First Acceptance Corporation (NYSE: FAC) today reported its financial results for the third quarter and nine months ended March 31, 2010 of its fiscal year ending June 30, 2010.

Operating Results

Revenues for the three months ended March 31, 2010 were $56.1 million, compared with $67.1 million for the same period in fiscal year 2009. Income before income taxes for the three months ended March 31, 2010 was $2.2 million, compared with $4.0 million in the same period in fiscal year 2009. Net income for the three months ended March 31, 2010 was $2.1 million, or $0.04 per share on a diluted basis, compared with $2.4 million, or $0.05 per share on a diluted basis, for the same period in fiscal year 2009.

Revenues for the nine months ended March 31, 2010 were $167.2 million, compared with $203.8 million for the same period in fiscal year 2009. Income before income taxes for the nine months ended March 31, 2010 was $6.6 million, compared with $6.4 million in the same period in fiscal year 2009. Net income for the nine months ended March 31, 2010 was $6.3 million, or $0.13 per share on a diluted basis, compared with $3.2 million, or $0.07 per share on a diluted basis, for the same period in fiscal year 2009.

Premiums earned for the three months ended March 31, 2010 were $46.7 million, compared with $54.8 million for the same period in fiscal year 2009. Premiums earned for the nine months ended March 31, 2010 were $140.3 million, compared with $171.5 million for the same period in fiscal year 2009. These declines were primarily due to the weak economic conditions, which have caused both a decline in the number of policies written, as well as an increase in the percentage of our customers purchasing liability-only coverage. The closure of underperforming stores also contributed to the decrease in policies written and premiums earned. At March 31, 2010, the number of policies in force was 169,603, compared with 173,674 at March 31, 2009. At March 31, 2010, we operated 405 stores, compared with 419 stores at March 31, 2009.

Loss and Loss Adjustment Expense Ratio. The loss and loss adjustment expense ratio was 68.4 percent for the three months ended March 31, 2010, compared with 71.0 percent for the three months ended March 31, 2009. The loss and loss adjustment expense ratio was 67.6 percent for the nine months ended March 31, 2010, compared with 70.1 percent for the nine months ended March 31, 2009. For the three months ended March 31, 2010, we experienced favorable development related to prior periods of $4.1 million, compared with $2.7 million for the three months ended March 31, 2009. For the nine months ended March 31, 2010, we experienced favorable development related to prior periods of $10.2 million, compared with $6.9 million for the nine months ended March 31, 2009.

Excluding favorable development related to prior periods, the loss and loss adjustment expense ratios for the three months ended March 31, 2010 and 2009 were 77.2 percent and 75.9 percent, respectively, and the loss and loss adjustment expense ratios for the nine months ended March 31, 2010 and 2009 were 74.9 percent and 74.1 percent, respectively. The favorable development for the nine months ended March 31, 2010 and 2009 was due to lower than anticipated severity and frequency of accidents in addition to improvement in our claim handling practices.

Expense Ratio. Our expense ratio for the three months ended March 31, 2010 was 27.1 percent, compared with 25.3 percent for the same period in fiscal year 2009. Our expense ratio increased from 23.9 percent for the nine months ended March 31, 2009 to 27.1 percent for the same period in the current fiscal year. The year-over-year increase in the expense ratio was due to the decrease in premiums earned, which resulted in a higher percentage of fixed expenses in our retail operations (such as rent and base salary).

Combined Ratio. The combined ratio was 95.5 percent for the three months ended March 31, 2010, compared with 96.3 percent for the same period in fiscal year 2009. The combined ratio was 94.7 percent for the nine months ended March 31, 2010, compared with 94.0 percent for the same period in fiscal year 2009.

Provision for Income Taxes. The provision for income taxes for the three months ended March 31, 2010 was $0.1 million, compared with $1.6 million for the same period in fiscal year 2009. For the nine months ended March 31, 2010, the provision for income taxes was $0.3 million, compared with $3.1 million for the same period in fiscal year 2009. The provision for income taxes for the three and nine months ended March 31, 2010 related to current state income taxes for certain subsidiaries with taxable income. At March 31, 2010 and June 30, 2009, we established a full valuation allowance against all net deferred tax assets. In assessing our ability to support the realizability of our deferred tax assets, we considered both positive and negative evidence. We placed greater weight on historical results than on our outlook for future profitability. The deferred tax valuation allowance may be adjusted in future periods if we consider that it is more likely than not that some portion or all of the deferred tax assets will be realized. In the event the deferred tax valuation allowance is adjusted, we would record an income tax benefit for the adjustment.

About First Acceptance Corporation

We primarily sell non-standard private passenger automobile insurance products underwritten by us as well as certain commissionable ancillary products, primarily through employee-agents. In certain states, our employee-agents also sell other complementary insurance products underwritten by us. At March 31, 2010, we leased and operated 405 retail offices in 12 states. Our insurance company subsidiaries are licensed to do business in 25 states. Additional information about First Acceptance Corporation can be found online at www.firstacceptancecorp.com.

This press release contains forward-looking statements. These statements, which have been included in reliance on the “safe harbor” provisions of the federal securities laws, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, among others, the factors set forth under the caption “Risk Factors” in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009 and in our other filings with the Securities and Exchange Commission. Actual operations and results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
 
 
 
 
 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)
 
  Three Months Ended

March 31,
  Nine Months Ended

March 31,
2010   2009 2010   2009
Revenues:
Premiums earned $ 46,651 $ 54,845 $ 140,317 $ 171,506
Commission and fee income 7,471 8,115 21,391 24,033
Investment income 2,008 2,410 5,954 7,741
Net realized gains (losses) on fixed maturities, available-for-sale   (14 )   1,727     (459 )   486
  56,116     67,097     167,203     203,766
 
Costs and expenses:
Losses and loss adjustment expenses 31,902 38,929 94,926 120,214
Insurance operating expenses 20,125 22,021 59,406 64,977
Other operating expenses 280 276 1,303 982
Litigation settlement (35 ) (67 ) (314 ) 5,167
Stock-based compensation 198 523 853 1,532
Depreciation and amortization 483 455 1,447 1,379
Interest expense   970     969     2,951     3,159
  53,923     63,106     160,572     197,410
 
Income before income taxes 2,193 3,991 6,631 6,356
Provision for income taxes   124     1,597     327     3,124
Net income $ 2,069   $ 2,394   $ 6,304   $ 3,232
 
Net income per share:
Basic and diluted $ 0.04   $ 0.05   $ 0.13   $ 0.07
 
Number of shares used to calculate net income per share:
Basic   47,994     47,673     47,943     47,662
Diluted   48,637     48,865     48,699     49,030
 
 
 
 
 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)
 

 
  March 31,

2010
  June 30,

2009
(Unaudited)
ASSETS
Fixed maturities, available-for-sale at fair value (amortized cost of $183,013 and $140,849, respectively) $ 188,145 $ 140,311
Cash and cash equivalents 32,531 77,201
Premiums and fees receivable, net of allowance of $376 and $419 49,777 45,309
Other assets 8,905 11,866
Property and equipment, net 3,662 3,921
Deferred acquisition costs 4,255 3,896
Goodwill 70,092 70,092
Identifiable intangible assets   6,360     6,360  
TOTAL ASSETS $ 363,727   $ 358,956  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves $ 76,183 $ 83,973
Unearned premiums and fees 62,499 57,350
Debentures payable 41,240 41,240
Other liabilities   11,092     16,537  
Total liabilities   191,014     199,100  
 
 
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized -- --
Common stock, $.01 par value, 75,000 shares authorized; 48,489 and 48,312 shares issued and outstanding, respectively 485 483
Additional paid-in capital 465,601 464,720
Accumulated other comprehensive income (loss) 5,132 (538 )
Accumulated deficit   (298,505 )   (304,809 )
Total stockholders’ equity   172,713     159,856  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 363,727   $ 358,956  
 
 
 
 
 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data

(Unaudited)
 
 

GROSS PREMIUMS EARNED BY STATE
 
    Three Months Ended

March 31,
  Nine Months Ended

March 31,
2010   2009 2010   2009
Premiums earned:
Georgia $ 9,918 $ 12,273 $ 30,780 $ 38,045
Texas 6,233 6,459 17,858 19,593
Illinois 6,076 6,736 18,482 20,923
Florida 5,307 6,382 15,502 20,194
Alabama 4,727 5,845 14,645 18,305
Ohio 3,223 3,182 9,085 9,815
Tennessee 2,925 3,650 8,883 11,865
South Carolina 2,847 4,219 8,712 14,160
Pennsylvania 2,569 2,883 7,998 8,455
Indiana 1,266 1,359 3,699 4,221
Missouri 834 939 2,443 3,023
Mississippi   726     918   2,230 2,907  
Total premiums earned $ 46,651   $ 54,845   $ 140,317 $ 171,506  
 
 
 

COMBINED RATIOS (INSURANCE OPERATIONS)
 
Three Months Ended

March 31,
Nine Months Ended

March 31,
2010 2009 2010 2009
Loss and loss adjustment expense 68.4 % 71.0 % 67.6 % 70.1 %
Expense   27.1 %   25.3 % 27.1 % 23.9 %
Combined   95.5 %   96.3 % 94.7 % 94.0 %
 
 
 

POLICIES IN FORCE
 
Three Months Ended

March 31,
  Nine Months Ended

March 31,
2010 2009 2010 2009
Policies in force – beginning of period. 147,090 159,557 158,222 194,079
Net increase (decrease) during period   22,513     14,117   11,381 (20,405 )
Policies in force – end of period   169,603     173,674   169,603 173,674  
 
 
 
 
 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data (continued)

(Unaudited)
 

NUMBER OF RETAIL LOCATIONS
 

Retail location counts are based upon the date that a location commenced or ceased writing business.
 
    Three Months Ended

March 31,
  Nine Months Ended

March 31,
2010   2009 2010   2009
 
Retail locations – beginning of period 409 424 418 431
Opened -- -- -- 1
Closed

(4
) (5 ) (13 ) (13 )
Retail locations – end of period 405   419   405   419  
 
 
 

RETAIL LOCATIONS BY STATE
 
    March 31,     December 31,     June 30,
2010     2009 2009     2008 2009   2008
 
Alabama 25 25 25 25 25 25
Florida 34 39 34 39 39 40
Georgia 61 61 61 61 61 61
Illinois 75 80 76 81 78 80
Indiana 18 18 18 18 18 19
Mississippi 8 8 8 8 8 8
Missouri 12 12 12 12 12 14
Ohio 27 27 27 28 27 29
Pennsylvania 17 17 17 18 17 19
South Carolina 26 27 27 27 27 28
Tennessee 19 20 19 20 20 20
Texas 83 85 85 87 86 88
Total 405 419 409 424 418 431

Copyright Business Wire 2010

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