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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from                                  to                                 

Commission file number 0-3658

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (17 C.F.R. § 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark if the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of voting stock held by non-affiliates was $1,980,352,642 by reference to the closing price of the Registrant’s common stock as of the last business of the Registrant’s most recently completed second fiscal quarter.

On March 10, 2004, there were 79,502,164 shares of Common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement with respect to the 2004 annual meeting of the shareholders are incorporated by reference in Part III of this report. The definitive proxy statement will be filed no later than 120 days after the close of Registrant’s fiscal year.

Table of Contents

PART I

CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THOSE RELATING TO CORPORATE OFFICE EXPANSION, LITIGATION, DIVIDENDS, FUNDING FOR CORPORATE OFFICE EXPANSION, INSURANCE REGULATION AND OTHER REGULATIONS, CASH REQUIREMENTS AND FUNDING FOR NON-QUALIFIED SUPPLEMENTAL BENEFITS ARE FORWARD LOOKING. 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: INTEREST RATE FLUCTUATIONS; CHANGES IN THE PERFORMANCE OF THE REAL ESTATE MARKETS; LIMITATIONS ACCESS TO PUBLIC RECORDS AND OTHER DATA; GENERAL VOLATILITY IN THE CAPITAL MARKETS; CHANGES IN APPLICABLE GOVERNMENT REGULATIONS; CONSOLIDATION AMONG THE COMPANY’S SIGNIFICANT CUSTOMERS AND COMPETITORS; 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 THIS ANNUAL REPORT ON FORM 10-K. 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.

Item 1.    Business.

The Company

The First American Corporation (the Company) was organized in 1894 as Orange County Title Company, succeeding to the business of two title abstract companies founded in 1889 and operating in Orange County, California. In 1924, the Company commenced issuing title insurance policies. In 1986, the Company began a diversification program by acquiring and developing business information companies closely related to the real estate transfer and closing process. In 1998, the Company expanded its diversification program to include business information companies outside of the real estate transfer and closing process. The Company is a California corporation and has its executive offices at 1 First American Way, Santa Ana, California 92707-5913. The Company’s telephone number is (714) 800-3000. Unless the context otherwise indicates, the “Company,” as used herein, refers to The First American Corporation and its subsidiaries.

General

The First American Corporation (the Company), through its subsidiaries, is engaged in the business of providing business information and related products and services. The Company has seven reporting segments that fall within two primary business groups, financial services and information technology. The financial services group includes title insurance, specialty insurance and trust and other services. The title insurance segment issues residential and commercial title insurance policies, provides escrow services, equity loan services, tax-deferred exchanges and other related products. The specialty insurance segment issues property and casualty insurance policies and provides home warranties. The trust and other services segment provides investment advisory and trust and thrift services. The information technology group includes mortgage information, property information, credit information, and screening information. The mortgage information segment provides tax monitoring, flood zone certification, default management services, document preparation and other real estate related services. The property information segment provides property database services and appraisal services. The credit information segment provides mortgage credit and specialized credit reporting services. The screening information segment provides resident screening, pre-employment screening, substance abuse management and testing, consumer direct location services and motor vehicle reporting. Financial information regarding each of the Company’s business segments is included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” of Part II of this report.

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The Company believes that it holds the number one market share position for many of its products and services, including but not limited to, flood zone determinations, based on the number of flood zone certification reports issued; tax monitoring services, based on the number of loans under service; mortgage credit reporting services, based on the number of credit reports issued; automotive credit reporting services, based on the number of credit reports issued; default management services, based on the number of foreclosure/bankruptcy cases reported; property database services, based on the number of inquiries; and resident screening, based on the number of reports issued. The Company also believes that it holds the number two market share position for title insurance, based on operating revenues; home warranty services, based on the number of home protection contracts under service; and drug testing, based on the number of reports issued.

Substantially all of the revenues for the Company’s title insurance and mortgage information segments result from resales and refinancings of residential real estate and, to a lesser extent, from commercial transactions and the construction and sale of new housing. Over one-half of the revenues in the Company’s property information and credit information segments also depend on real estate activity. The remaining portion of the property information and credit information revenues, as well as the revenues for the Company’s specialty insurance, trust and other services, and screening information segments are isolated from the volatility of real estate transactions. Real estate activity is cyclical in nature and is affected greatly by the cost and availability of long-term mortgage funds. Real estate activity and, in turn, a large portion of the Company’s revenue base, can be adversely affected during periods of high interest rates and/or limited money supply. However, this adverse effect is mitigated in part by the continuing diversification of the Company’s operations into areas outside of the traditional real estate transfer and closing process.

The Financial Services Group

Title Insurance Segment

Overview of Title Insurance Industry

Title to, and the priority of interests in, real estate are determined in accordance with applicable laws. In most real estate transactions, mortgage lenders and purchasers of real estate want to be protected from loss or damage in the event that title is not as represented. In most parts of the United States, title insurance has become accepted as the most efficient means of providing such protection.

Title Policies.    Title insurance policies insure the interests of owners and their lenders in the title to real property against loss by reason of adverse claims to ownership of, or to defects, liens, encumbrances or other matters affecting such title which exist at the time a title insurance policy is issued and which were not excluded from the coverage of a title insurance policy. Title insurance policies are issued on the basis of a title report, which is prepared after a search of the public records, maps, documents and prior title policies to ascertain the existence of easements, restrictions, rights of way, conditions, encumbrances or other matters affecting the title to, or use of, real property. In certain instances, a visual inspection of the property is also made. To facilitate the preparation of title reports, copies of public records, maps, documents and prior title policies may be compiled and indexed to specific properties in an area. This compilation is known as a “title plant.”

The beneficiaries of title insurance policies are generally real estate buyers and mortgage lenders. A title insurance policy indemnifies the named insured and certain successors in interest against title defects, liens and encumbrances existing as of the date of the policy and not specifically excepted from its provisions. The policy typically provides coverage for the real property mortgage lender in the amount of its outstanding mortgage loan balance and for the buyer in the amount of the purchase price of the property, but in some cases might insure for a greater amount where the buyer anticipates constructing improvements on the property. Coverage under a title insurance policy issued to a real property mortgage lender generally terminates upon the sale of the insured property unless the owner carries back a mortgage or makes certain warranties as to the title.

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Before issuing title policies, title insurers seek to limit their risk of loss by accurately performing title searches and examinations. The major expenses of a title company relate to such searches and examinations, the preparation of preliminary reports or commitments and the maintenance of title plants, and not from claim losses as in the case of property and casualty insurers.

The Closing Process.    Title insurance is essential to the real estate closing process in most transactions involving real property mortgage lenders. In a typical residential real estate sale transaction, title insurance is generally ordered on behalf of an insured by a real estate broker, lawyer, developer, lender or closer involved in the transaction. Once the order has been placed, a title insurance company or an agent conducts a title search to determine the current status of the title to the property. When the search is complete, the title company or agent prepares, issues and circulates a commitment or preliminary title report (“commitment”) to the parties to the transaction. The commitment summarizes the current status of the title to the property, identifies the conditions, exceptions and/or limitations that the title insurer intends to attach to the policy and identifies items appearing on the title that must be eliminated prior to closing.

The closing function, sometimes called an escrow in western states, is often performed by a lawyer, an escrow company or a title insurance company or agent (such person or entity, the “closer”). Once documentation has been prepared and signed, and mortgage lender payoff demands are in hand, the transaction is “closed.” The closer records the appropriate title documents and arranges the transfer of funds to pay off prior loans and extinguish the liens securing such loans. Title policies are then issued insuring the priority of the mortgage of the real property mortgage lender in the amount of its mortgage loan and the buyer in the amount of the purchase price. The time lag between the opening of the title order and the issuance of the title policy is usually between 30 and 90 days. The seller and the buyer bear the risk during this time lag. Any matter affecting title which is discovered during this period would have to be dealt with to the title insurers’ satisfaction or the insurer would except the matter from the coverage afforded by the title policy. Before a closing takes place, however, the closer would request that the title insurer provide an update to the commitment to discover any adverse matters affecting title and, if any are found, would work with the seller to eliminate them so that the title insurer would issue the title policy subject only to those exceptions to coverage which are acceptable to the buyer and the buyer’s lender.

Issuing the Policy: Direct vs. Agency.    A title policy can be issued directly by a title insurer or indirectly on behalf of a title insurer through agents which are not themselves licensed as insurers. Where the policy is issued by a title insurer, the search is performed by or at the direction of the title insurer, and the premium is collected and retained by the title insurer. Where the policy is issued by an agent, the agent performs the search, examines the title, collects the premium and retains a portion of the premium. The remainder of the premium is remitted to the title insurer as compensation for bearing the risk of loss in the event a claim is made under the policy. The percentage of the premium retained by an agent varies from region to region. A title insurer is obligated to pay title claims in accordance with the terms of its policies, regardless of whether it issues its policy directly or indirectly through an agent.

Premiums.    The premium for title insurance is due and earned in full when the real estate transaction is closed. Premiums are generally calculated with reference to the policy amount. The premium charged by a title insurer or an agent is subject to regulation in most areas. Such regulations vary from state to state.

The Company’s Title Insurance Operations

Overview.    The Company, through First American Title Insurance Company and its subsidiaries, transacts the business of title insurance through a network of both direct operations and agents. Through this network, the Company issues policies in all states (except Iowa) and the District of Columbia. In Iowa, the Company provides abstracts of title only, because title insurance is not permitted. The Company also offers title services in Australia, the Bahama Islands, Canada, Guam, Hong Kong, Ireland, Mexico, New Zealand, Puerto Rico, South Korea, the United Kingdom, the U.S. Virgin Islands and other countries abroad.

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Based on industry statistics showing premiums written in 2002, the Company had the largest or second largest share of the title insurance market in 30 states and in the District of Columbia, and had a national market share of 22.6%. Industry statistics for 2003 are not currently available.

The Company plans to continue increasing its share of the title insurance market through strategic acquisitions and further development of its existing branch office and agency operations. The Company also will continue to focus on expanding its share of the higher margin, title insurance business conducted on behalf of commercial clients. The Company believes its national commercial market share has grown through programs directed at major developers, lenders and law firms.

Sales and Marketing.    The Company markets its title insurance services to a broad range of customers. The Company believes that its primary source of business is from referrals from persons in the real estate community, such as independent escrow companies, real estate brokers, developers, mortgage brokers, mortgage bankers, financial institutions and attorneys. In addition to the referral market, the Company markets its title insurance services directly to large corporate customers and mortgage lenders. As title agents contribute a large portion of the Company’s revenues, the Company also markets its title insurance services to independent agents. The Company’s marketing efforts emphasize the quality and timeliness of its services, process innovation and its national presence.

While virtually all personnel in the Company’s title insurance business assist in marketing efforts, the Company maintains a sales force of more than 1,000 persons dedicated solely to marketing. This sales force, which is located throughout the Company’s branch office network, not only markets the Company’s title insurance services, but also certain of the Company’s other products. The Company provides its sales personnel with training in selling techniques, and each branch manager is responsible for hiring the sales staff and ensuring that sales personnel under his or her supervision are properly trained. In addition to this sales force, the Company has approximately 90 salespeople in its national commercial services division. One of the responsibilities of the sales personnel of this division is the coordination of marketing efforts directed at large real estate lenders and companies developing, selling, buying or brokering properties on a multistate basis. The Company also supplements the efforts of its sales force through general advertising in various trade and professional journals.

The Company’s increased commercial sales effort during the past decade has enabled the Company to expand its commercial business base. Because commercial transactions involve higher coverage amounts and yield higher premiums, commercial title insurance business generates greater profit margins than does residential title insurance business. Accordingly, the Company plans to continue to emphasize its commercial sales program.

Although sales outside of the United States account for a small percentage of the Company’s revenues, the Company believes that the acceptance of title insurance in foreign markets has increased in recent years. Accordingly, the Company plans to continue its international sales efforts, particularly in Canada, the United Kingdom and Australia.

Underwriting.    Before a title insurance policy is issued, a number of underwriting decisions are made. For example, matters of record revealed during the title search may require a determination as to whether an exception should be taken in the policy. The Company believes that it is important for the underwriting function to operate efficiently and effectively at all decision making levels so that transactions may proceed in a timely manner. To perform this function, the Company has underwriters at the branch level, the regional level and the national level.

Agency Operations.    The relationship between the Company and each agent is governed by an agency agreement which states the conditions under which the agent is authorized to issue title insurance policies on behalf of the Company. The agency agreement also prescribes the circumstances under which the agent may be liable to the Company if a policy loss is attributable to error of the agent. Such agency agreements typically have a term of one to five years and are terminable immediately for cause.

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Due to the high incidence of agency fraud in the title insurance industry during the late 1980s, the Company instituted measures to strengthen its agent selection and audit programs. In determining whether to engage an independent agent, the Company investigates the agent’s experience, background, financial condition and past performance. The Company maintains loss experience records for each agent and conducts periodic audits of its agents. The Company has also increased the number of agent representatives and agent auditors that it employs. Agent representatives periodically visit agents and examine their books and records. In addition to periodic audits, a full agent audit will be triggered if certain “warning signs” are evident. Warning signs that can trigger an audit include the failure to implement Company-required accounting controls, shortages of escrow funds and failure to remit underwriting fees on a timely basis.

Title Plants.    The Company’s network of title plants constitutes one of its principal assets. A title search is conducted by searching the public records or utilizing a title plant. While public records are indexed by reference to the names of the parties to a given recorded document, most title plants arrange their records on a geographic basis. Because of this difference, records of a title plant are generally easier to search. Most title plants also index prior policies, adding to searching efficiency. Many title plants are computerized. Certain offices of the Company utilize jointly owned plants or utilize a plant under a joint user agreement with other title companies. The Company believes its title plants, whether wholly or partially owned or utilized under a joint user agreement, are among the best in the industry.

The Company has significantly enhanced its investment in title plants through three business combinations. The first was the formation of a limited liability corporation (“LLC”) with Experian Group on January 1, 1998. Experian Group contributed to the LLC its real estate information division, which the Company believes is the nation’s leading operator of title plants. The second business combination was the acquisition of Data Tree in June 1998. Data Tree is a supplier of database management and document imaging systems. The third business combination was the formation of Data Trace Information Services. This business is 80.0% owned by the Company’s subsidiary, FARES, and 20.0% owned by LandAmerica. Data Trace Information Services is a provider of comprehensive title information delivery systems.

The Company’s title plants are carried on its balance sheet at original cost, which includes the cost of producing or acquiring interests in title plants or the appraised value of subsidiaries’ title plants at dates of acquisition for companies accounted for as purchases. Thereafter, the cost of daily maintenance of these plants is charged to expense as incurred. A properly maintained title plant has an indefinite life and does not diminish in value with the passage of time. Therefore, in accordance with generally accepted accounting principles, no provision is made for depreciation of these plants. Since each document must be reviewed and indexed into the title plant, such maintenance activities constitute a significant item of expense. The Company is able to offset title plant maintenance costs at its plants through joint ownership and access agreements with other title insurers and title agents.

Reserves for Claims and Losses.    The Company provides for title insurance losses based upon its historical experience by a charge to expense when the related premium revenue is recognized. The resulting reserve for known claims and incurred but not reported claims reflects management’s best estimate of the total costs required to settle all claims reported to the Company and claims incurred but not reported, and is considered by the Company to be adequate for such purpose.

In settling claims, the Company occasionally purchases and ultimately sells the interest of the insured in the real property or the interest of the claimant adverse to the insured. These assets, which totaled $42.7 million at December 31, 2003, are carried at the lower of cost or fair value, less costs to sell, and are included in “Other assets” in the Company’s consolidated balance sheets.

Reinsurance and Coinsurance.    The Company assumes and distributes large title insurance risks through mechanisms of reinsurance and coinsurance. In reinsurance agreements, in consideration for a portion of the premium, the reinsurer accepts that part of the risk which the primary insurer cedes to the reinsurer over and

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above the portion retained by the primary insurer. The primary insurer, however, remains liable for the total risk in the event that the reinsurer does not meet its obligation. As a general rule, the Company does not retain more than $40.0 million of primary risk on any single policy. Under coinsurance agreements, each coinsurer is jointly and severally liable for the risk insured, or for so much thereof as is agreed to by the parties. The Company’s reinsurance activities account for less than 1.0% of its total title insurance operating revenues.

Competition.    The title insurance business is highly competitive. The number of competing companies and the size of such companies varies in the different areas in which the Company conducts business. Generally, in areas of major real estate activity, such as metropolitan and suburban localities, the Company competes with many other title insurers. Approximately 75 title insurance underwriters are members of the American Land Title Association, the title insurance industry’s national trade association. The Company’s major nationwide competitors in its principal markets include Fidelity National Title Insurance Company (which also includes Chicago Title, Ticor Title Insurance Company and Security Union Title Insurance Company) Landamerica (which includes Lawyers Title Insurance Company, Commonwealth Land Title Insurance Company and Transnation Title Insurance Company, Stewart Title Guaranty Company and Old Republic Title Insurance Group. In addition to these nationwide competitors, numerous agency operations throughout the country provide aggressive competition on the local level.

The Company believes that competition for title insurance business is based primarily on the quality and timeliness of service, because parties to real estate transactions are usually concerned with time schedules and costs associated with delays in closing transactions. In those states where prices are not established by regulatory authorities, the price of title insurance policies is also an important competitive factor. The Company believes that it provides quality service in a timely manner at competitive prices.

Specialty Insurance Segment

Home Warranties.    The Company’s home warranty business commenced operations in 1984, in part with the proceeds of a $1.5 million loan from the Company which was, in 1986, converted to a majority equity interest. The Company currently owns 92.3% of its home warranty business, which is operated as a second tier subsidiary, with the balance owned by management of that subsidiary. The Company’s home warranty business issues one-year warranties that protect homeowners against defects in household systems and appliances, such as plumbing, water heaters and furnaces. The Company’s home warranty subsidiary currently charges approximately $245 to $420 for its basic home warranty contract. Optional coverage is available for air conditioners, pools, spas, washers, dryers, refrigerators and other items for charges ranging from approximately $25 to $160. For an additional charge, coverage is renewable annually at the option of the homeowner upon approval by the home warranty subsidiary. Fees for the warranties are paid at the closing of the home purchase and are recognized monthly over a 12-month period. Home warranties are marketed through real estate brokers and agents. This business has continually expanded nationally and is currently licensed in 40 states. The principal competitor of the Company’s home warranty business is American Home Shield, a subsidiary of Service Master L.P.

Property and Casualty Insurance.    The Company offers property and casualty insurance through its subsidiaries First American Property and Casualty Insurance Company and First American Specialty Insurance Company. First American Property and Casualty Insurance Company conducts its business utilizing the Company’s distribution channels, allowing for cross selling through existing closing-service activities. First American Specialty Insurance Company conducts its business utilizing a network of brokers in California.

Trust and Other Services Segment

Investment Advisory and Trust and Thrift Services.    The Company offers investment advisory services through its SEC registered investment management firm that manages equity and fixed-income securities.

Since 1960, the Company has conducted a general trust business in California, acting as trustee when so appointed pursuant to court order or private agreement. In 1985, the Company formed a banking subsidiary into

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which its subsidiary trust operation was merged. During August 1999, this subsidiary converted from a state-chartered bank to a federal savings bank. As of December 31, 2003, the trust operation was administering fiduciary and custodial assets having a market value in excess of $2.3 billion.

During 1988, the Company, through a majority-owned subsidiary, acquired an industrial bank (the Thrift), formerly known as an industrial loan corporation, that accepts thrift deposits and uses deposited funds to originate and purchase loans secured by commercial properties primarily in Southern California. As of December 31, 2003, the Thrift had approximately $76.6 million of demand deposits and $105.2 million of loans outstanding.

Loans made or acquired during the current year, by the Thrift, ranged in amount from $15,050 to $2,887,500. The average loan balance outstanding at December 31, 2003, was $430,471. Loans are made only on a secured basis, at loan-to-value percentages no greater than 75.0%. The Thrift specializes in making commercial real estate loans. In excess of 99.5% of the Thrift’s loans are made on a variable rate basis. The average yield on the Thrift’s loan portfolio as of December 31, 2003, was 7.77%. A number of factors are included in the determination of average yield, principal among which are loan fees and closing points amortized to income, prepayment penalties recorded as income, and amortization of discounts on purchased loans. The Thrift’s primary competitors in the Southern California commercial real estate lending market are local community banks, other thrift and loan companies and, to a lesser extent, commercial banks. The Thrift’s average loan is approximately 12.5 years in duration.

The performance of the Thrift’s loan portfolio is evaluated on an ongoing basis by management of the Thrift. The Thrift places a loan on non-accrual status when two payments become past due. When a loan is placed on non-accrual status, the Thrift’s general policy is to reverse from income previously accrued but unpaid interest. Income on such loans is subsequently recognized only to the extent that cash is received and future collection of principal is probable. Interest income on non-accrual loans that would have been recognized during the year ended December 31, 2003, if all of such loans had been current in accordance with their original terms, totaled $8,094.

The following table sets forth the amount of the Thrift’s non-performing assets as of the dates indicated:

Based on a variety of factors concerning the creditworthiness of its borrowers, the Thrift determined that it had $52,928 of potential problem loans in existence as of December 31, 2003.

The Thrift’s allowance for loan losses is established through charges to earnings in the form of provision for loan losses. Loan losses are charged to, and recoveries are credited to, the allowance for loan losses. The provision for loan losses is determined after considering various factors, such as loan loss experience, maturity of the portfolio, size of the portfolio, borrower credit history, the existing allowance for loan losses, current charges and recoveries to the allowance for loan losses, the overall quality of the loan portfolio, and current economic conditions, as determined by management of the Thrift, regulatory agencies and independent credit review specialists. While many of these factors are essentially a matter of judgment and may not be reduced to a mathematical formula, the Company believes that, in light of the collateral securing its loan portfolio, the Thrift’s current allowance for loan losses is an adequate allowance against foreseeable losses.

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The following table provides certain information with respect to the Thrift’s allowance for loan losses as well as charge-off and recovery activity.

The adequacy of the Thrift’s allowance for loan losses is based on formula allocations and specific allocations. Formula allocations are made on a percentage basis, which is dependent on the underlying collateral, the type of loan and general economic conditions. Specific allocations are made as problem or potential problem loans are identified and are based upon an evaluation by the Thrift’s management of the status of such loans. Specific allocations may be revised from time to time as the status of problem or potential problem loans changes.

The following table shows the allocation of the Thrift’s allowance for loan losses and the percent of loans in each category to total loans at the dates indicated.

The Information Technology Group

Mortgage Information Segment

The mortgage information segment provides tax monitoring, flood zone certification, default management services, and other real estate related services.

Tax Monitoring.    The tax monitoring service, established by the Company in 1987, advises real property mortgage lenders of the status of property tax payments due on real estate securing their loans. With the

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acquisition of Transamerica’s tax monitoring business in October 2003, the Company believes that it is the largest provider of tax monitoring services in the United States.

Under a typical contract, a tax service provider monitors, on behalf of a mortgage lender, the real estate taxes owing on properties securing such lender’s mortgage loans for the life of such loans. In general, providers of tax monitoring services, such as the Company’s tax service, indemnify mortgage lenders against losses resulting from a failure to monitor delinquent taxes. Where a mortgage lender requires that tax payments be impounded on behalf of borrowers, providers of tax monitoring services, such as the Company’s tax service, may be required to monitor and oversee the transfer of these monies to the taxing authorities and provide confirmation to lenders that such taxes have been paid.

The fee charged to service each mortgage loan varies from region to region, but generally falls within the $45 to $130 price range and is paid in full at the time the contract is executed. The Company recognizes revenues from tax service contracts over the estimated duration of the contracts. However, income taxes are paid on the entire fee in the year the fee is received. Historically, the Company has maintained minimal reserves for losses relating to its tax monitoring service because its losses have been negligible.

Flood Zone Certification.    In January 1995, the Company acquired Flood Data Services, Inc. (now a subsidiary of First American Real Estate Solutions LLC). This business furnishes to mortgage lenders flood zone determination reports, which provide information on whether or not property securing a loan is in a governmentally delineated special flood hazard area. Federal legislation passed in 1994 requires that most mortgage lenders obtain a determination of the current flood zone status at the time each loan is originated and obtain updates during the life of the loan. In October 2003, the Company acquired Transamerica’s flood zone determination business. This acquisition enhanced the Company’s number one market share position for flood zone determinations in the United States, based on the number of flood zone determination reports issued.

Default Management Services.    The default management business supports mortgage servicers and financial institutions in the handling of loss mitigation, foreclosure, REO and claims processing. With the acquisition in 2001 of LFC Nationwide, a leading provider of property preservation and field inspections, the Company believes it is now the nation’s leading provider of default management services, based on the number of foreclosure/bankruptcy cases reported.

Property Information Segment

This business was established in January 1998 when the Company and its real estate information service subsidiaries (the “Real Estate Information Subsidiaries”) consummated a business transaction with Experian Group (“Experian”), pursuant to which First American Real Estate Solutions LLC (“FARES”) was established. Under the transaction, the Real Estate Information subsidiaries contributed substantially all of their assets and liabilities to FARES in exchange for an 80.0% ownership interest and Experian transferred substantially all of the assets and liabilities of its Real Estate Solutions division (“RES”) to FARES in exchange for a 20.0% ownership interest. RES is believed to be the nation’s foremost supplier of core real estate data, providing, among other things, property valuation information, title information, tax information and imaged title documents.

Adding to this business, in June 1998, the Company acquired Data Tree Corporation. Data Tree is a supplier of database management and document imaging systems to county recorders, other governmental agencies and the title industry.

In July 2000, the Company combined its Smart Title Solutions division with the Datatrace division of LandAmerica Financial Group, Inc (“LandAmerica”). The combined entity, Data Trace Information Services, is 80.0% owned by the Company’s subsidiary, FARES, and 20.0% owned by LandAmerica. The Company believes that Data Trace Information Services is the nation’s most advanced and comprehensive title information delivery system.

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In August 2000, the Company combined its RES division with the Intellitech real estate information business of Transamerica Corporation to form a new entity, First American Real Estate Solutions, L.P. This joint venture is 80.0% owned by the Company’s subsidiary, FARES, and 20.0% by Transamerica Corporation. The Company believes that this joint venture is the nation’s largest database of property characteristic information, supplying data and decision-support products to the real estate and mortgage finance industry.

In June 2002, the Company acquired Tri County Tax Research, Inc., a provider of tax searches for title companies in the Detroit, Michigan metropolitan area. In July of 2002, the Company acquired Current Status, Inc., a provider of property tax searches for customers in the New Jersey and Western Pennsylvania markets. These acquisitions strengthened the Company’s existing tax information business.

In September 2002, the Company added to its property valuation information business by acquiring SourceOne Services, Corp., a provider of real estate valuation services in the form of Broker Price Opinions (BPO). The Company believes that SourceOne Services Corp. is the largest provider of BPO services to the default market and the second largest provider of BPO services in the United States.

In February 2003, the Company acquired Infinity Information Solutions, Inc., a provider of lien release information. This strategic acquisition enhances the Company’s offering of products and services to mortgage lenders.

In June 2003, the Company added to its title information business with the acquisition of Abstracter’s Information Services, Inc., (AIS). AIS is one of the leading title abstracting companies in New York. This acquisition strengthens the Company’s title information services presence in the Northeast region.

Credit Information Segment

The Company’s mortgage credit reporting service provides credit information reports for mortgage lenders throughout the United States. These reports are derived from two or more credit bureau sources and are summarized and prepared in a standard form acceptable to mortgage loan originators and secondary mortgage purchasers. The Company’s credit reporting service has grown primarily through acquisitions. In 1994, the Company acquired all of the minority interests in its lower tier subsidiaries Metropolitan Credit Reporting Services, Inc., and Metropolitan Property Reporting Services, Inc. In 1994, the Company also acquired California Credit Data, Inc., and Prime Credit Reports, Inc., and in 1995, the Company acquired CREDCO, Inc. (now a division of First American Real Estate Solutions LLC). With the acquisition of First American CREDCO, Inc., the Company believes that it is now the largest mortgage credit reporting service in the United States, based on the number of credit reports issued. The credit information segment also provides specialized credit reports. This service provides credit information reports to non-mortgage lenders, such as auto lenders, as well as direct to consumers. The specialized reports are derived from two or more credit bureau sources and are summarized and prepared in an acceptable form. This service also provides subprime-consumer information and includes a database of credit records on consumers with flawed credit histories. This information is used to provide data to credit grantors such as furniture and appliance retailers, pay-day loan and check-advance stores, rent-to-own retailers and others.

Screening Information

The Company’s screening information segment is comprised entirely of First Advantage Corporation, a public company whose shares of Class A common stock trade on the Nasdaq National Market System under the ticker symbol FADV. As of December 31, 2003, the Company owned all of First Advantage’s outstanding Class B common stock, which constitutes approximately 76.7% of the economic interest and 97.4% of the voting interest of First Advantage.

First Advantage’s business is organized into three business segments: Enterprise Screening, Risk Mitigation and Consumer Direct. First Advantage’s Enterprise Screening segment offers employment screening services,

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such as criminal records and credit checks; occupational health services, such as drug testing and employee assistance programs; and resident screening services, such as eviction record, credit and criminal records checks. First Advantage’s Risk Management segment provides automated access to motor vehicle records from all 50 states and the District of Columbia and investigative services designed to detect and expose worker’s compensation, disability and liability insurance fraud. First Advantage, through its Consumer Direct segment, also provides location, verification and screening services directly to consumers through the Internet.

The Company’s screening information segment serves a wide variety of clients throughout the United States, including nearly a quarter of those businesses comprising the Fortune 1000, many major real estate investment trusts and property management companies, a number of the top providers of transportation services, insurance companies, governmental agencies, non-profit organizations and health care providers. Insurance carriers and agents purchase a substantial proportion of the segment’s risk mitigation products. Larger employers and transportation companies are major consumers of the segment’s employment screening and occupational health services. Multifamily housing property management companies and landlords of all sizes are represented in the resident screening business’ customer base.

Acquisitions

Commencing in the 1960s, the Company initiated a growth program with a view to becoming a nationwide provider of title insurance. This program included expansion into new geographic markets through internal growth and selective acquisitions. In 1986 the Company began expanding into other real estate business information services. In 1998 the Company expanded its diversification program to include business information companies outside of the real estate transfer and closing process. To date, the Company has made numerous strategic acquisitions designed to expand not only its direct title operations, but also the range of services it can provide to its customers.

Regulation

The title insurance business is heavily regulated by state insurance regulatory authorities. These authorities generally possess broad powers with respect to the licensing of title insurers, the types and amounts of investments that title insurers may make, insurance rates, forms of policies and the form and content of required annual statements, as well as the power to audit and examine title insurers. Under state laws, certain levels of capital and surplus must be maintained and certain amounts of securities must be segregated or deposited with appropriate state officials. Various state statutes require title insurers to defer a portion of all premiums in a reserve for the protection of policyholders and to segregate investments in a corresponding amount. Further, most states restrict the amount of dividends and distributions a title insurer may make to its shareholders.

In 1999, the Company entered into the property casualty insurance business through the acquisitions of Great Pacific Insurance Company (included in the acquisition of National Information Group) and Five Star Holdings, Inc. The property and casualty business is subject to regulation by government agencies in the states in which they transact business. The nature and extent of such regulation may vary from jurisdiction to jurisdiction, but typically involves prior approval of the acquisition of “control” of an insurance company, regulation of certain transactions entered into by an insurance company with any of its affiliates, the payment of dividends by an insurance company, approval of premium rates and policy forms for many lines of insurance, standards of solvency and minimum amounts of capital and surplus which must be maintained. In order to issue policies on a direct basis in a state, the property and casualty insurer must generally be licensed by such state. In certain circumstances, such as dealings initiated directly by citizens or placements through licensed surplus lines brokers, it may conduct business without being admitted and without being subject to rate and/or policy forms approval. The Company is currently licensed to write property and casualty insurance in 46 states and the District of Columbia.

The Company’s home warranty business also is subject to regulation by insurance authorities in the states in which it conducts such business. The Company’s trust company and industrial loan company are both subject to

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regulation by the Federal Deposit Insurance Corporation. In addition, as a federal savings bank, the Company’s trust company is regulated by the United States Department of the Treasury’s Office of Thrift Supervision, and the Company’s industrial loan company is regulated by the California Commissioner of Corporations.

Investment Policies

The Company invests primarily in cash equivalents, federal and municipal governmental securities, mortgage loans and investment grade debt and equity securities. The largely fixed income portfolio is classified in the Company’s financial statements as “available for sale.” In addition to the Company’s investment strategy, state laws impose certain restrictions upon the types and amounts of investments that may be made by the Company’s regulated subsidiaries.

Employees

The following table provides a summary of the total number of employees as of December 31, 2003:

Risk Factors

You should carefully consider each of the following risk factors and the other information contained in this Annual Report on Form 10-K. 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, consider 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.

Certain recurring trends generally result in a decrease in the demand for the Company’s products

Demand for the Company’s products generally decreases as the number of real estate transactions in which the Company’s products are purchased decreases. The Company has found that the number of real estate transactions in which the Company’s products are purchased decreases in the following situations:

The Company believes that this trend will recur.

Changes in government regulation could prohibit or limit the Company’s operations

The Company’s title insurance, property and casualty insurance, home warranty, thrift, trust and investment businesses are regulated by various federal, state and local governmental agencies. Many of the Company’s other

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businesses operate within statutory guidelines. Changes in the applicable regulatory environment or statutory guidelines could prohibit or restrict the Company’s existing or future operations. Such restrictions may restrict the Company’s ability to implement rate increases, acquire assets or businesses or otherwise have a negative impact on the Company’s ability to generate revenue and earnings.

The Company may be subject to increased regulation regarding the use of personal information

Certain data and services the Company provides are subject to regulation by various federal, state and local regulatory authorities. Compliance with existing federal, state and local laws and regulations has not had a material adverse effect on the Company’s results of operations or financial condition 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 increasingly affect the Company’s operations and could result in substantial regulatory compliance expense, litigation expense and a loss of revenue.

The Company may not be able to pursue its acquisition strategy.

The Company intends to continue to grow through acquisitions. The Company may not be able to identify suitable acquisition candidates or complete acquisitions on satisfactory terms. A number of the Company’s competitors also have adopted the strategy of expanding and diversifying through acquisitions. The Company will continue to experience competition in its effort to execute on its acquisition strategy. As a result, the Company may be unable to continue to make acquisitions or may be forced to pay more for the companies the Company is able to acquire.

The integration of companies the Company acquires may be difficult and may result in a failure to realize some of the anticipated potential benefits of acquisitions.

When companies are acquired, the Company may not be able to integrate or manage these businesses so as to produce returns that justify the investment. Any difficulty in successfully integrating or managing the operations of the businesses could have a material adverse effect on the Company’s business, financial condition, results of operations or liquidity, and could lead to a failure to realize any anticipated synergies. The Company’s management also will be required to dedicate substantial time and effort to the integration of its acquisitions. These efforts could divert management’s focus and resources from other strategic opportunities and operational matters.

The Company’s earnings may be reduced if acquisition projections are inaccurate

The Company’s earnings have improved since 1991 in large part because of the Company’s acquisition and integration of non-title insurance businesses. These businesses generally have higher margins than the title insurance businesses. For example, pre-tax margins for the title insurance and services segment were 11.1% in 2003, while pre-tax margins for the segments in the Company’s information technology group in the same year were 27.6%. The success or failure of acquisitions in this group has depended in large measure upon the accuracy of the Company’s projections. These projections are not always accurate. Inaccurate projections have historically led to lower than expected earnings.

As a holding company, the Company depend on distributions from the Company’s subsidiaries, and if distributions from the Company’s subsidiaries are materially impaired, the Company’s ability to declare and pay dividends may be adversely affected

First American is a holding company whose primary assets are the securities of its operating subsidiaries. The Company’s ability to pay dividends is dependent on the ability of the Company’s subsidiaries to pay dividends or repay funds to us. If the Company’s operating subsidiaries are not able to pay dividends or repay

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funds, the Company may not be able to declare and pay dividends to its shareholders. Moreover, pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available is limited. Under such regulations, the maximum amount of dividends, loans and advances available to us from the Company’s insurance subsidiaries in 2004 is $313.4 million

Certain provisions of the Company’s charter and rights plan may make a takeover of our company difficult even if such takeover could be beneficial to some of the Company’s shareholders

The Company’s restated articles of incorporation authorize the issuance of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the Company’s board of directors. Accordingly, the Company’s board is empowered, without further shareholder action, to issue shares or series of preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights, including the ability to receive dividends, of the Company’s common shareholders. The issuance of such preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control. In conjunction with the rights plan discussed below, the Company has authorized the issuance of the Company’s Series A Junior Participating Preferred Shares. Although the Company has no present intention of issuing any additional shares or series of preferred stock, the Company cannot guarantee that it will not make such an issuance in the future.

The Company has adopted a rights plan which could, alone or in combination with the Company’s restated articles of incorporation, discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to the Company’s shareholders for their common shares.

Available Information

The Company maintains a website, www.firstam.com, which includes financial and other information for investors. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the “Investors” page of our website as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission. The Company’s website and the information contained therein or connected thereto are not intended to be incorporated into this annual report on Form 10-K, or any other filing with the Securities and Exchange Commission unless the Company expressly incorporates such materials.

Item 2.     Properties.

In September 1999, the Company moved its executive offices to one of the newly constructed office buildings at MacArthur Place in Santa Ana, California. The Orange County branch and certain other operations of the Company’s title insurance segment moved into the two other buildings constructed on the site later in 1999. The three new buildings are in a campus environment and total approximately 210,000 square feet. In the first quarter of 2004, the Company began the expansion of its office campus. This expansion will add two 4-story office buildings totaling 225,000 square feet, and a two-story, free standing, 50,000 square foot technology center. The construction is estimated to be completed by the third quarter of 2005.

The Company continues to own the two adjacent buildings in Santa Ana, California, which previously housed its executive offices. That location, comprising approximately 105,000 square feet of floor space, continues as the home of the company’s trust and banking division and the Company’s property and casualty insurance division. The Company also owns an 18,000 square foot building located across the street from that complex. This building is currently used primarily for storage.

The Company’s title insurance subsidiary, First American, and its subsidiaries, own or lease buildings or office space in more than 900 locations throughout the United States and abroad, principally for their respective title operations.

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The Company’s mortgage information business, houses its national operations in a leased 231,000 square foot office building in Dallas, Texas. In 1999, the Company completed the construction of two office buildings in Poway, California. These two buildings, which primarily house the Company’s credit reporting business, total approximately 152,000 square feet and are located on a 17 acre parcel of land. In addition, the Company’s mortgage information, credit information and property information businesses lease office space in more than 75 locations throughout the United States, principally for their respective operations.

The Company’s home warranty subsidiary owns 1.7 acres of land in Van Nuys, California, which contains a 20,000-square-foot office building, a 7,000-square-foot warehouse and a parking lot.

The screening information business houses its executive offices in a leased 20,800 square foot building in St. Petersburg, Florida. In addition, this business owns or leases more than 30 offices throughout the United States, principally for its screening information operations.

Each of the office facilities occupied by the Company or its subsidiaries is in good condition and adequate for its intended use.

Item 3.     Legal Proceedings.

The Company is involved in numerous routine legal proceedings related to its operations. While the ultimate disposition of each proceeding is not determinable, the Company does not believe that any of such proceedings will have a material adverse effect on its financial condition or results of operations.

Item 4.     Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

Item 5.     Market for Registrant’s Common Stock and Related Stockholder Matters.

Common Stock Market Prices and Dividends

The Company’s common stock trades on the New York Stock Exchange (ticker symbol FAF). The approximate number of record holders of common stock on March 9, 2004 was 3,584.

High and low stock prices and dividends for the last two years were as follows:

While the Company expects to continue its policy of paying regular quarterly cash dividends, future dividends will be dependent on future earnings, financial condition and capital requirements. The payment of dividends is subject to the restrictions described in Note 2 to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of Part II of this report.

Recent Sales of Unregistered Securities

In the last three years, the Company has not issued unregistered shares of its common stock.

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Item 6.     Selected Financial Data.

The selected consolidated financial data for the Company for the five-year period ended December 31, 2003, has been derived from the audited Consolidated Financial Statements. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, “Item 1—Business—Acquisitions,” and “Item 7—Management’s Discussion and Analysis—Results of Operations.”

The First American Corporation and Subsidiary Companies

Note A—Resulted from the adoption of Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, which became effective January 1, 1999, and applied to the Company’s tax service operations.

Note B—Return on average stockholders’ equity for 1999 excludes the cumulative effect of a change in accounting for tax service contracts from both net income and stockholders’ equity.

Note C—Per share information relating to net income is based on weighted-average number of shares outstanding for the years presented. Per share information relating to stockholders’ equity is based on shares outstanding at the end of each year.

Note D—Title order volumes are those processed by the direct title operations of the Company and do not include orders processed by agents.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Critical Accounting Policies.    The Company’s management considers the accounting policies described below to be critical in preparing the Company’s consolidated financial statements. These policies require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures of contingencies. See Note 1 to the consolidated financial statements for a more detailed description of the Company’s accounting policies.

Revenue recognition.    Title premiums on policies issued directly by the Company are recognized on the effective date of the title policy, and for policies issued by independent agents, when notice of issuance is received from the agent. Revenues from home warranty contracts are recognized ratably over the 12-month duration of the contracts. Revenues from property and casualty insurance policies are recognized ratably over the 12-month duration of the policies. The Company’s tax service division, which is included in the mortgage information segment, defers its tax service fee and recognizes that fee as revenue ratably over the expected service period. The amortization rates applied to recognize the revenues assume a 10-year contract life and are adjusted to reflect prepayments. The Company reviews its tax service contract portfolio on a quarterly basis to determine if there have been changes in contract lives and/or changes in the number and/or timing of prepayments and adjusts the rates accordingly to reflect current trends. For all other products, revenues are recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.

Provision for title losses.    The Company provides for estimated title insurance losses by a charge to expense when the related premium revenue is recognized. The amount charged to expense (the loss rate), as well as the adequacy of the ending reserves, is determined by the Company based on historical experience and other factors, including changes and trends in the type of title insurance policies issued, the real estate market and the interest rate environment. Management monitors the adequacy of the estimated loss reserves on a quarterly basis using a variety of techniques, including actuarial models, and adjusts the loss rate as necessary.

Purchase accounting and impairment testing for goodwill and other intangible assets.    Pursuant to Statement of Financial Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), the Company is required to perform an annual impairment test for goodwill and other intangible assets by reporting unit. This annual test, which the Company elected to perform every September 30, utilizes a variety of valuation techniques, all of which require management to make estimates and judgments, and includes 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 and estimated lives of acquired assets and liabilities. The Company’s reporting units, for purposes of applying the provisions of SFAS 142, 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. In accordance with the provisions of SFAS 142, the Company completed the required annual impairment testing for goodwill and other intangible assets for the years ended December 31, 2003 and 2002, and determined that there was no impairment.

Income taxes.    The Company estimates its quarterly effective income tax rate based upon a variety of factors including, but not limited to, the expected revenues and resulting pretax income for the year, the composition and geographic mix of the pretax income and the ratio of permanent differences to pretax income. Any changes to the estimated rate are made prospectively in accordance with Accounting Principles Board Opinions No. 28, “Interim Financial Reporting.” Additionally, management makes estimates as to the amount of reserves, if any, that are necessary for known and potential tax exposures.

Depreciation and amortization lives for assets.    Management is required to estimate the useful lives of several asset classes, including capitalized data, internally developed software and other intangible assets. The

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estimation of useful lives requires a significant amount of judgment related to matters such as future changes in technology, legal issues related to allowable uses of data and other matters.

Overview—The majority of the revenues in the Company’s title insurance and mortgage information segments depend, in large part, upon the level of real estate activity and the cost and availability of mortgage funds. Revenues for these segments result primarily from resales and refinancings of residential real estate and, to a lesser extent, from commercial transactions and the construction and sale of new housing. Over one-half of the revenues in the Company’s property information and credit information segments also depend on real estate activity. The remaining portion of the property information and credit information revenues, as well as the revenues for the Company’s specialty insurance, trust and other services, and screening information segments, are isolated from the volatility of real estate transactions. Traditionally, the greatest volume of real estate activity, particularly residential resale, has occurred in the spring and summer months. However, changes in interest rates, as well as other economic factors, can cause fluctuations in the traditional pattern of real estate activity.

During the second half of 2000, mortgage interest rates began to decline, fueling an increase in refinance activity. This trend continued into the fourth quarter of 2000 and resulted in a high inventory of open orders going into the first quarter of 2001. This, coupled with record levels of refinance activity as a result of the continuation of low mortgage interest rates, as well as the high demand for residential resale and new home sales, resulted in an exceptionally strong 2001. Mortgage originations totaled $2.03 trillion in 2001, up from $1.02 trillion in 2000. The favorable trends present during 2001 continued into 2002. Refinance activity remained at high levels, with existing and new-home-sale activity surpassing 2001 levels. Mortgage originations reached $2.79 trillion in 2002, with refinance activity comprising 66.4% of the total. Mortgage interest rates remained low through the first three quarters of 2003, fueling new record-setting refinance activity, but began to rise during the fourth quarter of the year. Existing and new-home-sale activity also reached new record levels. Mortgage originations totaled $3.91 trillion in 2003, with refinance activity comprising 71.3% of the total. The increase in mortgage interest rates that began in the fourth quarter of 2003 resulted in a low inventory of open orders going into 2004. This, together with the expectation of a relatively stable to marginally increasing mortgage interest rate environment in 2004, will most likely result in a return to more traditional, seasonal real estate patterns in 2004, where the greatest volume of real estate activity will occur in the spring and summer months.

Operating revenues—A summary by segment of the Company’s operating revenues is as follows:

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Financial Services.    Operating revenues from direct title operations increased 25.6% in 2003 over 2002 and 23.3% in 2002 over 2001. These increases reflect the growth in the number of title orders closed by the Company’s direct operations, as well as increases in the average revenues per order closed. The Company’s direct title operations closed 2,021,000, 1,696,100 and 1,404,600 title orders during 2003, 2002 and 2001, respectively, increases of 19.2% in 2003 over 2002 and 20.8% in 2002 over 2001. The average revenues per order closed were $1,121, $1,063 and $1,042 for 2003, 2002 and 2001, respectively, increases of 5.5% in 2003 over 2002 and 2.0% in 2002 over 2001. The increases noted in closed orders were primarily attributable to the relative changes in real estate activity year-over-year, as mentioned above. The increases in average revenues per order closed primarily reflect increasing real estate values. Operating revenues from agency title operations increased 34.5% in 2003 over 2002 and 34.1% in 2002 over 2001. These increases were primarily attributable to the same factors affecting direct title operations compounded by the inherent delay in the reporting of transactions by agents.

Specialty insurance operating revenues increased 44.7% in 2003 over 2002 and 27.9% in 2002 over 2001. These increases were primarily attributable to geographic expansion at the Company’s home warranty division and market share growth at the property and casualty insurance division.

Information Technology.    Mortgage information operating revenues increased 34.1% in 2003 over 2002 and 17.8% in 2002 over 2001. These increases were primarily attributable to the same factors affecting title insurance mentioned above, as well as acquisition activity. Operating revenues of $48.0 million and $14.9 million were contributed by new acquisitions in 2003 and 2002, respectively. In addition, during 2003 and 2002, the Company’s tax service division accelerated its deferred revenue amortization rates to reflect the increase in refinance activity. This change resulted in increased operating revenues of $9.4 million in 2003 and $6.5 million in 2002.

Property information operating revenues increased 41.3% in 2003 over 2002 and 22.9% in 2002 over 2001. These increases were primarily due to the same favorable real estate conditions that benefited the title insurance and mortgage information segments, as well as market share growth and acquisition activity. Operating revenues of $52.4 million and $15.5 million were contributed by new acquisitions in 2003 and 2002, respectively.

Credit information operating revenues increased 14.7% in 2003 over 2002 and 10.4% in 2002 over 2001. The increase in 2003 over 2002 was primarily due to the growth in demand for credit information in the housing sector, offset in part by a $6.2 million reduction in revenues as a result of the sale of the Company’s subsidiary, FASTRAC Systems, Inc., in August 2002. The increase in 2002 over 2001 was also primarily due to the growth in demand for credit information in the housing sector, and operating revenues of $9.2 million contributed by new acquisitions.

Screening information operating revenues increased 65.3% in 2003 over 2002 and 105.1% in 2002 over 2001. These increases were primarily attributable to $56.0 million and $49.8 million of operating revenues contributed by new acquisitions for the respective periods.

Investment and other income—Investment and other income totaled $105.8 million, $89.8 million and $81.1 million in 2003, 2002 and 2001, respectively, an increase of $16.0 million, or 17.8% in 2003 over 2002, and $8.7 million, or 10.8% in 2002 over 2001. The increase in 2003 over 2002 was primarily due to a $16.5 million increase in equity in earnings of unconsolidated affiliates. The increase in 2002 over 2001 was also primarily due to an $18.3 million increase in equity in earnings of unconsolidated affiliates, offset, in part, by a $9.6 million decrease in net interest and other income, primarily as a result of lower yields on cash equivalents and the Company’s investment portfolio due to the lower interest rate environment. See Note 10 to the consolidated financial statements for additional information.

Net realized investment gains/losses—Net realized investment gains totaled $35.7 million in 2003, compared with net realized investment losses of $18.9 million in 2002 and gains of $6.6 million in 2001. The current year total

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included the recognition of a previously deferred gain totaling $14.2 million relating to the sale of the Company’s Contour Software, Inc. subsidiary in the first quarter of 2001. This gain was initially deferred due to the uncertainty relating to the realizability of the consideration received. In the fourth quarter of 2003, management concluded that, based upon the current financial condition and expected future performance of the acquirer, the realization of the consideration was assured and, therefore, recognition of the gain appropriate. Also included in the current year total was a $13.1 million realized gain associated with the merger of the Company’s Credit Online business with DealerTrack Holdings, Inc. The prior year investment losses included a $13.6 million loss resulting from the write-down of WorldCom bonds; a $2.6 million loss associated with the sale of the Company’s subsidiary, FASTRAC Systems, Inc.; and $2.3 million of losses due to the restructuring of the 1031 tax-deferred exchange investment portfolio, which was managed by the Company’s Capital Management division.

Salaries and other personnel costs—A summary by segment of the Company’s salaries and other personnel costs is as follows:

Financial Services.    The Company’s title insurance segment comprised 95.9% of total salaries and other personnel costs for the Financial Services group. The title insurance segment (primarily direct operations) is labor intensive; accordingly, a major variable expense component is salaries and other personnel costs. This expense component is affected by two competing factors: the need to monitor personnel changes to match corresponding or anticipated new orders, and the need to provide quality service. In addition, this segment’s growth in operations that specialize in builder and lender title business has created ongoing fixed costs required to service accounts.

Title insurance personnel expenses increased 15.7% in 2003 over 2002 and 20.5% in 2002 over 2001. The increase in 2003 over 2002 was primarily attributable to $29.3 million of personnel costs associated with new acquisitions, $12.0 million of increased employee benefit costs, incremental labor costs incurred to service the increase in business volume and increased commissions associated with the increase in closed orders. The increase in 2002 over 2001 was primarily due to $36.1 million of increased employee benefit costs, $28.2 million of personnel costs associated with new acquisitions, $26.5 million in expenses related to the implementation of the Company’s FAST title production system, incremental labor costs incurred to service the increase in business volume and increased commissions associated with the increase in closed orders. The increase in employee benefit costs was primarily the result of the Company’s discretionary match related to the 401(k) plan, which is profit driven and increases as profits escalate. This match increased $5.8 million in 2003 over 2002 and $16.9 million in 2002 over 2001. Also contributing to the overall increase in employee benefit costs were increases in

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health care costs of $6.2 million in 2003 over 2002 and $11.5 million in 2002 over 2001. The Company’s direct title operations opened 2,511,000, 2,184,200 and 1,930,300 orders in 2003, 2002 and 2001, respectively, representing an increase of 15.0% in 2003 over 2002 and 13.2% in 2002 over 2001. From an efficiency standpoint, title insurance personnel costs as a percentage of title insurance operating revenues were 28.3% in 2003, 31.7% in 2002 and 33.7% in 2001.

Information Technology.    Personnel expenses in total for the Information Technology group increased 27.6% in 2003 over 2002 and 17.2% in 2002 over 2001. These increases were primarily due to personnel expenses associated with new acquisitions, costs incurred to service the increase in business volume and increased employee benefit costs. Personnel costs associated with new acquisitions totaled $51.1 million in 2003 and $19.1 million in 2002. Employee benefit costs increased $9.8 million in 2003 over 2002 and $12.6 million in 2002 over 2001. From an efficiency standpoint, personnel costs for the Information Technology group as a percentage of operating revenues were 31.9% in 2003, 33.7% in 2002 and 35.2% in 2001.

Corporate.    Corporate personnel expenses increased $3.1 million in 2003 over 2002 and $17.9 million in 2002 over 2001. The increase in 2002 over 2001 was primarily attributable to an increase of $13.3 million in employee benefit costs, increased technology personnel costs and higher general costs associated with the support effort needed to service the Company’s expanded national and international operations.

Premiums retained by agents—A summary of agent retention and agent revenues is as follows:

The premium split between underwriter and agents is in accordance with their respective agency contracts and can vary from region to region due to divergencies in real estate closing practices, as well as rating structures. As a result, the percentage of title premiums retained by agents varies due to the geographical mix of revenues from agency operations.

Other operating expenses—A summary by segment of the Company’s other operating expenses is as follows:

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Financial Services.    The Company’s title insurance segment comprised 95.1% of total other operating expenses for the Financial Services group. Title insurance other operating expenses (principally direct operations) increased 22.4% in 2003 over 2002 and 23.3% in 2002 over 2001. These increases were primarily due to incremental costs (i.e., messenger costs, reproduction costs, title plant maintenance costs, etc.) associated with servicing the increases in total order volume and costs associated with new acquisitions. Other operating expenses associated with new acquisitions were $19.6 million in 2003 and $9.6 million in 2002. Title insurance other operating expenses as a percentage of title insurance operating revenues were 16.3% in 2003, 17.2% in 2002 and 17.9% in 2001.

Information Technology.    Other operating expenses for the Information Technology group increased 29.3% in 2003 over 2002 and 21.1% in 2002 over 2001. These increases were primarily due to costs associated with servicing the increase in business volume and costs associated with new acquisitions. Other operating expenses associated with new acquisitions were $66.2 million in 2003 and $57.0 million in 2002. Information Technology other operating expenses as a percentage of operating revenues were 37.7% in 2003, 39.3% in 2002 and 39.7% in 2001.

Corporate.    Corporate other operating expenses increased $5.9 million in 2003 over 2002 and $16.7 million in 2002 over 2001. The increase in 2002 over 2001 was primarily due to $15.0 million of technology expenses, primarily consulting and outsourcing costs, required to expand the Company’s e-commerce capabilities, and higher general costs associated with the support effort needed to service the Company’s expanded national and international operations.

Provision for title losses and other claims—A summary by segment of the Company’s provision for title losses and other claims is as follows:

The provision for title insurance losses, expressed as a percentage of title insurance operating revenues (excluding the one-time 2001 adjustment mentioned below), was 4.1% in 2003, 4.0% in 2002 and 4.0% in 2001. During the third quarter of 2001, the Company recorded a $7.9 million adjustment to a purchase accounting estimate for loss reserves at one of its title insurance subsidiaries, which was purchased in 1998. This adjustment strengthened loss reserves to reflect subsequent adverse development.

The provision for specialty insurance losses reflects home warranty claims and property and casualty insurance claims. The provision for home warranty claims, expressed as a percentage of home warranty operating revenues, was 48.9% in 2003, 49.8% in 2002 and 53.1% in 2001. The rate decreases were primarily due to a decrease in the average cost per claim, which was primarily due to the elimination of higher-cost contractors that were servicing claims in new geographic areas.

The provision for property and casualty insurance claims, expressed as a percentage of property and casualty insurance operating revenues, was 63.6% in 2003, 63.8% in 2002 and 52.0% in 2001. The rate for 2003 excludes $5.0 million of catastrophe losses related to the Southern California wildfires, which represents the

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Company’s deductible on its reinsurance treaty. The increase in 2002 over 2001 was primarily due to the shift in the lines of property and casualty insurance written from lender-placed insurance, which typically carries lower loss ratios (but higher expense ratios), to preferred homeowner’s insurance, which generally carries higher loss ratios (but lower expense ratios). The Company exited the lender-placed insurance business in 2001.

Depreciation and amortization—Depreciation and amortization increased 18.2% in 2003 over 2002 and decreased 10.6% in 2002 from 2001. The increase in 2003 over 2002 was primarily due to an increase in the amortization of intangibles as a result of acquisition activity and an increase in amortization of capitalized data and software. The decrease in 2002 was primarily due to the elimination of goodwill amortization as a result of implementing SFAS No. 142. See Note 5 to the consolidated financial statements. Depreciation and amortization, as well as capital expenditures, are summarized in Note 20 to the consolidated financial statements.

Premium taxes—A summary by pertinent segment of the Company’s premium taxes is as follows: