FPIC Insurance (FPIC) 8-K/A Completion of Acquisition or Disposition of Assets

EXHIBIT 99.3

FPIC INSURANCE GROUP, INC. AND ADVOCATE, MD FINANCIAL GROUP INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined statement of financial position combines the historical consolidated statements of financial position of FPIC Insurance Group, Inc “(“FPIC”) as of September 30, 2009 and gives effect to the acquisition (the “Acquisition”) of all of the outstanding capital stock of Advocate, MD Financial Group Inc. (“Advocate, MD”) described in Item 2.01 of the Current Report on Form 8-K/A, as if it had been completed on September 30, 2009. The unaudited pro forma condensed combined statements of income combine the historical consolidated statements of income of FPIC and Advocate, MD, giving effect to the acquisition as if it had been completed on January 1, 2008. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are:

1. Directly attributable to the acquisition,

2. Factually supportable, and

3. With respect to the statements of income, expected to have a continuing impact on results. You should read this information in conjunction with the:

● accompanying notes to the unaudited pro forma condensed combined financial information;

● separate unaudited historical consolidated financial statements of FPIC as of and for the three and nine months ended September 30, 2009 and the related notes included in FPIC’s quarterly report on Form 10-Q for the three and nine months ended September 30, 2009;

● separate audited historical financial statements of FPIC as of and for the year ended December 31, 2008 and the related notes included in FPIC’s annual report on Form 10-K for the year ended December 31, 2008;

● separate unaudited historical financial statements of Advocate, MD as of and for the nine months ended September 30, 2009 and the related notes included herein; and

● separate audited historical financial statements of Advocate, MD as of and for the year ended December 31, 2008 and the related notes included herein.

Form 8-K: 41

The unaudited pro forma condensed combined financial information is provided for informational purposes only. The pro forma information is not necessarily indicative of what FPIC’s financial position or results of operations actually would have been had the acquisition been completed at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company. There were no material transactions between FPIC and Advocate, MD during the periods presented in the unaudited pro forma condensed combined financial statements.

These pro forma financial statements and adjustments are based on preliminary estimates and assumptions made by management and have been made solely for purposes of developing these pro forma financial statements for illustrative purposes to aid in the analysis of the impact of the acquisition to FPIC. The unaudited pro forma condensed combined statements of operations do not include the impacts of any revenue, cost or other operating synergies that may result from the acquisition or the costs to integrate the operations of FPIC and Advocate, MD or any non-recurring charges that may result from the acquisition. The unaudited pro forma condensed combined financial statements also do not reflect the impact of financing, liquidity or other balance sheet repositioning that may be undertaken in connection with or subsequent to the acquisition.

Form 8-K: 42

FPIC INSURANCE GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION

(in thousands)	As of September 30, 2009
	FPIC		Advocate, MD		Advocate, MD Pro forma Adjustments			Pro forma
Assets
Investments:
Fixed income securities, available-for-sale	$	617,071		71,260		—			688,331
Equity securities, available-for-sale		11,647		1,497		—			13,144
Other invested assets		8,879		—		—			8,879
Total investments		637,597		72,757		—			710,354
Cash and cash equivalents		80,933		5,957		(44,600)	(A),(B)		42,290
Premiums receivable		56,114		4,219		—			60,333
Accrued investment income		6,760		542		—			7,302
Reinsurance recoverable on paid losses		6,403		—		—			6,403
Due from reinsurers on unpaid losses and advance premiums		131,571		5,110		—			136,681
Ceded unearned premiums		10,717		1,626		—			12,343
Deferred policy acquisition costs		9,447		4,430		(2,787)	(A)		11,090
Deferred income taxes		27,346		—		(872)	(A)		26,474
Goodwill		10,833		—		11,818	(A)		22,651
Intangible Assets		—		—		7,279	(A)		7,279
Other assets		7,108		1,923		—			9,031
Total assets	$	984,829		96,564		(29,162)			1,052,231
Liabilities and Shareholders' Equity
Policy liabilities and accruals:
Losses and loss adjustment expenses	$	533,407		39,458		—			572,865
Unearned premiums		98,652		14,983		—			113,635
Reinsurance payable		2,196		1,801		—			3,997
Paid in advance and unprocessed premiums		4,545		946		—			5,491
Total policy liabilities and accruals		638,800		57,188		—			695,988
Long-term debt		46,083		9,000		(9,000)	(B)		46,083
Other liabilities		23,845		3,206		7,008	(A)		34,059
Total liabilities		708,728		69,394		(1,992)			776,130
Commitments and contingencies
Shareholders' equity
Preferred stock		—		37		(37)	(C)		—
Common stock		682		22		(22)	(C)		682
Additional paid-in capital		—		8,206		(8,206)	(C)		—
Retained earnings		265,598		17,845		(17,845)	(C)		265,598
Accumulated other comprehensive income, net		9,821		1,060		(1,060)	(C)		9,821
Total shareholders' equity		276,101		27,170		(27,170)			276,101
Total liabilities and shareholders' equity	$	984,829		96,564		(29,162)			1,052,231

See the accompanying notes to the unaudited pro forma condensed combined financial information.

Form 8-K: 43

FPIC Insurance Group, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

(in thousands, except earnings per common share)	For the Nine Months Ended September 30, 2009
	FPIC		Advocate, MD		Advocate, MD Pro forma Adjustments			Pro forma
Revenues
Net premiums earned	$	115,548		18,069		—			133,617
Net investment income		21,043		2,941		(84)	(F)		23,900
Net realized investment gains		1,339		—		—			1,339
Other income		373		6		—			379
Total revenues		138,303		21,016		(84)			159,235
Expenses
Net losses and loss adjustment expenses		68,315		12,808		—			81,123
Other underwriting expenses		29,441		6,231		378	(D)		36,050
Interest expense on debt		2,709		163		(163)	(E)		2,709
Other expenses		—		—		310	(D)		310
Total expenses		100,465		19,202		525			120,192
Income (loss) from continuing operations before income taxes		37,838		1,814		(609)			39,043
Less:  Income tax expense (benefit)		11,792		907		(213)	(G)		12,486
Income (loss) from continuing operations	$	26,046		907		(396)			26,557
Basic earnings per common share:
Income from continuing operations	$	3.54							3.62
Basic weighted-average common shares outstanding		7,346							7,346
Diluted earnings per common share:
Income from continuing operations	$	3.48							3.54
Diluted weighted-average common shares outstanding		7,494							7,494

See the accompanying notes to the unaudited pro forma condensed combined financial information.

Form 8-K: 44

FPIC Insurance Group, Inc.

Unaudited Pro Forma Condensed Combined Statement of Income

(in thousands, except earnings per common share)	For the Year Ended December 31, 2008
	FPIC		Advocate, MD		Advocate, MD Pro forma Adjustments			Pro forma
Revenues
Net premiums earned	$	172,830		22,508		—			195,338
Net investment income		30,295		2,888		(905)	(F)		32,278
Net realized investment losses		(13,552)		—		—			(13,552)
Other income		432		2,967		—			3,399
Total revenues		190,005		28,363		(905)			217,463
Expenses
Net losses and loss adjustment expenses		99,721		5,926		—			105,647
Other underwriting expenses		37,992		6,229		504	(D)		44,725
Interest expense on debt		3,827		419		(419)	(E)		3,827
Other expenses		412		23		413	(D)		848
Total expenses		141,952		12,597		498			155,047
Income (loss) before income taxes		48,053		15,766		(1,403)			62,416
Less:  Income tax expense (benefit)		15,953		5,111		(491)	(G)		20,573
Net income (loss)	$	32,100		10,655		(912)			41,843
Basic earnings per common share:
Net income	$	3.83							5.00
Basic weighted-average common shares outstanding		8,374							8,374
Diluted earnings per common share:
Net income	$	3.72							4.84
Diluted weighted-average common shares outstanding		8,637							8,637

See the accompanying notes to the unaudited pro forma condensed combined financial information.

Form 8-K: 45

FPIC Insurance Group, Inc.

Notes to the Unaudited Pro Forma Condensed Combined Financial Information

A. Purchase price allocation

The purchase price of Advocate, MD for purposes of preparing these unaudited pro forma condensed combined financial statements is $42.6 million, as described below. Our subsidiary, First Professionals Insurance Company, Inc. acquired all of the outstanding capital stock of Advocate, MD.  The allocation of the purchase price is based upon preliminary estimates of the assets and liabilities acquired and estimated contingent consideration expected to be paid in accordance with accounting guidance on business combinations issued by the Financial Accounting Standards Board. The acquisition date fair value includes the estimated fair value of acquisition-related contingent consideration totaling $7.0 million.

In accordance with SFAS No. 141(R), a liability was recognized for the estimated fair value of acquisition-related contingent consideration totaling $7.0 million using a probability-weighted discounted cash flow model assuming the achievement of certain targets. Any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of the targets, will be recognized in earnings in the period the estimated fair value change. The fair value estimate is based on the probability weighted targets to be achieved over the earn-out period. A change in fair value of the acquisition-related contingent consideration could have a material effect on the statement of operations and financial position in the period of the change in estimate.

The total acquisition date fair value of consideration transferred is estimated as follows:

(in thousands)
Cash consideration paid at closing	$	33,600
Cash paid for non-compete agreement		2,000
Total cash paid		35,600
Estimated contingent consideration		7,008
Acquisition date fair value of consideration	$	42,608

 The allocation of the consideration transferred is estimated as follows:

(in thousands)
Net assets acquired	$	24,383
Goodwill		11,818
Acquired intangible assets		7,279
Deferred income tax liability		(872)
	$	42,608

Form 8-K: 46

FPIC Insurance Group, Inc.

Notes to the Unaudited Pro Forma Condensed Combined Financial Information

B. Repayment of Advocate senior notes

In connection with the transaction, FPIC also retired all of Advocate, MD’s outstanding bank debt, totaling $9 million.  This adjustment reflects the pay off of the senior note to Frost Bank.

C. Elimination of Advocate stockholders’ equity

This adjustment reflects the elimination of the historical stockholders’ equity of Advocate, MD.

D. Effect of the acquisition on amortization expense

This adjustment reflects the effects of the acquisition on amortization of intangible assets, which consist of state licenses, trade names, non-compete agreements and customer relationships.

(in thousands)					Amortization Expense
	Intangible Asset		Projected Useful Life (years)		Nine Months Ended September 30, 2009		Year Ended December 31, 2008
State licenses	$	250	Indefinite		$	—		—
Trade name - Advocate, MD		530	Indefinite			—		—
Non-competes		2,371		4.7		378		504
Customer relationships		4,128		10		310		413
	$	7,279			$	688		917

E. Effect of acquisition on interest expense

This adjustment reflects the elimination of interest expense for the nine months ended September 30, 2009 and the year ended December 31, 2008.

F. Effect of acquisition on investment income

This adjustment reflects the effects of the acquisition on FPIC’s investment income resulting from the decline in cash and invested assets associated with consideration paid for the acquisition.  The adjustments were calculated using FPIC’s actual return on cash for the respective periods presented.

G. Effect of acquisition on income tax expense

This adjustment reflects the effects of the acquisition on the provision for income taxes as if taxes were calculated on a separate return basis using an assumed effective tax rate in each respective year.

Form 8-K: 47