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 March 31, 2001
Commission File Number: 0-25505
NCRIC Group, Inc.
-------------------
District of Columbia 52-2134774
- ------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1115 30th Street, NW, Washington, D.C. 20007
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(Address of principal executive offices) (Zip Code)
202-969-1866
------------
(Issuer's telephone number, including area code)
Check 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of May 1, 2001, there
were 3,714,455 shares of NCRIC Group, Inc. common stock outstanding.
Table of Contents
PART I. Financial Information Page
Item 1. Condensed Consolidated Financial Statements (unaudited)
NCRIC Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets........................ 3
Condensed Consolidated Statements of Operations.............. 4
Condensed Consolidated Statements of Cash Flows.............. 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis......................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 14
PART II. Other Information
Item 1. Legal Proceedings............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 16
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
- -------------------------------------------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
(unaudited)
ASSETS
INVESTMENTS:
Securities available for sale, at fair value:
Bonds and U.S. Treasury Notes $ 90,035 $ 91,482
Equity securities 6,836 6,563
--------- ---------
Total securities available for sale 96,871 98,045
OTHER ASSETS:
Cash and cash equivalents 12,182 3,972
Reinsurance recoverable 27,274 27,549
Goodwill, net 6,133 6,218
Deferred income taxes 2,065 1,918
Other assets 10,419 8,162
--------- ---------
TOTAL ASSETS $ 154,944 $ 145,864
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Losses and loss adjustment expenses:
Losses $ 54,771 $ 55,785
Loss adjustment expenses 24,888 25,349
--------- ---------
Total losses and loss adjustment expenses 79,659 81,134
Other liabilities:
Retrospective premiums accrued under
reinsurance treaties 3,604 5,478
Unearned premiums 19,382 11,472
Bank debt 1,000 --
Other liabilities 7,889 6,331
--------- ---------
TOTAL LIABILITIES 111,534 104,415
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value - 10,000,000 shares authorized; 3,725,355
shares issued and outstanding (net of 17,500
treasury shares) 37 37
Additional paid in capital 9,465 9,455
Unallocated common stock held by the ESOP (863) (889)
Common stock held by the stock award plan (442) (476)
Accumulated other comprehensive income (loss) 217 (744)
Retained earnings 35,127 34,197
Treasury stock, at cost (131) (131)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 43,410 41,449
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,944 $ 145,864
========= =========
See notes to condensed consolidated financial statements.
3
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED (IN THOUSANDS EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------
Three Months Ended March 31,
2001 2000
REVENUES:
Net premiums earned $4,812 $3,629
Net investment income 1,558 1,594
Net realized investment gains 95 --
Practice management and related income 1,538 1,375
Other income 144 102
------ ------
Total revenues 8,147 6,700
------ ------
EXPENSES:
Losses and loss adjustment expenses 3,839 2,989
Underwriting expenses 1,269 940
Practice management expenses 1,339 1,214
Other expenses 328 286
------ ------
Total expenses 6,775 5,429
------ ------
INCOME BEFORE INCOME TAXES 1,372 1,271
INCOME TAX PROVISION 442 393
------ ------
NET INCOME $ 930 $ 878
====== ======
OTHER COMPREHENSIVE INCOME GAIN 961 $ 333
------ ------
COMPREHENSIVE INCOME $1,891 $1,211
====== ======
Net income per common share:
Basic $ 0.26 $ 0.25
Diluted $ 0.26 $ 0.25
See notes to condensed consolidated financial statements.
4
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 930 $ 878
Adjustments to reconcile net income
to net cash flows from operating activities:
Net realized investment gains (95) --
Amortization and depreciation 181 155
Deferred income taxes (642) 707
Stock released for coverage of benefit plans 70 --
Changes in assets and liabilities:
Reinsurance recoverable 275 1,501
Other assets (2,233) (3,396)
Losses and loss adjustment expenses (1,475) (3,348)
Retrospective premiums accrued under
reinsurance treaties (1,874) (298)
Unearned premiums 7,911 6,949
Other liabilities (87) (1,918)
-------- --------
Net cash flows provided by operating activities 2,961 1,230
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (3,939) (7,415)
Sales, maturities and redemptions of investments 9,858 7,962
Investment in purchased business (1,550) --
Purchases of property and equipment (120) (158)
-------- --------
Net cash flows provided by investing activities 4,249 389
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,000 --
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,210 1,619
-------- --------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,972 5,407
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 12,182 $ 7,026
======== ========
SUPPLEMENTARY INFORMATION:
Cash paid for income taxes $ 100 $ --
======== ========
See notes to condensed consolidated financial statements
5
NCRIC GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - 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-month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2001. 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, 2000, which were
filed with the Securities and Exchange Commission on Form 10-K.
2. Reportable Segment Information
NCRIC Group 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.
Selected financial data is presented below for each business segment at or
for the three-month periods ended March 31, 2001 and 2000 (in thousands):
At or For the Three Months
Ended March 31,
---------------------------
2001 2000
Insurance ------- -------
Revenues from external customers $ 4,938 $ 3,713
Net investment income 1,541 1,571
Depreciation and amortization 55 58
Segment profit before taxes 1,407 1,265
Segment assets 147,223 137,537
Segment liabilities 109,870 106,221
Expenditures for segment assets 67 144
6
At or For the Three Months
Ended March 31,
---------------------------
2001 2000
Practice Management Services ------- -------
Revenues from external customers $ 1,558 $ 1,393
Net investment income 19 16
Depreciation and amortization 126 97
Segment profit before taxes 230 `187
Segment assets 8,239 6,481
Segment liabilities 2,769 1,044
Expenditures for segment assets 53 14
Total
Revenues from external customers $ 6,496 $ 5,106
Net investment income 1,560 1,587
Depreciation and amortization 181 155
Segment profit before taxes 1,637 1,452
Segment assets 155,462 144,018
Segment liabilities 112,639 107,265
Expenditures for segment assets 120 158
The following are reconciliations of reportable segment revenues, net
investment income, assets, liabilities, and profit before taxes to NCRIC
Group's Company's consolidated totals (in thousands):
At or For the Three Months
Ended March 31,
----------------------
2001 2000
--------- ---------
Revenues:
Total revenues for reportable segments $ 6,496 $ 5,106
Elimination of intersegment revenues (2) --
--------- ---------
Consolidated total $ 6,494 $ 5,106
========= =========
Net investment income:
Total investment income for reportable segments $ 1,560 $ 1,587
Elimination of intersegment income (2) --
Other unallocated amounts -- 7
--------- ---------
Consolidated total $ 1,558 $ 1,594
========= =========
Profit before taxes:
Total profit for reportable segments $ 1,637 $ 1,452
Other unallocated amounts (265) (181)
--------- ---------
Consolidated total $ 1,372 $ 1,271
========= =========
Assets:
Total assets for reportable segments $ 155,462 $ 144,018
Elimination of intersegment receivables (1,213) (915)
Elimination of affiliate receivables 295 --
Other unallocated amounts 400 441
--------- ---------
Consolidated total $ 154,944 $ 143,544
========= =========
7
At or For the Three Months
Ended March 31,
------------------------
2001 2000
--------- ---------
Liabilities:
Total liabilities for reportable segments $ 112,639 $ 107,265
Elimination of intersegment payables (1,213) (915)
Other liabilities 108 159
--------- ---------
Consolidated total $ 111,534 $ 106,509
========= =========
3. 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
March 31,
--------------------------
2001 2000
------ ------
Net income $ 930 $ 878
====== ======
Weighted average common
shares outstanding - basic 3,526 3,529
Dilutive effect of stock options
and awards 88 9
------ ------
Weighted average common
shares outstanding - diluted 3,614 3,538
====== ======
Net income per common share:
Basic $ 0.26 $ 0.25
====== ======
Diluted $ 0.26 $ 0.25
====== ======
4. Outstanding Bank Debt
During March 2001, NCRIC MSO, Inc. borrowed $1 million from SunTrust Bank
to finance a portion of the $1.55 million contingent purchase payment
related to the 1999 acquisition of HealthCare Consulting, Inc., HCI
Ventures, LLC, and the assets of Employee Benefits Services, Inc. The term
of the loan is 5 years at a floating rate of LIBOR plus 175 basis points.
5. Treasury Stock
On April 17, 2001, NCRIC Group repurchased 10,900 shares of its stock at a
price of $8.75 per share. The repurchased shares of Common Stock will be
recorded as Treasury Stock which will be reported as a reduction of
Stockholders' Equity.
8
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 the 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.
In April, NCRIC announced its formation of American Captive Corporation
(ACC), a wholly owned subsidiary and the first captive insurance company to be
licensed in the District of Columbia under the Captive Insurance Act of 2000. As
a captive insurance company, ACC was established to provide an alternative risk
financing vehicle for affinity groups. The captive program will be marketed to
organizations and groups wishing to finance and manage their own risk.
Consolidated net income
Three months ended March 31, 2001 compared to three months ended March 31, 2000
Net income of $930,000 for the three months ended March 31, 2001 increased
6% from $878,000 for the three months ended March 31, 2000. Both operating
segments contributed to the improved results with the Practice Management
Services Segment up 23% and the Insurance Segment up 11%. The 2001 Insurance
Segment results include $95,000 (pre-tax) from net realized investment gains.
Net premiums earned
Net premiums earned increased by 33% to $4.8 million from $3.6 million for
the three months ended March 31, 2001 and 2000, respectively. The increase is
primarily reflective of the increase in policies in force as the result of new
business written combined with the increase in premium rates effective with
policy anniversary dates in 2001. Additionally, net premiums earned through
March 31, 2001, includes an increase of $182,000 over March 31, 2000, due to
higher loss experience in the retrospective programs. Under these programs,
additional premiums are either earned or returned based on a group's loss
experience.
9
Gross premiums written of $14.8 million for the three months ended March
31, 2001 increased by $3.7 million from $11.1 million for the three months ended
March 31, 2000, due to net new business written combined with the premium rate
increase and some changes in policy effective dates to January 1. The mix of
business produced directly by NCRIC versus by agents has changed between years
as shown on the following chart of new gross written premium. The proportion of
business produced by NCRIC's independent agency force has increased to 87% of
total new business written in the first quarter of 2001 from 51% during the same
period in 2000.
Three Months Ended
March 31,
----------------------------------
2001 2000
------------ -----------
Direct $ 345,000 $ 480,000
Agent 2,391,000 498,000
While insurance in force continues to follow the historic pattern of
insuring risks concentrated in the District of Columbia, there has been notable
growth in net earned premium in Virginia, largely as the result of sales by
agents and to clients of the Practice Management Services Segment. For the three
months ended March 31, 2001, net earned premiums from Virginia totaled
approximately $874,000, an increase of $553,000 over the total of approximately
$321,000 for the three months ended March 31, 2000.
During 2000, it was determined that one of NCRIC's hospital-sponsored
retrospective programs would not be renewed. Under this type of risk sharing
program, physicians are underwritten directly by NCRIC and pay lower individual
premiums than if not part of the risk-sharing program. At the end of the policy
year covered by the premium, a review of the actual loss experience of the
physician group is completed. Should the group's loss experience be unfavorable,
NCRIC will require additional premium payments from the sponsoring hospital to
offset the unfavorable losses.
Based on the actual accumulated loss experience of the terminated program
through September 1, 2000, NCRIC billed the hospital sponsor $1.3 million under
terms of the contract based on actual loss experience through the termination
date. Additionally, based on the continuing development of loss experience
through the first quarter of 2001, $398,000 of net premiums earned has been
accrued related to additional amounts due to NCRIC from the hospital sponsor.
Because the original 2000 bill was not paid when due, NCRIC initiated legal
proceedings to collect. NCRIC will use all means legally available to collect
the amount it is due. Although NCRIC believes that it will prevail, since the
premium amount is disputed, an allowance for uncollectibility has been
established and is included in underwriting expense. The ultimate outcome cannot
be determined at this time.
Net investment income
Net investment income decreased by $36,000 for the three months ended March
31, 2001 compared to the first quarter of 2000 due to a decrease in yields
partially offset by an increase in invested funds. The average effective yield
was approximately 5.93% for the three months ended March 31, 2001 and 6.25% for
the three months ended March 31, 2000. The tax equivalent yield was
approximately 6.39% for the first quarter of 2001 and 6.58% for the first
quarter of 2000. The decrease in investment yields reflects the market decrease
in interest rates in 2001 compared to 2000.
10
Practice management and related revenue
Revenue for practice management and related services is comprised of fees
for the services shown in the following chart.
Three Months Ended March 31,
----------------------------
2001 2000
----- -----
Practice management 42% 43%
Accounting 28% 28%
Tax & personal financial planning 10% 10%
Retirement plan accounting & admin 13% 14%
Other 7% 5%
----- -----
Total 100% 100%
===== =====
Practice management and related revenue of $1.5 million for the three
months ended March 31, 2001 is up from $1.4 million for the three months ended
March 31, 2000. The increase results from both recurring fee business and
one-time consulting assignments.
Loss and loss adjustment expenses and combined ratio results
While NCRIC continues to experience pressure from the rise in severity of
losses, it continues to take a cautious approach in establishing and evaluating
reserves. The expense for incurred losses and LAE net of reinsurance is
summarized as follows:
Three months Ended March 31,
-------------------------------
2001 2000
--------- --------
(in thousands)
Incurred loss and LAE related to:
Current year - losses $ 5,031 $ 3,786
Prior years - development (1,192) (797)
-------- --------
Total incurred for the period $ 3,839 $ 2,989
======== ========
Following is a summary of the ratios of losses and underwriting expenses
compared to net premiums:
Three months Ended March 31,
----------------------------
2001 2000
-------- --------
Loss and LAE ratio 79.8% 82.4%
Underwriting expense ratio 26.4% 25.9%
Combined ratio 106.2% 108.3%
11
Total incurred loss and LAE expense of $3.8 million for the first quarter
of 2001 increased by $850,000 from the $3.0 million incurred for the first
quarter of 2000. The increase in current year losses to $5.0 million for the
first quarter of 2001 reflects the increase in the level of exposure through
increased insurance in force. NCRIC experienced favorable development on
estimated losses for prior years' claims in both 2001 and 2000. Prior year
development results from the re-estimation and settlement of individual losses
not covered by reinsurance, which generally are losses under $500,000.
The combined ratio of 106.2% for the three months ended March 31, 2001 is
down from the level for the previous year's first quarter as the result of the
increase in net earned premiums. The increase in the underwriting expense
component of the ratio results from the addition to the allowance for
uncollectible premiums receivable, largely offset by the increase in net earned
premium.
Expenses
Underwriting expenses increased $329,000 to $1,269,000 for the three months
ended March 31, 2001 from $940,000 for the three months ended March 31, 2000.
The increase in expenses primarily stems from (1) the increase in new business,
particularly agent produced business, through increases in commissions and other
underwriting costs, and (2) an increase in the allowance for uncollectible
premiums. The mix of business produced by NCRIC's independent agency force has
increased to 87% of new business written for the three months ended March 31,
2001 from 51% for the three months ended March 31, 2000.
Practice management and related expenses of $1.3 million for the three
months ended March 31, 2001 and $1.2 million for the three months ended March
31, 2000 consisted primarily of salaries and benefits, other general office
expenses and goodwill amortization.
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 $328,000 for the three months ended March 31, 2001 compare to
$286,000 for the three months ended March 31, 2000. Other expenses for the first
quarter of 2001 include $13,000 of start-up expenses for the new captive
insurance company subsidiary.
Federal income taxes
The effective tax rate for NCRIC at 32% is lower than the federal statutory
rate principally due to nontaxable investment income.
12
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 three months ended March 31, 2001, NCRIC had cash provided by
operations of $3.0 million compared to $1.2 million for the corresponding period
of 2000. The increased level of positive cash flow in 2001 compared to 2000
resulted primarily from increased premiums combined with a steady level of
payments of losses and LAE. Because of 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 year to year.
Financial condition and capital resources. Cash flow from operations and
the proceeds of maturing investments have primarily been invested in government
and tax-exempt securities. As of March 31, 2001, the carrying value of the
securities portfolio was $96.9 million, a decrease of $1.2 million from December
31, 2000. The portfolio was invested as follows:
At March 31, At December 31,
2001 2000
---- ----
U. S. Government and agencies............. 9% 14%
Asset and mortgage-backed securities...... 30 32
Tax-exempt securities..................... 18 16
Corporate bonds and equity securities..... 43 38
Over 73% of the portfolio was invested in U.S. Government/agency securities
or had a rating of AAA or AA. For regulatory purposes, 89% of the securities
portfolio was rated "Class 1" for all periods presented, which is the highest
quality rated group as classified by the NAIC.
The $2.5 million line of credit available as of March 31, 2001 is
restricted to working capital for claims settlements. The line of credit is
unsecured and renewable annually. NCRIC has not drawn down on this facility.
NCRIC has no other material commitments for capital expenditures. Under terms of
the purchase agreement between NCRIC and the previous owners of HealthCare
Consulting, Inc., HCI Ventures, LLC, and Employee Benefits Services, Inc.,
contingency payments totaling $3.1 million could be paid in cash if the acquired
companies achieve earnings targets in 2000, 2001, and 2002. During 2000, the
earnings target was met and NCRIC paid the prior owners $1.55 million on March
30, 2001. During March, 2001, SunTrust Bank approved a loan to NCRIC in the
amount of $1,000,000 at an annual rate equal to LIBOR plus one and three-quarter
percent to finance the 2001 contingency payment.
Effects of inflation
The primary effect of inflation on NCRIC 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 NCRIC's results cannot be
conclusively known until claims are ultimately settled. Based on actual results
to date, NCRIC believes that losses and LAE reserve levels and NCRIC's
ratemaking process adequately incorporate the effects of inflation.
13
Forward-Looking Information
A number of statements made by NCRIC in this document are forward-looking
statements which involve known and unknown risks and uncertainties which may
cause NCRIC's actual results to be materially different from historical results
or from the results expressed or implied by the forward-looking statements.
These risks and uncertainties include:
o general economic conditions including changes in interest rates and
the performance of financial markets;
o NCRIC, Inc.'s concentration in a single line of business primarily in
the District of Columbia;
o the impact of managed healthcare;
o uncertainties inherent in the estimate of loss and loss adjustment
expense reserves and reinsurance;
o price competition;
o uncertainties associated with expanding business in new market areas,
including uncertainties associated with claims adjudication
experience;
o regulatory changes;
o ratings assigned by A.M. Best;
o the availability of bank financing and reinsurance;
o the mutual insurance holding company structure; and
o uncertainties associated with NCRIC Group's acquisition strategy.
Other factors not currently anticipated by management may also materially
and adversely affect NCRIC's results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
NCRIC's 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 March 31, 2001, fixed maturity securities comprise
93% of total investments at market value. U.S. government and agencies and
tax-exempt bonds represent 29% of the fixed maturity securities. Equity
securities, consisting primarily of preferred stock, account for the remainder
of the investment portfolio. NCRIC has classified its investments as available
for sale.
Because of the high percentage of fixed maturity securities, interest rate
risk represents the highest exposure NCRIC has on its investment portfolio. In
general, the market value of NCRIC's 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 NCRIC's investment portfolio
will generally decline resulting in decreases in NCRIC's stockholders' equity.
Conversely, during periods of falling interest rates, the fair value of NCRIC's
investment portfolio will generally increase resulting in increases in NCRIC's
stockholders' equity. In addition, NCRIC's 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.
14
Interest rates have decreased during the first three months of 2001,
resulting in an increase in the value of treasury bonds and improving the
carrying value of NCRIC's fixed maturity portfolio. At March 31, 2001, NCRIC's
fixed maturities were valued at $328,000 above amortized cost. At December 31,
2000, the value of the portfolio was $1.1 million below 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, NCRIC's investment portfolio of fixed maturity
securities consists primarily of intermediate-term, investment-grade securities.
NCRIC's investment policy also provides that all security purchases be limited
to rated securities or unrated securities approved by management on the
recommendation of NCRIC's investment advisor. Approximately 61% of the portfolio
is Treasury or Agency related or rated AAA, the highest rating for a security.
During the three months ended March 31, 2001, there was a change in the
allocation of NCRIC's portfolio increasing the percentage of tax-exempt and
corporate bonds to 59% of the total fixed maturity securities compared to 51% at
December 31, 2000. This has the potential to increase the market risk as less of
the portfolio is backed by the U.S. Government. 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
funds became available was based on this goal.
PART II OTHER INFORMATION
Item 1. Legal proceedings.
See the Form 10-K for the fiscal year ended December 31, 2000 for
information on pending litigation.
15
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.2 Amended Bylaws of NCRIC Group, Inc.
10.17 Amendment to Employment Agreement between NCRIC Group, Inc.
and R. Ray Pate, Jr.
10.18 Amendment to Employment Agreement between NCRIC Group, Inc.
and Rebecca B. Crunk
(b) Reports on Form 8-K
NCRIC Group, Inc. did not file any reports on Form 8-K during the
quarter ended March 31, 2001.
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.
May 9, 2001 /s/ R. Ray Pate, Jr.
-----------------------------------------------------
R. Ray Pate, Jr., President & Chief Executive Officer
(Duly Authorized Officer)
May 9, 2001 /s/ Rebecca B. Crunk
------------------------------------------------------
Rebecca B. Crunk, Sr. Vice President &
Chief Financial Officer
(Principal Financial Officer)
16