98
ANNUAL
REPORT
STRATEGIC
ACTION
The First American Financial Corporation

First American Profile
The First American Financial Corporation,
based in Santa Ana, California, is the nation’s
leading provider of real estate-related information
products and services. The Corporation’s segments
include title insurance, which is offered nationally
and internationally; real estate information,
TABLE which includes tax monitoring, mortgage
OF CONTENTS credit reporting, property data services, flood
certification, field inspection services, appraisal
CAREFULLY EXECUTED STRATEGIES BENEFIT
services, loss mitigation services, mortgage loan
OUR ENTIRE CORPORATION.
origination and servicing systems, and mortgage
Letter to Stockholders ................................. 2
document preparation nationally; home warranty;
Our Strategic Plans Are Creating Corporate Successes . . . . . . . . . . . 4
The First American Family of Services ...................... 5
consumer risk management, which includes
Title Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
automotive and direct-to-consumer credit
Real Estate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Home Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 reporting, multi-family resident screening and
Consumer Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
pre-employment screening; and investment, trust
Trust and Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
and banking operations. First American Financial
RECORD-BREAKING FINANCIAL RESULTS SIGNIFY
has nearly 20,000 employees in over 400 branches
OUR STRATEGIC SUCCESS.
in the United States and abroad.
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . 22
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Common Stock and Quarterly Data . . . . . . . . . . . . . . . . . . . . . . . 27
First American is dedicated to leading our industry —
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 30 in customer satisfaction by providing consistently
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . 31
high-quality service; in innovation by developing
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . 32
and marketing new systems, products and services; in
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 33
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . 41
profitability by demanding efficiency; and in growth by
FIRST AMERICAN PEOPLE WORLDWIDE ARE searching out domestic and international opportunities.
CARRYING OUT OUR STRATEGIES.
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Primary Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Carefully planned, strategic actions have generated positive results throughout time.
The following pages note some of those successes.

FINANCIAL highlights
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Percent
1998 1997 Change
(in thousands, except percentages, per share amounts and employee data)
Revenues $2,877,328 $ 1,908,923 51
Expenses 2,515,906 1,799,248 40
Income before income taxes and minority interests 361,422 109,675 230
Income taxes 127,700 41,500 208
Income before minority interests 233,722 68,175 243
Minority interests 35,012 3,676 852
Net income $ 198,710 $ 64,499 208
Stockholders’ equity $ 731,915 $ 415,003 76
Return on average stockholders’ equity 34.7% 16.7% 108
Cash dividends $ 12,628 $ 8,931 41
Per share of common stock (Note A) —
Net income:
Basic $ 3.46 $ 1.18 193
Diluted $ 3.32 $ 1.16 186
Stockholders’ equity $ 12.13 $ 7.62 59
Cash dividends $ .22 $ .16 38
Number of common shares outstanding (Note A) —
Weighted average during the year:
Basic 57,450 54,448 6
Diluted 59,822 55,717 7
End of year 60,332 54,484 11
Number of employees 19,669 13,156 50
All consolidated results have been restated to reflect the 1998 acquisitions accounted for under the pooling-of-interests method of accounting.
Note A — After adjustment for 3-for-1 stock split effected July 17, 1998.
Operating Revenues Income Before Income Taxes
by Business Segment and Minority Interests
Title Insurance – 74% Title Insurance – 63%
Real Estate Information – 21% Real Estate Information – 28%
Home Warranty – 2% Home Warranty – 3%
Consumer Risk Management – 2% Consumer Risk Management – 4%
Trust and Banking – 1% Trust and Banking – 2%
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01

LETTER to stockholders
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Parker S. Kennedy, president
D.P. Kennedy, chairman of the board
The First American Financial Corporation
1998 was a phenomenal year for First American. Revenues
grew 51 percent from $1.91 billion to $2.88 billion and earnings
before income taxes and minority interests grew 200 percent from
$109.7 million to $329.0 million (excluding a $32.4 million
investment gain).
Our superior performance was highlighted in the First American the largest owner of imaged recorded documents.
February 25, 1999, issue of The Wall Street Journal, where Now, records can be searched in many of the highly populated
First American Financial was included among the top 30 areas of the country on a centralized basis. Many of the back-office
performing public companies, based on return to shareholders functions of the escrow closing process can also be centralized.
during the last 10 years. We are especially proud to be recognized We are several steps closer to the day when orders can be placed,
for our success over a sustained period. searches can be performed and policies can be delivered
This year was punctuated by a very strong real estate market. completely electronically on a nationwide basis.
Transaction volumes, which reached record levels, were driven by Our strategy to lead the transformation process of the title
low interest rates and a strong national economy. But the robust industry adds new urgency and meaning to our title acquisition
market tells only a part of the story. Our success in 1998 was a activities. Our technology strategy increases the value of the
confirmation of three of our most important strategies: acquisitions we make. Traditionally in buying a title agency, we
analyze the profits of the agency and consider the strong leadership
1. Technology is clearly changing the real estate industry and
and entrepreneurial spirit of its people. Now, agency purchases
First American is on the leading edge of these developments;
take on a new importance. An agency improves our future ability
2. Marketing multiple products to the real estate industry provides
to centralize title processing by expanding the geographic reach
opportunities to gain new customers and increase market share;
of our searching capabilities, of our network of policy production
and of our system of integrated title plants. For these reasons, we
3. The new Consumer Risk Management segment shows that
added 44 title offices in 1998 and, as time goes by, we hope to
First American can successfully leverage its expertise in real
accelerate this pace.
estate-related information products and services to provide
While our title division is by far our oldest, the dynamics
specialized reports to other industries, offering new growth
of rapid change represent great opportunities for the future.
opportunities in future years.
Our Menu of Products and Services
Technology Leadership
1998 made clear the potency of combining multiple products
To date, title information has largely been produced on a
and marketing them together. Our real estate information division
county-by-county basis. With the technological capability to
had operating revenues of just $3.6 million in 1990, which by
centralize this process, we will continue to realize greater cost
1998 had ballooned to $598.8 million. Earnings before income
efficiencies and opportunities to provide a larger menu of
taxes and minority interests were up 170 percent from 1997 to
services to more customers.
$103.1 million. We have stayed ahead of the game and we
New technology enabled us to close transactions faster and
continue to move ahead aggressively.
to better control expenses, as evidenced by a retention level that
Our menu of products and services continued to expand
rose to 12 percent from 6 percent last year. Bottom line —
during 1998. Our strategy to amass all the information products
1998 title profits were up 186 percent from last year.
required to close a real estate transaction continues. We have
The Company’s venture with Experian brought to First
done this by acquisitions rather than by strategic alliances.
American the largest database of title chains in the world. Our
Because we now own nearly all such products, we can control
1998 acquisition of Data Tree, combined with Experian, makes
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02

Also retiring from our board during 1998, for health
their delivery. The First American menu of information services
reasons, was Rudy Munzer. Rudy joined our board in 1962 and
stands alone in the industry.
was instrumental in charting the Company’s growth and transition
The recently announced acquisition of National Information
to a national company. We will miss his incredible support,
Group (NAIG), which is due to close in the near future, will
leadership and wise counsel.
strengthen our current information products as well as add new
We are extremely pleased to announce the promotion of
offerings. NAIG is a significant provider of flood certifications
and tax service, and these products will be combined with First Gary Kermott, formerly Chief Operating Officer, to the position
American’s, leading to greatly improved margins. NAIG will also of President of First American Title Insurance Company. Gary
bring the business of insurance tracking to the First American is a very popular and effective leader who has already made an
menu. We are very excited about the NAIG transaction and the important mark on our company. His leadership will be a
future benefits it will afford our customers and shareholders. significant factor in our future growth.
Three distinct divisions were created during 1998 within
Consumer Risk Management
First American Real Estate Information Services, Inc., under
Established in September 1998, the new Consumer Risk
the leadership of President John Long. Each is headed up by
Management segment is an outgrowth of our existing mortgage
a proven First American leader: Barry Sando will lead the loan
credit business. As our mortgage credit business grew and
administration division, Don Robert is heading up the loan
broadened its horizons, we developed an expertise in providing
origination division and Dennis Gilmore directs the database
specialty information reports. Our first significant step outside
products and services division.
the mortgage industry was in the area of tenant screening where
we issue reports to landlords relative to their prospective tenants. Outlook
These reports include an eviction notice summary in addition to 1998 was a year of strong market share improvement in
credit information. In 1997, First American was the third largest virtually every business in which we operate. We look for this to
tenant screening company in the country. Last year we took over continue in 1999. While interest rates have increased somewhat,
the industry’s leading position in the United States when we and refinance activity has slowed slightly, order volumes are still
purchased The Registry. Also in 1998, we purchased CIC, Inc., very strong by historical standards. Many experts expect the real
a company that produces reports about prospective employees estate market to continue at a healthy pace during 1999. We will
for employers. The reports include a criminal record search, as monitor order levels closely and react quickly in the event of
well as credit information. Also included in our Consumer Risk further interest rate hikes and decreasing order volumes. We
Management segment is an automotive credit information look to the future with great confidence.
department and merged credit reports for consumers. In June 1998, the board approved a three-for-one stock split,
Our total revenues for this segment should exceed $80 million which was effective on July 17, 1998. This came on the heels of a
in 1999. This success proves that our Company can grow at a rapid three-for-two stock split, which was effective on January 15, 1998.
clip as a producer of specialty information reports. Results in this After these two splits, the shares outstanding totaled approximately
segment are not dependent on interest rates and real estate activity. 60 million. At our August 1998 meeting, the board increased
Consumer Risk Management will lead us in many new directions the quarterly dividend 20 percent, from 5 cents a share to
and help assure healthy growth for many years to come. 6 cents a share.
On behalf of the officers and directors of First American,
Transitions
we thank you for your continued support.
It is with great sadness that we report the passing of Jack
Derloshon, our long-time Chief Financial Officer. Jack started
with the Company in 1960, and retired in 1993 after 34 years
of incredible growth for our Company. He played a vital role in D.P. Kennedy
Chairman of the Board
steering First American through these crucial years, and we will
miss his guidance and friendship.
Dale Frey retired from his position on our board of
directors. Dale joined our board after a long and distinguished Parker S. Kennedy
President
career at General Electric. His helpful perspective will be missed.
FA
03

OUR STRATEGIC
PLANS ARE
CREATING
CORPORATE
S U C C E S S E S.
Acquisitions and new start-ups have been a FIRST AMERICAN COMBINES PRODUCTS TO SERVE THE CUSTOMER.
central focus at First American for decades. Some
First American is the first company to create a complete menu
add to existing businesses while others move us in of products for the lender customer. This chart details how some
of our groups have come together to provide these products:
new directions. Most allow us to combine resources
to provide more products, more quickly. Many MAKING TITLE SEARCHING MORE EFFICIENT:
are small, and some are quite large. All add new First American Title Insurance Company
Smart Title Solutions’ Title Plant Information
people and freshen the entrepreneurial spirit that
Data Tree Corporation
has fueled First American’s amazing growth. SMS
The pace of acquisitions accelerated Title Acquisitions
Wide Area Networks
dramatically during 1998. Each acquisition or
FASTSearch
start-up fits into a simple game plan designed
LEADING THE INTERNATIONAL TITLE INSURANCE MARKET:
to improve First American’s earnings. Several
Title operations in: Australia, the Bahama Islands, Canada, England,
of our primary strategies are detailed in the Guam, Ireland, Mexico, Puerto Rico, Scotland, South Korea and
pages to come. the U.S. Virgin Islands
By combining many of our products, ENABLING ELECTRONIC ORDERING AND DELIVERING
First American’s strategy is to cross-market and OF ALL PRODUCTS:
First American Title Insurance Company
deliver them as a package. This strategy is
First American Real Estate Information Services, Inc.
paying off. Title insurance, a vital part of this RAPID System
package, produced historic gains in 1998. FASTWeb
Contour Software, Inc.
And, First American’s gross revenues for the
Wide Area Networks
nontitle products listed here were approximately
MARKETING AND DELIVERING PRODUCTS TOGETHER:
$740 million, more than nine times that of its
First American Real Estate Information Services – more than
nearest competitor. 20 acquisitions over the past 10 years
Our strategy is
CREATING AUTOMATED APPRAISAL SYSTEMS:
working, but is still First American Appraisal Services
in the early stages. First American Real Estate Solutions
ValuePoint Software
In addition to
Market Data Center
assembling and
BECOMING THE FIRST COMPLETE DEFAULT MANAGEMENT COMPANY:
bundling these
First American Loss Mitigation Services
products, we are First American Field Services
adding progressive First American Title Insurance Company’s REO Disposal
First American Lenders Advantage
technology solutions
Barrett Burke Wilson Castle Daffin & Frappier, L.L.P.
that allow us to First American Excelis
deliver these products as our customers want them DAISY Technology
delivered. We are a step ahead in this strategy.
EXPANDING TO LESS CYCLICAL CREDIT AND
If we execute well, the results will be very INFORMATION-RELATED BUSINESSES:
First American CREDCO
significant. We will continue to keep our eye
First American Consumer Products
squarely on the future. CIC, Inc.
First American Registry, Inc.
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04

THE FIRST AMERICAN FAMILY OF SERVICES
The Single Source in the Real Estate Transaction Process
OPENING THE SALE
Property Information and Map Image Products First American Real Estate Solutions
Credit Reporting First American CREDCO
Appraisals/Property Reports First American Appraisal Services
Automated Property Valuations First American Real Estate Solutions
Flood Determination First American Flood Data Services
Title Search Smart Title Solutions
Document Imaging Data Tree Corporation
Mortgage Document Preparation First American Nationwide Documents
Loan Origination Software Contour Software, Inc.
Equity Loan Services First American Equity Loan Services
CLOSING THE SALE
Title Insurance First American Title Insurance Company
Title and Escrow Software Systems SMS
Tax Certification First American Real Estate Tax Service
Closing and Escrow Services First American Title Insurance Company
Home Warranty First American Home Buyers Protection Corp.
SERVICING THE LOAN
Tax Reporting and Outsourcing First American Real Estate Tax Service
Tax Valuation First American Tax Valuation
Flood Compliance First American Flood Data Services
Property Inspection and Field Services First American Field Services
Loan Servicing Systems First American Excelis
Loss Mitigation Services First American Loss Mitigation Services
A Preferred Source for Consumer-Related Risk and Investment Services
MANAGING RISK
Automotive Credit Reporting First American Consumer Products
Resident Screening First American Registry, Inc.
Employment Screening CIC, Inc.
Consumer Credit Reporting First American Consumer Products
INVESTING
Trust Services First American Trust Company
Investment Services First American Capital Management
Banking Services First Security Thrift
At only age 15, Bobby Fischer used his strategic abilities to challenge the
world’s best players at the Interzonal tournament in Portoroz, Yugoslavia.
FA
05

TITLE information
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Parker S. Kennedy, chairman
Gary L. Kermott, president
First American Title Insurance Company
In 1998, as in the previous year, vast numbers of American
families realized the dream of home ownership. Great numbers
also found the opportunity to move to larger or smaller homes,
to buy second homes or income properties, or to refinance their continued. Healthy title order increases of 26 percent in both the
present mortgages at lower rates. Commercial real estate activity second and third quarters produced revenue gains of 49 percent
and new home construction were also strong throughout the and 44 percent, respectively. In the year’s final quarter, our title
year. 1998’s economic scene was dominated by a continuation of company opened 410,000 title orders, an increase of 37 percent
low interest rates, high employment and high consumer from the year-earlier period, as quarterly operating revenues rose
confidence, all of which combined to maintain a robust real 37 percent.
estate market. Our title company continues to be in excellent financial
These factors, along with our continued efficiency goals and condition. Reflecting the company’s positive claims-paying
aggressive expansion strategy, enabled First American Title ability, its rating was upgraded from A- to A by Duff & Phelps
Insurance Company to establish records throughout our business Credit Rating Co. First American also earns high ratings from
in every fiscal period. Income before income taxes and minority other leading rating agencies, including an A (Excellent) rating
interests rose 186 percent, to $227.9 million, from the previous from A.M. Best Company, an A´ (Unsurpassed) rating from
year’s $79.6 million. Title insurance operating revenues increased Demotech, Inc., and an A3 (Exceptional) rating from Moody’s
41 percent, from $1.46 billion in 1997 to $2.06 billion in 1998. Investors Service.
Our title company’s strong business momentum continued To protect and build both our market share and financial
from the previous year, producing a remarkable string of record- results, First American Title continued strategies involving
breaking quarter-to-quarter increases in operating revenues and expanded geographic coverage, broadened product offerings and
order volume throughout 1998. Title orders surged 54 percent in improved customer service. These factors allowed us to maintain
the year’s first quarter as compared with the same period 1997, as our number one position among the nation’s title insurance
the pressure of fast-paced home purchases and refinancings companies in 1998.
Expansion of our geographic presence continued in 1998, as
we added 44 offices from Alaska to the Florida Keys. Continuing a
strategy that began more than four decades ago, we are acquiring
FA
Tetracycline was the first antibiotic made by chemically modifying a naturally produced
06 drug, a discovery that initiated the creation of other antibiotics commonly used today.

Acquisitions help us
lead title industry efficiency.
It is our goal to dramatically improve the margins
within the title insurance industry. Our strategy to do so is
designed to directly benefit our title company, and indirectly
augment related First American companies.
Traditionally, real property title is searched locally on a
county-by-county basis, accessed through conventional
records. To streamline
this process, three
components are needed:
automated land title
records (referred to as
title indexes), automated
real property tax
databases and imaged
records of all recorded
property documents.
Once this data for major U.S. counties is computerized,
title searching can be done from a centralized source,
eliminating the need for most local title production.
In 1997 First American endeavored to help our industry
,
gain control of the process. Our first step in this strategy
was our venture with Experian, which brought us the
nation’s largest repository of title indexes, real property tax
databases and imaged records. Smart Title Solutions, our
group developed from this venture, added this content to
our existing databases, making First American the
largest owner of title data in the world. This brought
control of the information back to our industry. Other
industry members control important databases, and
collectively we control our destiny.
Our second step was to acquire Data Tree, owner of
the largest database of imaged property documents. First
American then combined these records with those of Smart
Title Solutions, and is now moving quickly to image
documents in major metropolitan areas throughout the nation.
The key to these acquisitions is that they will play
a major role in transforming the way title business is done.
O U R S T R AT E G I C P L A N Through the centralization of title production, these
IS CHANGING acquisitions could dramatically improve margins. Because of
T H E WAY T H E T I T L E this, and related developments, our industry can control the
title search and completion process as we move into
B U S I N E S S O P E R AT E S .
a new era.
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07

International start-ups
will yield big returns in the future.
First American entered Canada in 1991. That year we
issued 50 policies. In 1998, we issued more than 100,000
policies and the vast majority of the growth is still ahead
of us.
Prior to title insurance, closing expenses in Canada
were very high, delays were frequent and malpractice
insurance rates were
quite costly for the
solicitors involved in the
process. Title insurance
allows transactions to
close quickly by
substituting assurances
to the lender for
delayed paperwork and
survey information.
These same factors are present in other well-
developed nations, such as England, Scotland, Ireland
and Australia. First American’s operations in each of these
countries are leading the process of change. We are also
initiating change in South Korea, where First American
operations were recently established.
The world is ready for title insurance. Understanding
this, First American has developed a new international
policy. We have established four global underwriting
centers through which this policy can be provided, giving
real estate investors the peace of mind that any title issues
that may arise from their foreign purchases will be
handled by First American.
Our product is the perfect way to provide
guaranteed title information and to thereby “grease the
wheels” of the closing process. Lenders everywhere need
to move fast and title insurance makes that possible. One
day, title insurance will be involved in all the transactions
in countries with systems similar to those of the United
States and, thanks to our patient strategy, First American
will be there to benefit from the change.
TITLE INSURANCE
I S S AV I N G T I M E I N
P RO P E RT Y T R A N S A C T I O N S
A RO U N D T H E G LO B E .
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08

TITLE information
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
title operations nationwide that are known for their strength in
their communities or expertise in specialized fields. We are also
continuing to open new offices in growing urban areas.
Growth in international markets continued as well, with our EAGLE Policy coverage was extended to aircraft in 1998 with
operations holding the leading position among title companies in the introduction of the EAGLE Aircraft Policy. This innovative
Canada, Australia and the United Kingdom. Early in 1999, First policy provides title coverage to the owners of general aviation
American Title Company of Korea was incorporated to provide aircrafts and to their lenders. In addition to traditional coverage
specific title services for commercial property transactions. The against claims that arise when ownership interests filed with the
company also developed a standardized policy of title insurance — Federal Aviation Administration are missed in record searches,
the first of its kind — that allows us to underwrite international the new EAGLE Aircraft Policy covers other situations that could
transactions out of one of four global underwriting centers. threaten the loss of title. These involve filed-but-unrecorded
Many nations worldwide are beginning to look to title insurance claims, forged documents and various frauds. The coverage
to help make the real estate transaction process more efficient. protects lenders and owners not only in the current transaction,
As they do so, First American continues to pursue opportunities but also for all previous transactions involving the insured aircraft.
in those countries where real estate conveyancing systems are As a product not tied to the cycles of the real estate industry, we
similar to those in the U.S. look forward to the EAGLE Aircraft Policy’s continued growth.
Product expansion included enhancements to First American’s An important customer-service enhancement was created in
popular EAGLE Policy, which had an extremely successful start- 1998 when our title company became the first in the nation to
up in 1997. This remarkable product offers an array of coverages accept credit cards as payment for certain services. Covered items
and other features never before provided in a include the escrow and title services portion of
Share of Total U.S.
standard title policy. The enhancements made last-minute closing costs. This program was
Title Insurance Market
(percent)
in 1998 further increased the policy’s launched in California in September.
25
popularity by adding to its ability to meet the In 1998, our title company announced
needs of our customers. Availability of the a joint venture with Norwest Mortgage
20
EAGLE Policy was expanded to 33 states by (a division of Wells Fargo & Co.).
the end of 1998.
15
93 94 95 96 97
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The Panama Canal shortened the seagoing distance
09
from New York to San Francisco by 7,873 miles.

TITLE information
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
This venture, which is owned equally by First American and
Norwest, expands our opportunity to provide title and escrow
services to this lending leader. Two other Norwest companies
involved in the venture are adding to the service offerings of First Smart Title Solutions, Data Tree provides stand-alone services to
American Real Estate Information Services as well. title companies with their own or unaffiliated title plants.
In addition to the expansion and improvement of its The second change was the integration of our newly
product and service offerings, our title company made changes acquired Contour loan origination system with First American
aimed at creating efficiencies that benefit both the company and Strategic Technologies Web, called FASTWeb. An Internet-based
its customers. These changes included additional applications of service, FASTWeb makes title and escrow ordering and delivery
electronic information technology to the industry. available electronically for mortgage originators such as banks
One change involved merging the databases of Smart Title and mortgage brokers.
Solutions with those of the recently acquired Data Tree. The Changes such as these keep First American at the forefront
Smart Title Solutions title information repository is the largest in of title industry technology. The increasing speed, variety and
the United States. Combining it with Data Tree’s database of utility of electronic information have raised customer expectations
imaged recorded title documents, also the largest in the nation, in many kinds of businesses, including the real estate and related
gives First American improved efficiencies and greater control of service industries. To be effective in our markets, First American
its future as owner of the world’s largest collection of title data. must meet and exceed these higher expectations with the
In addition to capturing, storing and delivering recorded industry’s most innovative services. The company’s solid financial
document images to title companies in collaboration with footing has made possible the investments required to do so. And
now, under the guidance of newly appointed
President Gary Kermott, First American will
Total Title Insurance Revenues
($ in millions)
continue to make these investments to keep
2,500
2,250
the company at the cutting edge of its
2,000
1,750
industry’s technological leadership.
1,500
1,250
1,000
750
500
250
0
89 90 91 92 93 94 95 96 97 98
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The 1937 completion of the Golden Gate Bridge, spanning 4,200 feet,
10 connected the San Francisco metropolis to California regions farther north.

Electronic product delivery
increases efficiencies and opportunities.
One of First American’s primary strategies is to
facilitate the ordering and delivery of our products
electronically and through a single system. How this is
done is important — that it is done is critical.
Hundreds of First American offices nationwide are
linked through Wide Area Networks (WANs). We have
also created numerous
customer links to allow
users to access our
products electronically.
Some are Internet-
based and some utilize
dedicated lines. An
important part of this
strategy involves First
American’s presence on
the user’s “desktop.”
In pursuing this, First American acquired Contour Software,
the nation’s largest supplier of loan origination software
to the mortgage broker industry. Thirty percent of all
mortgages originated in the United States in 1998
were originated through Contour Software. Since its
acquisition, Contour has developed links with our title,
flood certification and appraisal products. Credit
information will be added in 1999. Now, for the first time,
mortgage brokers can order all of these products with a
simple “click.”
Contour provides this service through First American’s
FASTWeb system. Contour, as well as First American Title
Insurance Company and First American Flood Data
Services, uses this Internet-based order and delivery
service as one of the means to provide their products.
More than 22,000 registered users directly access these
services through FASTWeb, fully operational since late
1997. First American’s credit groups are working to have
their services available soon through FASTWeb, as well.
OUR TECHNOLOGY
I S R A P I D LY C O N N E C T I N G
O U R C O M PA N I E S TO
OUR CUSTOMERS.
FA
11

Our appraisal company will benefit
from the First American Real Estate Solutions
database as electronic appraisal services grow.
It is clear that the way appraisals are done will
change dramatically in the next five years. First American,
the nation’s largest appraisal company, is at the forefront
of the progress toward the paperless property valuation.
In 1997, First American acquired SMS and combined
it with its existing
operations to become
the nation’s largest
appraisal company.
Property Financial
Appraisal Services was
acquired later that year
to round out coverage
in the New England
states. These companies
provide and coordinate
appraisals utilizing a network of independent and
employee appraisers who visit each property and collect
the relevant data.
In late 1997 our venture with Experian, which
,
resulted in the formation of First American Real Estate
Solutions, brought us the nation’s largest property
characteristic database. This marked the first time that
a massive database of this type was combined with an
existing national appraisal network. Market Data Center,
a 1998 First American acquisition, brought additional
printed and online appraisal information services to our
group. And our state-of-the-art computer valuation
program, ValuePoint, delivers online property valuations
in seconds. Together, these advances are working to our
benefit as the adoption of electronic appraisals accelerates.
Discussions with Fannie Mae and Freddie Mac are
ongoing as they also move toward greater acceptance of
automated appraisal products. And while conventional
on-site appraisals will always be needed to meet the
needs of many property transactions, the widespread use
of electronic appraisals will continue to grow. Through
WE’RE COMBINING
our leadership in providing both appraisal types,
R E S O U RC E S TO First American will be a major beneficiary of this trend.
STRENGTHEN OUR
O P P O RT U N I T I E S .
FA
12

R E A L E S TAT E i n f o r m a t i o n
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
John W. Long,
president and chief executive officer
First American Real Estate Information Services, Inc.
Less than a decade ago, The First American Financial
Corporation began assembling a collection of enterprising
companies engaged in real estate information services. At the time,
management forecasted that the need for consistently accurate, This group’s individual companies also continued to prosper,
high-speed real estate-related information would grow very rapidly with our appraisal services, credit services, flood data services,
before the turn of the century. In the years since then, this field services and mortgage document preparation companies
prediction has been more than fulfilled as the electronic searching, leading their respective fields. We also own the largest supplier of
collection, storage, transmission and imaging of this information mortgage origination software and services to the mortgage
has grown explosively. Increasingly, electronic means have overtaken industry, as well as the nation’s leading provider of real estate
the manual methods previously applied in these operations. data. Our real estate tax company ranks second in its industry.
Today, First American operates the industry’s leading The other companies in this group are also continuing to grow
organization dedicated to the gathering, packaging and distribution through increased services, efficiencies and acquisition.
of real estate-related information. First American Real Estate In 1997, based on surveys and analyses of customer needs,
Information Services also is a leader in the application of this group separated its origination services — those needed to
information technology to the services associated with mortgage create a mortgage loan — from its loan administration
origination and administration. operations, which provide the services needed to service loans.
First American Real Estate Information Services had an During 1998, we grew these operations further by creating a
excellent year. Operating revenues in 1998 rose 92 percent, to Database Products and Services division.
$598.8 million, from the $311.8 million reported for 1997. This Database Products and Services offers its varied clientele a
operation’s income before income taxes and minority interests wide selection of packaged real estate-related information. This
rose 170 percent, to $103.1 million, from the previous year’s was the first full year of operation for our joint venture with
reported $38.1 million. Experian, which brought us these databases.
This new division includes First American Real Estate Solutions,
which provides property information, imaged maps, automated
property valuation and similar products to Realtors, lenders,
appraisers and others. This group was enhanced in 1998 through
FA
A “sweep,” the football play that legendary coach Vince Lombardi called
13
his “number one play,” requires that all 11 players act in precise unison.

R E A L E S TAT E i n f o r m a t i o n
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
the acquisition of Market Data Center, which provides additional
real estate information services for appraisers and real estate agents.
The Database Products and Services division’s offerings also particularly attractive to mortgage brokers, who now generate
include the title plant and document imaging services provided half of the nation’s mortgage loans.
to the title industry by its Smart Title Solutions and Data Tree As mentioned in the review of title operations, Contour
companies. Data Tree Corporation, another 1998 acquisition, is integrating its technology with that of First American. Flood
provides database management and document imaging systems and appraisal products, as well as title, are now available through
to the title industry, county recorders and government agencies. its systems. Contour also brought to market some innovative
It was the first company in the nation to offer electronic Internet-based products last year. These included tools for use
recording — cutting document recording time from days to by consumers in analyzing their mortgage needs and helping
minutes. Smart Title Solutions’ services were further enhanced in to determine how a mortgage would affect a family’s financial
1998 through the acquisition of S.D. Technologies, known as situation. Contour also introduced FAST-AU, providing mortgage
Spatial Data, a developer of desktop software products used by brokers with electronic point-of-sale access to Freddie Mac’s Loan
title insurance companies and real estate agents. Prospector system.
Other acquisitions and alliances continue to be important In 1998, we also completed the purchase of BJF Group.
to First American Real Estate Information Services. In 1998, the This company now provides loss mitigation assistance to lenders
group added a number of companies with complementary services. as First American Loss Mitigation Services. Sister companies
As the year began, for example, we completed our Executive Reporting Services and CreditNet Communications
acquisition of Contour Software, Inc., an enterprising company were also acquired, adding to the services of First American
that has become the largest supplier of mortgage origination CREDCO. First American Executive Reporting Services retrieves
software and services to the mortgage loan industry. It provides a credit file information to create reports, while lenders use
modular array of software for every facet of mortgage lending, CreditNet’s software to access these reports.
from qualification through servicing. These products are ShadowNet Mortgage Technologies, acquired in 1998, is a
provider of electronic alternatives to the delivery of closing
documents to mortgage lenders, mortgage brokers, commercial
banks, credit unions and other mortgage lending entities. One of
FA
Bach’s Second Brandenburg Concerto exhibits his command
14 of multiple instruments, and their resulting seamless sound.

Acquisitions, start-ups and partnerships have
created a comprehensive unified
default management solution.
When a mortgage loan goes into default, many
activities are set in motion to cure the delinquency
and minimize investor credit risk. It is First American’s
strategy to combine these activities into a comprehensive
solution for loan servicers.
When a borrower
misses a payment, the
servicing software
system utilized by the
lender begins to
generate late notice
letters to the borrower.
Excelis, purchased by
First American in April
1996, is such a system.
If the default ages, a
field services company begins to inspect the property
monthly to alert the lender to the property’s occupancy
status and assess the general condition of the asset securing
the mortgage. First American Field Services, the nation’s
leading company of its type, provides a full range of
property inspection and preservation services.
Prior to final action to foreclose, First American Loss
Mitigation can provide lenders and borrowers alternatives
to foreclosure, in order to reduce the losses associated
with mortgage default and to keep borrowers in their
homes. If foreclosure is necessary, this process can be
completed by the law firm of Barrett Burke Wilson Castle
Daffin & Frappier, L.L.P., a First American partner.
Delinquent loan portfolios can also be managed through
the DAISY software system, owned jointly by First American
and Barrett Burke. DAISY provides loan servicers a
powerful and cost-effective tool to gain a competitive
advantage and reduce their overall costs. Title information
connected to the delinquency is issued by First American
Lenders Advantage through a nationwide network created
specifically for delinquent loan processing. If the
A P OW E R F U L T E A M
delinquency results in foreclosure and the property goes
COMBINES TO into inventory with the lender, the title insurance on the
P ROV I D E C O M P L E T E Real Estate-Owned property can also be provided by
First American.
SOLUTIONS.
FA
15

R E A L E S TAT E i n f o r m a t i o n
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
its software programs enables mortgage lenders in any of the 50
states to order and receive closing documents in 15 minutes or less.
ShadowNet now operates as a part of First American Nationwide
Documents, placing us in the leading market share position in real estate tax monitoring. Another, a data management
the mortgage document industry. subsidiary, allows loan servicers and vehicle lessors to monitor
First American’s joint venture with Norwest — mentioned the insurance coverage on collateral that secures residential
in the review of title insurance operations — added expanded mortgages, vehicle loans, and other consumer loans and vehicle
appraisal services, as well as income and employment leases. A fourth subsidiary underwrites short-term fire,
verification services. automobile physical damage, and flood insurance.
Finally, First American entered into a merger agreement in Our current industry leadership in real estate-related
November 1998 with National Information Group, which will information services notwithstanding, First American will
add insurance tracking and outsourcing for mortgage lenders to continue to build and refine the company’s abilities and
our menu of services. One of National Information Group’s especially its information technology infrastructure. As the
subsidiaries provides flood zone and census tract information to need for information rises, and as the world increasingly
the mortgage lending industry, and a second subsidiary provides turns to technological solutions for exacting, labor-intensive
activities, First American Real Estate Information Services
will be ready with the latest and best systems to meet these
accelerating demands.
Total Real Estate
Information Revenues
($ in millions)
650
600
550
500
450
400
350
300
250
200
150
100
50
0
94 95 96 97 98
FA
16

HOME warranty
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Martin R. Wool, president
Philip B. Branson, chairman
First American Home Buyers Protection Corporation
First American Home Buyers Protection Corporation had an
excellent year. The company reached $61.6 million in premiums
written, an increase of 16 percent from the previous year’s results.
Operating revenues rose 24 percent, to a record $58.2 million, First American Home Buyers Protection also became one of
and pretax profits totaled $11.4 million, an increase of 29 percent. the first home warranty companies in the nation to provide
Equity, a critical measurement of the strength and claims-paying online ordering. In 1998, this efficient system began giving
ability of a warranty operation, rose 15 percent to a total of consumers and real estate professionals the ability to order initial
$54.8 million. warranties electronically.
This company continues to be a leader in home warranties Our state-of-the-art call center, which opened in 1997,
covering major operating systems and appliances in resale homes. became operational on a “24/7” basis in 1998, providing around-
Repairs and replacements of items under warranty are carried out the-clock service every day of the year. This technologically
by a nationwide network of qualified, licensed contractors. advanced service increases our company’s response capabilities and
Our company ended the year with more than 187,000 is designed, in turn, to produce greater customer satisfaction,
warranties in force — 25,000 more than at year-end 1997. positive referrals and increased warranty renewals.
Thanks to successful marketing strategies, nearly one-third of our Solid growth was achieved in several states where we do
warranty revenues is now derived from renewals. These renewals business, with revenue increases led by our operations in Texas,
represent an important segment of our business, because they are where we recognized a 47 percent sales gain. Sales activities also
much less dependent on real estate market cycles than are new started well in Utah during the company’s first full year of
contracts written at the close of escrow. operation there, as they did in Georgia where
the company became licensed during 1998.
Total Home Warranty Equity
($ in millions)
60
50
40
30
20
10
0
94 95 96 97 98
FA
17

CREDCO acquisitions lead
to a new First American division.
First American’s acquisition of CREDCO is a great
success story. When purchased in early 1995, CREDCO
was doing about 100,000 credit reports a month,
primarily servicing the mortgage industry. During several
single months in 1998, CREDCO produced more than
two million credit reports.
CREDCO has solid
expertise in creating
specialized credit reports,
drawing information
from numerous credit
sources. It became clear
that this expertise could
be used in many ways
and that our volume-
driven cost efficiencies
(as incredible as the volumes themselves) could help in
new businesses. With this strategy in mind, First American
expanded its product offerings to consumers, landlords
and auto lenders. By early 1998, more than one-half of
CREDCO’s reports were issued to nonmortgage users.
In 1998, we pursued two more very important
acquisitions. The first, CIC, Inc., provides pre-employment
screening reports to employers. In addition to credit
information, the reports include criminal records, as well
as educational and employment history verifications. The
Registry, our second such acquisition, offers resident
screening reports. In addition to credit information, these
reports provide landlords with the rent payments and
eviction notice history of a prospective tenant. The Registry
is the largest resident screening company in the United
States.
This strategy of utilizing our credit information
resources to serve new markets has led to the creation
of the Consumer Risk Management segment of First
American. Already, this segment is contributing greatly
to First American and will provide strong margins and
WE’RE ADDING
low cyclicality of earnings.
S E RV I C E S T O
C R E AT E N E W
O P P O RT U N I T I E S .
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18

CONSUMER risk management
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Donald A. Robert
president
First American Consumer Risk Management Group
The vast majority of First American companies serve
customers within real estate-related industries. Our depth in
these areas has allowed us to become a single-source provider in
the real estate transaction process, resulting in the efficient and reports tailored to the specific needs of the automotive market.
profitable sale of our services to this ever-growing market. Accessing this group’s multibureau reports, applicant profile
In 1998, however, the company created a division to services and portfolio analysis tools allows those providing auto
provide services to a customer base outside First American’s loans to make better-informed lending decisions. First American
traditional clientele. This diversification strategy, initiated in Consumer Products also offers credit reports directly to the
1995, offers services not tied to the ebb and flow of real estate consumer, accessing information from the nation’s three largest
cycles. It is designed to expand our opportunities for revenue credit bureaus.
consistency and allows us to further accumulate valuable The Consumer Risk Management segment provides
consumer data. We chose consumer-directed services related to resident screening services through First American Registry. This
those already offered by other First American groups, which company was formed by merging the services of The Registry
allows us to leverage client relationships, as well as expertise, and First American Information Reporting. Our 1998
data and technology. acquisition of The Registry, the nation’s largest resident screening
Our new segment, Consumer Risk Management, markets a company, allows us to take the lead in meeting the specialized
variety of services including automotive credit reporting, direct- risk management needs of landlords. This group provides
to-consumer credit reporting, multifamily resident screening and information regarding a housing applicant’s rental payment
pre-employment screening. history, occupancy responsibilities, eviction actions, credit
Automotive and subprime automotive credit reporting information and similar background data.
services are offered through First American Consumer Products, This segment also offers pre-employment screening services
a group originally formed through First American CREDCO. This through CIC, Inc., another 1998 acquisition. CIC offers
operation provides auto dealers and lenders with consumer credit employers a variety of reports on prospective employees,
providing information on criminal records, warrants, motor
vehicle reports, credit reports, drug screens, education, prior
employment, professional licenses and more.
FA
The technology of the first successful high-speed electronic
19
digital computer paved the way for future possibilities.

TRUST and banking
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
T RU S T O P E R AT I O N S
Jerald P. Lewis,
First American Trust Company has specialized in trust
president and chief executive officer
First American Trust Company
administration for corporations, nonprofit organizations and
individuals for four decades. Last year, this respected company
increased the assets under its administration to a total of The trust company last year
$1.8 billion, an increase of 38 percent from the previous improved customer service by
year’s amount. assigning client contact teams to
Operating revenues rose to $13.5 million, an increase of each customer, which helps to
31 percent, and pretax profits amounted to $2.7 million, rising ensure rapid response to client needs.
145 percent from the 1997 result. In line with other First American operations, First American
First American Trust opened two offices in northern San Trust also made customer-service improvements related to
Diego County during 1998, in recognition of the opportunities information technology. One involved the use of integrated
afforded by rapid growth in the territory software technology to enable the immediate
between our downtown San Diego and identification of all aspects of a client’s account.
Fiduciary Assets at Market Value
($ in millions)
Orange County offices. First American This speeds responsiveness in ways that are
2,000
1,800
Trust also began providing wire services for highly visible to the trust company’s clientele.
1,600
1,400
First American Title Insurance Company, Another improvement that was put into place in
1,200
1,000
wiring funds to customers as fast as the early 1999 enables 401(k) participants to change
800
600
400
Federal Reserve, and at a lower cost. This investments and view account balances online.
200
0
service also has the effect of keeping funds First American Trust also began offering certain
94 95 96 97 98
under First American administration. customers the ability to access statements via a
fully secured Web site.
INVESTMENT SERVICES
excellent year. In 1998, it introduced online, interactive access
William C. Conrad,
president and chief executive officer
First American Capital Management, Inc. to both the company and its funds. By year’s end, this investment
group had approximately $1.4 billion in assets under management
First American Capital and advisement, and a variety of new services at work for the
Management, Inc., which is individuals, corporations, pension funds, municipalities and banks
registered with the Securities and that form its clientele. The group also manages First American’s
Exchange Commission, had an pension plan, 401(k) plan and corporate cash.
FA
20

The company made its first investment in a securities First Choice Equity Fund was brought to market by First
broker /dealer firm in 1998, purchasing an equity interest in American Capital Management in 1998, providing clients access
Pacific American Securities. This ownership interest gives to a large-cap equity fund. First American Capital Management
First American access to community banks, also continues to offer other First Choice
individual investors and 401(k) plans, Funds, providing a proprietary mix of cash
Actively Managed and
Advised Portfolios
and gives the nearly 20,000 employees of reserve and U.S. Treasury Reserve funds.
($ in millions)
Stocks Bonds Cash
First American Financial an opportunity to Rounding out the company’s services is
401K CD Accounts
1,500
1,400
open brokerage accounts with an affiliate of the brokerage of individual securities, cash
1,300
1,200
1,100
their own Company. First American Capital management products and short-term,
1,000
900
800
Management is currently developing an asset client-directed investments.
700
600
500
allocation trading program to be distributed 400
300
200
through Pacific American. 100
0
94 95 96 97 98
T H R I F T O P E R AT I O N S
James Bresnan,
First Security Thrift continued its decade-long series of
president and chief executive officer
First Security Thrift
yearly improvements in 1998, ending the year with $3.8 million
in pretax profits, a 36 percent gain.
Deposits of this very successful F.D.I.C.-insured Industrial To meet rising loan demand,
Bank rose 8 percent to total $67.4 million at year’s end. Loans the company established two new
receivable amounted to $72.0 million, an increase of 14 percent loan production offices last year, one
from the year-earlier total. each in Los Angeles and San Diego
First Security Thrift benefited from a counties. Investigation of potential
surge in commercial real estate activity in business opportunities in the San Francisco
Summary of Year-End Deposits
($ in millions)
1998. Low interest rates and a favorable Bay area has been spurred by First Security’s
70
60
economy spurred the expansion of purchase of some seasoned loan pools
50
commercial and industrial property, which is in that area.
40
30
the primary security for the company’s loans. Deposit activity continues to be steady
20
These high-grade loans have a much lower for First Security Thrift. The institution
10
0
delinquency rate than the industry’s average. enjoys a high degree of confidence and
89 90 91 92 93 94 95 96 97 98
94 95 96 97 98
stability from their local area depositor base.
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21

SELECTED financial data
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Year Ended December 31
1998 1997 1996 1995 1994
(in thousands, except percentages, per share amounts and employee data)
Revenues $2,877,328 $1,908,923 $1,614,293 $1,257,267 $1,381,971
Net income $ 198,710 $ 64,499 $ 54,492 $ 7,798 $ 19,698
Total assets $1,784,790 $1,153,635 $ 963,444 $ 855,156 $ 805,350
Notes and contracts payable $ 130,193 $ 42,119 $ 71,428 $ 77,430 $ 89,631
Mandatorily redeemable preferred securities $ 100,000 $ 100,000
Stockholders’ equity $ 731,915 $ 415,003 $ 356,379 $ 305,778 $ 293,056
Return on average stockholders’ equity 34.7% 16.7% 16.5% 2.8% 6.9%
Cash dividends on common shares $ 12,628 $ 8,931 $ 7,928 $ 6,850 $ 6,869
Per share of common stock (Notes A and B) —
Net income:
Basic $ 3.46 $ 1.18 $ 1.01 $ .16 $ .37
Diluted $ 3.32 $ 1.16 $ 1.00 $ .16 $ .37
Stockholders’ equity $ 12.13 $ 7.62 $ 6.56 $ 5.69 $ 5.46
Cash dividends $ .22 $ .16 $ .15 $ .13 $ .13
Number of common shares outstanding (Note A) —
Weighted average during the year:
Basic 57,450 54,448 53,899 53,677 53,875
Diluted 59,822 55,717 54,337 53,677 53,875
End of year 60,332 54,484 54,355 53,713 53,641
Title orders opened (Note C) 1,585 1,173 1,027 894 873
Title orders closed (Note C) 1,210 886 775 667 723
Number of employees 19,669 13,156 11,611 10,149 9,033
All consolidated results have been restated to reflect the 1998 acquisitions accounted for under the pooling-of-interests method of accounting.
Note A — After adjustment for 3-for-1 stock split effected July 17, 1998.
Note B — Per share information relating to net income is based on the weighted average number of shares outstanding for the years presented.
Per share information relating to stockholders’ equity is based on shares outstanding at the end of each year.
Note C — Title order volumes are those processed by the direct title operations of the Company and do not include orders processed by agents.
Stockholders’ Equity
Total Revenues Total Assets
($ in millions)
($ in millions) ($ in millions)
750
3,000 1,800
700
2,800
1,600 650
2,600
600
2,400 1,400
550
2,200
500
1,200
2,000
450
1,800
1,000 400
1,600
350
1,400 800
300
1,200
250
600
1,000
200
800
400 150
600
100
400 200
50
200
0
0
0
89 90 91 92 93 94 95 96 97 98
89 90 91 92 93 94 95 96 97 98
89 90 91 92 93 94 95 96 97 98
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26

COMMON STOCK prices and dividends
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
The Company’s common stock trades on the New York Stock Exchange (ticker symbol FAF). The approximate number of record holders of common stock on
February 25, 1999, was 3,345.
High and low stock prices and dividends for the last two years were (Note A):
1998 1997
Cash Cash
Quarter Ended High-Low Range Dividends High-Low Range Dividends
March 31 $22.88-$16.08 $.050 $ 9.92-$ 8.36 $.037
June 30 $30.75-$21.08 $.050 $ 8.86-$ 6.97 $.037
September 30 $41.25-$25.75 $.060 $13.40-$ 8.67 $.043
December 31 $36.06-$24.94 $.060 $16.42-$13.28 $.043
While the Company expects to continue its policy of paying regular quarterly cash dividends, future dividends will be dependent on future earnings, financial condition and capital requirements.
The payment of dividends is subject to the restrictions described in Note 2 to the consolidated financial statements.
QUARTERLY financial data
Quarter Ended
March 31 June 30 September 30 December 31
(in thousands, except per share amounts)
Year Ended December 31, 1998
Revenues $ 612,237 $ 709,776 $ 758,034 $797,281
Income before income taxes and minority interests $ 81,886 $ 84,017 $ 100,952 $ 94,567
Net income $ 44,733 $ 45,699 $ 55,260 $ 53,018
Net income per share (Note A):
Basic $ .82 $ .82 $ .94 $ .88
Diluted $ .79 $ .79 $ .89 $ .85
Year Ended December 31, 1997
Revenues $ 387,979 $ 456,176 $ 507,802 $556,966
Income before income taxes and minority interests $ 5,426 $ 31,918 $ 35,364 $ 36,967
Net income $ 3,214 $ 19,235 $ 21,372 $ 20,678
Net income per share (Note A):
Basic $ .06 $ .35 $ .39 $ .38
Diluted $ .06 $ .35 $ .38 $ .37
The Company’s primary business segments are cyclical in nature, with the spring and summer months historically being the strongest. However, interest rate adjustments by the Federal Reserve Board,
as well as other economic factors, can cause unusual fluctuations in the Company’s quarterly operating results. See Management’s Discussion and Analysis on pages 22–25 for further discussion of the
Company’s results of operations.
All consolidated results have been restated to reflect the 1998 acquisitions accounted for under the pooling-of-interests method of accounting.
Note A — After adjustment for 3-for-1 stock split effected July 17, 1998.
Stock Prices Highs Lows
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FA
97 97 97 97 98 98 98 98
27

C O N S O L I D AT E D b a l a n c e s h e e t s
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
December 31
Assets 1998 1997
Cash and Cash Equivalents $ 375,440,000 $ 182,234,000
Accounts and Accrued Income Receivable,
less allowances ($10,715,000 and $7,602,000) 191,122,000 130,863,000
Investments:
Deposits with savings and loan associations and banks 32,974,000 29,029,000
Debt securities 227,685,000 151,503,000
Equity securities 27,338,000 13,904,000
Other long-term investments 63,244,000 35,047,000
351,241,000 229,483,000
Loans Receivable 72,035,000 63,378,000
Property and Equipment, at cost:
Land 34,578,000 17,059,000
Buildings 110,133,000 84,935,000
Furniture and equipment 335,342,000 222,897,000
Less—accumulated depreciation (166,414,000) (123,462,000)
313,639,000 201,429,000
Title Plants and Other Indexes 216,711,000 100,626,000
Assets Acquired in Connection With Claim Settlements 17,051,000 21,119,000
Deferred Income Taxes 12,859,000 31,563,000
Goodwill and Other Intangibles, less accumulated
amortization ($19,017,000 and $13,093,000) 171,790,000 132,361,000
Other Assets 62,902,000 60,579,000
$ 1,784,790,000 $1,153,635,000
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28

December 31
Liabilities and Stockholders’ Equity 1998 1997
Demand Deposits $ 67,404,000 $ 62,475,000
Accounts Payable and Accrued Liabilities:
Accounts payable 21,249,000 12,550,000
Salaries and other personnel costs 88,314,000 55,973,000
Pension costs 50,100,000 39,431,000
Other 97,044,000 61,633,000
256,707,000 169,587,000
Deferred Revenue 105,496,000 84,424,000
Reserve for Known and Incurred But Not Reported Claims 270,436,000 250,826,000
Income Taxes Payable 22,734,000 3,987,000
Notes and Contracts Payable 130,193,000 42,119,000
Minority Interests in Consolidated Subsidiaries 99,905,000 25,214,000
Commitments and Contingencies (Note 13)
Mandatorily redeemable preferred securities of the Company’s
subsidiary trust whose sole assets are the Company’s $100,000,000
8.5% deferrable interest subordinated notes due 2012 (Note 14) 100,000,000 100,000,000
Stockholders’ Equity:
Preferred stock, $1 par value
Authorized—500,000 shares; Outstanding— None
Common stock, $1 par value (Note 15)
Authorized—108,000,000 shares
Outstanding—60,332,000 and 54,484,000 shares 60,332,000 54,484,000
Additional paid-in capital 129,664,000 6,864,000
Retained earnings 534,297,000 348,215,000
Accumulated other comprehensive income (Note 16) 7,622,000 5,440,000
Total Stockholders’ Equity 731,915,000 415,003,000
$ 1,784,790,000 $ 1,153,635,000
See notes to consolidated financial statements.
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C O N S O L I D AT E D s t a t e m e n t s o f i n c o m e
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Year Ended December 31
1998 1997 1996
Revenues
Operating revenues $ 2,802,190,000 $ 1,881,666,000 $ 1,587,895,000
Investment and other income 75,138,000 27,257,000 26,398,000
2,877,328,000 1,908,923,000 1,614,293,000
Expenses
Salaries and other personnel costs 914,058,000 659,325,000 539,985,000
Premiums retained by agents 773,030,000 563,137,000 516,593,000
Other operating expenses 611,332,000 421,056,000 329,525,000
Provision for title losses and other claims 118,763,000 90,323,000 86,487,000
Depreciation and amortization 59,804,000 38,489,000 27,503,000
Premium taxes 20,912,000 16,904,000 16,676,000
Interest 18,007,000 10,014,000 4,808,000
2,515,906,000 1,799,248,000 1,521,577,000
Income before income taxes and minority interests 361,422,000 109,675,000 92,716,000
Income taxes 127,700,000 41,500,000 35,600,000
Income before minority interests 233,722,000 68,175,000 57,116,000
Minority interests 35,012,000 3,676,000 2,624,000
Net income 198,710,000 64,499,000 54,492,000
Other comprehensive income (loss), net of tax (Note 16):
Unrealized gain (loss) on securities 3,388,000 2,703,000 (1,256,000)
Minimum pension liability adjustment (1,206,000)
2,182,000 2,703,000 (1,256,000)
Comprehensive income $ 200,892,000 $ 67,202,000 $ 53,236,000
Net income per common share (Note 1):
Basic $3.46 $1.18 $1.01
Diluted $3.32 $1.16 $1.00
Weighted average common shares outstanding (Note 1):
Basic 57,450,000 54,448,000 53,899,000
Diluted 59,822,000 55,717,000 54,337,000
See notes to consolidated financial statements.
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C O N S O L I D AT E D s t a t e m e n t s o f s t o c k h o l d e r s’ e q u i t y
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Accumulated
Additional other
Common paid-in Retained comprehensive
Shares Stock capital earnings income
Balance at December 31, 1995 53,713,000 $53,713,000 $ 1,989,000 $246,083,000 $3,993,000
Net income for 1996 54,492,000
Cash dividends on common shares (7,928,000)
Shares issued in connection with
company acquisitions 900,000 900,000 6,658,000
Shares issued in connection with
benefit and savings plans 225,000 225,000 1,045,000
Purchase of Company shares (483,000) (483,000) (3,052,000)
Other comprehensive income (1,256,000)
Balance at December 31, 1996 54,355,000 54,355,000 6,640,000 292,647,000 2,737,000
Net income for 1997 64,499,000
Cash dividends on common shares (8,931,000)
Shares issued in connection with
company acquisitions 48,000 48,000 500,000
Shares issued in connection with
benefit and savings plans 627,000 627,000 4,341,000
Purchase of Company shares (546,000) (546,000) (4,617,000)
Other comprehensive income 2,703,000
Balance at December 31, 1997 54,484,000 54,484,000 6,864,000 348,215,000 5,440,000
Net income for 1998 198,710,000
Cash dividends on common shares (12,628,000)
Shares issued in connection with
company acquisitions 4,458,000 4,458,000 100,854,000
Shares issued in connection with
benefit and savings plans 1,390,000 1,390,000 21,946,000
Other comprehensive income 2,182,000
Balance at December 31, 1998 60,332,000 $60,332,000 $129,664,000 $534,297,000 $7,622,000
See notes to consolidated financial statements.
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C O N S O L I D AT E D s t a t e m e n t s o f c a s h f l ow s
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Year Ended December 31
1998 1997 1996
Cash flows from operating activities:
Net income $198,710,000 $ 64,499,000 $ 54,492,000
Adjustments to reconcile net income to cash provided by operating activities —
Provision for title losses and other claims 118,763,000 90,323,000 86,487,000
Depreciation and amortization 59,804,000 38,489,000 27,503,000
Minority interests in net income 35,012,000 3,676,000 2,624,000
Investment gain (32,449,000)
Other, net 2,226,000 933,000 (366,000)
Changes in assets and liabilities excluding effects of
company acquisitions and noncash transactions —
Claims paid, including assets acquired, net of recoveries (95,440,000) (81,603,000) (78,048,000)
Net change in income tax accounts 34,730,000 11,974,000 381,000
Increase in accounts and accrued income receivable (41,966,000) (26,014,000) (11,887,000)
Increase in accounts payable and accrued liabilities 70,845,000 18,708,000 34,561,000
Increase (decrease) in deferred revenue 10,433,000 (9,000) (426,000)
Other, net 964,000 (8,571,000) (1,061,000)
Cash provided by operating activities 361,632,000 112,405,000 114,260,000
Cash flows from investing activities:
Net cash effect of company acquisitions 11,562,000 (49,336,000) (12,097,000)
Net increase in deposits with banks (3,771,000) (7,355,000) (3,037,000)
Purchases of debt and equity securities (134,348,000) (80,241,000) (68,498,000)
Proceeds from sales of debt and equity securities 27,512,000 39,240,000 46,506,000
Proceeds from maturities of debt securities 22,434,000 18,842,000 31,291,000
Net increase in other long-term investments (1,580,000) (1,117,000) (2,575,000)
Net increase in loans receivable (8,657,000) (9,122,000) (8,122,000)
Capital expenditures (155,642,000) (75,007,000) (49,076,000)
Net proceeds from sale of property and equipment 3,361,000 1,646,000 3,245,000
Cash used for investing activities (239,129,000) (162,450,000) (62,363,000)
Cash flows from financing activities:
Net increase in demand deposits 4,929,000 11,154,000 7,903,000
Repayment of debt (26,990,000) (40,965,000) (19,749,000)
Proceeds from issuance of senior debentures 99,456,000
Proceeds from the issuance of mandatorily redeemable preferred securities 100,000,000
Purchase of Company shares (5,163,000) (3,535,000)
Proceeds from exercise of stock options 2,554,000 1,653,000
Proceeds from issuance of stock to employee savings plan 18,144,000 980,000
Distributions to minority shareholders (14,762,000) (299,000) (1,121,000)
Cash dividends (12,628,000) (8,931,000) (7,928,000)
Cash provided by (used for) financing activities 70,703,000 58,429,000 (24,430,000)
Net increase in cash and cash equivalents 193,206,000 8,384,000 27,467,000
Cash and cash equivalents — Beginning of year 182,234,000 173,850,000 146,383,000
Cash and cash equivalents — End of year $375,440,000 $182,234,000 $173,850,000
Supplemental information
Cash paid during the year for:
Interest $ 16,309,000 $ 8,243,000 $ 5,056,000
Premium taxes $ 18,433,000 $ 18,103,000 $ 14,146,000
Income taxes $ 96,440,000 $ 31,292,000 $ 36,682,000
Noncash investing and financing activities:
Shares issued for benefits plans $ 2,638,000 $ 2,335,000 $ 1,270,000
Company acquisitions in exchange for common stock $105,312,000 $ 548,000 $ 7,558,000
Liabilities in connection with company acquisitions $118,718,000 $ 48,294,000 $ 32,180,000
See notes to consolidated financial statements.
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NOTES TO
C O N S O L I D AT E D f i n a n c i a l s t a t e m e n t s
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
Software development costs are capitalized from the time technological
NOTE 1.
feasibility is established until the software is ready for use. Capitalized
Description of the Company:
development costs for internal-use software include only incremental
The First American Financial Corporation (the Company), through its
payments to third parties.
subsidiaries, is engaged in the business of providing real estate-related
Depreciation on buildings and on furniture and equipment is computed
financial and information services to real property buyers and mortgage
using the straight-line method over estimated useful lives of 25 to 45 and 3
lenders. These services include title insurance, tax monitoring, mortgage
to 10 years, respectively. Capitalized software costs are amortized using
credit reporting, property data services, flood certification, field
the straight-line method over estimated useful lives of 3 to 10 years.
inspection services, appraisal services, mortgage loan servicing
Effective January 1, 1999, the Company will adopt Statement of
systems, mortgage document preparation and home warranties. In
Position (SOP) 98-1, “Accounting for the Costs of Computer Software
addition, credit and various database-related services are provided
Developed or Obtained for Internal Use.” SOP 98-1 will require the
to automotive dealers, consumer lenders, employers and property
Company to capitalize interest costs incurred and certain payroll-related
management companies. The Company also provides investment, trust
costs of employees directly associated with developing software, in
and thrift services.
addition to incremental payments to third parties. The Company does not
Significant Accounting Policies:
believe that the adoption of SOP 98-1 will have a material effect on its
Principles of consolidation
financial condition or results of operations.
The consolidated financial statements include the accounts of The First
Title plants and other indexes
American Financial Corporation and all majority-owned subsidiaries. All
Title plants and other indexes are carried at original cost. Appraised
significant intercompany transactions and balances have been
values are used in conjunction with the acquisition of purchased
eliminated. All consolidated results have been restated to reflect the
subsidiaries. The costs of daily maintenance (updating) of these plants
1998 acquisitions of three separate entities accounted for under the
and other indexes are charged to expense as incurred. Because
pooling-of-interests method of accounting. Certain 1996 and 1997
properly maintained title plants and other indexes have indefinite lives
amounts have been reclassified to conform with the 1998 presentation.
and do not diminish in value with the passage of time, no provision has
Cash equivalents
been made for depreciation.
The Company considers cash equivalents to be all short-term
Assets acquired in connection with claim settlements
investments which have an initial maturity of 90 days or less and are
In connection with settlement of title insurance and other claims, the
not restricted for statutory deposit or premium reserve requirements. The
Company sometimes purchases mortgages, deeds of trust, real property,
carrying amount for cash equivalents is a reasonable estimate of fair
or judgment liens. These assets, sometimes referred to as “salvage
value due to the short-term maturity of these investments.
assets,” are carried at the lower of cost or fair value less costs to sell.
Investments
Goodwill and other intangibles
Deposits with savings and loan associations and banks are
Goodwill recognized in business combinations is amortized over its
short-term investments with initial maturities of more than 90 days.
estimated useful life ranging from 20 to 40 years. Other intangibles,
The carrying amount of these investments is a reasonable estimate
which include customer lists, covenants not to compete and
of fair value due to their short-term nature.
organization costs, are amortized over their estimated useful lives,
Debt securities are carried at fair value and consist primarily of
ranging from 3 to 20 years. The Company periodically evaluates the
investments in obligations of the United States Treasury, various
amortization period assigned to each intangible asset to ensure that
corporations and certain state and political subdivisions.
there have not been any events or circumstances that warrant revised
Equity securities are carried at fair value and consist primarily of
estimates of useful lives.
investments in marketable common stocks of corporate entities in which
Impairment of goodwill, loans receivable and other long-lived assets
the Company’s ownership does not exceed 20%.
The Company periodically reviews the carrying value of goodwill,
Other long-term investments consist primarily of investments in
loans receivable and other long-lived assets for impairment when events
affiliates, which are accounted for under the equity method of
or circumstances warrant such a review.
accounting, and notes receivable, which are carried at the lower of
To the extent that the undiscounted cash flows related to the
cost or fair value less costs to sell.
businesses underlying the goodwill are less than the carrying value of
The Company classifies its debt and equity securities portfolio as
the related goodwill, such goodwill will be reduced to the amount of
available-for-sale and, accordingly, includes unrealized gains and losses,
the undiscounted cash flows.
net of related tax effects, as a component of other comprehensive
A loan is impaired when, based on current information and events, it
income. Realized gains and losses on investments are determined using
the specific identification method. is probable that the Company will be unable to collect all amounts due
Property and equipment according to the contractual terms of the loan agreement. Impaired loans
Furniture and equipment includes computer software acquired and receivable are measured at the present value of expected future cash
developed for internal use and for use with the Company’s products. flows discounted at the loan’s effective interest rate. As a practical
FA
33

expedient, the loan may be valued based on its observable market price Interest on loans with the Company’s thrift subsidiary is recognized
or the fair value of the collateral, if the loan is collateral dependent. on the outstanding principal balance on the accrual basis. Loan
To the extent that the undiscounted cash flows related to other long- origination fees and related direct loan origination costs are deferred
lived assets are less than the assets’ carrying value, the carrying value and recognized over the life of the loan.
Premium taxes
of such assets is reduced to the assets’ fair value.
Reserve for known and incurred but not reported claims Title insurance and home warranty companies, like other types of
insurers, are generally not subject to state income or franchise taxes.
The Company provides for title insurance losses based upon its
However, in lieu thereof, most states impose a tax based primarily on
historical experience by a charge to expense when the related premium
insurance premiums written. This premium tax is reported as a separate
revenue is recognized. Title insurance losses and other claims
line item in the consolidated statements of income in order to provide a
associated with ceded reinsurance are provided for as the Company
more meaningful disclosure of the taxation of the Company.
remains contingently liable in the event that the reinsurer does not satisfy
Income taxes
its obligations. The reserve for known and incurred but not reported
Taxes are based on income for financial reporting purposes and
claims reflects management’s best estimate of the total costs required to
include deferred taxes applicable to temporary differences between the
settle all claims reported to the Company and claims incurred but not
financial statement carrying amount and the tax basis of certain of the
reported. The process applied to estimate claims costs is subject to
Company’s assets and liabilities.
many variables, including changes and trends in the type of title
Earnings per share
insurance policies issued, the real estate market and the interest rate
In February 1997, the Financial Accounting Standards Board issued
environment. It is reasonably possible that a change in the estimate will
Statement of Financial Accounting Standards (SFAS) No. 128,
occur in the future.
“Earnings per Share.” SFAS No. 128 became effective for 1997 and
The Company provides for claim losses relating to its home warranty
requires the presentation of basic and diluted earnings per share on the
business based on the average cost per claim as applied to the total of
face of the income statement. Basic earnings per share are computed
new claims incurred. The average cost per claim is calculated using the
by dividing net income available to common stockholders by the
average of the most recent 12 months of claims experience.
weighted-average number of common shares outstanding. The
Operating revenues
computation of diluted earnings per share is similar to the computation
Title premiums on policies issued directly by the Company are
of basic earnings per share except that the weighted-average number of
recognized on the effective date of the title policy and escrow fees are
common shares outstanding is increased to include the number of
recorded upon close of the escrow. Revenues from title policies issued
additional common shares that would have been outstanding if potential
by independent agents are recorded when notice of issuance is
dilutive common shares had been issued.
received from the agent.
The Company’s only potential dilutive common shares are stock
The Company recognized revenues from tax service contracts over
options (see Note 12). Stock options are reflected in diluted earnings
the estimated duration of the contracts as the related servicing costs
per share by application of the treasury stock method. All earnings per
were estimated to occur. The majority of the servicing costs,
share amounts presented have been restated to reflect the adoption
approximately 70%, are incurred in the year the contract is executed,
of SFAS No. 128.
with the remaining 30% incurred over the remaining service life of the
Risk of real estate market
contract.
Real estate activity is cyclical in nature and is affected greatly by the
Effective January 1, 1999, the Company will implement a change
cost and availability of long-term mortgage funds. Real estate activity
to the accounting policy for tax service contracts. The new accounting
and, in turn, the Company’s revenues, can be adversely affected during
policy will be adopted prospectively and will apply to all new loans
periods of high interest rates and/or limited money supply.
serviced beginning January 1, 1999. The new policy provides for a
Use of estimates
more ratable recognition of revenues, reducing the amount recognized
The preparation of financial statements in accordance with generally
at the inception of the contract and recognizing it over the expected
accepted accounting principles requires management to make estimates
service period. The amortization rates applied to recognize the
and assumptions that affect the statements. Actual results could differ
revenues assume a 10-year contract life and are adjusted to reflect
from the estimates and assumptions used.
prepayments. The resulting rates by year (starting with year one) are
Fiduciary assets and liabilities
32%, 24%, 14%, 9%, 7%, 5%, 4%, 2%, 2% and 1%. The Company
Assets and liabilities of the trusts and escrows administered by the
periodically reviews its tax service contract portfolio to determine if
Company are not included in the consolidated balance sheets.
there have been changes in contract lives and/or changes in the
number and/or timing of prepayments; accordingly, the Company NOTE 2.
may adjust the rates to reflect current trends. The Company estimates Statutory Restrictions on Stockholders’ Equity and Investments:
that adoption of this new policy will result in a decrease in diluted Pursuant to insurance and other regulations of the various states in which
earnings per share for 1999 of $0.25 to $0.35. This estimate is the Company’s title insurance subsidiary, First American Title Insurance
heavily dependent on the volume of tax service contracts entered into Company (FATICO), operates, the amount of dividends, loans and
in 1999. Assuming the new accounting policy had been consistently advances available to the parent company from FATICO is limited,
applied in prior years, the Company would have reported diluted principally for the protection of policyholders. Under such statutory
earnings per share of $3.10, $1.02, $0.90, $0.17 and $0.42 for regulations, the maximum amount of dividends, loans and advances
the years ended December 31, 1998, 1997, 1996, 1995 and available to the parent company from FATICO in 1999 is $158.5 million.
1994, respectively. Investments carried at $17 million were on deposit with state
.3
Revenues from home warranty contracts are recognized ratably over treasurers in accordance with statutory requirements for the protection of
the 12-month duration of the contracts. policyholders at December 31, 1998.
FA
34

FATICO maintained statutory capital and surplus of $301.6 million NOTE 4.
and $210.3 million at December 31, 1998 and 1997, respectively. Loans Receivable:
Statutory net income for the years ended December 31, 1998, 1997 and Loans receivable are summarized as follows:
1996 was $137 million, $35.9 million and $34.6 million, respectively.
.3
December 31
1998 1997
(in thousands)
NOTE 3. Real estate—mortgage $74,093 $65,384
Debt and Equity Securities: Other 107 86
The amortized cost and estimated fair value of investments in debt 74,200 65,470
securities are as follows: Unearned income on lease contracts (15) (18)
Allowance for loan losses (1,150) (1,185)
Amortized Gross Unrealized Estimated
Participations sold (770) (481)
Cost Gains Losses Fair Value
(in thousands)
Deferred loan fees, net (230) (408)
December 31, 1998
$72,035 $63,378
U.S. Treasury securities $ 36,875 $1,158 $ (11) $ 38,022
Corporate securities 74,546 1,736 (25) 76,257
Obligations of states and Real estate loans are secured by properties located in California. The
political subdivisions 89,825 2,215 (48) 91,992
average yield on the Company’s loan portfolio was 10% and 11% for the
Mortgage-backed securities 21,405 77 (68) 21,414
years ended December 31, 1998 and 1997, respectively. Average
$222,651 $5,186 $(152) $227,685
yields are affected by amortization of discounts on loans purchased
December 31, 1997
from other institutions, prepayment penalties recorded as income, loan
U.S. Treasury securities $ 38,972 $ 792 $ (46) $ 39,718
fees amortized to income, and the market interest rates charged by thrift
Corporate securities 54,884 717 (22) 55,579
and loan institutions.
Obligations of states and
political subdivisions 38,977 1,092 – 40,069 The fair value of loans receivable was $72.2 million and $64.2
Mortgage-backed securities 16,186 36 (85) 16,137 million at December 31, 1998 and 1997, respectively, and was
$149,019 $2,637 $(153) $151,503
estimated based on the discounted value of the future cash flows using
the current rates being offered for loans with similar terms to borrowers
The amortized cost and estimated fair value of debt securities at of similar credit quality.
December 31, 1998, by contractual maturities, are as follows: The allowance for loan losses is maintained at a level that is
considered appropriate by management to provide for known and
Amortized Estimated
(in thousands) Cost Fair Value inherent risks in the portfolio.
Due in one year or less $ 19,284 $ 19,438
Due after one year through five years 85,886 88,498 NOTE 5.
Due after five years through ten years 68,892 70,655 Assets Acquired in Connection With Claim Settlements:
Due after ten years 27,184 27,680
201,246 206,271 December 31
(in thousands) 1998 1997
Mortgage-backed securities 21,405 21,414
Notes receivable $11,833 $12,177
$222,651 $227,685
Real estate 4,880 5,013
Judgments and other 338 3,929
The cost and estimated fair value of investments in equity securities $17,051 $21,119
are as follows:
The above amounts are net of valuation reserves of $12.3 million
Gross Unrealized Estimated
Cost Gains Losses Fair Value
(in thousands)
and $11.1 million at December 31, 1998 and 1997, respectively.
December 31, 1998
The fair value of notes receivable was $12.2 million and $12.5
Common stocks:
million at December 31, 1998 and 1997, respectively, and was
Corporate securities $18,576 $9,429 $(996) $27,009
estimated based on the discounted value of the future cash flows using
Other 214 115 – 329
the current rates at which similar loans would be made to borrowers of
$18,790 $9,544 $(996) $27,338
similar credit quality.
December 31, 1997
The activity in the valuation reserve is summarized as follows:
Common stocks:
Corporate securities $ 7,941 $5,856 $ (82) $13,715 December 31
1998 1997
(in thousands)
Other 78 111 – 189
Balance at beginning of year $11,135 $10,278
$ 8,019 $5,967 $ (82) $13,904
Provision for losses 3,951 4,678
Dispositions (2,830) (3,821)
Sales of debt and equity securities resulted in realized gains of Balance at end of year $12,256 $11,135
$1.3 million, $0.7 million and $3.3 million and realized losses
of $0.2 million, $0.3 million and $0.7 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The fair value of
debt and equity securities was estimated using quoted market prices.
FA
35

NOTE 6. In April 1998, the Company issued and sold $100.0 million of 7.55%
Demand Deposits: senior debentures, due April 2028. The 30-year bonds were issued at
Passbook and investment certificate accounts are summarized 99.456% of the principal amount.
as follows: In April 1997 the Company paid off the variable rate indebtedness
,
portion of the amended credit agreement with proceeds received from
December 31
its mandatorily redeemable preferred securities (see Note 14).
(in thousands) 1998 1997
Passbook accounts $12,502 $13,209 At December 31, 1998, the Company’s remaining borrowings
Certificate accounts:
under its amended bank credit agreement consisted of fixed rate
Less than one year 33,980 28,798
indebtedness of $2.0 million, maturing in April 1999 and bearing
One to five years 20,922 20,468
interest at 9.38% per annum.
54,902 49,266
During July 1997 the Company amended the credit agreement to
,
$67,404 $62,475
relax and/or eliminate certain restrictive covenants and increase the
Annualized interest rates:
revolving line of credit to $75.0 million which was unused as of
Passbook accounts 4%-5% 5%
December 31, 1998. In November 1997 the Company further
,
Certificate accounts 5%-8% 6%-8%
amended the credit agreement to issue a letter of credit to secure its
fixed rate obligation and release as security the capital stock of its
The carrying value of the passbook accounts approximates fair
wholly owned subsidiaries.
value due to the short-term nature of this liability. The fair value of
Pursuant to the terms of the credit agreement, the Company is
investment certificate accounts was $55.4 million and $49.4 million
required to maintain minimum levels of capital and earnings and meet
at December 31, 1998 and 1997, respectively, and was estimated
predetermined debt to capitalization ratios.
based on the discounted value of the future cash flows using a discount
The aggregate annual maturities for notes and contracts payable in
rate approximating current market for similar liabilities.
each of the five years after December 31, 1998, are as follows:
NOTE 7.
(in thousands)
Reserve for Known and Incurred But Not Reported Claims: 1999 $12,664
Activity in the reserve for known and incurred but not reported claims is 2000 $ 6,484
summarized as follows: 2001 $ 5,001
2002 $ 1,750
December 31
2003 $ 629
(in thousands) 1998 1997 1996
Balance at beginning of year $250,826 $245,245 $ 238,161
Provision related to:
The fair value of notes and contracts payable was $130.9 million and
Current year 114,812 85,645 81,539
$44.3 million at December 31, 1998 and 1997 respectively, and was
,
Prior years 3,951 4,678 4,948
estimated based on the current rates offered to the Company for debt of
118,763 90,323 86,487
the same remaining maturities. The weighted average interest rate for
Payments related to:
the Company’s notes and contracts payable was 7 1 2 % and 8% at
/
Current year 48,228 39,934 29,680
December 31, 1998 and 1997 respectively.
,
Prior years 44,133 39,745 43,967
92,361 79,679 73,647
NOTE 9.
Other (6,792) (5,063) (5,756)
Investment and Other Income:
Balance at end of year $270,436 $250,826 $ 245,245
The components of investment and other income are as follows:
“Other” primarily represents reclassifications to the reserve for 1998 1997 1996
(in thousands)
Interest:
assets acquired in connection with claim settlements. Claims activity
Cash equivalents and deposits
associated with reinsurance is not material and, therefore, not with savings and loan
associations and banks $10,293 $ 6,396 $ 4,742
presented separately.
Debt securities 13,395 10,307 7,887
NOTE 8. Other long-term investments 7,023 3,550 3,161
Notes and Contracts Payable: 30,711 20,253 15,790
Investment gain on Experian
December 31 joint venture 32,449 – –
1998 1997
(in thousands)
Dividends on equity securities 409 469 554
7.55% senior debentures, due April 2028 $ 99,468 –
Equity in earnings of
Secured notes payable pursuant to amended unconsolidated affiliates 4,614 2,304 1,043
credit agreement 2,040 $ 5,320
Net gain on sales of debt
Trust deed notes with maturities through and equity securities 1,074 358 2,611
2007, secured by land and buildings with a net
Other 5,881 3,873 6,400
book value of $4,931, average rate of 10¼% 3,952 7,359
$75,138 $27,257 $26,398
Other notes and contracts payable with
maturities through 2007, average rate of 6¾% 24,733 29,440
$130,193 $42,119
FA
36

NOTE 10. nonqualified unfunded supplemental benefit plans covering certain key
management personnel. Benefits under these plans are intended to be
Income Taxes:
funded with proceeds from life insurance policies purchased by the
Income taxes are summarized as follows:
Company on the lives of the executives.
1998 1997 1996
(in thousands)
Effective January 1, 1998 the Company adopted Statement of
Current:
Financial Accounting Standards No. 132, “Employers’ Disclosures
Federal $100,251 $ 27,234 $28,535
about Pensions and Other Postretirement Benefits. SFAS No. 132
”
State 12,411 3,925 6,038
revises employers’ disclosures about pension and other postretirement
112,662 31,159 34,573
Deferred: benefit plans but does not change the measurement or recognition of
Federal 13,759 9,747 232 those plans.
State 1,279 594 795
Net periodic pension cost for the Company’s pension and other
15,038 10,341 1,027
retirement benefit plans includes the following components:
$127,700 $ 41,500 $35,600
1998 1997 1996
(in thousands)
Expense:
Income taxes differ from the amounts computed by applying the federal Service cost $14,863 $10,550 $ 9,186
income tax rate of 35%. A reconciliation of this difference is as follows: Interest cost 13,067 11,178 9,764
Actual return on plan assets (9,196) (7,421) (10,477)
1998 1997 1996
(in thousands)
Amortization of net transition
Taxes calculated at federal rate $114,244 $37,173 $31,216
obligation 309 309 309
Tax exempt interest income (1,503) (651) (669)
Amortization of prior
Tax effect of minority interests 1,273 1,286 918 service cost 143 143 143
State taxes, net of federal benefit 8,898 3,706 4,442 Amortization of net loss 1,408 945 5,318
Exclusion of certain meals and $20,594 $15,704 $14,243
entertainment expenses 3,794 2,889 2,429
Other items, net 994 (2,903) (2,736)
The following table provides a reconciliation of benefit obligations,
$127,700 $41,500 $35,600
plan assets and funded status of the plans at:
The primary components of temporary differences which give rise to December 31
the Company’s net deferred tax asset are as follows: 1998 1997
(in thousands)
Unfunded Unfunded
Funded Supplemental Funded Supplemental
December 31
Pension Benefit Pension Benefit
(in thousands) 1998 1997
Plans Plans Plans Plans
Deferred tax assets: Change in benefit obligation:
Deferred revenue $21,987 $23,066 Benefit obligation at
beginning of year $141,689 $ 32,134 $111,678 $ 29,240
Employee benefits 14,407 11,021
Service costs 13,772 1,091 9,731 819
Claims and related salvage 3,102 6,943
Interest costs 10,586 2,481 8,939 2,239
Bad debt reserves 7,412 4,952
Actuarial losses 23,590 3,895 17,504 1,012
Acquisition reserve 520 3,970
Benefits paid (5,240) (1,425) (6,163) (1,176)
State taxes 2,262 346
Projected benefit obligation
Other 5,471 3,249 at end of year 184,397 38,176 141,689 32,134
55,161 53,547 Change in plan assets:
Deferred tax liabilities: Plan assets at fair value
at beginning of year 109,358 – 87,096 –
Depreciable and amortizable assets 21,179 15,116
Actual return on plan assets 26,857 – 20,475 –
Investment gain 11,357 –
Company contributions 10,258 – 7,949 –
Accumulated other comprehensive income 4,754 2,929
Benefits paid (5,240) – (6,163) –
Sale leaseback – 1,327
Plan assets at fair value
Other 5,012 2,612
at end of year 141,233 – 109,357 –
42,302 21,984 Reconciliation of funded status:
Net deferred tax asset $12,859 $31,563 Funded status of the plans (43,164) (38,176) (32,332) (32,134)
Unrecognized net actuarial loss 23,543 9,856 18,682 6,280
NOTE 11. Unrecognized prior
service cost (412) 1,426 (457) 1,614
Employee Benefit Plans:
Unrecognized net transition
The Company has pension and other retirement benefit plans covering (asset) obligation (204) 1,081 (255) 1,441
substantially all employees. The Company’s principal pension plan, Accrued pension cost (20,237) (25,813) (14,362) (22,799)
Amounts recognized in the
amended to be noncontributory effective January 1, 1995, is a
statement of financial
qualified defined benefit plan with benefits based on the employee’s position consist of:
years of service and the highest five consecutive years’ compensation Accrued benefit liability (20,237) (29,863) (14,362) (25,069)
Intangible asset – 2,194 – 2,270
during the last 10 years of employment. The Company’s policy is to
Minimum pension
fund all accrued pension costs. Contributions are intended to provide liability adjustment – 1,856 – –
not only for benefits attributable to past service, but also for those $ (20,237) $(25,813) $ (14,362) $(22,799)
benefits expected to be earned in the future. The Company also has
FA
37

1998 1997 1996
(in thousands, except per share amounts)
The rate of increase in future compensation levels for the plans of 4 1 2 % and
/
Net income:
the weighted average discount rates of 6 3 4 % and 7 1 4 % were used in
/ /
As reported $198,710 $64,499 $54,492
determining the actuarial present value of the projected benefit obligation at Pro forma $181,632 $63,699 $53,973
December 31,1998 and 1997 respectively. The majority of pension plan
, Earnings per share:
assets are invested in U.S. government securities, time deposits and common As reported
stocks with projected long-term rates of return of 9%. Basic $ 3.46 $ 1.18 $ 1.01
The Company’s principal profit sharing plan was amended Diluted $ 3.32 $ 1.16 $ 1.00
effective January 1, 1995, to discontinue future contributions. The plan Pro forma
holds 6,081,000 and 6,576,000 shares of the Company’s common Basic $ 3.16 $ 1.17 $ 1.00
stock, representing 10% and 12% of the total shares outstanding at Diluted $ 3.04 $ 1.14 $ .99
December 31, 1998 and 1997 respectively.
,
The Company also has a Stock Bonus Plan for key employees The fair value of each option grant is estimated at the grant
pursuant to which 186,000, 258,000 and 225,000 common shares date using the Black-Scholes option-pricing model with the following
were awarded for 1998, 1997 and 1996, respectively, resulting in weighted-average assumptions used for grants in 1998, 1997 and
a charge to operations of $2.7 million, $2.2 million and $1.3 million, 1996, respectively: dividend yield of 1.0%, 1.2% and 1.9%; expected
respectively. The Plan, as amended December 9, 1992, provides volatility of 36.0%, 38.1% and 41.0%; risk-free interest rate of 5.7%,
6.3% and 6.5%; and expected life of six years. The weighted-average
that a total of up to 1,350,000 common shares may be awarded in
fair value of options granted during 1998, 1997 and 1996 was $9.71,
any one year.
$4.26 and $2.19, respectively.
Effective January 1, 1995, the Company adopted The First
Transactions involving stock options are summarized as follows:
American Financial Corporation 401(k) Savings Plan (The Savings
Plan), which is available to substantially all employees. The Savings Weighted
Average
Plan allows for employee elective contributions up to the maximum Number Exercise
deductible amount as determined by the Internal Revenue Code. (in thousands, except weighted-average exercise price) Outstanding Price
Balance at December 31, 1995 – –
NOTE 12. Granted during 1996 3,015 $ 5.69
Forfeited during 1996 – –
Stock Option Plans:
Balance at December 31, 1996 3,015 $ 5.69
On April 24, 1996, the Company implemented The First American
Granted during 1997 207 $10.50
Financial Corporation 1996 Stock Option Plan (the Stock Option Plan).
Exercised during 1997 (291) $ 5.69
Under the Stock Option Plan, options are granted to certain employees
Forfeited during 1997 (132) $ 5.69
to purchase the Company’s common stock at a price no less than the
Balance at December 31, 1997 2,799 $ 6.05
market value of the shares on the date of the grant. The maximum
Granted during 1998 4,158 $23.64
number of shares that may be subject to options is 8,625,000. Currently
Exercised during 1998 (478) $ 5.90
outstanding options become exercisable one to five years, and expire Forfeited during 1998 (183) $14.20
10 years, from the grant date. On April 24, 1997 the Company
, Balance at December 31, 1998 6,296 $17.48
implemented The First American Financial Corporation 1997 Directors’
Stock Plan (the Directors’ Plan). The Directors’ Plan is similar to the
At December 31, 1998, the range of exercise prices was $5.69 -$32.00
employees’ Stock Option Plan, except that the maximum number of
and the weighted-average remaining contractual life of outstanding
shares that may be subject to options is 1,800,000 and the maximum
options was six years. The number of options exercisable was 593,046
number of shares that may be purchased pursuant to options granted
and the weighted-average exercise price of those options was $6.05.
shall not exceed 6,750 shares during any 12-consecutive-month period.
There were no options exercisable at December 31, 1996.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123, “Accounting for
NOTE 13.
Stock-Based Compensation.” In accounting for its plan, the Company,
Commitments and Contingencies:
in accordance with the provisions of SFAS No. 123, applies
The Company leases certain office facilities, automobiles and equipment
Accounting Principles Board Opinion No. 25, “Accounting for Stock
under operating leases, which for the most part are renewable. The
Issued to Employees.” As a result of this election, the Company does not
majority of these leases also provide that the Company will pay
recognize compensation expense for its stock option plans. Had the insurance and taxes. In 1998, the Company satisfied its obligation
Company determined compensation cost based on the fair value for its under the terms of a sale-lease back agreement with regard to certain
stock options at grant date, as set forth under SFAS No. 123, the furniture and equipment.
Company’s net income and earnings per share would have been Future minimum rental payments under operating leases that have
reduced to the pro forma amounts as follows: initial or remaining noncancelable lease terms in excess of one year as
of December 31, 1998, are as follows:
(in thousands)
1999 $ 75,628
2000 58,134
2001 42,501
2002 31,314
2003 24,828
Later years 47,706
FA
$280,111
38

Total rental expense for all operating leases and month-to-month rentals On January 15, 1998, the Company distributed a 3-for-2 common
was $107 million, $78.3 million and $63.9 million for 1998, 1997
.5 stock split in the form of a 50% stock dividend. This resulted in an
and 1996, respectively. increase of 5,791,492 common shares outstanding with the par value
The Company is involved in various routine legal proceedings of these additional shares being capitalized by a transfer from
related to its operations. While the ultimate disposition of each additional paid-in capital to the common stock account. All references
proceeding is not determinable, the Company does not believe that to common stock, additional paid-in capital, number of shares of
any of such proceedings will have a materially adverse effect on its common stock and per share amounts for this stock split were restated
financial condition or results of operations. in the Company’s consolidated financial statements for the year ended
December 31,1997 On July 17, 1998, the Company distributed a
.
NOTE 14. 3-for-1 common stock split in the form of a 200% stock dividend. This
Mandatorily Redeemable Preferred Securities: resulted in an increase of 37 ,895,936 common shares outstanding
On April 22, 1997 the Company issued and sold $100.0 million of
, with the par value of these additional shares being capitalized by a
8.5% trust preferred securities, due in 2012, through its wholly owned transfer from additional paid-in capital to the common stock account.
subsidiary, First American Capital Trust. In connection with the subsidiary’s This stock split has been reflected in the consolidated statements of
issuance of the preferred securities, the Company issued to the subisidary stockholders’ equity on a retroactive basis as of December 31, 1995.
trust 8.5% subordinated interest notes, due 2012. The sole assets of the In order to effect the stock split, the Company increased its authorized
subsidiary are and will be the subordinated interest notes. The Company’s shares from 36,000,000 to 108,000,000. All references in the
obligations under the subordinated interest notes and related agreements, consolidated financial statements with regards to common stock,
taken together, constitute a full and unconditional guarantee by the additional paid-in capital, number of shares of common stock and per
Company of the subsidiary’s obligations under the preferred securities. share amounts have been restated to reflect the July 17, 1998 stock split.
Distributions payable on the securities are included as interest expense in
NOTE 16.
the Company’s consolidated income statement.
Other Comprehensive Income:
NOTE 15. On January 1, 1998, the Company adopted Statement of Financial
Stockholders’ Equity: Accounting Standards No. 130, “Reporting Comprehensive Income.”
On October 23, 1997 the Company adopted a Shareholder Rights
, This statement requires the reporting of comprehensive income in
Plan. Under the Rights Plan, after the close of business on November addition to net income. Comprehensive income is a more inclusive
15, 1997, each holder of the Company’s common shares received a financial reporting methodology that includes disclosure of certain
dividend distribution of one Right for each common share held. Each financial information that historically has not been recognized in the
Right entitles the holder thereof to buy a preferred share fraction equal calculation of net income. Prior year financial statements have been
to 1/100,000 of a share of Series A Junior Participating Preferred reclassified to conform to the SFAS 130 requirements.
Shares of the Company at an exercise price of $265 per preferred Components of comprehensive income are as follows:
share fraction. Each fraction is designed to be equivalent in voting and
Minimum Accumulated
dividend rights to one common share. Unrealized Pension Other
Gains on Liability Comprehensive
The Rights will be exercisable and will trade separately from the (in thousands) Securities Adjustment Income
common shares only if a person or group, with certain exceptions, Balance at December 31, 1995 $3,993 – $ 3,993
acquires beneficial ownership of 15% or more of the Company’s Before tax change (1,932) – (1,932)
Tax benefit 676 – 676
common shares or commences a tender or exchange offer that would
Balance at December 31, 1996 2,737 – 2,737
result in such person or group beneficially owning 15% or more of the
Before tax change 4,158 – 4,158
common shares then outstanding. The Company may redeem the Rights
Tax expense (1,455) – (1,455)
at $0.001 per Right at any time prior to the occurrence of one of these
Balance at December 31, 1997 5,440 – 5,440
events. All Rights expire on October 23, 2007 .
Before tax change 5,213 $(1,856) 3,357
Each Right will entitle its holder to purchase, at the Right’s then-
Tax (expense) benefit (1,825) 650 (1,175)
current exercise price, preferred share fractions (or other securities of the Balance at December 31, 1998 $8,828 $(1,206) $ 7,622
Company) having a value of twice the Right’s exercise price. This
amounts to the right to buy preferred share fractions of the Company at
The change in unrealized gains (losses) on debt and equity securities
half price. Rights owned by the party triggering the exercise of Rights
includes reclassification adjustments of $1.1 million, $0.4 million and
will be void and therefore will not be exercisable.
$2.6 million of realized gains for the years ended December 31,
In addition, if after any person has become a 15%-or-more
1998, 1997 and 1996, respectively.
stockholder, the Company is involved in a merger or other business
combination transaction with another person in which the Company’s
common shares are changed or converted, or if the Company sells
50% or more of its assets or earning power to another person, each
Right will entitle its holder to purchase, at the Right’s then-current
exercise price, common stock of such other person (or its parent) having
a value of twice the Right’s exercise price.
FA
39

NOTE 17. for 100% of the outstanding stock of each acquired company. Two of the
companies are in the consumer risk management business and one is in
Business Combinations:
the real estate information business. The Company has restated prior year
On January 1, 1998, the Company formed a limited liability
results to reflect these three acquisitions. Costs incurred to consummate the
corporation (LLC) with Experian Group (Experian). The purpose of the
acquisitions were not material. Combined and separate results of First
LLC is to combine certain operations of the Company’s subsidiary, First
American and the three acquisitions during the periods preceding the
American Real Estate Information Services, Inc. (FAREISI), with Experian’s
acquisitions were as follows:
Real Estate Solutions division (RES). The LLC is 80% owned by the
Company and 20% owned by Experian. RES is a supplier of core
Nine Months Ended Year Ended Year Ended
real estate data, providing, among other things, property valuation (in thousands) September 30, 1998 December 31, 1997 December 31, 1996
information, title and tax information and imaged title documents. The Revenues:
Company treated the transaction as an acquisition of the assets and First American $2,062,633 $1,887,461 $1,597,566
liabilities of RES in consideration of a 20% interest in FAREISI. This Acquisitions 17,414 21,462 16,727
business combination has been accounted for under the purchase $2,080,047 $1,908,923 $1,614,293
Net income:
method of accounting and, accordingly, the purchase price was
First American $ 145,919 $ 64,709 $ 53,589
allocated to the assets acquired and liabilities assumed based on the
Acquisitions (227) (210 ) 903
estimated fair values at January 1, 1998. In addition, as a result of the
$ 145,692 $ 64,499 $ 54,492
transaction, the Company recognized an investment gain of $32.4
Net income (loss) per
million in the first quarter 1998. The operating results of the LLC are diluted share:
included in the Company’s consolidated financial statements First American $ 2.56 $ 1.21 $ 1.03
commencing January 1, 1998. Assuming the combination had occurred Acquisitions (0.09) (0.05 ) $ (0.03)
January 1, 1997 pro forma revenues, net income and net income per
, $ 2.47 $ 1.16 $ 1.00
diluted share would have been $2,001.6 million, $69.6 million and
$1.25, respectively, for the year ended December 31, 1997 Pro forma
.
In November 1998 the Company entered into a definitive merger
results for the year ended December 31, 1998 are not presented
agreement with National Information Group (NAIG). Under the terms
because the combination occurred January 1, 1998.
of the agreement, which the boards of directors of both companies
In addition, during the year ended December 31, 1998, the
unanimously approved, the NAIG shareholders will receive .67 of a
Company also acquired 27 companies. The purchase method of
share of the Company’s common stock for each NAIG common share
accounting was used for 24 of the acquisitions and the pooling of
they own. In the merger, the Company expects to issue approximately
interests method was used for three.
3.2 million shares of its common stock. This business combination will be
The 24 acquisitions accounted for under the purchase method of
accounted for under the pooling of interests method of accounting and
accounting were individually not material and all in the title insurance or
is expected to close by the end of the second quarter 1999. NAIG
real estate information services business. Their aggregate purchase price
provides insurance tracking services for mortgage and auto lenders
was $8.8 million in cash, $1.5 million in notes and 3,114,508 shares
and auto leasing companies. NAIG also provides outsourcing services,
of the Company’s stock. The purchase price for each was allocated to
lender-placed insurance products, flood zone determinations and real
the assets acquired and liabilities assumed based on estimated fair
estate tax services.
values and approximately $30.8 million in goodwill was recorded.
Goodwill is being amortized on a straight-line basis over its estimated
NOTE 18.
useful life ranging from 20 to 30 years. The operating results of these
Segment Financial Information:
acquired companies were included in the Company’s consolidated
In June 1997 the Financial Accounting Standards Board issued Statement
,
financial statements from their respective acquisition dates. Assuming
of Financial Accounting Standards (SFAS) No. 131, “Disclosures about
these acquisitions had occurred January 1, 1997 pro forma revenues,
,
Segments of an Enterprise and Related Information.” This statement is
net income and net income per diluted share would have been
effective for 1998 and requires certain information about a company’s
$2,908.9 million, $199.8 million and $3.27 respectively, for the year
,
operating segments and products and services.
ended December 31, 1998, and $2,045.7 million, $71.7 million
The Company’s operations include five reportable segments:
and $1.22, respectively, for the year ended December 31, 1997
title insurance, real estate information, home warranty, consumer risk
(the 1997 pro forma results include the business combination with
management, and trust and banking. The title insurance segment issues
Experian mentioned above). All pro forma results include amortization of
policies which are insured statements of the condition of title to real
goodwill and interest expense on acquisition debt. The pro forma results
property. The real estate information segment provides to lender customers
are not necessarily indicative of the operating results that would have
the status of tax payments on real property securing their loans, mortgage
been obtained had the acquisitions occurred at the beginning of the
credit information derived from at least two credit bureau sources, flood
periods presented, nor are they necessarily indicative of future
zone determination reports that provide information on whether or not a
operating results.
property is in a special flood hazard area, as well as other real estate-
The three acquisitions accounted for under the pooling of interests
related information services. The home warranty segment issues one-year
method of accounting were individually not material. In the aggregate,
warranties which protect homeowners against defects in home fixtures.
the Company issued 2,362,178 shares of its common stock in exchange
FA
40

The consumer risk management segment provides credit and various REPORT OF
database-related services primarily to automotive dealers, consumer
INDEPENDENT
lenders, employers and property management companies. The trust and
ACCOUNTANTS
banking segment provides full-service trust and depository services,
accepts deposits and makes real estate-secured loans.
The title insurance and real estate information segments operate
through networks of offices nationwide. The Company provides its title
services through both direct operations and agents throughout the
United States. It also offers title services abroad in Australia, the Bahama
To the Stockholders and Board of Directors of The First American
Islands, Canada, England, Guam, Ireland, Mexico, Puerto Rico,
Financial Corporation:
Scotland, South Korea, and the U.S. Virgin Islands. Home warranty
services are available in Arizona, California, Georgia, Nevada, North
Carolina, South Carolina, Texas, Utah and Washington. The consumer In our opinion, the accompanying consolidated balance
risk management segment serves customers nationwide. The trust, sheets and the related consolidated statements of income, of
banking and thrift businesses are located in Southern California; its stockholders’ equity and of cash flows present fairly, in all material
investment services are offered across the U.S. respects, the financial position of The First American Financial
Selected financial information about the Company’s operations by Corporation and its subsidiaries at December 31, 1998 and 1997,
segment for each of the past three years is as follows: and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity
Income (Loss)
with generally accepted accounting principles. These financial
Before Income Depreciation
Taxes and and Capital
statements are the responsibility of the Company’s management;
(in thousands) Revenues Minority Interests Assets Amortization Expenditures
1998 our responsibility is to express an opinion on these financial statements
Title Insurance $ 2,087,106 $227,906 $ 858,326 $ 29,375 $100,560
based on our audits. We conducted our audits of these statements in
Real Estate
accordance with generally accepted auditing standards which require
Information 601,413 103,057 597,629 26,710 53,374
that we plan and perform the audit to obtain reasonable assurance
Home Warranty 63,020 11,406 95,605 484 445
about whether the financial statements are free of material misstatement.
Consumer Risk 57,408 13,276 4,182 295 290
An audit includes examining, on a test basis, evidence supporting
Trust and Banking 24,751 7,156 98,113 652 973
the amounts and disclosures in the financial statements, assessing
Corporate 43,630 (1,379) 130,935 2,288 –
the accounting principles used and significant estimates made by
$ 2,877,328 $361,422 $ 1,784,790 $ 59,804 $155,642
management, and evaluating the overall financial statement presentation.
1997
We believe that our audits provide a reasonable basis for the opinion
Title Insurance $ 1,482,993 $ 79,602 $ 656,622 $ 23,501 $ 39,190
Real Estate expressed above.
Information 311,545 38,139 295,123 12,504 33,518
Home Warranty 51,005 8,871 81,444 424 768
Consumer Risk 41,069 6,968 3,034 205 605
Trust and Banking 20,007 4,062 83,423 604 676
Costa Mesa, California
Corporate 2,304 (27,967) 33,989 1,251 250
February 9, 1999
$ 1,908,923 $109,675 $ 1,153,635 $ 38,489 $ 75,007
1996
Title Insurance $ 1,288,947 $ 50,129 $ 584,800 $17,236 $ 30,082
Real Estate
Information 240,432 50,531 207,013 8,367 16,927
Home Warranty 41,927 7,429 67,622 296 277
Consumer Risk 24,105 2,953 2,164 175 424
Trust and Banking 17,839 3,728 72,473 438 1,366
Corporate 1,043 (22,054) 29,372 991 –
$ 1,614,293 $ 92,716 $ 963,444 $ 27,503 $ 49,076
Corporate consists primarily of unallocated interest expense, minority
interests, equity in earnings of affiliated companies and personnel
and other operating expenses associated with the Company’s home
office facilities.
FA
41

BOARD of directors
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
D.P. Kennedy Parker S. Kennedy George L. Argyros Gary J. Beban
J. David Chatham The Hon. William G. Davis Dr. James L. Doti Lewis W. Douglas, Jr.
Paul B. Fay, Jr. Dale F. Frey Anthony R. Moiso Frank E. O’Bryan
Roslyn B. Payne D. Van Skilling Virginia M. Ueberroth
FA
42

Officers
D.P. Kennedy, 80, Chairman of the Board
Named chairman of First American Financial in 1993. Served
as president from 1963 to 1993. Has been a director since 1956.
Joined First American Title in 1948 as associate counsel for the
firm’s predecessor, Orange County Title Company, and served as
Board of Directors
vice president and executive vice president. He became president
D.P. Kennedy, Chairman of the Board, The First American of First American Title in 1963, chairman in 1989 and vice
chairman in 1999. He is a graduate of Stanford University and
Financial Corporation and Vice Chairman, First American Title
the University of Southern California School of Law.
Insurance Company, Santa Ana, California. Director since 1956.
Parker S. Kennedy, 51, President
Parker S. Kennedy, President, The First American Financial
Named president of First American Financial in 1993 after serving
Corporation and Chairman of the Board, First American Title
as executive vice president since 1986. He has been a director
Insurance Company, Santa Ana, California. Director since 1987.
since 1987. Joined First American Title in 1977 and served as
George L. Argyros, Chairman and Chief Executive Officer, Arnel & county manager of a branch office and then as vice president-
Affiliates, diversified investment company, Costa Mesa, California. national sales director on corporate staff. He was appointed
Director since 1988. executive vice president of First American Title in 1983,
president in 1989 and chairman in 1999. He has served as a
Gary J. Beban, Senior Executive Managing Director, Global Corporate
director since 1981. He is a graduate of the University of
Advisory Group, CB Richard Ellis, Inc., Los Angeles, California.
Southern California and Hastings College of the Law.
Director since 1996.
Thomas A. Klemens, 48, Executive
J. David Chatham, President and Chief Executive Officer, Chatham
Vice President, Chief Financial Officer
Holdings Corporation, real estate development and associated industries,
Joined First American Title in 1985 as
Atlanta, Georgia. Director since 1989.
vice president/controller. Appointed
The Hon. William G. Davis, P.C., C.C., Q.C.; Counsel, Tory Tory principal accounting officer of First
DesLauriers & Binnington and retired Premier of Ontario, Toronto, American Financial and First American
Ontario, Canada. Director since 1992. Title in 1992 and vice president/chief
financial officer in 1993. Named
Dr. James L. Doti, President and Professor of Economics,
executive vice president of First American
Thomas A. Klemens
Chapman University, Orange, California. Director since 1993.
Financial in 1996. Previously served
Lewis W. Douglas, Jr., Oil Exploration, Denver, Colorado. several years in public accounting with Price Waterhouse and as
chief financial officer for various real estate-related companies.
Director since 1971 (earlier 1961–1967).
He is a certified public accountant and a graduate of California
Paul B. Fay, Jr., President, The Fay Improvement Company, Polytechnic State University at San Luis Obispo.
financial consulting and business ventures, San Francisco, California.
Craig I. DeRoy, 46, Executive
Director since 1967.
Vice President, General Counsel
Dale F. Frey, Retired Chief Executive Officer, GE Investments, Named vice president-general counsel, a
Stamford, Connecticut. Director since 1997. new position, for First American Financial
in 1993. He was promoted to executive
Anthony R. Moiso, President and Chief Executive Officer, Rancho
vice president of First American Financial
Mission Viejo, ranching and real estate development, San Juan
in 1996. He had 15 years of legal and
Capistrano, California. Director since 1990.
management experience before joining
Frank E. O’Bryan, Chairman of the Board, WMC Mortgage Corp., the company. Most recently, he had
Craig I. DeRoy
Irvine, California. Director since 1994. served as executive vice president and
chief operating officer of First Environmental Review Insurance
Roslyn B. Payne, President, Jackson Street Partners, Ltd., real estate
Company. He is a graduate of the University of Southern
venture capital and investments, San Francisco, California.
California and Loyola University School of Law. He also holds a
Director since 1988.
LL.M. in taxation from the University of San Diego School of Law.
D. Van Skilling, Chairman and Chief Executive Officer, Experian,
Mark R Arnesen, 46, Vice President,
Orange, California. Director since 1998.
Secretary, Corporate Counsel
Virginia M. Ueberroth, President, Ueberroth Family Foundation, Started with First American Title as
assistant counsel in 1979. Named
Laguna Beach, California. Director since 1988.
associate corporate counsel in 1982 and
vice president in 1989. Has been vice
president, secretary and corporate
counsel for First American Financial and
First American Title since 1992. He is a
Mark R Arnesen
graduate of the University of California,
San Diego, and Yale Law School.
FA
43

PRIMARY companies
T H E F I R S T A M E R I CA N F I NA N C I A L C O R P O R AT I O N A N D S U B S I D I A RY C O M PA N I E S
CORPORATE HEADQUARTERS First American Title Thomas M. Kelley First American Home Buyers
Insurance Company California Protection Corporation
The First American Financial
Corporation Gary L. Kermott
114 East Fifth Street 7833 Haskell Avenue
Arizona, Idaho, Montana
Santa Ana, California 92701 Van Nuys, California 91406
114 East Fifth Street
(714) 558-3211 (818) 781-5050
Santa Ana, California 92701 A.J. Lagomarsino
(714) 558-3211 California
Gary L. Kermott Philip B. Branson
http://www.firstam.com President Chairman
John T. McGrath
D.P. Kennedy Mid-Atlantic Region
Max O. Valdes Martin R. Wool
Chairman of the Board Chief Financial Officer President
J.W. McNamara, Jr.
Parker S. Kennedy Iowa, Nebraska
Timothy P. Sullivan
First American Trust Company
President General Counsel, Robert G. Meckfessel
421 North Main Street
National Claims Counsel
Thomas A. Klemens Kansas, Missouri
Santa Ana, California 92701
Chief Financial Officer William G. Ergas Ted Moore (800) 854-3643
Treasurer
Craig I. DeRoy Lenders Advantage
Jerald P. Lewis
General Counsel Bob Hauser Peter C. Norden President and Chief Executive Officer
Senior Vice President,
Mark R Arnesen Northeast Region
David O. Rahn
National Agency Operations
Secretary, Corporate Counsel Joseph J. Oddo Senior Vice President and
Albert Rush California Chief Operating Officer
Administrative Staff Senior Vice President,
James M. Orphanides
National Counsel
John A. Buehler First American Capital
New York
Administration, Employee Benefits Robert W. Duff Management, Inc.
Richard P. Pauletich
Senior Vice President,
Jo Etta Bandy 567 San Nicolas Drive, Suite 101
California
National Subdivision
Communications Newport Beach, California 92660
Ernest Phillips
Oscar H. Beasley
Paul W. Knutson (949) 719-4546
New Mexico
Senior Vice President,
Corporate Accounting William C. Conrad
Dennie L. Rowland
Senior Title Counsel
Kelly J. Caskey President and Chief Executive Officer
Hawaii
Clifford L. Morgan
Corporate Accounting Deborah A. Castellani
James Stipanovich
Senior Vice President,
Kathleen Collins Chief Operating Officer
Kentucky, Ohio, West Virginia
Underwriting Director
Corporate Counsel, Associate
Don R. Wangberg First Security Thrift
Patrick E. McLaughlin Regional Vice Presidents California Agencies 803 East Katella Avenue
Corporate Development
Robert L. Bailey Orange, California 92867
Tom Payne First American Equity Loan Services
Wyoming (714) 538-3481
Electronic Commerce The Halle Building
John R. Bethell James Bresnan
Kathy M. Snyder 1228 Euclid Avenue, Suite 400
Midwest Region President and Chief Executive Officer
Employee Communications Cleveland, Ohio 44115
Tom Blackwell
(216) 241-1278
Tom Rubadue Texas
Interactive Division, Director Michael B. Hopkins
Melville R. Bois
President
Eric Jacobs Minnesota, North Dakota,
Interactive Division South Dakota
First American Exchange
Lisa Bolelli Robert M. Bowen Corporation
Interactive Division Nevada
520 North Central Avenue
Harry Fisher Thomas J. Brusca Glendale, California 91203
Internal Audit Alaska, Oregon, Washington (818) 242-5800
Denise M. Warren John N. Casbon Troy X. Kelley
Investor Relations Southeast Region President
Thomas R. Wawersich Mike Conway
SMS
Mergers and Acquisitions Florida
1004 West Taft Avenue
John Hollenbeck James M. Costello
Orange, California 92865
National Title Processes Director Illinois
(714) 998-1111
Nancy M. Pettus Michael F. Frederick, Jr.
Carl Bauchle
Personnel Counsel North Atlantic Region
President
Gary Anderson Richard E. Garlick
Robert W. Carlile
Printing Colorado, Guam
Chief Executive Officer
Kenneth D. DeGiorgio Lane Gidney
Regulatory Counsel Oklahoma, Utah
Karen Ebbing Thomas H. Grifferty
Risk Management International Operations
Steve Oswald Michael B. Hopkins
Tax Manager Equity Loan Services
K. Gene Aalseth
Year 2000 Project Director
FA
44

First American Real Estate First American Excelis
Shareholder Information
Information Services, Inc. 8435 Stemmons Freeway
150 Second Avenue, North Dallas, Texas 75247
St. Petersburg, Florida 33701 (214) 879-5000
Stock Listing
(727) 895-4915 C. Clark Riffe
The First American Financial Corporation’s common stock is traded
John W. Long Chief Operating Officer
on the New York Stock Exchange.
President and Chief Executive Officer
First American Field Services
Joseph R. Reppert
1125 Ocean Avenue Common Stock Price
Vice Chairman
Lakewood, New Jersey 08701 New York Stock Exchange Symbol: FAF
John Lamson
(732) 363-3626
Chief Financial Officer
John B. Ward Fiscal 1998
Curt Caspersen
Division President
High Low
Executive Vice President–Sales
First Quarter $22.88 $16.08
Don A. Robert First American Flood Data Services
President–Loan Origination Services Second Quarter $30.75 $21.08
11902 Burnet Road, Suite 400
Third Quarter $41.25 $25.75
Barry Sando Austin, Texas 78758
President–Loan Administration Services (512) 834-9595 Fourth Quarter $36.06 $24.94
Dennis Gilmore William J. Sherakas
President–Database Products Division President
Investor Contact
and Services
Denise M. Warren
First American Loss Mitigation
CIC, Inc. Services Investor Relations Director
12505 Starkey Road, Suite K 8435 Stemmons Freeway dwarren@firstam.com
Largo, Florida 33773 Dallas, Texas 75247 (800) 854-3643, ext. 6414
(800) 321-4473 (800) 229-8426
Additional copies of this Annual Report and other information about
Bruce Berg Joseph Filoseta the Company are available from Communications at Corporate
President Division President
Headquarters, (800) 854-3643.
Contour Software, Inc. First American Nationwide
Transfer Agent, Registrar and Dividend Disbursing Agent
Documents
700 West Hamilton Avenue
First American Trust Company
Campbell, California 95008 4100 E. Mississippi Avenue, Suite 1000
(408) 370-1700 Denver, Colorado 80246 P.O. Box 267
(303) 639-1500 Santa Ana, California 92702
Scott Cooley
President Debra Collins (714) 647-2116
Division President Any change of a stockholder’s address should be sent to the Transfer
Data Tree Corporation
Agent and Registrar at the address above.
First American Real Estate Solutions
550 West C Street, Suite 2040
San Diego, California 92101 5601 East La Palma Avenue
Dividend Payment Dates
(619) 231-3300 Anaheim, California 92807
(714) 701-2100 Quarterly dividends on common stock are paid, following
Harish K. Chopra
President Dennis J. Gilmore declaration by the Board of Directors, on or about the 15th of January,
Division President April, July and October. The Company has paid a cash dividend every
First American Appraisal Services
George Livermore year since 1909.
12395 First American Way Senior Vice President
Poway, California 92064
Annual Meeting
(800) 281-6200 First American Real Estate
The Annual Meeting of Stockholders will be held at 2 p.m.
Tax Service
Chris Leavell
on Thursday, April 22, 1999, at First American Corporate
Division President 8435 Stemmons Freeway
Headquarters, 114 East Fifth Street, Santa Ana, California.
Dallas, Texas 75247
Joseph A. Cuffaro, Jr.
(214) 879-5000
Executive Vice President–
Safe Harbor Statement
Nontraditional Business David C. Yavorsky
Division President Safe Harbor Statement under the Private Securities Litigation
First American Consumer Products
Reform Act of 1995: Any statements in this document looking
First American Registry, Inc.
12395 First American Way
forward in time involve risks and uncertainties, including but not
Poway, California 92064 11140 Rockville Pike, Suite 1200
limited to the following risks: the effect of interest rate fluctuations;
(619) 938-7013 Rockville, Maryland 20852
changes in the performance of the real estate markets; the effect of
(800) 999-0350
Eric Rumsey
changing economic conditions; and the demand for and the acceptance
Senior Vice President, Manager Evan Barnett
of the company’s products; and contingencies associated with the Year
President
First American CREDCO 2000 Issue.
First American Tax Valuation
12395 First American Way
Poway, California 92064 8435 Stemmons Freeway First American and the eagle logo are registered service marks.
(800) 255-0792 Dallas, Texas 75247 Editor: Kathy Munson Snyder
(214) 879-5000
Anand Nallathambi Design: Ervin Advertising and Design
Division President S. Lewis Hill
Printer: Costello Brothers
Division President
Kathy Manzione
Executive Vice President and
Smart Title Solutions
Chief Operating Officer
Special thanks to: Berlin State Library, Music Department for Autograph,
5601 East La Palma Avenue
opening of the first movement, “Second Brandenburg Concerto, BWV 1047,”
Anaheim, California 92807
from Johann Sebastian Bach, Life•Times•Influence, edited by Barbara
(800) 426-1466
Schwendowius and Wolfgang Domling.
Mike Henney
Senior Vice President

The First American Financial Corporation
114 East Fifth Street
Santa Ana, CA 92701
(800) 854-3643
www.firstam.com
NYSE: FAF