FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the quarterly period ended June 30, 2003

OR

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

For the transition period from __________ to __________

Commission file number          0-3658

THE FIRST AMERICAN CORPORATION

(Exact name of registrant as specified in its charter)

Incorporated in California	95-1068610
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1 First American Way, Santa Ana, California	92707-5913
(Address of principal executive offices)	(Zip Code)
(714) 800-3000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

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

Yes   x No   o

Indicate by check mark if the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes   x No   o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes   o No   o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.$1 par value - 77,589,939 as of August 11, 2003

INFORMATION INCLUDED IN REPORT

			Page No.
Part I:	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		A.  Condensed Consolidated Balance Sheets	3
		B.  Condensed Consolidated Statements of Income and Comprehensive Income	4
		C.  Condensed Consolidated Statements of Cash Flows	5
		D.  Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedures	15
Part II:	OTHER INFORMATION
	Item 4.	Submission of Matters to a Vote of Security Holders	16
	Item 6.	Exhibits and Reports on Form 8-K	16

2

Part I:      Financial Information
Item 1:     Financial Statements

THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES

Condensed Consolidated Balance Sheets
(in thousands, except percentage and share data)

	June 30, 2003			December 31, 2002
	(unaudited)
Assets
Cash and cash equivalents	$	1,053,818		$	900,863
Accounts and accrued income receivable, net		395,029			299,040
Investments:
Deposits with savings and loan associations and banks		40,901			38,328
Debt securities		339,883			309,864
Equity securities		42,447			36,931
Other long-term investments		235,715			142,392
		658,946			527,515
Loans receivable, net		107,657			108,162
Property and equipment, at cost:
Land		43,468			43,185
Buildings		185,017			183,045
Furniture and equipment		281,163			270,004
Capitalized software		315,249			284,537
		824,897			780,771
Less- accumulated depreciation and amortization		(381,971	)		(347,695	)
		442,926			433,076
Title plants and other indexes		388,619			375,401
Deferred income taxes		18,901			20,951
Goodwill, net		645,849			563,991
Other assets		230,145			169,046
	$	3,941,890		$	3,398,045
Liabilities and Stockholders’ Equity
Demand deposits	$	83,162		$	84,473
Accounts payable and accrued liabilities		624,390			539,069
Deferred revenue		405,873			358,747
Reserve for known and incurred but not reported claims		379,207			360,305
Income taxes payable		59,378			1,518
Notes and contracts payable		425,650			425,705
Minority interests in consolidated subsidiaries		221,558			163,639
Commitments and contingencies
Mandatorily redeemable preferred securities of the Company’s subsidiary trust whose sole assets are the Company’s $100,000 8.5% deferrable interest subordinated notes due 2012		100,000			100,000
Stockholders’ equity:
Preferred stock, $1 par value Authorized - 500,000 shares; outstanding - none
Common stock, $1 par value Authorized - 180,000,000 shares
Outstanding - 77,469,000 and 73,636,000 shares		77,469			73,636
Additional paid-in capital		432,552			359,644
Retained earnings		1,187,524			987,768
Accumulated other comprehensive loss		(54,873	)		(56,459	)
		1,642,672			1,364,589
	$	3,941,890		$	3,398,045

See notes to condensed consolidated financial statements.

3

THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share amounts)

	For the Three Months Ended June 30						For the Six Months Ended June 30
	2003			2002			2003			2002
	(unaudited)						(unaudited)
Revenues
Operating revenues	$	1,513,554		$	1,084,581		$	2,818,417		$	2,107,921
Investment and other income		27,790			19,576			52,357			38,379
Net realized investment gains (losses)		1,587			(12,627	)		14,132			(12,568	)
		1,542,931			1,091,530			2,884,906			2,133,732
Expenses
Salaries and other personnel costs		439,769			363,918			846,986			709,243
Premiums retained by agents		408,784			308,839			774,493			593,133
Other operating expenses		327,804			243,829			621,191			481,187
Provision for policy losses and other claims		79,403			52,697			146,642			99,796
Depreciation and amortization		26,555			25,084			52,570			49,232
Premium taxes		12,010			8,393			22,466			15,592
Interest		8,853			8,716			17,312			16,936
		1,303,178			1,011,476			2,481,660			1,965,119
Income before income taxes and minority interests		239,753			80,054			403,246			168,613
Income taxes		83,100			26,300			139,100			57,300
Income before minority interests		156,653			53,754			264,146			111,313
Minority interests		29,177			13,633			49,090			27,117
Net income		127,476			40,121			215,056			84,196
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities		3,653			(4,475	)		3,220			(5,010	)
Minimum pension liability adjustment		(1,950	)		(100	)		(5,050	)		(2,375	)
		1,703			(4,575	)		(1,830	)		(7,385	)
Comprehensive income	$	129,179		$	35,546		$	213,226		$	76,811
Net income per share (Note 2):
Basic	$	1.67		$	0.56		$	2.86		$	1.19
Diluted	$	1.47		$	0.51		$	2.53		$	1.07
Cash dividends per share	$	.10		$	.08		$	.20		$	.15
Weighted average number of shares (Note 2):
Basic		76,420			71,454			75,289			70,725
Diluted		87,915			82,672			86,506			81,829

See notes to condensed consolidated financial statements.

4

THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows
(in thousands)

	For the Six Months Ended
	June 30
	2003		2002
	(unaudited)
Cash flows from operating activities:
Net income	$215,056		$84,196
Adjustments to reconcile net income to cash
provided by operating activities—
Provision for policy losses and other claims	146,642		99,796
Depreciation and amortization	52,570		49,232
Minority interests in net income	49,090		27,117
Net investment (gains) losses	(14,132	)	12,568
Other, net	(30,047	)	(15,590	)
Changes in assets and liabilities excluding effects of
company acquisitions and noncash transactions—
Claims paid, net of recoveries	(131,031	)	(94,645	)
Net change in income tax accounts	56,154		3,881
Increase in accounts and accrued income receivable	(93,124	)	(21,194	)
Increase in accounts payable and accrued liabilities	85,654		29,001
Increase in deferred revenue	47,011		30,694
Other, net	(21,631	)	(9,116	)
Cash provided by operating activities	362,212		195,940
Cash flows from investing activities:
Net cash effect of company acquisitions/dispositions	(74,974	)	(23,852	)
Net increase in deposits with banks	(2,296	)	(13,127	)
Net decrease (increase) in loans receivable	505		(2,480	)
Purchases of debt and equity securities	(128,660	)	(154,600	)
Proceeds from sales of debt and equity securities	69,711		39,571
Proceeds from maturities of debt securities	30,866		77,658
Net decrease in other investments	2,702		7,188
Capital expenditures	(50,900	)	(46,984	)
Purchases of capitalized data	(9,771	)	(8,280	)
Proceeds from sale of property and equipment	649		1,757
Cash used for investing activities	(162,168	)	(123,149	)
Cash flows from financing activities:
Net change in demand deposits	(1,311	)	(3,580	)
Proceeds from issuance of debt	7,748		4,479
Repayment of debt	(21,635	)	(12,324	)
Proceeds from exercise of stock options	13,526		6,372
Proceeds from the issuance of stock to employee benefit plans	3,159		2,002
Distributions to minority shareholders	(33,614	)	(18,389	)
Cash dividends	(14,962	)	(11,430	)
Cash used for financing activities	(47,089	)	(32,870	)
Net increase in cash and cash equivalents	152,955		39,921
Cash and cash equivalents — Beginning of year	900,863		645,240
— End of first half	$1,053,818		$685,161
Supplemental information:
Cash paid during the first half for:
Interest	$17,152		$16,456
Premium taxes	$27,250		$15,674
Income taxes	$86,491		$52,395
Noncash investing and financing activities:
Shares issued for employee benefit plans	$42,376		$17,491
Liabilities incurred in connection with company acquisitions	$61,009		$28,728
Company acquisitions in exchange for common stock	$17,680		$26,380
See notes to condensed consolidated financial statements. 5

THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 - Basis of Condensed Consolidated Financial Statements

The condensed consolidated financial information included in this report has been prepared in conformity with the accounting principles and practices reflected in the consolidated financial statements included in the annual report filed with the Securities and Exchange Commission for the preceding calendar year.  All adjustments are of a normal recurring nature and are, in the opinion of management, necessary to a fair statement of the consolidated results for the interim periods. Certain 2002 amounts have been reclassified to conform to the 2003 presentation.  This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. 

Note 2 – Earnings Per Share

	For the Three Months Ended June 30				For the Six Months Ended June 30
(in thousands, except per share amounts)	2003		2002		2003		2002
Numerator:
Net Income-numerator  for basic net income per share	$	127,476	$	40,121	$	215,056	$	84,196
Effect of dilutive securities
Add:  Convertible debt - interest expense (net of tax)		1,711		1,761		3,434		3,534
Net Income–numerator for dilutive net income per share	$	129,187	$	41,882	$	218,490	$	87,730
Denominator:
Weighted average shares-denominator For basic net income per share		76,420		71,454		75,289		70,725
Effect of dilutive securities:
Employee stock options		3,089		2,662		2,792		2,529
Convertible debt		8,406		8,556		8,425		8,575
Denominator for diluted net income per share		87,915		82,672		86,506		81,829
Basic net income per share	$	1.67	$	0.56	$	2.86	$	1.19
Diluted net income per share	$	1.47	$	0.51	$	2.53	$	1.07
Antidilutive stock options		304		3,504		1,844		3,651

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Note 3 – Stock Options

Effective December 15, 2002, the Company adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, which amends Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation” (SFAS 148).  In accounting for its plans, the Company, as allowable under the provisions of SFAS 148, applies Accounting Principles Board Opinions No. 25, “Accounting for Stock Issued to Employees.”  As a result of this election, the Company does not recognize compensation expense for its stock option plans.  Had the Company determined compensation cost based on the fair value for its stock options at grant date, net income and earnings per share would have been reduced to the pro forma amounts as follows:

	For the Three Months Ended June 30						For the Six Months Ended June 30
(in thousands, except per share amounts)	2003			2002			2003			2002
Net Income:
As reported	$	127,476		$	40,121		$	215,056		$	84,196
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of tax		(1,839	)		(539	)		(2,956	)		(1,772	)
Pro forma	$	125,637		$	39,582		$	212,100		$	82,424
Net income per share:
As reported:
Basic	$	1.67		$	0.56		$	2.86		$	1.19
Diluted	$	1.47		$	0.51		$	2.53		$	1.07
Pro forma:
Basic	$	1.64		$	0.55		$	2.82		$	1.16
Diluted	$	1.45		$	0.50		$	2.49		$	1.05

Note  4 – Business Combinations

On June 5, 2003, the Company formed First Advantage Corporation, which was created through the merger of First American Corporation’s screening information businesses with the operations of US SEARCH.com Inc.   Under the terms of the agreement, the former stockholders of US SEARCH received 0.04 of a Class A common share of First Advantage for each share of US SEARCH owned prior to the merger.  The former stockholders of US SEARCH hold approximately 20 percent of the total shares of First Advantage.  The First American Corporation received Class B common stock, entitling 10 votes for each share, representing approximately 80 percent of the total shares of First Advantage.  As a result of this acquisition, the Company recorded approximately $3.0 million of intangible assets with definite lives and $53.8 million of goodwill.  The new public company trades Class A common stock as “FADV” on the NASDAQ National Market System.  

In addition to the acquisition discussed above, the Company acquired 17 companies during the six months ended June 30, 2003.  These acquisitions were not material individually or in the aggregate.  Of these acquisitions, 15 have been included in the Company’s title insurance segment and two are in the Company’s property information segment.  The aggregate purchase price was $78.5 million in cash, $16.2 million in notes payable and .7 million shares, valued at $17.7 million, of the Company’s common stock.   The purchase price for each was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis.  As a result of these acquisitions, the Company recorded approximately $10.9 million of intangible assets with definite lives and $38.9 million of goodwill.

7

Note 5 – Segment Information

In order to expand the disclosure of the Company’s business segments and to report financial results in a manner consistent with the reporting responsibilities of the Company’s management, the Company established seven reporting segments that fall within two primary business groups, Financial Services and Information Technology.  The Financial Services Group includes Title Insurance and Services, Specialty Insurance and Trust and Other Services.  The Information Technology Group includes Mortgage Information, Property Information, Credit Information and Screening Information.

For the three months ended June 30, 2003:

(in thousands)	Revenues		Income (loss) before income taxes and minority interests			Depreciation and amortization		Capital expenditures
Financial Services
Title Insurance and Services	$	1,100,929	$	140,035		$	9,271	$	12,908
Specialty Insurance		54,062		8,241			491		596
Trust and Other Services		10,257		3,002			214		16
		1,165,248		151,278			9,976		13,520
Information Technology
Mortgage Information		160,937		62,653			3,727		5,371
Property Information		105,156		32,390			5,497		1,875
Credit Information		71,781		17,971			2,865		3,257
Screening Information		37,374		3,218			1,785		1,253
		375,248		116,232			13,874		11,756
		1,540,496		267,510			23,850		25,276
Corporate		2,435		(27,757	)		2,705		3,692
	$	1,542,931	$	239,753		$	26,555	$	28,968

For the three months ended June 30, 2002:

(in thousands)	Revenues			Income (loss) before income taxes and minority interests			Depreciation and amortization		Capital expenditures
Financial Services
Title Insurance and Services	$	808,094		$	50,110		$	11,341	$	16,557
Specialty Insurance		36,119			6,159			653		530
Trust and Other Services		11,650			4,587			272		53
		855,863			60,856			12,266		17,140
Information Technology
Mortgage Information		109,497			29,551			2,244		2,566
Property Information		62,283			15,021			4,638		2,995
Credit Information		52,122			7,231			3,097		1,969
Screening Information		24,700			1,966			726		756
		248,602			53,769			10,705		8,286
		1,104,465			114,625			22,971		25,426
Corporate		(12,935	)		(34,571	)		2,113		896
	$	1,091,530		$	80,054		$	25,084	$	26,322

8

For the six months ended June 30, 2003:

(in thousands)	Revenues		Income (loss) before income taxes and minority interests			Depreciation and amortization		Capital expenditures
Financial Services
Title Insurance and Services	$	2,045,320	$	226,801		$	18,583	$	22,519
Specialty Insurance		102,646		14,080			913		800
Trust and Other Services		20,108		5,443			443		24
		2,168,074		246,324			19,939		23,343
Information Technology
Mortgage Information		302,814		108,450			7,522		7,927
Property Information		192,597		55,833			10,979		4,916
Credit Information		149,827		44,578			6,010		4,500
Screening Information		68,992		3,733			3,570		2,757
		714,230		212,594			28,081		20,100
		2,882,304		458,918			48,020		43,443
Corporate		2,602		(55,672	)		4,550		7,457
	$	2,884,906	$	403,246		$	52,570	$	50,900

For the six months ended June 30, 2002:

(in thousands)	Revenues			Income (loss) before income taxes and minority interests			Depreciation and amortization		Capital expenditures
Financial Services
Title Insurance and Services	$	1,559,235		$	89,762		$	23,142	$	26,001
Specialty Insurance		67,686			11,841			946		1,039
Trust and Other Services		22,786			8,812			563		66
		1,649,707			110,415			24,651		27,106
Information Technology
Mortgage Information		219,049			61,057			4,380		4,398
Property Information		120,756			26,665			9,012		5,770
Credit Information		108,754			19,884			5,906		5,168
Screening Information		47,454			2,748			1,284		1,675
		496,013			110,354			20,582		17,011
		2,145,720			220,769			45,233		44,117
Corporate		(11,988	)		(52,156	)		3,999		2,867
	$	2,133,732		$	168,613		$	49,232	$	46,984

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Note 6 – Goodwill and Other Intangible Assets

The Company’s reporting units for purposes of the annual testing for impairment of goodwill are title insurance, home warranty, property and casualty insurance, trust and other services, mortgage origination products and services, mortgage servicing products and services, property information services, conventional credit information, sub-prime credit information, pre-employment and drug screening, tenant screening and motor vehicle reporting.

A reconciliation of the changes in the carrying amount of net goodwill, by operating segment, for the six months ended June 30, 2003, is as follows (in thousands):

	Balance as of December 31, 2002		Acquired (Disposed of) During the Period			Impairment Losses		Balance as of June 30, 2003
Financial Services
Title Insurance and Services	$	149,013	$	2,809		$	—	$	151,822
Specialty Insurances		19,794		—			—		19,794
Trust and Other Services		—		—			—		—
Information Technology
Mortgage Information		72,423		—			—		72,423
Property Information		124,678		23,009			—		147,687
Credit Information		86,900		(10,562	)		—		76,338
Screening Information		111,183		66,602			—		177,785
	$	563,991	$	81,858		$	—	$	645,849

The Company had $41.6 million of intangible assets included in “Other assets” at June 30, 2003, with definite lives ranging from three to seven years.  These assets, comprised primarily of customer lists and noncompete agreements, are being amortized in a manner consistent with periods prior to the adoption of SFAS 142.

Note 7 – Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.  This statement is effective for interim periods beginning after June 15, 2003 and establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.   The implementation of this statement will require the Company to reclassify its “Mandatorily redeemable preferred securities of the Company’s subsidiary trust whose sole assets are the Company’s $100,000,000 8.5% deferrable interest subordinated notes due 2012” as debt.  As a result of the change in classification, the Company’s debt-to-total capitalization ratio will be increased.  This change will not have any other impact on the Company’s financial condition or results of operations.

10

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

Certain statements made in this 10-Q, including those relating to anticipated cash requirements, are forward looking.  Risks and uncertainties exist which 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: interest rate fluctuations; changes in the performance of the real estate markets; general volatility in the capital markets; changes in applicable government regulations; consolidation among the Company’s significant customers and competitors; legal proceedings commenced by the California attorney general and related litigation; the Company’s continued ability to identify businesses to be acquired; changes in the Company’s ability to integrate businesses which it acquires; and other factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.  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.

RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosure of contingencies.  A summary of the significant critical accounting policies of the Company can be found in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. 

Additionally, pursuant to SFAS 142, the Company is required to perform an annual impairment test for goodwill and other intangible assets. This impairment test is performed utilizing a variety of valuation techniques, all which require management to make estimates and judgments, and include discounted cash flow analysis, market approach valuations and the use of third party valuation advisors. Certain of these valuation techniques are also utilized by the Company in accounting for business combinations, primarily in the determination of the fair value of acquired assets and liabilities.

OVERVIEW

Elevated levels of mortgage applications in the fourth quarter of 2002 produced strong order closings in the first quarter of 2003.  This contributed to a strong first quarter in the real estate-related segments of the Company’s Financial Services and Information Technology groups.  Mortgage applications reached record levels during the second quarter of 2003 and, coupled with operating efficiencies resulting from technology enhancements and related infrastructure cost-cutting initiatives, resulted in record-breaking quarterly results for the three months ended June 30, 2003.  Net income for the three months ended June 30, 2003, was $127.5 million, or $1.47 per diluted share, compared with net income of $40.1 million, or $0.51 per diluted share for the three months ended June 30, 2002.  Net income for the six months ended June 30, 2003, was  $215.1 million, or $2.53 per diluted share, compared with net income of $84.2 million, or $1.07 per diluted share for the six months ended June 30, 2002. 

11

OPERATING REVENUES

Set forth below is a summary of operating revenues for each of the Company’s segments (in thousands, except percentages).

	Three Months Ended June 30								Six Months Ended June 30
	2003		%		2002		%		2003		%		2002		%
Financial Services:
Title Insurance:
Direct operations	$	581,965		38	$	419,603		39	$	1,066,273		38	$	806,777		38
Agency operations		508,758		34		378,622		35		957,754		34		735,419		35
		1,090,723		72		798,225		74		2,024,027		72		1,542,196		73
Specialty Insurance		50,889		3		33,580		3		97,033		3		62,892		3
Trust and Other Services		10,202		1		11,538		1		20,107		1		22,694		1
		1,151,814		76		843,343		78		2,141,167		76		1,627,782		77
Information Technology:
Mortgage Information		157,256		10		108,530		10		296,364		11		216,660		10
Property Information		98,022		6		57,453		5		180,302		6		112,563		6
Credit Information		69,116		5		50,548		5		131,644		5		103,547		5
Screening Information		37,346		3		24,707		2		68,940		2		47,369		2
		361,740		24		241,238		22		677,250		24		480,139		23
Total Operating Revenues	$	1,513,554		100	$	1,084,581		100	$	2,818,417		100	$	2,107,921		100

Financial Services.  Operating revenues from direct title operations increased 38.7% and 32.2% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These increases were primarily due to an increase in the number of title orders closed by the Company’s direct operations.   The Company’s direct operations closed 533,100 and 988,800 title orders during the current three and six month periods, respectively, increases of 39.7% and 27.7% when compared with 381,500 and 774,500 closed during the same periods of the prior year.  These increases were primarily due to the factors mentioned above in the Overview section.  Operating revenues from agency operations increased 34.4% and 30.2% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These fluctuations were primarily due to the same factors affecting direct title operations as well as the timing of the reporting of agency remittances.   Specialty insurance operating revenues increased 51.5% and 54.3% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These increases were primarily due to geographic expansion at the Company’s home warranty division and market share growth at the property and casualty insurance division.  Trust and other services operating revenues decreased 11.6% and 11.4% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These decreases were primarily attributable to a reduction in fees earned due to the declining values of the investment portfolios managed by this segment.

Information Technology.  Mortgage information operating revenues increased 44.9% and 36.8% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These increases were primarily due to market share gains and to the increase in real estate activity.  Property information operating revenues increased 70.6% and 60.2% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These increases were primarily attributable to market share gains, the increase in real estate activity, and $17.1 million and $29.3 million of operating revenues contributed by new acquisitions for the three and six months ended June 30, 2003, respectively.  Credit information operating revenues increased 36.7% and 27.1% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These increases were primarily due to an increase in the demand for mortgage credit information, as well as $2.7 million and $5.3 million of operating revenues contributed by new acquisitions for the three and six months ended June 30, 2003, respectively.  Screening information operating revenues increased 51.2% and 45.5% for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.  These increases were primarily attributable to $10.5 million and $17.3 million of operating revenues contributed by new acquisitions for the respective periods.  

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INVESTMENT AND OTHER INCOME

Investment and other income totaled $27.8 million and $52.4 million for the three and six months ended June 30, 2003, respectively, representing increases of $8.2 million, or 42.0%, and $14.0 million, or 36.4%, when compared with the same periods of the prior year.  These increases resulted primarily from an increase in earnings from unconsolidated affiliates, which are accounted for under the equity method of accounting.

NET REALIZED INVESTMENT GAINS

Net realized investment gains totaled $1.6 million and $14.1 million for the three and six months ended June 30, 2003, respectively, compared with losses totaling $12.6 million for both the three and six months ended June 30, 2002.  The current six-month period included a $13.1 million realized investment gain associated with the merger of the Company’s Credit Online business with DealerTrack Holdings, Inc.   Included in the prior year periods were $13.6 million of investment losses resulting from the write-down of WorldCom bonds. The majority of the write-down related to the Company’s Capital Management Division, which manages funds for the benefit of the Company’s 1031 tax-deferred exchange customers.

TOTAL OPERATING EXPENSES

Financial Services.  Salaries and other personnel costs for the Financial Services group, which primarily reflects the title insurance segment, were $319.5 million and $614.2 million for the three and six months ended June 30, 2003, respectively, increases of $48.2 million, or 17.8%, and $87.7 million, or 16.7%, when compared with the same periods of the prior year. These increases were primarily attributable to incremental labor costs incurred to service the increase in business volume, particularly at the title insurance operations, where the Company experienced a 51.7% and 38.7% increase in total order volume for the three and six months ended June 30, 2003, when compared with the same periods of the prior year.  Offsetting in part the increase in personnel costs due to the increase in business volume were operational efficiencies in the title insurance segment which resulted from the Company’s FAST technology and related cost-cutting initiatives.  Salaries and other personnel costs as a percentage of operating revenues for the Financial Services group were 27.7% and 28.7% for the three and six months ended June 30, 2003, respectively, and 32.2% and 32.3% for the respective periods of the prior year. 

Agents retained $408.8 million and $774.5 million of title premiums generated by agency operations for the three and six months ended June 30, 2003, respectively, which compares with $308.8 million and $593.1 million for the same periods of the prior year.  The percentage of title premiums retained by agents ranged from 80.3% to 81.6% due to regional variances (i.e., the agency share varies from region to region and thus the geographical mix of agency revenues causes this variation).

Other operating expenses for the Financial Services group, which primarily reflect the title insurance segment, were $187.8 million and $349.6 million for the three and six months ended June 30, 2003, respectively, increases of $45.5 million, or 32.0%, and $67.8 million, or 24.1%, when compared with the same periods of the prior year.  These increases were primarily the result of incremental costs incurred to service the increase in business volume.  Other operating expenses as a percentage of operating revenues for the Financial Services group were 16.3% for both the three and six months ended June 30, 2003, and 16.9% and 17.3% for the respective periods of the prior year.

The provision for policy losses and other claims primarily represents title insurance claims, home warranty claims and property and casualty insurance claims.  For the title insurance segment, the claims provision as a percentage of title insurance operating revenues was 4.1% for the current six-month period and 4.0% for the same period of the prior year.  This increase in rate reflects marginal adverse claims development experience for certain prior policy years.  For the home warranty business, the claims provision as a percentage of home warranty operating revenues was 45.8% for the current six-month period and 50.2% for the same period of the prior year.  This decrease in rate was primarily due to a reduction in the average cost per claim, which was primarily attributable to the elimination of higher-cost vendor contractors that were servicing claims in new geographic areas.  For the property and casualty business, the claims provision as a percentage of property and casualty insurance operating revenues was 73.7% for the current six-month period and 60.1% for the same period of the prior year.  This increase in rate was due to high claims activity experienced primarily during the first quarter of 2003 resulting from insured property damaged in Southern California as a result of extraordinarily high wind conditions. 

Premium taxes, which relate to the title insurance and specialty insurance segments, were $22.5 million and $15.6 million for the six months ended June 30, 2003 and 2002, respectively. Premium taxes as a percentage of title insurance and specialty insurance operating revenues were 1.1% for the current six-month period and 1.0% for the same period of the prior year.  The slight variation in rate was primarily due to the composition and geographical mix of the operating revenues (i.e., tax rates and bases vary from state to state).  

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Information Technology.  Information technology personnel and other operating expenses were $239.7 million and $464.3 million for the three and six months ended June 30, 2003, respectively, increases of $58.3 million, or 32.1%, and $104.9 million, or 29.2%, when compared with the same periods of the prior year.  Excluding acquisition activity, the increases were $38.4 million, or 21.2% for the current three-month period, and $72.5 million, or 20.2% for the current six-month period.  These increases were primarily due to costs incurred to service the increase in business volume, costs incurred to integrate new acquisitions and increased technology costs.  Personnel and other operating expenses as a percentage of operating revenues for the information technology group were 66.3% and 68.6% for the three and six months ended June 30, 2003, respectively, down from 75.2% and 74.9% for the same periods of the prior year. 

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 

Set forth below is a summary of income before income taxes and minority interests for each of the Company’s segments (in thousands, except percentages).

	Three Months Ended June 30										Six Months Ended June 30
	2003			%		2002			%		2003			%		2002			%
Financial Services
Title Insurance and Services	$	140,035			53	$	50,110			44	$	226,801			50	$	89,762			41
Speciality Insurance		8,241			3		6,159			5		14,080			3		11,841			5
Trust and Other Services		3,002			1		4,587			4		5,443			1		8,812			4
		151,278			57		60,856			53		246,324			54		110,415			50
Information Technology
Mortgage Information		62,653			23		29,551			26		108,450			23		61,057			28
Property Information		32,390			12		15,021			13		55,833			12		26,665			12
Credit Information		17,971			7		7,231			6		44,578			10		19,884			9
Screening Information		3,218			1		1,966			2		3,733			1		2,748			1
		116,232			43		53,769			47		212,594			46		110,354			50
Total before corporate		267,510			100		114,625			100		458,918			100		220,769			100
Corporate		(27,757	)				(34,571	)				(55,672	)				(52,156	)
Total	$	239,753				$	80,054				$	403,246				$	168,613

In general, the title insurance business is a lower profit margin business when compared to the Company’s other segments.  The lower profit margins reflect the high cost of producing title evidence whereas the corresponding revenues are subject to regulatory and competitive pricing restraints.  Due to this relatively high proportion of fixed costs, title insurance profit margins generally improve as closed order volumes increase.  In addition, title insurance profit margins are affected by the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity.  Profit margins from resale and new construction transactions are generally higher than from refinancing transactions because in many states there are premium discounts on, and cancellation rates are higher for, refinance transactions.  Title insurance profit margins are also affected by the percentage of operating revenues 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.  Most of the businesses included in the Information Technology group are database intensive, with a relatively high proportion of fixed costs.  As such, profit margins generally improve as revenues increase.  Revenues for the mortgage and property information segments, like the title insurance segment, are primarily dependent on the level of real estate activity and the cost and availability of mortgage funds.  Revenues for the credit information segment are in part impacted by real estate activity, but also by the consumer and automobile sectors.  Included in corporate expenses for the three and six months ended June 30, 2002, were the previously mentioned $13.6 million in investment losses resulting from the write down of WorldCom bonds.  Excluding these investment losses, corporate expenses increased $6.8 million and $17.1 million for the three and six months ended June 30, 2003, respectively, when compared with the same periods of the prior year.   These increases were primarily due to increased technology costs and higher general costs associated with the support effort needed to service the Company’s expanded national and international operations.  

INCOME TAXES

The effective income tax rate (income tax expense as a percentage of pretax income after minority interest expense) was 39.3% for the six months ended June 30, 2003, and 40.5% for the same period of the prior year.  The decrease in effective rate was primarily attributable to changes in the ratio of permanent differences to pretax profits.  A large portion of the Company’s minority interest expense is attributable to a limited liability company subsidiary which, for tax purposes, is treated as a partnership.  Accordingly, no income taxes have been provided for that portion of the minority interest expense.

14

MINORITY INTERESTS

Minority interest expense was $29.2 million and $49.1 million for the three and six months ended June 30, 2003, respectively, increases of $15.5 million and $22.0 million when compared with the same periods of the prior year.  These increases were primarily attributable to the increase in operating results of the Company’s joint venture with Experian.

NET INCOME

Net income for the three and six months ended June 30, 2003, was $127.5 million, or $1.47 per diluted share, and $215.1 million, or $2.53 per diluted share, respectively. Net income for the three and six months ended June 30, 2002, was $40.1 million, or $0.51 per diluted share, and $84.2 million, or $1.07 per diluted share, respectively. 

LIQUIDITY AND CAPITAL RESOURCES

Total cash and cash equivalents increased $153.0 million and $39.9 million for the six months ended June 30, 2003 and 2002, respectively.  The increase for the current year period as well as for the prior year period was primarily due to cash generated by operating activities, offset in part by capital expenditures, purchases of debt and equity securities, the cash effect of company acquisitions, the repayment of debt, distributions to minority shareholders and cash dividends. 

Notes and contracts payable (excluding the Company’s trust preferred securities) as a percentage of total capitalization decreased to 17.8% at June 30, 2003 from 20.7% at December 31, 2002.  This decrease was primarily due to net income for the six months ended June 30, 2003 and debt repayments. In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement is effective for interim periods beginning after June 15, 2003 and establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The implementation of this statement will require the Company to reclassify its “Mandatorily redeemable preferred securities of the Company’s subsidiary trust whose sole assets are the Company’s $100,000,000 8.5% deferrable interest subordinated notes due 2012” as debt. As a result of the change in classification, the Company’s debt-to-total capitalization ratio would have been 22.0% and 25.6% at June 30, 2003 and December 31, 2002, respectively.

Management believes that all of its anticipated operating cash requirements for the immediate future will be met from internally generated funds.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s risk since filing its Form 10K for the year ended December 31, 2002.

Item 4 – Controls and Procedures

Based upon an evaluation by the Company’s President and Chief Financial Officer within 90 days prior to the filing date of the Quarterly report on Form 10-Q, they have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-14(c) under the Securities and Exchange Act of 1934, as amended, are effective for gathering, analyzing and disclosing the information the Company is required to disclose in its reports filed under such Act.  Subsequent to the date of the evaluation, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls.

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PART II:	Other Information
Item 4.	Submission of Matters to a Vote of Security Holders.
	(a)	The annual meeting of shareholders (the “Meeting”) of The First American Corporation (the “Company”) was held on Thursday, May 8, 2003.
	(b)	The names of the persons who were nominated to serve as directors of the Company for the ensuing year are listed below, together with a tabulation of the results of the voting with respect to each nominee.  Each of the persons named was nominated by management of the Company and all such nominees were elected.

Name of Nominee	Votes For		Votes Withheld
Gary J. Beban		61,616,998		5,490,800
J. David Chatham		61,440,670		5,667,128
William G. Davis		61,579,509		5,528,289
James L. Doti		61,347,384		5,760,414
Lewis W. Douglas, Jr.		61,535,536		5,572,262
Paul B. Fay, Jr.		61,446,497		5,661,301
D. P. Kennedy		62,410,095		4,697,703
Parker S. Kennedy		62,453,608		4,654,190
Frank O’Bryan		62,194,502		4,913,296
Roslyn B. Payne		62,456,794		4,651,004
D. Van Skilling		66,545,637		562,161
Herbert B. Tasker		53,673,315		13,434,483
Virginia Ueberroth		53,758,306		13,349,492

		No other matters were voted upon at the Meeting or during the quarter for which this report is filed.
Item 6.		Exhibits and Reports on Form 8-K.
	(a)	Exhibits
		(31)(a)	Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
		(31)(b)	Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
		(32)(a)	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
		(32)(b)	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
	(b)	Reports on Form 8-K
		During the quarterly period covered by this report, the Company did not file any reports on Form 8-K. Subsequent to such quarterly period, the Company furnished a report on Form 8-K dated July 23, 2003 (reporting on second quarter 2003 earnings).

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SIGNATURES

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

THE FIRST AMERICAN CORPORATION

(Registrant)

/s/ THOMAS A. KLEMENS

Thomas A. Klemens
Executive Vice President
Chief Financial Officer

/s/ MAX O. VALDES

Max O. Valdes
Vice President
Chief Accounting Officer

Date:     August 14, 2003

17

EXHIBIT INDEX

Exhibit No.	Description	Sequentially Numbered Page
(31)(a)	Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
(31)(b)	Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
(32)(a)	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
(32)(b)	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

18