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U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
Commission File Number: 0-25505
NCRIC Group, Inc.
Delaware 52-2134774
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1115 30th Street, NW, Washington, D.C. 20007
(Address of principal executive offices) (Zip Code)
202-969-1866
(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer(as
defined in Rule 12b-2 of the Exchange Act.
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of November 3, 2003,
there were 6,927,365 shares of NCRIC Group, Inc. common stock outstanding.
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
- --------------------------------------------------------------------------------
September 30, 2003 December 31, 2002
------------------ -----------------
ASSETS (unaudited)
INVESTMENTS:
Securities available for sale, at fair value:
Bonds and U.S.Treasury Notes (Amortized cost $158,627 and $110,309) $ 160,445 $ 114,696
Equity securities (Book value $6,420 and $5,561) 6,662 5,424
------------ ------------
Total securities available for sale 167,107 120,120
OTHER ASSETS:
Cash and cash equivalents 13,047 10,550
Reinsurance recoverable 45,514 43,231
Goodwill, net 7,291 7,291
Premiums and accounts receivable, net 16,326 9,477
Deferred income taxes 4,677 3,789
Other assets 8,845 8,229
------------ ------------
TOTAL ASSETS $ 262,807 $ 202,687
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Losses and loss adjustment expenses:
Losses $ 79,343 $ 70,314
Loss adjustment expenses 37,392 33,708
------------ ------------
Total losses and loss adjustment expenses 116,735 104,022
Other liabilities:
Retrospective premiums accrued under
reinsurance treaties 831 607
Unearned premiums 38,638 24,211
Advance premium 767 2,971
Reinsurance premium payable 1,567 5,045
Bank debt 468 995
Trust Preferred Securities 15,000 15,000
Other liabilities 5,157 2,019
------------ ------------
TOTAL LIABILITIES 179,163 154,870
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value - 12,000,000 shares authorized; 6,927,365
shares issued and outstanding (net of 4,839 treasury shares) at
September 30, 2003; 3,708,399 shares issued and outstanding (net of
34,456 treasury shares) at December 31, 2002 70 37
Preferred stock $0.01 par value - 1,000,000 shares authorized, 0 shares issued -- --
Additional paid in capital 48,930 9,630
Unallocated common stock held by the ESOP (2,651) (682)
Common stock held by the stock award plan (1,704) (202)
Accumulated other comprehensive income 1,360 2,806
Retained earnings 37,692 36,518
Treasury stock, at cost (53) (290)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 83,644 47,817
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 262,807 $ 202,687
============ ============
See notes to condensed consolidated financial statements.
2
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
2003 2002 2003 2002
REVENUES:
Net premiums earned $ 12,472 $ 7,856 $ 34,883 $ 21,367
Net investment income 1,657 1,444 4,368 4,518
Net realized investment gains (losses) 498 6 1,852 (604)
Practice management and related income 1,112 1,344 3,764 4,430
Other income 370 278 1,083 722
------------ ------------ ------------ ------------
Total revenues 16,109 10,928 45,950 30,433
------------ ------------ ------------ ------------
EXPENSES:
Losses and loss adjustment expenses 11,145 7,372 31,083 19,072
Underwriting expenses 2,538 3,164 7,243 6,262
Practice management expenses 1,234 1,386 3,926 4,455
Interest expense on Trust Preferred Securities 202 -- 607 --
Other expenses 519 366 1,356 1,179
------------ ------------ ------------ ------------
Total expenses 15,638 12,288 44,215 30,968
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 471 (1,360) 1,735 (535)
INCOME TAX PROVISION (BENEFIT) 101 (569) 309 (476)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 370 $ (791) $ 1,426 $ (59)
============ ============ ============ ============
OTHER COMPREHENSIVE (LOSS) INCOME (1,662) 2,352 (1,446) 2,135
------------ ------------ ------------ ------------
COMPREHENSIVE (LOSS) INCOME $ (1,292) $ 1,561 $ (20) $ 2,076
============ ============ ============ ============
Net income per common share:
Basic:
Average shares outstanding 6,328 6,641 6,554 6,630
------------ ------------ ------------ ------------
Earnings (loss) per Share $ 0.06 $ (0.12) $ 0.22 $ (0.01)
============ ============ ============ ============
Diluted:
Weighted average shares outstanding 6,328 6,641 6,554 6,630
Dilutive effect of stock options 311 -- 202 --
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted 6,639 6,641 6,756 6,630
------------ ------------ ------------ ------------
Earnings (loss) per Share $ 0.06 $ (0.12) $ 0.21 $ (0.01)
============ ============ ============ ============
See notes to condensed consolidated financial statements.
3
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
- --------------------------------------------------------------------------------
Nine Months Ended September 30,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,426 $ (59)
Adjustments to reconcile net income
to net cash flows from operating activities:
Net realized investment (gains) losses (1,852) 604
Amortization and depreciation 1,042 336
Deferred income taxes (141) (2,396)
Stock released for coverage of benefit plans 368 242
Changes in assets and liabilities:
Reinsurance recoverable (2,283) (3,204)
Premiums and accounts receivables (6,849) (8,189)
Other assets (1,005) (1,186)
Losses and loss adjustment expenses 12,713 9,303
Retrospective premiums accrued under
reinsurance treaties 224 (1,695)
Unearned premiums 14,427 11,202
Advanced premium (2,204) (2,973)
Reinsurance premium payable (3,478) 1,464
Other liabilities 3,138 (1,071)
------------ ------------
Net cash flows provided by operating activities 15,526 2,378
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (163,077) (13,180)
Sales, maturities and redemptions of investments 115,128 16,512
Purchases of property and equipment (284) (779)
------------ ------------
Net cash flows (used in) provided by investing activities (48,233) 2,553
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public stock offering 35,784 --
Purchase of Treasury Stock (53) --
Repayment of long-term debt (527) (494)
------------ ------------
Net cash flows (used in) provided by financing activities 35,204 (494)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,497 4,437
------------ ------------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 10,550 7,565
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 13,047 $ 12,002
============ ============
SUPPLEMENTARY INFORMATION:
Cash paid for income taxes $ 1,200 $ 2,060
============ ============
Cash paid for interest $ 646 $ 50
============ ============
See notes to condensed consolidated financial statements.
4
NCRIC GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements for the three and
nine-month periods ended September 30, 2003 - unaudited
1. Basis of Preparation
The accompanying unaudited condensed consolidated financial statements
were prepared in accordance with instructions to Form 10-Q and therefore
do not include all disclosures necessary for a complete presentation under
accounting principles generally accepted in the United States of America.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation have
been included.
Operating results for the three and nine-month periods ended September 30,
2003 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2003. These condensed consolidated
financial statements and notes should be read in conjunction with the
financial statements and notes included in the audited consolidated
financial statements of NCRIC Group, Inc. (NCRIC Group) for the year ended
December 31, 2002, which were filed with the Securities and Exchange
Commission on Form 10-K.
2. Second Step Conversion and Public Offering
On June 24, 2003, a plan of conversion and reorganization was approved by
the members of NCRIC, A Mutual Holding Company and by the shareholders of
NCRIC Group, Inc. In the conversion and related stock offering, the Mutual
Holding Company offered for sale its 60% ownership interest in NCRIC
Group. As a result of the conversion and stock offering, the Mutual
Holding Company ceased to exist, and NCRIC Group became a fully public
company.
In the conversion and stock offering, 4,143,701 shares of the common stock
of NCRIC Group were sold to Eligible Members, Employee Benefit Plans,
Directors, Officers and Employees and to members of the general public in
a Subscription and Community Offering at $10.00 per share. The
Subscription stock offering period expired on June 16, 2003. All stock
purchase orders received in the offering were satisfied.
As part of the conversion, 2,778,144 shares were issued to the former
public stockholders of NCRIC Group. The exchange ratio was 1.8665 new
shares for each share of NCRIC Group held by public stockholders as of the
close of business on June 25, 2003. Accordingly, after the conversion,
NCRIC Group had 6,921,845 shares outstanding immediately following the
offering. For the earnings per share calculations, the share amounts for
periods prior to the conversion and stock offering have been revised to
reflect the share exchange ratio applied in the conversion. Prior year
share data within the consolidated balance sheet has not been revised for
the exchange ratio applied in the conversion. The issuance of the shares
of common stock in the subscription and community offering and in the
exchange offering to existing stockholders was registered on Form S-1
filed with the SEC (No. 333-104023), which registration statement was
declared effective on May 14, 2003.
5
The net proceeds of the offering have been deployed as follows:
o 75% has been added to the capital of NCRIC, Inc.,
o 9% has been used to provide loans to the employee stock ownership
plan and stock award plan to fund the purchase of shares of common
stock in the offering, and
o the remaining amount has been retained for general corporate
purposes.
The reconciliation of gross to net proceeds is as follows (in thousands):
Gross offering proceeds $ 41,437
Less: Offering expenses (1,924)
---------
Net proceeds 39,513
Less: ESOP loan (2,072)
Stock Award Plan loan (1,657)
---------
Net proceeds as adjusted $ 35,784
=========
The composition of shares after the second step conversion and public offering
is as follows (in thousands):
Issued in the conversion and stock offering 4,144
Issued to existing public shareholders of NCRIC Group 2,778
---------
Total shares issued June 25, 2003 6,922
ESOP loan shares (270)
Stock Award Plan loan shares (179)
---------
Net shares outstanding as of June 25, 2003 6,473
=========
3. Reportable Segment Information
NCRIC Group currently has two reportable segments: Insurance and Practice
Management Services. The insurance segment provides medical professional
liability and other insurance. The practice management services segment
provides medical practice management services primarily to private
practicing physicians. NCRIC Group evaluates performance based on profit
or loss from operations before income taxes. The reportable segments are
strategic business units that offer different products and services and
therefore are managed separately.
6
Selected financial data is presented below for each business segment at or for
the three-month and nine-month periods ended September 30, 2003 and 2002 (in
thousands):
For the Three Months ended At or For the Nine Months
September 30, Ended September 30,
---------------------------- --------------------------
2003 2002 2003 2002
--------- --------- -------- --------
Insurance
Revenues from external customers $ 12,767 $ 8,111 $ 35,744 $ 22,030
Net investment income 1,559 1,443 4,225 4,499
Net realized investment gains (losses) 505 6 1,845 (604)
Depreciation and amortization - 469 87 950 231
Segment profit (loss) before taxes 1,025 (1,160) 3,186 173
Segment assets 245,682 168,044
Segment liabilities 162,899 130,214
Expenditures for segment assets 76 44 175 627
Practice Management Services
Revenues from external customers $ 1,136 $ 1,368 $ 3,831 $ 4,493
Net investment income 1 2 6 22
Net realized investment gains (losses) -- -- -- --
Depreciation and amortization 31 32 92 105
Segment profit (loss) before taxes (99) (21) (96) 46
Segment assets 8,869 8,592
Segment liabilities 3,005 3,113
Expenditures for segment assets -- 136 20 152
Total
Revenues from external customers $ 13,903 $ 9,479 $ 39,575 $ 26,523
Net investment income 1,560 1,445 4,231 4,521
Net realized investment gains (losses) 505 6 1,845 (604)
Depreciation and amortization 500 119 1,042 336
Segment profit (loss) before taxes 926 (1,181) 3,090 219
Segment assets 254,551 176,636
Segment liabilities 165,904 133,327
Expenditures for segment assets 76 180 195 779
7
The following are reconciliations of reportable segment assets, liabilities,
revenues, net investment income, and profit before taxes to NCRIC Group's
consolidated totals (in thousands):
September 30,
-------------------------
2003 2002
--------- ---------
Assets:
Total assets for reportable segments $ 254,551 $ 176,636
Elimination of intersegment receivables (2,043) (1,140)
Other unallocated amounts 10,299 3,559
--------- ---------
Consolidated total $ 262,807 $ 179,055
========= =========
Liabilities:
Total liabilities for reportable segments $ 165,904 $ 133,327
Elimination of intersegment payables (2,043) (1,140)
Other liabilities 15,302 96
--------- ---------
Consolidated total $ 179,163 $ 132,283
========= =========
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Revenues from external customers:
Total revenues for reportable segments $ 13,903 $ 9,479 $ 39,575 $ 26,523
Elimination of reportable segments (2) (1) (7) (4)
Other revenues 53 -- 162 --
---------- ---------- ---------- ----------
Consolidated total $ 13,954 $ 9,478 $ 39,730 $ 26,519
========== ========== ========== ==========
Net investment income:
Total investment income for reportable
Segments $ 1,560 $ 1,445 $ 4,231 $ 4,521
Elimination of intersegment income (2) (1) (2) (3)
Other investment income 99 -- 139 --
---------- ---------- ---------- ----------
Consolidated total $ 1,657 $ 1,444 $ 4,368 $ 4,518
========== ========== ========== ==========
Income (loss) before taxes:
Total income (loss) for reportable segments $ 926 $ (1,181) $ 3,090 $ 219
Other expenses (455) (179) (1,355) (754)
---------- ---------- ---------- ----------
Consolidated total $ 471 $ (1,360) $ 1,735 $ (535)
========== ========== ========== ==========
8
4. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands except per share data):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss) $ 370 $ (791) $ 1,426 $ (59)
========== ========== ========== ==========
Weighted average common
Shares outstanding - basic 6,328 6,641 6,554 6,630
Dilutive effect of stock options
and awards 311 -- 202 --
---------- ---------- ---------- ----------
Weighted average common
Shares outstanding - diluted 6,639 6,641 6,756 6,630
========== ========== ========== ==========
Net income per common share:
Basic $ 0.06 $ (0.12) $ 0.22 $ (0.01)
========== ========== ========== ==========
Diluted $ 0.06 $ (0.12) $ 0.21 $ (0.01)
========== ========== ========== ==========
Earnings per share is calculated by dividing the net income by the
weighted average shares outstanding. For the earnings per share
calculations, the share amounts for periods prior to the conversion and
stock offering have been revised to reflect the share exchange ratio
applied in the conversion. Prior year share data within the consolidated
balance sheet has not been revised for the exchange ratio applied in the
conversion.
9
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following analysis of the consolidated results of operations and
financial condition of NCRIC Group should be read in conjunction with the
condensed consolidated financial statements and related notes included in this
Form 10-Q. References to "NCRIC" mean NCRIC Group and its subsidiaries,
including their predecessors.
General
The financial statements and data presented in this Form 10-Q have been
prepared in accordance with accounting principles generally accepted in the
United States of America, GAAP, unless otherwise noted. GAAP differs from
statutory accounting practices used by regulatory authorities in their oversight
responsibilities of insurance companies.
There have been no material changes to our accounting policies during the
nine months ended September 30, 2003. Following is a condensed summary of key
financial concepts and of those accounting policies which we believe to be the
most critical. That is, these are most important to the portrayal of our
financial condition and results of operations and they require management's most
complex judgments, including the need to make estimates about the effect of
insurance losses and other matters that are inherently uncertain.
Premium income. Gross premiums written represent the amounts billed to
policyholders. Gross premiums written are reduced by premiums ceded to
reinsurers in determining net premiums written. Net premiums written are
adjusted by any amount which has been billed but not yet earned during the
period in arriving at earned premiums. Extended reporting endorsements premium
is earned in the same period it is written.
For several large groups of policyholders, we have insurance programs
where the premiums are retrospectively determined based on losses during the
period. Under all of the current programs, the full premium level is determined
and billed at the inception of the policy term. The premium level could
potentially be reduced and a premium refund made if the program loss experience
is favorable.
Reserves for losses and loss adjustment expenses. We write one line of business,
medical professional liability. Losses and LAE reserves are estimates of future
payments for reported claims and related expenses of adjudicating claims with
respect to insured events that have occurred in the past. The change in these
reserves from period to period is reflected as an increase or decrease to our
losses and LAE expense incurred.
Medical professional liability losses and LAE reserves are established
based on an estimate of these future payments as reflected in our past
experience with similar cases and historical trends involving claim payment
patterns. Reserving for medical professional liability claims is a complex and
uncertain process, requiring the use of informed estimates and judgments. For
jurisdictions in which our own loss experience is limited, losses are less
predictable and, therefore, there is the potential for greater volatility in
estimates of loss development. Although we intend to estimate conservatively our
future payments relating to losses incurred, there can be no assurance that
currently established reserves will prove adequate in light of subsequent actual
experience. Losses and LAE expenses as stated in the statement of operations are
10
reported net of reinsurance recoveries.
Reinsurance. We manage our exposure to individual claim losses, annual aggregate
losses, and LAE through our reinsurance program. Reinsurance allows us to obtain
indemnification against a specified portion of losses associated with insurance
policies we have underwritten by entering into a reinsurance agreement with
other insurance enterprises or reinsurers. We pay or cede part of our
policyholder premium to reinsurers. The reinsurers in return agree to reimburse
us for a specified portion of any claims covered under the reinsurance
contracts. While reinsurance arrangements are designed to limit losses from
large exposures and to permit recovery of a portion of direct losses,
reinsurance does not relieve us of liability to our insureds. We monitor the
creditworthiness of reinsurers on an ongoing basis. We also routinely evaluate
for collectibility amounts recoverable from reinsurers. No allowance for
uncollectible reinsurance recoverable has been determined to be necessary.
Investment portfolio. Our investment portfolio is composed principally of fixed
maturity securities classified as available-for-sale. All securities with gross
unrealized losses at the balance sheet date are evaluated for evidence of
other-than-temporary impairment, on a quarterly basis. We write down to fair
value any security with an impairment that is deemed to be other-than-temporary
in the period the determination is made. The assessment of whether such
impairment has occurred is based on management's case-by-case evaluation of the
underlying reasons for the decline in fair value. The evaluation for
other-than-temporary impairments is a quantitative and qualitative process
involving judgments which are subject to risks and uncertainties. The risks and
uncertainties include changes in general economic conditions, the issuer's
financial condition and the effects of changes in interest rates.
Goodwill. Our goodwill asset, $7.3 million as of September 30, 2003, resulted
from the 1999 acquisition of three businesses which now operate as divisions of
the Practice Management Services Segment. The annual goodwill impairment testing
required by SFAS 142 concluded that the goodwill asset was not impaired as of
September 30, 2003. This impairment test utilizes a discounted cash flow
analysis and therefore is dependent upon the use of estimates and informed
judgments as to future performance of the underlying businesses as well as
market conditions. The result of the current analysis indicates the value of the
business is not significantly in excess of the threshold for indication of
impairment. If future circumstances require use of more negative assumptions
than used in the current analysis, the goodwill asset would be determined to be
impaired.
Consolidated net income
Three months ended September 30, 2003 compared to three months ended September
30, 2002
Net income was $370,000 for the three months ended September 30, 2003
compared to a net loss of $791,000 for the three months ended September 30,
2002. Total revenue was up 47% for the quarter compared to the same quarter in
2002. The higher revenue was offset by an increase in loss and loss adjustment
expenses, principally for losses on claims reported in 2003, interest on Trust
Preferred Securities, and underwriting expenses.
In the third quarter of 2002, net income was reduced $814,000, after-tax, for
the increase in allowance for uncollectible premiums receivable from a
hospital-sponsored program, as discussed further in the Premium Collection
Litigation section below and a guaranty fund
11
assessment of $228,000, after tax. No similar adjustments were required in 2003.
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
Net income totaled $1.4 million for the nine months ended September 30,
2003 compared to a net loss of $59,000 for the nine months ended September 30,
2002. Total revenue increased 51% for the nine months ended September 30, 2003
compared to September 30, 2002. The higher revenue was offset by an increase in
loss and loss adjustment expense and interest on Trust Preferred Securities.
2002 results were reduced by underwriting expenses for the receivable allowance
and guaranty assessment noted in the third quarter comments above.
The net investment losses in 2002 were primarily due to an "other than
temporary" adjustment in the 2nd quarter. NCRIC held $650,000 of WorldCom bonds
in its portfolio as of June 30, 2002. In the second quarter of 2002 the company
recognized an "other than temporary" decline in value under the provisions of
SFAS 115, and accordingly recorded an after-tax loss on WorldCom bonds in the
second quarter of $524,000.
Segment results
The results of our insurance segment for the three months and nine months
ended September 30, 2003 were primarily driven by the significant increase in
new business written. The profitability of a medical professional liability
insurance policy is designed to emerge over a period of years rather than in the
year the policy is written; profits are designed to accrue through investment
income on the invested premiums and through successful settlement of claims.
In periods of rapid growth of business, current period profitability is
stressed. The significant increase in new business written, coupled with
increased premium rates, resulted in the 63% increase in net premiums earned
through the third quarter of 2003. The strain on current period earnings as a
result of the large increase in new business written in 2002 and 2003, combined
with the decline in investment returns and the increase in severity of losses,
resulted in pressure on short-term profitability.
The portfolio restructuring executed in 2003 realized investment gains on
some of our portfolio securities carrying coupon rates higher than current
market yields. An impact of this activity is to reduce the portfolio book yield,
or the income otherwise to be earned by the portfolio in future periods. The
investment gains effectively represent an acceleration of the recognition of
that portion of the securities income representing the margin of the coupon rate
over current market interest rates.
Our practice management segment produced decreased revenue primarily in
non-recurring consulting assignments. Additionally, in the third quarter of 2003
revenue was reduced somewhat by loss of some clients. Lower revenue was
partially offset by decreased expense levels principally resulting from the late
2002 retirement of two senior consultants.
Net premiums earned
Three months ended September 30, 2003 compared to three months ended September
30, 2002
12
Net premiums earned increased by $4.6 million, 59%, to $12.5 million from
$7.9 million for the three months ended September 30, 2003 and 2002,
respectively. The increase is primarily reflective of the increase in business
in force as a result of the growth from new premium written, increases in
premium rates effective with 2003 renewals, which average 29%, and the change in
risk retention level from $500,000 to $1 million effective January 1, 2003.
Gross premiums written of $20.6 million for the three months ended
September 30, 2003 increased by $6.0 million or 41% compared to the three months
ended September 30, 2002, as the result of net new business written combined
with the premium rate increase effective January 1, 2003. The following chart
shows new premium written for the third quarter (in 000's):
Three Months Ended
September 30,
------------------
2003 2002
------ ------
Direct $ 209 $1,210
Agent 3,289 3,149
Agent production in the third quarter of 2003 was 20% higher than in the second
quarter as business expanded, particularly in Delaware. Direct production
primarily comes from the District of Columbia. While direct business in the
third quarter of 2003 is ahead of the second quarter level, it is less than 2002
consistent with expectations for D.C. business.
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
Net premiums earned increased by 63% to $34.9 million from $21.4 million
for the nine months ended September 30, 2003 and 2002, respectively. The
increase is primarily reflective of 1) the growth in business in force resulting
from the new premium written, 2) the increases in premium rates effective with
2002 and 2003 renewals, which average 16% and 29%, respectively, 3) the change
in risk retention level from $500,000 to $1 million in 2003, and 4) an increase
in premium earned for extended reporting endorsements issued. Extended reporting
endorsements premium is earned in the same period as it is written.
Gross premiums written of $59.2 million for the nine months ended
September 30, 2003 increased by $16 million or 37% over the nine months ended
September 30, 2002, due to net new business written, which is new business net
of lost business, combined with the premium rate increases. The following chart
shows new business written through the third quarter (in 000's):
Nine Months Ended
September 30,
------------------
2003 2002
------ ------
Direct $ 536 $1,736
Agent 7,277 9,229
For the nine months ended September 30, 2003, new business written totaled $7.8
million. The overall level of new business produced in the first nine months of
2003 is lower than for the first nine months of 2002 due to a decision to slow
sales in the first quarter while we determined our capital availability for 2003
growth in addition to the lower level of new business in the District of
Columbia market in 2003.
13
The distribution of premium written shows notable growth in NCRIC's market
areas outside of the District of Columbia. NCRIC continues to maintain strict
underwriting standards as it expands its business. The following chart
illustrates the components of gross premium written by state for the periods
ended September 30, 2003 and 2002 (in 000's).
Nine Months Ended September 30
----------------------------------------
2003 2002
---------------- ----------------
District of Columbia $22,685 38% $20,575 47%
Virginia 17,585 30% 11,189 26%
Maryland 7,952 13% 4,751 11%
West Virginia 5,082 9% 5,432 13%
Delaware 5,853 10% 1,264 3%
------- --- ------- ---
$59,157 100% $43,211 100%
======= === ======= ===
Premium collection litigation. During 2000, it was determined that one
of NCRIC's hospital-sponsored retrospective programs would not be renewed. In
accordance with the terms of the contract, NCRIC billed the hospital sponsor,
Columbia Hospital for Women Medical Center, Inc., for premium due based on the
actual accumulated loss experience of the terminated program. Because the
original 2000 bill was not paid when due, we initiated legal proceedings to
collect. The current amount due to NCRIC for this program is $2.7 million. None
of this amount is accrued as receivable due to the pending litigation and
questionable collectability.
The case has been set for trial in the Superior Court of the District of
Columbia on January 26, 2004. On October 7, 2003, the Court denied most pretrial
motions by both parties. Because the defendant, Columbia Hospital for Women
Medical Center, Inc., has ceased doing business, sold its real estate assets,
and is in a process of liquidation, NCRIC has determined that it is unlikely to
collect any judgment it obtains in the case. The defendant has continued to
defend the case, however, and has asserted a series of counterclaims against
NCRIC, alleging that NCRIC charged improperly for premiums, committed various
business torts, and interfered with the business of the hospital. The
counterclaims do not specify the amount of damages sought. Although NCRIC
believes that the counterclaims are without merit, and will vigorously contest
such claims, no assurance can be given as to the outcome. An adverse judgment as
to the counterclaims could have a material adverse effect on the company.
Approximately $137,000 and $271,000 in legal fees were incurred during the third
quarter of 2003 and year-to-date, respectively, and additional legal fees are
expected to be incurred later in 2003 for the trial stage of litigation.
Net investment income
Three months ended September 30, 2003 compared to three months ended September
30, 2002
Net investment income increased by $213,000 for the three months ended
September 30, 2003 compared to the third quarter of 2002 due to an increase in
invested funds partially offset by a decrease in both market and book yields.
The average effective yield was approximately 4.02% for the three months ended
September 30, 2003 and 5.28% for the three months ended September 30, 2002. The
tax equivalent yield was approximately 4.33% for the third quarter of 2003 and
5.96% for the third quarter of 2002. The decrease in investment yields reflects
the market decrease in interest rates in 2003 compared to 2002.
14
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
Net investment income decreased by $150,000 for the nine months ended
September 30, 2003 compared to the first nine months of the prior year due to a
decrease in yields partially offset by an increase in invested funds. Average
invested assets, which include cash equivalents, were The average effective
yield was approximately 3.95% for the nine months ended September 30, 2003 and
5.53% for the nine months ended September 30, 2002. The tax equivalent yield was
approximately 4.41% for the first nine months of 2003 and 6.14% for the first
nine months of 2002. The decrease in investment yields reflects the market
decrease in interest rates in 2003 compared to 2002 in addition to the impact
from the portfolio restructuring executed in the first half of 2003. Securities
sold as a part of the restructuring generally had above market rate coupon rates
and were therefore sold at gains. New securities acquired brought current market
rate yields into the portfolio thereby reducing the overall portfolio yield.
This was offset in part by an increase in the average invested assets in the
portfolio due to the capital raised in the second quarter of 2003.
Net realized investment gains (losses)
Three months ended September 30, 2003 compared to three months ended September
30, 2002
The third quarter of 2003 included net realized gains of $498,000
resulting from the full deployment of the proceeds from the public offering as
well as from normal investment activity. This compares to net realized gains in
the third quarter of 2002 of $6,000.
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
The first nine months of 2003 included net realized gains of $1.9 million
resulting from portfolio restructuring done by our new investment portfolio
manager as well as from routine portfolio management activity, partially offset
by the recognition of an other than temporary impairment of $135,000 on an
investment in common stock. The circumstance giving rise to the other than
temporary impairment charge was a sharp decline in the value of the stock in
2003 which we do not expect to be temporary based on available financial
information of the issuer. 2002 realized losses of $604,000 included $557,000
for WorldCom bonds, partially due to a loss on sale and partially due to an
"other than temporary" decline in value recorded under the provisions of SFAS
115, partially offset by other net realized gains.
Practice management and related income
Revenue for practice management and related services is comprised of fees
for the services for the following categories of services: practice management,
accounting, tax and personal financial planning, retirement plan accounting and
administration, and other services.
Three months ended September 30, 2003 compared to three months ended September
30, 2002
Practice management and related revenue of $1.1 million for the three
months ended September 30, 2003 is lower by $232,000 compared to the three
months ended September 30, 2002. The decreased revenue was primarily due to
reduced level of one-time consulting assignments compared to 2002 primarily in
the HealthCare Consulting division, consistent with the declines experienced in
the previous reporting periods. Additionally, in the third quarter of
15
2003 there was some loss of clients and revenue resulting from the departure
from NCRIC of one consultant. We have not yet completed the assessment of what
impact, if any, this situation may have on future revenues and profitability.
Also, the timing of completion of some tax engagements caused a delay in
billings which we expect to recapture the fourth quarter.
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
Practice management and related revenue of $3.8 million for the nine
months ended September 30, 2003 is down from $4.4 million for the nine months
ended September 30, 2002. The decreased revenue was a result of the same factors
discussed above for the third quarter.
Other income
Other income includes revenues from insurance brokerage, insurance agency
and physician services, as well as service charge income from installment
payments for our insurance premium billings. Beginning with 2002 policy
effective dates, we provided the option to policyholders to pay their premiums
in installments throughout the policy year. A service charge is added to each
installment payment. The increase in other income in 2003 over 2002 results
primarily from the service charges on installment premium payments.
Loss and loss adjustment expenses and combined ratio results
The expense for incurred losses and LAE net of reinsurance is summarized
as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
Incurred loss and LAE related to:
Current year - losses $ 10,945 $ 6,449 $ 31,185 $ 17,304
Prior years - development 200 923 (102) 1,768
-------- -------- -------- --------
Total incurred for the period $ 11,145 $ 7,372 $ 31,083 $ 19,072
======== ======== ======== ========
Following is a summary of the ratios of losses and underwriting expenses
compared to net premiums earned:
Nine Months Ended
September 30,
-------------------
2003 2002
----- -----
Loss and LAE ratio 89.1% 89.3%
Underwriting expense ratio 20.8% 29.3%
----- -----
Combined ratio 109.9% 118.6%
Three months ended September 30, 2003 compared to three months ended September
30, 2002
Total incurred loss and LAE expense of $11.1 million for the third quarter
of 2003 increased by $3.7 million from the $7.4 million incurred for the third
quarter of 2002. The increase in
16
current year losses to $10.9 million for the third quarter of 2003 reflects 1)
the increase in the level of exposure as a result of expanding business combined
with 2) a rise in the cost of resolving claims and 3) losses associated with the
increase in retained losses under reinsurance treaties from $500,000 to
$1,000,000 as of January 1, 2003. The unfavorable development of losses reported
in prior years reflects the continuing upward pressure of severity of losses
partially offset by favorable experience on the claims closed during the
quarter. Prior years development results from the re-estimation and settlement
of individual losses not covered by reinsurance, which generally are losses
under $500,000.
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
Total incurred loss and LAE expense of $31.1 million for the first nine
months of 2003 increased by $12.0 million from the $19.1 million incurred for
the first nine months of 2002. The increase in current year losses to $31.2
million and the favorable development of prior year losses for the first nine
months of 2003 is consistent with those issues discussed above.
The combined ratio of 109.9% for the nine months ended September 30, 2003
compared to 118.6% for the first nine months of 2002 reflects the higher level
of earned premiums in relation to the increase in loss and loss adjustment
expenses, the increase in severity in current year losses, and the stable level
of core underwriting expenses after adjusting for the premium collection
litigation discussed above.
Expenses
Three months ended September 30, 2003 compared to three months ended September
30, 2002
Underwriting expenses of $2.5 million for the three months ended September
30, 2003 compare to $3.2 million for the three months ended September 30, 2002.
The decrease in expenses results from the non-recurrence of the 2002 charge for
premium collection as discussed above offset by increases in commissions,
premium taxes, and administrative costs related to the increased level of
business, particularly agent-produced business. Excluding the premium collection
charge and guaranty fund assessment in the third quarter of 2002, expenses in
the third quarter of 2003 were approximately $900,000 higher than in the third
quarter of 2002; approximately $130,000 of the increase is for legal fees for
the premium collection litigation discussed above.
Practice management and related expenses were $1.2 million for the three
months ended September 30, 2003 and $1.4 million for the three months ended
September 30, 2002. Expenses decreased primarily due to the elimination of the
client service transition expenses associated with the expiration of two
employment contracts at the end of 2002.
Interest expense in 2003 is on the Trust Preferred Securities issued in
December 2002. This debt carries interest at 400 basis points over 3-month
LIBOR. The effective annual rate at September 30, 2003 is 5.14%.
Other expenses include amounts for subsidiary and holding company
operations, which are not directly related to the issuance of medical
professional liability insurance or practice management operations. Other
expenses of $519,000 for the three months ended September 30, 2003 compare to
$366,000 for the three months ended September 30, 2002.
17
Nine months ended September 30, 2003 compared to nine months ended September 30,
2002
Underwriting expenses increased $900,000 to $7.2 million for the nine
months ended September 30, 2003 from $6.3 million for the nine months ended
September 30, 2002. The increase in expenses results from commissions, premium
taxes, and administrative costs related to the increased level of business,
particularly agent-produced business. Additionally, in the first quarter of
2003, we incurred an expense of $364,000 as a result of a fraudulent act of a
former sales agent. Although we believe it is reasonably possible that we could
incur additional expense as a result of the fraudulent act, the amount or timing
of the expense is not reasonably estimable at this time.
Practice management and related expenses totaled $3.9 million for the nine
months ended September 30, 2003 and $4.5 million for the nine months ended
September 30, 2002. Expenses decreased primarily due to the elimination of the
client service transition expenses associated with the termination of employment
of two of the former owners at the expiration of their employment contracts at
the end of 2002. Segment expenses include an intercompany allocation for
overhead items, such as board and senior management oversight, and
administrative services. Through the first three quarters, such expenses totaled
$567,000 in 2003 and $576,000 in 2002.
Interest expense in 2003 is on the Trust Preferred Securities issued in
December 2002. This debt carries interest at 400 basis points over 3-month
LIBOR. The effective annual rate at September 30, 2003 is 5.14%.
Other expenses include amounts for subsidiary and holding company
operations, which are not directly related to the issuance of medical
professional liability insurance or practice management operations. Other
expenses of $1.4 million for the nine months ended September 30, 2003 compare to
$1.2 million for the nine months ended September 30, 2002. Expense increases are
primarily for holding company costs.
Federal income taxes
The effective tax rate for NCRIC at 18% for the nine months ended
September 30, 2003 is lower than the federal statutory rate principally due to
nontaxable investment income. For the nine months ended September 30, 2002, the
company had a tax benefit of $476,000 due to a pretax loss of $535,000. The
difference in rates between 2003 compared to 2002 is principally a result of the
increase in pre-tax income.
Financial condition, liquidity and capital resources
Liquidity. The primary sources of liquidity are insurance premiums, net
investment income, practice management and financial services fees, recoveries
from reinsurers and proceeds from the maturity or sale of invested assets. Funds
are used to pay claims, LAE, operating expenses, reinsurance premiums and taxes,
and to purchase investments.
For the nine months ended September 30, 2003, we had cash flows from operations
of $15.5 million compared to $2.4 million for the corresponding period of 2002.
The $13.1 million of increased cash flow results primarily from higher net
premium receipts. This increased cash flow from premiums was partially offset by
higher payments for claims and LAE. Because of
18
the long-term nature of both the payments of claims and the settlement of
swing-rated reinsurance premiums due to the reinsurers, cash from operations for
a medical professional liability insurer like NCRIC can vary substantially from
period to period.
Second Step Conversion and Public Offering. On June 24, 2003, a plan of
conversion and reorganization was approved by the members of NCRIC, A Mutual
Holding Company and by the shareholders of NCRIC Group, Inc. In the conversion
and related stock offering, the Mutual Holding Company offered for sale its 60%
ownership interest in NCRIC Group. As a result of the conversion and stock
offering, the Mutual Holding Company ceased to exist, and NCRIC Group became a
fully public company.
In the conversion and stock offering, 4,143,701 shares of the common stock of
NCRIC Group were sold to Eligible Members, Employee Benefit Plans, Directors,
Officers and Employees and to members of the general public in a Subscription
and Community Offering at $10.00 per share. The Subscription stock offering
period expired on June 16, 2003. All stock purchase orders received in the
offering were satisfied.
As part of the conversion, 2,778,144 shares were issued to the former public
stockholders of NCRIC Group. The exchange ratio was 1.8665 new shares for each
share of NCRIC Group held by public stockholders as of the close of business on
June 25, 2003. Accordingly, after the conversion, NCRIC Group had 6,921,845
shares outstanding. Please see Note 2 in the notes to condensed consolidated
financial statements - unaudited, for additional information.
Financial condition and capital resources. Cash flow from operations, the
proceeds from the stock offering and the proceeds of maturing investments have
primarily been invested in mortgage-backed, corporate and tax-exempt fixed
income securities. Additionally, in late June a strategic allocation was made to
large-cap and mid-cap equity securities which resulted in the 4% equity
allocation as of September 30, 2003.
As of September 30, 2003, the carrying value of the securities portfolio
was $167.1 million. The portfolio was invested as follows:
At September 30, At December 31,
2003 2002
---------------- ---------------
U. S. Government and agencies ............ 14% 23%
Asset and mortgage-backed securities ..... 38 28
Tax-exempt securities .................... 21 27
Corporate bonds .......................... 23 17
Equity securities ........................ 4 5
At September 30, 2003, over 79% of the portfolio was invested in U.S.
Government and agency securities or had a rating of AAA or AA. For regulatory
purposes, 93% of the fixed income securities portfolio was rated "Class 1",
which is the highest quality rated group as classified by the NAIC. The
accumulated other comprehensive income totaled $1.4 million at September 30,
2003, compared to $2.8 million at December 31, 2002. At September 30, 2003, the
gross unrealized investment gains totaled $3.3 million and the gross unrealized
investment losses totaled $1.3 million, with no concentration of unrealized loss
in any security or industry.
NCRIC has no material commitments for capital expenditures.
19
During 2001, NCRIC MSO, Inc. borrowed $1,971,000 from SunTrust Bank to
finance the contingent purchase payments from the 1999 acquisition of three
companies. The term of the loan is three years at a floating rate of LIBOR plus
one and one-half percent. At September 30, 2003, the interest rate was 2.64%.
Principal and interest payments are due on a monthly basis.
In December, 2002, NCRIC Group issued trust preferred securities in the
amount of $15 million in a pooled transaction to unrelated investors. This debt
has a maturity of 30 years, and bears interest at an annual rate equal to
three-month LIBOR plus 4.0%, payable quarterly beginning March 4, 2003. Interest
is adjusted on a quarterly basis provided that prior to December 4, 2007, this
interest rate shall not exceed 12.50%. The debt is callable by NCRIC at par
beginning December 4, 2007.
Effects of inflation
The primary effect of inflation is in estimating reserves for unpaid
losses and LAE for medical professional liability claims in which there is a
long period between reporting and settlement. The rate of inflation for
malpractice claim settlements can substantially exceed the general rate of
inflation. The actual effect of inflation on our results cannot be conclusively
known until claims are ultimately settled. Based on actual results to date, we
believe that losses and LAE reserve levels and our ratemaking process adequately
incorporate the effects of inflation.
Forward-Looking Information
A number of statements made in this document are forward-looking
statements which involve known and unknown risks and uncertainties which may
cause our actual results to be materially different from historical results or
from the results expressed or implied by the forward-looking statements. These
forward-looking statements are subject to significant risks, assumptions and
uncertainties, including, among other things, the following important factors
that could affect the actual outcome of future events:
o general economic conditions, either nationally or in our market area, that
are worse than expected;
o inflation and changes in the interest rate environment and performance of
financial markets;
o adverse changes in the securities markets;
o changes in laws or government regulations affecting medical professional
liability insurance and practice management and financial services;
o NCRIC, Inc.'s concentration in a single line of business;
o impact of managed healthcare;
o uncertainties inherent in the estimate of loss and loss adjustment expense
reserves and reinsurance;
o price competition;
o changes to our ratings assigned by A.M. Best;
o the cost and availability of reinsurance;
o our ability to successfully integrate acquired entities;
o changes in accounting policies and practices, as may be adopted by our
regulatory agencies and the Financial Accounting Standards Board; and
o changes in our organization, compensation and benefit plans.
Other factors not currently anticipated by management may also materially
and adversely affect our results of operations.
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our investment portfolio is exposed to various market risks, including
interest rate and equity price risk. Market risk is the potential for financial
losses due to the decrease in the value or price of an asset resulting from
broad movements in prices. At September 30, 2003, fixed maturity securities
comprise 96% of total investments at market value. U.S. Government and
tax-exempt bonds represent 35% of the fixed maturity securities. Equity
securities, consisting of common stock, account for the remainder of the
investment portfolio. We have classified our investments as available for sale.
Because of the high percentage of fixed maturity securities, interest rate
risk represents the highest exposure we have on our investment portfolio. In
general, the market value of our fixed maturity portfolio increases or decreases
in an inverse relationship with fluctuation in interest rates. During periods of
rising interest rates, the fair value of our investment portfolio will generally
decline resulting in decreases in our stockholders' equity. Conversely, during
periods of falling interest rates, the fair value of our investment portfolio
will generally increase resulting in increases in our stockholders' equity. In
addition, our net investment income increases or decreases in a direct
relationship with interest rate changes on monies reinvested from maturing
securities and investments of positive cash flow from operating activities.
While interest rates have continued at a low level during the first nine
months of 2003, we have seen a small increase in rates. Interest rate levels
resulted in a decrease in the value of our fixed maturity portfolio. At
September 30, 2003, our total portfolio was valued at $2.1 million above
amortized cost. At December 31, 2002, the value of the total portfolio was $4.3
million above amortized cost.
Generally, the longer the duration of the security, the more sensitive the
asset is to market interest rate fluctuations. To control the adverse effects of
the changes in interest rates, our investment portfolio of fixed maturity
securities consists primarily of intermediate-term, investment-grade securities.
Our investment policy also provides that all security purchases be limited to
rated securities or unrated securities approved by management on the
recommendation of our investment advisor. Approximately 74% of the portfolio is
Treasury or Agency related or rated AAA, the highest rating for a security.
During the nine months ended September 30, 2003, there was a change in the
allocation of our portfolio increasing the percentage of asset and mortgage
backed securities to 38% of the total fixed maturity securities compared to 28%
at December 31, 2002. Management of NCRIC, along with NCRIC's external
investment managers, seeks to maximize after-tax yields while minimizing
portfolio credit risk. The decision to reallocate the portfolio as recommended
by the new portfolio manager was based on this goal.
One common measure of the interest sensitivity of fixed maturity securities is
effective duration. Effective duration utilizes maturities, yields, and call
terms to calculate an average age of expected cash flows. The following table
shows the estimated fair value of NCRIC's fixed maturity portfolio based on
fluctuations in the market interest rates.
21
Projected Market Value
Yield Change (bp) Market Yield (in thousands)
----------------- ------------ --------------
-300 0.83% $183,405
-200 1.83% 175,751
-100 2.83% 168,098
Current Yield** 3.83% 160,445
100 4.83% 152,792
200 5.83% 145,139
300 6.83% 137,485
**Current yield is as of September 30, 2003.
Item 4. Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
the Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of the end of the period covered by this quarterly
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
quarterly report, the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed in the reports that the
Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no changes
in the Company's internal controls over financial reporting during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, these controls over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
See the Form 10-K for the fiscal year ended December 31, 2002 for
information on pending litigation. Additionally, see the update in the premium
collection litigation section above in Item 2 of Part I.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 31.1 and 31.2 - Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
(b) Exhibit 32 - Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(c) Filings on Form 8-K during the quarter ending September 30, 2003:
22
1) On July 29, 2003 the Company filed a Form 8-K pursuant to Item 9
Regulation FD disclosure announcing the updated market share
complied and published by A.M. Best Company for medical professional
liability insurance for 2002.
2) On August 13, 2003 the Company filed a Form 8-K pursuant to Item 5
issued a press release relating to its quarterly earnings for the
quarter ended June 30, 2003.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NCRIC Group, Inc.
November 13, 2003 /s/ R. Ray Pate, Jr.
--------------------------------------------
R. Ray Pate, Jr.,
President & Chief Executive Officer
(Duly Authorized Officer)
November 13, 2003 /s/ Rebecca B. Crunk
--------------------------------------------
Rebecca B. Crunk,
Sr. Vice President & Chief Financial Officer
(Principal Financial Officer)
24