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First Acceptance Corporation Reports Operating Results for the Three and Nine Month Periods Ended September 30, 2015

/EIN News/ -- NASHVILLE, Tenn., Nov. 10, 2015 (GLOBE NEWSWIRE) -- First Acceptance Corporation (NYSE:FAC) today reported its financial results for the three and nine month periods ended September 30, 2015.

Operating Results

Revenues for the three months ended September 30, 2015 increased 34% to $87.6 million from $65.6 million in the same period in the prior year. Revenues for the nine months ended September 30, 2015 increased 25% to $243.4 million from $195.3 million in the same period in the prior year. 

Loss before income taxes for the three months ended September 30, 2015 was $4.5 million, compared with income before income taxes of $2.4 million for the three months ended September 30, 2014. Net loss for the three months ended September 30, 2015 was $3.0 million, compared with net income of $2.1 million for the three months ended September 30, 2014. Basic and diluted net loss per share were $0.07 for the three months ended September 30, 2015, compared with basic and diluted net income per share of $0.05 for the same period in the prior year.

Excluding litigation settlement costs of $3.4 million and acquisition and integration costs (see “Titan Acquisition”) of $0.7 million, for the three months ended September 30, 2015, loss before income taxes was $0.4 million or $0.01 per basic and diluted share.

Loss before income taxes for nine months ended September 30, 2015 was $3.0 million, compared with income before income taxes of $6.6 million for the nine months ended September 30, 2014. Net loss for the nine months ended September 30, 2015 was $2.2 million, compared with net income of $6.1 million for the nine months ended September 30, 2014. Basic and diluted net loss per share were $0.05 for the nine months ended September 30, 2015, compared with basic and diluted net income per share of $0.15 for the same period in the prior year.

Excluding litigation settlement costs of $3.6 million and Titan acquisition and integration costs of $1.0 million, for the nine months ended September 30, 2015, income before income taxes was $1.6 million or $0.04 per basic and diluted share.

Joe Borbely, President and CEO, commented, “During the quarter, our sustained revenue growth and positive results from the newly-acquired Titan operations were unfortunately overshadowed by elevated claims frequency, adverse loss development and a litigation settlement. However, this potentially-lengthy litigation is now behind us and 83 former Titan stores are integrating successfully. I also believe that our loss ratio will soon begin to fully reflect the impact of our recent rate actions which will complement our 18.9% expense ratio.”

Premiums, Commissions and Fee Income. Premiums earned increased by $13.1 million, or 24%, to $67.5 million for the three months ended September 30, 2015, from $54.4 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015 premiums earned increased by $35.4 million, or 22%, to $197.4 million from $162.0 million for the nine months ended September 30, 2014. This improvement was primarily due to an increase in the average policy life which resulted in an increase in PIF from 161,330 at September 30, 2014 to 184,524 at September 30, 2015, in addition to higher average premiums.

Commission and fee income increased by $8.9 million, or 88%, to $19.0 million for the three months ended September 30, 2015, from $10.1 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015, commission and fee income increased by $13.0 million, or 44%, to $42.3 million from $29.3 million for the nine months ended September 30, 2014. Revenue from the former Titan retail locations acquired on July 1, 2015 accounted for $6.9 million of these increases. The remaining increase in commission and fee income was a result of higher fee income related to commissionable ancillary products sold through our previously-existing retail locations and the increase in PIF noted above.

Loss Ratio. The loss ratio was 85.0% for the three months ended September 30, 2015, compared with 76.2% for the three months ended September 30, 2014. The loss ratio was 81.2% for the nine months ended September 30, 2015, compared with 73.7% for the nine months ended September 30, 2014. We experienced unfavorable development related to prior periods of $2.2 million for the three months ended September 30, 2015, compared with favorable development of $0.4 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015, we experienced unfavorable development related to prior periods of $0.6 million, compared with favorable development of $4.5 million for the nine months ended September 30, 2014. The unfavorable development for the three and nine months ended September 30, 2015 was largely the result of an increase in bodily injury loss adjustment expenses (primarily outside legal costs) driven by the overall increase in claim frequency.

Excluding the development related to prior periods for the three months ended September 30, 2015 and 2014, the loss ratios were 81.8% and 77.0%, respectively. Excluding the development related to prior periods for the nine months ended September 30, 2015 and 2014, the loss ratios were 80.9% and 76.4%, respectively. The year-over-year increase in the loss ratio was primarily due to higher than expected claim frequency and severity across multiple coverages principally in property damage liability and collision claims. We believe that an increase in the number of miles driven by insured drivers as a result of lower gas prices and a favorable economy has been a contributing factor to an industry-wide increase in frequency. In response, we have continued to implement aggressive rate and underwriting actions as warranted at a state and coverage level.

Expense Ratio. The expense ratio was 16.3% for the three months ended September 30, 2015, compared with 20.2% for the three months ended September 30, 2014. The expense ratio was 18.9% for the nine months ended September 30, 2015, compared with 23.4% for the nine months ended September 30, 2014. The year-over-year decrease in the expense ratio was primarily due to the increase in premiums earned which resulted in a lower percentage of fixed expenses in our retail operations (such as rent and base salaries).

Combined Ratio. The combined ratio increased to 101.3% for the three months ended September 30, 2015 from 96.4% for the three months ended September 30, 2014. For the nine months ended September 30, 2015, the combined ratio increased to 100.1% from 97.1% for the nine months ended September 30, 2014.

Titan Acquisition

Effective July 1, 2015, we acquired certain assets of Titan Insurance Services, Inc. and Titan Auto Insurance of New Mexico, Inc. (the “Titan Agencies”). These agencies sell private passenger non-standard automobile insurance through 83 retail stores, principally in California (48), but also in Texas (12), Arizona (10), Florida (4), Nevada (4) and New Mexico (5). Approximately 240 employees accepted offers of employment with us as a part of this acquisition. The Titan Agencies were previously owned and operated by Nationwide. The stores are in the process of being rebranded under our Acceptance Insurance name and completion is expected by the end of this year.

These new Acceptance stores have continued to write policies for both Nationwide and other unrelated insurance companies. Going forward, we plan to develop our own products for California, Arizona, Nevada and New Mexico, and introduce our current Texas and Florida products into stores in those states. One of our insurance companies has applied for an insurance company license in California and is already licensed in the three other states where it does not currently write business.

We anticipate introducing our own products in the states in which we currently have an insurance company license in early 2016. However, a California product is not expected to be available until later in 2016, subject to the approval of our California insurance company license application by the California Department of Insurance. Therefore, it is anticipated that for the remainder of the year, the Titan acquisition will operate primarily as an insurance agency operation for which our revenues will be in the form of commission and fee income.

Revenues and income before income taxes of the acquired retail locations included in our results for the three months ended September 30, 2015 were $6.9 million and $0.4 million (excluding acquisition and integration-related costs), respectively.

Next Release of Financial Results

We currently plan to report our financial results for the three months and year ending December 31, 2015 on March 15, 2016.

About First Acceptance Corporation

We are principally a retailer, servicer and underwriter of non-standard personal automobile insurance based in Nashville, Tennessee. Our insurance operations generate revenues from selling non-standard personal automobile insurance policies and related products in 17 states. We conduct our servicing and underwriting operations in 13 states and are licensed as an insurer in 12 additional states. Non-standard personal automobile insurance is made available to individuals because of their inability or unwillingness to obtain standard insurance coverage due to various factors, including payment history, payment preference, failure in the past to maintain continuous insurance coverage or driving record and/or vehicle type. In most instances, these individuals are seeking to obtain the minimum amount of automobile insurance required by law.

At November 10, 2015, we leased and operated 438 retail locations and a call center staffed with employee-agents. Our employee-agents primarily sell non-standard personal automobile insurance products underwritten by us, as well as certain commissionable ancillary products. In most states, our employee-agents also sell a complementary insurance product providing personal property and liability coverage for renters underwritten by us. In addition, retail locations in some markets offer non-standard personal automobile insurance serviced and underwritten by other third-party insurance carriers for which we receive a commission. In addition to our retail locations, we are able to complete the entire sales process over the phone via our call center or through the internet via our consumer-based website or mobile platform. On a limited basis, we also sell our products through selected retail locations operated by independent agents. Additional information about First Acceptance Corporation can be found online at www.acceptance.com.

This press release contains forward-looking statements, including statements about the expected effects of the recently completed acquisition. 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 year ended December 31, 2014 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. Except as required by law, 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 Income
(unaudited)
(in thousands, except per share data)
             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2015     2014     2015     2014  
Revenues:                                
Premiums earned   $ 67,508     $ 54,369     $ 197,423     $ 161,971  
Commission and fee income     18,974       10,097       42,252       29,323  
Investment income     1,144       1,142       3,695       3,936  
Net realized gains (losses) on investments, available-for-sale     (6 )     (4 )     (13 )     36  
      87,620       65,604       243,357       195,266  
Costs and expenses:                                
Losses and loss adjustment expenses     57,367       41,440       160,304       119,323  
Insurance operating expenses     29,309       20,624       78,039       65,739  
Other operating expenses     295       244       881       722  
Litigation settlement     3,406       30       3,645       106  
Stock-based compensation     37       39       109       151  
Depreciation     424       423       1,224       1,303  
Amortization of identifiable intangibles assets     254       -       261       -  
Interest expense     1,052       427       1,924       1,275  
      92,144       63,227       246,387       188,619  
Income (loss) before income taxes     (4,524 )     2,377       (3,030 )     6,647  
Provision (benefit) for income taxes     (1,506 )     257       (813 )     547  
Net income (loss)   $ (3,018 )   $ 2,120     $ (2,217 )   $ 6,100  
Net income (loss) per share:                                
Basic   $ (0.07 )   $ 0.05     $ (0.05 )   $ 0.15  
Diluted   $ (0.07 )   $ 0.05     $ (0.05 )   $ 0.15  
Number of shares used to calculate net income (loss) per share:                                
Basic     41,041       40,995       41,026       40,981  
Diluted     41,041       41,297       41,026       41,285  


FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
             
    September 30,     December 31,  
    2015     2014  
    (Unaudited)          
ASSETS                
Investments, available-for-sale at fair value (amortized cost of $131,614 and $119,119, respectively)   $ 135,745     $ 125,085  
Cash and cash equivalents     107,207       102,429  
Premiums, fees, and commissions receivable, net of allowance of $461 and $392     74,458       56,486  
Deferred tax assets, net     18,241       16,521  
Other investments     12,087       10,530  
Other assets     7,530       5,962  
Property and equipment, net     3,875       3,173  
Deferred acquisition costs     5,428       3,459  
Goodwill     30,200       -  
Identifiable intangible assets, net     8,745       4,800  
TOTAL ASSETS   $ 403,516     $ 328,445  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Loss and loss adjustment expense reserves   $ 115,009     $ 96,613  
Unearned premiums and fees     86,877       67,942  
Debentures payable     40,245       40,211  
Term loan from principal stockholder     29,747       -  
Accrued expenses     11,661       3,262  
Other liabilities     16,207       13,453  
Total liabilities     299,746       221,481  
Stockholders’ equity:                
Preferred stock, $.01 par value, 10,000 shares authorized     -       -  
Common stock, $.01 par value, 75,000 shares authorized; 41,041 and 41,016 issued and outstanding, respectively     411       410  
Additional paid-in capital     457,395       457,242  
Accumulated other comprehensive income, net of tax of $314 and $923, respectively     3,959       5,090  
Accumulated deficit     (357,995 )     (355,778 )
Total stockholders’ equity     103,770       106,964  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 403,516     $ 328,445  

  

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
(Unaudited)
             
PREMIUMS EARNED BY STATE            
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2015     2014     2015     2014  
Gross premiums earned:                                
Georgia   $ 13,079     $ 10,284     $ 37,619     $ 30,186  
Florida     10,231       8,363       30,639       24,982  
Texas     8,990       6,998       26,365       20,636  
Ohio     6,688       5,605       19,814       16,511  
Alabama     6,238       5,437       18,333       16,294  
Illinois     6,030       5,205       18,213       15,026  
South Carolina     5,115       4,042       14,691       12,284  
Tennessee     4,486       3,131       12,141       9,526  
Pennsylvania     2,303       1,861       6,923       6,265  
Indiana     2,003       1,542       5,869       4,535  
Missouri     1,451       1,224       4,315       3,637  
Mississippi     852       745       2,540       2,285  
Virginia     138             232        
Total gross premiums earned     67,604       54,437       197,694       162,167  
Premiums ceded to reinsurer     (96 )     (68 )     (271 )     (196 )
Total net premiums earned   $ 67,508     $ 54,369     $ 197,423     $ 161,971  


COMBINED RATIOS (INSURANCE OPERATIONS)                                
             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2015     2014     2015     2014  
Loss     85.0 %     76.2 %     81.2 %     73.7 %
Expense     16.3 %     20.2 %     18.9 %     23.4 %
Combined     101.3 %     96.4 %     100.1 %     97.1 %


POLICIES IN FORCE                                
             
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2015     2014     2015     2014  
Policies in force – beginning of period     183,829       159,293       163,712       143,077  
Net change during period     695       2,037       20,812       18,253  
Policies in force – end of period     184,524       161,330       184,524       161,330  


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     Nine Months Ended  
    September 30,     September 30,  
    2015     2014     2015     2014  
Retail locations – beginning of period     359       353       356       360  
Opened           1       5        
Acquired     83             83        
Closed     (4 )     (1 )     (6 )     (7 )
Retail locations – end of period     438       353       438       353  


RETAIL LOCATIONS BY STATE
                   
    September 30,     June 30,     December 31,  
    2015     2014     2015     2014     2014     2013  
Alabama     24       24       24       24       24       24  
Arizona     10       -       -       -       -       -  
California     48       -       -       -       -       -  
Florida     39       30       35       30       31       30  
Georgia     60       60       60       60       60       60  
Illinois     58       60       60       60       60       61  
Indiana     17       17       17       17       17       17  
Mississippi     7       7       7       7       7       7  
Missouri     9       10       9       10       10       11  
New Mexico     5       -       -       -       -       -  
Nevada     4       -       -       -       -       -  
Ohio     27       27       27       27       27       27  
Pennsylvania     14       16       15       16       15       16  
South Carolina     25       25       25       25       25       25  
Tennessee     23       19       23       19       22       19  
Texas     68       58       57       58       58       63  
Total     438       353       359       353       356       360  


 

INVESTOR RELATIONS CONTACT: 
                    Michael J. Bodayle 
                    615.844.2885 

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