First Acceptance Corporation (NYSE: FAC) today reported its financial results for the first quarter ended September 30, 2010 of its fiscal year ending June 30, 2011.

Operating Results

Revenues for the three months ended September 30, 2010 were $53.1 million, compared with $57.3 million for the same period in fiscal year 2010. Income before income taxes for the three months ended September 30, 2010 was $0.5 million, compared with $2.9 million in the same period in fiscal year 2010. Net income for the three months ended September 30, 2010 was $0.4 million, or $0.01 per share on a diluted basis, compared with $2.8 million, or $0.06 per share on a diluted basis, for the same period in fiscal year 2010.

Premiums earned for the three months ended September 30, 2010 were $43.9 million, compared with $48.5 million for the same period in fiscal year 2010. The decline was primarily due to the continued 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 September 30, 2010, the number of policies in force was 150,175, compared with 152,866 at September 30, 2009. At September 30, 2010, we operated 393 stores, compared with 415 stores at September 30, 2009.

Loss and Loss Adjustment Expense Ratio. The loss and loss adjustment expense ratio was 73.0 percent for the three months ended September 30, 2010, compared with 68.4 percent for the three months ended September 30, 2009. For the three months ended September 30, 2010, we experienced favorable development related to prior periods of $2.1 million, compared with favorable development of $3.7 million for the three months ended September 30, 2009. The favorable development for the three months ended September 30, 2010 was primarily due to lower than anticipated severity of accidents, of which approximately $1.2 million related to losses occurring during the first six months of the 2010 calendar accident year and $0.9 million related to calendar accident years 2009 or prior.

Excluding the favorable development related to prior periods, the loss and loss adjustment expense ratios for the three months ended September 30, 2010 and 2009 were 77.7 percent and 75.9 percent, respectively. This increase is due to higher loss adjustment expense resulting from (i) the increase in the percentage of claims related to liability-only coverage policies and (ii) increased investigative efforts with regards to Personal Injury Protection claims in Florida.

Expense Ratio. Our expense ratio for the three months ended September 30, 2010 was 25.5 percent, compared with 26.0 percent for the same period in fiscal year 2010. The year-over-year decrease in the expense ratio was due to the reduction in fixed costs and savings realized from the closure of underperforming stores.

Combined Ratio. The combined ratio was 98.5 percent for the three months ended September 30, 2010, compared with 94.4 percent for the same period in fiscal year 2010.

About First Acceptance Corporation

Our primary focus is the selling, servicing and underwriting of non-standard personal 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 September 30, 2010, we leased and operated 393 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, 2010 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

September 30,
2010     2009
Revenues:
Premiums earned $ 43,934 $ 48,467
Commission and fee income 7,276 6,954
Investment income 2,137 1,913

Net realized losses on investments, available-for-sale
  (224 )   (22 )
  53,123     57,312  
 
Costs and expenses:
Losses and loss adjustment expenses 32,057 33,153
Insurance operating expenses 18,508 19,570
Other operating expenses 387 273
Litigation settlement -- (381 )
Stock-based compensation 192 383
Depreciation and amortization 476 464
Interest expense   991     989  
  52,611     54,451  
 
Income before income taxes 512 2,861
Provision for income taxes   120     101  
Net income $ 392   $ 2,760  
 
Net income per share:
Basic and diluted $ 0.01   $ 0.06  
 

Number of shares used to calculate net income per share:
Basic   48,037     47,877  
Diluted   48,509     48,308  
 
 
 
 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)
 

 
    September 30,

2010
    June 30,

2010
(Unaudited)
ASSETS

Investments, available-for-sale at fair value (amortized cost of $185,048 and $187,907, respectively)
$ 197,511 $ 196,550
Cash and cash equivalents 28,871 26,184

Premiums and fees receivable, net of allowance of $436 and $418
44,665 41,276
Other assets 9,519 8,733
Property and equipment, net 3,155 3,524
Deferred acquisition costs 4,053 3,623
Goodwill 70,092 70,092
Identifiable intangible assets   6,360     6,360  
TOTAL ASSETS $ 364,226   $ 356,342  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves $ 71,191 $ 73,198
Unearned premiums and fees 55,011 52,563
Debentures payable 41,240 41,240
Other liabilities   15,190     12,151  
Total liabilities   182,632     179,152  
 
 
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized -- --
Common stock, $.01 par value, 75,000 shares authorized; 48,509 shares issued and outstanding 485 485
Additional paid-in capital 466,023 465,831
Accumulated other comprehensive income 12,463 8,643
Accumulated deficit   (297,377 )   (297,769 )
Total stockholders’ equity   181,594     177,190  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 364,226   $ 356,342  
 
 
 
 
 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

Supplemental Data

(Unaudited)
 

GROSS PREMIUMS EARNED BY STATE
 
    Three Months Ended

September 30,
2010     2009
Premiums earned:
Georgia $ 9,591 $ 10,902
Texas 5,910 5,912
Illinois 5,806 6,331
Florida 4,818 5,261
Alabama 4,386 5,210
Ohio 3,224 2,952
Tennessee 2,714 3,104
South Carolina 2,500 3,138
Pennsylvania 2,416 2,819
Indiana 1,145 1,221
Missouri 738 827
Mississippi   686     790  
Total premiums earned $ 43,934   $ 48,467  
 
 
 

COMBINED RATIOS (INSURANCE OPERATIONS)
 
Three Months Ended

September 30,
2010 2009
Loss and loss adjustment expense 73.0 % 68.4 %
Expense   25.5 %   26.0 %
Combined   98.5 %   94.4 %
 
 
 

POLICIES IN FORCE
 
Three Months Ended

September 30,
2010 2009

Policies in force – beginning of period
154,655 158,222
Net decrease during period   (4,480 )   (5,356 )
Policies in force – end of period   150,175     152,866  
 
 
 
 
 

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

September 30,
2010     2009
Retail locations – beginning of period 394 418
Opened -- --
Closed (1 ) (3 )
Retail locations – end of period 393   415  
 
 
 

RETAIL LOCATIONS BY STATE
 
    September 30,     June 30,
2010     2009 2010     2009
Alabama 25 25 25 25
Florida 31 36 31 39
Georgia 60 61 60 61
Illinois 74 78 74 78
Indiana 17 18 17 18
Mississippi 8 8 8 8
Missouri 12 12 12 12
Ohio 27 27 27 27
Pennsylvania 16 17 16 17
South Carolina 26 27 26 27
Tennessee 19 20 19 20
Texas 78 86 79 86
Total 393 415 394 418
 
 
 

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