First Acceptance Corporation Reports Operating Results for the Quarter Ended September 30, 2010

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 ——————————————————————————-