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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No 1

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 1

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes 1 No ☒

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 1 No 1

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

On October ~~14, 2016,~~20, 2017, there were ~~109,820,934~~110,817,359 shares of common stock outstanding.

Items 2 through 5 of Part II have been omitted because they are not applicable with respect to the current reporting period.

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

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

	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
Assets
Cash and cash equivalents	$	1,443,312		$	1,027,321		$	1,141,915		$	1,006,138
Accounts and accrued income receivable, net		327,109			256,731			341,395			299,799
Income taxes receivable		2,740			1,067			11,102			67,970
Investments:
Deposits with banks		22,257			23,224			20,940			21,222
Debt securities, includes pledged securities of $117,294 and $122,441		4,592,170			4,279,347
Debt securities, includes pledged securities of $100,681 and $110,647								4,803,484			4,553,363
Equity securities		387,921			321,285			446,185			404,085
Other investments		157,260			161,177			120,514			162,029
		5,159,608			4,785,033			5,391,123			5,140,699
Property and equipment, net		430,631			409,973			438,136			434,050
Title plants and other indexes		588,593			554,923			566,599			564,309
Deferred income taxes		22,020			22,020			20,037			20,037
Goodwill		1,014,764			964,342			1,145,464			1,017,417
Other intangible assets, net		51,417			48,114			75,126			78,898
Other assets		206,283			180,777			216,150			202,460
	$	9,246,477		$	8,250,301		$	9,347,047		$	8,831,777
Liabilities and Equity
Deposits	$	3,218,128		$	2,699,015		$	2,965,426		$	2,779,478
Accounts payable and accrued liabilities		813,943			876,087			741,569			793,955
Deferred revenue		230,747			207,929			250,917			228,905
Reserve for known and incurred but not reported claims		1,018,040			983,880			1,021,648			1,025,863
Income taxes payable		66,025			7,576			92,841			10,376
Deferred income taxes		133,097			133,097			242,158			242,158
Notes and contracts payable		737,944			581,052			734,091			736,693
		6,217,924			5,488,636			6,048,650			5,817,428
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.00001 par value; Authorized—500 shares; Outstanding—none		—			—			—			—
Common stock, $0.00001 par value; Authorized—300,000 shares; Outstanding—109,820 shares and 109,098 shares		1			1
Common stock, $0.00001 par value; Authorized—300,000 shares; Outstanding��110,817 shares and 109,944 shares								1			1
Additional paid-in capital		2,182,879			2,150,813			2,226,691			2,191,756
Retained earnings		1,012,452			846,691			1,128,981			1,046,822
Accumulated other comprehensive loss		(173,052	)		(239,003	)		(61,779	)		(230,400	)
Total stockholders’ equity		3,022,280			2,758,502			3,293,894			3,008,179
Noncontrolling interests		6,273			3,163			4,503			6,170
Total equity		3,028,553			2,761,665			3,298,397			3,014,349
	$	9,246,477		$	8,250,301		$	9,347,047		$	8,831,777

	Three Months Ended					Nine Months Ended					Three Months Ended					Nine Months Ended
	September 30,					September 30,					September 30,					September 30,
	2016		2015			2016		2015			2017			2016		2017			2016
Revenues
Direct premiums and escrow fees	$	649,726	$	605,450		$	1,775,615	$	1,716,468		$	651,104		$	649,726	$	1,819,193		$	1,775,615
Agent premiums		625,953		585,974			1,653,990		1,520,507			629,186			625,953		1,757,796			1,653,990
Information and other		188,727		173,349			526,575		511,334			201,819			188,727		586,179			526,575
Net investment income		34,422		22,272			92,717		70,694			44,460			34,422		117,109			92,717
Net realized investment gains (losses)		9,516		(3,130	)		22,692		(215	)
Net realized investment (losses) gains												(7,001	)		9,516		10,763			22,692
		1,508,344		1,383,915			4,071,589		3,818,788			1,519,568			1,508,344		4,291,040			4,071,589
Expenses
Personnel costs		438,692		411,743			1,239,129		1,185,318			599,380			438,692		1,458,928			1,239,129
Premiums retained by agents		495,130		462,535			1,303,838		1,200,549			497,911			495,130		1,387,608			1,303,838
Other operating expenses		219,959		209,316			622,995		621,298			218,959			219,959		649,182			622,995
Provision for policy losses and other claims		137,015		139,126			366,473		363,550			120,349			137,015		333,695			366,473
Depreciation and amortization		24,491		21,072			70,905		63,389			36,000			24,491		96,292			70,905
Premium taxes		18,288		17,439			48,692		46,920			19,900			18,288		52,527			48,692
Interest		7,838		7,288			23,427		21,798			9,107			7,838		26,812			23,427
		1,341,413		1,268,519			3,675,459		3,502,822			1,501,606			1,341,413		4,005,044			3,675,459
Income before income taxes		166,931		115,396			396,130		315,966			17,962			166,931		285,996			396,130
Income taxes		59,539		39,637			133,615		108,831
Income tax (benefit) expense												(3,224	)		59,539		84,846			133,615
Net income		107,392		75,759			262,515		207,135			21,186			107,392		201,150			262,515
Less: Net income attributable to noncontrolling interests		72		217			545		615
Less: Net (loss) income attributable to noncontrolling interests												(197	)		72		(772	)		545
Net income attributable to the Company	$	107,320	$	75,542		$	261,970	$	206,520		$	21,383		$	107,320	$	201,922		$	261,970
Net income per share attributable to the Company's stockholders (Note 9):
Net income per share attributable to the Company's stockholders (Note 8):
Basic	$	0.97	$	0.69		$	2.37	$	1.91		$	0.19		$	0.97	$	1.81		$	2.37
Diluted	$	0.96	$	0.69		$	2.36	$	1.88		$	0.19		$	0.96	$	1.80		$	2.36
Cash dividends declared per share	$	0.34	$	0.25		$	0.86	$	0.75		$	0.38		$	0.34	$	1.06		$	0.86
Weighted-average common shares outstanding (Note 9):
Weighted-average common shares outstanding (Note 8):
Basic		110,571		108,647			110,423		108,284			111,799			110,571		111,578			110,423
Diluted		111,251		110,004			111,006		109,706			112,575			111,251		112,254			111,006

	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016		2015			2017			2016			2017			2016
Net income	$	107,392		$	75,759		$	262,515	$	207,135		$	21,186		$	107,392		$	201,150		$	262,515
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities		2,579			(10,942	)		52,087		(19,374	)
Unrealized gains on securities													13,929			2,579			52,014			52,087
Foreign currency translation adjustment		(3,459	)		(15,416	)		3,066		(29,210	)		11,415			(3,459	)		23,558			3,066
Pension benefit adjustment		3,602			4,058			10,819		13,260			85,891			3,602			93,061			10,819
Total other comprehensive income (loss), net of tax		2,722			(22,300	)		65,972		(35,324	)
Total other comprehensive income, net of tax													111,235			2,722			168,633			65,972
Comprehensive income		110,114			53,459			328,487		171,811			132,421			110,114			369,783			328,487
Less: Comprehensive income attributable to noncontrolling interests		77			206			566		598
Less: Comprehensive (loss) income attributable to noncontrolling interests													(192	)		77			(760	)		566
Comprehensive income attributable to the Company	$	110,037		$	53,253		$	327,921	$	171,213		$	132,613		$	110,037		$	370,543		$	327,921

First American Financial Corporation Stockholders

Shares


Common
stock


Additional
paid-in
capital


Retained
earnings

Accumulated
other
comprehensive
loss

Total
stockholders’
equity

Noncontrolling
interests

Total

Balance at December 31, 2015

109,098


$
1


$
2,150,813


$
846,691


$
(239,003
)

$
2,758,502


$
3,163

$
2,761,665

Net income for nine months ended
September 30, 2016

—



—



—



261,970


—

261,970


545

262,515

Dividends on common shares

—



—



—



(94,202
)

—

(94,202
)

—

(94,202
)
Purchase of Company shares

(14
)

—

(454
)

—

—

(454
)

—

(454
)
Shares issued in connection with
share-based compensation plans

736



—



4,450



(2,007
)

—

2,443

—

2,443

Share-based compensation

—



—



28,096



—

—

28,096

—

28,096

Net activity related to noncontrolling
interests

—



—



(26
)


—

—

(26
)

2,544

2,518

Other comprehensive income
(Note 13)

—



—



—



—

65,951

65,951

21

65,972

Balance at  September 30, 2016

109,820


$
1


$
2,182,879


$
1,012,452


$
(173,052
)

$
3,022,280

$
6,273

$
3,028,553

	First American Financial Corporation Stockholders
	Shares		Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests			Total
Balance at December 31, 2016		109,944	$	1	$	2,191,756		$	1,046,822		$	(230,400	)	$	3,008,179		$	6,170		$	3,014,349
Net income (loss) for nine months ended September 30, 2017		—		—		—			201,922			—			201,922			(772	)		201,150
Dividends on common shares		—		—		—			(117,174	)		—			(117,174	)		—			(117,174	)
Shares issued in connection with share-based compensation plans		873		—		3,784			(2,589	)		—			1,195			—			1,195
Share-based compensation		—		—		31,196			—			—			31,196			—			31,196
Net activity related to noncontrolling interests		—		—		(45	)		—			—			(45	)		(907	)		(952	)
Other comprehensive income (Note 12)		—		—		—			—			168,621			168,621			12			168,633
Balance at September 30, 2017		110,817	$	1	$	2,226,691		$	1,128,981		$	(61,779	)	$	3,293,894		$	4,503		$	3,298,397

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2017			2016
Cash flows from operating activities:
Net income	$	262,515		$	207,135		$	201,150		$	262,515
Adjustments to reconcile net income to cash provided by operating activities:
Provision for policy losses and other claims		366,473			363,550			333,695			366,473
Depreciation and amortization		70,905			63,389			96,292			70,905
Amortization of premiums and accretion of discounts on debt securities, net		20,267			21,702			25,013			20,267
Excess tax benefits from share-based compensation		(3,197	)		(8,496	)		—			(3,197	)
Net realized investment (gains) losses		(22,692	)		215
Net realized investment gains								(10,763	)		(22,692	)
Share-based compensation		28,096			20,261			31,196			28,096
Equity in earnings of affiliates, net		(5,771	)		(7,710	)		(4,550	)		(5,771	)
Dividends from equity method investments		7,953			7,559			9,593			7,953
Changes in assets and liabilities excluding effects of acquisitions and noncash transactions:
Claims paid, including assets acquired, net of recoveries		(351,349	)		(364,255	)		(351,397	)		(351,349	)
Net change in income tax accounts		20,765			56,784			34,462			20,765
Increase in accounts and accrued income receivable		(43,454	)		(32,194	)		(11,907	)		(43,454	)
Decrease in accounts payable and accrued liabilities		(99,777	)		(7,074	)
Increase (decrease) in accounts payable and accrued liabilities								95,383			(99,777	)
Increase in deferred revenue		23,342			12,049			20,313			23,342
Other, net		(21,857	)		19,282			(12,953	)		(21,857	)
Cash provided by operating activities		252,219			352,197			455,527			252,219
Cash flows from investing activities:
Net cash effect of acquisitions/dispositions		(73,173	)		(26,662	)		(82,993	)		(73,173	)
Net decrease in deposits with banks		608			2,471			1,171			608
Purchases of debt and equity securities		(1,490,824	)		(1,726,939	)		(1,276,401	)		(1,490,824	)
Proceeds from sales of debt and equity securities		494,717			443,276			599,365			494,717
Proceeds from maturities of debt securities		744,411			531,440			457,334			744,411
Net change in other investments		2,798			470			2,555			2,798
Capital expenditures		(103,735	)		(91,964	)		(103,064	)		(103,735	)
Proceeds from sales of property and equipment		9,218			17,057			9,882			9,218
Cash used for investing activities		(415,980	)		(850,851	)		(392,151	)		(415,980	)
Cash flows from financing activities:
Net change in deposits		519,113			288,495			185,948			519,113
Net proceeds from issuance of debt		160,000			—			—			160,000
Repayment of debt		(3,745	)		(4,087	)		(4,128	)		(3,745	)
Net activity related to noncontrolling interests		(1,004	)		(705	)		(964	)		(1,004	)
Excess tax benefits from share-based compensation		3,197			8,496			—			3,197
Net payments in connection with share-based compensation plans		(754	)		(1,534	)
Net proceeds (payments) in connection with share-based compensation plans								1,195			(754	)
Purchase of Company shares		(454	)		—			—			(454	)
Cash dividends		(94,202	)		(81,283	)		(117,174	)		(94,202	)
Cash provided by financing activities		582,151			209,382			64,877			582,151
Effect of exchange rate changes on cash		(2,399	)		(6,378	)		7,524			(2,399	)
Net increase (decrease) in cash and cash equivalents		415,991			(295,650	)
Net increase in cash and cash equivalents								135,777			415,991
Cash and cash equivalents—Beginning of period		1,027,321			1,190,080			1,006,138			1,027,321
Cash and cash equivalents—End of period	$	1,443,312		$	894,430		$	1,141,915		$	1,443,312
Supplemental information:
Cash paid during the period for:
Interest	$	21,097		$	21,166		$	24,619		$	21,097
Premium taxes	$	54,151		$	45,683		$	55,233		$	54,151
Income taxes, less refunds of $2,731 and $711	$	112,401		$	52,069
Income taxes, less refunds of $52,828 and $2,731							$	50,264		$	112,401

The condensed consolidated financial information included in this report has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the consolidated results for the interim periods. All material intercompany transactions and balances have been eliminated upon consolidation.

~~Certain 2015 amounts have been reclassified to conform to the 2016 presentation.~~Out-of-Period Adjustments

During the ~~fourth~~third quarter of ~~2015,~~2017, the Company ~~reclassified~~identified certain ~~revenues and expenses related to closing protection letters and temporary labor costs. The impact to the Company’s~~title plant assets within its title insurance and services segment that should have been previously written off, and certain title plant imaging assets that were misclassified as title plant assets. To correct for these errors, the ~~three~~Company recorded adjustments to net realized investment gains, depreciation and ~~nine months ended September 30, 2015~~amortization and title plants and other indexes. The impact of these adjustments included ~~decreases~~an increase to ~~direct premiums~~depreciation and ~~escrow fees and increases~~amortization of $4.7 million, a decrease to ~~agent premiums~~net realized investment gains of ~~$9.5~~$1.8 million and ~~$24.6 million, increases~~a decrease to title plant and other indexes of $6.5 million. In addition, during the third quarter of 2017, the Company recorded adjustments to correct for errors in recording certain personnel costs within its title insurance and services segment. The impact of these adjustments included an increase to personnel costs of ~~$10.6~~$9.0 million, and $29.0 million, increases to premiums retained by agents of $0.5 million and $1.2 million and decreases to other operating expenses of $11.1 million and $30.2 million, respectively. The impact to the Company’s specialty insurance segment for the three and nine months ended September 30, 2015 included increases to personnel costs and decreases to other operating expenses of $0.2 million and $0.7 million, respectively.

Also, during the fourth quarter of 2015, the Company identified certain non-risk based revenues included within direct premiums and escrow fees that should have been reflected in information and other. To correct for this error, these revenues were reclassified from direct premiums and escrow fees to information and other. The revision to the Company’s title insurance and services segment for the three and nine months ended September 30, 2015 resulted in a decrease to ~~direct premiums and escrow fees~~other assets of $8.5 million and an increase ~~to information~~in accounts payable and ~~other~~accrued liabilities of ~~$10.7 million and $31.5 million, respectively.~~$0.5 million.

The Company does not consider these adjustments to be material, individually or in the aggregate, to either the current period or any previously issued condensed consolidated financial statements.

In ~~September 2015,~~October 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance ~~intended~~ to ~~simplify~~amend the ~~accounting for adjustments made to provisional amounts recognized~~consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in ~~a business combination and eliminates~~ the ~~requirement to retrospectively account for those adjustments.~~entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2015 and applies prospectively to adjustments made to provisional amounts that occur after the effective date of this guidance with early adoption permitted for financial statements that have not been issued.2016. The adoption of this guidance had no impact on the Company’s condensed consolidated financial statements.

In ~~August 2015,~~March 2016, the FASB issued updated guidance ~~relating~~intended to simplify and improve several aspects of the ~~Securities~~accounting for share-based payment transactions, including the income tax consequences, classification of such awards as either equity or liabilities and ~~Exchange Commission Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting~~classification on the ~~presentation and subsequent measurement~~statement of debt issuance costs associated with line-of-credit arrangements. The updated guidance allows for the deferral and presentation of debt issuance costs as an asset which may be amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any related outstanding borrowings.cash flows. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2015, with early~~2016. While the adoption ~~permitted.~~of this guidance did have an impact on the Company’s effective income tax rate for 2017, it did not have a material impact on the Company’s condensed consolidated financial statements. See Note 7 Income Taxes for further discussion of the Company’s effective income tax rates. Beginning in 2017, excess tax benefits from share-based compensation are presented in the condensed consolidated statements of cash flows in cash flows from operating activities within net change in income tax accounts.

In March 2016, the FASB issued updated guidance intended to simplify the accounting treatment for investments that become qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016. The adoption of this guidance had no impact on the Company’s condensed consolidated financial statements.

In May ~~2015,~~2017, the FASB issued updated guidance intended to ~~eliminate the~~reduce diversity in practice ~~surrounding how investments measured at net asset value under~~by clarifying which changes to the practical expedient with future redemption dates have been categorized in the fair value hierarchy. Under the updated guidance, investments for which fair value is measured at net asset value per share using the practical expedient should no longer be categorized in the fair value hierarchy. The updated guidance requires retrospective adoption for all periods presented and is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The adoptionterms or conditions of ~~this guidance had no impact on the Company’s condensed consolidated financial statements.~~

~~In April 2015, the FASB issued updated guidance intended~~a share-based payment award require an entity to clarify the accounting treatment for cloud computing arrangements that include software licenses. Under the updated guidance, if a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract.apply modification accounting. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2015,~~2017, with early adoption permitted. The Company ~~elected to adopt~~does not expect the ~~updated guidance prospectively for all arrangements entered into or materially modified after the effective date. The~~ adoption of this guidance ~~did not~~to have a material impact on ~~the Company’s~~its condensed consolidated financial statements.

In March 2017, the FASB issued updated guidance to amend the amortization period for certain purchased callable debt securities held at a premium to shorten the amortization period for the premium to the earliest call date. The ~~financial statement line items impacted by~~updated guidance is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities, and is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of ~~the updated~~this guidance ~~include other intangible assets, net and depreciation and amortization. See Note 5 Other Intangible Assets for further information~~to have a material impact on ~~the Company’s internal-use software licenses.~~its condensed consolidated financial statements.

In ~~April 2015,~~March 2017, the FASB issued updated guidance intended to ~~simplify, and provide consistency to,~~improve the presentation of ~~debt issuance costs. The new standard requires that debt issuance costs be presented in~~net periodic pension cost and net periodic postretirement benefit cost through the ~~balance sheet as a direct deduction~~disaggregation of the service cost component from the ~~carrying amount~~other components of ~~the debt liability, consistent with debt discounts.~~net benefit cost. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2015,~~2017, with early adoption permitted. The Company does not expect the adoption of this guidance ~~did not~~to have a material impact on ~~the Company’s~~its condensed consolidated financial statements.

In ~~February 2015,~~January 2017, the FASB issued updated guidance ~~which changes~~intended to simplify how an entity tests goodwill for impairment by eliminating Step 2 from the ~~analysis that~~goodwill impairment test. Under the updated guidance, an entity will perform its goodwill impairment test by comparing the fair value of a reporting ~~entity must perform~~unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized limited to ~~determine whether it should consolidate certain types~~the total amount of ~~legal entities.~~goodwill allocated to that reporting unit. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2015,~~2019, with early adoption permitted. The Company does not expect the adoption of this guidance ~~had no~~to have a material impact on ~~the Company’s~~its condensed consolidated financial statements.

In ~~June 2014,~~January 2017, the FASB issued updated guidance ~~intended~~ to ~~eliminate~~clarify the ~~diversity in practice regarding share-based payment awards that include terms which provide~~definition of a business with the objective of providing guidance to assist entities with evaluating whether transactions should be accounted for a performance target that affects vesting being achieved after the requisite service period. The new standard requires that a performance target which affects vesting and could be achieved after the requisite service period be treated as ~~a performance condition that affects vesting and should not be reflected in estimating the grant-date fair value.~~acquisitions (or disposals) of assets or businesses. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2015,~~2017, with early adoption permitted. The Company does not expect the adoption of this guidance ~~had no~~to have a material impact on ~~the Company’s~~its condensed consolidated financial statements.

~~Pending Accounting Pronouncements~~In November 2016, the FASB issued updated guidance intended to reduce the diversity in practice on presenting restricted cash or restricted cash equivalents in the statement of cash flows. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

In October 2016, the FASB issued updated guidance intended to simplify and improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The updated guidance, which eliminates the intra-entity transfers exception, requires entities to recognize the income tax consequences of intra-entity transfers of assets, other than inventory, when the transfers occur. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

In August 2016, the FASB issued updated guidance intended to eliminate the diversity in practice regarding the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated ~~statement~~statements of cash flows.

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

In June 2016, the FASB issued updated guidance intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The updated guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is currently assessing the impact of the new guidance on its condensed consolidated financial statements.

In May 2016, the FASB issued updated guidance intended to clarify the guidance previously issued in May 2014 related to the recognition of revenue from contracts with customers. The updated guidance includes narrow-scope improvements intended to address implementation issues and to provide additional practical expedients in the guidance. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

In April 2016, the FASB issued updated guidance intended to clarify the guidance previously issued in May 2014 related to the recognition of revenue from contracts with customers. The updated guidance is intended to reduce the cost and complexity of applying the guidance on identifying promised goods or services in a contract and to improve the operability and understandability of the implementation guidance regarding the licensing of intellectual property. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

In March 2016, the FASB issued updated guidance intended to simplify and improve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of such awards as either equity or liabilities and classification on the statement of cash flows. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently assessing the impact of the new guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued updated guidance intended to clarify the guidance previously issued in May 2014 related to the recognition of revenue from contracts with customers. The updated guidance is intended to improve the operability and understandability of the implementation guidance regarding principal versus agent considerations in a contract. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

In March 2016, the FASB issued updated guidance intended to simplify the accounting treatment for investments that become qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company expects the adoption of this guidance to have no impact on its condensed consolidated financial statements.

In February 2016, the FASB issued updated guidance that requires the rights and obligations associated with leasing arrangements be reflected on the balance sheet in order to increase transparency and comparability among organizations. Under the updated guidance, lessees will be required to recognize a right-of-use asset and a liability to make lease payments and disclose key information about leasing arrangements. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. ~~The~~While the Company is currently ~~assessing~~evaluating the impact of the new guidance will have on its condensed consolidated financial ~~statements.~~statements, the Company expects the adoption of the new guidance will result in a material increase in the assets and liabilities on its condensed consolidated balance sheets and will likely have an insignificant impact on its condensed consolidated statements of income and statements of cash flows.

In January 2016, the FASB issued updated guidance intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. In addition to making other targeted improvements to current guidance, the updated guidance also requires all equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in the fair value recognized through net income. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted in certain circumstances. While the Company expects the adoption of this guidance to impact its condensed consolidated statements of income, the materiality of the impact will depend upon the size of, and level of volatility experienced within, the Company’s equity portfolio.

In May 2015, the FASB issued updated disclosure guidance related to short-duration contracts issued by insurance entities. The updated guidance is intended to increase the transparency of significant estimates made in measuring liabilities for unpaid claims and claim adjustment expenses and to provide additional insight into an insurance entity’s ability to underwrite and anticipate costs associated with claims. The updated guidance is effective for annual reporting periods beginning after December 15, 2015 and for interim periods within annual periods beginning after December 15, 2016, with early adoption permitted. Except for the disclosure requirements, the Company does not expect the adoption of this guidance to impact its condensed consolidated financial statements.

In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within and across industries, and across capital markets. The new revenue standard contains principles that an entity will apply to determine the measurement of revenue and the timing of recognition. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. Revenue from insurance contracts is not within the scope of this guidance. ~~The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption prohibited.~~ In August 2015, the FASB issued updated guidance which defers the effective date of this guidance by one ~~year~~year. In 2016, the FASB issued additional updates to the new guidance primarily to clarify, among other things, the implementation guidance related to principal versus agent considerations, identifying performance obligations, accounting for licenses of intellectual property, and to provide narrow-scope improvements and additional practical expedients. In February 2017, the FASB issued an additional update to the new guidance to clarify the scope of derecognition guidance for nonfinancial assets and to provide guidance for partial sales of nonfinancial assets. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption ~~permitted as of the original effective date.~~prohibited. The Company ~~is currently assessing the impact of~~expects to adopt the new guidance under the modified retrospective approach and, except for certain disclosure requirements, does not expect the new guidance to have a material impact on its condensed consolidated financial statements.

The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled ~~$7.5~~$7.9 billion and ~~$6.6~~$6.8 billion at September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, of which ~~$3.1~~$2.8 billion and $2.6 billion, respectively, were held at the Company’s federal savings bank subsidiary, First American Trust, FSB. The escrow deposits held at First American Trust, FSB are temporarily invested in cash and cash equivalents and debt securities, with offsetting liabilities included in deposits in the accompanying condensed consolidated balance sheets. The remaining escrow deposits were held at third-party financial institutions.

Trust assets held or managed by First American Trust, FSB totaled ~~$3.2~~$3.5 billion and ~~$3.0~~$3.2 billion at September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. Escrow deposits held at third-party financial institutions and trust assets are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. However, the Company could be held contingently liable for the disposition of these assets.

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

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

The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the property held by the Company is transferred to the customer. Like-kind exchange funds held by the Company totaled ~~$2.2~~$2.3 billion and ~~$2.8~~$2.0 billion at September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. The like-kind exchange deposits are held at third-party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the returns on such proceeds.

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

(in thousands)	Amortized cost		Gross unrealized					Estimated fair value		Amortized cost		Gross unrealized					Estimated fair value
(in thousands)	Amortized cost		Gains		Losses			Estimated fair value		Amortized cost		Gains		Losses			Estimated fair value
September 30, 2016
September 30, 2017
U.S. Treasury bonds	$	148,808	$	2,089	$	(463	)	$	150,434	$	145,396	$	1,484	$	(1,427	)	$	145,453
Municipal bonds		906,895		19,565		(2,223	)		924,237		1,068,611		14,546		(10,795	)		1,072,362
Foreign government bonds		143,853		1,847		(342	)		145,358		162,550		556		(1,457	)		161,649
Governmental agency bonds		192,430		2,870		(123	)		195,177		223,546		1,063		(2,891	)		221,718
Governmental agency mortgage-backed securities		2,229,651		12,309		(6,163	)		2,235,797		2,238,222		4,098		(16,400	)		2,225,920
U.S. corporate debt securities		674,651		17,722		(1,635	)		690,738		716,299		13,400		(2,771	)		726,928
Foreign corporate debt securities		245,227		5,665		(463	)		250,429		244,777		5,201		(524	)		249,454
	$	4,541,515	$	62,067	$	(11,412	)	$	4,592,170	$	4,799,401	$	40,348	$	(36,265	)	$	4,803,484
December 31, 2015
December 31, 2016
U.S. Treasury bonds	$	130,252	$	421	$	(1,301	)	$	129,372	$	155,441	$	416	$	(4,466	)	$	151,391
Municipal bonds		692,000		12,640		(845	)		703,795		1,004,659		6,340		(26,666	)		984,333
Foreign government bonds		129,984		1,132		(1,015	)		130,101		141,887		600		(2,439	)		140,048
Governmental agency bonds		419,869		1,023		(2,801	)		418,091		197,343		691		(4,166	)		193,868
Governmental agency mortgage-backed securities		2,065,728		4,984		(15,039	)		2,055,673		2,187,482		2,983		(26,792	)		2,163,673
U.S. corporate debt securities		642,869		4,297		(12,483	)		634,683		675,683		8,282		(5,441	)		678,524
Foreign corporate debt securities		210,162		1,248		(3,778	)		207,632		240,526		2,490		(1,490	)		241,526
	$	4,290,864	$	25,745	$	(37,262	)	$	4,279,347	$	4,603,021	$	21,802	$	(71,460	)	$	4,553,363

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

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

	Cost		Gross unrealized					Estimated fair value		Cost			Gross unrealized						Estimated fair value
(in thousands)	Cost		Gains		Losses							Gains			Losses				Estimated fair value
September 30, 2016								Estimated fair value		Cost
September 30, 2017
Preferred stocks	$	19,311	$	—	$	(4,092	)	$	15,219	$	19,269		$	202		$	(944	)	$	18,527
Common stocks		351,841		24,742		(3,881	)		372,702		381,622			47,204			(1,168	)		427,658
	$	371,152	$	24,742	$	(7,973	)	$	387,921	$	400,891		$	47,406		$	(2,112	)	$	446,185
December 31, 2015
December 31, 2016
Preferred stocks	$	18,305	$	420	$	(3,258	)	$	15,467	$	18,926		$	—		$	(3,344	)	$	15,582
Common stocks		307,429		13,103		(14,714	)		305,818		367,169			26,034			(4,700	)		388,503
	$	325,734	$	13,523	$	(17,972	)	$	321,285	$	386,095		$	26,034		$	(8,044	)	$	404,085

Sales of debt and equity securities resulted in realized gains of ~~$8.9~~$1.7 million and ~~$1.3~~$8.9 million, and realized losses of ~~$0.2~~$0.7 million and ~~$1.6~~$0.2 million for the three months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, and realized gains of ~~$22.1~~$21.8 million and ~~$6.5~~$22.1 million, and realized losses of ~~$7.2~~$5.9 million and ~~$8.2~~$7.2 million for the nine months ended September 30, 2017 and 2016, ~~and 2015,~~ respectively.

Gross unrealized losses on investments in debt and equity securities are as follows:

	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
September 30, 2016
September 30, 2017
Debt securities:
U.S. Treasury bonds	$	55,705	$	(463	)	$	—	$	—		$	55,705	$	(463	)	$	61,500	$	(584	)	$	20,177	$	(843	)	$	81,677	$	(1,427	)
Municipal bonds		223,714		(1,941	)		16,401		(282	)		240,115		(2,223	)		124,976		(775	)		247,001		(10,020	)		371,977		(10,795	)
Foreign government bonds		32,714		(313	)		363		(29	)		33,077		(342	)		97,341		(1,058	)		10,471		(399	)		107,812		(1,457	)
Governmental agency bonds		5,706		(123	)		—		—			5,706		(123	)		106,783		(778	)		81,053		(2,113	)		187,836		(2,891	)
Governmental agency mortgage-backed securities		749,900		(2,654	)		339,896		(3,509	)		1,089,796		(6,163	)		686,814		(4,572	)		832,251		(11,828	)		1,519,065		(16,400	)
U.S. corporate debt securities		50,855		(634	)		30,740		(1,001	)		81,595		(1,635	)		113,028		(1,484	)		50,152		(1,287	)		163,180		(2,771	)
Foreign corporate debt securities		21,121		(181	)		9,990		(282	)		31,111		(463	)		62,671		(457	)		3,492		(67	)		66,163		(524	)
Total debt securities		1,139,715		(6,309	)		397,390		(5,103	)		1,537,105		(11,412	)		1,253,113		(9,708	)		1,244,597		(26,557	)		2,497,710		(36,265	)
Equity securities		7,716		(74	)		76,717		(7,899	)		84,433		(7,973	)		36,407		(485	)		28,115		(1,627	)		64,522		(2,112	)
Total	$	1,147,431	$	(6,383	)	$	474,107	$	(13,002	)	$	1,621,538	$	(19,385	)	$	1,289,520	$	(10,193	)	$	1,272,712	$	(28,184	)	$	2,562,232	$	(38,377	)
December 31, 2015
December 31, 2016
Debt securities:
U.S. Treasury bonds	$	105,701	$	(1,285	)	$	1,654	$	(16	)	$	107,355	$	(1,301	)	$	111,748	$	(4,466	)	$	—	$	—		$	111,748	$	(4,466	)
Municipal bonds		133,465		(733	)		13,190		(112	)		146,655		(845	)		635,531		(26,317	)		16,485		(349	)		652,016		(26,666	)
Foreign government bonds		13,601		(890	)		267		(125	)		13,868		(1,015	)		63,044		(2,371	)		324		(68	)		63,368		(2,439	)
Governmental agency bonds		191,035		(2,497	)		18,237		(304	)		209,272		(2,801	)		148,112		(4,166	)		—		—			148,112		(4,166	)
Governmental agency mortgage-backed securities		1,096,301		(9,424	)		213,020		(5,615	)		1,309,321		(15,039	)		1,295,790		(19,097	)		432,349		(7,695	)		1,728,139		(26,792	)
U.S. corporate debt securities		361,842		(11,272	)		13,511		(1,211	)		375,353		(12,483	)		193,533		(4,560	)		24,499		(881	)		218,032		(5,441	)
Foreign corporate debt securities		102,801		(2,725	)		11,246		(1,053	)		114,047		(3,778	)		78,658		(1,150	)		8,154		(340	)		86,812		(1,490	)
Total debt securities		2,004,746		(28,826	)		271,125		(8,436	)		2,275,871		(37,262	)		2,526,416		(62,127	)		481,811		(9,333	)		3,008,227		(71,460	)
Equity securities		191,248		(12,068	)		31,974		(5,904	)		223,222		(17,972	)		70,261		(1,173	)		59,019		(6,871	)		129,280		(8,044	)
Total	$	2,195,994	$	(40,894	)	$	303,099	$	(14,340	)	$	2,499,093	$	(55,234	)	$	2,596,677	$	(63,300	)	$	540,830	$	(16,204	)	$	3,137,507	$	(79,504	)

Investments in debt securities at September 30, ~~2016,~~2017, by contractual maturities, are as follows:

(in thousands)	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total		Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
U.S. Treasury bonds
Amortized cost	$	35,270	$	68,799	$	16,147	$	28,592	$	148,808	$	24,966	$	48,269	$	28,318	$	43,843	$	145,396
Estimated fair value	$	35,293	$	69,127	$	16,660	$	29,354	$	150,434	$	24,937	$	48,104	$	28,338	$	44,074	$	145,453
Municipal bonds
Amortized cost	$	47,544	$	331,550	$	214,529	$	313,272	$	906,895	$	61,831	$	314,910	$	254,976	$	436,894	$	1,068,611
Estimated fair value	$	47,615	$	337,258	$	221,613	$	317,751	$	924,237	$	61,960	$	318,703	$	259,744	$	431,955	$	1,072,362
Foreign government bonds
Amortized cost	$	4,447	$	107,304	$	11,240	$	20,862	$	143,853	$	7,772	$	129,408	$	9,699	$	15,671	$	162,550
Estimated fair value	$	4,482	$	108,323	$	11,702	$	20,851	$	145,358	$	7,783	$	128,568	$	9,864	$	15,434	$	161,649
Governmental agency bonds
Amortized cost	$	20,771	$	82,989	$	47,203	$	41,467	$	192,430	$	15,430	$	106,826	$	55,085	$	46,205	$	223,546
Estimated fair value	$	20,781	$	83,238	$	47,561	$	43,597	$	195,177	$	15,415	$	105,946	$	54,607	$	45,750	$	221,718
U.S. corporate debt securities
Amortized cost	$	15,513	$	318,116	$	274,598	$	66,424	$	674,651	$	29,681	$	299,209	$	314,805	$	72,604	$	716,299
Estimated fair value	$	15,578	$	324,386	$	281,216	$	69,558	$	690,738	$	29,800	$	302,345	$	319,329	$	75,454	$	726,928
Foreign corporate debt securities
Amortized cost	$	9,521	$	114,704	$	110,180	$	10,822	$	245,227	$	14,843	$	120,804	$	93,769	$	15,361	$	244,777
Estimated fair value	$	9,532	$	116,436	$	112,776	$	11,685	$	250,429	$	14,869	$	121,807	$	96,350	$	16,428	$	249,454
Total debt securities excluding mortgage-backed securities
Amortized cost	$	133,066	$	1,023,462	$	673,897	$	481,439	$	2,311,864	$	154,523	$	1,019,426	$	756,652	$	630,578	$	2,561,179
Estimated fair value	$	133,281	$	1,038,768	$	691,528	$	492,796	$	2,356,373	$	154,764	$	1,025,473	$	768,232	$	629,095	$	2,577,564
Total mortgage-backed securities
Amortized cost									$	2,229,651									$	2,238,222
Estimated fair value									$	2,235,797									$	2,225,920
Total debt securities
Amortized cost									$	4,541,515									$	4,799,401
Estimated fair value									$	4,592,170									$	4,803,484

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

The composition of the investment portfolio at September 30, ~~2016,~~2017, by credit rating, is as follows:


	A- Ratings or higher			BBB+ to BBB- Ratings			Non-Investment Grade			Total			A- or higher			BBB+ to BBB-			Non-Investment Grade			Total
(in thousands, except percentages)	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage
September 30, 2016
September 30, 2017
Debt securities:
U.S. Treasury bonds	$	150,434	100.0	$	—	—	$	—	—	$	150,434	100.0	$	145,453	100.0	$	—	—	$	—	—	$	145,453	100.0
Municipal bonds		879,726	95.2		35,861	3.8		8,650	1.0		924,237	100.0		999,995	93.2		54,521	5.1		17,846	1.7		1,072,362	100.0
Foreign government bonds		121,153	83.4		22,003	15.1		2,202	1.5		145,358	100.0		133,945	82.9		22,184	13.7		5,520	3.4		161,649	100.0
Governmental agency bonds		195,177	100.0		—	—		—	—		195,177	100.0		221,718	100.0		—	—		—	—		221,718	100.0
Governmental agency mortgage- backed securities		2,235,797	100.0		—	—		—	—		2,235,797	100.0
Governmental agency mortgage-backed securities														2,225,920	100.0		—	—		—	—		2,225,920	100.0
U.S. corporate debt securities		237,952	34.5		222,588	32.2		230,198	33.3		690,738	100.0		249,320	34.3		262,936	36.2		214,672	29.5		726,928	100.0
Foreign corporate debt securities		114,882	45.9		87,352	34.9		48,195	19.2		250,429	100.0		123,674	49.6		96,553	38.7		29,227	11.7		249,454	100.0
Total debt securities		3,935,121	85.7		367,804	8.0		289,245	6.3		4,592,170	100.0		4,100,025	85.3		436,194	9.1		267,265	5.6		4,803,484	100.0
Preferred stocks		—	—		8,987	59.1		6,232	40.9		15,219	100.0		—	—		13,616	73.5		4,911	26.5		18,527	100.0
Total	$	3,935,121	85.4	$	376,791	8.2	$	295,477	6.4	$	4,607,389	100.0	$	4,100,025	85.1	$	449,810	9.3	$	272,176	5.6	$	4,822,011	100.0

As of September 30, ~~2016,~~2017, the estimated fair value of total debt securities included ~~$153.3~~$144.3 million of bank loans, of which ~~$141.8~~$133.7 million was non-investment grade; ~~$128.1~~$106.7 million of high yield corporate debt securities, all of which was non-investment grade; and ~~$68.8~~$74.3 million of emerging market debt securities, of which ~~$10.7~~$9.0 million was non-investment grade.

The composition of the investment portfolio in an unrealized loss position at September 30, ~~2016,~~2017, by credit rating, is as follows:


	A- Ratings or higher			BBB+ to BBB- Ratings			Non-Investment Grade			Total			A- or higher			BBB+ to BBB-			Non-Investment Grade			Total
(in thousands, except percentages)	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage	Estimated fair value		Percentage
September 30, 2016
September 30, 2017
Debt securities:
U.S. Treasury bonds	$	55,705	100.0	$	—	—	$	—	—	$	55,705	100.0	$	81,677	100.0	$	—	—	$	—	—	$	81,677	100.0
Municipal bonds		233,406	97.2		5,332	2.2		1,377	0.6		240,115	100.0		355,301	95.6		15,057	4.0		1,619	0.4		371,977	100.0
Foreign government bonds		19,904	60.1		12,197	36.9		976	3.0		33,077	100.0		95,300	88.4		9,663	9.0		2,849	2.6		107,812	100.0
Governmental agency bonds		5,706	100.0		—	—		—	—		5,706	100.0		187,836	100.0		—	—		—	—		187,836	100.0
Governmental agency mortgage- backed securities		1,089,796	100.0		—	—		—	—		1,089,796	100.0
Governmental agency mortgage-backed securities														1,519,065	100.0		—	—		—	—		1,519,065	100.0
U.S. corporate debt securities		7,342	9.0		29,664	36.4		44,589	54.6		81,595	100.0		46,440	28.5		80,803	49.5		35,937	22.0		163,180	100.0
Foreign corporate debt securities		3,004	9.7		15,461	49.7		12,646	40.6		31,111	100.0		40,649	61.4		23,108	34.9		2,406	3.7		66,163	100.0
Total debt securities		1,414,863	92.0		62,654	4.1		59,588	3.9		1,537,105	100.0		2,326,268	93.1		128,631	5.1		42,811	1.8		2,497,710	100.0
Preferred stocks		—	—		8,987	59.1		6,232	40.9		15,219	100.0		—	—		7,990	66.3		4,063	33.7		12,053	100.0
Total	$	1,414,863	91.2	$	71,641	4.6	$	65,820	4.2	$	1,552,324	100.0	$	2,326,268	92.7	$	136,621	5.4	$	46,874	1.9	$	2,509,763	100.0

As of September 30, ~~2016,~~2017, the estimated fair value of total debt securities in an unrealized loss position included ~~$18.1~~$26.4 million of bank loans, of which ~~$18.0~~$26.0 million was non-investment grade; ~~$36.3~~$11.6 million of high yield corporate debt securities, all of which was non-investment grade; and ~~$17.6~~$15.4 million of emerging market debt securities, of which ~~$3.9~~$3.6 million was non-investment grade.

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

A summary of the changes in the carrying amount of goodwill, by operating segment, for the nine months ended September 30, ~~2016,~~2017, is as follows:


(in thousands)	Title Insurance and Services			Specialty Insurance		Total			Title Insurance and Services			Specialty Insurance		Total
Balance as of December 31, 2015	$	917,577		$	46,765	$	964,342
Balance as of December 31, 2016									$	970,652		$	46,765	$	1,017,417
Acquisitions		49,570			—		49,570			123,954			—		123,954
Foreign currency translation		1,146			—		1,146			4,391			—		4,391
Other adjustments		(294	)		—		(294	)		(298	)		—		(298	)
Balance as of September 30, 2016	$	967,999		$	46,765	$	1,014,764
Balance as of September 30, 2017									$	1,098,699		$	46,765	$	1,145,464

The Company’s four reporting units for purposes of assessing goodwill for impairment are title insurance, home warranty, property and casualty insurance and trust and other services. During the nine months ended September 30, ~~2016~~2017 there were no triggering events that would ~~require an impairment analysis. There is no accumulated impairment~~more likely than not reduce the fair value of any reporting unit below its carrying amount.

For further discussion about the Company’s acquisitions for ~~goodwill as~~ the ~~Company has never recognized impairment to any of its reporting units.~~three and nine months ended September 30, 2017, see Note 14 Business Combinations.

(in thousands)	September 30, 2016			December 31, 2015			September 30, 2017			December 31, 2016
Finite-lived intangible assets:
Customer relationships	$	95,777		$	93,572		$	77,600		$	78,542
Noncompete agreements		28,174			26,963			10,210			10,007
Trademarks		8,621			9,341			7,210			6,472
Internal-use software licenses		11,006			—			27,632			16,038
Patents		2,840			2,840			2,840			2,840
		146,418			132,716			125,492			113,899
Accumulated amortization		(111,898	)		(101,479	)		(67,250	)		(51,885	)
		34,520			31,237			58,242			62,014
Indefinite-lived intangible assets:
Licenses		16,897			16,877			16,884			16,884
	$	51,417		$	48,114		$	75,126		$	78,898

Amortization expense for finite-lived intangible assets was $7.0 million and $19.7 million for the three and nine months ended September 30, 2017, respectively, and $3.7 million and $9.3 million for the three and nine months ended September 30, 2016, ~~respectively, and $2.3 million and $7.1 million for the three and nine months ended September 30, 2015,~~ respectively.

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

Year	(in thousands)		(in thousands)
Remainder of 2016	$	4,490
2017	$	11,163
Remainder of 2017			$	7,975
2018	$	6,763	$	15,920
2019	$	4,401	$	9,210
2020	$	2,278	$	5,221
2021	$	1,151	$	2,976
2022			$	2,380

~~A summary of~~Activity in the ~~Company’s loss reserves~~reserve for known and incurred but not reported claims is summarized as follows:

The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was 4.0% for the three and nine months ended September 30, 2017 compared to 5.5% for the three and nine months ended September 30, ~~2016 compared to 6.6% for the three and nine months ended September 30, 2015.~~2016. The current quarter rate of 4.0% reflects the ultimate loss rate for the current policy year and no change in the loss reserve estimates for prior policy years. The third quarter of 2016 rate of 5.5% ~~reflects~~reflected the ultimate loss rate of 5.0% for the ~~current~~2016 policy year and a $5.8 million net increase in the loss reserve estimates for prior policy years. ~~The third quarter~~

A summary of ~~2015 rate of 6.6% reflected~~ the ~~ultimate~~Company’s loss ~~rate of 6.0% for the 2015 policy year and a $6.2 million net increase in the loss reserve estimates for prior policy years.~~reserves is as follows:

In September 2016, the Company borrowed $160.0 million under its credit facility to fund acquisitions and to partially fund its obligation in connection with the termination of its pension plan. As a result, the Company’s available borrowing capacity under its credit facility was reduced from $700.0 million to $540.0 million. At September 30, 2016, outstanding borrowings under the facility totaled $160.0 million at an interest rate of 2.28%. See Note 10 Employee Benefit Plans for further discussion of the Company’s pension termination and Note 15 Business Combinations for further discussion of the Company’s acquisitions.

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were -17.9% and 29.7% for the three and nine months ended September 30, 2017, respectively, and 35.7% and 33.7% for the three and nine months ended September 30, 2016, ~~respectively, and 34.3% and 34.4% for the three and nine months ended September 30, 2015,~~ respectively. The Company’s effective tax rates differ from the statutory federal rate of 35% primarily due to changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign subsidiaries’ ~~contribution~~contributions to pretax income and changes in the ratio of permanent differences to income before income taxes. The Company’s effective tax rates for ~~both~~2017 also reflect state tax benefits relating to the termination of the Company’s pension plan, as well as the release of reserves relating to tax positions taken on prior year tax returns. In addition, the Company’s effective tax rates for 2017 reflect the adoption of new accounting guidance related to the accounting for share-based payment transactions, which requires, among other items, that all excess tax benefits and tax deficiencies associated with share-based payment transactions be recorded in income tax expense rather than in additional paid-in capital, as previously required. The impact to the Company of adopting this guidance was a reduction in income tax expense of $0.1 million and $2.8 million for the three and nine months ended September 30, 2017, respectively. See Note 1 Basis of Condensed Consolidated Financial Statements for further discussion of the new guidance. The Company’s effective tax rates for 2016 also reflect the resolution of certain tax authority examinations and tax credits claimed in ~~current~~2016 and in prior years.

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

In connection with the Company’s June 2010 spin-off from its prior parent, which subsequently assumed the name CoreLogic, Inc. (“CoreLogic”), it entered into a tax sharing agreement which governs the Company’s and CoreLogic’s respective rights, responsibilities and obligations for certain ~~tax-related~~tax related matters. At September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company had a net payable to CoreLogic of ~~$37.5~~$13.0 million and ~~$36.5~~$16.3 million, respectively, related to tax matters prior to the spin-off. This amount is included in the Company’s condensed consolidated balance sheets in accounts payable and accrued liabilities. The ~~increase~~decrease during the current year was primarily ~~the result of an additional accrual~~due to payments made for tax matters prior to the spin-off.

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

As of September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the liability for income taxes associated with uncertain tax positions was ~~$26.8~~$12.8 million and ~~$23.8~~$18.1 million, respectively. The net ~~increase~~decrease in the liability during ~~2016~~2017 was primarily attributable to ~~reserves for~~settlements with taxing authorities relating to tax positions taken by the ~~Company.~~Company on prior year tax returns. As of September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the ~~liabilities~~liability could be reduced by ~~$3.6~~$5.4 million and ~~$3.4~~$5.7 million, respectively, ofdue to offsetting tax benefits associated with the correlative effects of potential adjustments, including timing adjustments and state income taxes. The net amounts of ~~$23.2~~$7.4 million and ~~$20.4~~$12.4 million as of September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, if recognized, would favorably affect the Company’s effective tax rate.

The Company’s continuing practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense. As of September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company had accrued ~~$9.5~~$4.5 million and ~~$9.7~~$4.1 million, respectively, of interest and penalties (net of tax benefits of ~~$4.4~~$2.0 million and ~~$4.1~~$1.8 million, respectively) related to uncertain tax positions.

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

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various non-U.S. jurisdictions. The primary non-federal jurisdictions are California, Canada, India and the United Kingdom. During 2016, the Company concluded U.S. federal income tax examinations for calendar years 2005 through 2013. The Company is generally no longer subject to U.S. federal, state and non-U.S. income tax examinations ~~by taxing authorities~~ for years prior to 2005.

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

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2016		2015		2016		2015			2017		2016		2017		2016
Numerator									Numerator
Net income attributable to the Company	$	107,320	$	75,542	$	261,970	$	206,520	Net income attributable to the Company	$	21,383	$	107,320	$	201,922	$	261,970
Less: dividends and undistributed earnings allocated to unvested restricted stock units (“RSUs”)		—		68		—		230
Net income allocated to common stockholders	$	107,320	$	75,474	$	261,970	$	206,290
Denominator									Denominator
Basic weighted-average shares		110,571		108,647		110,423		108,284	Basic weighted-average shares		111,799		110,571		111,578		110,423
Effect of dilutive employee stock options and RSUs		680		1,357		583		1,422
Effect of dilutive employee stock options and restricted stock units (“RSUs”)									Effect of dilutive employee stock options and restricted stock units (“RSUs”)		776		680		676		583
Diluted weighted-average shares		111,251		110,004		111,006		109,706	Diluted weighted-average shares		112,575		111,251		112,254		111,006
Net income per share attributable to the Company’s stockholders									Net income per share attributable to the Company’s stockholders
Basic	$	0.97	$	0.69	$	2.37	$	1.91	Basic	$	0.19	$	0.97	$	1.81	$	2.37
Diluted	$	0.96	$	0.69	$	2.36	$	1.88	Diluted	$	0.19	$	0.96	$	1.80	$	2.36

For the three and nine months ended September 30, 2017, 1 thousand RSUs and 8 thousand RSUs, respectively, were excluded from weighted-average diluted common shares outstanding due to their antidilutive effect. For the three months ended September 30, 2016, no ~~stock options or~~ RSUs had an antidilutive effect on weighted-average diluted common shares ~~outstanding. For~~outstanding, and for the nine months ended September 30, 2016, 17 thousand RSUs were excluded from weighted-average diluted common shares outstanding due to their antidilutive effect. ~~For the three and nine months ended September 30, 2015, 2 thousand RSUs and 1 thousand RSUs, respectively, were excluded from~~No stock options had an antidilutive effect on weighted-average diluted common shares outstanding ~~due to their antidilutive effect.~~for either period in the current year or in the prior year.

Net periodic cost related to the Company’s ~~funded~~ defined benefit pension and ~~unfunded~~ supplemental benefit plans includes the following components:

	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2016			2015			2016			2015				2017			2016			2017			2016
Expense:													Expense:
Service costs	$	260		$	390		$	781		$	1,170		Service costs	$	184		$	260		$	551		$	781
Interest costs		5,999			6,786			18,000			20,805		Interest costs		2,086			5,999			11,185			18,000
Settlement costs													Settlement costs		152,388			—			152,388			—
Expected return on plan assets		(3,083	)		(5,341	)		(9,250	)		(16,237	)	Expected return on plan assets		—			(3,083	)		(4,740	)		(9,250	)
Amortization of net actuarial loss		7,043			7,613			21,153			24,596		Amortization of net actuarial loss		1,958			7,043			15,792			21,153
Amortization of prior service credit		(1,211	)		(1,041	)		(3,633	)		(3,122	)	Amortization of prior service credit		(1,045	)		(1,211	)		(3,268	)		(3,633	)
	$	9,008		$	8,407		$	27,051		$	27,212			$	155,571		$	9,008		$	171,908		$	27,051

In May 2016, the Company’s board of directors terminated the Company’s funded defined benefit pension plan known as the First American Financial Corporation Pension Plan, ~~(the “Pension Plan”)~~ effective as of July 31, 2016. The ~~Pension Plan~~pension plan was closed to new entrants effective December 31, 2001 and amended to “freeze” all benefit accruals as of April 30, 2008. Also, in May 2016, a subsidiary of the Company terminated its small regional funded defined benefit pension plan effective as of August 31, 2016. The Company expects the termination of both pension plans to occur over a similar timeframe. Upon completion of these terminations, the Company will have no remaining funded defined benefit pension plan obligations. All financial impacts discussed below reflect the termination of both pension plans.

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

The ~~Pension Plan offers~~pension plans offered participants annuity payments based on a number of ~~factors. The Pension Plan will also offer~~factors and, for certain participants, an alternative lump sum distribution option. During 2016, the Company made additional cash contributions of $84.8 million above scheduled amounts and offered lump sum distributions to certain participants. ~~After certain regulatory approvals are obtained, the Company will provide additional cash contributions to the Pension Plan to ensure that sufficient assets are available to make~~The lump sum distribution payments, purchase group annuity contracts from one or more highly rated insurance companies to pay and administer future benefit payments, and complete other transactions required to terminate the Pension Plandistributions were settled through distributions of pension plan assets in a manner that fully meets its obligations to all participants. The total amount of additional cash contributions required to be provided by the Company will depend upon changes in interest rates, Pension Plan asset returns, the lump sum election rate, and other factors. To sufficiently fund the Pension Plan, the Company contributed an additional cash contribution of $55.9 million in September 2016 and expects to make an additional cash contribution of approximately $44 million. The Company also expects to pay other termination related expenses.

As of December 31, 2015, the Company reported net unrealized losses of $197 million, before tax, in accumulated other comprehensive loss on its consolidated balance sheet related to the Pension Plan. These net unrealized losses, as well as other expenses estimated to be approximately $15 million, before tax, will be recognized in the Company’s consolidated statement of income in two separate quarters as payments are made, initially to settle lump sum elections, and later to purchase group annuity contracts. The Company expects to make distributions to participants electing lump sum payouts and to recognize approximately $81 million in net unrealized losses during the fourth quarter ~~of 2016.~~ totaling $127.2 million for which the Company recognized $66.3 million in settlement costs.

The Company ~~expects~~made cash contributions of $34.0 million in March 2017 to ~~complete~~fully fund its pension obligation. In July 2017, the Company completed the transfer of all remaining ~~liabilities and administrative responsibilities~~benefit obligations related to the ~~Pension Plan~~pension plans to ~~one or more~~a highly rated insurance ~~companies~~company and ~~to recognize approximately $131~~recognized $152.4 million in ~~net unrealized losses and other expenses by~~settlement costs in the ~~end~~condensed consolidated statements of income in the third quarter of 2017. The preceding information related to the expected amounts and timing of pension termination expenses to be recognized are estimates based on net unrealized losses as of December 31, 2015 and actual amounts recognized may differ due to changes in interest rates, Pension Plan asset returns, the lump sum election rate, and other factors.

~~Certain aspects of the transactions required to terminate the Pension Plan and settle its obligations are subject to regulatory review.~~

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

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

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

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

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

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

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

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

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

Typical inputs and assumptions to pricing models used to value the Company’s U.S. Treasury bonds, municipal bonds, foreign government bonds, governmental agency bonds, governmental agency mortgage-backed securities and U.S. and foreign corporate debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds. ~~Non-agency mortgage-backed securities and certain~~Certain corporate debt securities were not actively traded and there were fewer observable inputs available requiring the use of more judgment in determining their fair values, which resulted in their classification as Level 3.

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

The following tables present the fair values of the Company’s assets, measured on a recurring basis, as of September 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

(in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
September 30, 2016
September 30, 2017
Assets:
Debt securities:
U.S. Treasury bonds	$	150,434	$	—	$	150,434	$	—	$	145,453	$	—	$	145,453	$	—
Municipal bonds		924,237		—		924,237		—		1,072,362		—		1,072,362		—
Foreign government bonds		145,358		—		145,358		—		161,649		—		161,649		—
Governmental agency bonds		195,177		—		195,177		—		221,718		—		221,718		—
Governmental agency mortgage-backed securities		2,235,797		—		2,235,797		—		2,225,920		—		2,225,920		—
U.S. corporate debt securities		690,738		—		673,239		17,499		726,928		—		714,419		12,509
Foreign corporate debt securities		250,429		—		248,668		1,761		249,454		—		248,581		873
		4,592,170		—		4,572,910		19,260		4,803,484		—		4,790,102		13,382
Equity securities:
Preferred stocks		15,219		15,219		—		—		18,527		18,527		—		—
Common stocks		372,702		372,702		—		—		427,658		427,658		—		—
		387,921		387,921		—		—		446,185		446,185		—		—
Total assets	$	4,980,091	$	387,921	$	4,572,910	$	19,260	$	5,249,669	$	446,185	$	4,790,102	$	13,382

(in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
December 31, 2015
December 31, 2016
Assets:
Debt securities:
U.S. Treasury bonds	$	129,372	$	—	$	129,372	$	—	$	151,391	$	—	$	151,391	$	—
Municipal bonds		703,795		—		703,795		—		984,333		—		984,333		—
Foreign government bonds		130,101		—		130,101		—		140,048		—		140,048		—
Governmental agency bonds		418,091		—		418,091		—		193,868		—		193,868		—
Governmental agency mortgage-backed securities		2,055,673		—		2,055,673		—		2,163,673		—		2,163,673		—
U.S. corporate debt securities		634,683		—		591,116		43,567		678,524		—		631,859		46,665
Foreign corporate debt securities		207,632		—		201,060		6,572		241,526		—		235,258		6,268
		4,279,347		—		4,229,208		50,139		4,553,363		—		4,500,430		52,933
Equity securities:
Preferred stocks		15,467		15,467		—		—		15,582		15,582		—		—
Common stocks		305,818		305,818		—		—		388,503		388,503		—		—
		321,285		321,285		—		—		404,085		404,085		—		—
Total assets	$	4,600,632	$	321,285	$	4,229,208	$	50,139	$	4,957,448	$	404,085	$	4,500,430	$	52,933

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

There were no transfers between Levels 1 and 2 during the three and nine months ended September 30, ~~2016~~2017 and ~~2015.~~2016. Transfers into or out of the Level 3 category occur when unobservable inputs become more or less significant to the fair value measurement. For the three and nine months ended September 30, ~~2016,~~2017 and ~~for the three months ended September 30, 2015,~~2016, transfers between Level 2 and Level 3 were based on market liquidity and related transparency of pricing and associated observable inputs for certain of the Company’s corporate debt securities. ~~There were no transfers in or out of Level 3 during the nine months ended September 30, 2015.~~ The Company’s policy is to recognize transfers between levels in the fair value hierarchy at the end of the reporting period.

The following table presents a summary of the changes in the fair values of Level 3 assets, measured on a recurring basis, for the three months ended September 30, ~~2016~~2017 and ~~2015:~~

	September 30, 2016									September 30, 2015									September 30, 2017									September 30, 2016
(in thousands)	U.S. corporate debt securities			Foreign corporate debt securities			Total			U.S. corporate debt securities			Foreign corporate debt securities			Total			U.S. corporate debt securities			Foreign corporate debt securities			Total			U.S. corporate debt securities			Foreign corporate debt securities			Total
Fair value at beginning of period	$	14,493		$	723		$	15,216		$	9,314		$	2,044		$	11,358		$	18,128		$	1,915		$	20,043		$	14,493		$	723		$	15,216
Transfers into Level 3		5,968			—			5,968			1,899			22			1,921			3,747			573			4,320			5,968			—			5,968
Transfers out of Level 3		(4,546	)		—			(4,546	)		(2,634	)		(1,377	)		(4,011	)		(6,788	)		—			(6,788	)		(4,546	)		—			(4,546	)
Net realized and unrealized gains (losses):
Included in earnings		5			—			5			(2	)		—			(2	)		26			(1	)		25			5			—			5
Included in other comprehensive income (loss)		115			43			158			(31	)		(9	)		(40	)		(86	)		(5	)		(91	)		115			43			158
Purchases		1,866			1,045			2,911			1,694			4			1,698			901			149			1,050			1,866			1,045			2,911
Sales		(46	)		(50	)		(96	)		(92	)		—			(92	)		(1,231	)		—			(1,231	)		(46	)		(50	)		(96	)
Settlements		(356	)		—			(356	)		(2,312	)		(162	)		(2,474	)		(2,188	)		(1,758	)		(3,946	)		(356	)		—			(356	)
Fair value at end of period	$	17,499		$	1,761		$	19,260		$	7,836		$	522		$	8,358		$	12,509		$	873		$	13,382		$	17,499		$	1,761		$	19,260
Unrealized gains (losses) included in earnings for the period relating to Level 3 assets that were still held at the end of the period:
Net realized investment gains (losses)	$	—		$	—		$	—		$	—		$	—		$	—

The following table presents a summary of the changes in the fair values of Level 3 assets, measured on a recurring basis, for the nine months ended September 30, ~~2016~~2017 and ~~2015:~~2016:

	September 30, 2017									September 30, 2016
(in thousands)	U.S. corporate debt securities			Foreign corporate debt securities			Total			U.S. corporate debt securities			Foreign corporate debt securities			Total
Fair value at beginning of period	$	46,665		$	6,268		$	52,933		$	43,567		$	6,572		$	50,139
Transfers into Level 3		377			198			575			269			—			269
Transfers out of Level 3		(27,066	)		(2,111	)		(29,177	)		(27,764	)		(3,822	)		(31,586	)
Net realized and unrealized gains (losses):
Included in earnings		117			11			128			(88	)		(48	)		(136	)
Included in other comprehensive income (loss)		(460	)		(47	)		(507	)		1,053			88			1,141
Purchases		7,994			1,075			9,069			10,132			1,243			11,375
Sales		(2,824	)		(1,954	)		(4,778	)		(4,750	)		(1,045	)		(5,795	)
Settlements		(12,294	)		(2,567	)		(14,861	)		(4,920	)		(1,227	)		(6,147	)
Fair value at end of period	$	12,509		$	873		$	13,382		$	17,499		$	1,761		$	19,260

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

September 30, 2016

September 30, 2015

(in thousands)
U.S.
corporate
debt
securities

Foreign
corporate
debt securities

Total

U.S.
corporate
debt
securities

Foreign
corporate
debt
securities

Non-agency
mortgage-
backed
securities

Total

Fair value at beginning of period
$
43,567

$
6,572

$
50,139

$
—

$
—

$
16,538

$
16,538

Transfers into Level 3

269

—

269

—

—

—

—

Transfers out of Level 3

(27,764
)

(3,822
)

(31,586
)

—

—

—

—

Net realized and unrealized gains (losses):

Included in earnings

(88
)

(48
)

(136
)

1

—

(1,015
)

(1,014
)
Included in other comprehensive
income (loss)

1,053

88

1,141

—

6

(589
)

(583
)
Purchases

10,132

1,243

11,375

8,316

515

—

8,831

Sales

(4,750
)

(1,045
)

(5,795
)

(427
)

—

(14,934
)

(15,361
)
Settlements

(4,920
)

(1,227
)

(6,147
)

(54
)

1

—

(53
)
Fair value at end of period
$
17,499

$
1,761

$
19,260

$
7,836

$
522

$
—

$
8,358

Unrealized gains (losses) included in earnings for
the period relating to Level 3 assets that were
still held at the end of the period:

Net realized investment gains
(losses)
$
(5
)

$
—

$
(5
)

$
—

$
—

$
—

$
—

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

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

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

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

The carrying ~~value~~values of escrow and other deposit accounts ~~approximates~~approximate fair value due to the short-term nature of these liabilities.

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

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value as of September 30, ~~2016~~2017 and December 31, ~~2015:~~2016:

	Carrying		Estimated fair value								Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
September 30, 2016
September 30, 2017
Assets:
Cash and cash equivalents	$	1,443,312	$	1,443,312	$	1,443,312	$	—	$	—	$	1,141,915	$	1,141,915	$	1,141,915	$	—	$	—
Deposits with banks	$	22,257	$	22,214	$	1,110	$	21,104	$	—	$	20,940	$	20,887	$	265	$	20,622	$	—
Notes receivable, net	$	7,007	$	6,893	$	—	$	—	$	6,893	$	7,466	$	7,297	$	—	$	—	$	7,297
Liabilities:
Deposits	$	3,218,128	$	3,218,128	$	3,218,128	$	—	$	—	$	2,965,426	$	2,965,426	$	2,965,426	$	—	$	—
Notes and contracts payable	$	737,944	$	763,860	$	—	$	758,073	$	5,787	$	734,091	$	756,536	$	—	$	752,070	$	4,466

	Carrying		Estimated fair value								Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
December 31, 2015
December 31, 2016
Assets:
Cash and cash equivalents	$	1,027,321	$	1,027,321	$	1,027,321	$	—	$	—	$	1,006,138	$	1,006,138	$	1,006,138	$	—	$	—
Deposits with banks	$	23,224	$	23,211	$	1,103	$	22,108	$	—	$	21,222	$	21,176	$	1,017	$	20,159	$	—
Notes receivable, net	$	5,866	$	5,791	$	—	$	—	$	5,791	$	7,799	$	7,542	$	—	$	—	$	7,542
Liabilities:
Deposits	$	2,699,015	$	2,699,015	$	2,699,015	$	—	$	—	$	2,779,478	$	2,779,478	$	2,779,478	$	—	$	—
Notes and contracts payable	$	581,052	$	590,970	$	—	$	583,893	$	7,077	$	736,693	$	734,812	$	—	$	729,658	$	5,154

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

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2016		2015		2016		2015			2017		2016		2017		2016
Expense:									Expense:
RSUs	$	5,401	$	4,059	$	25,766	$	18,278	RSUs	$	5,866	$	5,401	$	28,634	$	25,766
Stock options		68		68		203		203	Stock options		69		68		203		203
Employee stock purchase plan		659		571		2,127		1,780	Employee stock purchase plan		682		659		2,359		2,127
	$	6,128	$	4,698	$	28,096	$	20,261		$	6,617	$	6,128	$	31,196	$	28,096

The following table summarizes RSU activity for the nine months ended September 30, ~~2016:~~2017:

~~The following table summarizes stock option activity for the nine months ended September 30, 2016:~~

The following table presents a summary of the changes in each component of AOCI for the nine months ended

(in thousands)
Unrealized
gains (losses)
on securities

Foreign
currency
translation
adjustment

Pension
benefit
adjustment

Accumulated
other
comprehensive
income (loss)

Balance at December 31, 2015
$
(16,401
)

$
(57,242
)

$
(165,357
)

$
(239,000
)
Change in unrealized gains (losses) on
securities

83,390

—

—

83,390

Change in foreign currency translation
adjustment

—

3,066

—

3,066

Amortization of net actuarial loss

—

—

21,153

21,153

Amortization of prior service cost

—

—

(3,633
)

(3,633
)
Tax effect

(31,303
)

—

(6,701
)

(38,004
)
Balance at September 30, 2016
$
35,686

$
(54,176
)

$
(154,538
)

$
(173,028
)
Allocated to the Company
$
35,662

$
(54,176
)

$
(154,538
)

$
(173,052
)
Allocated to noncontrolling interests

24

—

—

24

Balance at September 30, 2016
$
35,686

$
(54,176
)

$
(154,538
)

$
(173,028
)

(in thousands)	Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Accumulated other comprehensive income (loss)
Balance at December 31, 2016	$	(26,760	)	$	(63,576	)	$	(140,057	)	$	(230,393	)
Change in unrealized gains (losses) on securities		81,044			—			—			81,044
Change in foreign currency translation adjustment		—			23,558			—			23,558
Net actuarial loss		—			—			(8,646	)		(8,646	)
Amortization of net actuarial loss		—			—			15,792			15,792
Amortization of prior service credit		—			—			(3,268	)		(3,268	)
Settlement costs		—			—			152,388			152,388
Tax effect		(29,030	)		—			(63,205	)		(92,235	)
Balance at September 30, 2017	$	25,254		$	(40,018	)	$	(46,996	)	$	(61,760	)
Allocated to the Company	$	25,235		$	(40,018	)	$	(46,996	)	$	(61,779	)
Allocated to noncontrolling interests		19			—			—			19
Balance at September 30, 2017	$	25,254		$	(40,018	)	$	(46,996	)	$	(61,760	)

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

The following table presents the other comprehensive income (loss) reclassification adjustments for the three months ended September 30, ~~2016~~2017 and ~~2015:~~2016:

(in thousands)	Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Total other comprehensive income (loss)			Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Total other comprehensive income (loss)
Three Months Ended September 30, 2017
Pretax change before reclassifications													$	22,833		$	11,415		$	(8,646	)	$	25,602
Reclassifications out of AOCI														(928	)		—			153,301			152,373
Tax effect														(7,976	)		—			(58,764	)		(66,740	)
Total other comprehensive income (loss), net of tax													$	13,929		$	11,415		$	85,891		$	111,235
Three Months Ended September 30, 2016
Pretax change before reclassifications	$	12,435		$	(3,459	)	$	—		$	8,976		$	12,435		$	(3,459	)	$	—		$	8,976
Reclassifications out of AOCI		(8,687	)		—			5,832			(2,855	)		(8,687	)		—			5,832			(2,855	)
Tax effect		(1,169	)		—			(2,230	)		(3,399	)		(1,169	)		—			(2,230	)		(3,399	)
Total other comprehensive income (loss), net of tax	$	2,579		$	(3,459	)	$	3,602		$	2,722		$	2,579		$	(3,459	)	$	3,602		$	2,722
Three Months Ended September 30, 2015
Pretax change before reclassifications	$	(15,614	)	$	(15,416	)	$	—		$	(31,030	)
Reclassifications out of AOCI		(108	)		—			6,572			6,464
Tax effect		4,780			—			(2,514	)		2,266
Total other comprehensive income (loss), net of tax	$	(10,942	)	$	(15,416	)	$	4,058		$	(22,300	)

The following table presents the other comprehensive income (loss) reclassification adjustments for the nine months ended September 30, ~~2016~~2017 and ~~2015:~~2016:

(in thousands)	Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Total other comprehensive income (loss)			Unrealized gains (losses) on securities			Foreign currency translation adjustment		Pension benefit adjustment			Total other comprehensive income (loss)
Nine Months Ended September 30, 2017
Pretax change before reclassifications													$	95,329		$	23,558	$	(8,646	)	$	110,241
Reclassifications out of AOCI														(14,285	)		—		164,912			150,627
Tax effect														(29,030	)		—		(63,205	)		(92,235	)
Total other comprehensive income (loss), net of tax													$	52,014		$	23,558	$	93,061		$	168,633
Nine Months Ended September 30, 2016
Pretax change before reclassifications	$	96,612		$	3,066		$	—		$	99,678		$	96,612		$	3,066	$	—		$	99,678
Reclassifications out of AOCI		(13,222	)		—			17,520			4,298			(13,222	)		—		17,520			4,298
Tax effect		(31,303	)		—			(6,701	)		(38,004	)		(31,303	)		—		(6,701	)		(38,004	)
Total other comprehensive income (loss), net of tax	$	52,087		$	3,066		$	10,819		$	65,972		$	52,087		$	3,066	$	10,819		$	65,972
Nine Months Ended September 30, 2015
Pretax change before reclassifications	$	(29,966	)	$	(29,210	)	$	—		$	(59,176	)
Reclassifications out of AOCI		1,545			—			21,474			23,019
Tax effect		9,047			—			(8,214	)		833
Total other comprehensive income (loss), net of tax	$	(19,374	)	$	(29,210	)	$	13,260		$	(35,324	)

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

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

			Amounts reclassified from AOCI														Amounts reclassified from AOCI											��
(in thousands)	(in thousands)		Three Months Ended September 30,						Nine Months Ended September 30,					Affected line items in the condensed	(in thousands)		Three Months Ended September 30,						Nine Months Ended September 30,						Affected line items in the condensed
(in thousands)	(in thousands)		2016			2015			2016			2015		consolidated statements of income	(in thousands)		2017			2016			2017			2016			consolidated statements of income
Unrealized gains (losses) on securities:	Unrealized gains (losses) on securities:														Unrealized gains (losses) on securities:
Net realized gains (losses) on sales of securities		$	8,687		$	108		$	13,707		$	(1,545	)	Net realized investment gains (losses)
Net realized gains on sales of securities															Net realized gains on sales of securities	$	928		$	8,687		$	14,285		$	13,707			Net realized investment (losses) gains
Net other-than-temporary impairment losses	Net other-than-temporary impairment losses		—			—			(485	)		—		Net realized investment gains (losses)	Net other-than-temporary impairment losses		—			—			—			(485	)		Net realized investment (losses) gains
Pretax total	Pretax total	$	8,687		$	108		$	13,222		$	(1,545	)		Pretax total	$	928		$	8,687		$	14,285		$	13,222
Tax effect	Tax effect	$	(3,261	)	$	(33	)	$	(5,057	)	$	492			Tax effect	$	(332	)	$	(3,261	)	$	(5,778	)	$	(5,057	)
Pension benefit adjustment:	Pension benefit adjustment:														Pension benefit adjustment:
Amortization of employee benefit plan items:
Net actuarial loss		$	(7,043	)	$	(7,613	)	$	(21,153	)	$	(24,596	)	(1)
Prior service credit			1,211			1,041			3,633			3,122		(1)
Amortization of net actuarial loss															Amortization of net actuarial loss	$	(1,958	)	$	(7,043	)	$	(15,792	)	$	(21,153	)	(1	)
Amortization of prior service credit															Amortization of prior service credit		1,045			1,211			3,268			3,633		(1	)
Settlement costs															Settlement costs		(152,388	)		—			(152,388	)		—		(1	)
Pretax total	Pretax total	$	(5,832	)	$	(6,572	)	$	(17,520	)	$	(21,474	)		Pretax total	$	(153,301	)	$	(5,832	)	$	(164,912	)	$	(17,520	)
Tax effect	Tax effect	$	2,229		$	2,514		$	6,701		$	8,214			Tax effect	$	62,276		$	2,229		$	66,702		$	6,701

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

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

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

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

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

Most of the non-ordinary course lawsuits to which the Company and its subsidiaries are parties challenge practices in the Company’s title insurance business, though a limited number of cases also pertain to the Company’s other businesses. These lawsuits include, among others, cases alleging, among other assertions, that the Company, one of its subsidiaries and/or one of its ~~agents:~~

~~A court has granted class certification in Lewis. For the reasons stated above, the Company has been unable to assess the probability of loss or estimate the possible loss or the range of loss.~~

In Edwards the court has issued final approval of a settlement. The anticipated loss, for which a liability has been previously recorded, is not material to the condensed consolidated financial statements as a whole.

These lawsuits are putative class actions for which a class has not been certified. For the reasons described above, as well as the applicability of certain indemnification rights the Company may have, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of loss or, where the Company has been able to make an estimate, the Company believes the amount is not material to the condensed consolidated financial statements as a whole.

All of these lawsuits, except Kaufman and ~~Kirk,~~Sjobring, are putative class actions for which a class has not been certified. ~~In Kaufman a class was certified but that certification was subsequently vacated. A trial of the Kirk matter has concluded and the judgment has been affirmed on appeal.~~ For the reasons described above, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of loss or, where the Company has been able to make an estimate, the Company believes the amount is not material to the condensed consolidated financial statements as a whole.

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

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

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

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

The Company’s Canadian operations provide certain services to lenders which it believes to be exempt from excise tax under applicable Canadian tax laws. However, in October 2014, the Canadian taxing authority provided internal guidance that the services in question should be subject to the excise tax. While discussions with the taxing authority are ongoing, the Company believes that the guidance may result in an assessment. The amount, if any, of such assessment is not currently known, and any such assessment would be subject to negotiation. In the event that the Company disagrees with the ultimate assessment, the Company intends to avail itself of avenues of appeal. While the Company believes it is reasonably likely that the Company would prevail on the merits, a loss associated with the matter is possible. In light of the foregoing, the Company is not currently able to reasonably estimate a loss or range of loss associated with the matter. While such a loss could be material to the Company’s operating results in any particular period if an unfavorable outcome results, the Company does not believe that this matter will have a material adverse effect on the Company’s overall financial condition or liquidity.

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

During the three and nine months ended September 30, ~~2016,~~2017, the Company completed acquisitions for an aggregate purchase price of ~~$56.9~~$87.3 million and ~~$75.5~~$91.1 million, respectively. The Company has recorded preliminary fair value estimates for the assets acquired and liabilities assumed, which are subject to change pending completion of the Company’s purchase price allocation. The Company allocates the purchase price of each acquisition to the assets acquired and liabilities assumed using a variety of valuation techniques, including discounted cash flow analysis. These acquisitions have been included in the Company’s title insurance and services segment.

During the three and nine months ended September 30, 2016, the Company completed acquisitions for an aggregate purchase price of $56.9 million and $75.5 million, respectively. These acquisitions have been included in the Company’s title insurance and services segment.

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

The corporate function consists primarily of certain financing facilities as well as the corporate services that support the Company’s business operations. ~~Eliminations consist of inter-segment revenues and related expenses included in the results of the operating segments.~~

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

(in thousands)	Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures		Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	1,395,727		$	188,706		$	22,994	$	41,948	$	1,397,262		$	181,199		$	34,363	$	33,750
Specialty Insurance		109,782			1,781			1,401		844		118,481			6,178			1,599		2,015
Corporate		2,855			(23,556	)		96		—		4,108			(169,415	)		38		—
Eliminations		(20	)		—			—		—		(283	)		—			—		—
	$	1,508,344		$	166,931		$	24,491	$	42,792	$	1,519,568		$	17,962		$	36,000	$	35,765

(in thousands)	Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures		Revenues			Income (loss) before income taxes			Depreciation and amortization		Capital expenditures
Title Insurance and Services	$	1,288,156		$	136,984		$	19,753	$	31,309	$	1,395,727		$	188,706		$	22,994	$	41,948
Specialty Insurance		101,210			1,684			1,197		927		109,782			1,781			1,401		844
Corporate		(5,428	)		(23,272	)		122		2		2,855			(23,556	)		96		—
Eliminations		(23	)		—			—		—		(20	)		—			—		—
	$	1,383,915		$	115,396		$	21,072	$	32,238	$	1,508,344		$	166,931		$	24,491	$	42,792

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

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

This Management’s Discussion and Analysis contains certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”), including adjusted information and other revenues, adjusted personnel costs and adjusted other operating expenses, in each case excluding the effects of recent acquisitions. The Company is presenting these non-GAAP financial measures because they provide the Company’s management and readers of this Quarterly Report on Form 10-Q with additional insight into the operational performance of the Company relative to earlier periods. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this Quarterly Report on Form 10-Q, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Readers of this Quarterly Report on Form 10-Q should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

There have been no material changes to the Company’s critical accounting estimates since the filing of its Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. A summary of the Company’s accounting policies that it considers to be the most dependent on the application of estimates and assumptions can be found in the Management’s Discussion and Analysis section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

In ~~August 2015,~~March 2016, the FASB issued updated guidance ~~relating~~intended to simplify and improve several aspects of the ~~Securities~~accounting for share-based payment transactions, including the income tax consequences, classification of such awards as either equity or liabilities and ~~Exchange Commission Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting~~classification on the ~~presentation and subsequent measurement~~statement of debt issuance costs associated with line-of-credit arrangements. The updated guidance allows for the deferral and presentation of debt issuance costs as an asset which may be amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any related outstanding borrowings.cash flows. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2015, with early~~2016. While the adoption ~~permitted.~~of this guidance did have an impact on the Company’s effective income tax rate for 2017, it did not have a material impact on the Company’s condensed consolidated financial statements. See Note 7 Income Taxes to the condensed consolidated financial statements for further discussion of the Company’s effective income tax rates. Beginning in 2017, excess tax benefits from share-based compensation are presented in the condensed consolidated statements of cash flows in cash flows from operating activities within net change in income tax accounts.

In March 2017, the FASB issued updated guidance to amend the amortization period for certain purchased callable debt securities held at a premium to shorten the amortization period for the premium to the earliest call date. The ~~financial statement line items impacted by~~updated guidance is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities, and is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of ~~the updated~~this guidance ~~include other intangible assets, net and depreciation and amortization. See Note 5 Other Intangible Assets~~ to ~~the~~have a material impact on its condensed consolidated financial ~~statements for further information on the Company’s internal-use software licenses.~~statements.

In March 2016, the FASB issued updated guidance intended to simplify the accounting treatment for investments that become qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company expects the adoption of this guidance to have no impact on its condensed consolidated financial statements.

~~In May~~ 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within and across industries, and across capital markets. The new revenue standard contains principles that an entity will apply to determine the measurement of revenue and the timing of recognition. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. Revenue from insurance contracts is not within the scope of this guidance. ~~The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption prohibited.~~ In August 2015, the FASB issued updated guidance which defers the effective date of this guidance by one ~~year~~year. In 2016, the FASB issued additional updates to the new guidance primarily to clarify, among other things, the implementation guidance related to principal versus agent considerations, identifying performance obligations, accounting for licenses of intellectual property, and to provide narrow-scope improvements and additional practical expedients. In February 2017, the FASB issued an additional update to the new guidance to clarify the scope of derecognition guidance for nonfinancial assets and to provide guidance for partial sales of nonfinancial assets. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption ~~permitted as of the original effective date.~~prohibited. The Company ~~is currently assessing the impact of~~expects to adopt the new guidance under the modified retrospective approach and, except for certain disclosure requirements, does not expect the new guidance to have a material impact on its condensed consolidated financial statements.

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

The Company’s total revenues increased $124.4 million, or 9.0%, in the third quarter of 2016 when compared with the third quarter of 2015. This increase was primarily attributable to an increase in agent premiums and, to a lesser extent, an increase in direct premiums and escrow fees from residential refinance transactions in the title insurance and services segment. Agent premiums increased $40.0 million, or 6.8%, and direct premiums and escrow fees from residential refinance transactions increased $33.4 million, or 52.8%, in the third quarter of 2016 when compared to the third quarter of 2015.

According to the Mortgage Bankers Association’s ~~September 12, 2016~~October 24, 2017 Mortgage Finance Forecast (the “MBA Forecast”), residential mortgage originations in the United States (based on the total dollar value of the transactions) ~~increased 31.7%~~decreased 16.0% in the third quarter of ~~2016~~2017 when compared with the third quarter of ~~2015.~~2016. According to the MBA Forecast, the dollar amount of purchase originations increased ~~9.2%~~7.4% and refinance originations ~~increased 71.9%~~decreased 42.6%. This volume of domestic residential mortgage origination activity contributed to a ~~3.2%~~9.9% increase in direct premiums and escrow fees from domestic residential purchase transactions and a ~~52.8% increase~~40.4% decrease in direct premiums and escrow fees from domestic refinance transactions in the third quarter of ~~2016~~2017 when compared to the third quarter of ~~2015.~~2016.

During the third quarter of ~~2016,~~2017, the level of domestic title orders opened per day by the Company’s direct title operations ~~increased~~decreased by ~~17.4%~~22.5% when compared with the third quarter of ~~2015.~~2016. Residential refinance open orders per day decreased by 46.4%, while purchase and ~~purchase~~commercial open orders per day increased by 2.2% and 0.5%, respectively. The sharp decline in residential refinance orders opened per day ~~increased by 58.0% and 0.5%, respectively, and commercial orders opened per day decreased by 7.5%.~~was attributable to higher mortgage interest rates in the third quarter of 2017 when compared to the third quarter of 2016.

In ~~May~~ 2016, the ~~Company’s board of directors~~Company terminated ~~the Company’s~~its funded defined benefit pension ~~plan effective as~~plans. In July 2017, the Company completed the transfer of ~~July 31, 2016. Once~~all remaining benefit obligations related to the ~~termination process is complete,~~pension plans to a highly rated insurance company and recognized $152.4 million of pension expense in personnel costs in the corporate segment in the third quarter of 2017. The Company estimates an annual reduction of approximately $22 million in personnel costs related to the pension ~~plan~~plans within the corporate segment, based on the level of these expenses for the ~~nine months~~year ended ~~September 30,~~December 31, 2016. For further discussion of the pension termination ~~including the recent and expected contribution amounts and the timing of pension termination expenses to be recognized,~~ see Note 109 Employee Benefit Plans to the condensed consolidated financial statements.

During the third quarter of 2017 and in October 2017, hurricanes and wildfires impacted many regions across the country. The Company ~~recorded certain reclassifications and revisions~~does not expect these events to ultimately have a significant impact to its condensed consolidated ~~statements~~financial statements. While the Company does not expect a significant impact to its financial results, the Company expects the wildfires in California to negatively impact its property and casualty business in its specialty insurance segment in the fourth quarter of ~~income for~~2017. The Company expects losses from these fires to continue to develop and expects to reach its reinsurance retention limit of $5.0 million.

In addition, the ~~three~~Company continues to monitor developments in its regulatory environment. Currently, federal officials are discussing various potential changes to laws and ~~nine months ended September 30, 2015. For further discussion~~regulations that could impact the Company’s businesses, including changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the reform or privatization of government-sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), and tax reform, including changes that could affect the mortgage interest deduction, state and local tax deductions and the availability of tax-deferred property exchanges, among others. Changes in these ~~reclassifications~~areas, and ~~revisions, see Note 1 Basis~~more generally in the regulatory environment, in which the Company and its customers operate, could impact the volume of ~~Condensed Consolidated Financial Statements.~~mortgage originations in the United States and the Company’s competitive position and results of operations. At this time, the nature and impact of any future changes is unknown.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

2016

2015

$ Change

% Change

2016

2015

$ Change

% Change

Revenues

Direct premiums and escrow
fees
$
544,427


$
507,390


$
37,037

7.3
%

$
1,471,338


$
1,433,941


$
37,397

2.6
%
Agent premiums

625,953


585,974


39,979

6.8

1,653,990


1,520,507


133,483

8.8

Information and other

187,979


172,560


15,419

8.9

524,199


508,932


15,267

3.0

Net investment income

28,986


25,381


3,605

14.2

81,389


73,151


8,238

11.3

Net realized investment gains (losses)

8,382


(3,149
)

11,531

366.2

19,202


(1,544
)

20,746

NM
¹

1,395,727


1,288,156


107,571

8.4

3,750,118


3,534,987


215,131

6.1

Expenses

Personnel costs

409,345


390,133


19,212

4.9

1,154,225


1,110,410


43,815

3.9

Premiums retained by agents

495,130


462,535


32,595

7.0

1,303,838


1,200,549


103,289

8.6

Other operating expenses

198,147


190,721


7,426

3.9

559,141


565,605


(6,464
)

(1.1
)
Provision for policy losses and other claims

64,352


71,768


(7,416
)

(10.3
)

171,994


194,053


(22,059
)

(11.4
)
Depreciation and amortization

22,994


19,753


3,241

16.4

66,510


59,443


7,067

11.9

Premium taxes

16,301


15,612


689

4.4

43,488


41,836


1,652

3.9

Interest

752


650


102

15.7

2,107


1,868


239

12.8

1,207,021


1,151,172


55,849

4.9

3,301,303


3,173,764


127,539

4.0

Income before income taxes
$
188,706


$
136,984


$
51,722

37.8
%

$
448,815

$
361,223


$
87,592

24.2
%
Margins

13.5
%

10.6
%

2.9
%

27.4
%

12.0
%

10.2
%

1.8
%

17.6
%

~~(1)~~

~~Not meaningful~~

	Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands, except percentages)	2017			2016			$ Change			% Change			2017			2016			$ Change			% Change
Revenues
Direct premiums and escrow fees	$	538,063		$	544,427		$	(6,364	)		(1.2	)%	$	1,492,258		$	1,471,338		$	20,920			1.4	%
Agent premiums		629,186			625,953			3,233			0.5			1,757,796			1,653,990			103,806			6.3
Information and other		199,271			187,979			11,292			6.0			578,549			524,199			54,350			10.4
Net investment income		37,901			28,986			8,915			30.8			99,181			81,389			17,792			21.9
Net realized investment (losses) gains		(7,159	)		8,382			(15,541	)		(185.4	)		9,335			19,202			(9,867	)		(51.4	)
		1,397,262			1,395,727			1,535			0.1			3,937,119			3,750,118			187,001			5.0
Expenses
Personnel costs		421,849			409,345			12,504			3.1			1,222,277			1,154,225			68,052			5.9
Premiums retained by agents		497,911			495,130			2,781			0.6			1,387,608			1,303,838			83,770			6.4
Other operating expenses		196,455			198,147			(1,692	)		(0.9	)		579,431			559,141			20,290			3.6
Provision for policy losses and other claims		46,689			64,352			(17,663	)		(27.4	)		130,037			171,994			(41,957	)		(24.4	)
Depreciation and amortization		34,363			22,994			11,369			49.4			91,471			66,510			24,961			37.5
Premium taxes		17,871			16,301			1,570			9.6			46,973			43,488			3,485			8.0
Interest		925			752			173			23.0			2,576			2,107			469			22.3
		1,216,063			1,207,021			9,042			0.7			3,460,373			3,301,303			159,070			4.8
Income before income taxes	$	181,199		$	188,706		$	(7,507	)		(4.0	)%	$	476,746		$	448,815		$	27,931			6.2	%
Margins		13.0	%		13.5	%		(0.5	)%		(3.7	)%		12.1	%		12.0	%		0.1	%		0.8	%

Direct premiums and escrow fees were ~~$544.4~~$538.1 million and $1.5 billion for the three and nine months ended September 30, ~~2016,~~2017, respectively, ~~increases~~a decrease of ~~$37.0~~$6.4 million, or ~~7.3%~~1.2%, and ~~$37.4~~an increase of $20.9 million, or ~~2.6%~~1.4%, when compared with the respective periods of the prior year. The ~~increases~~decrease for the three months ended September 30, 2017 was primarily due to a decrease in the domestic title orders closed, partially offset by an increase in the average revenues per order closed. The increase for the nine months ended September 30, 2017 was primarily due to an increase in the average revenues per order closed, partially offset by a decrease in the domestic title orders closed. The average revenues per order closed were $2,298 and $2,215 for the three and nine months ended September 30, ~~2016 were primarily due to an increase in domestic title orders closed, partially offset by a decrease in average revenues per order closed. The average revenues per order closed were~~2017, respectively, increases of 23.6% and 15.3% when compared with $1,859 and $1,921 ~~for the three and nine months ended September 30, 2016, respectively, decreases of 10.5% and 1.2% when compared with $2,077 and $1,945~~ for the respective periods of the prior year. The ~~decreases~~increases in average revenues per order closed for the three and nine months ended September 30, ~~2016~~2017 were primarily attributable to a shift in the mix of direct revenues generated from ~~higher premium commercial products to~~ lower premium residential refinance ~~products.~~products to higher premium residential purchase and commercial products, higher average revenues per order from commercial transactions, higher residential real estate values, and, to a lesser extent, premium and fee increases related to residential purchase transactions. The Company’s direct title operations closed ~~268,400~~214,300 and ~~705,700~~619,500 title orders during the three and nine months ended September 30, ~~2016,~~2017, respectively, ~~increases~~decreases of ~~19.8%~~20.2% and ~~4.1%~~12.2% when compared with ~~224,000~~268,400 and ~~678,100~~705,700 title orders closed during the respective periods of the prior year. Domestic refinance orders closed per day decreased by 42.5% and 32.9%, while domestic residential purchase orders closed per day increased by 4.8% and 3.9% for the three and nine months ended September 30, 2017 when compared to the same periods of 2016.

Agent premiums were ~~$626.0~~$629.2 million and ~~$1.7~~$1.8 billion for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$40.0~~$3.2 million, or ~~6.8%~~0.5%, and ~~$133.5~~$103.8 million, or ~~8.8%~~6.3%, when compared with the respective periods of the prior year. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. As a result, there is generally a delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, current quarter agent premiums typically reflect prior quarter mortgage origination activity. The increase in agent premiums ~~quarter over quarter was~~for the three months ended September 30, 2017 is generally consistent with the ~~1.5%~~1.8% increase in the Company’s direct premiums and escrow fees in the second quarter of ~~2016~~2017 as compared with the second quarter of ~~2015.~~2016.

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

Information and other revenues were ~~$188.0~~$199.3 million and ~~$524.2~~$578.5 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$15.4~~$11.3 million, or ~~8.9%~~6.0%, and ~~$15.3~~$54.4 million, or ~~3.0%~~10.4%, when compared with the respective periods of the prior year. The increases were driven by recent acquisitions. Excluding the ~~$10.3~~$23.6 million and ~~$20.9~~$68.2 million impact of new acquisitions for the three and nine months ended September 30, ~~2016,~~2017, respectively, information and other revenues ~~increased $5.1~~decreased $12.3 million, or ~~3.0%~~6.6%, and ~~decreased $5.6~~$13.8 million, or ~~1.1%~~2.6%, when compared with the respective periods of the prior year. The ~~increase~~decreases in information and other revenues for the three and nine months ended September 30, ~~2016,~~2017, adjusted for the impact of acquisitions, was due to higher demand for the Company’s title plant and data products, partially offset by lower revenue in the Company’s Australian operations due to the loss of a large customer. The decrease in information and other revenues for the nine months ended September 30, 2016, adjusted for the impact of acquisitions, waswere primarily due to lower demand for the Company’s default information products ~~as a result of the decrease in domestic~~driven by lower loss mitigation activities and lower ~~revenue in~~demand for the Company’s ~~Australian operations due to~~valuation services, fulfillment services, and automated products driven by lower mortgage origination volumes. The decrease for the ~~loss of a large customer,~~nine months ended September 30, 2017 was partially offset by higher ~~demand for the Company’s title plant and data products.~~fees earned on non-insured products related to commercial transactions.

Net investment income totaled ~~$29.0~~$37.9 million and ~~$81.4~~$99.2 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$3.6~~$8.9 million, or ~~14.2%~~30.8%, and ~~$8.2~~$17.8 million, or ~~11.3%~~21.9%, when compared with the respective periods of the prior year. The increases were primarily attributable to increases in short-term interest rates which drove higher interest income on balances held in connection with the Company’s tax-deferred property exchange business, the floating rate mortgage-backed securities portfolio, and escrow deposits. In addition, interest income from the ~~investment~~debt securities portfolio increased due to higher average balances ~~in the title insurance and services segment’s debt securities portfolio, partially offset by lower income from investments accounted for using the equity method~~ when compared to the same periods of the prior year.

Net realized investment losses totaled $7.2 million for the three months ended September 30, 2017 and net realized investment gains totaled $9.3 million for the nine months ended September 30, 2017. Net realized investment losses for the three months ended September 30, 2017 primarily related to a $6.6 million loss recognized when the Company purchased the remaining equity ownership in an investment in an affiliate during the third quarter of 2017. This investment, which was previously accounted for using the equity method of accounting, is now consolidated for financial reporting purposes. Net realized investment gains for the nine months ended September 30, 2017 primarily related to sales of equity securities, partially offset by the third quarter loss of $6.6 million described above. Net realized investment gains totaled $8.4 million and $19.2 million for the three and nine months ended September 30, 2016, respectively, and were primarily from the sales of debt and equity securities. Net realized investment gains for the nine months ended September 30, 2016 also included gains from the sales of real estate and certain regional operations. Net realized investment losses totaled $3.1 million for the three months ended September 30, 2015 and were primarily attributable to a loss from the sale of a wholly-owned subsidiary. Net realized investment losses totaled $1.5 million for the nine months ended September 30, 2015 and were primarily related to impairment on internally developed software of $7.3 million, net realized losses from the sales of equity securities of $4.0 million, partially offset by gains from the sales of real estate of $9.4 million.

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

Personnel costs were ~~$409.3~~$421.8 million and $1.2 billion for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$19.2~~$12.5 million, or ~~4.9%~~3.1%, and ~~$43.8~~$68.1 million, or ~~3.9%~~5.9%, when compared with the respective periods of the prior year. The increases were primarily driven by recent acquisitions. Excluding the ~~$8.2~~$17.4 million and ~~$16.8~~$50.1 million impact of new acquisitions for the three and nine months ended September 30, ~~2016,~~2017, respectively, personnel costs ~~increased $11.0~~decreased $4.9 million, or ~~2.8%~~1.2%, and ~~$27.0~~increased $18.0 million, or ~~2.4%~~1.6%, when compared with the respective periods of the prior year. The ~~increases~~decrease in personnel costs for the three ~~and nine~~ months ended September 30, ~~2016,~~2017, adjusted for the impact of new acquisitions, ~~were~~was primarily attributable to ~~higher~~decreases in temporary labor costs, overtime expense and medical insurance expense. These decreases were partially offset by $9.0 million in out-of-period adjustments recorded to correct for errors in recording certain personnel costs. The increase in personnel costs for the nine months ended September 30, 2017, adjusted for the impact of new acquisitions, was primarily attributable to increased salary ~~share based compensation, incentive compensation, and employee benefits expense. The higher salary costs were~~expense due to an increase in average salaries and, to a lesser extent, higher average headcount. The higher share based compensation costs were due to increased restricted stock units granted to employees during the first quarter of 2016 associated with 2015 performance. The increasessalaries; an increase in incentive compensation ~~expense were~~ due to higher ~~commissions paid on higher revenues,~~revenue and profitability; and the $9.0 million in out-of-period adjustments recorded to correct for errors in recording certain personnel costs; partially offset by ~~lower expected 401(k) savings plan matches. The increases~~a decrease in ~~employee benefits expense were primarily due to higher paid medical claims when compared to the same period~~temporary labor costs and overtime expense. For further discussion of the ~~prior year.~~out-of-period adjustments see Note 1 Basis of Condensed Consolidated Financial Statements.

Agents retained ~~$495.1~~$497.9 million and ~~$1.3~~$1.4 billion of title premiums generated by agency operations for the three and nine months ended September 30, ~~2016,~~2017, respectively, which compares with ~~$462.5~~$495.1 million and ~~$1.2~~$1.3 billion for the respective periods of the prior year. The percentage of title premiums retained by agents was 79.1% and ~~78.8%~~78.9% for the three and nine months ended September 30, ~~2016,~~2017, respectively, compared to ~~78.9%~~79.1% and ~~79.0%~~78.8% for the respective periods of the prior year. The increase in the percentage of title premiums retained by agents for the three months ended September 30, 2016 was due to a change in the geographic mix of agency revenues towards higher agent-retention geographies. The decrease in the percentage of title premiums retained by agents for the nine months ended September 30, 2016 was due to a change in the geographic mix of agency revenues towards lower agent-retention geographies.

Other operating expenses for the title insurance and services segment were ~~$198.1~~$196.5 million and ~~$559.1~~$579.4 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, a decrease of $1.7 million, or 0.9%, and an increase of ~~$7.4~~$20.3 million, or ~~3.9%, and a decrease of $6.5 million, or 1.1%~~3.6%, when compared with the respective periods of the prior year. These expenses for the three months ended September 30, 2017 were essentially unchanged when compared with the three months ended September 30, 2016 and the increase for the nine months ended September 30, 2017 was driven by recent acquisitions. Excluding the ~~$2.1~~$10.5 million and ~~$4.4~~$28.6 million impact of new acquisitions for the three and nine months ended September 30, ~~2016,~~2017, respectively, other operating expenses ~~increased $5.3~~decreased $12.2 million, or ~~2.8%~~6.2%, and ~~decreased $10.9~~$8.3 million, or ~~1.9%~~1.5%, when compared with the respective periods of the prior year. The ~~increase in other operating expenses~~decrease for the three months ended September 30, ~~2016,~~2017, adjusted for the impact of new acquisitions, was primarily attributable to higher production related costs due to higher order volumes. The decrease in other operating expenses for the nine months ended September 30, 2016, adjusted for the impact of new acquisitions, was primarily attributable to lower production related costs driven by lower order volumes, lower legal expense, lower bad debt expense, and lower ~~foreign currency exchange losses and a recovery on an insurance claim. Production related costs~~software expenses when compared to the same period of the prior year. The decrease for the nine months ended September 30, ~~2016 declined due~~2017, adjusted for the impact of acquisitions, was primarily attributable to ~~an increase in the mix of revenues generated from products with~~ lower ~~production~~software related expenses, ~~as a percentage~~lower legal expense, and higher foreign currency exchange gains; partially offset by the first quarter of ~~revenue.~~2016 benefitting from the recovery of an insurance claim.

The provision for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, was 4.0% for the three and nine months ended September 30, 2017 compared to 5.5% for the three and nine months ended September 30, ~~2016 compared to 6.6% for the three and nine months ended September 30, 2015.~~2016. The current quarter rate of ~~5.5%~~4.0% reflects the ultimate loss rate ~~of 5.0%~~ for the current policy year and ~~a $5.8 million net increase~~no change in the loss reserve estimates for prior policy years. The third quarter of ~~2015~~2016 rate of ~~6.6%~~5.5% reflected the ultimate loss rate of ~~6.0%~~5.0% for the ~~2015~~2016 policy year and a ~~$6.2~~$5.8 million net increase in the loss reserve estimates for prior policy years.

Depreciation and amortization expense was ~~$23.0~~$34.4 million and ~~$66.5~~$91.5 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$3.2~~$11.4 million, or ~~16.4%~~49.4%, and ~~$7.1~~$25.0 million, or ~~11.9%~~37.5%, when compared with the respective periods of the prior year. The increases were primarily attributable to $4.7 million in ~~depreciation~~out-of-period adjustments recorded to fully amortize certain title plant imaging assets that were misclassified as title plants assets and higher amortization expense associated with internally developed technology and purchased software licenses. The higher amortization expense related to internally developed technology included $1.2 million and $5.3 million of accelerated amortization for the three and nine months ended September 30, ~~2016 were primarily attributable to~~2017, respectively, resulting from a shortened useful life for a software interface. For further discussion of the ~~amortization expense associated with internally developed technology and purchased software licenses.~~out-of-period adjustments see Note 1 Basis of Condensed Consolidated Financial Statements.

Premium taxes were ~~$16.3~~$17.9 million and ~~$43.5~~$47.0 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$700 thousand,~~$1.6 million, or ~~4.4%~~9.6%, and ~~$1.7~~$3.5 million, or ~~3.9%~~8.0%, respectively, compared to ~~$15.6~~$16.3 million and ~~$41.8~~$43.5 million for the same periods of the prior year. Premium taxes as a percentage of title insurance premiums and escrow fees were 1.5% and 1.4% for the three and nine months ended September 30, ~~2016~~2017, respectively, compared to 1.4% for the three and ~~2015.~~nine months ended September 30, 2016.

The profit margins for the title insurance business reflect the high cost of performing the essential services required before insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to this relatively high proportion of fixed costs, title insurance profit margins generally improve as closed order volumes increase. Title insurance profit margins are affected by the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity. Title insurance profit margins are also affected by the percentage of title insurance premiums generated by agency operations. Profit margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. Pre-tax margins for the three and nine months ended September 30, ~~2016~~2017 were ~~13.5%~~13.0% and ~~12.0%~~12.1%, respectively, compared with ~~10.6%~~13.5% and ~~10.2%~~12.0% in the respective periods of the prior year.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

2016

2015

$ Change

% Change

2016

2015

$ Change

% Change

Revenues

Direct premiums
$
105,299


$
98,060


$
7,239

7.4
%

$
304,277


$
282,527


$
21,750


7.7
%
Information and other

754


795


(41
)

(5.2
)

2,394


2,422


(28
)

(1.2
)
Net investment income

2,595


2,336


259

11.1

7,085


6,552


533

8.1

Net realized investment gains

1,134


19


1,115


NM
¹

3,490


1,897


1,593


84.0

109,782


101,210


8,572

8.5

317,246


293,398


23,848


8.1

Expenses

Personnel costs

17,347


17,089


258

1.5

51,149


49,530


1,619


3.3

Other operating expenses

14,603


12,055


2,548

21.1

43,563


36,262


7,301


20.1

Provision for policy losses
and other claims

72,663


67,358


5,305

7.9

194,479


169,497


24,982


14.7

Depreciation and
amortization

1,401


1,197


204

17.0

4,107


3,579


528

14.8

Premium taxes

1,987


1,827


160

8.8

5,204


5,084


120

2.4

108,001


99,526


8,475

8.5

298,502


263,952


34,550

13.1

Income before income taxes
$
1,781


$
1,684


$
97

5.8
%

$
18,744


$
29,446


$
(10,702
)

(36.3
)%
Margins

1.6
%

1.7
%

(0.1
)%

(5.9
)%

5.9
%

10.0
%

(4.1
)%

(41.0
)%

~~(1)~~

~~Not meaningful~~

	Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands, except percentages)	2017			2016			$ Change			% Change			2017			2016			$ Change			% Change
Revenues
Direct premiums	$	113,041		$	105,299		$	7,742			7.4	%	$	326,935		$	304,277		$	22,658			7.4	%
Information and other		2,814			754			2,060			273.2			8,427			2,394			6,033			252.0
Net investment income		2,468			2,595			(127	)		(4.9	)		7,118			7,085			33			0.5
Net realized investment gains		158			1,134			(976	)		(86.1	)		1,428			3,490			(2,062	)		(59.1	)
		118,481			109,782			8,699			7.9			343,908			317,246			26,662			8.4
Expenses
Personnel costs		18,478			17,347			1,131			6.5			53,632			51,149			2,483			4.9
Other operating expenses		16,537			14,603			1,934			13.2			50,588			43,563			7,025			16.1
Provision for policy losses and other claims		73,660			72,663			997			1.4			203,658			194,479			9,179			4.7
Depreciation and amortization		1,599			1,401			198			14.1			4,697			4,107			590			14.4
Premium taxes		2,029			1,987			42			2.1			5,554			5,204			350			6.7
		112,303			108,001			4,302			4.0			318,129			298,502			19,627			6.6
Income before income taxes	$	6,178		$	1,781		$	4,397			246.9	%	$	25,779		$	18,744		$	7,035			37.5	%
Margins		5.2	%		1.6	%		3.6	%		225.0	%		7.5	%		5.9	%		1.6	%		27.1	%

Direct premiums were ~~$105.3~~$113.0 million and ~~$304.3~~$326.9 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, increases of ~~$7.2~~$7.7 million, or 7.4%, and ~~$21.8~~$22.7 million, or ~~7.7%~~7.4%, when compared with the respective periods of the prior year. The increases ~~in direct premiums for the three and nine months ended September 30, 2016~~ were attributable to higher premiums earned in the home warranty business driven by an increase in the ~~price charged for~~number of home warranty residential service contracts issued and an increase in the ~~number~~average price charged per contract.

Information and other revenues were $2.8 million and $8.4 million for the three and nine months ended September 30, 2017, respectively, increases of ~~contracts issued.~~$2.1 million, or 273.2%, and $6.0 million, or 252.0%, when compared with the respective periods of the prior year. The increases were due to a change in how the Company reports installment fees related to home warranty residential service contracts. Beginning December 31, 2016, the Company reported installment fees in information and other revenues, while prior to December 31, 2016, the Company reported installment fees as a reduction in other operating expenses. This change resulted in an increase to information and other revenues and an increase to other operating expenses of $2.1 million and $6.0 million for the three and nine months ended September 30, 2017, respectively, when compared with the respective periods of the prior year.

Net realized investment gains totaled $0.2 million and $1.4 million for the three and nine months ended September 30, 2017, respectively, and $1.1 million and $3.5 million for the three and nine months ended September 30, 2016, ~~respectively,~~respectively. The net realized gains for the three and ~~$19 thousand~~nine months ended September 30, 2017 were from the sales of debt and ~~$1.9~~equity securities. The net realized gains for the three months ended September 30, 2016 were primarily from the sales of debt securities. The net realized gains for the nine months ended September 30, 2016 were primarily from the sale of real estate and, to a lesser extent, from the sales of debt securities.

Personnel costs and other operating expenses were $35.0 million and $104.2 million for the three and nine months ended September 30, 2015, respectively, and were primarily from the sales of debt and equity securities. Net realized investment gains for the nine months ended September 30, 2016 also included gains from the sale of real estate.

~~Personnel costs and other operating expenses were $32.0 million and $94.7 million for the three and nine months ended September 30, 2016,~~2017, respectively, increases of ~~$2.8~~$3.1 million, or 9.6%, and ~~$8.9~~$9.5 million, or ~~10.4%~~10.0%, when compared with the respective periods of the prior year. The increases were primarily attributable to a change in how the Company reports installment fees related to ~~higher advertising expense in the~~ home warranty business, higher offshore labor expense related to increased customer support activities associated with the increased volume in the home warranty business, and higher salary expense due to higher average salaries.residential service contracts which is further discussed above.

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was ~~69.8%~~60.1% and ~~63.4%~~56.1% for the three and nine months ended September 30, ~~2016,~~2017, respectively, compared with ~~64.8%~~69.8% and 57.4% for the respective periods of the prior year. The increases in the claims rates for the three and nine months ended September 30, 2016 were primarily attributable to higher contract servicing costs. The provision for property and casualty claims, expressed as a percentage of property and casualty insurance premiums, was 67.3% and 65.0% for the three and nine months ended September 30, 2016, respectively, compared with 77.0% and 65.2%63.4% for the respective periods of the prior year. The decrease in the claims rate for the three months ended September 30, ~~2016~~2017 was primarily attributable to a decrease in the frequency and severity of claims and, to a ~~decline~~lesser extent, an increase in ~~weather-related loss events, partially offset~~average revenue per contract. The decrease in the severity of claims was primarily due to more efficient claims management, which was mainly driven by ~~higher~~improved rates with contractors and more efficient allocation of claims ~~frequency.~~to contractors. The severity and frequency of home warranty claims also benefited from milder weather conditions when compared to the same quarter of the prior year. The provision for property and casualty claims, expressed as a percentage of property and casualty insurance premiums, was 77.8% and 77.3% for the three and nine months ended September 30, 2017, respectively, compared with 67.3% and 65.0% for the respective periods of the prior year. The increase in the claims rate for the three months ended September 30, ~~2015~~2017 was ~~impacted by a wildfire~~primarily attributable to an increase in ~~northern California.~~the severity and frequency of claims.

Premium taxes were $2.0 million and ~~$5.2~~$5.6 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, compared with ~~$1.8~~$2.0 million and ~~$5.1~~$5.2 million for the respective periods of the prior year. Premium taxes as a percentage of specialty insurance segment premiums were ~~1.9%~~1.8% and 1.7% for the three and nine months ended September 30, ~~2016,~~2017, respectively, ~~and~~compared with 1.9% and ~~1.8% for~~1.7% in the ~~three and nine months ended September 30, 2015, respectively.~~respective periods of the prior year.

A large part of the revenues for the specialty insurance businesses are generated by renewals and are not dependent on the level of real estate activity in the year of renewal. With the exception of loss expense, the majority of the expenses for this segment are variable in nature and therefore generally fluctuate consistent with revenue fluctuations. Accordingly, profit margins for this segment (before loss expense) are relatively constant, although as a result of some fixed expenses, profit margins (before loss expense) should nominally improve as premium revenues increase. Pre-tax margins for the three and nine months ended September 30, ~~2016~~2017 were ~~1.6%~~5.2% and ~~5.9%~~7.5%, respectively, compared with ~~1.7%~~1.6% and ~~10.0%~~5.9% in the respective periods of the prior year.

		Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands, except percentages)		2016			2015			$ Change			% Change			2016			2015			$ Change			% Change			2017			2016			$ Change			% Change			2017			2016			$ Change			% Change
Revenues	Revenues
Net investment income (losses)		$	2,855		$	(5,428	)	$	8,283			152.6	%	$	4,265		$	(8,580	)	$	12,845			149.7	%
Net realized investment losses			—			—			—			—			—			(568	)		568			100.0
Net investment income																										$	4,108		$	2,855		$	1,253			43.9	%	$	10,872		$	4,265		$	6,607			154.9	%
			2,855			(5,428	)		8,283			152.6			4,265			(9,148	)		13,413			146.6			4,108			2,855			1,253			43.9			10,872			4,265			6,607			154.9
Expenses	Expenses
Personnel costs	Personnel costs		12,000			4,521			7,479			165.4			33,755			25,378			8,377			33.0			159,053			12,000			147,053			NM	¹		183,019			33,755			149,264			442.2
Other operating expenses	Other operating expenses		7,215			6,546			669			10.2			20,309			19,451			858			4.4			6,233			7,215			(982	)		(13.6	)		19,960			20,309			(349	)		(1.7	)
Depreciation and amortization	Depreciation and amortization		96			122			(26	)		(21.3	)		288			367			(79	)		(21.5	)		38			96			(58	)		(60.4	)		124			288			(164	)		(56.9	)
Interest	Interest		7,100			6,655			445			6.7			21,342			20,359			983			4.8			8,199			7,100			1,099			15.5			24,298			21,342			2,956			13.9
			26,411			17,844			8,567			48.0			75,694			65,555			10,139			15.5			173,523			26,411			147,112			557.0			227,401			75,694			151,707			200.4
Loss before income taxes	Loss before income taxes	$	(23,556	)	$	(23,272	)	$	(284	)		(1.2	)%	$	(71,429	)	$	(74,703	)	$	3,274			4.4	%	$	(169,415	)	$	(23,556	)	$	(145,859	)		(619.2	)%	$	(216,529	)	$	(71,429	)	$	(145,100	)		(203.1	)%

Net investment income totaled ~~$2.9~~$4.1 million and ~~$4.3~~$10.9 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, compared with ~~losses of $5.4~~$2.9 million and ~~$8.6~~$4.3 million for the respective periods of the prior year. The increases in net investment income for the three and nine months ended September 30, ~~2016~~2017 were primarily attributable to higher earnings on investments associated with the Company’s deferred compensation plan when compared to the same periods of 2015. Net investment losses for the nine months ended September 30, 2015 were also impacted by a one-time non-cash expense of $4.0 million, recorded during the first quarter of 2015, related to the investments associated with the Company’s deferred compensation plan.2016.

Corporate personnel costs and other operating expenses were ~~$19.2~~$165.3 million and ~~$54.1~~$203.0 million for the three and nine months ended September 30, ~~2016,~~2017, respectively, compared with ~~$11.1~~$19.2 million and ~~$44.8~~$54.1 million for the respective periods of the prior year. The increases ~~in personnel~~were primarily attributable to pension settlement costs of $152.4 million that the Company recognized during the third quarter of 2017 upon completing the termination of its funded defined benefit pension plans. For further discussion of the pension termination see Note 9 Employee Benefit Plans to the condensed consolidated financial statements.

Interest expense was $8.2 million and ~~other operating expenses~~$24.3 million for the three and nine months ended September 30, ~~2016~~2017, respectively, increases of $1.1 million, or 15.5%, and $3.0 million, or 13.9%, when compared with the respective periods of the prior year. The increases were ~~primarily attributable to increased expense related~~due to the ~~Company’s deferred compensation plan.~~Company borrowing $160.0 million under its credit facility during September 2016.

The Company’s inter-segment eliminations were not material for the three and nine months ended September 30, ~~2016~~2017 and ~~2015.~~2016.

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were ~~35.7%~~-17.9% and ~~33.7%~~29.7% for the three and nine months ended September 30, ~~2016,~~2017, respectively, compared with ~~34.3%~~35.7% and ~~34.4%~~33.7% for the respective periods of the prior year. The ~~differences in the~~Company’s effective tax rates ~~were primarily due~~for 2017 reflect state tax benefits relating to ~~changes in state and foreign income taxes resulting from fluctuations in~~the termination of the Company’s ~~noninsurance and foreign subsidiaries’ contribution~~pension plan, as well as the release of reserves relating to ~~pretax income and changes in~~tax positions taken on prior year tax returns. In addition, the ~~ratio of permanent differences to income before income taxes. The~~Company’s effective tax rates for ~~both~~2017 reflect the adoption of new accounting guidance related to the accounting for share-based payment transactions, which requires, among other items, that all excess tax benefits and tax deficiencies associated with share-based payment transactions be recorded in income tax expense rather than in additional paid-in capital, as previously required. The impact to the Company of adopting this guidance was a reduction in income tax expense of $0.1 million and $2.8 million for the three and nine months ended September 30, 2017, respectively. See Note 1 Basis of Condensed Consolidated Financial Statements to the condensed consolidated financial statements for further discussion of the new guidance. The Company’s effective tax rates for 2016 reflect the resolution of certain tax authority examinations and tax credits claimed in ~~current~~2016 and in prior years.

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

Net income for the three and nine months ended September 30, ~~2016~~2017 was $21.2 million and $201.2 million, respectively, compared with $107.4 million and $262.5 ~~million, respectively, compared with $75.8 million and $207.1~~ million for the respective periods of the prior year. Net income attributable to the Company for the three and nine months ended September 30, ~~2016~~2017 was $21.4 million, or $0.19 per diluted share, and $201.9 million, or $1.80 per diluted share, respectively, compared with $107.3 million, or $0.96 per diluted share, and $262.0 million, or $2.36 per diluted share, ~~respectively, compared with $75.5 million, or $0.69 per diluted share, and $206.5 million, or $1.88 per diluted share,~~ for the respective periods of the prior year.

Cash requirements. The Company generates cash primarily from the sale of its products and services and investment income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on its debt, capital expenditures, dividends on its common stock, and may include business acquisitions and ~~may include~~ repurchases of its common stock. Additionally, in May 2016, the Company’s board of directors terminated the Company’s funded defined benefit pension plan effective as of July 31, 2016. In connection with the termination, to sufficiently fund the pension plan, the Company contributed an additional cash contribution of $55.9 million in September 2016 and expects to make an additional cash contribution of approximately $44 million. The Company also expected to pay other termination related expenses. For further discussion of the pension termination and expected additional cash contributions, see Note 10 Employee Benefit Plans to the condensed consolidated financial statements. Management forecasts the cash needs of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. ~~Due to~~Based on the Company’s ability to generate cash flows from operations, its liquid-asset position and amounts available on its revolving credit facility, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months.

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

Cash provided by operating activities amounted to ~~$252.2~~$455.5 million and ~~$352.2~~$252.2 million for the nine months ended September 30, ~~2016~~2017 and ~~2015,~~2016, respectively, after claim payments, net of recoveries, of ~~$351.3~~$351.4 million and ~~$364.3~~$351.3 million, respectively. The principal nonoperating uses of cash and cash equivalents for the nine months ended September 30, ~~2016~~2017 and ~~2015~~2016 were purchases of debt and equity securities, business acquisitions, capital expenditures and dividends to common ~~stockholders~~stockholders. The most significant nonoperating sources of cash and ~~business acquisitions.~~cash equivalents for the nine months ended September 30, 2017 were proceeds from the sales and maturities of debt and equity securities and increases in the deposit balances at the Company’s banking operations. The most significant nonoperating sources of cash and cash equivalents for the nine months ended September 30, 2016 were proceeds from the sales and maturities of debt and equity securities, increases in the deposit balances at the Company’s banking operations and net proceeds from the issuance of debt. The most significant nonoperating sources of cash and cash equivalents for the nine months ended September 30, 2015 were proceeds from the sales and maturities of debt and equity securities and increases in the deposit balances at the Company’s banking operations. The net effect of all activities on total cash and cash equivalents ~~was an increase~~were increases of $135.8 million and $416.0 million for the nine months ended September 30, 2017 and 2016, ~~and a decrease of $295.7 million for the nine months ended September 30, 2015.~~respectively.

The Company continually assesses its capital allocation strategy, including decisions relating to dividends, stock repurchases, capital expenditures, acquisitions and investments. In August ~~2016,~~2017, the Company’s board of directors approved an increase in the Company’s quarterly cash dividend to 3438 cents per common share, representing a ~~31%~~12% increase from the prior level of 2634 cents per common share. The dividend increase became effective beginning with the September ~~2016~~2017 dividend. Management expects that the Company will continue to pay quarterly cash dividends at or above the current level. The timing, declaration and payment of future dividends, however, falls within the discretion of the Company’s board of directors and will depend upon many factors, including the Company’s financial condition and earnings, the capital requirements of the Company’s businesses, restrictions imposed by applicable law and any other factors the board of directors deems relevant from time to time.

In March 2014, the Company’s board of directors approved an increase in the size of the Company’s stock repurchase plan from $150.0 million to $250.0 million, of which $182.4 million remained as of September 30, ~~2016.~~2017. Purchases may be made from time to time by the Company in the open market at prevailing market prices or in privately negotiated transactions. ~~During~~The Company did not repurchase any shares of its common stock during the nine months ended September 30, ~~2016, the Company repurchased and retired 14 thousand shares of its common stock for a total purchase price of $454 thousand~~2017 and as of September 30, ~~2016,~~2017, had repurchased and retired 3.2 million shares of its common stock under the current authorization for a total purchase price of $67.6 million.

Holding Company. First American Financial Corporation is a holding company that conducts all of its operations through its subsidiaries. The holding company’s current cash requirements include payments of principal and interest on its debt, taxes, payments in connection with employee benefit plans, dividends on its common stock and other expenses. The holding company is dependent upon dividends and other payments from its operating subsidiaries to meet its cash requirements. The Company’s target is to maintain a cash balance at the holding company equal to at least twelve months of estimated cash requirements. At certain points in time, the actual cash balance at the holding company may vary from this target due to, among other factors, the timing and amount of cash payments made and dividend payments received. Pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available to the holding company is limited, principally for the protection of policyholders. As of September 30, ~~2016,~~2017, under such regulations, the maximum amount of dividends, loans and advances available to the holding company from its insurance subsidiaries for the remainder of ~~2016,~~2017, without prior approval from applicable regulators, was ~~$549.1~~$759.7 million. However, the timing and amount of dividends paid by the Company’s insurance subsidiaries to the holding company falls within the discretion of each insurance subsidiary’s board of directors and will depend upon many factors, including the level of total statutory capital and surplus required to support minimum financial strength ratings by certain rating agencies. Such restrictions have not had, nor are they expected to have, an impact on the holding company’s ability to meet its cash obligations.

As of September 30, ~~2016,~~2017, the holding company’s sources of liquidity included ~~$244.0~~$259.3 million of cash and cash equivalents and $540.0 million available on the Company’s revolving credit facility. Management believes that liquidity at the holding company is sufficient to satisfy anticipated cash requirements and obligations for at least the next twelve months.

Financing. The Company maintains a credit agreement with JPMorgan Chase Bank, N.A. in its capacity as administrative agent and the lenders party thereto. The credit agreement is comprised of a $700.0 million revolving credit facility. Unless terminated earlier, the revolving loan commitments under the credit agreement will terminate on May 14, 2019. The obligations of the Company under the credit agreement are neither secured nor guaranteed. Proceeds under the credit agreement may be used for general corporate purposes. At September 30, ~~2016,~~2017, outstanding borrowings under the facility totaled $160.0 million at an interest rate of 2.99%.

The credit agreement includes an expansion option that permits the Company, subject to satisfaction of certain conditions, to increase the revolving commitments and/or add term loan tranches (“Incremental Term Loans”) in an aggregate amount not to exceed $150.0 million. Incremental Term Loans, if made, may not mature prior to the revolving commitment termination date, provided that amortization may occur prior to such date.

At the Company’s election, borrowings under the credit agreement bear interest at either (a) the Alternate Base Rate plus the applicable spread or (b) the Adjusted LIBOR rate plus the applicable spread (in each case as defined in the agreement). The Company may select interest periods of one, two, three or six months or (if agreed to by all lenders) such other number of months for Eurodollar borrowings of loans. The applicable spread varies depending upon the debt rating assigned by Moody’s Investor Service, Inc. and/or Standard & Poor’s Rating Services. The minimum applicable spread for Alternate Base Rate borrowings is 0.625% and the maximum is 1.00%. The minimum applicable spread for Adjusted LIBOR rate borrowings is 1.625% and the maximum is 2.00%. The rate of interest on Incremental Term Loans will be established at or about the time such loans are made and may differ from the rate of interest on revolving loans.

The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the lenders may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate. As of September 30, 2017, the Company was in compliance with the financial covenants under the credit agreement.

In September 2016, the Company borrowed $160.0 million under the credit facility to fund acquisitions and to partially fund its obligation in connection with the termination of its pension plan. At September 30, 2016, outstanding borrowings under the facility totaled $160.0 million at an interest rate of 2.28%. See Note 15 Business Combinations to the condensed consolidated financial statements for further discussion of the Company’s acquisitions, and see Note 10 Employee Benefit Plans to the condensed consolidated financial statements for further discussion of the Company’s pension termination.

In addition to amounts available under its credit facility, certain subsidiaries of the Company are parties to master repurchase agreements which are used as part of the Company’s liquidity management activities and to support its risk management activities. In particular, securities loaned or sold under repurchase agreements may be used as short-term funding sources. During the nine months ended September 30, ~~2016,~~2017, the Company financed securities for funds received totaling ~~$39.2~~$10.0 million under these agreements. As of September 30, ~~2016,~~2017, no amounts remained outstanding under these agreements.

Notes and contracts payable as a percentage of total capitalization was ~~19.6%~~18.2% and ~~17.5%~~19.6% at September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively.

Investment Portfolio. The Company maintains a high quality, liquid investment portfolio that is primarily held at its insurance and banking subsidiaries. As of September 30, ~~2016,~~2017, 92% of the Company’s investment portfolio consisted of fixed income securities, of which ~~61%~~60% were United States government-backed or rated AAA and 94% were rated or classified as investment grade. Percentages are based on the estimated fair values of the securities. Credit ratings reflect published ratings obtained from ~~Standard & Poor’s Rating Services, DBRS, Inc., Fitch Ratings, Inc. and Moody’s Investor Service, Inc.~~globally recognized securities rating agencies. If a security was rated differently among the rating agencies, the lowest rating was selected. For further information on the credit quality of the Company’s investment portfolio at September 30, ~~2016,~~2017, see Note 3 Debt and Equity Securities to the condensed consolidated financial statements.

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

Off-balance sheet arrangements. The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled ~~$7.5~~$7.9 billion and ~~$6.6~~$6.8 billion at September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, of which ~~$3.1~~$2.8 billion and $2.6 billion, respectively, were held at the Company’s federal savings bank subsidiary, First American Trust, FSB. The escrow deposits held at First American Trust, FSB are temporarily invested in cash and cash equivalents and debt securities, with offsetting liabilities included in deposits in the accompanying condensed consolidated balance sheets. The remaining escrow deposits were held at third-party financial institutions.

At September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company was contingently liable for guarantees of indebtedness owed by affiliates and third parties to banks and others totaling ~~$7.4~~$5.6 million and ~~$8.2~~$7.1 million, respectively. The guarantee arrangements relate to promissory notes and other contracts that contingently require the Company to make payments to the guaranteed party upon the failure of debtors to make scheduled payments according to the terms of the notes and contracts. The Company’s maximum potential obligation under these guarantees totaled ~~$7.4~~$5.6 million and ~~$8.2~~$7.1 million at September 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, and is limited in duration to the terms of the underlying indebtedness. The Company has not incurred any costs as a result of these guarantees and has not recorded a liability on its condensed consolidated balance sheets related to these guarantees at September 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

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

There have been no material changes in the Company’s market risks since the filing of its Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

The Company’s chief executive officer and chief financial officer have concluded that, as of September 30, ~~2016,~~2017, the end of the quarterly period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) thereunder.

There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, ~~2016,~~2017, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~A court has granted class certification in Lewis. For the reasons stated above, the Company has been unable to assess the probability of loss or estimate the possible loss or the range of loss.~~

estimate the possible loss or the range of loss or, where the Company has been able to make an estimate, the Company believes the amount is not material to the condensed consolidated financial statements as a whole.

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

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

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

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

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

Historically, uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and a general decline in the value of real property, have created a difficult operating environment for the Company’s businesses and other companies in its industries. In addition, the Company holds investments in entities, such as title agencies and settlement service providers, as well as securities in its investment portfolio, which may be negatively impacted by these conditions. The Company also owns a federal savings bank into which it deposits some of its own funds and some funds held in trust for third parties. This bank invests those funds and any realized losses incurred will be reflected in the Company’s consolidated results. The likelihood of such losses, which generally would not occur if the Company were to deposit these funds in an unaffiliated entity, increases when economic conditions are unfavorable. Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on the Company could be materially adverse, including a significant reduction in revenues, earnings and cash flows, challenges to the Company’s ability to satisfy covenants or otherwise meet its obligations under debt facilities, difficulties in obtaining access to capital, challenges to the Company’s ability to pay dividends at currently anticipated levels, deterioration in the value of its investments and increased credit risk from customers and others with obligations to the Company.

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

The Company performs an impairment test of the carrying value of goodwill and other indefinite-lived intangible assets annually in the fourth quarter, or sooner if circumstances indicate a possible impairment. Finite-lived intangible assets are subject to impairment tests on a periodic basis. Factors that may be considered in connection with this review include, without limitation, underperformance relative to historical or projected future operating results, reductions in the Company’s stock price and market capitalization, increased cost of capital and negative macroeconomic, industry and company-specific trends. These and other factors could lead to a conclusion that goodwill or other intangible assets are no longer fully recoverable, in which case the Company would be required to write off the portion believed to be unrecoverable. Total goodwill and other intangible assets reflected on the Company’s condensed consolidated balance sheet as of September 30, ~~2016~~2017 are ~~$1.1~~$1.2 billion. Any substantial goodwill and other intangible asset impairments that may be required could have a material adverse effect on the Company’s results of operations and financial condition.

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

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

5. Changes in government regulation could prohibit or limit the Company’s operations, make it more burdensome to conduct such operations or result in decreased demand for the Company’s products and services

Many of the Company’s businesses, including its title insurance, property and casualty insurance, home warranty, banking, trust and investment businesses, are regulated by various federal, state, local and foreign governmental agencies. These and other of the Company’s businesses also operate within statutory guidelines. The industry in which the Company operates and the markets into which it sells its products are also regulated and subject to statutory guidelines. Changes in the applicable regulatory environment, statutory guidelines or interpretations of existing regulations or statutes, enhanced governmental oversight or efforts by governmental agencies to cause customers to refrain from using the Company’s products or services could prohibit or limit its future operations or make it more burdensome to conduct such operations or result in decreased demand for the Company’s products and ~~services.~~services or a change in our competitive position. The impact of these changes would be more significant if they involve jurisdictions in which the Company generates a greater portion of its title premiums, such as the states of Arizona, California, Florida, Michigan, New York, Ohio, Pennsylvania and Texas. These changes may compel the Company to reduce its prices, may restrict its ability to implement price increases or acquire assets or businesses, may limit the manner in which the Company conducts its business or otherwise may have a negative impact on its ability to generate revenues, earnings and cash flows.

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

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

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

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

We7. The use of social media by the Company and other parties could result in damage to the Company’s reputation and adversely affect its business or results of operations

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

~~7. The breadth of the Consumer Financial Protection Bureau’s rulemaking and supervisory powers may increase our costs and require changes in our business~~

The Consumer Financial Protection Bureau (“CFPB”) has broad authority to regulate, among other areas, the mortgage and real estate markets, including our domestic subsidiaries, in matters which impact consumers. This authority includes the enforcement of federal consumer financial laws, including the Real Estate Settlement Procedures Act. The CFPB has been actively utilizing its supervisory powers by bringing enforcement actions against various participants in the mortgage and settlement industries. It has also actively proposed and implemented regulations pertaining to the mortgage and settlement industries, including the TILA-RESPA integrated mortgage disclosure rule, commonly known as the Know Before You Owe rule. The full manner in which the CFPB will utilize its rulemaking and supervisory powers in the future is not known. Regulations issued by the CFPB, or the manner in which it interprets and enforces existing consumer protection laws, have impacted and could continue to impact the way in which we conduct our businesses and the profitability of those businesses.

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

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

9. Changes in certain laws and regulations, and in the regulatory environment in which the Company operates, could adversely affect the Company’s competitive position and results of operations

Federal officials are currently discussing various potential changes to laws and regulations that could impact the Company’s businesses, including changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the reform or privatization of government-sponsored enterprises ~~could negatively impact the Company~~

~~Historically, a substantial proportion of home loans originated in the United States were sold to and, generally, resold in a securitized form by,~~such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)~~. As a condition to~~, and tax reform, including changes that could affect the ~~purchase of a home loan, Fannie Mae~~mortgage interest deduction, among others. Changes in these areas, and ~~Freddie Mac~~more generally required the purchase of title insurance for their benefit and, as applicable, the benefit of the holders of home loans they may have securitized. The federal government currently is considering various alternatives to reform Fannie Mae and Freddie Mac. The role, if any, that these enterprises or other enterprises fulfilling a similar function will play in the mortgage process following the adoption of any reforms is not currently known. The timing of the adoption and, thereafter, the implementation of the reforms is similarly unknown. Due to the significance of the role of these enterprises, the mortgage process itself may substantially change as a result of these reforms and related discussions. It is possible that these entities, as reformed, or the successors to these entities may require changes to the way title insurance is priced or delivered, changes to standard policy terms or other changesregulatory environment in which may make the title insurance business less profitable. These reforms may also alter the home loan market, such as by causing higher mortgage interest rates due to decreased governmental support of mortgage-backed securities. These consequences could be materially adverse to the Company and its ~~financial condition.~~customers operate, could adversely impact the volume of mortgage originations in the United States and the Company’s competitive position and results of operations.

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

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

The mortgage ~~markets~~market in the United States ~~and Canada are~~is concentrated. Due to the consolidated nature of the industry, the Company derives a significant percentage of its revenues from a relatively small base of lenders, and their borrowers, which enhances the negotiating power of these lenders with respect to the pricing and the terms on which they purchase the Company’s products and other matters. Similarly, government-sponsored enterprises, because of their significant role in the mortgage process, have significant influence over the Company and other service providers. These circumstances could adversely affect the Company’s revenues and profitability. Changes in the Company’s relationship with any of these lenders or government-sponsored enterprises, the loss of all or a portion of the business the Company derives from these parties or any refusal of these parties to accept the Company’s products and services could have a material adverse effect on the Company.

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

Certain of the Company’s customers use measurements of the financial strength of the Company’s title insurance underwriters, including, among others, ratings provided by ratings agencies and levels of statutory capital and surplus maintained by those underwriters, in determining the amount of a policy they will accept and the amount of reinsurance required. Each of the major ratings agencies currently rates the Company’s title insurance operations. The Company’s principal title insurance underwriter’s financial strength ratings are “A3” by Moody’s Investor Services, Inc., “A” by Fitch Ratings, Inc., “A-” by Standard & Poor’s Ratings Services and “A” by A.M. Best Company, ~~Inc.~~Inc. These ratings provide the agencies’ perspectives on the financial strength, operating performance and cash generating ability of those operations. These agencies continually review these ratings and the ratings are subject to change. Statutory capital and surplus, or the amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength. The Company’s principal title insurance underwriter maintained ~~$1.1~~$1.2 billion of total statutory capital and surplus as of December 31, ~~2015.~~2016. Accordingly, if the ratings or statutory capital and surplus of these title insurance underwriters are reduced from their current levels, or if there is a deterioration in other measures of financial strength, the Company’s results of operations, competitive position and liquidity could be adversely affected.

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

The Company maintains a substantial investment portfolio, primarily consisting of fixed income securities (including mortgage-backed securities). The investment portfolio also includes money-market and other short-term investments, as well as preferred and common stock. Securities in the Company’s investment portfolio are subject to certain economic and financial market risks, such as credit risk, interest rate (including call, prepayment and extension) risk and/or liquidity risk. The risk of loss associated with the portfolio is increased during periods of instability in credit markets and economic conditions. If the carrying value of the investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, the Company will be required to write down the value of the investments, which could have a material adverse effect on the Company’s results of operations, statutory surplus and financial condition.

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

The Company maintains a reserve for incurred but not reported (“IBNR”) claims pertaining to its title, escrow and other insurance and guarantee products. The majority of this reserve pertains to title insurance policies, which are long-duration contracts with the majority of the claims reported within the first few years following the issuance of the policy. Generally, 70% to 80% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss rates for recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy. For example, if the expected ultimate losses for each of the last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of ~~$108.2~~$115.9 million. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience.

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

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

16. The Company’s risk management framework could prove inadequate, resulting in financial and/or reputational harm

The Company’s risk management framework is designed to identify, monitor and mitigate risks that could have a negative impact on the Company’s financial condition or reputation. This framework includes departments or groups dedicated to enterprise risk management, information security, disaster recovery and other information technology-related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor management and internal audit, among others. While many of the processes overseen by these departments function at the enterprise level, many also function through, or rely to a certain degree upon, risk mitigation efforts ~~may prove inadequate~~

~~The~~in local operating groups. Similarly, with respect to the risks the Company assumes ~~risks~~ in the ordinary course of its business ~~including~~ through the issuance of title insurance policies and the provision of ~~other~~related products and ~~services. The~~services, the Company ~~mitigates these risks through a number of different means, including~~employs localized as well as centralized risk mitigation efforts. These efforts include the implementation of underwriting policies and procedures and other mechanisms for assessing risk. ~~However, underwriting of~~Underwriting title insurance policies and making other risk-assumption decisions frequently ~~involve~~involves a substantial degree of individual ~~judgment. The Company’s risk mitigation efforts or~~judgment and, accordingly, underwriters are maintained at the ~~reliability~~regional, divisional and corporate levels with varying degrees of ~~any necessary judgment~~underwriting authority. These individuals may ~~prove inadequate, especially in situations where the Company or individuals involved in risk taking decisions are~~be encouraged by customers or others ~~or because of competitive pressures,~~ to assume risks or to expeditiously make risk determinations. ~~This circumstance could have an adverse effect on~~If the Company’s ~~results of operations,~~risk mitigation efforts prove inadequate, the Company may experience significant financial ~~condition and liquidity.~~

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

The Company uses computer systems to receive, process, store and transmit business information, including highly sensitive non-public personal information as well as data from suppliers and other information upon which its business relies. It also uses these systems to manage substantial cash, investment assets, bank deposits, trust assets and escrow account balances on behalf of the Company and its customers, among other activities. Many of the Company’s products, services and solutions involving the use of real property related data are fully reliant on its systems and are only available electronically. Accordingly, for a variety of reasons, the integrity of the Company’s computer systems and the protection of the information that resides on those systems are critically important to its successful operation. The Company’s core computer systems are primarily located in ~~two data centers. The Company manages its primary~~a data center it manages and ~~the secondary~~secondarily in a disaster recovery data center is maintained ~~and managed~~ by a third party. The Company is currently engaged in a multi-year process of transitioning to third party cloud-based hosting of its computer systems.

The Company’s computer systems and systems used by its agents, suppliers and customers have been subject to, and are likely to continue to be the target of, computer viruses, cyber attacks, phishing attacks and other malicious ~~attacks.~~activity. These attacks have increased in frequency and sophistication in recent ~~years, and could expose the Company to system-related damage, failures, interruptions, and other negative events.~~years. Further, certain other potential causes of system damage or other negative system-related events are wholly or partially beyond the Company’s control, such as natural disasters, vendor failures to satisfy service level requirements and power or telecommunications failures. These incidents, regardless of their underlying causes, could expose the Company to system-related damage, failures, interruptions, and other negative events or could otherwise disrupt the Company’s business and could also result in the loss or unauthorized release, gathering, monitoring or destruction of confidential, proprietary and other information pertaining to the Company, its customers, employees, agents or suppliers.

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

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

18. Errors and fraud involving the transfer of funds may result in material financial losses or harm the Company’s reputation

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

19. The ~~Company may not be able to realize~~Company’s use of a global workforce involves risks that could negatively impact the ~~benefits of its offshore operations~~Company

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

The Company has in the past acquired, and is expected to acquire in the future, other businesses. When businesses are acquired, the Company may not be able to integrate or manage these businesses in such a manner as to realize the anticipated synergies or otherwise produce returns that justify the investment. Acquired businesses may subject the Company to increased regulatory or compliance requirements. The Company may not be able to successfully retain employees of acquired businesses or integrate them, and could lose customers, suppliers or other partners as a result of the acquisitions. For these and other reasons, including changes in market conditions, the projections used to value the acquired businesses may prove inaccurate. In addition, the Company might incur unanticipated liabilities from acquisitions. These and other factors related to acquisitions could have a material adverse effect on the Company’s results of operations, financial condition and liquidity. The Company’s management also will continue to 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.

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

The Company is a holding company whose primary assets are investments in its operating subsidiaries. The Company’s ability to pay dividends is dependent on the ability of its subsidiaries to pay dividends or repay funds. If the Company’s operating subsidiaries are not able to pay dividends or repay funds, the Company may not be able to fulfill parent company obligations and/or declare and pay dividends to its stockholders. Moreover, pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available is limited. As of September 30, ~~2016,~~2017, under such regulations, the maximum amount of dividends, loans and advances available ~~in 2016~~for the remainder of 2017 from these insurance subsidiaries, without prior approval from applicable regulators, was ~~$549.1~~$759.7 million.

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

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

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

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

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

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.

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

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

Large accelerated filer	☒	Accelerated filer	1☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

~~Non-accelerated filer~~	1 ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting~~Emerging growth company	1☐

PART I: FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	A. Condensed Consolidated Balance Sheets as of September 30, ~~2016~~2017 and December 31, ~~2015~~2016		5

	B. Condensed Consolidated Statements of Income for the three and nine months ended September 30, ~~2016~~2017 and ~~2015~~2016		6

	C. Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2016~~2017 and ~~2015~~2016		7

	D. Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, ~~2016~~2017		8

	E. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2016~~2017 and ~~2015~~2016		9

	F. Notes to Condensed Consolidated Financial Statements		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46	44

Item 4.	Controls and Procedures	46	44

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	46	44

Item 1A.	Risk Factors	48	46

Item 6.	Exhibits	54	53

(in thousands, except percentages)	September 30, 2016				December 31, 2015
Known title claims	$	74,206	7.3	%	$	87,543	8.9	%
Incurred but not reported claims		886,643	87.1	%		844,364	85.8	%
Total title claims		960,849	94.4	%		931,907	94.7	%
Non-title claims		57,191	5.6	%		51,973	5.3	%
Total loss reserves	$	1,018,040	100.0	%	$	983,880	100.0	%

	Nine months ended September 30,
(in thousands)	2017		2016
Balance at beginning of period	$	1,025,863	$	983,880
Provision related to:
Current year		330,342		345,556
Prior years		3,353		20,917
		333,695		366,473
Payments, net of recoveries, related to:
Current year		165,914		160,693
Prior years		185,483		190,656
		351,397		351,349
Other		13,487		19,036
Balance at end of period	$	1,021,648	$	1,018,040

(in thousands, except weighted-average grant-date fair value)	Shares			Weighted-average grant-date fair value
RSUs unvested at December 31, 2015		1,354		$	29.20
Granted during 2016		967			36.77
Vested during 2016		(726	)		30.76
Forfeited during 2016		(20	)		31.48
RSUs unvested at September 30, 2016		1,575		$	33.10

(in thousands, except weighted-average exercise price and contractual term)	Number outstanding		Weighted- average exercise price		Weighted- average remaining contractual term		Aggregate intrinsic value
Balance at December 31, 2015		132	$	27.66
Exercised during 2016		—		—
Balance at September 30, 2016		132	$	27.66		7.2 years	$	1,391
Vested and expected to vest at September 30, 2016		132	$	27.66		7.2 years	$	1,391
Exercisable at September 30, 2016		66	$	27.66		7.2 years	$	696

		~~FIRST AMERICAN FINANCIAL CORPORATION~~ ~~(Registrant)~~

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

		By	~~/s/ Mark E. Seaton~~
			~~Mark E. Seaton~~
			~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~

Exhibit No.	Description	Location

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

3.2	Amended and Restated Bylaws of First American Financial Corporation, effective as of ~~February 20, 2015.~~August 16, 2017.	Incorporated by reference herein to Exhibit ~~3.2~~3.1 to the ~~Annual~~Current Report on Form ~~10-K for the year ended December 31, 2014.~~8-K dated August 16, 2017.

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

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

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

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

101.INS	XBRL Instance Document.	Attached.

101.SCH	XBRL Taxonomy Extension Schema Document.	Attached.

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

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

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

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

		FIRST AMERICAN FINANCIAL CORPORATION (Registrant)

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

		By	/s/ Mark E. Seaton
			Mark E. Seaton
			Chief Financial Officer (Principal Financial Officer)