior to such intended change (if any) shall remain the Beneficiary. If an Executive has not designated a Beneficiary, or if a designated Beneficiary is not living or in existence at the time of the Executive’s death, the Pre-Retirement Death Benefit payable under the Plan shall be paid to the Executive’s Spouse, if then living, and if the Executive’s Spouse is not then living, to the Executive’s estate.

2.5

Board of Directors

“Board of Directors” means the Board of Directors of the Company.

2.6

Change of Control

“Change of Control” means the occurrence of any of the following:

(a)

The acquisition by any person, entity or “group” (as defined in section 13(d)(3) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the then outstanding securities of the Company;

(b)	A change in the composition of the Board of Directors occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors; or

(c)	Any other event constituting a change in control required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act.

Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred by reason of the acquisition of Company securities by the Company, any entity controlled by the Company or any plan sponsored by the Company which is qualified under Code section 401(a) or by reason of the acquisition of Company securities (either directly or indirectly as a result of a merger, consolidation or otherwise) in a transaction approved by the Incumbent Directors.

2.7

Code

“Code” means the Internal Revenue Code of 1986, as amended.

2.8

Committee

“Committee” means the Compensation Committee appointed by the Board of Directors, or any other committee appointed by the Board of Directors to administer this Plan in accordance with Article 7 of the Plan.

2.9

Company

“Company” means the First American Financial Corporation.

2.10

Competing Business

“Competing Business” means any individual (including the Executive), person, sole proprietorship, joint venture, partnership, corporation, limited liability company, business entity, trust or other entity that competes with, or will compete with, the Company or an Affiliate in any locality worldwide. A Competing Business includes, without limitation, any start-up or other entity in formation.

2.11

Competition

“Competition” means any of the following, whether occurring during or after the end of the Executive’s employment with the Employer:

(a)	The Executive’s Involvement (as defined in Article 5) in or with a Competing Business;

(b)	The misappropriation, sale, transfer, use or disclosure of trade secrets, or confidential or proprietary information of the Company or an Affiliate;

(c)

Any action or attempt by the Executive, directly or indirectly, either for himself or for any other person or entity, to recruit or solicit for hire any employee, officer, director, consultant, independent contractor or other personnel of the Company or an Affiliate, or to induce or encourage such a person or entity to terminate his, her or its relationship, or breach an agreement, with the Company or an Affiliate; or

(d)

Any action or attempt by the Executive, directly or indirectly, either for himself or for any other person or entity, to solicit or induce any customer or potential customer of the Company or an Affiliate to cease or not commence doing business, in whole or in part, with or through the Company or an Affiliate, or to do business with any other person, firm, partnership, corporation or any Competing Business.

2.12

Covered Compensation

“Covered Compensation” means base salary, cash bonus, sales commissions, similar commission-based remuneration and equity-based compensation explicitly designated as Covered Compensation or explicitly designated as compensation for past performance. “Covered Compensation” excludes any other form of remuneration, including, but not limited to, equity compensation awarded to incentivize future performance, relocation expenses and bonuses, earn-outs and other acquisition-related consideration, car allowances and perquisites. Except as otherwise provided by the Committee, “Covered Compensation” also excludes any payments made in connection with a Separation from Service, including, but not limited to, any bonus paid to an Executive in connection with his Separation from Service during a calendar year in which such Executive has already received a performance bonus. If an Executive dies or becomes Disabled, his Covered Compensation for that calendar year shall be defined as the Covered Compensation received through the date of death or disability, respectively, and no compensation received thereafter shall be considered Covered Compensation. Covered Compensation shall for all purposes be deemed paid in the year in which it is actually paid.

2.13

Deferred Retirement Date

“Deferred Retirement Date” means the date on which an Executive who is actively employed by the Company or an Affiliate incurs a Separation from Service following attainment of his Normal Retirement Date.

2.14

Disabled

“Disabled” means an Executive who is, in the determination of the Committee, unable to perform substantially all of the material duties of one’s regular position because of a bodily injury sustained or disease originating after the date of such person’s designation as an Executive under this Plan. Notwithstanding the foregoing:

(a)

After an Executive has been Disabled as defined above for a period of 24 continuous months, the Executive will cease to be considered Disabled unless he is unable to perform any occupation for which he is reasonably fitted by education, training or experience because of such bodily injury or sickness; and

(b)	An Executive is not Disabled at any time that he is working for pay or profit at any occupation.

2.15

Early Retirement Date

“Early Retirement Date” means the later of an Executive’s

(a)	55 ^th birthday;

(b)	Completion of 10 Years of Credited Service; and

(c)	Completion of 5 years as an Executive under the Plan and/or the Management Plan (which requirement may be waived unilaterally only by the Board of Directors or the Committee).

2.16

Employee

“Employee” means any person who is employed by the Company or Affiliate and who is classified as a common-law Employee in the employment records of the Company or an Affiliate (other than a leased employee within the meaning of Code section 414(n)(2)).

2.17

Employer

“Employer” means the Company and any Affiliate.

2.18

ERISA

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

2.19

Executive

“Executive” means a key management or key highly compensated employee of the Employer who has been specifically designated by the Board of Directors or the Committee, or the designee of either, as eligible to participate in this Plan, as evidenced by execution by the Executive of the benefit agreement contemplated by Plan section 9.2.

2.20

Final Average Compensation

“Final Average Compensation” means the Executive’s average one-year Covered Compensation for the five-year period ending on December 31 of the calendar year immediately preceding the calendar year in which the Executive has a Separation from Service.

2.21

Good Cause

“Good Cause” means, with respect to an Employee’s Separation from Service with his Employer, a termination for:

(a)	Employee’s breach of any fiduciary duty to Employer;

(b)	Employee’s failure or refusal to comply with laws or regulations applicable to Employer and its business or the policies of Employer governing the conduct of its employees;

(c)	Employee’s gross incompetence in the performance of Employee’s job duties;

(d)	Commission by Employee of any criminal or fraudulent acts against Employer;

(e)	The failure of Employee to perform duties consistent with a commercially reasonable standard of care;

(f)	Employee’s failure or refusal to perform Employee’s job duties; or

(g)	Any gross or willful conduct of Employee resulting in loss to Employer or any other Affiliate of the Company, or damage to the reputation of Employer or any other Affiliate of the Company.

2.22

Hours of Service

“Hours of Service” means:

(a)	Each hour for which an Executive is paid or entitled to payment by the Company or an Affiliate for the performance of duties.

(b)

Each hour for which an Executive is paid or entitled to payment by the Company or an Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability) layoff, jury duty, or leave of absence.

(c)	Each hour for which back pay (irrespective of mitigation of damages) for an Executive is either awarded or agreed to by the Company or an Affiliate, with no duplication of credit for hours under subsections (a) or (b) and this subsection.

(d)	Each hour credited pursuant to applicable ERISA regulations for unpaid periods of absence for service in the United States armed forces or Public Health Service during which an Executive’s reemployment rights are guaranteed by law, provided that the

Executive is reemployed by the Company or an Affiliate within the time limits prescribed by such law.

Notwithstanding the foregoing, no more than 501 Hours of Service shall be credited to an Executive on account of any single continuous period during which the Executive performs no duties.

To the extent a record of an Executive’s hours of employment is not maintained by the Company or an Affiliate, the Executive shall be credited with 10 Hours of Service for each day for which the Executive would be required to be credited with at least one Hour of Service.

All Hours of Service shall be determined and credited to computation periods in accordance with reasonable standards and policies consistent with United States Department of Labor Regulations sections 2530.200b-2(b) and (c).

Notwithstanding anything herein to the contrary, each Hour of Service credited to an Executive under any previous version of the Plan, shall be credited to the Executive under this Plan.

2.23

In Pay Status

“In Pay Status” means, with respect to a benefit, that an Executive or Beneficiary has met all of the requirements to receive such benefit, and it is being paid or is about to be paid to such Executive or Beneficiary. No benefit can be paid under this Plan unless the Executive has incurred a Separation from Service.

2.24

Incumbent Directors

“Incumbent Directors” means directors who either are:

(a)	Directors of the Company as of November 1, 2007; or

(b)

Elected, or nominated for election, to the Board of Directors with the affirmative votes of at least two-thirds of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company.

2.25

Joint and Survivor Annuity

“Joint and Survivor Annuity” means an annuity that provides equal monthly payments for the life of the Executive and, after his death, a reduced annuity (“survivor annuity”) for the life of the Executive’s Surviving Spouse, if any. The monthly payment under the survivor annuity to a Surviving Spouse shall be equal to 50% of the amount of the monthly payment made to the Executive during their joint lives if the Surviving Spouse is not more than five years younger, or is older, than the Executive at the time benefits begin. If the Surviving Spouse is more than five years younger than the Executive, the survivor annuity will be determined with reference to the actual age of the Surviving Spouse at the time benefits begin and will be reduced to produce the

actuarial equivalent of a 50% survivor annuity for a Surviving Spouse who is five years younger than the Executive.

If the Executive is not married at the time that Plan benefits commence, the Joint and Survivor Annuity means an annuity providing equal monthly payments for the lifetime of the Executive with no survivor benefits.

2.26

Management Plan

“Management Plan” means The First American Management Supplemental Benefit Plan.

2.27

Normal Retirement Date

“Normal Retirement Date” means the last day of the month coinciding with or next following the later of an Executive’s:

(a)	62 ^nd birthday;

(b)	Completion of 10 Years of Credited Service (which requirement may be waived unilaterally only by the Board of Directors or the Committee); or

(c)	Completion of 5 years as an Executive under the Plan and/or the Management Plan (which requirement may be waived unilaterally only by the Board of Directors or the Committee).

2.28

Person

“Person” means any individual, partnership, joint venture, association, joint company, corporation, trust, limited liability company, unincorporated organization, a group, a government or other department, agency or political subdivision thereof or any other person or entity as contemplated by the Exchange Act.

2.29

Plan

“Plan” means the First American Financial Corporation Executive Supplemental Benefit Plan. The Plan was originally named The First American Financial Corporation Executive Supplemental Benefit Plan and took its current name effective as of May 12, 2000, to reflect the change in the name of the Company.

2.30

Pre-Retirement Death Benefit

“Pre-Retirement Death Benefit” means the benefit payable, as set forth in Article 4, to the Beneficiary of an Executive who dies prior to the commencement of his Retirement Income Benefit.

2.31

Retirement Income Benefit

“Retirement Income Benefit” means ¹ / 12 of the benefit described in Article 3 payable as a monthly annuity.

2.32

Separation from Service

“Separation from Service” means the date on which an Executive who ceases to be an Employee or otherwise separates from the service of the Company or an Affiliate on account of the Executive’s retirement, death or other termination of employment. Whether or not an Executive has incurred a Separation from Service will be based on all surrounding relevant circumstances, including, but not limited to, the reasonable belief of both the Executive and the Company (or Affiliate) that the Executive will perform no future services for the Company or an Affiliate whether as an Employee, as a contractor or in any other capacity. For purposes of this defined term, no Separation from Service will be deemed to have occurred if the Executive transfers employment from the Company or an Affiliate to another member of the Company’s Code section 414 controlled group. For this purpose, controlled group membership will include the Company and all Affiliates.

Notwithstanding the foregoing, the Plan will treat an anticipated permanent reduction in the level of bona fide services provided by the Executive to the Company or an Affiliate as a Separation from Service provided that it is reasonable for the Company or the Affiliate to anticipate that the Executive’s reduced level of bona fide services will not exceed 49 percent of the average level of bona fide services provided by such Executive within the immediately preceding applicable 36 months within the meaning of Treasury Regulations section 1.409A-1(h)(1)(ii).

The commencement of the Retirement Income Benefit, described in Article 3 and subject to the six-month payment delay set forth at Plan section 3.5, will be deemed to be on account of the Executive’s Separation from Service provided that the Retirement Income Benefit commences no later than the end of the calendar year in which the Separation from Service occurs or, if later, within 2 ¹ / 2 months following such Separation from Service provided that the Executive cannot designate the taxable period in which such Retirement Income Benefit shall commence.

2.33

Specified Employee

“Specified Employee” means an Executive qualifying as a “key employee” for purposes of Code section 416 (determined without regard to Code section 416(i)(5)) by satisfying any one of the following conditions at any time during the 12-month period ending on each December 31 (“Identification Date”):

(a)	The Executive is among the top-paid 50 officers of the Company with annual compensation (within the meaning of Code section 415(c)(3)) in excess of $145,000 (subject to cost-of-living adjustments);

(b)	The Executive is a five-percent owner; or

(c)	The Executive is a one-percent owner and has annual compensation in excess of $150,000.

If an individual is a key employee as of an Identification Date, including an individual who acknowledges his Specified Employee status to the Company immediately prior to the date his Retirement Income Benefit commences, the individual shall be treated as a Specified Employee for the 12-month period beginning on April 1 following the Identification Date. For the limited

purpose of applying the “one-percent” and “five-percent” ownership rules, ownership is determined with respect to the entity for which the Employee provides services. The Code’s controlled and affiliated service group rules do not apply when determining an Executive’s ownership interests. Notwithstanding the foregoing, an individual shall not be treated as a Specified Employee unless any stock of the Company or any Affiliate is publicly traded on an established securities market or otherwise.

For purposes of making its annual Specified Employee determination, the Company shall consider compensation treated as recognizable pay under the definition of pay commonly referred to as “general Code section 415 pay.”

Notwithstanding the above, the Company may (but is not required to) adopt an alternative method for identifying Specified Employees, provided such method satisfies the requirements set forth at Treasury Regulations section 1.409A-1(i)(5).

2.34

Spouse

“Spouse” means with respect to an Executive, a person of the opposite sex from the Executive, who is the Executive’s husband or wife (as applicable) under applicable state law to whom the Executive has been legally married during the 12-month period immediately preceding the Executive’s date of death, if such death is earlier than the Executive’s Early, Normal or Deferred Retirement Date, or the person to whom the Executive is married as of his Annuity Starting Date. No individual, including an individual of the opposite sex, shall be the Spouse of an Executive on account of the fact that the individual is registered as the domestic partner of the Executive under state law, even if state law provides that the domestic partners shall have the same rights, protections, and benefits, under state law, as married persons. No individual shall be the Spouse of an Executive unless the person would be treated as the “Spouse” of the Executive under 1 USC section 7 (relating to the definition of a “Spouse” for purposes of federal law, as added by the Defense of Marriage Act).

2.35

Surviving Spouse

“Surviving Spouse” means the Spouse of a deceased Executive who was the Spouse to whom the Executive was married at the time that Plan benefits commenced and who is living at the time of the Executive’s death after benefit commencement.

2.36

Years of Credited Service

“Year of Credited Service” means years of benefit service as defined in Article 3 of the Basic Plan, but without regard to the Basic Plan’s freezing of Benefit Service as of April 30, 2008. In making this determination, however, the provisions of Plan section 9.4 relating to leaves of absence shall control over any contrary provisions in the Basic Plan.

Article 3. Retirement Income Benefits

3.1

Eligibility to Participate

Subject to Plan section 5.2, each Executive who either:

(a)	Reaches his Normal Retirement Date while an Executive employed by an Employer and retires on or after such date; or

(b)	Retires on or after his Early Retirement Date but prior to reaching Normal Retirement Date,

shall be eligible to receive a Retirement Income Benefit under this Plan upon the Executive’s Separation from Service.

(c)

Notwithstanding anything in the Plan to the contrary, if the Board of Directors or its designee so authorizes, an Executive may be employed as a dual employee of the Company and FAC. In such event, such Executive shall only be eligible to receive a Retirement Income Benefit under this Plan upon such Executive’s Separation from Service.

In the event of such authorized dual employment, upon such Executive’s Separation from Service, to the extent that such Executive’s Final Average Compensation covers the period of dual employment in question, such Executive’s benefit shall include only that Covered Compensation attributable to service performed for that Employer. Furthermore, only one-half of Covered Compensation attributable to periods of service with the Company prior to the Effective Date shall be treated as Covered Compensation for purposes of the Plan. For the avoidance of doubt, Covered Compensation allocable to periods prior to FAC’s spin-off of its financial services businesses, consisting primarily of its title insurance and specialty insurance reporting segments, to FinCo, shall be allocated equally between this Plan and to a plan substantially similar to the Plan sponsored by FAC.

3.2

Normal Retirement

Subject to Plan section 3.5 and to the Executive’s execution of (1) a separation agreement within sixty (60) days following his Separation from Service and (2) annual written certification within thirty (30) days following the end of each year that he is not in Competition with the Company or any Affiliate, each in the form prescribed by the Committee or its designee, an Executive who incurs a Separation from Service (subject to Article 4 if such Separation from Service is as a result of a death) on or after his Normal Retirement Date shall be entitled to a Retirement Income Benefit equal to 30% of his Final Average Compensation and payable in the form of a Joint and Survivor Annuity commencing on the last day of the month following the month in which the Executive’s Separation from Service occurs.

Notwithstanding the foregoing, an Executive’s Retirement Income Benefit shall be reduced by the amount of any payments that are required to be made to a Spouse, former Spouse, child, or other dependant pursuant to:

(a)	A valid state domestic relations order that is a judgment, decree, or order under state community property or domestic relations law and that relates to the provision of child support, alimony, or marital property rights of an Executive’s Spouse, child or other dependent; or

(b)	In the event of a divorce and after the divorce decree has been issued, a property settlement signed by the Executive, the Executive’s former Spouse, and any other individual named within the agreement to receive Plan funds.

3.3

Early Retirement

Subject to Plan section 3.5 and to the Executive’s execution of (1) a separation agreement within sixty (60) days following his Separation from Service and (2) annual written certification within thirty (30) days following the end of each year that he is not in Competition with the Company, or any Affiliate, each in the form prescribed by the Committee or its designee, an Executive who incurs a Separation from Service prior to his Normal Retirement Date, but after reaching his Early Retirement Date, shall be entitled to a Retirement Income Benefit payable in the form of a Joint and Survivor Annuity commencing on the last day of the month following the month in which the Executive’s Separation from Service occurs equal to:

(a)	The Retirement Income Benefit that the Executive would have received under Plan section 3.2 above had his date of Separation from Service been on or after the Executive’s Normal Retirement Date;

(b)	Reduced by the product of 5.952% and the number of years (rounded up) by which the Executive’s Separation from Service precedes his Normal Retirement Date.

3.4

Disabled Executive

A Disabled Executive shall be deemed to be an Executive during the period of his Disability and shall continue to be eligible for early retirement benefits under Plan section 3.3, normal retirement benefits under Plan section 3.2 and a Pre-Retirement Death Benefit under Article 4, and shall be credited with Years of Credited Service for such period regardless of the nonperformance of services for the Company or an Affiliate. A Disabled Executive’s benefit payments, if any, under this Plan will commence to a vested Executive only upon his Separation from Service. For avoidance of doubt, if an Executive is receiving benefits that are affected in any manner as a result of being a Disabled Executive, then the period used to calculate such Executive’s “Final Average Compensation” means the Executive’s average one-year Covered Compensation for the five-year period ending on December 31 of the calendar year immediately preceding the calendar year in which the Executive has a Separation from Service and shall not include any year during which the Executive is Disabled or is otherwise being credited with Years of Credited Service while not serving as an employee of an Employer.

3.5

Six-Month Delay for Specified Employees

If an Executive is determined by the Committee to be a Specified Employee, payment of the Executive’s Retirement Income Benefit will not commence prior to the last day of the month following the six-month anniversary of the Executive’s Separation from Service. Additionally,

an Executive must notify the Company to affirm whether or not he is a Specified Employee by virtue of the one-percent and five-percent ownership thresholds set forth at Treasury Regulations section 1.409A-1(i) and the Company will not be responsible for any consequences to the Executive as a result of Executive’s failure to so notify the Company. If an Executive’s normal, early or deferred Retirement Income Benefit is subject to this six-month delay, the Executive will be entitled to receive a one-time lump sum payment equal to the annuity payments delayed by the above six-month delay. The above six-month delay will not apply for determining when survivor benefits to a Beneficiary may commence in the event of an Executive’s death.

3.6

Rehired Executive Not In Pay Status

An Executive who has a Separation from Service before he is In Pay Status and subsequently is re-employed by the Company or an Affiliate shall not resume his status as an Executive unless approved by the Committee.

3.7

Rehired Executive In Pay Status

An Executive who is In Pay Status following a Separation from Service and is subsequently re-employed by the Company or an Affiliate shall remain In Pay Status.

Article 4. Pre-Retirement Death Benefit

The Beneficiary of an Executive who dies:

(a)	While an Executive, or

(b)	After Separation from Service with a vested Retirement Income Benefit, but prior to commencement of payment of his Retirement Income Benefit,

shall be entitled to receive a Pre-Retirement Death Benefit consisting of 10 annual amounts, each equal to 50% of the Executive’s Final Average Compensation, commencing as soon as practicable after the Executive’s death, including following the death of an Executive who is also a Specified Employee. Commencement of the Beneficiary’s Pre-Retirement Death Benefit will begin in the same calendar year as the Executive’s death, or, to the extent distribution in the same calendar year is not administratively practicable, then in no event more than 2 ¹ / 2 months into the next successive calendar year.

Article 5. Vesting of Benefits

5.1

General Rule

An Executive will be 100% vested in his Retirement Income Benefit if he is an Executive on or after attaining his Early Retirement Date or Normal Retirement Date and will be 100% vested in his Pre-Retirement Death Benefit if he dies while an Executive.

5.2

Change of Control

(a)

All Executives shall be 100% vested in all of their Plan benefits upon a Change of Control. Such benefits shall be determined in accordance with the provisions of the Plan as in effect on the date of the Change of Control, regardless of subsequent amendments to or a complete termination of the Plan.

(b)

Notwithstanding any other provision of the Plan and subject to Plan section 3.5, an Executive who incurs a Separation from Service after a Change of Control shall be entitled to a Retirement Income Benefit in the form of a Joint and Survivor Annuity commencing on the last day of the month following such Separation from Service equal to the Retirement Income Benefit that the Executive would have been entitled to receive under Plan section 3.2 as if he had attained his Normal Retirement Date on the date of the Executive’s Separation from Service.

5.3

Forfeiture in the Event of Competition

(a)

In the event an Executive who has not attained his Early Retirement Date prior to September 1, 2005, engages in Competition (as defined below) with the Company or an Affiliate on or after September 1, 2005, such Executive and his Beneficiary shall forfeit all right, title and interest in and to any benefits payable under the Plan.

(b)

In the event an Executive who has attained his Early Retirement Date but has not attained his Normal Retirement Date prior to September 1, 2005, engages in Competition with the Company or an Affiliate on or after September 1, 2005, such Executive and his Beneficiary shall not be entitled to receive the Retirement Income Benefit described in Plan section 3.2 or the Pre-Retirement Death Benefit described in Article 4 and shall not accrue any additional benefits pursuant to the terms of the Plan on or after September 1, 2005, and shall only be entitled to those benefits that the Executive would have been entitled to had he incurred a Separation from Service on September 1, 2005.

(c)

“Involvement” means the Executive’s relationship with, or provision of services to or for, a Competing Business in any manner whatsoever, directly or indirectly, including, without limitation, as a shareholder, member, partner, director, officer, manager, investor, organizer, founder, employee, consultant, advisor, independent contractor, owner, trustee, beneficiary, co-venturer, lender, distributor or agent, or in any other capacity. The ownership of less than a 2% equity or debt interest in a corporation whose equity securities are publicly traded in a recognized stock exchange or traded in the over-the-

counter market shall not be deemed Involvement with a Competing Business under this Plan, even though the corporation may be a competitor of the Company or an Affiliate.

(d)	Nothing in this Plan section 5.3 restrains an Executive in any way from engaging in any lawful profession, trade or business of any kind. Rather, this Plan section 5.3 provides for a forfeiture of certain benefits in the event of Competition with the Company or an Affiliate.

Article 6. Funding of Benefits

The Plan shall be unfunded. All benefits payable under the Plan shall be paid from the Company’s general assets, and nothing contained in the Plan shall require the Company to set aside or hold in trust any funds for the benefit of an Executive or his Beneficiary, who shall have the status of a general unsecured creditor with respect to the Company’s obligation to make payments under the Plan. Any funds of the Company available to pay benefits under the Plan shall be subject to the claims of general creditors of the Company and may be used for any purpose by the Company.

Notwithstanding anything herein to the contrary, if the Board of Directors or its designee so authorizes, an Affiliate of the Company may be designated as a “Participating Company” (as defined below). Such Participating Company and its Subsidiaries shall be treated under the Plan in the same manner as an Affiliate of the Company; provided, however, that all benefits payable under the Plan to Employees of such Participating Company and its Subsidiaries shall be paid from the general assets of that Participating Company, rather than from the general assets of the Company, unless the Committee or its designee determines in its sole discretion that the Company shall pay such benefits.

As an express condition of its of adoption of the Plan, each Participating Company agrees to each of the following conditions:

(a)	The Participating Company is bound by the terms and conditions of the Plan as the Company or the Committee may reasonably require;

(b)	The Participating Company must comply with all requirements and employee benefit rules of the Code, ERISA and applicable regulations for nonqualified retirement plans;

(c)	The Participating Company acknowledges the authority of the Company and the Committee to review the Participating Company’s compliance with the Plan procedures and to require changes in such procedures as the Company and the Committee may reasonably deem appropriate;

(d)	The Participating Company authorizes the Company and the Committee to act on its behalf with respect to matters pertaining to the Plan, including making any and all Plan amendments;

(e)	The Participating Company will cooperate fully with Plan officials and agents by providing information and taking actions as directed by the Committee or the Company so as to allow for the efficient administration of the Plan; and

(f)	The Participating Company’s status as a Participating Company is expressly conditioned on its being and continuing to be an Affiliate of the Company.

For purposes of the Plan, “Participating Company” shall mean an Affiliate whose governing body, with the approval of the Board of Directors or its designee, adopts the Plan for certain of its employees.”

In addition, for purposes of the Plan, “Subsidiary” shall mean, with respect to a Participating Company:

Any entity or organization that, together with the Participating Company, is part of a controlled group of corporations, within the meaning of Code sections 414(b) and 1563(a)(1); provided, however, that for purposes of this definition, the term “Subsidiary” shall be interpreted such that the phrase “at least 50 percent” will be substituted for the phrase “at least 80 percent” in each place that it appears in Code section 1563. Additionally, an entity shall be a Subsidiary only during the period when the entity has the required relationship, as described herein, with the Participating Company.

Article 7. Plan Administration

7.1

Committee

(a)	Except as otherwise provided in the Plan, the Committee shall be the administrator of the Plan, within the meaning of ERISA section 3(16)(A). The Committee shall generally administer the Plan.

(b)	The Committee may be composed of as many members as the Board of Directors may appoint in writing from time to time. The Board of Directors may also delegate to another person the power to appoint and remove members of the Committee.

(c)	The Company by action of an officer or the Chairperson of the Committee, or if there is no Chairperson, then by unanimous consent of the members of the Committee, may appoint Committee members from time to time. Members of the Committee may, but need not, be Employees.

(d)

A member of the Committee may resign by delivering his written resignation to the Committee. The resignation shall be effective as of the date it is received by the Committee or such other later date as is specified in the resignation notice. A Committee member may be removed at any time and for any reason by the Company by action of any of its officers, the Chairman of the Committee, or by unanimous consent of the remaining members of the Committee. Any Employee appointed to the Committee shall automatically cease to be a member of the Committee, effective on the date that he ceases to be an Employee, unless the Chairman of the Committee, an officer of the Company, or all of the Committee members unanimously specify otherwise in writing.

7.2

Operation of the Committee

(a)

A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions adopted and other actions taken by the Committee at any meeting shall be by the vote of a majority of those present at any such meeting. Upon the concurrence of all of the members in office at the time, action by the Committee may be taken otherwise than at a meeting.

(b)	The members of the Committee may elect one of their members as Chair and may elect a Secretary who may, but need not, be a member of the Committee.

(c)	The members of the Committee may authorize one or more of their members or any agent to execute or deliver any instrument or instruments on their behalf. The members of the Committee may allocate any of the Committee’s powers and duties among individual members of the Committee.

(d)	The Committee may appoint one or more subcommittees and delegate any of its discretionary authority and such of its powers and duties, as it deems desirable to any such subcommittee. The members of any such subcommittee shall consist of such persons as the Committee may appoint.

(e)	All resolutions, proceedings, acts, and determinations of the Committee, with respect to the administration of the Plan, shall be recorded; and all such records, together with such documents and instruments as may be necessary for the administration of the Plan, shall be preserved by the Committee.

(f)	Subject to the limitations contained in the Plan, the Committee shall be empowered from time to time in its discretion to establish rules for the exercise of the duties imposed upon the Committee under the Plan.

7.3

Agents

(a)

The Board of Directors, the Company, or the Committee may delegate such of its powers and duties as it deems desirable to any person, in which case every reference herein made to the Board of Directors, Company, or the Committee (as applicable) shall be deemed to mean or include the delegated persons as to matters within their jurisdiction.

(b)	The Board of Directors, the Company, or the Committee may also appoint one or more persons or agents to aid it in carrying out its duties and delegate such of its powers and duties as it deems desirable to such persons or agents.

(c)	The Board of Directors, the Company, or the Committee may employ such counsel, auditors, and other specialists and such clerical and other services as it may require in carrying out the provisions of the Plan, with the expenses therefore paid, as provided in Plan section 7.4.

7.4

Compensation and Expenses

(a)	A member of the Committee shall serve without compensation for services as a member. Any member of the Committee may receive reimbursement of expenses properly and actually incurred in connection with his services as a member of the Committee, as provided in this Article 7.

(b)	All expenses of administering the Plan shall be paid by the Company.

7.5

Committee’s Powers and Duties

Except as otherwise provided in this Plan, the Company shall have responsibility for any settlor duties, powers or functions ( e.g., the right to amend and terminate the Plan) and except as otherwise provided in the Plan, the Committee shall have responsibility for the general administration of the Plan and for carrying out its provisions. The Committee shall have such powers and duties as may be necessary to discharge its functions hereunder, including the following:

(a)	To establish rules, policies, and procedures for administration of the Plan;

(b)	To construe and interpret the Plan, to decide all questions of eligibility, and to determine the amount, manner, and time of payment of any benefits hereunder;

(c)	To make a determination as to the right of any person to a benefit and the amount thereof;

(d)	To obtain from the Company such information as shall be necessary for the proper administration of the Plan;

(e)	To prepare and distribute information explaining the Plan;

(f)	To keep all records necessary for the operation and administration of the Plan;

(g)	To prepare and file any reports, descriptions, or forms required by the Code or ERISA; and

(h)	To designate or employ agents and counsel (who may also be persons employed by the Company) and direct them to exercise the powers of the Committee.

7.6

Committee’s Decisions Conclusive/Exclusive Benefit

The Committee shall have the exclusive right and discretionary authority to interpret the terms and provisions of the Plan and to resolve all questions arising thereunder, including the right to resolve and remedy ambiguities, inconsistencies, or omissions in the Plan, provided, however, that the construction necessary for the Plan to conform to the Code and ERISA shall in all cases control. Benefits under this Plan will be paid only if the Committee decides in its discretion that the Executive, Surviving Spouse or Beneficiary is entitled to them. The Committee shall endeavor to act in such a way as not to discriminate in favor of any class of Executives or other persons. Any and all disputes with respect to the Plan that may arise involving Executives will be referred to the Committee, and its decisions shall be final, conclusive, and binding. All findings of fact, interpretations, determinations, and decisions of the Committee in respect of any matter or question arising under the Plan shall be final, conclusive, and binding upon all persons, including, without limitation, Executives, and any and all other persons having, or claiming to have, any interest in or under the Plan and shall be given the maximum possible deference allowed by law.

The Committee shall administer the Plan for the exclusive benefit of Executives and their Beneficiaries.

7.7

Indemnity

(a)	The Company (including any successor employer, as applicable) shall indemnify and hold harmless each of the following persons (“Indemnified Persons”) under the terms and conditions of subsection (b).

(1)

The Committee; and

(2)

Each Employee, former Employee, current and former members of the Committee, or current or former members of the Board of Directors who have, or had, responsibility (whether by delegation from another person, an allocation of responsibilities under the terms of this Plan document, or otherwise) for a fiduciary duty, a non-fiduciary settlor function (such as deciding whether to

approve a plan amendment), or a non-fiduciary administrative task relating to the Plan.

(b)

The Company shall indemnify and hold harmless each Indemnified Person against any and all claims, losses, damages, and expenses, including reasonable attorneys’ fees and court costs, incurred by that person on account of his good faith actions or failures to act with respect to his responsibilities relating to the Plan. The Company’s indemnification shall include payment of any amounts due under a settlement of any lawsuit or investigation, but only if the Company agrees to the settlement.

(1)

An Indemnified Person shall be indemnified under this Plan section 7.7 only if he notifies an Appropriate Person (defined below) at the Company of any claim asserted against or any investigation of the Indemnified Person that relates to the Indemnified Person’s responsibilities with respect to the Plan.

(A)

An “Appropriate Person” is one or more of the following individuals at the Company:

(i)

The Chief Executive Officer,

(ii)

The Chief Financial Officer, or

(iii)

Its General Counsel.

(B)

The notice may be provided orally or in writing. The notice must be provided to the Appropriate Person promptly after the Indemnified Person becomes aware of the claim or investigation. No indemnification shall be provided under this Plan section 7.7 to the extent that the Company is materially prejudiced by the unreasonable delay of the Indemnified Person in notifying an Appropriate Person of the claim or investigation.

(2)

An Indemnified Person shall be indemnified under this Plan section 7.7 with respect to attorneys’ fees, court costs, or other litigation expenses or any settlement of such litigation only if the Indemnified Person agrees to permit the Company to select counsel and to conduct the defense of the lawsuit and agrees not to take any action in the lawsuit that the Company believes would be prejudicial to the Company’s interests.

(3)

No Indemnified Person, including an Indemnified Person who is a former Employee, shall be indemnified under this Plan section 7.7 unless he makes himself reasonably available to assist the Company with respect to the matters in issue and agrees to provide whatever documents, testimony, information, materials, or other forms of assistance that the Company shall reasonably request.

(4)

No Indemnified Person shall be indemnified under this Plan section 7.7 with respect to any action or failure to act that is judicially determined to constitute or be attributable to the gross negligence or willful misconduct of the Indemnified Person.

(5)

Payments of any indemnity under this Plan section 7.7 shall only be made from assets of the Company. The provisions of this Plan section 7.7 shall not preclude or limit such further indemnities or reimbursement under this Plan as allowable under applicable law, as may be available under insurance purchased by the Company, or as may be provided by the Company under any by-law, agreement or otherwise, provided that no expense shall be indemnified under this Plan section 7.7 that is otherwise indemnified by the Company, by an insurance contract purchased by the Company, or by this Plan.

7.8

Insurance

The Committee may authorize the purchase of insurance to cover any liabilities or losses occurring by reason of the act or omission of any Committee member or its designee. To the extent permitted by law, the Committee may purchase insurance covering any member (or its designee) for any personal liability of such Committee member (or its designee) with respect to any administrative responsibilities under this Plan. Any Committee member (or its designee) may also purchase insurance for his own account covering any personal liability under this Plan.

7.9

Notices

Each Executive shall be responsible for furnishing to the Company his current address. The Executive shall also be responsible for notifying the Company of any change in the above information. If an Executive does not provide the above information to the Company, the Committee may rely on the address of record of the Executive on file with the Company’s personnel office.

All notices or other communications from the Committee to an Executive (who is a current Employee) shall be deemed given and binding upon that person for all purposes of the Plan when delivered by e-mail to the Executive’s individually designated e-mail address at the Company and all notices or other communications from the Committee to an Executive (who is a former Employee) shall be deemed given and binding upon that person for all purposes of the Plan when delivered to, or when mailed first-class mail, postage prepaid, and addressed to that person at his address last appearing on the Committee’s records, and the Committee, and the Company shall not be obliged to search for or ascertain his whereabouts.

All notices or other communications from the Executive required or permitted under this Plan shall be provided to the person specified by the Committee, using such procedures as are prescribed by the Committee. The Committee may require that the oral notice or communication be provided by telephoning a specific telephone number and, after calling that telephone number, by following a specified procedure. Any oral notice or oral communication from an Executive that is made in accordance with procedures prescribed by the Committee shall be deemed to have been duly given when all information requested by the person specified by the Committee is provided to such person, in accordance with the specified procedures.

7.10

Data

All persons entitled to benefits from the Plan must furnish to the Committee such documents, evidence, or information, as the Committee considers necessary or desirable for the purpose of

administering the Plan, and it shall be a condition of the Plan that each such person must furnish such information and sign such documents as the Committee may require before any benefits become payable from the Plan.

7.11

Claims Procedure

All decisions made under the procedure set out in this Plan section 7.11 shall be final, and there shall be no further right of appeal. No lawsuit may be initiated by any person before fully pursuing the procedures set out in this Plan section 7.11, including the appeal permitted pursuant to subsection (c) below.

(a)	The right of an Executive or any other person entitled to claim a benefit under the Plan (collectively “Claimants”) to a benefit shall be determined by the Committee, provided, however, that the Committee may delegate its responsibility to any person.

(1)

The Claimant (or an authorized representative of a Claimant) may file a claim for benefits by written notice to the Committee. The Committee shall establish procedures for determining whether a person is authorized to represent a Claimant.

(2)

Any claim for benefits under the Plan, pursuant to this Plan section 7.11, shall be filed with the Committee no later than three months after the date of the Executive’s Separation from Service. The Committee in its sole discretion shall determine whether this limitation period has been exceeded.

(3)

Notwithstanding anything to the contrary in this Plan, the following shall not be a claim for purposes of this Plan section 7.11:

(A)

A request for determination of eligibility, participation, or benefit calculation under the Plan without an accompanying claim for benefits under the Plan. The determination of eligibility, participation, or benefit calculation under the Plan may be necessary to resolve a claim, in which case such determination shall be made in accordance with the claims procedures set forth in this Plan section 7.11.

(B)

Any casual inquiry relating to the Plan, including an inquiry about benefits or the circumstances under which benefits might be paid under the Plan.

(C)

A claim that is defective or otherwise fails to follow the procedures of the Plan ( e.g., a claim that is addressed to a party other than the Committee or an oral claim).

(D)

An application or request for benefits under the Plan.

(b)

If a claim for benefits is wholly or partially denied, the Committee shall, within a reasonable period of time, but no later than 90 days after receipt of the claim, notify the Claimant of the denial of benefits. If special circumstances justify extending the period up to an additional 90 days, the Claimant shall be given written notice of this extension

within the initial 90-day period, and such notice shall set forth the special circumstances and the date a decision is expected. A notice of denial

(1)

Shall be written in a manner calculated to be understood by the Claimant; and

(2)

Shall contain

(A)

The specific reasons for denial of the claim;

(B)

Specific reference to the Plan provisions on which the denial is based;

(C)

A description of any additional material or information necessary for the Claimant to perfect the claim, along with an explanation as to why such material or information is necessary; and

(D)

An explanation of the Plan’s claim review procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under ERISA section 502(a) following an adverse determination on review.

(c)

Within 60 days of the receipt by the Claimant of the written denial of his claim or, if the claim has not been granted, within a reasonable period of time (which shall not be less than the 90 or 180 days described in subsection (b) above), the Claimant (or an authorized representative of a Claimant) may file a written request with the Committee that it conduct a full review of the denial of the claim. In connection with the Claimant’s appeal, upon request, the Claimant may review and obtain copies of all documents, records and other information relevant to the Claimant’s claim for benefits (but not including any document, record or information that is subject to any attorney–client or work–product privilege) and may submit issues and comments in writing. The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits. All comments, documents, records, and other information submitted by the Claimant shall be taken into account in the appeal without regard to whether such information was submitted or considered in the initial benefit determination.

(d)

The Committee shall deliver to the Claimant a written decision on the claim promptly, but no later than 60 days after the receipt of the Claimant’s request for such review, unless special circumstances exist that justify extending this period up to an additional 60 days. If the period is extended, the Claimant shall be given written notice of this extension during the initial 60-day period and such notice shall set forth the special circumstances and the date a decision is expected. The decision on review of the denial of the claim

(1)

Shall be written in a manner calculated to be understood by the Claimant;

(2)

Shall include specific reasons for the decision;

(3)

Shall contain specific references to the Plan provisions on which the decision is based;

(4)

Shall contain a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and other information relevant to the Claimant’s claim for benefits. Whether a document, record, or other information is relevant to a claim for benefits shall be determined by reference to U.S. Department of Labor Regulations section 2560; and

(5)

Shall contain a statement of the Claimant’s right to bring a civil action under ERISA section 502(a) following an adverse determination on review.

(e)

No lawsuit may be initiated by any person before fully pursuing the procedures set out in this Plan section 7.11, including the appeal permitted pursuant to subsection (c) above. In addition, no legal action may be commenced later than 365 days subsequent to the date of the written response of the Committee to a Claimant’s request for review pursuant to subsection (d) above.

7.12

Effect of a Mistake

In the event of a mistake or misstatement as to the eligibility, participation, or service of any Executive or the amount of payments made or to be made to an Executive, the Committee shall, if possible, cause to be withheld or accelerated or otherwise make adjustment of the amounts of payments as will, in its sole judgment, result in the Executive receiving the proper amount of payments under the Plan.

Article 8. Amendment and Termination

8.1

Amendment and Termination Generally

The Plan may be amended or terminated by the Company, acting through its Board of Directors (or the Compensation Committee or other designee of the Board of Directors) at any time. Notwithstanding the preceding sentence, benefits may be distributed to Executives on account of the termination only if:

(a)	The termination does not occur proximate to a downturn in the financial health of the Company;

(b)	All nonqualified defined benefit nonaccount-based retirement plans maintained by the Company and all Affiliates that would be aggregated with the Plan under Code section 409A are terminated when the Plan is terminated;

(c)	No payments are made within 12 months after the date when the Company takes all steps necessary to terminate and liquidate the Plan, other than payments made pursuant to the Plan’s otherwise applicable distribution provisions;

(d)	All benefits are distributed within 24 months after the date when the Company takes all steps necessary to terminate and liquidate the Plan; and

(e)	Neither the Company nor any Affiliate establishes a new nonqualified, nonaccount-based plan that would be aggregated with the Plan under Code section 409A at any time within three years after the date when the Company takes all steps necessary to terminate and liquidate the Plan.

Such amendment or termination may modify or eliminate any benefits hereunder other than a benefit that is In Pay Status, or the vested portion of a benefit that is not In Pay Status.

8.2

Amendment and Termination Following a Change of Control

Notwithstanding the Company’s general right to amend or terminate the Plan at any time, the Company, including any successor entity to the Company, may not amend or terminate this Plan in any manner following a Change of Control that would adversely affect the rights of an Executive to benefits under this Plan to the extent such rights are vested as of, or as a result of, such Change of Control.

Article 9. Miscellaneous

9.1

No Enlargement of Employee Rights

This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Employee or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in the Plan shall be deemed to give any Employee the right to be retained in the service of the Company or any Affiliate or to interfere with the right of any of them to discharge or retire any person at any time. No one shall have any right to benefits, except to the extent provided in this Plan.

9.2

Benefit Agreement

The Committee shall provide to each Executive within 60 days of the date the Executive first became an Executive a form of benefit agreement, which shall set forth the Executive’s acceptance of the benefits provided hereunder and his agreement to be bound by the terms of the Plan.

9.3

Exclusion for Suicide or Self-Inflicted Injury

Notwithstanding any other provision of the Plan, no benefits shall be paid to any Executive, or Spouse or Beneficiary in the event of the death of the Executive within two years of the later of the date he first became an Executive or the date he executed the benefit agreement referred to in Plan section 9.2 as the result of suicide or self-inflicted injury.

9.4

Leave of Absence

An Executive who is on an approved leave of absence with salary, or on an approved leave of absence without salary for a period of not more than six months, shall be deemed to be an Executive during such leave of absence. An Executive who is on an approved leave of absence without salary for a period in excess of six months shall be deemed to have voluntarily incurred a Separation from Service as of the end of such six-month period, provided that, based on all relevant facts and circumstances, neither the Executive nor the Company has a reasonable expectation that the Executive will provide future services to the Company or an Affiliate.

9.5

Termination for Good Cause

Notwithstanding any provision herein to the contrary, an Executive whose employment with the Company or an Affiliate is terminated for Good Cause shall not be eligible for any benefit hereunder.

9.6

Monthly Payments

Periodic payments hereunder shall be paid in equal monthly amounts.

9.7

Actuarial Equivalence

Actuarial equivalence hereunder shall be determined using the interest and mortality factors adopted from time to time by the Committee. The initial factors to be used shall be the factors used under the Basic Plan for determining actuarial equivalence.

9.8

Withholding

Benefit payments hereunder shall be subject to applicable federal, state or local withholding for taxes.

9.9

No Examination or Accounting

Neither this Plan nor any action taken thereunder shall be construed as giving any person the right to an accounting or to examine the books or affairs of the Company, or any Affiliate.

9.10

Records Conclusive

The records of the Company shall be conclusive in respect to all matters involved in the administration of the Plan.

9.11

Section 409A

Notwithstanding any provision of this Plan to the contrary, the Committee shall administer this Plan in a manner designed to comply with Code section 409A and the Committee shall disregard any Plan provision if the Committee determines that application of such Plan provision would subject the Executive to an additional excise tax under Code section 409A(a)(1)(B).

9.12

Service of Legal Process

The members of the Committee (or if there is no such Committee then the Company) are hereby designated as agent(s) of the Plan for the purpose of receiving legal process.

9.13

Governing Law

The Plan shall be construed, administered, and governed in all respects under the applicable laws of the State of California, except to the extent pre-empted by federal law. Upon any change in the law or other determination that any term, condition or other provision of the Plan has been altered in any way, the Committee shall administer this Plan in accordance with such change notwithstanding the terms of the Plan pending an amendment to this Plan.

9.14

Severability

If any provision of this Plan is held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining provisions; instead, each provision is fully severable and the Plan will be construed and enforced as if any illegal or invalid provision had never been included.

9.15

Missing Persons

The Committee shall establish rules if the Committee is unable to make payment of a benefit due under the terms of the Plan to an Executive because the whereabouts of the Executive cannot be ascertained.

9.16

Facility of Payment

Every person receiving or claiming benefits under this Plan is presumed to be mentally competent and of age until the date on which the Committee receives a written notice, in a form and manner acceptable to it, that such person is mentally incompetent or a minor, and that a guardian or other person legally vested with the care of such person or his estate has been appointed.

However, if the Committee should find that any person to whom a benefit is payable under this Plan is unable to care for his affairs because of any incompetency or is a minor, any payment due (unless a prior claim shall have been made by a duly appointed legal representative) may be paid to the Spouse, a child, a parent, or a brother or sister, or to any other person or institution that the Committee determines to have incurred expense for such person otherwise entitled to payment. To the extent permitted by law, any such payment so made shall be a complete discharge of any liability therefor under the Plan.

If a guardian of the estate or other person legally vested with the care of the estate of any person receiving or claiming benefits under the Plan is appointed by a court of competent jurisdiction, payments shall be made to such guardian or other person provided that proper proof of appointment and continuing qualification is furnished in a form and manner suitable to the Committee. To the extent permitted by law, such guardian or other person may act for the Executive and make any election required of or permitted by the Executive under this Plan, and such action or election shall be deemed to have been done by the Executive, and benefit payments may be made to such guardian or other person and any such payment shall be a complete discharge of any such liability under the Plan.

9.17

General Restrictions Against Alienation

The interest of any Executive under this Plan shall not in any event be subject to sale, assignment, or transfer, and each Executive is hereby prohibited from anticipating, encumbering, assigning, or in any manner alienating his interest hereunder and is without power to do so; provided, however, that this provision shall not restrict the power or authority of the Committee, in accordance with the applicable provisions of the Plan, to disburse funds to the legally appointed guardian, executor, administrator, or personal representative of any Executive or pursuant to a valid domestic relations order certified and issued by a court of competent jurisdiction.

If any person attempts to take any action contrary to this Plan section 9.17, such action shall be void and the Company may disregard such action and is not in any manner bound thereby, and they shall suffer no liability for any such disregard thereof. If the Committee is notified that any Executive has been adjudicated bankrupt or has purported to anticipate, sell, transfer, assign, or encumber any Plan distribution or payment, voluntarily or involuntarily, the Committee shall

hold or apply such distribution or payment or any part thereof to, or for the benefit of, such Executive in such manner as the Committee finds appropriate.

9.18

Counterparts

This Plan may be executed in any number of counterparts, each of which shall be deemed to be an original. All the counterparts shall constitute but one and the same instrument and may be sufficiently evidenced by any one counterpart.

9.19

Effect of Amendment on Vested Executives

Any Executive who met the requirements for vesting of his Retirement Income Benefit as of October 31, 2007, shall upon Separation from Service be entitled to receive as his Retirement Income Benefit the greater of

(a)

The Retirement Income Benefit that such Executive would have been entitled to receive under the Plan as it was in effect on October 31, 2007 (which, for the avoidance of doubt, was prior to the amendments affected by the amendment and restatement of the Plan effective November 1, 2007) and as if such Executive had a Separation from Service on October 31, 2007 (but not for purposes of the six-month period described at Plan section 3.5 which shall always be measured from the actual date the Executive experienced a Separation from Service); or

(b)

The Retirement Income Benefit that such Executive is entitled to receive under the Plan (which, for the avoidance of doubt, is the Plan as amended and restated effective November 1, 2007). The amendment and restatement effective November 1, 2007, shall not result in the decrease or increase of any Retirement Income Benefit of any Executive who is In Pay Status or any Pre-Retirement Death Benefit being paid as of October 31, 2007.

9.20

Assignment

The Company shall have the right to assign its obligations under the Plan, either in whole or in part, to any Affiliate of the Company.

In Witness Whereof , an authorized officer of the Company has signed this document on October 27, 2010, but effective as of June 1, 2010, unless otherwise stated herein.


First American Financial Corporation

By:		/s/ Kenneth D. DeGiorgio

Its:		Executive Vice President

Exhibit 10(c)

AMENDED AND RESTATED

CHANGE IN CONTROL AGREEMENT

This AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT is effective as of the 31 ^st day of December, 2010 (this “ Agreement ”), by and between FIRST AMERICAN FINANCIAL CORPORATION, a Delaware corporation (the “ Company ”) and _____________ (the “ Executive ”).

W I T N E S S E T H :

WHEREAS, the Compensation Committee (the “ Committee ”) of the Board of Directors (the “ Board ”) of the Company has determined that it is in the best interests of the Company, its subsidiaries, and the Company’s shareholders to assure that the Company and its subsidiaries will have the continued dedication of the Executive, notwithstanding the possibility, threat, or occurrence of a Change in Control (as defined below) of the Company;

WHEREAS, the Committee believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control and to encourage the Executive’s full attention and dedication to the Company and its subsidiaries currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations; and

WHEREAS, the Company and the Executive accordingly desire to enter into this Agreement on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, it is hereby agreed by and between the parties as follows:

1. Term of Agreement . This Agreement shall commence on the date hereof and shall continue through December 31, 2011 (the “ Original Term ”); provided , however , that on such date and on each December 31 thereafter, the Original Term of this Agreement shall automatically be extended for one (1) additional year (each, an “ Extended Term ”) unless, not later than the preceding January 1 either party shall have given notice that such party does not wish to extend the term of this Agreement beyond the Original Term and any Extended Term; and provided , further , that if a Change in Control (as defined in paragraph 3 below) shall have occurred during the Original Term or any Extended Term of this Agreement, the term of this Agreement shall continue for a period of thirty-six (36) calendar months beyond the calendar month in which such Change in Control occurs (the Original Term, each Extended Term, if any, and such thirty-six (36) month period, collectively, the “ Term ”).

2. Employment After a Change in Control . If the Executive is in the employ of the Company (which for this purpose shall also include any subsidiary of the Company) on the date of a Change in Control, the Company hereby agrees to continue the Executive in its employ (and/or, in the case of any subsidiary of the Company, the employ of such subsidiary) for the

period commencing on the date of the Change in Control and ending on the last day of the Term of this Agreement. During the period of employment described in the foregoing provision of this paragraph 2 (the “ Employment Period ”), the Executive shall hold such position with the Company (which for this purpose shall also include any subsidiary of the Company) and exercise such authority and perform such executive duties as are commensurate with the Executive’s position, authority, and duties immediately prior to the Change in Control. The Executive agrees that during the Employment Period the Executive shall devote full business time exclusively to the executive duties described herein and perform such duties faithfully and efficiently; provided , however , that nothing in this Agreement shall prevent the Executive from voluntarily resigning from employment upon sixty (60) days’ written notice to the Company under circumstances which do not constitute a Termination (as defined below in paragraph 5).

3. Change in Control . For purposes of this Agreement, a “ Change in Control ” means the happening of any of the following:

(a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if fifty percent (50%) or more of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation, or other reorganization is owned by persons who were not shareholders of the Company immediately prior to such merger, consolidation, or other reorganization.

(b) The sale, transfer, or other disposition of all or substantially all of the Company’s assets or the complete liquidation or dissolution of the Company.

(c) A change in the composition of the Board occurring within a two (2) year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “ Incumbent Directors ” shall mean directors who either: (i) are directors of the Company as of the date of this Agreement or (ii) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination, but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company.

(d) Any transaction as a result of which any person or group is or becomes the “ beneficial owner ” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing at least twenty-five percent (25%) of the total voting power of the Company’s then outstanding voting securities. For purposes of this paragraph, the term “ person ” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but shall exclude: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a subsidiary of the Company; (ii) so long as a person does not thereafter increase such person’s beneficial ownership of the total voting power represented by the Company’s then outstanding voting securities, a person whose beneficial ownership of the total voting power represented by the Company’s then outstanding voting securities increases to twenty-five percent (25%) or more as a result of

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the acquisition of voting securities of the Company by the Company which reduces the number of such voting securities then outstanding; or (iii) so long as a person does not thereafter increase such person’s beneficial ownership of the total voting power represented by the Company’s then outstanding voting securities, a person that acquires directly from the Company securities of the Company representing at least twenty-five percent (25%) of the total voting power represented by the Company’s then outstanding voting securities.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

4. Compensation During the Employment Period . During the Employment Period, the Executive shall be compensated as follows:

(a) The Executive shall receive an annual salary which is not less than his or her annual salary immediately prior to the Employment Period and shall be eligible to receive an increase in annual salary which is not materially less favorable to the Executive than increases in salary granted by the Company for executives with comparable duties;

(b) The Executive shall be eligible to participate in short-term and long-term cash-based incentive compensation plans which, in the aggregate, provide bonus opportunities which are not materially less favorable to the Executive than the greater of: (i) the opportunities provided by the Company for executives with comparable duties; and (ii) the opportunities provided to the Executive under all such plans in which the Executive was participating prior to the Employment Period;

(c) The Executive shall be eligible to participate in stock option, performance awards, restricted stock, and other equity-based incentive compensation plans on a basis not materially less favorable to the Executive than that applicable: (i) to the Executive immediately prior to the Employment Period; or (ii) to other executives of the Company with comparable duties; and

(d) The Executive shall be eligible to receive employee benefits (including, but not limited to, tax-qualified and nonqualified savings plan benefits (but not the Company’s supplemental benefit plans, which, for the avoidance of doubt, separately make provision for the effects of a change in control thereunder), medical insurance, disability income protection, life insurance coverage, and death benefits) and perquisites (including, without limitation, a Company vehicle and Company-paid or assisted membership dues) which are not materially less favorable to the Executive than: (i) the employee benefits and perquisites provided by the Company to executives with comparable duties; or (ii) the employee benefits and perquisites to which the Executive would be entitled under the Company’s employee benefit plans and perquisites as in effect immediately prior to the Employment Period.

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5. Termination . For purposes of this Agreement, the term “ Termination ” shall mean: (a) termination of the employment of the Executive during the Employment Period by the Company for any reason other than death, Disability (as defined below), or Cause (as defined below); or (b) termination of the employment of the Executive during the Employment Period by the Executive for Good Reason (as defined below).

Notwithstanding anything in this Agreement to the contrary, if: (a) the Executive’s employment is terminated within six (6) months prior to the actual occurrence of a Change in Control for reasons that would constitute a Termination if it had occurred following a Change in Control; (b) the Executive reasonably demonstrates that such termination (or Good Reason event) was at the request of a third party who had indicated an intention or had taken steps reasonably calculated to effect a Change in Control; and (c) a Change in Control involving such third party (or a party competing with such third party to effectuate a Change in Control) does occur, then for purposes of this Agreement, the date immediately prior to the date of such termination of employment or event constituting Good Reason shall be treated as a Change in Control and such termination shall be treated as a Termination. For purposes of determining the timing of payments and benefits to the Executive under this Agreement as a result of this paragraph, payment shall be made in accordance with the provisions of paragraph 6(a).

The date of the Executive’s Termination under this paragraph 5 shall be the date of the Executive’s “Separation from Service” (as defined under Section 409A of the Internal Revenue Code (the “ Code ”)).

For purposes of this Agreement, “ Disability ” means such physical or mental disability or infirmity of the Executive which, in the opinion of a competent physician, renders the Executive unable to perform properly his or her duties set forth in paragraph 2 of this Agreement, and as a result of which the Executive is unable to perform such duties for six (6) consecutive calendar months or for shorter periods aggregating one hundred eighty (180) business days in any twelve (12) month period. For purposes of this paragraph, a competent physician shall be a physician mutually agreed upon by the Executive and the Board. If a mutual agreement cannot be reached, the Executive shall designate a physician and the Board shall designate a physician and these two physicians shall select a third physician who shall be the “competent physician.”

For purposes of this Agreement, the term “ Cause ” means: (a) the willful and continued failure by the Executive to substantially perform the Executive’s duties with the Company (which for purposes of this paragraph shall also include subsidiaries of the Company) after written notification by the Board; (b) the willful engaging by the Executive in conduct which is demonstrably injurious to the Company, monetarily or otherwise; or (c) the engaging by the Executive in egregious misconduct involving serious moral turpitude. For purposes of this Agreement, no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that such action was in the best interest of the Company.

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For purposes of this Agreement, the term “ Good Reason ” means, without the Executive’s express written consent, the occurrence after a Change in Control of any of the following circumstances:

(a) The assignment to the Executive by the Company of duties which are a significant adverse alteration in the nature or status of the Executive’s position, responsibilities, duties, or conditions of employment from those in effect immediately prior to the occurrence of the Change in Control; or any other action by the Company that results in a material diminution in the Executive’s position, authority, duties, or responsibilities from those in effect immediately prior to the occurrence of the Change in Control;

(b) A reduction in the Executive’s annual base compensation as in effect on the occurrence of the Change in Control;

(c) The relocation of the Company’s offices at which the Executive is principally employed immediately prior to the Change in Control (the “ Principal Location ”) to a location more than fifty (50) miles from such location or the Company’s requiring the Executive to be based anywhere other than the Principal Location, except for required travel on the Company’s business to an extent substantially consistent with the Executive’s business travel obligations prior to the Change in Control;

(d) The Company’s failure to pay to the Executive any portion of the Executive’s compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within ten (10) days of the date such compensation is due; or

(e) The Company’s failure to continue in effect any material compensation or benefit plan or practice in which the Executive is eligible to participate on the occurrence of the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or practice, or the Company’s failure to continue the Executive’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive’s participation relative to other participants, as existed at the time of the Change in Control.

6. Severance Payments and Benefits . Subject to the provisions of paragraph 8 below, in the event of a Termination, in lieu of the amount otherwise payable under paragraph 4 above, the Company shall:

(a) Pay the Executive a lump-sum payment in cash no later than ten (10) business days after the date of Termination equal to the sum of:

(i) The sum of: (A) the Executive’s base salary through and including the date of Termination and any bonus amounts which have become payable, to the extent either has not theretofore been paid; (B) a pro rata portion of the

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Executive’s annual bonus for the fiscal year in which the date of Termination occurs in an amount equal to: (1) the Executive’s Bonus Amount (as defined below), multiplied by (2) a fraction, the numerator of which is the number of days in the fiscal year in which the date of Termination occurs through and including the date of Termination, and the denominator of which is three hundred sixty-five (365); (C) accrued and unpaid vacation pay through and including the date of Termination; and (D) unreimbursed business expenses through and including the date of Termination;

(ii) An amount equal to the product of the Applicable Multiple (as defined below) and the Executive’s annual salary in effect immediately prior to the date of Termination; and

(iii) An amount equal to the product of the Applicable Multiple and the Executive’s Bonus Amount;

Notwithstanding the provisions of this paragraph 6(a), with respect to any amounts which constitute a deferral of compensation subject to Section 409A of the Code and provided the Executive is a “Specified Employee” (as defined under Section 409A of the Code), such amounts shall be paid to the Executive on the date which is six (6) months after his or her date of Separation from Service.

(b) Continue to provide the Executive (and, if applicable, the Executive’s dependents), for a twenty-four (24) month period following the date of Termination, with the same level of benefits described in paragraph 4(d) of this Agreement upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to the Change of Control), provided , that if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits (or the cash-equivalent thereof) on the same after-tax basis as if continued participation had been permitted, and further provided the amount of expenses eligible for reimbursement during the Executive’s taxable year shall not affect the expenses eligible for reimbursement in any other taxable year. Notwithstanding the foregoing provisions of this paragraph, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described in this Agreement shall be secondary to such benefits during the period of the Executive’s eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the benefits provided hereunder.

For purposes of this Agreement, the term “ Applicable Multiple ” means two (2).

For purposes of this Agreement, the term “ Bonus Amount ” means the Executive’s target annual bonus for the year of Termination, or, if the Executive does not have a target annual bonus or the Executive’s target annual bonus is reduced following a Change in Control, six

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months prior to a Change in Control or the Executive reasonably demonstrates that the target annual bonus was reduced at the request of a third party who had indicated an intention or had taken steps reasonably calculated to effect a Change in Control, the average annual discretionary incentive bonus (including cash bonuses and stock bonuses (including any restricted stock units awarded as a component of the annual incentive bonus), but excluding any other long-term incentive compensation) earned by the Executive during the last three (3) completed fiscal years of the Company (including, for the avoidance of doubt, any portion of such three fiscal year period that elapsed prior to the Company’s June 1, 2010, spin-off separation (the “ Separation ”) from its former parent, The First American Corporation (“ FAC ”)) immediately preceding the date of Termination (i) for such portion of the three fiscal year period prior to the consummation of the transactions contemplated by the Separation Agreement, from FAC and its subsidiaries and (ii) for such portion of the three fiscal year period following the Separation, from the Company and its subsidiaries (in each case annualized in the event the Executive was not employed by the Company, FAC and/or any of their respective subsidiaries for the whole of any such fiscal year).

7. Parachute Payments . If any payment or benefit due under this Agreement, together with all other payments and benefits (including, without limitation, the acceleration of vesting of stock options, restricted stock and performance shares) to which the Executive is entitled from the Company, or any affiliate thereof, would (if paid or provided) constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code, or any successor provision), the amounts otherwise payable and benefits otherwise due under this Agreement will either (a) be delivered in full, or (b) be limited to the minimum extent necessary to ensure that no portion thereof will fail to be tax-deductible to the Company by reason of Section 280G of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state or local income and employment taxes and the excise tax imposed under Section 4999 of the Code, results in the Executive’s receipt, on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be subject to the excise tax imposed under Section 4999 of the Code. In the event that the payments and/or benefits are to be reduced pursuant to this paragraph 7, such payments and benefits shall be reduced such that the reduction of compensation to be provided to Executive as a result of this paragraph 7 is minimized. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro-rata basis but not below zero.

8. Withholding . All payments to the Executive under this Agreement will be subject to all applicable withholding of state and federal taxes.

9. Arbitration of All Disputes . Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in Santa Ana, California, in accordance with the laws of the State of California or such other location mutually agreeable to the parties, by three (3) arbitrators appointed by the parties. If the parties cannot agree on the appointment of the arbitrators, one shall be appointed by the Company and one by the Executive and the third shall be appointed by the first two arbitrators. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the

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selection of arbitrators which shall be as provided in this paragraph 9. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable, as determined by the Executive in his or her sole discretion, for the Executive to retain legal counsel or incur other costs and expenses in connection with interpretation or enforcement of his or her rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company, as the case may be) his or her reasonable attorneys’ fees and costs and expenses in connection with interpretation or enforcement of his or her rights (including the enforcement of any arbitration award in court). Payments shall be made to the Executive at the time such fees, costs, and expenses are incurred. If, however, the arbitrators shall determine that, under the circumstances, payment by the Company of all or a part of any such fees and costs and expenses would be unjust, the Executive shall repay such amounts to the Company in accordance with the order of the arbitrators. Any award of the arbitrators shall include interest at a rate or rates considered just under the circumstances by the arbitrators.

10. Mitigation and Set-Off . The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Company shall not be entitled to set off against the amounts payable to the Executive under this Agreement any amounts owed to the Company by the Executive, any amounts earned by the Executive in other employment after termination of his employment with the Company, or any amounts which might have been earned by the Executive in other employment had he or she sought such other employment.

11. Notices . Any notice of Termination of the Executive’s employment by the Company or the Executive for any reason shall be upon no less than ten (10) days’ and no greater than thirty (30) days’ advance written notice to the other party. Any notices, requests, demands, and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he or she has filed in writing with the Company or, in the case of the Company, to the attention of the Secretary of the Company, at its principal executive offices.

12. Non-Alienation . The Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. Nothing in this paragraph shall limit the Executive’s rights or powers to dispose of his or her property by will or limit any rights or powers which his or her executor or administrator would otherwise have.

13. Governing Law . The provisions of this Agreement shall be construed in accordance with the laws of the State of California, without application of conflict of laws provisions thereunder.

14. Amendment . This Agreement may not be amended, modified, waived, or terminated except by mutual agreement of the parties in writing.

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15. Heirs of the Executive . This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, if there be no such designee, to the Executive’s estate.

16. Successors to the Company . This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company. The Company shall require: (i) any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; and (ii) the parent entity of any successor in such business combination to guarantee the performance of such successor hereunder. Failure of the Company to obtain such assumption and agreement (and, if applicable, such guarantee) prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to receive compensation from the Company in the same amount and on the same terms to which the Executive would be entitled hereunder if the Executive terminated the Executive’s employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of Termination. Unless expressly provided otherwise, the term “ Company ” as used herein shall mean the Company as defined in this Agreement and any successor to its business and/or assets as aforesaid.

17. Reimbursement of Expenses . To the extent this Agreement provides for the reimbursement of expenses which are not specifically excluded from Section 409A of the Code, such expenses shall be eligible for reimbursement for the lifetime of the Executive, and the amount of expenses eligible for reimbursement during the Executive’s taxable year shall not affect the expenses eligible for reimbursement in any other taxable year.

18. Employment Status . Nothing herein contained shall be deemed to create an employment agreement between the Company and the Executive, providing for the employment of the Executive by the Company for any fixed period of time. The Executive’s employment with the Company is terminable at will by the Company or the Executive and each shall have the right to terminate the Executive’s employment with the Company at any time, with or without Cause, subject to: (a) the notice provisions of paragraphs 2, 5, and 11, (b) the Company’s obligation to provide severance payments as required by paragraph 6 and (c) the terms and conditions of any employment agreement between the Company and the Executive. Except as otherwise provided in paragraph 5 of this Agreement, upon a termination of the Executive’s employment prior to the date of a Change in Control, there shall be no further rights under this Agreement.

19. Severability . In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect.

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20. Counterparts . This Agreement may be executed in two (2) or more counterparts, any one (1) of which shall be deemed the original without reference to the other.

21. Entire Agreement . This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein and supersedes all prior agreements and understandings, oral and written, with respect thereto (including any prior Change in Control Agreement between the parties and/or any Change in Control Agreement to which the Executive and FAC or any affiliate of FAC is a party); provided , for the avoidance of doubt, that this Agreement does not supersede all or any portion (including, without limitation, any provision governing the effect of any change in control) of any benefit plan or compensation plan of the Company or any employment agreement to which the Executive is a party. Any reference to any prior Change in Control Agreement between the parties shall from and after the date hereof be deemed to be a reference to this Agreement.

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IN WITNESS WHEREOF, the Executive has hereunto set his or her hand and, pursuant to the authorization from the Committee, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written.

“Executive”

FIRST AMERICAN FINANCIAL CORPORATION

Name:

Title:

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Exhibit 10(d)

CHANGE IN CONTROL AGREEMENT

This CHANGE IN CONTROL AGREEMENT is effective as of the 31 ^st day of December, 2010 (this “ Agreement ”), by and between FIRST AMERICAN FINANCIAL CORPORATION, a Delaware corporation (the “ Company ”) and Parker S. Kennedy (the “ Executive ”).

W I T N E S S E T H :

WHEREAS, the Company and the Executive accordingly desire to enter into this Agreement on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, it is hereby agreed by and between the parties as follows:

of this Agreement. During the period of employment described in the foregoing provision of this paragraph 2 (the “ Employment Period ”), the Executive shall hold such position with the Company (which for this purpose shall also include any subsidiary of the Company) and exercise such authority and perform such executive duties as are commensurate with the Executive’s position, authority, and duties immediately prior to the Change in Control. The Executive agrees that during the Employment Period the Executive shall devote full business time exclusively to the executive duties described herein and perform such duties faithfully and efficiently; provided , however , that nothing in this Agreement shall prevent the Executive from voluntarily resigning from employment upon sixty (60) days’ written notice to the Company under circumstances which do not constitute a Termination (as defined below in paragraph 5).

3. Change in Control . For purposes of this Agreement, a “ Change in Control ” means the happening of any of the following:

(b) The sale, transfer, or other disposition of all or substantially all of the Company’s assets or the complete liquidation or dissolution of the Company.

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number of such voting securities then outstanding; or (iii) so long as a person does not thereafter increase such person’s beneficial ownership of the total voting power represented by the Company’s then outstanding voting securities, a person that acquires directly from the Company securities of the Company representing at least twenty-five percent (25%) of the total voting power represented by the Company’s then outstanding voting securities.

4. Compensation During the Employment Period . During the Employment Period, the Executive shall be compensated as follows:

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For purposes of this Agreement, the term “ Good Reason ” means, without the Executive’s express written consent, the occurrence after a Change in Control of any of the following circumstances:

(b) A reduction in the Executive’s annual base compensation as in effect on the occurrence of the Change in Control;

6. Severance Payments and Benefits . Subject to the provisions of paragraph 8 below, in the event of a Termination, in lieu of the amount otherwise payable under paragraph 4 above, the Company shall:

(a) Pay the Executive a lump-sum payment in cash no later than ten (10) business days after the date of Termination equal to the sum of:

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(ii) An amount equal to the product of the Applicable Multiple (as defined below) and the Executive’s annual salary in effect immediately prior to the date of Termination; and

(iii) An amount equal to the product of the Applicable Multiple and the Executive’s Bonus Amount;

(b) Continue to provide the Executive (and, if applicable, the Executive’s dependents), for a twenty-four (24) month period following the date of Termination, with the same level of benefits described in paragraph 4(d) of this Agreement upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to the Change of Control), after taking into account the benefits provided by CoreLogic, Inc. or any successor thereof, provided , that if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits (or the cash-equivalent thereof) on the same after-tax basis as if continued participation had been permitted, and further provided the amount of expenses eligible for reimbursement during the Executive’s taxable year shall not affect the expenses eligible for reimbursement in any other taxable year. Notwithstanding the foregoing provisions of this paragraph, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described in this Agreement shall be secondary to such benefits during the period of the Executive’s eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the benefits provided hereunder.

For purposes of this Agreement, the term “ Applicable Multiple ” means two (2).

For purposes of this Agreement, the term “ Bonus Amount ” means the Executive’s target annual bonus for the year of Termination, or, if the Executive does not have a target annual

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bonus or the Executive’s target annual bonus is reduced following a Change in Control, six months prior to a Change in Control or the Executive reasonably demonstrates that the target annual bonus was reduced at the request of a third party who had indicated an intention or had taken steps reasonably calculated to effect a Change in Control, the average annual discretionary incentive bonus (including cash bonuses and stock bonuses (including any restricted stock units awarded as a component of the annual incentive bonus), but excluding any other long-term incentive compensation) earned by the Executive during the last three (3) completed fiscal years of the Company (including, for the avoidance of doubt, any portion of such three fiscal year period that elapsed prior to the Company’s June 1, 2010, spin-off separation (the “ Separation ”) from its former parent, The First American Corporation (“ FAC ”)) immediately preceding the date of Termination, as follows: (i) for such portion of the three fiscal year period prior to the consummation of the transactions contemplated by the Separation Agreement, from FAC and its subsidiaries, divided by two, and (ii) for such portion of the three fiscal year period following the Separation, from the Company and its subsidiaries (in each case annualized in the event the Executive was not employed by the Company, FAC and/or any of their respective subsidiaries for the whole of any such fiscal year).

8. Withholding . All payments to the Executive under this Agreement will be subject to all applicable withholding of state and federal taxes.

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accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this paragraph 9. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that it shall be necessary or desirable, as determined by the Executive in his or her sole discretion, for the Executive to retain legal counsel or incur other costs and expenses in connection with interpretation or enforcement of his or her rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company, as the case may be) his or her reasonable attorneys’ fees and costs and expenses in connection with interpretation or enforcement of his or her rights (including the enforcement of any arbitration award in court). Payments shall be made to the Executive at the time such fees, costs, and expenses are incurred. If, however, the arbitrators shall determine that, under the circumstances, payment by the Company of all or a part of any such fees and costs and expenses would be unjust, the Executive shall repay such amounts to the Company in accordance with the order of the arbitrators. Any award of the arbitrators shall include interest at a rate or rates considered just under the circumstances by the arbitrators.

13. Governing Law . The provisions of this Agreement shall be construed in accordance with the laws of the State of California, without application of conflict of laws provisions thereunder.

14. Amendment . This Agreement may not be amended, modified, waived, or terminated except by mutual agreement of the parties in writing.

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20. Counterparts . This Agreement may be executed in two (2) or more counterparts, any one (1) of which shall be deemed the original without reference to the other.

21. Entire Agreement . This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein and supersedes all prior agreements and understandings, oral and written, with respect thereto (including any prior Change in Control Agreement between the parties and/or any Change in Control Agreement in effect as of the date of the Separation to which the Executive and FAC or any affiliate of FAC is a party); provided , for the avoidance of doubt, that this Agreement does not supersede all or any portion (including, without limitation, any provision governing the effect of any change in control) of any benefit plan or compensation plan of the Company or any employment agreement to which the Executive is a party. Any reference to any prior Change in Control Agreement between the parties shall from and after the date hereof be deemed to be a reference to this Agreement.

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“Executive”

/s/ Parker S. Kennedy

Parker S. Kennedy

FIRST AMERICAN FINANCIAL CORPORATION

/s/ Dennis J. Gilmore

Name: Dennis J. Gilmore

Title: Chief Executive Officer

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Exhibit 10(e)

October 29, 2010

Parker S. Kennedy

1 First American Way

Santa Ana, California 92707

Dear Mr. Kennedy:

In connection with the June 1, 2010, separation of The First American Corporation (“ FAC ”) into First American Financial Corporation (“ FAFC ”) and CoreLogic, Inc. (“ CoreLogic ”), you entered an Amended and Restated Change in Control Agreement between you, FAC and FAFC, dated May 31, 2010 (the “ Change in Control Agreement ”), and a letter agreement between you, FAC and FAFC, dated May 31, 2010, relating to the treatment of your benefits in connection with the separation (the “ Letter Agreement ”).

As part of a recent review of benefit programs undertaken by both FAFC and CoreLogic, both companies determined that it would be in the best interests of each company’s respective shareholders to terminate the existing three-party Change in Control Agreement in exchange for each of FAFC and CoreLogic entering into a new, separate change in control agreement with you. You have been provided with copies of the new change in control agreements, one between you and FAFC and the other between you and CoreLogic, which agreements are expected to become effective on December 31, 2010. By signing below, you hereby acknowledge and agree that effective December 31, 2010, the existing Change in Control Agreement between you, FAFC and FAC shall terminate and be of no further force or effect.

In addition, upon the termination of the existing Change in Control Agreement, paragraph 8 of the Letter Agreement will no longer have any relevance as it reflected the terms of the existing Change in Control Agreement. As such, by signing below, you also acknowledge and agree that effective December 31, 2010, paragraph 8 of the Letter Agreement between you, FAFC and FAC shall terminate and be of no further force or effect; provided, however, that the remainder of the Letter Agreement shall not be affected by the termination of paragraph 8 thereof and thus shall remain in effect unaltered by this letter agreement.

[signature page follows]


Sincerely,

FIRST AMERICAN FINANCIAL CORPORATION

By:		/s/ Dennis J. Gilmore
		Dennis J. Gilmore
		Chief Executive Officer


CORELOGIC, INC.

By:		/s/ Stergios Theologides
		Stergios Theologides
		SVP, General Counsel

By signing this letter, I am acknowledging and agreeing to the above:




Signature:	/s/ Parker S. Kennedy	Date:	October 29, 2010
	Parker S. Kennedy

Exhibit (31)(a)

CERTIFICATIONS

I, Dennis J. Gilmore, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First American Financial Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2010

/s/ Dennis J. Gilmore

Dennis J. Gilmore

Chief Executive Officer

Exhibit (31)(b)

CERTIFICATIONS

I, Max O. Valdes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First American Financial Corporation;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2010

/s/ Max O. Valdes

Max O. Valdes

Chief Financial Officer

Exhibit (32)(a)

Certification pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of First American Financial Corporation (the “Company”) for the period ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis J. Gilmore, chief executive officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Dennis J. Gilmore

Dennis J. Gilmore

Chief Executive Officer

November 1, 2010

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit (32)(b)

Certification pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of First American Financial Corporation (the “Company”) for the period ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Max O. Valdes, chief financial officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Max O. Valdes

Max O. Valdes

Chief Financial Officer

November 1, 2010