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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

On ~~April 21,~~July 20, 2020 there were ~~111,421,080~~111,519,078 shares of common stock outstanding.

Items 3 through 5 of Part II have been omitted because they are not applicable with respect to the current reporting period.

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO HISTORICAL OR CURRENT FACTS AND MAY CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “INTEND,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,” “WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES OR FUTURE OR CONDITIONAL VERBS SUCH AS “WILL,” “MAY,” “MIGHT,” “SHOULD,” “WOULD,” OR “COULD.” THESE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS REGARDING FUTURE OPERATIONS, PERFORMANCE, FINANCIAL CONDITION, PROSPECTS, PLANS AND STRATEGIES. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT MAY PROVE TO BE INCORRECT.

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

	March 31, 2020			December 31, 2019			June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	1,049,985		$	1,485,959		$	1,523,344	$	1,485,959
Accounts and accrued income receivable, less allowances of $11,576 and $12,676		404,541			324,385
Accounts and accrued income receivable, less allowances of $12,172 and $12,676								354,674		324,385
Income taxes receivable		11,870			10,967			6,773		10,967
Investments:
Deposits with banks		39,425			44,422			39,311		44,422
Debt securities, includes pledged securities of $92,261 and $91,636 (amortized cost $5,711,924 and $5,796,755; allowance for credit losses of $7,493 at March 31, 2020)		5,839,530			5,913,636
Debt securities, includes pledged securities of $93,904 and $91,636 (amortized cost of $5,714,833 and $5,796,755; allowance for credit losses of $1,380 at June 30, 2020)								5,925,068		5,913,636
Equity securities		377,296			392,318			386,356		392,318
Other investments		292,726			239,067			301,448		239,067
		6,548,977			6,589,443			6,652,183		6,589,443
Secured financings receivable		480,160			287,459			579,596		287,459
Property and equipment, net		488,490			442,014			459,563		442,014
Operating lease assets		295,387			291,385			281,444		291,385
Title plants and other indexes		580,255			579,674			580,014		579,674
Deferred income taxes		18,283			18,283			18,283		18,283
Goodwill		1,381,495			1,150,908			1,388,586		1,150,908
Other intangible assets, net		183,961			91,833			203,329		91,833
Other assets		232,081			246,857			240,230		246,857
	$	11,675,485		$	11,519,167		$	12,288,019	$	11,519,167
Liabilities and Equity
Deposits	$	3,431,347		$	3,337,431		$	3,417,777	$	3,337,431
Accounts payable and accrued liabilities		664,023			820,356			781,477		820,356
Deferred revenue		237,500			252,331			250,421		252,331
Reserve for known and incurred but not reported claims		1,057,538			1,063,044			1,095,494		1,063,044
Income taxes payable		36,427			25,475			102,128		25,475
Deferred income taxes		266,108			266,108			266,108		266,108
Operating lease liabilities		324,804			322,776			309,782		322,776
Secured financings payable		441,657			278,412			478,598		278,412
Notes and contracts payable		847,159			728,232			1,010,623		728,232
		7,306,563			7,094,165			7,712,408		7,094,165
Commitments and contingencies (Note 15 and Note 18)
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.00001 par value; Authorized—500 shares; Outstanding—0ne		—			—
Common stock, $0.00001 par value; Authorized—300,000 shares; Outstanding—111,417 shares and 112,476 shares		1			1
Preferred stock, $0.00001 par value; Authorized—500 shares; Outstanding—NaN								—		—
Common stock, $0.00001 par value; Authorized—300,000 shares; Outstanding—111,519 shares and 112,476 shares								1		1
Additional paid-in capital		2,247,569			2,300,926			2,259,491		2,300,926
Retained earnings		2,173,720			2,161,049			2,294,552		2,161,049
Accumulated other comprehensive loss		(61,945	)		(41,492	)
Accumulated other comprehensive income (loss)								11,356		(41,492	)
Total stockholders’ equity		4,359,345			4,420,484			4,565,400		4,420,484
Noncontrolling interests		9,577			4,518			10,211		4,518
Total equity		4,368,922			4,425,002			4,575,611		4,425,002
	$	11,675,485		$	11,519,167		$	12,288,019	$	11,519,167

						Three Months Ended				Six Months Ended
	Three Months Ended March 31,					June 30,				June 30,
	2020			2019		2020		2019		2020		2019
Revenues
Direct premiums and escrow fees	$	620,637		$	514,202	$	651,984	$	668,018	$	1,272,621	$	1,182,220
Agent premiums		599,682			501,537		597,895		543,847		1,197,577		1,045,384
Information and other		211,512			172,892		231,169		200,669		442,681		373,561
Net investment income		45,874			82,268		58,420		77,711		104,294		159,979
Net realized investment (losses) gains		(64,762	)		32,682
Net realized investment gains							69,261		8,375		4,499		41,057
		1,412,943			1,303,581		1,608,729		1,498,620		3,021,672		2,802,201
Expenses
Personnel costs		429,660			411,612		451,487		447,027		881,147		858,639
Premiums retained by agents		475,381			396,607		472,398		429,086		947,779		825,693
Other operating expenses		257,240			196,447		250,088		222,348		507,328		418,795
Provision for policy losses and other claims		117,477			97,712		138,688		109,130		256,165		206,842
Depreciation and amortization		31,449			32,934		40,976		32,884		72,425		65,818
Premium taxes		17,315			14,663		16,354		16,740		33,669		31,403
Interest		12,097			11,936		13,443		11,908		25,540		23,844
		1,340,619			1,161,911		1,383,434		1,269,123		2,724,053		2,431,034
Income before income taxes		72,324			141,670		225,295		229,497		297,619		371,167
Income taxes		8,478			31,866		53,601		42,226		62,079		74,092
Net income		63,846			109,804		171,694		187,271		235,540		297,075
Less: Net income attributable to noncontrolling interests		642			229		1,039		616		1,681		845
Net income attributable to the Company	$	63,204		$	109,575	$	170,655	$	186,655	$	233,859	$	296,230
Net income per share attributable to the Company’s stockholders (Note 9):
Net income per share attributable to the Company's stockholders (Note 10):
Basic	$	0.56		$	0.97	$	1.52	$	1.65	$	2.07	$	2.62
Diluted	$	0.55		$	0.97	$	1.52	$	1.64	$	2.06	$	2.61
Cash dividends declared per share	$	0.44		$	0.42	$	0.44	$	0.42	$	0.88	$	0.84
Weighted-average common shares outstanding (Note 9):
Weighted-average common shares outstanding (Note 10):
Basic		113,556			112,703		112,309		113,050		112,939		112,881
Diluted		113,959			113,224		112,555		113,498		113,270		113,366

	Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019			2020		2019			2020			2019
Net income	$	63,846		$	109,804		$	171,694	$	187,271		$	235,540		$	297,075
Other comprehensive income (loss), net of tax:
Unrealized gains on debt securities		12,619			59,505			58,467		53,174			71,086			112,679
Unrealized gains on debt securities for which credit-related portion was recognized in earnings		85			—			62		—			147			—
Foreign currency translation adjustment		(33,556	)		6,888			14,373		3,444			(19,183	)		10,332
Pension benefit adjustment		399			(76	)		399		(75	)		798			(151	)
Total other comprehensive (loss) income, net of tax		(20,453	)		66,317
Total other comprehensive income, net of tax								73,301		56,543			52,848			122,860
Comprehensive income		43,393			176,121			244,995		243,814			288,388			419,935
Less: Comprehensive income attributable to noncontrolling interests		642			228			1,039		616			1,681			844
Comprehensive income attributable to the Company	$	42,751		$	175,893		$	243,956	$	243,198		$	286,707		$	419,091

	First American Financial Corporation Stockholders																						First American Financial Corporation Stockholders
	Shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests		Total			Shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders’ equity			Noncontrolling interests			Total
Balance at December 31, 2019		112,476		$	1	$	2,300,926		$	2,161,049		$	(41,492	)	$	4,420,484		$	4,518	$	4,425,002			112,476		$	1	$	2,300,926		$	2,161,049		$	(41,492	)	$	4,420,484		$	4,518		$	4,425,002
Net income for three months ended March 31, 2020		—			—		—			63,204			—			63,204			642		63,846			—			—		—			63,204			—			63,204			642			63,846
Dividends on common shares		—			—		—			(49,702	)		—			(49,702	)		—		(49,702	)		—			—		—			(49,702	)		—			(49,702	)		—			(49,702	)
Purchase of Company shares		(1,703	)		—		(65,785	)		—			—			(65,785	)		—		(65,785	)		(1,703	)		—		(65,785	)		—			—			(65,785	)		—			(65,785	)
Shares issued in connection with share-based compensation		644			—		(13,547	)		(831	)		—			(14,378	)		—		(14,378	)		644			—		(13,547	)		(831	)		—			(14,378	)		—			(14,378	)
Share-based compensation		—			—		25,903			—			—			25,903			—		25,903			—			—		25,903			—			—			25,903			—			25,903
Net activity related to noncontrolling interests		—			—		72			—			—			72			4,417		4,489			—			—		72			—			—			72			4,417			4,489
Other comprehensive loss		—			—		—			—			(20,453	)		(20,453	)		—		(20,453	)		—			—		—			—			(20,453	)		(20,453	)		—			(20,453	)
Balance at March 31, 2020		111,417		$	1	$	2,247,569		$	2,173,720		$	(61,945	)	$	4,359,345		$	9,577	$	4,368,922			111,417			1		2,247,569			2,173,720			(61,945	)		4,359,345			9,577			4,368,922
Net income for three months ended June 30, 2020																								—			—		—			170,655			—			170,655			1,039			171,694
Dividends on common shares																								—			—		—			(48,996	)		—			(48,996	)		—			(48,996	)
Purchase of Company shares																								(71	)		—		(3,079	)		—			—			(3,079	)		—			(3,079	)
Shares issued in connection with share-based compensation																								173			—		5,308			(827	)		—			4,481			—			4,481
Share-based compensation																								—			—		9,693			—			—			9,693			—			9,693
Net activity related to noncontrolling interests																								—			—		—			—			—			—			(405	)		(405	)
Other comprehensive income																								—			—		—			—			73,301			73,301			—			73,301
Balance at June 30, 2020																								111,519		$	1	$	2,259,491		$	2,294,552		$	11,356		$	4,565,400		$	10,211		$	4,575,611

	First American Financial Corporation Stockholders																							First American Financial Corporation Stockholders
	Shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests			Total			Shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests			Total
Balance at December 31, 2018		111,496		$	1	$	2,258,290		$	1,644,165		$	(160,575	)	$	3,741,881		$	3,507		$	3,745,388			111,496		$	1	$	2,258,290		$	1,644,165		$	(160,575	)	$	3,741,881		$	3,507		$	3,745,388
Cumulative-effect adjustment		—			—		—			1,283			—			1,283			—			1,283			—			—		—			1,283			—			1,283			—			1,283
Net income for three months ended March 31, 2019		—			—		—			109,575			—			109,575			229			109,804			—			—		—			109,575			—			109,575			229			109,804
Dividends on common shares		—			—		—			(47,021	)		—			(47,021	)		—			(47,021	)		—			—		—			(47,021	)		—			(47,021	)		—			(47,021	)
Purchase of Company shares		(47	)		—		(2,066	)		—			—			(2,066	)		—			(2,066	)		(47	)		—		(2,066	)		—			—			(2,066	)		—			(2,066	)
Shares issued in connection with share-based compensation		623			—		(10,618	)		(862	)		—			(11,480	)		—			(11,480	)		623			—		(10,618	)		(862	)		—			(11,480	)		—			(11,480	)
Share-based compensation		—			—		19,597			—			—			19,597			—			19,597			—			—		19,597			—			—			19,597			—			19,597
Net activity related to noncontrolling interests		—			—		(60	)		—			—			(60	)		(1,226	)		(1,286	)		—			—		(60	)		—			—			(60	)		(1,226	)		(1,286	)
Other comprehensive income (loss)		—			—		—			—			66,318			66,318			(1	)		66,317			—			—		—			—			66,318			66,318			(1	)		66,317
Balance at March 31, 2019		112,072		$	1	$	2,265,143		$	1,707,140		$	(94,257	)	$	3,878,027		$	2,509		$	3,880,536			112,072			1		2,265,143			1,707,140			(94,257	)		3,878,027			2,509			3,880,536
Net income for three months ended June 30, 2019																									—			—		—			186,655			—			186,655			616			187,271
Dividends on common shares																									—			—		—			(47,084	)		—			(47,084	)		—			(47,084	)
Shares issued in connection with share-based compensation																									145			—		3,836			(846	)		—			2,990			—			2,990
Share-based compensation																									—			—		7,758			—			—			7,758			—			7,758
Net activity related to noncontrolling interests																									—			—		—			—			—			—			20			20
Other comprehensive income																									—			—		—			—			56,543			56,543			—			56,543
Balance at June 30, 2019																									112,217		$	1	$	2,276,737		$	1,845,865		$	(37,714	)	$	4,084,889		$	3,145		$	4,088,034

	Three Months Ended March 31,						Six Months Ended June 30,
	2020			2019			2020			2019
Cash flows from operating activities:
Net income	$	63,846		$	109,804		$	235,540		$	297,075
Adjustments to reconcile net income to cash provided by operating activities:
Provision for policy losses and other claims		117,477			97,712			256,165			206,842
Depreciation and amortization		31,449			32,934			72,425			65,818
Amortization of premiums and accretion of discounts on debt securities, net		9,952			5,464			20,162			11,369
Net realized investment losses (gains)		64,762			(32,682	)
Net realized investment gains								(4,499	)		(41,057	)
Share-based compensation		25,903			19,597			35,596			27,355
Equity in earnings of equity method investments, net		228			180			(1,121	)		(162	)
Dividends from equity method investments		1,402			545			2,674			2,332
Changes in assets and liabilities excluding effects of acquisitions and noncash transactions:
Claims paid, including assets acquired, net of recoveries		(108,538	)		(99,992	)		(214,594	)		(199,895	)
Net change in income tax accounts		5,181			29,186			58,132			45,174
(Increase) decrease in accounts and accrued income receivable		(45,747	)		2,543
Increase in accounts and accrued income receivable								(29,006	)		(35,142	)
Decrease in accounts payable and accrued liabilities		(149,960	)		(118,318	)		(74,602	)		(71,196	)
Decrease in deferred revenue		(15,753	)		(13,447	)
(Decrease) increase in deferred revenue								(2,846	)		1,068
Other, net		23,952			945			13,924			(8,472	)
Cash provided by operating activities		24,154			34,471			367,950			301,109
Cash flows from investing activities:
Net cash effect of acquisitions/dispositions		(386,231	)		(225	)		(386,231	)		(4,725	)
Net decrease (increase) in deposits with banks		2,095			(8,824	)		3,769			(2,268	)
Purchases of debt and equity securities		(588,327	)		(727,001	)		(1,219,902	)		(1,147,192	)
Proceeds from sales of debt and equity securities		211,370			461,447			583,175			698,393
Proceeds from maturities of debt securities		320,523			136,670			702,670			342,790
Investments in unconsolidated entities		(44,795	)		(75,000	)		(49,840	)		(77,000	)
Net change in other investments		298			1,036			(3,022	)		1,424
Advances under secured financing agreements		(3,028,490	)		(985,478	)		(6,317,790	)		(2,775,216	)
Collections of secured financings receivable		2,835,789			934,149			6,025,653			2,650,317
Capital expenditures		(29,213	)		(27,386	)		(58,045	)		(53,951	)
Proceeds from sales of property and equipment		14,141			12			13,934			105
Proceeds from insurance settlement								123			—
Cash used for investing activities		(692,840	)		(290,600	)		(705,506	)		(367,323	)
Cash flows from financing activities:
Net change in deposits		93,916			135,720			80,346			3,376
Borrowings under secured financing agreements		2,998,687			985,878			6,235,457			2,764,605
Repayments of secured financings payable		(2,835,442	)		(934,544	)		(6,035,271	)		(2,650,804	)
Borrowings under unsecured credit agreement		120,000			—
Net proceeds from issuance of unsecured senior notes								443,753			—
Borrowings under unsecured credit facility								120,000			160,000
Repayments of borrowings under unsecured credit facility								(280,000	)		(160,000	)
Repayments of notes and contracts payable		(1,338	)		(1,411	)		(2,658	)		(2,905	)
Net activity related to noncontrolling interests		(1,328	)		(1,065	)		(1,732	)		(1,045	)
Net payments in connection with share-based compensation		(14,378	)		(11,480	)		(9,897	)		(8,490	)
Repurchases of Company shares		(65,785	)		(2,066	)		(68,864	)		(2,066	)
Payments of cash dividends		(49,702	)		(47,021	)		(98,698	)		(94,105	)
Cash provided by financing activities		244,630			124,011			382,436			8,566
Effect of exchange rate changes on cash		(11,918	)		2,041			(7,495	)		2,484
Net decrease in cash and cash equivalents		(435,974	)		(130,077	)
Net increase (decrease) in cash and cash equivalents								37,385			(55,164	)
Cash and cash equivalents—Beginning of period		1,485,959			1,467,129			1,485,959			1,467,129
Cash and cash equivalents—End of period	$	1,049,985		$	1,337,052		$	1,523,344		$	1,411,965
Supplemental information:
Cash paid during the period for:
Interest	$	9,462		$	10,353		$	20,371		$	22,936
Premium taxes	$	25,049		$	24,353		$	42,098		$	37,370
Income taxes, less refunds of $71 and $548	$	3,239		$	2,559
Income taxes, less refunds of $2,692 and $612							$	4,283		$	28,902

The condensed consolidated financial information included in this report has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Securities and Exchange Commission ~~(“SEC”)~~ Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the First American Financial Corporation (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2019. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the consolidated results for the interim periods. All material intercompany transactions and balances have been eliminated upon consolidation.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance ~~that is~~ intended to reduce potential diversity in practice in accounting for the costs of implementing cloud computing arrangements (i.e., hosting arrangements) that are service contracts. The updated guidance aligns the requirements for capitalizing implementation costs for these arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this guidance, effective January 1, 2020, did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued updated guidance as part of its disclosure framework project intended to improve the effectiveness of disclosures in the notes to the financial statements. The updated guidance eliminates, adds and modifies certain disclosure requirements related to fair value measurements. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this guidance, effective January 1, 2020, did not have a material impact on the Company’s condensed consolidated financial statements.

In January 2017, the FASB issued updated guidance intended to simplify how an entity tests goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the updated guidance, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized limited to the total amount of goodwill allocated to that reporting unit. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this guidance, effective January 1, 2020, did not have a material impact on the Company’s condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

In June 2016, the FASB issued updated guidance intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The updated guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this guidance, effective January 1, 2020 and applied prospectively, did not have a material impact, except for the disclosure requirements, on the Company’s condensed consolidated financial statements. See Note 3 Debt and Equity Securities and Note 4 Credit Losses – Financial Assets and Off-Balance Sheet Credit Exposures for further information on the Company’s credit losses.

~~FIRST AMERICAN FINANCIAL CORPORATION~~
~~AND SUBSIDIARY COMPANIES~~
~~Notes to Condensed Consolidated Financial Statements – (Continued)~~
~~(unaudited)~~

In December 2019, the FASB issued updated guidance intended to simplify and improve the accounting for income taxes. The updated guidance eliminates certain exceptions and clarifies and amends certain areas of the guidance. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled ~~$7.7~~$7.6 billion and $7.3 billion at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, of which ~~$3.3 billion and~~ $3.2 billion ~~respectively, were~~was held at First American Trust, FSB. The escrow deposits held at First American Trust, FSB are temporarily invested in cash and cash equivalents and debt securities, with offsetting liabilities included in deposits in the accompanying condensed consolidated balance sheets. The remaining escrow deposits were held at third-party financial institutions.

Trust assets held or managed by First American Trust, FSB totaled ~~$4.0 billion and~~ $4.2 billion at ~~March 31,~~June 30, 2020 and December 31, ~~2019, respectively.~~2019. Escrow deposits held at third-party financial institutions and trust assets are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the disposition of these assets.

In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate transactions and, as a result, the Company has ongoing programs for realizing economic benefits with various financial institutions. The results from these programs are included as income or a reduction in expense, as appropriate, in the condensed consolidated statements of income based on the nature of the arrangement and benefit received.

The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the property held by the Company is transferred to the customer. Like-kind exchange funds held by the Company totaled ~~$2.9~~$2.4 billion and $3.0 billion at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The like-kind exchange deposits are held at third-party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the returns on such proceeds.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

On January 1, 2020, the Company adopted updated accounting guidance ~~which changes~~that changed the impairment methodology for available-for-sale debt securities. Under the new guidance, when the fair value of an available-for-sale debt security falls below its amortized cost, entities must determine whether the decline in fair value is due to credit-related factors or noncredit-related factors. Declines in fair value that are credit-related are now recorded on the balance sheet through an allowance for credit losses with a corresponding adjustment to earnings and declines that are noncredit-related are recognized through other comprehensive income/loss.

Investments in debt securities, classified as available-for-sale, are as follows:

(in thousands)	(in thousands)	Amortized cost		Allowance for credit losses (1)			Gross unrealized					Estimated fair value			(in thousands)	Amortized cost		Allowance for credit losses (1)			Gross unrealized					Estimated fair value
(in thousands)	(in thousands)	Amortized cost		Allowance for credit losses (1)			Gains		Losses			Estimated fair value			(in thousands)	Amortized cost		Allowance for credit losses (1)			Gains		Losses			Estimated fair value
March 31, 2020														��
June 30, 2020															June 30, 2020
U.S. Treasury bonds	U.S. Treasury bonds	$	120,676	$	—		$	2,032	$	—		$	122,708		U.S. Treasury bonds	$	116,803	$	—		$	1,595	$	(26	)	$	118,372
Municipal bonds	Municipal bonds		1,008,935		—			41,978		(1,971	)		1,048,942		Municipal bonds		1,019,585		—			63,082		(453	)		1,082,214
Foreign government bonds	Foreign government bonds		154,968		(399	)		4,254		(525	)		158,298		Foreign government bonds		168,552		(158	)		6,675		(25	)		175,044
Governmental agency bonds	Governmental agency bonds		285,947		—			13,153		(5	)		299,095		Governmental agency bonds		249,014		—			12,416		—			261,430
Governmental agency mortgage-backed securities	Governmental agency mortgage-backed securities		3,264,553		—			91,671		(7,848	)		3,348,376		Governmental agency mortgage-backed securities		3,277,557		—			83,942		(1,603	)		3,359,896
U.S. corporate debt securities	U.S. corporate debt securities		547,250		(5,886	)		12,250		(14,333	)		539,281		U.S. corporate debt securities		564,266		(914	)		34,282		(2,810	)		594,824
Foreign corporate debt securities	Foreign corporate debt securities		329,595		(1,208	)		3,121		(8,678	)		322,830		Foreign corporate debt securities		319,056		(308	)		15,473		(933	)		333,288
		$	5,711,924	$	(7,493	)	$	168,459	$	(33,360	)	$	5,839,530			$	5,714,833	$	(1,380	)	$	217,465	$	(5,850	)	$	5,925,068
December 31, 2019	December 31, 2019														December 31, 2019
U.S. Treasury bonds	U.S. Treasury bonds	$	143,825	$	—		$	469	$	(353	)	$	143,941		U.S. Treasury bonds	$	143,825	$	—		$	469	$	(353	)	$	143,941
Municipal bonds	Municipal bonds		1,043,252		—			47,804		(217	)		1,090,839		Municipal bonds		1,043,252		—			47,804		(217	)		1,090,839
Foreign government bonds	Foreign government bonds		179,554		—			1,497		(961	)		180,090		Foreign government bonds		179,554		—			1,497		(961	)		180,090
Governmental agency bonds	Governmental agency bonds		316,318		—			5,820		(219	)		321,919		Governmental agency bonds		316,318		—			5,820		(219	)		321,919
Governmental agency mortgage-backed securities	Governmental agency mortgage-backed securities		3,241,966		—			43,599		(7,307	)		3,278,258		Governmental agency mortgage-backed securities		3,241,966		—			43,599		(7,307	)		3,278,258
U.S. corporate debt securities	U.S. corporate debt securities		535,878		—			18,466		(972	)		553,372		U.S. corporate debt securities		535,878		—			18,466		(972	)		553,372
Foreign corporate debt securities	Foreign corporate debt securities		335,962		—			9,468		(213	)		345,217		Foreign corporate debt securities		335,962		—			9,468		(213	)		345,217
		$	5,796,755	$	—		$	127,123	$	(10,242	)	$	5,913,636			$	5,796,755	$	—		$	127,123	$	(10,242	)	$	5,913,636

Sales of debt securities resulted in realized gains of ~~$6.2~~$3.2 million and ~~$3.1~~$9.3 million, realized losses of ~~$1.3~~$1.8 million and $3.0 million, and proceeds of ~~$209.4~~$285.1 million and ~~$391.4~~$494.6 million for the three and six months ended ~~March 31,~~June 30, 2020, respectively, and realized gains of $1.8 million and $4.9 million, realized losses of $1.7 million and $4.7 million, and proceeds of $231.3 million and $622.7 million for the three and six months ended June 30, 2019, respectively.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

Gross unrealized losses on investments in debt securities for which an allowance for credit losses has not been recorded, are as follows:

	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
March 31, 2020
June 30, 2020
U.S. Treasury bonds																$	1,260	$	(26	)	$	—	$	—		$	1,260	$	(26	)
Municipal bonds	$	64,810	$	(1,965	)	$	790	$	(6	)	$	65,600	$	(1,971	)		22,657		(429	)		701		(24	)		23,358		(453	)
Foreign government bonds		32,427		(525	)		—		—			32,427		(525	)		44,398		(25	)		—		—			44,398		(25	)
Governmental agency bonds		1,540		(5	)		—		—			1,540		(5	)
Governmental agency mortgage-backed securities		451,608		(3,315	)		478,847		(4,533	)		930,455		(7,848	)		302,964		(737	)		232,343		(866	)		535,307		(1,603	)
U.S. corporate debt securities		225,547		(13,868	)		2,869		(465	)		228,416		(14,333	)		80,958		(2,595	)		2,711		(215	)		83,669		(2,810	)
Foreign corporate debt securities		195,407		(8,629	)		698		(49	)		196,105		(8,678	)		34,889		(915	)		238		(18	)		35,127		(933	)
	$	971,339	$	(28,307	)	$	483,204	$	(5,053	)	$	1,454,543	$	(33,360	)	$	487,126	$	(4,727	)	$	235,993	$	(1,123	)	$	723,119	$	(5,850	)
December 31, 2019
U.S. Treasury bonds	$	12,507	$	(350	)	$	3,193	$	(3	)	$	15,700	$	(353	)	$	12,507	$	(350	)	$	3,193	$	(3	)	$	15,700	$	(353	)
Municipal bonds		29,333		(207	)		2,827		(10	)		32,160		(217	)		29,333		(207	)		2,827		(10	)		32,160		(217	)
Foreign government bonds		112,167		(934	)		11,001		(27	)		123,168		(961	)		112,167		(934	)		11,001		(27	)		123,168		(961	)
Governmental agency bonds		24,493		(142	)		14,923		(77	)		39,416		(219	)		24,493		(142	)		14,923		(77	)		39,416		(219	)
Governmental agency mortgage-backed securities		719,602		(2,785	)		637,009		(4,522	)		1,356,611		(7,307	)		719,602		(2,785	)		637,009		(4,522	)		1,356,611		(7,307	)
U.S. corporate debt securities		42,607		(451	)		10,216		(521	)		52,823		(972	)		42,607		(451	)		10,216		(521	)		52,823		(972	)
Foreign corporate debt securities		30,895		(108	)		12,373		(105	)		43,268		(213	)		30,895		(108	)		12,373		(105	)		43,268		(213	)
	$	971,604	$	(4,977	)	$	691,542	$	(5,265	)	$	1,663,146	$	(10,242	)	$	971,604	$	(4,977	)	$	691,542	$	(5,265	)	$	1,663,146	$	(10,242	)

Based on the Company’s review of its debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, it determined that the losses were due to non-credit ~~factors, such as the sharp increase in market volatility due to the recent disruption in global financial markets as a result of the coronavirus pandemic and responses to it.~~factors. As such, the Company does not consider these securities to be credit impaired at ~~March 31,~~June 30, 2020.

If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is impaired and it is written down to fair value with all losses recognized in earnings. As of ~~March 31,~~June 30, 2020, the Company did not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell any debt securities before recovery of their amortized cost basis.

For debt securities in an unrealized loss position for which the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security, the Company determines whether the loss is due to credit-related factors or noncredit-related factors. For debt securities in an unrealized loss position for which the losses are primarily due to credit-related factors, the Company’s policy is to recognize the entire loss in earnings. For debt securities in an unrealized loss position for which the losses are determined to be the result of both credit-related and noncredit-related factors, the credit loss is determined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted using the effective interest rate (i.e., purchase yield) and for variable rate securities the interest rate is fixed at the rate in effect at the credit loss measurement date.

Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security, including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project expected future cash flows may be different depending on the nature of the individual debt security.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

Activity in the allowance for credit losses on debt securities for the three and six months ended June 30, 2020 is summarized as follows:

(in thousands)		Three Months Ended March 31, 2020			Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
Balance at beginning of period	$	—		$	(7,493	)	$	—
Credit losses recognized during the period		(7,493	)		—			(7,493	)
Net decreases to credit losses previously recognized					3,460			3,460
Reductions for securities sold					2,653			2,653
Balance at end of period	$	(7,493	)	$	(1,380	)	$	(1,380	)

In determining credit losses on its debt securities in an unrealized loss position, the Company considers certain factors that may include, among others, severity of the unrealized loss, security type, industry sector, credit rating, profitability and stock performance.

The Company’s policy is to present accrued interest receivable on debt securities within accounts and accrued income receivable on the balance sheet. Accrued interest receivable on debt securities at ~~March 31,~~June 30, 2020 totaled ~~$27.2~~$27.4 million. The Company has elected to not measure an allowance for credit losses for accrued interest receivable on debt securities and maintains a policy that all receivables ninety days past due are written off as credit loss expense. Debt securities are placed on non-accrual status, and accrual of interest is discontinued, when management determines that collectibility of contractual amounts is not reasonably assured. Interest income is recognized on a cash basis for interest payments received on debt securities in non-accrual status.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

Investments in debt securities at ~~March 31,~~June 30, 2020, by contractual maturities, are as follows:

(in thousands)	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total		Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
U.S. Treasury bonds
Amortized cost	$	65,958	$	51,199	$	1,025	$	2,494	$	120,676	$	41,815	$	38,745	$	31,644	$	4,599	$	116,803
Estimated fair value	$	66,287	$	52,545	$	1,152	$	2,724	$	122,708	$	42,074	$	39,650	$	31,953	$	4,695	$	118,372
Municipal bonds
Amortized cost	$	62,536	$	130,688	$	332,696	$	483,015	$	1,008,935	$	59,526	$	124,491	$	332,658	$	502,910	$	1,019,585
Estimated fair value	$	62,788	$	132,402	$	347,166	$	506,586	$	1,048,942	$	59,907	$	128,446	$	356,731	$	537,130	$	1,082,214
Foreign government bonds
Amortized cost	$	22,647	$	61,278	$	57,108	$	13,935	$	154,968	$	52,209	$	45,589	$	56,838	$	13,916	$	168,552
Estimated fair value	$	22,652	$	62,676	$	59,523	$	13,447	$	158,298	$	52,228	$	47,349	$	60,692	$	14,775	$	175,044
Governmental agency bonds
Amortized cost	$	7,673	$	84,475	$	132,414	$	61,385	$	285,947	$	20,246	$	49,447	$	126,215	$	53,106	$	249,014
Estimated fair value	$	7,733	$	87,291	$	137,197	$	66,874	$	299,095	$	20,452	$	52,030	$	130,442	$	58,506	$	261,430
U.S. corporate debt securities
Amortized cost	$	23,210	$	303,513	$	173,846	$	46,681	$	547,250	$	18,974	$	312,493	$	164,216	$	68,583	$	564,266
Estimated fair value	$	23,192	$	301,707	$	167,908	$	46,474	$	539,281	$	19,027	$	329,303	$	172,749	$	73,745	$	594,824
Foreign corporate debt securities
Amortized cost	$	23,461	$	202,346	$	75,858	$	27,930	$	329,595	$	13,578	$	198,490	$	78,441	$	28,547	$	319,056
Estimated fair value	$	23,428	$	199,226	$	73,886	$	26,290	$	322,830	$	13,649	$	205,759	$	83,466	$	30,414	$	333,288
Total debt securities excluding mortgage-backed securities
Amortized cost	$	205,485	$	833,499	$	772,947	$	635,440	$	2,447,371	$	206,348	$	769,255	$	790,012	$	671,661	$	2,437,276
Estimated fair value	$	206,080	$	835,847	$	786,832	$	662,395	$	2,491,154	$	207,337	$	802,537	$	836,033	$	719,265	$	2,565,172
Total mortgage-backed securities
Amortized cost									$	3,264,553									$	3,277,557
Estimated fair value									$	3,348,376									$	3,359,896
Total debt securities
Amortized cost									$	5,711,924									$	5,714,833
Estimated fair value									$	5,839,530									$	5,925,068

Mortgage-backed securities, which include contractual terms to maturity, are not categorized by contractual maturity as borrowers may have the right to call or prepay obligations with, or without, call or prepayment penalties.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

(in thousands)	Cost		Estimated fair value		Cost		Estimated fair value
March 31, 2020
June 30, 2020
Preferred stocks	$	20,284	$	13,308	$	21,006	$	15,036
Common stocks		396,635		363,988		349,722		371,320
	$	416,919	$	377,296	$	370,728	$	386,356
December 31, 2019
Preferred stocks	$	21,849	$	18,094	$	21,849	$	18,094
Common stocks		328,110		374,224		328,110		374,224
	$	349,959	$	392,318	$	349,959	$	392,318

Net gains (realized and unrealized) of $59.1 million and net losses (realized and unrealized) of ~~$82.5 million and net gains (realized and unrealized) of $32.5~~$23.4 million were recognized for the three and six months ended ~~March 31,~~June 30, 2020, respectively, as a result of changes in the fair values of equity securities. Included in net gains during the three months ended June 30, 2020 were net unrealized gains of $58.7 million and included in net losses during the six months ended June 30, 2020 were net unrealized losses of $23.7 million, respectively, related to equity securities still held at June 30, 2020. Net gains (realized and unrealized) of $8.9 million and $41.4 million were recognized for the three and six months ended June 30, 2019, respectively, as a result of changes in the fair values of equity securities. Included in net ~~losses~~gains during the three and six months ended ~~March 31, 2020~~June 30, 2019, were net unrealized ~~losses~~gains of ~~$82.4~~$8.4 million and $37.4 million, respectively, related to equity securities still held at ~~March 31, 2020, and included in net gains during the three months ended March 31, 2019 were net unrealized gains of $29.0 million related to equity securities still held at March 31,~~June 30, 2019.

The composition of the investment portfolio at ~~March 31,~~June 30, 2020, by credit rating, is as follows:

	A- or higher				BBB+ to BBB-				Non-Investment Grade				Total				A- or higher				BBB+ to BBB-				Non-Investment Grade				Total
(in thousands, except percentages)	Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage
Debt securities:
U.S. Treasury bonds	$	122,708		100.0	$	—		—	$	—		—	$	122,708		100.0	$	118,372		100.0	$	—		—	$	—		—	$	118,372		100.0
Municipal bonds		1,003,827		95.7		43,777		4.2		1,338		0.1		1,048,942		100.0		1,047,717		96.8		33,780		3.1		717		0.1		1,082,214		100.0
Foreign government bonds		144,010		91.0		11,761		7.4		2,527		1.6		158,298		100.0		159,198		90.9		13,082		7.5		2,764		1.6		175,044		100.0
Governmental agency bonds		299,095		100.0		—		—		—		—		299,095		100.0		261,430		100.0		—		—		—		—		261,430		100.0
Governmental agency mortgage-backed securities		3,348,376		100.0		—		—		—		—		3,348,376		100.0		3,359,896		100.0		—		—		—		—		3,359,896		100.0
U.S. corporate debt securities		250,839		46.5		218,235		40.5		70,207		13.0		539,281		100.0		297,561		50.0		232,509		39.1		64,754		10.9		594,824		100.0
Foreign corporate debt securities		129,565		40.1		167,265		51.8		26,000		8.1		322,830		100.0		132,886		39.9		175,388		52.6		25,014		7.5		333,288		100.0
Total debt securities		5,298,420		90.7		441,038		7.6		100,072		1.7		5,839,530		100.0		5,377,060		90.7		454,759		7.7		93,249		1.6		5,925,068		100.0
Preferred stocks		28		0.2		12,589		94.6		691		5.2		13,308		100.0		38		0.3		14,114		93.8		884		5.9		15,036		100.0
Total	$	5,298,448		90.5	$	453,627		7.8	$	100,763		1.7	$	5,852,838		100.0	$	5,377,098		90.5	$	468,873		7.9	$	94,133		1.6	$	5,940,104		100.0

Included in debt securities at ~~March 31,~~June 30, 2020, were bank loans totaling ~~$67.7~~$65.3 million, of which ~~$61.4~~$60.2 million were non-investment grade; high yield corporate debt securities totaling ~~$30.6~~$26.9 million, all of which were non-investment grade; and emerging market debt securities totaling ~~$62.1~~$62.9 million, of which ~~$6.7~~$5.4 million were non-investment grade.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

The composition of the debt securities portfolio in an unrealized loss position at ~~March 31,~~June 30, 2020, by credit rating, is as follows:

	A- or higher				BBB+ to BBB-				Non-Investment Grade				Total				A- or higher				BBB+ to BBB-				Non-Investment Grade				Total
(in thousands, except percentages)	Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage
U.S. Treasury bonds																	$	1,260		100.0	$	—		—	$	—		—	$	1,260		100.0
Municipal bonds	$	46,321		70.6	$	19,279		29.4	$	—		—	$	65,600		100.0		16,828		72.0		6,530		28.0		—		—		23,358		100.0
Foreign government bonds		24,960		77.0		6,139		18.9		1,328		4.1		32,427		100.0		43,996		99.1		—		—		402		0.9		44,398		100.0
Governmental agency bonds		1,540		100.0		—		—		—		—		1,540		100.0
Governmental agency mortgage-backed securities		930,455		100.0		—		—		—		—		930,455		100.0		535,307		100.0		—		—		—		—		535,307		100.0
U.S. corporate debt securities		68,401		30.0		102,437		44.8		57,578		25.2		228,416		100.0		10,128		12.1		22,788		27.2		50,753		60.7		83,669		100.0
Foreign corporate debt securities		67,625		34.5		108,333		55.2		20,147		10.3		196,105		100.0		2,426		6.9		17,186		48.9		15,515		44.2		35,127		100.0
Total	$	1,139,302		78.4	$	236,188		16.2	$	79,063		5.4	$	1,454,543		100.0	$	609,945		84.3	$	46,504		6.5	$	66,670		9.2	$	723,119		100.0

Debt securities in an unrealized loss position at ~~March 31,~~June 30, 2020, included bank loans totaling ~~$60.9~~$59.8 million, of which $54.7 million were non-investment grade; high yield corporate debt securities totaling ~~$20.1~~$9.7 million, all of which were non-investment grade; and emerging market debt securities totaling ~~$35.9~~$4.7 million, of which ~~$4.3~~$2.3 million were non-investment grade.

The credit ratings in the above tables reflect published ratings obtained from globally recognized securities rating agencies. If a security was rated differently among the rating agencies, the lowest rating was selected. Governmental agency mortgage-backed securities are not rated by any of the ratings agencies; however, these securities have been included in the above table in the “A- or higher” rating category because the payments of principal and interest are guaranteed by the governmental agency that issued the security.

Note 4 – Credit Losses – Financial Assets and Off-Balance Sheet Credit Exposures

On January 1, 2020, the Company adopted updated accounting guidance which requires financial assets measured at amortized cost to be presented at the net amount expected to be collected with credit losses recorded through an allowance account that is deducted from the amortized cost of the financial asset. The updated guidance also requires the measurement of expected credit losses on off-balance sheet credit exposures.

The Company’s financial assets, which are measured at amortized cost, primarily include accounts receivable, accrued interest receivable and secured financings receivable. See Note 3 Debt and Equity Securities for discussion of accrued interest receivable on debt securities.

Accounts receivable are generally due within thirty days and are recorded net of an allowance for credit losses. The Company considers accounts outstanding longer than the contractual payment terms as past due. The Company determines the allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to the Company and the current condition, and future expectations, of the general economy and industry as a whole. Amounts are charged off in the period in which they are deemed to be uncollectible.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

Activity in the allowance for credit losses on accounts receivable for the three and six months ended June 30, 2020 is summarized as follows:

(in thousands)	Three Months Ended March 31, 2020			Three Months Ended June 30, 2020				Six Months Ended June 30, 2020 (1)
Balance at beginning of period ~~(1)~~	$	12,676		$	11,576		$	12,676
Provision for expected credit losses		1,003			2,018			3,021
Write-offs, net of recoveries		(2,103	)		(1,422	)		(3,525	)
Balance at end of period	$	11,576		$	12,172		$	12,172

The Company’s policy is to present accrued interest receivable on financial assets measured at amortized cost within accounts and accrued income receivable on the balance sheet. Accrued interest receivable at ~~March 31,~~June 30, 2020 totaled ~~$3.2~~$2.4 million. The Company has elected to not measure an allowance for credit losses for accrued interest receivable and maintains a policy that all receivables ninety days past due are written off as credit loss expense. Accounts are placed on non-accrual status, and accrual of interest is discontinued, when management determines that collectibility of contractual amounts is not reasonably assured. Payments of interest for accounts in non-accrual status are applied under the cost recovery method.

The Company’s secured financings receivable are collateralized by mortgage loans on residential real estate. Collections of the receivable balance occur upon sale of the underlying mortgage loan to investors in the secondary market, generally within 30 days and more typically in less than 10 days. No allowance ~~is recorded~~ for credit losses has been recorded due to, among other factors, the ~~short-term nature of these receivables,~~Company typically identifying investors in the underlying mortgage loans ~~being typically identified~~ prior to making advances, ~~being made by~~ the ~~Company,~~short-term nature of these receivables, the underlying mortgage loans are predominantly Qualified Mortgages (QM) and due to the receivable ~~has~~having no history of significant prior credit losses.

Escrow deposits held at third-party financial institutions are not considered assets or liabilities of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the disposition of these assets. The Company regularly reviews the financial strength of third-party financial institutions where escrow deposits are held and, based on this review and the fact that all amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation, does not expect any credit losses; therefore the Company has not recorded a liability for credit losses.

Like-kind exchange deposits held at third-party financial institutions are not considered assets or liabilities of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the returns on such proceeds. The Company regularly reviews the financial strength of third-party financial institutions where like-kind exchange deposits are held and, based on this review and the fact that all amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation, does not expect any credit losses; therefore the Company has not recorded a liability for credit losses.

See Note 2 Escrow Deposits, Like-Kind Exchange Deposits and Trust Assets for further information about the Company’s escrow deposits and like-kind exchange deposits.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

A summary of the changes in the carrying amount of goodwill, by reportable segment, for the ~~three~~six months ended ~~March 31,~~June 30, 2020, is as follows:

(in thousands)	Title Insurance and Services			Specialty Insurance		Total			Title Insurance and Services			Specialty Insurance		Total
Balance at December 31, 2019	$	1,104,143		$	46,765	$	1,150,908		$	1,104,143		$	46,765	$	1,150,908
Acquisitions		236,242			—		236,242			241,016			—		241,016
Dispositions		(358	)		—		(358	)		(358	)		—		(358	)
Foreign currency translation		(5,297	)		—		(5,297	)		(2,980	)		—		(2,980	)
Balance at March 31, 2020	$	1,334,730		$	46,765	$	1,381,495
Balance at June 30, 2020									$	1,341,821		$	46,765	$	1,388,586

The Company’s 4 reporting units for purposes of assessing goodwill for impairment are title insurance, home warranty, property and casualty insurance and trust and other services. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount. For discussion about the Company’s acquisitions in 2020, see Note 1617 Business Combinations.

(in thousands)	March 31, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Finite-lived intangible assets:
Customer relationships	$	150,700		$	99,905		$	178,150		$	99,905
Noncompete agreements		32,198			13,150			38,430			13,150
Trademarks		25,312			10,520			23,334			10,520
Internal-use software licenses		18,812			21,982			19,865			21,982
Patents		2,840			2,840			2,840			2,840
		229,862			148,397			262,619			148,397
Accumulated amortization		(62,786	)		(73,449	)		(76,175	)		(73,449	)
		167,076			74,948			186,444			74,948
Indefinite-lived intangible assets:
Licenses		16,885			16,885			16,885			16,885
	$	183,961		$	91,833		$	203,329		$	91,833

Amortization expense for finite-lived intangible assets was ~~$6.3~~$13.6 million and ~~$8.0~~$19.9 million for the three and six months ended ~~March 31,~~June 30, 2020, respectively, and $7.3 million and $15.3 million for the three and six months ended June 30, 2019, respectively. The current year increase in finite-lived intangible assets primarily reflects the impact of acquisitions during 2020. For further discussion about the Company’s acquisitions in 2020, see Note 1617 Business Combinations.

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

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

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

Activity in the reserve for known and incurred but not reported claims is summarized as follows:

	Three Months Ended March 31,						Six Months Ended June 30,
(in thousands)	2020			2019			2020			2019
Balance at beginning of period	$	1,063,044		$	1,042,679		$	1,063,044		$	1,042,679
Provision related to:
Current year		103,213			88,603			225,921			194,000
Prior years		14,264			9,109			30,244			12,842
		117,477			97,712			256,165			206,842
Payments, net of recoveries, related to:
Current year		32,685			30,446			87,928			85,811
Prior years		75,853			69,546			126,666			114,084
		108,538			99,992			214,594			199,895
Other		(14,445	)		(6,765	)		(9,121	)		(7,418	)
Balance at end of period	$	1,057,538		$	1,033,634		$	1,095,494		$	1,042,208

The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was 5.0% for the three and six months ended June 30, 2020 compared to 4.0% for the three and six months ended ~~March 31, 2020 and~~June 30, 2019, respectively. The current quarter rate of 5.0% reflects an ultimate loss rate of 4.5% for the current policy year and a net increase in the loss reserve estimates for prior policy years of ~~$5.5~~$5.6 million. The 4.0% rate for the ~~first~~second quarter of 2019 reflected the ultimate loss rate for the 2019 policy year and 0 change in the loss reserve estimates for prior policy years.

To date, the Company has not experienced an increase in title claims as a result of the coronavirus pandemic. ~~For~~Incurred title claims for the three and six months ended ~~March 31,~~June 30, 2020 ~~the Company’s incurred title claims~~ were ~~6.2%~~ lower ~~than~~by 26.1% and 16.5%, respectively, when compared with the same ~~period~~periods of the prior year, and significantly below the Company’s actuarial expectation. However, title claims generally increase when economic conditions deteriorate. Due to the recent deterioration in economic conditions in connection with the coronavirus pandemic and responses to it, the Company increased its calendar year loss rate from 4.0% in 2019 to 5.0%.

(in thousands, except percentages)	March 31, 2020				December 31, 2019				June 30, 2020				December 31, 2019
Known title claims	$	73,829	7.0	%	$	83,382	7.8	%	$	70,866	6.5	%	$	83,382	7.8	%
Incurred but not reported claims		915,192	86.5	%		903,994	85.1	%		943,512	86.1	%		903,994	85.1	%
Total title claims		989,021	93.5	%		987,376	92.9	%		1,014,378	92.6	%		987,376	92.9	%
Non-title claims		68,517	6.5	%		75,668	7.1	%		81,116	7.4	%		75,668	7.1	%
Total loss reserves	$	1,057,538	100.0	%	$	1,063,044	100.0	%	$	1,095,494	100.0	%	$	1,063,044	100.0	%

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

In May 2020, the Company issued $450.0 million of 4.00% 10 year senior unsecured notes due in 2030. Interest is due semi-annually on May 15 and November 15, beginning November 15, 2020. The Company used a portion of the net proceeds from the sale to repay all borrowings outstanding under its credit facility, increasing the unused capacity thereunder to the full $700.0 million size of the facility.

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were ~~11.7%~~23.8% and ~~22.5%~~20.9% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, and 18.4% and 20.0% for the three and six months ended June 30, 2019, respectively. The Company’s effective tax rates differ from the statutory federal rate of 21.0% due to state and foreign income taxes incurred, as well as permanent differences between amounts reported for financial statement purposes and amounts reported for income tax purposes, including the recognition of excess tax benefits or tax deficiencies associated with share-based payment transactions through income tax expense. In addition, the ~~rate~~rates for 2020 ~~reflects~~reflect a benefit related to foreign tax law ~~changes.~~

changes, and the rates for 2019 reflect the resolution of state tax matters from prior years.

~~FIRST AMERICAN FINANCIAL CORPORATION~~
~~AND SUBSIDIARY COMPANIES~~
~~Notes to Condensed Consolidated Financial Statements – (Continued)~~
~~(unaudited)~~

The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and makes adjustments to the allowance as necessary. The factors used by the Company to assess the likelihood of realization include its forecast of future taxable income and available tax planning strategies that could be implemented to realize its deferred tax assets. The Company’s ability or failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of its deferred tax assets. Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted during the next 12 months.

As of ~~March 31,~~June 30, 2020 and December 31, 2019, the liability for income taxes associated with uncertain tax positions was ~~$6.6~~$6.8 million and $1.5 million, respectively. The increase in the current ~~quarter~~year results primarily from positions taken on the Company’s tax returns for prior years. As of ~~March 31,~~June 30, 2020 and December 31, 2019, the liability could be reduced by ~~$1.8~~$1.9 million and $0.4 million, respectively, due to offsetting tax benefits associated with the correlative effects of potential adjustments, including timing adjustments and state income taxes. The net liability, if recognized, would favorably affect the Company’s effective income tax rate.

The Company’s continuing practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense. ~~As of March 31, 2020 and December 31, 2019, the Company had accrued~~Accrued interest and penalties, net of tax benefits, ~~of $28 thousand and $26 thousand, respectively,~~ related to uncertain tax ~~positions.~~positions were 0t material as of June 30, 2020 and December 31, 2019.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions may increase or decrease within the next 12 months. Any such change may be the result of ongoing audits or the expiration of federal and state statutes of limitations for the assessment of taxes.

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various non-U.S. jurisdictions. The primary non-federal jurisdictions are California, Canada, India and the United Kingdom. As of ~~March 31,~~June 30, 2020, the Company had concluded U.S. federal income tax examinations through 2015 and is generally no longer subject to state and non-U.S. income tax examinations for years prior to 2014.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019		2020		2019
Numerator
Net income attributable to the Company	$	63,204	$	109,575	$	170,655	$	186,655	$	233,859	$	296,230
Denominator
Basic weighted-average shares		113,556		112,703		112,309		113,050		112,939		112,881
Effect of dilutive employee stock options and restricted stock units (“RSUs”)		403		521		246		448		331		485
Diluted weighted-average shares		113,959		113,224		112,555		113,498		113,270		113,366
Net income per share attributable to the Company’s stockholders
Basic	$	0.56	$	0.97	$	1.52	$	1.65	$	2.07	$	2.62
Diluted	$	0.55	$	0.97	$	1.52	$	1.64	$	2.06	$	2.61

For the three and six months ended ~~March 31,~~June 30, 2020, ~~and 2019, 192~~410 thousand and ~~301~~299 thousand RSUs, respectively, were excluded from the weighted-average diluted ~~weighted-average~~ common shares outstanding due to their antidilutive effect. For the three and six months ended June 30, 2019, RSUs excluded from the weighted-average diluted common shares outstanding due to their antidilutive effect were not material. NaN stock options had a dilutive effect on weighted-average common shares outstanding during the three and six months ended ~~March 31,~~June 30, 2020, as all remaining stock options outstanding were exercised during the fourth quarter of 2019.

~~FIRST AMERICAN FINANCIAL CORPORATION~~
~~AND SUBSIDIARY COMPANIES~~
~~Notes to Condensed Consolidated Financial Statements – (Continued)~~
~~(unaudited)~~

Net periodic cost related to the Company’s unfunded supplemental benefit plans includes the following components:

	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020			2019			2020			2019			2020			2019
Expense:
Service costs	$	45		$	70		$	45		$	71		$	90		$	141
Interest costs		1,781			2,279			1,781			2,279			3,562			4,558
Amortization of net actuarial loss		1,320			915			1,320			915			2,640			1,830
Amortization of prior service credit		(777	)		(1,018	)		(777	)		(1,017	)		(1,554	)		(2,035	)
	$	2,369		$	2,246		$	2,369		$	2,248		$	4,738		$	4,494

The Company contributed ~~$3.5~~$7.2 million to its unfunded supplemental benefit plans during the ~~three~~six months ended ~~March 31,~~June 30, 2020, and expects to contribute an additional ~~$11.9~~$8.2 million during the remainder of 2020.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

Certain of the Company’s assets are carried at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company categorizes its assets and liabilities carried at fair value using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and the Company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. The hierarchy level assigned to the assets and liabilities is based on management’s assessment of the transparency and reliability of the inputs used to estimate the fair values at the measurement date. The three hierarchy levels are defined as follows:

Level 1—Valuations based on unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets or liabilities at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment.

If the inputs used to measure fair value fall into different levels of the fair value hierarchy, the hierarchy level assigned is based upon the lowest level of input that is significant to the fair value measurement.

The valuation techniques and inputs used by the Company to estimate the fair value of assets measured on a recurring basis are summarized as follows:

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

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

Typical inputs and assumptions to pricing models used to value the Company’s debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds.

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

The following tables present the fair values of the Company’s assets, measured on a recurring basis, as of ~~March 31,~~June 30, 2020 and December 31, 2019:

(in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
March 31, 2020
June 30, 2020
Debt securities:
U.S. Treasury bonds	$	122,708	$	—	$	122,708	$	—	$	118,372	$	—	$	118,372	$	—
Municipal bonds		1,048,942		—		1,048,942		—		1,082,214		—		1,082,214		—
Foreign government bonds		158,298		—		158,298		—		175,044		—		175,044		—
Governmental agency bonds		299,095		—		299,095		—		261,430		—		261,430		—
Governmental agency mortgage-backed securities		3,348,376		—		3,348,376		—		3,359,896		—		3,359,896		—
U.S. corporate debt securities		539,281		—		539,281		—		594,824		—		594,824		—
Foreign corporate debt securities		322,830		—		322,830		—		333,288		—		333,288		—
		5,839,530		—		5,839,530		—		5,925,068		—		5,925,068		—
Equity securities:
Preferred stocks		13,308		13,308		—		—		15,036		15,036		—		—
Common stocks		363,988		363,988		—		—		371,320		371,320		—		—
		377,296		377,296		—		—		386,356		386,356		—		—
Total assets	$	6,216,826	$	377,296	$	5,839,530	$	—	$	6,311,424	$	386,356	$	5,925,068	$	—

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

(in thousands)	Total		Level 1		Level 2		Level 3
December 31, 2019
Debt securities:
U.S. Treasury bonds	$	143,941	$	—	$	143,941	$	—
Municipal bonds		1,090,839		—		1,090,839		—
Foreign government bonds		180,090		—		180,090		—
Governmental agency bonds		321,919		—		321,919		—
Governmental agency mortgage-backed securities		3,278,258		—		3,278,258		—
U.S. corporate debt securities		553,372		—		553,372		—
Foreign corporate debt securities		345,217		—		345,217		—
		5,913,636		—		5,913,636		—
Equity securities:
Preferred stocks		18,094		18,094		—		—
Common stocks		374,224		374,224		—		—
		392,318		392,318		—		—
Total assets	$	6,305,954	$	392,318	$	5,913,636	$	—

There were 0 transfers between Levels 1, 2 and 3 during the three and six months ended ~~March 31,~~June 30, 2020 and 2019. Transfers into or out of the Level 3 category occur when unobservable inputs become more or less significant to the fair value measurement. The Company’s policy is to recognize transfers between levels in the fair value hierarchy at the end of the reporting period.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

In estimating the fair values of its financial instruments not measured at fair value, the Company used the following methods and assumptions:

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

The fair value of deposits with banks is estimated based on rates currently offered for deposits of similar remaining maturities, where applicable.

The fair value of notes receivable, net is estimated based on current market rates offered for notes with similar maturities and credit quality.

The carrying amount of secured financings receivable approximates fair value due to the short-term nature of these assets.

The carrying amount of secured financings payable approximates fair value due to the short-term nature of these liabilities.

The fair value of notes and contracts payable is estimated based on current rates offered for debt of similar remaining maturities.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value as of ~~March 31,~~June 30, 2020 and December 31, 2019:

	Carrying		Estimated fair value								Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
March 31, 2020
June 30, 2020
Assets:
Cash and cash equivalents	$	1,049,985	$	1,049,985	$	1,049,985	$	—	$	—	$	1,523,344	$	1,523,344	$	1,523,344	$	—	$	—
Deposits with banks	$	39,425	$	39,461	$	2,030	$	37,431	$	—	$	39,311	$	39,480	$	2,609	$	36,871	$	—
Notes receivable, net	$	18,694	$	17,212	$	—	$	—	$	17,212	$	22,125	$	21,081	$	—	$	—	$	21,081
Secured financings receivable	$	480,160	$	480,160	$	—	$	480,160	$	—	$	579,596	$	579,596	$	—	$	579,596	$	—
Liabilities:
Secured financings payable	$	441,657	$	441,657	$	—	$	441,657	$	—	$	478,598	$	478,598	$	—	$	478,598	$	—
Notes and contracts payable	$	847,159	$	900,755	$	—	$	896,153	$	4,602	$	1,010,623	$	1,100,750	$	—	$	1,095,746	$	5,004

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

The following table presents costs associated with the Company’s share-based compensation plans:

		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)		2020		2019		2020		2019		2020		2019
Expense:	Expense:
RSUs	RSUs	$	24,658	$	18,348	$	8,056	$	6,805	$	32,714	$	25,153
Employee stock purchase plan	Employee stock purchase plan		1,245		1,249		1,637		953		2,882		2,202
		$	25,903	$	19,597	$	9,693	$	7,758	$	35,596	$	27,355

The following table summarizes RSU activity for the ~~three~~six months ended ~~March 31,~~June 30, 2020:

(in thousands, except weighted-average grant-date fair value)		Shares			Weighted-average grant-date fair value		Shares			Weighted-average grant-date fair value
Unvested at December 31, 2019			1,152		$	49.25		1,152		$	49.25
Granted during 2020			717		$	64.68		740		$	64.26
Vested during 2020	��		(788	)	$	52.68		(817	)	$	52.49
Forfeited during 2020			(3	)	$	55.12		(13	)	$	55.90
Unvested at March 31, 2020			1,078		$	56.99
Unvested at June 30, 2020								1,062		$	57.14

The Company maintains a stock repurchase plan with authorization up to $250.0 million, of which ~~$95.8~~$92.7 million remained as of ~~March 31,~~June 30, 2020. Purchases may be made from time to time by the Company in the open market at prevailing market prices or in privately negotiated transactions. During the three and six months ended ~~March 31,~~June 30, 2020, the Company repurchased and retired ~~1.7~~71 thousand and 1.8 million shares of its common stock for a total purchase price of ~~$65.8~~$3.1 million and $68.9 million, respectively, and as of ~~March 31,~~June 30, 2020, had repurchased and retired ~~5.3~~5.4 million shares of its common stock under the current authorization for a total purchase price of ~~$154.2~~$157.3 million.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

The following table presents a summary of the changes in each component of AOCI for the ~~three~~six months ended ~~March 31,~~June 30, 2020:

	First American Financial Corporation												NCI					First American Financial Corporation												NCI
(in thousands)	Unrealized gains (losses) on debt securities			Foreign currency translation adjustment			Pension benefit adjustment			Accumulated other comprehensive income (loss)			Accumulated other comprehensive income (loss)		Balance			Unrealized gains (losses) on debt securities			Foreign currency translation adjustment			Pension benefit adjustment			Accumulated other comprehensive income (loss)			Accumulated other comprehensive income (loss)		Balance
Balance at December 31, 2019	$	83,117		$	(51,668	)	$	(72,941	)	$	(41,492	)	$	1	$	(41,491	)	$	83,117		$	(51,668	)	$	(72,941	)	$	(41,492	)	$	1	$	(41,491	)
Change in unrealized gains (losses) on debt securities		18,096			—			—			18,096			—		18,096			94,539			—			—			94,539			—		94,539
Change in unrealized gains (losses) on debt securities for which credit-related portion was recognized in earnings		122			—			—			122			—		122			195			—			—			195			—		195
Change in foreign currency translation adjustment		—			(34,688	)		—			(34,688	)		—		(34,688	)		—			(20,315	)		—			(20,315	)		—		(20,315	)
Amortization of net actuarial loss		—			—			1,320			1,320			—		1,320			—			—			2,640			2,640			—		2,640
Amortization of prior service credit		—			—			(777	)		(777	)		—		(777	)		—			—			(1,554	)		(1,554	)		—		(1,554	)
Tax effect		(5,514	)		1,132			(144	)		(4,526	)		—		(4,526	)		(23,501	)		1,132			(288	)		(22,657	)		—		(22,657	)
Balance at March 31, 2020	$	95,821		$	(85,224	)	$	(72,542	)	$	(61,945	)	$	1	$	(61,944	)
Balance at June 30, 2020																		$	154,350		$	(70,851	)	$	(72,143	)	$	11,356		$	1	$	11,357

The following table presents the other comprehensive income (loss) reclassification adjustments for the three months ended ~~March 31,~~June 30, 2020 and 2019:

(in thousands)	Unrealized gains (losses) on debt securities			Foreign currency translation adjustment			Pension benefit adjustment			Total other comprehensive income (loss)			Unrealized gains (losses) on debt securities			Foreign currency translation adjustment			Pension benefit adjustment			Total other comprehensive income (loss)
Three Months Ended March 31, 2020
Three Months Ended June 30, 2020
Pretax change before reclassifications	$	15,396		$	(34,688	)	$	—		$	(19,292	)	$	77,887		$	14,373		$	—		$	92,260
Reclassifications out of AOCI		2,822			—			543			3,365			(1,370	)		—			543			(827	)
Tax effect		(5,514	)		1,132			(144	)		(4,526	)		(17,988	)		—			(144	)		(18,132	)
Total other comprehensive income (loss), net of tax	$	12,704		$	(33,556	)	$	399		$	(20,453	)	$	58,529		$	14,373		$	399		$	73,301
Three Months Ended March 31, 2019
Three Months Ended June 30, 2019
Pretax change before reclassifications	$	77,765		$	7,166		$	—		$	84,931		$	69,582		$	3,594		$	—		$	73,176
Reclassifications out of AOCI		41			—			(103	)		(62	)		246			—			(102	)		144
Tax effect		(18,301	)		(278	)		27			(18,552	)		(16,654	)		(150	)		27			(16,777	)
Total other comprehensive income (loss), net of tax	$	59,505		$	6,888		$	(76	)	$	66,317		$	53,174		$	3,444		$	(75	)	$	56,543

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

The following table presents the other comprehensive income (loss) reclassification adjustments for the six months ended June 30, 2020 and 2019:

The following table presents the effects of the reclassifications out of AOCI on the respective line items in the condensed consolidated statements of income:

	Amounts reclassified from AOCI
	Three Months Ended June 30,						Six Months Ended June 30,						Affected line items
(in thousands)	2020			2019			2020			2019			Affected line items
Unrealized gains (losses) on debt securities:
Net realized gains (losses) on sales of debt securities	$	1,384		$	(246	)	$	6,055		$	(287	)	Net realized investment gains
Credit losses recognized on debt securities		(14	)		—			(7,507	)		—		Net realized investment gains
Pretax total	$	1,370		$	(246	)	$	(1,452	)	$	(287	)
Tax effect	$	(322	)	$	58		$	360		$	68
Pension benefit adjustment (1):
Amortization of net actuarial loss	$	(1,320	)	$	(915	)	$	(2,640	)	$	(1,830	)	Other operating expenses
Amortization of prior service credit		777			1,017			1,554			2,035		Other operating expenses
Pretax total	$	(543	)	$	102		$	(1,086	)	$	205
Tax effect	$	144		$	(27	)	$	288		$	(54	)

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

The Company and its subsidiaries are parties to a number of non-ordinary course lawsuits. These lawsuits frequently are similar in nature to other lawsuits pending against the Company’s competitors.

For those non-ordinary course lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded. Actual losses may materially differ from the amounts recorded.

It is, however, often not possible to assess the probability of loss. Lawsuits that are putative class actions require a plaintiff to satisfy a number of procedural requirements before proceeding to trial. These requirements include, among others, demonstration to a court that the law proscribes in some manner the Company’s activities, the making of factual allegations sufficient to suggest that the Company’s activities exceeded the limits of the law and a determination by the court—known as class certification—that the law permits a group of individuals to pursue the case together as a class. In certain instances, the Company may also be able to compel the plaintiff to arbitrate its claim on an individual basis. If these procedural requirements are not met, either the lawsuit cannot proceed or, as is the case with class certification or compelled arbitration, the plaintiffs lose the financial incentive to proceed with the case (or the amount at issue effectively becomes de minimis). Frequently, a court’s determination as to these procedural requirements is subject to appeal to a higher court. As a result of, among other factors, ambiguities and inconsistencies in the laws applicable to the Company’s business and the uniqueness of the factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss until a court has finally determined that a plaintiff has satisfied applicable procedural requirements.

Furthermore, for putative class actions, it is often impossible to estimate the possible loss or a range of loss amounts, even where the Company has determined that a loss is reasonably possible. Generally class actions involve a large number of people and the effort to determine which people satisfy the requirements to become plaintiffs—or class members—is often time consuming and burdensome. Moreover, these lawsuits raise complex factual issues which result in uncertainty as to their outcome and, ultimately, make it difficult for the Company to estimate the amount of damages which a plaintiff might successfully prove. In addition, many of the Company’s businesses are regulated by various federal, state, local and foreign governmental agencies and are subject to numerous statutory guidelines. These regulations and statutory guidelines often are complex, inconsistent or ambiguous, which results in additional uncertainty as to the outcome of a given lawsuit—including the amount of damages a plaintiff might be afforded—or makes it difficult to analogize experience in one case or jurisdiction to another case or jurisdiction.

Most of the non-ordinary course lawsuits to which the Company and its subsidiaries are parties challenge practices in the Company’s title insurance business, though a limited number of cases also pertain to the Company’s other businesses. These lawsuits include, among others, cases alleging, among other assertions, that the Company or one of its subsidiaries improperly charged fees for products and services, improperly handled property and casualty claims and gave items of value to builders as inducements to refer business in violation of certain laws, such as consumer protection laws and laws generally prohibiting unfair business practices, and certain obligations, including:

These lawsuits are putative class actions for which a class has not been certified. For the reasons described above, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of loss.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

The Company and/or its subsidiaries are also parties to ~~numerous~~ class action lawsuits as a result of the information security incident that occurred during the second quarter of 2019. All of these lawsuits are putative class actions for which a class has not been certified. For the reasons described above, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of loss.

While some of the lawsuits described above may be material to the Company’s operating results in any particular period if an unfavorable outcome results, the Company does not believe that any of these lawsuits will have a material adverse effect on the Company’s overall financial condition or liquidity.

The Company also is a party to non-ordinary course lawsuits other than those described above. With respect to these lawsuits, the Company has determined either that a loss is not reasonably possible or that the estimated loss or range of loss, if any, is not material to the condensed consolidated financial statements as a whole.

The Company’s title insurance, property and casualty insurance, home warranty, banking, thrift, trust and wealth management businesses are regulated by various federal, state and local governmental agencies. Many of the Company’s other businesses operate within statutory guidelines. Consequently, the Company may from time to time be subject to examination or investigation by such governmental agencies. Currently, governmental agencies are examining or investigating certain of the Company’s operations. These include ~~numerous regulatory inquiries and/or~~two recently active investigations ~~as a result of~~initiated in connection with the information security incident that occurred during the second quarter of 2019, ~~including inquiries and/or investigations of certain state insurance regulators, the Federal Trade Commission and~~one being conducted by the Securities and Exchange ~~Commission.~~Commission enforcement staff and the other by the New York Department of Financial Services. The Securities and Exchange Commission enforcement staff is questioning the adequacy of disclosures the Company made at the time of the incident and the adequacy of its disclosure controls. The New York Department of Financial Services has alleged violations of its cyber security requirements for financial services companies and has filed a statement of charges in connection therewith. These also include an inquiry by the New York Attorney General and the Massachusetts Attorney General into competitive practices in the title insurance industry. With respect to matters where the Company has determined that a loss is both probable and reasonably estimable, the Company records a liability representing its best estimate of the financial exposure based on known facts. While the ultimate disposition of each such exam or investigation is not yet determinable, the Company does not believe that individually or in the aggregate they will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. These exams or investigations could, however, result in changes to the Company’s business practices which could ultimately have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

The Company’s Canadian operations provide certain services to lenders which it believes to be exempt from excise tax under applicable Canadian tax laws. However, in October 2014, the Canadian taxing authority provided internal guidance that the services in question should be subject to the excise tax. During July 2019, the Company received an assessment from the Canadian taxing authority. The amount of the assessment is ~~$13.8~~$14.4 million, which is based on the exchange rate as of, and includes interest charges through, ~~March 31,~~June 30, 2020. As the Company does not believe that the services in question are subject to excise tax, it intends to avail itself of avenues of appeal, and it believes it is reasonably likely that the Company will prevail on the merits. Accordingly, the Company filed a notice of appeal with the Canadian taxing authority in March 2020. Based on the current facts and circumstances, the Company does not believe a loss is probable, therefore no liability has been recorded.

The Company and its subsidiaries also are involved in numerous ongoing routine legal and regulatory proceedings related to their operations. With respect to each of these proceedings, the Company has determined either that a loss is not reasonably possible or that the estimated loss or range of loss, if any, is not material to the condensed consolidated financial statements as a whole.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the Company completed acquisitions for an aggregate purchase price of $391.9 million, which were funded through cash on hand and additional borrowings of $120.0 million under the Company’s credit facility. For acquisitions in which the Company has not completed its purchase price allocation, preliminary fair value estimates for the assets acquired and liabilities assumed have been recorded. The Company allocates the purchase price of each acquisition to the assets acquired and liabilities assumed using a variety of valuation techniques, including discounted cash flow analysis. These acquisitions have been included in the Company’s title insurance and services segment.

Current ~~quarter~~year acquisitions included the purchase of a company that provides document, eClose and fulfillment technology for the mortgage industry on March 2, 2020 for a purchase price of $350.0 million. In connection with the purchase, the Company ~~has~~ recorded ~~preliminary estimates for~~ goodwill, property and equipment and other intangible assets of ~~$197.9~~$202.7 million, ~~$50.0~~$19.0 million and ~~$90.0~~$121.0 million, respectively.

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

The corporate function consists primarily of certain financing facilities as well as the corporate services that support the Company’s business operations.

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

Selected financial information about the Company’s operations, by segment, is as follows:

(in thousands)	Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures		Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	1,300,625		$	72,976		$	29,517	$	28,423	$	1,462,939		$	237,802		$	38,995	$	24,999
Specialty Insurance		121,969			12,857			1,894		2,801		133,518			7,319			1,943		3,100
Corporate		(9,311	)		(13,509	)		38		—		12,516			(19,826	)		38		—
Eliminations		(340	)		—			—		—		(244	)		—			—		—
	$	1,412,943		$	72,324		$	31,449	$	31,224	$	1,608,729		$	225,295		$	40,976	$	28,099

(in thousands)	Direct premiums and escrow fees		Agent premiums		Information and other		Net investment income		Net realized investment gains (losses)			Total Revenues		Direct premiums and escrow fees		Agent premiums		Information and other		Net investment income		Net realized investment gains (losses)		Total Revenues
Title Insurance and Services	$	501,301	$	599,682	$	208,273	$	59,668	$	(68,299	)	$	1,300,625	$	530,735	$	597,895	$	228,252	$	43,234	$	62,823	$	1,462,939
Specialty Insurance		119,336		—		3,439		2,584		(3,390	)		121,969		121,249		—		3,103		2,316		6,850		133,518
	$	620,637	$	599,682	$	211,712	$	62,252	$	(71,689	)	$	1,422,594	$	651,984	$	597,895	$	231,355	$	45,550	$	69,673	$	1,596,457

(in thousands)	Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures		Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	1,172,180		$	142,007		$	31,162	$	25,479	$	1,371,874		$	232,813		$	31,061	$	23,491
Specialty Insurance		122,182			17,785			1,734		2,497		122,968			15,740			1,785		2,675
Corporate		9,559			(18,122	)		38		—		4,127			(19,056	)		38		—
Eliminations		(340	)		—			—		—		(349	)		—			—		—
	$	1,303,581		$	141,670		$	32,934	$	27,976	$	1,498,620		$	229,497		$	32,884	$	26,166

(in thousands)	Direct premiums and escrow fees		Agent premiums		Information and other		Net investment income		Net realized investment gains (losses)		Total Revenues		Direct premiums and escrow fees		Agent premiums		Information and other		Net investment income		Net realized investment gains (losses)		Total Revenues
Title Insurance and Services	$	402,756	$	501,537	$	170,089	$	70,053	$	27,745	$	1,172,180	$	552,358	$	543,847	$	197,779	$	70,970	$	6,920	$	1,371,874
Specialty Insurance		111,446		—		3,067		2,732		4,937		122,182		115,660		—		3,153		2,700		1,455		122,968
	$	514,202	$	501,537	$	173,156	$	72,785	$	32,682	$	1,294,362	$	668,018	$	543,847	$	200,932	$	73,670	$	8,375	$	1,494,842

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)

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

This Management’s Discussion and Analysis contains the financial measure adjusted debt to capitalization ratio that is not presented in accordance with generally accepted accounting principles (“GAAP”), as it excludes the effect of secured financings payable. The Company is presenting this non-GAAP financial measure because it provides the Company’s management and readers of this Quarterly Report on Form 10-Q with additional insight into the financial leverage of the Company. The Company does not intend for this non-GAAP financial measure to be a substitute for any GAAP financial information. In this Quarterly Report on Form 10-Q, this non-GAAP financial measure has been presented with, and reconciled to, the most directly comparable GAAP financial measure. Readers of this Quarterly Report on Form 10-Q should use this non-GAAP financial measure only in conjunction with the comparable GAAP financial measure.

A summary of the Company’s significant accounting policies that it considers to be the most dependent on the application of estimates and assumptions can be found in the Management’s Discussion and Analysis section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Changes in 2020 to the Company’s significant accounting policies, which are dependent upon estimates and assumptions, include the adoption of new accounting guidance for the recognition of credit losses. For discussion of the new guidance and the related changes to the Company’s accounting policy, see Recently Adopted Accounting Pronouncements, Note 3 Debt and Equity Securities and Note 4 Credit Losses – Financial Assets and Off-Balance Sheet Credit Exposures to the condensed consolidated financial statements.

In June 2016, the FASB issued updated guidance intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The updated guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption of this guidance, effective January 1, 2020 and applied prospectively, did not have a material impact, except for the disclosure requirements, on the Company’s condensed consolidated financial statements. See Note 3 Debt and Equity Securities and Note 4 Credit Losses – Financial Assets and Off-Balance Sheet Credit Exposures to the condensed consolidated financial statements for further information on the Company’s credit losses.

A substantial portion of the revenues for the Company’s title insurance and services segment results from the sale and refinancing of residential and commercial real estate. In the Company’s specialty insurance segment, revenues associated with the initial year of coverage in both the home warranty and property and casualty operations are impacted by volatility in residential purchase transactions. Traditionally, the greatest volume of real estate activity, particularly residential purchase activity, has occurred in the spring and summer months. However, changes in interest rates, as well as other changes in general economic conditions in the United States and abroad, can cause fluctuations in the traditional pattern of real estate activity.

The Company’s total revenues increased ~~$109.4~~$110.1 million, or ~~8.4%~~7.3%, in the ~~first~~second quarter of 2020 when compared with the ~~first~~second quarter of 2019. This increase was primarily attributable to ~~increases in direct premiums and escrow fees of $106.4 million, or 20.7%, and agent premiums of $98.1 million, or 19.6%, partially offset by a decrease~~an increase in net realized investment gains of $60.9 million and ~~losses~~an increase in agent premiums of ~~$97.4 million.~~$54.0 million, or 9.9%. Direct premiums and escrow fees in the title insurance and services segment decreased $21.6 million, or 3.9%. Direct premiums and escrow fees from domestic residential purchase and commercial transactions decreased $50.0 million, or 18.8%, and $70.8 million, or 39.3%, while direct premiums and escrow fees from domestic residential refinance ~~purchase and commercial~~ transactions increased ~~$63.5 million, $21.3 million and $11.2~~$108.2 million, or ~~153.8%~~175.6%, ~~11.9% and 7.5%, respectively.~~in the second quarter of 2020 when compared to the second quarter of 2019.

According to the Mortgage Bankers Association’s ~~April 2,~~July 15, 2020 Mortgage Finance Forecast (the “MBA Forecast”), residential mortgage originations in the United States (based on the total dollar value of the transactions) increased ~~73.2%~~85.2% in the ~~first~~second quarter of 2020 when compared with the ~~first~~second quarter of 2019. According to the MBA Forecast, the dollar amount of purchase originations ~~increased 12.7%~~decreased 2.0% and refinance originations increased ~~215.5%~~297.3%. This volume of domestic residential mortgage origination activity contributed to ~~increases~~a decrease in direct premiums and escrow fees for the Company’s direct title operations of ~~11.9%~~18.8% from domestic ~~residential~~ purchase transactions and ~~153.8%~~an increase of 175.6% from domestic residential refinance transactions in the ~~first~~second quarter of 2020 when compared with the ~~first~~second quarter of 2019.

During the ~~first~~second quarter of 2020, the level of domestic title orders opened per day by the Company’s direct title operations increased ~~53.1%~~18.6% when compared with the ~~first~~second quarter of 2019. Residential refinance opened orders per day increased 105.8%, while residential purchase and commercial opened orders per day ~~increased 188.0%, 3.7%~~decreased 14.8% and ~~3.8%~~29.6%, respectively, when compared to the ~~first~~second quarter of 2019.

The Company is increasingly utilizing innovative technologies, processes and techniques to speed the delivery of its products, increase efficiency, improve quality, improve the customer experience and decrease risk. These efforts include streamlining the closing process by converting certain manual processes into automated ones, in an endeavor to improve the customer experience by simplifying and reducing the time it takes to close a transaction, reducing risk and improving communication. The Company increasingly is employing advanced technologies to automate various processes, including various processes related to the building, maintaining and updating of title plants and other data assets, as well as the search and examination of information in connection with the issuance of title insurance policies. As a result of the recent reduction in interest rates in connection with the coronavirus pandemic, the Company has experienced a significant increase in refinance orders. To facilitate the processing of these orders, the Company has expanded the use of certain of these advanced technologies. While many of these initiatives are also designed to decrease risk, they present risks of their own. The degree to which these innovative efforts will be successful, and their ultimate impact on the Company’s results of operations, is uncertain.

In addition to the Company’s innovative activities, other participants in the real estate industry are seeking to innovate in ways that could impact the Company’s businesses. These participants include certain of the Company’s sources of business, competitors and ultimate customers. Innovations by these participants may change the demand for the Company’s products and services, the manner in which the Company’s products and services are ordered or fulfilled and the revenue or profitability derived from the products and services. The Company has made and will likely continue to make high-risk, illiquid investments in some of these participants, typically during their early- and growth-stages. If any of these companies do not succeed, the Company could lose and/or be required to impair all or part of its investment in the unsuccessful company. The risk of failure or impairment for these investments is greater in the current economic environment. These investments could also facilitate efforts that ultimately disrupt the Company’s business or enable competitors. Accordingly, the Company’s efforts to anticipate and participate in these transformations could require significant additional investment and management attention and may not succeed, resulting in a reduction in market share, reduced profitability and/or a loss of invested funds. The ultimate degree to which these and other innovations in the real estate industry will impact the Company’s business and results of operations is uncertain.

Additionally, the Company continues to monitor developments in its regulatory environment. Currently, federal officials are discussing various potential changes to laws and regulations that could impact the Company’s businesses, including the reform of government-sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and data privacy regulations, among others. Changes in these areas, and more generally in the regulatory environment in which the Company and its customers operate, could impact the volume of mortgage originations in the United States and the Company’s competitive position and results of operations.

In response to the pandemic, early on, the Company activated its business continuity plan, which enabled most employees to work from home. Currently, approximately 80% of the ~~more significant pandemic-related events occurred late in the first quarter~~Company’s global workforce is working remotely, and ~~because the Company’s businesses are still processing many orders opened before these events,~~ the Company ~~expects that~~believes it is likely to remain this way through the ~~pandemic will have a greater impact on future periods than the current period.~~

~~As a result~~end of the ~~coronavirus pandemic and responses to it, the number of residential~~year.

Residential purchase orders opened by the Company’s direct title operations ~~declined sharply~~were down 14.8% in the ~~middle~~second quarter of ~~March.~~2020 when compared to the second quarter of 2019. The Company’s residential purchase business experienced a consistent recovery since the trough in April when purchase orders opened were down 38.2% compared to April 2019. The recovery started in May when purchase orders opened were down 10.3% compared to May 2019. Then, in June, purchase orders opened were up 4.9% compared to June 2019. For the first three weeks ~~in April, open~~of July, purchase orders opened are ~~down 43.4%~~up 6.5% compared to the same three ~~weeks of~~week period in 2019. The ~~43.4% decline~~Company believes that many buyers who postponed purchases in the ~~Company is currently experiencing has been largely consistent since~~spring have returned during the ~~beginning~~summer resulting in a shift of ~~April.~~the traditional seasonality curve.

~~For the first three weeks in April, residential~~Residential refinance orders opened by the Company’s direct title operations ~~have~~continue to be elevated for the year. During the second quarter of 2020, refinance orders opened averaged ~~approximately 3,000~~2,900 orders per ~~day, up 121% compared to the same three weeks of 2019.~~

~~Revenue from the Company’s commercial business, for~~day. For the first three weeks ~~in April, has declined 44.1% compared to the same three weeks~~ of ~~2019. Commercial transactions in industries such as retail, hotels and multifamily have slowed considerably.~~

While the Company is unable to predict with certainty the ultimate impact the coronavirus pandemic and related responses will have on its business, the Company currently expects a 45% year-over-year decline inJuly, refinance orders opened ~~residential purchase~~averaged 3,100 orders ~~in the second quarter with gradual improvement in the second half of the year.~~per day. The Company ~~also expects residential~~believes the refinance ~~orders to~~market will remain elevated throughout 2020. The Company’s investment income is expected to decline significantly in the second quarter given the 150-basis point decline in the federal funds rate in March. The Company expects investment income in its title and settlement services segment to be in the range of $40 million to $45 million per quarter. For the Company’s commercial business, it expects a 50% year-over-year decline in revenue in the second quarter with a gradual improvement for the remainder of the year.

In the Company’s commercial business, revenue in the second quarter of 2020 declined 39.3% when compared to the second quarter of 2019. In response to the economic uncertainty, the Company has seen a slow-down in activity across all major commercial asset classes in the second quarter, and the Company expects that the sector will remain under pressure for the rest of the year.

		Three Months Ended March 31,													Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)		2020			2019			$ Change			% Change			(in thousands, except percentages)	2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Revenues	Revenues													Revenues
Direct premiums and escrow fees	Direct premiums and escrow fees	$	501,301		$	402,756		$	98,545			24.5	%	Direct premiums and escrow fees	$	530,735		$	552,358		$	(21,623	)		(3.9	)%	$	1,032,036		$	955,114		$	76,922			8.1	%
Agent premiums	Agent premiums		599,682			501,537			98,145			19.6		Agent premiums		597,895			543,847			54,048			9.9			1,197,577			1,045,384			152,193			14.6
Information and other	Information and other		208,273			170,089			38,184			22.4		Information and other		228,252			197,779			30,473			15.4			436,525			367,870			68,655			18.7
Net investment income	Net investment income		59,668			70,053			(10,385	)		(14.8	)	Net investment income		43,234			70,970			(27,736	)		(39.1	)		102,902			141,023			(38,121	)		(27.0	)
Net realized investment (losses) gains			(68,299	)		27,745			(96,044	)		(346.2	)
Net realized investment gains (losses)														Net realized investment gains (losses)		62,823			6,920			55,903			NM	¹		(5,476	)		34,665			(40,141	)		(115.8	)
			1,300,625			1,172,180			128,445			11.0				1,462,939			1,371,874			91,065			6.6			2,763,564			2,544,056			219,508			8.6
Expenses	Expenses													Expenses
Personnel costs	Personnel costs		421,615			381,131			40,484			10.6		Personnel costs		417,066			422,664			(5,598	)		(1.3	)		838,681			803,795			34,886			4.3
Premiums retained by agents	Premiums retained by agents		475,381			396,607			78,774			19.9		Premiums retained by agents		472,398			429,086			43,312			10.1			947,779			825,693			122,086			14.8
Other operating expenses	Other operating expenses		226,595			168,640			57,955			34.4		Other operating expenses		222,192			194,129			28,063			14.5			448,787			362,770			86,017			23.7
Provision for policy losses and other claims	Provision for policy losses and other claims		55,049			36,172			18,877			52.2		Provision for policy losses and other claims		56,431			43,848			12,583			28.7			111,481			80,020			31,461			39.3
Depreciation and amortization	Depreciation and amortization		29,517			31,162			(1,645	)		(5.3	)	Depreciation and amortization		38,995			31,061			7,934			25.5			68,512			62,223			6,289			10.1
Premium taxes	Premium taxes		15,519			12,978			2,541			19.6		Premium taxes		14,319			14,699			(380	)		(2.6	)		29,837			27,678			2,159			7.8
Interest	Interest		3,973			3,483			490			14.1		Interest		3,736			3,574			162			4.5			7,709			7,057			652			9.2
			1,227,649			1,030,173			197,476			19.2				1,225,137			1,139,061			86,076			7.6			2,452,786			2,169,236			283,550			13.1
Income before income taxes	Income before income taxes	$	72,976		$	142,007		$	(69,031	)		(48.6	)%	Income before income taxes	$	237,802		$	232,813		$	4,989			2.1	%	$	310,778		$	374,820		$	(64,042	)		(17.1	)%
Margins			5.6	%		12.1	%		(6.5	)%		(53.7	)%
Pretax margins														Pretax margins		16.3	%		17.0	%		(0.7	)%		(4.1	)%		11.2	%		14.7	%		(3.5	)%		(23.8	)%

Direct premiums and escrow fees were ~~$501.3~~$530.7 million and $1.0 billion for the three and six months ended June 30, 2020, respectively, a decrease of $21.6 million, or 3.9%, and an increase of $76.9 million, or 8.1%, when compared with the respective periods of the prior year. The decrease for the three months ended ~~March 31,~~June 30, 2020 was primarily due to a decrease in the average domestic revenues per order closed, partially offset by an increase in the number of ~~$98.5 million, or 24.5%, when compared with~~domestic title orders closed by the ~~same period of the prior year.~~Company’s direct title operations. The increase for the six months ended June 30, 2020 was primarily due to an increase in the number of domestic title orders closed by the Company’s direct title operations, partially offset by a decrease in the average domestic revenues per order closed. The domestic average revenues per order closed ~~was $2,315~~were $1,950 and $2,112 for the three and six months ended ~~March 31,~~June 30, 2020, ~~a decrease~~respectively, decreases of ~~6.5%~~25.6% and 17.4% when compared with ~~$2,475~~$2,620 and $2,557 for the ~~three months ended March 31, 2019.~~respective periods of the prior year. The ~~quarter over quarter decrease~~decreases in average revenues per order closed ~~was~~were primarily due to a shift in the mix of direct revenues generated from higher premium commercial products to lower premium residential refinance ~~products, partially offset by higher average revenues per order from commercial transactions and higher residential real estate values.~~products. The Company’s direct title operations closed ~~202,700~~254,500 and 457,200 domestic title orders during the three and six months ended ~~March 31,~~June 30, 2020, ~~an increase~~respectively, increases of ~~34.3%~~29.5% and 31.6% when compared with ~~150,900 domestic~~196,600 and 347,500 title orders closed during the ~~same period~~respective periods of the prior year, which was generally consistent with the changes in residential mortgage origination activity in the United States as reported in the MBA Forecast. ~~Domestic~~For the three and six months ended June 30, 2020, domestic residential refinance orders closed per day increased by ~~139.9%~~160.3% and 151.6%, respectively, and domestic residential purchase orders closed per day ~~increased~~decreased by ~~5.9%.~~19.4% and 9.0%, respectively, when compared to the respective periods of the prior year.

Agent premiums were ~~$599.7~~$597.9 million and $1.2 billion for the three and six months ended ~~March 31,~~June 30, 2020, ~~an increase~~respectively, increases of ~~$98.1~~$54.0 million, or ~~19.6%~~9.9%, and $152.2 million, or 14.6%, when compared with the ~~same period~~respective periods of the prior year. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. As a result, there is generally a delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, current quarter agent premiums typically reflect prior quarter mortgage origination activity. The increase in agent premiums for the three months ended ~~March 31,~~June 30, 2020 is generally consistent with the ~~16.5%~~24.5% increase in the Company’s direct premiums and escrow fees in the ~~fourth~~first quarter of ~~2019~~2020 as compared with the ~~fourth~~first quarter of ~~2018.~~2019.

Information and other revenues primarily consist of revenues generated from fees associated with title search and related reports, title and other real property records and images, other non-insured settlement services, and risk mitigation products and services. These revenues generally trend with direct premiums and escrow fees but are typically less volatile since a portion of the revenues are subscription based and do not fluctuate with transaction volumes.

Information and other revenues were ~~$208.3~~$228.3 million and $436.5 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~an increase~~respectively, increases of ~~$38.2~~$30.5 million, or ~~22.4%~~15.4%, and $68.7 million, or 18.7%, when compared with the ~~same period~~respective periods of the prior ~~year.~~ year. The ~~increase~~ ~~was~~increases were primarily attributable to the impact of new acquisitions, which was $24.0 million and $31.3 million for the three and six months ended June 30, 2020, respectively, and the growth in mortgage origination activity that led to higher demand for the Company’s title information ~~products.~~products

Net investment income totaled ~~$59.7~~$43.2 million and $102.9 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~a decrease~~respectively, decreases of ~~$10.4~~$27.7 million, or ~~14.8%~~39.1%, and $38.1 million, or 27.0%, when compared with the ~~same period~~respective periods of the prior year. The ~~decrease was~~decreases were primarily attributable to lower short-term interest rates, which drove lower income from the Company’s ~~variable-rate debt securities driven by the decline in short-term interest rates. The impact of lower short-term interest rates on income from the Company’s~~cash and investment portfolio, escrow balances and tax-deferred property exchange ~~business was mostly offset by higher average balances outstanding.~~business.

Net realized investment gains totaled $62.8 million and net realized investment losses totaled ~~$68.3~~$5.5 million for the three and six months ended June 30, 2020, respectively. The net realized investment gains for the three months ended ~~March 31,~~June 30, 2020 ~~and~~ were primarily ~~from~~attributable to the ~~decrease~~increase in the fair values of equity securities. The net realized investment losses for the six months ended June 30, 2020 were primarily attributable to a decline in the fair values of equity securities. Net realized investment gains totaled ~~$27.7~~$6.9 million and $34.7 million for the three and six months ended ~~March 31,~~June 30, 2019, respectively, and were primarily from the increase in the fair values of equity securities.

The title insurance and services segment (primarily direct operations) is labor intensive; accordingly, a major expense component is personnel costs. This expense component is affected by two primary factors: the need to monitor personnel changes to match the level of corresponding or anticipated new orders and the need to provide quality service.

Personnel costs were ~~$421.6~~$417.1 million and $838.7 million for the three and six months ended June 30, 2020, respectively, a decrease of $5.6 million, or 1.3%, and an increase of $34.9 million, or 4.3%, when compared with the respective periods of the prior year. The decrease for the three months ended ~~March 31,~~June 30, 2020 ~~an increase of $40.5 million, or 10.6%, when compared with the same period of the prior year. The increase~~ was primarily attributable to ~~higher~~lower incentive compensation and employee benefit expense, partially offset by $10.5 million of expense from new acquisitions, and higher salary, overtime and ~~share-based compensation expenses.~~temporary labor expense. The ~~increase~~decrease in incentive compensation expense was due to lower profitability and lower revenue in the Company’s commercial business. The decrease in employee benefit expense was primarily due to the impact of lower profitability on the Company’s expected 401(k) saving plan match. The increase in salary expense was due to higher ~~revenue~~average salaries. The increase for the six months ended June 30, 2020 was primarily due to $16.6 million of expense from new acquisitions, and ~~profit.~~higher salary expense, share-based compensation expense, overtime and temporary labor expense, partially offset by lower employee benefit expense. The increase in salary expense was due to higher average salaries and one additional ~~business day in the quarter.~~payroll day. The increase in share-based compensation expense was due to a higher dollar value of restricted stock units granted in the first quarter of 2020 related to 2019 performance. The decrease in employee benefit expense was primarily due to the impact of lower profitability on the Company’s expected 401(k) saving plan match.

Agents retained ~~$475.4~~$472.4 million and $947.8 million of title premiums generated by agency operations for the three and six months ended ~~March 31,~~June 30, 2020, which compares with ~~$396.6~~$429.1 million and $825.7 million for the ~~same period~~respective periods of the prior year. The percentage of title premiums retained by agents was ~~79.3%~~79.0% and 79.1% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared to 78.9% and ~~2019, respectively.~~ 79.0% for the respective periods of the prior year.

Other operating expenses for the title insurance and services segment were ~~$226.6~~$222.2 million and $448.8 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~an increase~~respectively, increases of ~~$58.0~~$28.1 million, or ~~34.4%~~14.5%, and $86.0 million, or 23.7%, when compared with the ~~same period~~respective periods of the prior year. The ~~increase was~~increases were primarily attributable to the impact of new acquisitions, which was $8.1 million and $11.8 million for the three and six months ended June 30, 2020, respectively, and higher production related costs due to higher transaction volumes, and increases in professional services expense, computer hardware related costs and software expense, partially offset by lower travel and ~~foreign currency exchange losses.~~entertainment related expenses.

The provision for policy losses and other claims, expressed as a percentage of title premiums and escrow fees, was 5.0% for the three and six months ended June 30, 2020 compared to 4.0% for the three and six months ended ~~March 31, 2020 and~~June 30, 2019, respectively. The current quarter rate of 5.0% reflects an ultimate loss rate of 4.5% for the current policy year and a net increase in the loss reserve estimates for prior policy years of ~~$5.5~~$5.6 million. The 4.0% rate for the ~~first~~second quarter of 2019 reflected the ultimate loss rate for the 2019 policy year and no change in the loss reserve estimates for prior policy years.

Depreciation and amortization expense was ~~$29.5~~$39.0 million and $68.5 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~a decrease~~respectively, increases of ~~$1.6~~$7.9 million, or ~~5.3%~~25.5%, and $6.3 million, or 10.1%, when compared with the ~~same period~~respective periods of the prior year. The ~~decrease was primarily~~increases were attributable to ~~lower~~the impact of new acquisitions, which was $8.4 million and $8.5 million for the three and six months ended June 30, 2020, respectively, and primarily related to amortization ~~expense for~~of software ~~licenses.~~and other intangible assets.

Premium taxes were ~~$15.5~~$14.3 million and ~~$13.0~~$29.8 million for the three and six months ended ~~March 31,~~June 30, 2020, respectively, a decrease of $0.4 million, or 2.6%, and ~~2019, respectively.~~an increase of $2.2 million, or 7.8%, respectively, compared to $14.7 million and $27.7 million for the same periods of the prior year. Premium taxes as a percentage of title insurance premiums and escrow fees ~~was~~were 1.3% for the three and six months ended June 30, 2020 and were 1.3% and 1.4% for the three and six months ended ~~March 31, 2020 and 2019.~~June 30, 2019, respectively.

Interest expense was ~~$4.0~~$3.7 million and $7.7 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~an increase~~respectively, increases of ~~$0.5~~$0.2 million, or ~~14.1%~~4.5%, and $0.7 million, or 9.2%, when compared with the ~~same period~~respective periods of the prior year. The ~~increase was~~increases were primarily attributable to higher interest paid on secured financings payable due to higher average balances outstanding, partially offset by lower interest paid related to customer deposits at the Company’s banking subsidiary, First American Trust, FSB, due to lower interest rates.

The profit margins for the title insurance business reflect the high cost of performing the essential services required before insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to the relatively high proportion of fixed costs, title insurance profit margins generally improve as closed order volumes increase. Title insurance profit margins are also impacted by the segment’s net investment income and net realized investment gains or losses, which may not move in the same direction as closed order volumes. Title insurance profit margins are affected by the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity. Title insurance profit margins are also affected by the percentage of title insurance premiums generated by agency operations. Profit margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. The pre-tax margins for the three and six months ended ~~March 31,~~June 30, 2020 were 16.3% and ~~2019 were 5.6%~~11.2%, respectively, compared with 17.0% and ~~12.1%, respectively.~~14.7% in the respective periods of the prior year.

		Three Months Ended March 31,												Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Revenues	Revenues
Direct premiums	Direct premiums	$	119,336		$	111,446		$	7,890			7.1	%	$	121,249		$	115,660		$	5,589			4.8	%	$	240,585		$	227,106		$	13,479			5.9	%
Information and other	Information and other		3,439			3,067			372			12.1			3,103			3,153			(50	)		(1.6	)		6,542			6,219			323			5.2
Net investment income	Net investment income		2,584			2,732			(148	)		(5.4	)		2,316			2,700			(384	)		(14.2	)		4,900			5,432			(532	)		(9.8	)
Net realized investment (losses) gains			(3,390	)		4,937			(8,327	)		(168.7	)
Net realized investment gains															6,850			1,455			5,395			370.8			3,460			6,392			(2,932	)		(45.9	)
			121,969			122,182			(213	)		(0.2	)		133,518			122,968			10,550			8.6			255,487			245,149			10,338			4.2
Expenses	Expenses
Personnel costs	Personnel costs		21,446			19,620			1,826			9.3			20,681			19,884			797			4.0			42,126			39,504			2,622			6.6
Other operating expenses	Other operating expenses		21,548			19,818			1,730			8.7			19,283			18,236			1,047			5.7			40,831			38,054			2,777			7.3
Provision for policy losses and other claims	Provision for policy losses and other claims		62,428			61,540			888			1.4			82,257			65,282			16,975			26.0			144,684			126,822			17,862			14.1
Depreciation and amortization	Depreciation and amortization		1,894			1,734			160			9.2			1,943			1,785			158			8.9			3,837			3,519			318			9.0
Premium taxes	Premium taxes		1,796			1,685			111			6.6			2,035			2,041			(6	)		(0.3	)		3,832			3,725			107			2.9
			109,112			104,397			4,715			4.5			126,199			107,228			18,971			17.7			235,310			211,624			23,686			11.2
Income before income taxes	Income before income taxes	$	12,857		$	17,785		$	(4,928	)		(27.7	)%	$	7,319		$	15,740		$	(8,421	)		(53.5	)%	$	20,177		$	33,525		$	(13,348	)		(39.8	)%
Margins	Margins		10.5	%		14.6	%		(4.1	)%		(28.1	)%		5.5	%		12.8	%		(7.3	)%		(57.0	)%		7.9	%		13.7	%		(5.8	)%		(42.3	)%

Direct premiums were ~~$119.3~~$121.2 million and $240.6 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~an increase~~respectively, increases of ~~$7.9~~$5.6 million, or ~~7.1%~~4.8%, and $13.5 million, or 5.9%, when compared with the ~~same period~~respective periods of the prior year. The ~~increase was~~increases were primarily attributable to higher premiums earned in the home warranty ~~business driven by an increase in the number of home warranty residential service contracts issued.~~business. The ~~increase was~~increases were also attributable to higher premiums earned in the property and casualty business driven by lower reinsurance costs.

Net realized investment ~~losses~~gains for the specialty insurance segment totaled ~~$3.4~~$6.9 million and $3.5 million for the three and six months ended June 30, 2020. The net realized investment gains for the three months ended ~~March 31,~~June 30, 2020 ~~and~~ were primarily from the ~~decrease~~increase in the fair values of equity ~~securities, partially offset by~~securities. The net realized investment gains for the six months ended June 30, 2020 were primarily from a gain from the sale of real estate. Net realized investment gains for the specialty insurance segment totaled ~~$4.9~~$1.5 million and $6.4 million for the three and six months ended ~~March 31,~~June 30, 2019, respectively, and were primarily from the increase in the fair values of equity securities.

Personnel costs and other operating expenses were ~~$43.0~~$40.0 million and ~~$39.4~~$83.0 million for the three and six months ended ~~March 31,~~June 30, 2020, ~~and 2019,~~ respectively, ~~an increase~~increases of ~~$3.6~~$1.8 million, or ~~9.0%.~~4.8%, and $5.4 million, or 7.0%, when compared with the respective periods of the prior year. The ~~increase was~~increases were primarily attributable to increased salary expense, due to higher average headcount, and higher advertising expense related to the home warranty ~~business and other small increases across several expense categories.~~business.

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was ~~42.3%~~54.7% and ~~43.8%~~48.5% for the three and six months ended June 30, 2020, respectively, compared with 51.7% and 47.8% for the respective periods of the prior year. The increase in the claims rate for the three months ended ~~March 31,~~June 30, 2020 ~~and 2019, respectively. The decrease in the claims rate~~ was ~~primarily~~ attributable to ~~lower~~higher claims ~~frequency, partially offset by higher cost per claim.~~frequency. The provision for property and casualty claims, expressed as a percentage of property and casualty insurance premiums, was ~~81.0%~~106.2% and ~~88.7%~~93.6% for the three and six months ended June 30, 2020, respectively, compared with 70.4% and 79.4% for the respective periods of the prior year. The increase in the claims rate for the three months ended ~~March 31,~~June 30, 2020 ~~and 2019, respectively. The decrease in the claims rate~~ was primarily attributable to ~~lower reinsurance costs~~an increase in large losses when compared to the ~~first~~second quarter of 2019 and reserve adjustments recorded during the second quarter of 2020 ~~which had the effect of increasing direct premiums and lowering the claims rate. Additionally, the claims rate benefitted from the release of certain prior year reserves and recoveries received~~ related to ~~wildfires that occurred in 2018 and 2017.~~prior period claims.

Premium taxes were ~~$1.8~~$2.0 million and ~~$1.7~~$3.8 million for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared with $2.0 million and ~~2019, respectively.~~$3.7 million for the respective periods of the prior year. Premium taxes as a percentage of specialty insurance segment premiums were ~~1.5%~~1.7% and 1.6% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, and ~~2019.~~1.8% and 1.6% for the three and six months ended June 30, 2019, respectively.

A large part of the revenues for the specialty insurance businesses are generated by renewals and are not dependent on the level of real estate activity in the year of renewal. With the exception of loss expense, the majority of the expenses for this segment are variable in nature and therefore generally fluctuate consistent with revenue fluctuations. Accordingly, profit margins for this segment (before loss expense) are relatively constant, although as a result of some fixed expenses, profit margins (before loss expense) should nominally improve as premium revenues increase. Specialty insurance profit margins are also impacted by the segment’s net investment income and net realized investment gains or losses, which may not move in the same direction as premium revenues. The pre-tax margins for the three and six months ended ~~March 31,~~June 30, 2020 were 5.5% and ~~2019 were 10.5%~~7.9%, respectively, compared with 12.8% and ~~14.6%, respectively.~~13.7% in the respective periods of the prior year.

		Three Months Ended March 31,												Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except percentages)		2020			2019			$ Change			% Change			2020			2019			$ Change			% Change			2020			2019			$ Change			% Change
Revenues	Revenues
Net investment (losses) income		$	(16,238	)	$	9,559		$	(25,797	)		(269.9	)%
Net realized investment gains			6,927			—			6,927			—
Net investment income (losses)														$	12,928		$	4,127		$	8,801			213.3	%	$	(3,310	)	$	13,686		$	(16,996	)		(124.2	)%
Net realized investment (losses) gains															(412	)		—			(412	)		—			6,515			—			6,515			—
			(9,311	)		9,559			(18,870	)		(197.4	)		12,516			4,127			8,389			203.3			3,205			13,686			(10,481	)		(76.6	)
Expenses	Expenses
Personnel costs	Personnel costs		(13,401	)		10,861			(24,262	)		(223.4	)		13,740			4,479			9,261			206.8			340			15,340			(15,000	)		(97.8	)
Other operating expenses	Other operating expenses		9,297			8,253			1,044			12.6			8,799			10,246			(1,447	)		(14.1	)		18,096			18,499			(403	)		(2.2	)
Depreciation and amortization	Depreciation and amortization		38			38			—			—			38			38			—			—			76			76			—			—
Interest	Interest		8,264			8,529			(265	)		(3.1	)		9,765			8,420			1,345			16.0			18,029			16,949			1,080			6.4
			4,198			27,681			(23,483	)		(84.8	)		32,342			23,183			9,159			39.5			36,541			50,864			(14,323	)		(28.2	)
Loss before income taxes	Loss before income taxes	$	(13,509	)	$	(18,122	)	$	4,613			25.5	%	$	(19,826	)	$	(19,056	)	$	(770	)		(4.0	)%	$	(33,336	)	$	(37,178	)	$	3,842			10.3	%

Net investment ~~losses~~income totaled ~~$16.2~~$12.9 million and net investment ~~income~~losses totaled ~~$9.6~~$3.3 million for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared with net investment income of $4.1 million and ~~2019, respectively.~~$13.7 million for the respective periods of the prior year. The ~~decrease~~increase in net investment income for the three months ended ~~March 31,~~June 30, 2020 ~~was~~and the decrease in net investment income for the six months ended June 30, 2020 were primarily attributable to ~~lower~~fluctuations in earnings on investments associated with the Company’s deferred compensation plan when compared to the same ~~period~~periods of 2019.

Net realized investment losses for the corporate segment totaled $0.4 million for the three months ended June 30, 2020 and were from commissions paid related to the sale of real estate. Net realized investment gains for the corporate segment totaled ~~$6.9~~$6.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and were primarily from the sale of real estate. There were no realized investment gains or losses for the corporate segment for the three and six months ended ~~March 31,~~June 30, 2019.

Corporate personnel costs and other operating expenses were ~~a credit of $4.1~~$22.5 million and ~~expense~~$18.4 million for the three and six months ended June 30, 2020, respectively, compared with $14.7 million and $33.8 million for the respective periods of ~~$19.1 million~~the prior year. The increase for the three months ended ~~March 31,~~June 30, 2020 ~~and 2019, respectively.~~was primarily attributable to higher expense related to the Company’s deferred compensation plan. The decrease for the six months ended June 30, 2020 was primarily attributable to lower expense related to the Company’s deferred compensation plan.

Interest expense was $9.8 million and $18.0 million for the three and six months ended June 30, 2020, respectively, increases of $1.3 million, or 16.0%, and $1.1 million, or 6.4%, when compared with the respective periods of the prior year. The increases were attributable to the interest accrued on the $450.0 million of 4.00% 10 year senior unsecured notes that the Company issued in May 2020.

The Company’s inter-segment eliminations were not material for the three and six months ended ~~March 31,~~June 30, 2020 and 2019.

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were ~~11.7%~~23.8% and ~~22.5%~~20.9% for the three and six months ended ~~March 31,~~June 30, 2020, respectively, compared with 18.4% and ~~2019, respectively.~~20.0% for the respective periods of the prior year. The ~~difference~~differences in the effective tax rates isfor the three and six months ended June 30, 2020 when compared with the respective periods of the prior year were primarily due to ~~current-year benefits related to foreign~~the resolution in 2019 of state tax ~~law changes and the recognition of additional excess tax benefits associated with share-based payment transactions in the current year.~~ matters from prior years.

Net income for the three and six months ended ~~March 31,~~June 30, 2020 ~~and 2019~~ was ~~$63.8~~$171.7 million and ~~$109.8~~$235.5 million, ~~respectively.~~respectively, compared with $187.3 million and $297.1 million for the respective periods of the prior year. Net income attributable to the Company for the three and six months ended ~~March 31,~~June 30, 2020 ~~and 2019~~ was ~~$63.2 million and $109.6~~$170.7 million, or ~~$0.55 and $0.97~~$1.52 per diluted share, ~~respectively.~~and $233.9 million, or $2.06 per diluted share, respectively, compared with $186.7 million, or $1.64 per diluted share, and $296.2 million, or $2.61 per diluted share, for the respective periods of the prior year.

Cash requirements. The Company generates cash primarily from the sale of its products and services and investment income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on its debt, capital expenditures, dividends on its common stock, and may include business acquisitions, investments in unconsolidated entities and repurchases of its common stock. Management forecasts the cash needs of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Based on the Company’s ability to generate cash flows from operations, its liquid-asset position and amounts available on its revolving credit facility, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months. In making this assessment, management considered the negative impact that the coronavirus pandemic and related responses has had or is expected to have on the Company’s liquidity and capital resources, such as decreased cash flows from operations and increased volatility in the Company’s investment portfolio, among other factors.

The substantial majority of the Company’s business is dependent upon activity in the real estate and mortgage markets, which are cyclical and seasonal. Periods of increasing interest rates and reduced mortgage financing availability generally have an adverse effect on residential real estate activity and therefore typically decrease the Company’s revenues. In contrast, periods of declining interest rates and increased mortgage financing availability generally have a positive effect on residential real estate activity, which typically increases the Company’s revenues. Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months. Residential refinance activity is typically more volatile than purchase activity and is highly impacted by changes in interest rates. Commercial real estate volumes are less sensitive to changes in interest rates but fluctuate based on local supply and demand conditions for space and mortgage financing availability.

Cash provided by operating activities totaled ~~$24.2~~$368.0 million and ~~$34.5~~$301.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively, after claim payments, net of recoveries, of ~~$108.5~~$214.6 million and ~~$100.0~~$199.9 million, respectively. The principal nonoperating uses of cash and cash equivalents for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 were advances and repayments related to secured financing transactions, purchases of debt and equity securities, repayment of borrowings under the unsecured credit facility, dividends to common stockholders, investments in unconsolidated entities, ~~and~~ capital expenditures, and for the ~~three~~six months ended ~~March 31,~~June 30, 2020, business acquisitions and repurchases of Company shares. The principal nonoperating sources of cash and cash equivalents for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019 were borrowings and collections related to secured financing transactions, proceeds from the sales and maturities of debt and equity securities, borrowings under the unsecured credit facility, and for the six months ended June 30, 2020, proceeds from the issuance of unsecured senior notes and increases in the deposit balances at the Company’s banking ~~operations, and for the three months ended March 31, 2020, borrowings under the unsecured credit agreement.~~operations. The net effect of all activities on cash and cash equivalents ~~were decreases~~was an increase of ~~$436.0~~$37.4 million and ~~$130.1~~a decrease of $55.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively.

The Company continually assesses its capital allocation strategy, including decisions relating to dividends, stock repurchases, capital expenditures, acquisitions and investments. In ~~March~~June 2020, the Company paid a ~~first~~second quarter cash dividend of 44 cents per common share. Management expects that the Company will continue to pay quarterly cash dividends at or above the current level. The timing, declaration and payment of future dividends, however, falls within the discretion of the Company’s board of directors and will depend upon many factors, including the Company’s financial condition and earnings, the capital requirements of the Company’s businesses, restrictions imposed by applicable law and any other factors the board of directors deems relevant from time to time.

Holding Company. First American Financial Corporation is a holding company that conducts all of its operations through its subsidiaries. The holding company’s current cash requirements include payments of principal and interest on its debt, taxes, payments in connection with employee benefit plans, dividends on its common stock and other expenses. The holding company is dependent upon dividends and other payments from its operating subsidiaries to meet its cash requirements. The Company’s target is to maintain a cash balance at the holding company equal to at least twelve months of estimated cash requirements. At certain points in time, the actual cash balance at the holding company may vary from this target due to, among other factors, the timing and amount of cash payments made and dividend payments received. Pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available to the holding company is limited, principally for the protection of policyholders. As of ~~March 31,~~June 30, 2020, under such regulations, the maximum amount available to the holding company from its insurance subsidiaries for the remainder of 2020, without prior approval from applicable regulators, was dividends of ~~$355.5~~$299.5 million and loans and advances of $110.3 million. However, the timing and amount of dividends paid by the Company’s insurance subsidiaries to the holding company falls within the discretion of each insurance subsidiary’s board of directors and will depend upon many factors, including the level of total statutory capital and surplus required to support minimum financial strength ratings by certain rating agencies. Such restrictions have not had, nor are they expected to have, an impact on the holding company’s ability to meet its cash obligations.

As of ~~March 31,~~June 30, 2020, the holding company’s sources of liquidity included ~~$92.9~~$264.7 million of cash and cash equivalents and ~~$420.0~~$700.0 million available on the Company’s revolving credit facility. Management believes that liquidity at the holding company is sufficient to satisfy anticipated cash requirements and obligations for at least the next twelve months.

Financing. In May 2020, the Company issued $450.0 million of 4.00% 10 year senior unsecured notes due in 2030. Interest is due semi-annually on May 15 and November 15, beginning November 15, 2020. The Company used a portion of the net proceeds from the sale to repay all borrowings outstanding under its credit facility, increasing the unused capacity thereunder to the full $700.0 million size of the facility.

The Company maintains a credit agreement with JPMorgan Chase Bank, N.A. in its capacity as administrative agent and the lenders party thereto. The credit agreement, which is comprised of a $700.0 million revolving credit facility, includes an expansion option that permits the Company, subject to satisfaction of certain conditions, to increase the revolving commitments and/or add term loan tranches in an aggregate amount not to exceed $350.0 million. Unless terminated earlier, the credit agreement will terminate on April 30, 2024. The obligations of the Company under the credit agreement are neither secured nor guaranteed. Proceeds under the credit agreement may be used for general corporate purposes. At ~~March 31,~~June 30, 2020, the Company had no outstanding borrowings under the ~~facility totaled $280.0 million at an interest rate of 2.49%.~~facility.

At the Company’s election, borrowings of revolving loans under the credit agreement bear interest at (a) the Alternate Base Rate plus the applicable spread or (b) the Adjusted LIBOR rate plus the applicable spread (in each case as defined in the credit agreement). The Company may select interest periods of one, two, three or six months or (if agreed to by all lenders) such other number of months for Eurodollar borrowings of loans. The applicable spread varies depending upon the debt rating assigned by Moody’s Investor Service, Inc., Standard & Poor’s Rating Services and/or Fitch Ratings Inc. The minimum applicable spread for Alternate Base Rate borrowings is 0.25% and the maximum is 1.00%. The minimum applicable spread for Adjusted LIBOR rate borrowings is 1.25% and the maximum is 2.00%. The rate of interest on any term loans incurred in connection with the expansion option will be established at or about the time such loans are made and may differ from the rate of interest on revolving loans.

The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the lenders may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate. As of ~~March 31,~~June 30, 2020, the Company was in compliance with the financial covenants under the credit agreement.

~~If debt market conditions are favorable, the Company will consider terming out the outstanding amount on its credit facility to take advantage of the low interest rate environment.~~

In addition to amounts available under its credit facility, certain subsidiaries of the Company maintain separate financing arrangements. The primary financing arrangements maintained by subsidiaries of the Company are as follows:

The Company’s debt to capitalization ratios were ~~22.8%~~24.6% and 18.5% at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The Company’s adjusted debt to capitalization ratios, excluding secured financings payable of $478.6 million and $278.4 million at June 30, 2020 and December 31, 2019, were 18.1% and 14.1%, respectively.

Investment Portfolio. The Company maintains a high quality, liquid investment portfolio that is primarily held at its insurance and banking subsidiaries. As of ~~March 31,~~June 30, 2020, 94% of the Company’s investment portfolio consisted of debt securities, of which ~~69%~~67% were either United States government-backed or rated AAA and 98% were either rated or classified as investment grade. Percentages are based on the estimated fair values of the securities. Credit ratings reflect published ratings obtained from globally recognized securities rating agencies. If a security was rated differently among the rating agencies, the lowest rating was selected. For further information on the credit quality of the Company’s investment portfolio at ~~March 31,~~June 30, 2020, see Note 3 Debt and Equity Securities to the condensed consolidated financial statements.

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

Off-balance sheet arrangements. The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled ~~$7.7~~$7.6 billion and $7.3 billion at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, of which ~~$3.3 billion and~~ $3.2 billion ~~respectively, were~~was held at First American Trust, FSB. The escrow deposits held at First American Trust, FSB are temporarily invested in cash and cash equivalents and debt securities, with offsetting liabilities included in deposits in the accompanying condensed consolidated balance sheets. The remaining escrow deposits were held at third-party financial institutions.

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

There have been no material changes in the Company’s market risks since the filing of its Annual Report on Form 10-K for the year ended December 31, 2019.

The Company’s chief executive officer and chief financial officer have concluded that, as of ~~March 31,~~June 30, 2020, the end of the quarterly period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) thereunder.

There was no change in the Company’s internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

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

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

These circumstances, particularly when combined with declining real estate values and the increase in foreclosures that often results therefrom, also tend to adversely impact the Company’s title claims experience.

Historically, uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and a general decline in the value of real property, have created a difficult operating environment for the Company’s core title and settlement businesses. Uncertainty and a deterioration in economic conditions in connection with the coronavirus pandemic have adversely affected the Company. These conditions also tend to negatively impact the amount of funds the Company receives from third parties to be held in trust pending the closing of commercial and residential real estate transactions. The Company deposits a substantial portion of these funds, as well as its own funds, with the federal savings bank it owns. The Company’s bank invests those funds and any realized losses incurred on those investments will be reflected in the Company’s consolidated results. The likelihood of such losses, which generally would not occur if the Company were to deposit these funds in an unaffiliated entity, increases when economic conditions are unfavorable. Moreover, during periods of unfavorable economic conditions, the return on these funds deposited at the Company’s bank, as well as funds the Company deposits with third party financial institutions, tends to decline. Certain rules promulgated in connection with the coronavirus pandemic allow certain borrowers to request forbearance of the payment of their mortgages. In certain circumstances, if a borrower requests forbearance on a mortgage originated through the Company’s warehouse lender before that mortgage is sold to a third party, the Company’s warehouse lender may have to retain that loan. In addition, the Company holds investments in entities, such as title agencies and settlement service providers, some of which ~~are likely to be~~have been negatively impacted by these conditions, as well as other securities in its investment portfolio, which also may be, and recently have been, negatively impacted by these conditions. Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on the Company could be materially adverse, including a significant reduction in revenues, earnings and cash flows, challenges to the Company’s ability to satisfy covenants or otherwise meet its obligations under debt facilities, difficulties in obtaining access to capital, challenges to the Company’s ability to pay dividends at currently anticipated levels, deterioration in the value of or return on its investments and increased credit risk from customers and others with obligations to the Company.

3.The coronavirus pandemic and the responses thereto could adversely affect the Company

The coronavirus pandemic and responses to it have created significant volatility, uncertainty and economic disruption. The extent to which the coronavirus pandemic impacts the Company’s business, operations and financial results will depend on numerous factors that the Company may not be able to accurately predict, including: the duration and scope of the pandemic and restrictions and responses to it; governmental, business and individual actions that have been and continue to be taken in response to the pandemic; the ongoing impact of the pandemic on economic activity and actions taken in response, including the efficacy of governmental relief efforts; the effect on participants in real estate transactions and the demand for the Company’s products and services, including as a result of higher unemployment, business closures and economic uncertainty; and the Company’s ability to sell and provide, or its efficiency in selling and providing, its services and solutions, including as a result of illness, travel restrictions, people working from home, governmental closure orders and partial or full closures of business and government offices. The Company is experiencing, for example, a decrease in the number of opened commercial orders, and experienced a decrease in the number of opened residential purchase ~~and commercial orders.~~orders earlier in the pandemic. The Company also has experienced increased volatility in the Company’s investment portfolio. The Company is also taking certain underwriting risks that could result in increased claims. In addition, the Company has made changes to certain of its production processes that also could result in increased claims. Because many of the more significant pandemic-related events occurred late in the first quarter and because the Company’s businesses are still processing many orders opened before these events, the Company expects that the pandemic will have a greater impact on future periods than the current period. While the Company is unable to predict the ultimate impact the coronavirus pandemic and related responses will have on its businesses, these events have adversely affected, and are expected to continue to adversely affect, its business and results of operations ~~in one or more future reporting periods~~ and, if prolonged, could materially adversely affect the Company’s financial condition. The impacts of the coronavirus pandemic may also exacerbate the risks discussed elsewhere in Part II, Item 1A of this Quarterly Report.

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

The Company performs an impairment test of the carrying value of goodwill and other indefinite-lived intangible assets annually in the fourth quarter, or sooner if circumstances indicate a possible impairment. Finite-lived intangible assets are subject to impairment tests on a periodic basis. Factors that may be considered in connection with this review include, without limitation, underperformance relative to historical or projected future operating results, reductions in the Company’s stock price and market capitalization, increased cost of capital and negative macroeconomic, industry and company-specific trends. These and other factors could lead to a conclusion that goodwill or other intangible assets are impaired, in which case the Company would be required to write off the portion believed to be impaired. Given the current economic environment, the probability of such impairments has increased. Total goodwill and other intangible assets reflected on the Company’s condensed consolidated balance sheet as of ~~March 31,~~June 30, 2020 are $1.6 billion. Any substantial goodwill and other intangible asset impairments that may be required could have a material adverse effect on the Company’s results of operations and financial condition.

5.Uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark may affect the Company’s cost of capital and net investment income

In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to result in these widely used reference rates no longer being available. The Company has exposure to LIBOR-based financial instruments, such as LIBOR-based securities held in its investment portfolio. Borrowings under the Company’s $700.0 million senior unsecured credit facility and some of its warehouse credit facilities also are LIBOR-based, although each allows for the use of an unspecified alternative benchmark rate if LIBOR is no longer available. Potential changes to LIBOR, as well as uncertainty related to such potential changes and the establishment of any alternative reference rate, may adversely affect the Company’s cost of capital and the market for LIBOR-based securities, which could have an adverse impact on the earnings from or value of the Company’s investment portfolio. At this time, the Company cannot predict the overall effect of the modification or discontinuation of LIBOR or the establishment of any alternative benchmark rate.

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

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

7.Regulatory oversight and changes in government regulation could require the Company to raise capital, make it more difficult to deploy capital, including dividends to shareholders and repurchases of the Company’s shares, prohibit or limit the Company’s operations, make it more costly or burdensome to conduct such operations or result in decreased demand for the Company’s products and services

Many of the Company’s businesses, including its title insurance, property and casualty insurance, home warranty, banking, trust and wealth management businesses, are regulated by various federal, state, local and foreign governmental agencies. These and other of the Company’s businesses also operate within statutory guidelines. The industry in which the Company operates and the markets into which it sells its products are also regulated and subject to statutory guidelines. In general, the Company is experiencing increasing regulatory oversight and is subject to increasingly complex statutory guidelines. This is due, among other factors, to the passing of, and significant changes in, laws and regulations pertaining to privacy and data protection and to the Company’s status as a savings and loan holding company.

Regulatory oversight could require the Company to raise capital, and/or make it more difficult to deploy capital, including dividends to shareholders and repurchases of the Company’s shares. For example, regulatory capital requirements for the Company have historically applied only at the subsidiary level, specifically to the Company’s federal savings bank subsidiary and the Company’s insurance underwriter subsidiaries. However, both the National Association of Insurance Commissioners and the Board of Governors of the Federal Reserve System have issued proposals for group capital calculations. These proposals, if finalized and adopted in their current forms, would apply to the Company at the group level and would be in addition to existing subsidiary-level capital requirements. It is possible that the requirements, particularly in an economic downturn, could have the effect of requiring the Company to raise capital and/or making it more difficult to otherwise deploy capital, including dividends to shareholders and repurchases of the Company’s shares.

In addition, changes in the applicable regulatory environment, statutory guidelines or interpretations of existing regulations or statutes, enhanced governmental oversight or efforts by governmental agencies to cause customers to refrain from using the Company’s products or services could prohibit or limit its future operations or make it more costly or burdensome to conduct such operations or result in decreased demand for the Company’s products and services or a change in its competitive position. The impact of these changes would be more significant if they involve jurisdictions in which the Company generates a greater portion of its title premiums, such as the states of Arizona, California, Florida, Michigan, New York, Ohio, Pennsylvania and Texas. These changes may compel the Company to reduce its prices, may restrict its ability to implement price increases or acquire assets or businesses, may limit the manner in which the Company conducts its business or otherwise may have a negative impact on its ability to generate revenues, earnings and cash flows.

8.Scrutiny of the Company’s businesses and the industries in which it operates by governmental entities and others could adversely affect the Company

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

Governmental entities have routinely inquired into certain practices in the real estate settlement services industry to determine whether certain of the Company’s businesses or its competitors have violated applicable laws, which include, among others, the insurance codes of the various jurisdictions and the Real Estate Settlement Procedures Act and similar state, federal and foreign laws. The Consumer Financial Protection Bureau (“CFPB”), for example, has actively utilized its regulatory authority over the mortgage and real estate markets by bringing enforcement actions against various participants in the mortgage and settlement industries. Departments of insurance in the various states, the CFPB and other federal regulators and applicable regulators in international jurisdictions, either separately or together, also periodically conduct targeted inquiries into the practices of title insurance companies and other settlement services providers in their respective jurisdictions. Currently the Company is the subject of a number of regulatory inquiries.

Further, from time to time plaintiffs’ lawyers have targeted, and are expected to continue to target, the Company and other members of the Company’s industry with lawsuits claiming legal violations or other wrongful conduct. These lawsuits often involve large groups of plaintiffs and claims for substantial damages. These types of inquiries or proceedings have from time to time resulted, and may in the future result, in findings of a violation of the law or other wrongful conduct and the payment of fines or damages or the imposition of restrictions on the Company’s conduct. This could impact the Company’s operations and financial condition. Moreover, these laws and standards of conduct often are ambiguous and, thus, it may be difficult to ensure compliance. This ambiguity may force the Company to mitigate its risk by settling claims or by ending practices that generate revenues, earnings and cash flows. Currently the Company is a party to a number of class action lawsuits.

9.The use of social media by the Company and other parties could result in damage to the Company’s reputation or otherwise adversely affect the Company

The Company utilizes social media to communicate with current and potential customers and employees, as well as other individuals interested in the Company. Information delivered by the Company, or by third parties about the Company, via social media can be easily accessed and rapidly disseminated, and could result in reputational harm, decreased customer loyalty or other issues that could diminish the value of the Company’s brand or result in significant liability.

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

11.Changes in certain laws and regulations, and in the regulatory environment in which the Company operates, could adversely affect the Company

Federal and state officials are currently discussing various potential changes to laws and regulations that could impact the Company’s businesses, including the reform of government-sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and additional data privacy regulations, among others. Changes in these areas, and more generally in the regulatory environment in which the Company and its customers operate, could adversely impact the volume of mortgage originations in the United States and the Company’s competitive position and results of operations. In addition, in connection with the coronavirus pandemic, the Company and generally its agents ~~are currently~~have been deemed in most areas an essential business and ~~can continue~~have been permitted to operate. A change in this determination, particularly in jurisdictions where the Company generates a large portion of its revenues, could adversely impact the Company’s businesses.

12.Recent and pending privacy and data protection laws and regulations could adversely affect the Company

An increasing number of federal, state, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data, including the California Consumer Privacy Act and the European Union General Data Protection Regulation. The effects of these privacy and data protection laws, including the cost of compliance and required changes in the manner in which the Company conducts its business, are not fully known and are potentially significant, and the failure to comply could adversely affect the Company. The Company has incurred costs to comply with these laws and to respond to inquiries about its compliance with them.

13.Climate change, severe weather conditions, health crises and other catastrophe events could adversely affect the Company

Climate change, global or extensive health crises, severe weather and other catastrophe events could adversely affect the Company, and the current coronavirus pandemic and responses to it are having an adverse effect on the Company. These include impacts on the results of the Company’s property and casualty insurance business due to any increase in the frequency and severity of wildfires, hurricanes, floods, earthquakes or other catastrophe or severe weather events, as well as increased claims in the Company’s home warranty business. Home warranty claims, including those pertaining to climate control units, tend to rise as temperatures become extreme, especially in geographies where extreme temperatures are infrequent. In addition, the Company manages its financial exposure for losses in its title insurance business and in its property and casualty insurance business with third-party reinsurance. Catastrophic events could adversely affect the cost and availability of that reinsurance. Moreover, to the extent climate change, health crises, severe weather conditions and other catastrophe events impact companies or municipalities whose securities the Company invests in, the value of its investment portfolio may also decrease due to these factors. In addition, these factors may impact real estate markets and the broader economy, which could also impact the Company. The frequency, severity, duration, and geographic location and scope of such health crises, catastrophe and severe whether events are inherently unpredictable, and, therefore, the Company is unable to predict the ultimate impact climate change and such events will have on its businesses.

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

15.Changes in the Company’s relationships with large mortgage lenders or government–sponsored enterprises could adversely affect the Company

Large mortgage lenders and government-sponsored enterprises, because of their significant role in the mortgage process, have significant influence over the Company and other service providers. This influence enhances the negotiating power of these large mortgage lenders with respect to the pricing and the terms on which they purchase the Company’s products and other matters. These circumstances could adversely affect the Company’s revenues and profitability. Changes in the Company’s relationship with any of these lenders or government-sponsored enterprises, the loss of all or a portion of the business the Company derives from these parties, any refusal of these parties to accept the Company’s products and services, the modification of the government-sponsored enterprises’ requirement for title insurance in connection with mortgages they purchase or the use of alternatives to the Company’s products and services, could have a material adverse effect on the Company.

16.A downgrade by ratings agencies, reductions in statutory capital and surplus maintained by the Company’s title insurance underwriters or a deterioration in other measures of financial strength could adversely affect the Company

Certain of the Company’s customers use measurements of the financial strength of the Company’s title insurance underwriters, including, among others, ratings provided by ratings agencies and levels of statutory capital and surplus maintained by those underwriters, in determining the amount of a policy they will accept and the amount of reinsurance required. Each of the major ratings agencies currently rates the Company’s title insurance operations. The Company’s principal title insurance underwriter’s financial strength ratings are “A2” by Moody’s Investor Services, Inc., “A” by Fitch Ratings, Inc., “A-” by Standard & Poor’s Ratings Services and “A” by A.M. Best Company, Inc. These ratings provide the agencies’ perspectives on the financial strength, operating performance and cash generating ability of those operations. ~~The coronavirus pandemic and resulting impacts from it could cause one or more of these rating agencies to downgrade the ratings of any of the Company’s title insurance underwriters.~~ These agencies continually review these ratings and the ratings are subject to change. Statutory capital and surplus, or the amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength. The Company’s principal title insurance underwriter maintained $1.5 billion of total statutory capital and surplus as of December 31, 2019. Accordingly, if the ratings or statutory capital and surplus of these title insurance underwriters are reduced from their current levels, or if there is a deterioration in other measures of financial strength, the Company’s results of operations, competitive position and liquidity could be adversely affected.

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

The Company maintains a substantial investment portfolio, primarily consisting of fixed income debt securities. The investment portfolio also includes adjustable-rate debt securities, common and preferred stock, as well as money-market and other short-term investments. Securities in the Company’s investment portfolio are subject to certain economic and financial market risks, such as credit risk, interest rate (including call, prepayment and extension) risk and/or liquidity risk. The risk of loss associated with the portfolio is increased during periods of instability in credit markets and economic conditions, including during the current pandemic. Debt and equity securities are carried at fair value on the Company’s balance sheet. Changes in the fair value of debt securities is recorded as a component of accumulated other comprehensive income/loss on the balance sheet. For debt securities in an unrealized loss position, where the loss is determined to be due to credit-related factors, the Company records the loss in earnings. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of securities in the Company’s investment portfolio ~~are having~~have had an adverse ~~effect~~impact on the Company and could have a material adverse effect on the Company’s results of operations, statutory surplus, financial condition and cash flow.

18.Actual claims experience could materially vary from the expected claims experience reflected in the Company’s reserve for incurred but not reported claims

The Company maintains a reserve for incurred but not reported (“IBNR”) claims pertaining to its title, escrow and other insurance and guarantee products. The majority of this reserve pertains to title insurance policies, which are long-duration contracts with the majority of the claims reported within the first few years following the issuance of the policy. Generally, 70% to 80% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss rates for recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy. In uncertain economic times, such as those currently being experienced as a result of the coronavirus pandemic, an even larger change is more likely. As examples, if the expected ultimate losses for each of the last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of ~~$127.5~~$128.9 million, and if expected ultimate losses for those same years were to fluctuate by 100 basis points, the resulting impact would be ~~$255.1~~$257.8 million. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience.

19.The issuance of the Company’s title insurance policies and related activities by title agents, which operate with substantial independence from the Company, could adversely affect the Company

The Company’s title insurance subsidiaries issue a significant portion of their policies through title agents that operate largely independent of the Company. There is no guarantee that these title agents will fulfill their contractual obligations to the Company, which contracts include limitations that are designed to limit the Company’s risk with respect to their activities. In addition, regulators are increasingly seeking to hold the Company responsible for the actions of these title agents and, under certain circumstances, the Company may be held liable directly to third parties for actions (including defalcations) or omissions of these agents. Case law in certain states also suggests that the Company is liable for the actions or omissions of its agents in those states, regardless of contractual limitations. As a result, the Company’s use of title agents could result in increased claims on the Company’s policies issued through agents and an increase in other costs and expenses.

20.The Company’s risk management framework could prove inadequate, which could adversely affect the Company

The Company’s risk management framework is designed to identify, monitor and mitigate risks that could have a negative impact on the Company’s financial condition or reputation. This framework includes departments or groups dedicated to enterprise risk management, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor management and internal audit, among others. Many of the processes overseen by these departments function at the enterprise level, but many also function through, or rely to a certain degree upon, risk mitigation efforts in local operating groups. Similarly, with respect to the risks the Company assumes in the ordinary course of its business through the issuance of title insurance policies and the provision of related products and services, the Company employs localized as well as centralized risk mitigation efforts. These efforts include the implementation of underwriting policies and procedures and other mechanisms for assessing risk. Underwriting title insurance policies and making other risk-assumption decisions frequently involves a substantial degree of individual judgment and, accordingly, underwriters are maintained at the state, regional, divisional, and corporate levels with varying degrees of underwriting authority. These individuals may be encouraged by customers or others to assume risks or to expeditiously make risk determinations. If the Company’s risk mitigation efforts prove inadequate, the Company could be adversely affected.

21.Systems damage, failures, interruptions, cyberattacks and intrusions, and unauthorized data disclosures by the Company or its service providers may disrupt the Company’s business, harm the Company’s reputation, result in material claims for damages or otherwise adversely affect the Company

The Company uses computer systems and other technologies (collectively referred to as “systems”), some of which it owns and manages and some of which are owned and/or managed by third parties, including providers of distributed computing infrastructure platforms commonly known as the “cloud.” The Company and its agents, suppliers, service providers, and customers use these systems to receive, process, store and transmit business information, including non-public personal information as well as data from suppliers and other information upon which the Company’s business relies. The Company also uses these systems to manage substantial cash, investment assets, bank deposits, trust assets and escrow account balances on behalf of itself and its customers, among other activities. Many of the Company’s products, services and solutions involving the use of real property related data are fully reliant on these systems and are only available electronically. Accordingly, for a variety of reasons, the integrity of these systems and the protection of the information that resides thereon are critically important to the Company’s successful operation.

These systems have been subject to, and are likely to continue to be the target of, computer viruses, cyberattacks, phishing attacks and other malicious activity. These attacks have increased in frequency and sophistication, particularly as a result of the coronavirus pandemic. The Company’s employees working remotely are more susceptible to social engineering attacks, intrusions and other malicious activity, and this risk has increased given that a substantial number of the Company’s employees are working from home as a result of the coronavirus pandemic. Further, certain other potential causes of system damage or other negative system-related events are wholly or partially beyond the Company’s control, such as natural disasters, vendor failures to satisfy service level requirements and power or telecommunications failures. These incidents, regardless of their underlying causes, could expose the Company to system-related damages, failures, interruptions, cyberattacks and other negative events or could otherwise disrupt the Company’s business and could also result in the loss or unauthorized release, gathering, monitoring or destruction of confidential, proprietary and other information pertaining to the Company, its customers, employees, agents or suppliers.

In conducting its business and delivering its products and services, the Company also utilizes service providers. These service providers and the systems they utilize are typically subject to similar types of system- and information security-related risks that the Company faces. The Company provides certain of these service providers with data, including nonpublic personal information. There is no guarantee that the Company’s due diligence or ongoing vendor oversight will be sufficient to ensure the integrity and security of the systems utilized by these service providers or the protection of the information that resides thereon. Adverse consequences for the Company in the event of a significant event involving the systems of its service providers or the information residing thereon include, among others, delays in the delivery of the Company’s products and services, direct or indirect financial loss, loss of business and reputational damage.

During the third quarter of 2019, the Company concluded an investigation regarding ~~potential~~ unauthorized access to non-public personal information as a result of a vulnerability in one of the Company's applications. The investigation identified imaged documents containing non-public personal information pertaining to 32 consumers that likely were accessed without authorization. These 32 consumers were notified and offered complimentary credit monitoring services. This incident triggered numerous federal and state governmental inquiries as well as private lawsuits against the Company. While the incident is not expected to have a material impact on the Company’s business, it increases the risk associated with any future incidents, particularly the risk of damage to the Company’s reputation.

Certain laws and contracts the Company has entered into require it to notify various parties, including consumers or customers, in the event of certain actual or potential data breaches or systems failures, including those of the Company’s service providers. These notifications can result, among other things, in the loss of customers, lawsuits, adverse publicity, diversion of management’s time and energy, the attention of regulatory authorities, fines and disruptions in sales. Further, the Company’s financial institution customers have obligations to safeguard their systems and sensitive information and the Company may be bound contractually and/or by regulation to comply with the same requirements. If the Company or its service providers fail to comply with applicable regulations and contractual requirements, the Company could be exposed to lawsuits, governmental proceedings or the imposition of fines, among other consequences.

Any inability to prevent or adequately respond to the issues described above could disrupt the Company’s business, inhibit its ability to retain existing customers or attract new customers, otherwise harm its reputation and/or result in financial losses, litigation, increased costs or other adverse consequences that could be material to the Company.

22.The Company is pursuing various innovative initiatives, which could result in increased title claims or otherwise adversely affect the Company

In an effort to speed the delivery of its products, increase efficiency, improve quality, improve the customer experience and decrease risk, the Company is increasingly utilizing innovative technologies, processes and techniques in the creation of its products and services. These efforts include streamlining the closing process by converting certain manual processes into automated ones, in an endeavor to improve the customer experience by simplifying and reducing the time it takes to close a transaction, reducing risk and improving communication. The Company increasingly is employing advanced technologies to automate various processes, including various processes related to the building, maintaining and updating of title plants and other data assets, as well as the search and examination of information in connection with the issuance of title insurance policies. As a result of the recent reduction in interest rates in connection with the coronavirus pandemic, the Company has experienced a significant increase in refinance orders. To facilitate the processing of these orders, the Company has expanded the use of certain of these advanced technologies. Risks from these and other innovative initiatives include those associated with potential defects in the design and development of the technologies used to automate processes, misapplication of technologies, the reliance on data that may prove inadequate, and failure to meet customer expectations, among others. As a result of these risks the Company could experience increased claims, reputational damage or other adverse effects, which could be material to the Company.

23.Potentially disruptive innovation in the real estate industry and/or the Company’s participation in these efforts could adversely affect the Company

In addition to the ~~Company’s~~Company��s innovative activities, other participants in the real estate industry are seeking to innovate in ways that could adversely impact the Company’s businesses. These participants include certain of the Company’s sources of business, competitors and ultimate customers. Innovations by these participants may change the demand for the Company’s products and services, the manner in which the Company’s products and services are ordered or fulfilled and the revenue or profitability derived from the products and services. The Company has made and will likely continue to make high-risk, illiquid investments in some of these participants, typically during their early- and growth-stages. If any of these companies do not succeed, the Company could lose and/or be required to impair all or part of its investment in the unsuccessful company. The risk of failure or impairment for these investments is greater in the current economic environment. These investments could also facilitate efforts that ultimately disrupt the Company’s business or enable competitors. Accordingly, the Company’s efforts to anticipate and participate in these transformations could require significant additional investment and management attention and may not succeed. These innovative efforts by third parties, and the manner in which the Company, its agents and other industry participants respond to them, could therefore have an adverse effect on the Company.

24.Errors and fraud involving the transfer of funds may adversely affect the Company

The Company relies on its systems, employees and domestic and international banks to transfer its own funds and the funds of third parties. In addition to relying on third-party banks to transfer these funds, the Company’s federal savings bank subsidiary transfers funds on behalf of the Company as well as title agents that are not affiliates of the Company. These transfers are susceptible to user input error, fraud, system interruptions, incorrect processing and similar errors that from time to time result in lost funds or delayed transactions. The Company’s email and computer systems and systems used by its agents, customers and other parties involved in a transaction have been subject to, and are likely to continue to be the target of, fraudulent attacks, including attempts to cause the Company or its agents to improperly transfer funds. These attacks have increased in frequency and sophistication. Funds transferred to a fraudulent recipient are often not recoverable. In certain instances the Company may be liable for those unrecovered funds. The controls and procedures used by the Company to prevent transfer errors and fraud may prove inadequate, resulting in financial losses, reputational harm, loss of customers or other adverse consequences which could be material to the Company.

25.The Company’s use of a global workforce involves risks that could adversely affect the Company

The Company utilizes lower cost labor in countries such as India and the Philippines, among others. These countries are subject to relatively high degrees of political and social instability and may lack the infrastructure to withstand natural disasters, health crises and other catastrophe events. Such disruptions could decrease efficiency and increase the Company’s costs, which the Company ~~is currently experiencing as a result of~~has experienced during the coronavirus pandemic. Weakness of the United States dollar in relation to the currencies used in these countries may also reduce the savings achievable through this strategy. Furthermore, the practice of utilizing labor based in other countries is subject to heightened scrutiny in the United States and, as a result, the Company could face pressure to decrease its use of labor based outside the United States. Laws or regulations that require the Company to use labor based in the United States or effectively increase the Company’s labor costs abroad also could be enacted. The Company may not be able to pass on these increased costs to its customers.

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

The Company is a holding company whose primary assets are investments in its operating subsidiaries. The Company’s ability to pay dividends is dependent on the ability of its subsidiaries to pay dividends or repay funds. If the Company’s operating subsidiaries are not able to pay dividends or repay funds, the Company may not be able to fulfill parent company obligations and/or declare and pay dividends to its stockholders. Moreover, pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available is limited. As of ~~March 31,~~June 30, 2020, under such regulations, the maximum amount available for the remainder of 2020 from these insurance subsidiaries, without prior approval from applicable regulators, was dividends of ~~$355.5~~$299.5 million and loans and advances of $110.3 million.

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

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

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

During the quarter ended ~~March 31,~~June 30, 2020, the Company did not issue any unregistered common stock.

Pursuant to the share repurchase program initially announced by the Company on March 16, 2011 and expanded on March 11, 2014, which program has no expiration date, the Company may repurchase up to $250.0 million of the Company’s issued and outstanding common stock. The following table describes purchases by the Company under the share repurchase program that settled during each period set forth in the table. Prices in column (b) include commissions. Cumulatively, as of ~~March 31,~~June 30, 2020, the Company had repurchased ~~$154.2~~$157.3 million (including commissions) of its shares and had the authority to repurchase an additional ~~$95.8~~$92.7 million (including commissions) under the program.

Each management contract or compensatory plan or arrangement in which any director or named executive officer of First American Financial Corporation, as defined by Item 402(a)(3) of Regulation S-K (17 C.F.R. §229.402(a)(3)), participates that is included among the exhibits listed on the Exhibit Index is identified on the Exhibit Index by an asterisk (*).

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

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

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, $0.00001 par value		FAF		New York Stock Exchange

PART I: FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	A. Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019	5

	B. Condensed Consolidated Statements of Income for the three and six months ended ~~March 31,~~June 30, 2020 and 2019	6

	C. Condensed Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2020 and 2019	7

	D. Condensed Consolidated Statements of Stockholders’ Equity for each of the ~~three~~quarters within the six months ended ~~March 31,~~June 30, 2020 and 2019	8

	E. Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019	10

	F. Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3536

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4648

Item 4.	Controls and Procedures	4648

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	4649

Item 1A.	Risk Factors	4850

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5760

Item 6.	Exhibits	5861

Year	(in thousands)
Remainder of 2020	$	28,650
2021	$	28,394
2022	$	27,285
2023	$	25,461
2024	$	20,094
2025	$	14,352

Year	(in thousands)
Remainder of 2020	$	20,997
2021	$	34,311
2022	$	32,796
2023	$	29,903
2024	$	23,775
2025	$	17,656

(in thousands)	Amounts reclassified from AOCI						Affected line items in the condensed consolidated statements of income
	Three Months Ended March 31,
	2020				2019
Unrealized gains (losses) on debt securities:
Net realized gains (losses) on sales of debt securities	$	4,671		$	(41	)	Net realized investment (losses) gains
Credit losses recognized on debt securities		(7,493	)		—		Net realized investment (losses) gains
Pretax total	$	(2,822	)	$	(41	)
Tax effect	$	854		$	10
Pension benefit adjustment (1):
Amortization of net actuarial loss	$	(1,320	)	$	(915	)	Other operating expenses
Amortization of prior service credit		777			1,018		Other operating expenses
Pretax total	$	(543	)	$	103
Tax effect	$	224		$	(27	)

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2020 to January 31, 2020		—	$	—		—	$	161,570,615
February 1, 2020 to February 29, 2020		—		—		—		161,570,615
March 1, 2020 to March 31, 2020		1,702,646		38.64		1,702,646		95,785,565
Total		1,702,646	$	38.64		1,702,646	$	95,785,565

Exhibit No.	Description	Location

3.1	Amended and Restated Certificate of Incorporation of First American Financial Corporation dated May 28, 2010.	Incorporated by reference herein to Exhibit 3.1 to the Current Report on Form 8-K filed June 1, 2010.

3.2	Bylaws of First American Financial Corporation, effective as of August 16, 2017.	Incorporated by reference herein to Exhibit 3.1 to the Current Report on Form 8-K filed August 22, 2017.

4.1	Third Supplemental Indenture, dated as of May 15, 2020, between First American Financial Corporation and U.S. Bank National Association, as Trustee.	Incorporated by reference herein to Exhibit 4.2 to the Current Report on Form 8-K filed May 15, 2020.

4.2	Form of 4.00% Senior Notes due 2030.	Incorporated by reference herein to Exhibit A to Exhibit 4.2 to the Current Report on Form 8-K filed May 15, 2020.

10.1*	First American Financial Corporation 2020 Incentive Compensation Plan, approved May 5, 2020.	Incorporated by reference herein to Appendix B to the Proxy Statement on Schedule 14A filed March 31, 2020.

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

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

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

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

101.INS	Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	N/A.

101.SCH	Inline XBRL Taxonomy Extension Schema Document.	Attached.

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

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

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	Attached.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	Attached.

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).	N/A.

	FIRST AMERICAN FINANCIAL CORPORATION (Registrant)

Date: ~~April 28,~~July 23, 2020	By	/s/ Dennis J. Gilmore
		Dennis J. Gilmore
		Chief Executive Officer (Principal Executive Officer)

Date: ~~April 28,~~July 23, 2020	By	/s/ Mark E. Seaton
		Mark E. Seaton
		Executive Vice President, Chief Financial Officer (Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company