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 June 30, 2004
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 August 2, 2004, there
were 6,899,965 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)
- ------------------------------------------------------------------------------
June 30, 2004 December 31, 2003
ASSETS (unaudited)
INVESTMENTS:
Securities available for sale, at fair value:
Bonds and U.S.Treasury Notes (Amortized cost $171,062 and $161,876) $ 167,904 $ 162,744
Equity securities (Book value $18,513 and $10,269) 19,882 11,613
--------- ---------
Total securities available for sale 187,786 174,357
OTHER ASSETS:
Cash and cash equivalents 4,215 9,978
Reinsurance recoverable 53,093 48,100
Goodwill, net 7,296 7,296
Premiums and accounts receivable, net 6,375 9,333
Deferred income taxes 7,189 5,307
Other assets 8,201 8,175
--------- --------
TOTAL ASSETS $ 274,155 $ 262,546
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Losses and loss adjustment expenses:
Losses $ 92,980 $ 87,778
Loss adjustment expenses 41,589 38,213
--------- ---------
Total losses and loss adjustment expenses 134,569 125,991
Other liabilities:
Retrospective premiums accrued under
reinsurance treaties 420 1,809
Unearned premiums 41,733 34,553
Advance premium 2,153 3,110
Reinsurance premium payable 403 1,538
Bank debt - 289
Trust Preferred Securities 15,000 15,000
Other liabilities 4,125 2,277
--------- ---------
TOTAL LIABILITIES 198,403 184,567
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value - 12,000,000 shares authorized; 6,899,965
shares issued and outstanding (net of 33,339 treasury shares) at June
30, 2004; 6,898,865 shares issued and outstanding
(net of 33,339 treasury shares) at December 31, 2003 70 70
Preferred stock $0.01 par value - 1,000,000 shares authorized, 0 shares issued -- --
Additional paid in capital 49,023 48,962
Unallocated common stock held by the ESOP (2,547) (2,616)
Common stock held by the stock award plan (1,394) (1,594)
Accumulated other comprehensive income (loss) (1,181) 1,461
Retained earnings 32,131 32,046
Treasury stock, at cost (350) (350)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 75,752 77,979
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 274,155 $ 262,546
========= =========
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 June 30, Six Months Ended June 30,
2004 2003 2004 2003
REVENUES:
Net premiums earned $ 15,580 $ 10,962 $ 31,730 $ 22,411
Net investment income 1,908 1,389 3,578 2,711
Net realized investment gains 83 1,155 416 1,354
Practice management and related income 1,092 1,277 2,316 2,652
Other income 188 360 425 713
--------- -------- -------- --------
Total revenues 18,851 15,143 38,465 29,841
--------- -------- -------- --------
EXPENSES:
Losses and loss adjustment expenses 14,136 10,355 27,211 19,938
Underwriting expenses 3,406 2,234 6,939 4,705
Practice management expenses 1,245 1,289 2,479 2,692
Interest expense 205 204 407 405
Other expense 729 395 1,681 837
--------- -------- -------- ---------
Total expenses 19,721 14,477 38,717 28,577
--------- -------- -------- ---------
INCOME (LOSS) INCOME BEFORE TAXES (870) 666 (252) 1,264
INCOME TAX (BENEFIT) PROVISION (433) 124 (337) 208
--------- -------- -------- ---------
NET INCOME (LOSS) $ (437) $ 542 $ 85 $ 1,056
========= ======== ======== =========
OTHER COMPREHENSIVE INCOME (LOSS) (4,278) 353 (2,642) 216
--------- -------- -------- ---------
COMPREHENSIVE INCOME (LOSS) $ (4,715) $ 895 $ (2,557) $ 1,272
========= ======== ======== =========
Net income (loss) per common share:
Basic:
Average shares outstanding 6,342 6,660 6,340 6,669
--------- ------- -------- ---------
Earnings per Share $ (0.07) $ 0.08 $ 0.01 $ 0.16
========= ======= ======== =========
Diluted:
Weighted average shares outstanding 6,342 6,660 6,340 6,669
Dilutive effect of stock options 272 157 274 146
--------- ------- -------- ---------
Weighted average shares outstanding - diluted 6,614 6,817 6,614 6,815
--------- ------- -------- ---------
Earnings per Share $ (0.07) $ 0.08 $ 0.01 $ 0.15
========= ======= ======== =========
See notes to condensed consolidated financial statements.
3
NCRIC GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
- ------------------------------------------------------------------------------
Six Months Ended June 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 85 $ 1,056
Adjustments to reconcile net income
to net cash flows from operating activities:
Net realized investment gains (416) (1,354)
Amortization and depreciation 984 552
Deferred income taxes (521) (616)
Stock released for coverage of benefit plans 330 191
Changes in assets and liabilities:
Reinsurance recoverable (4,993) (4,190)
Premiums and accounts receivables 2,958 (4,560)
Other assets 325 (424)
Losses and loss adjustment expenses 8,578 8,419
Retrospective premiums accrued under
reinsurance treaties (1,389) --
Unearned premiums 7,180 9,423
Advanced premium (957) (1,740)
Reinsurance premium payable (1,135) (2,254)
Other liabilities 1,848 2,493
--------- ----------
Net cash flows provided by operating activities 12,877 6,996
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (69,348) (121,722)
Sales, maturities and redemptions of investments 51,651 82,857
Purchases of property and equipment (654) (149)
--------- ----------
Net cash flows used in investing activities (18,351) (39,014)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from public stock offering -- 35,784
Repayment of long-term debt (289) (349)
--------- ----------
Net cash flows provided by (used in) financing activities (289) 35,435
--------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,763) 3,417
--------- ----------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 9,978 10,550
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,215 $ 13,967
========= ==========
SUPPLEMENTARY INFORMATION:
Cash paid for income taxes $ (1,666) $ 1,200
========= ==========
Cash paid for interest $ 408 $ 421
========= ==========
See notes to condensed consolidated financial statements.
4
NCRIC GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the three and six-month periods ended June 30, 2004 - 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 six-month periods ended June 30, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. 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, 2003, which were
filed with the Securities and Exchange Commission on Form 10-K.
2. Reportable Segment Information
NCRIC Group has one reportable segment: Insurance. The insurance segment
provides medical professional liability and other insurance. The reportable
segment is a strategic business unit that offers products and services and is
therefore managed separately. NCRIC Group evaluates performance based on
profit or loss before income taxes. In previous years, NCRIC Group reported a
second segment, Practice Management Services. As noted in the Form 10-K for
the year ended December 31, 2003, effective beginning in 2004, NCRIC Group no
longer reports this business as a separate segment. The Insurance segment
revenue has grown significantly over the past several years while the
practice management revenue has not experienced the same growth. As a result,
the practice management revenue constitutes less than 10% of consolidated
revenues and, therefore, no longer meets the GAAP criteria for segment
reporting. The 2003 data below has been reclassified to reflect this change
in reportable segments. Selected financial data is presented for the business
segment at or for the three-month and six-month periods ended June 30, 2004
and 2003 (in thousands):
For the Three Months At or For the Six Months
Ended June 30, Ended June 30,
--------------------- --------------------------
2004 2003 2004 2003
------- -------- -------- ---------
Insurance
Revenues from external customers $ 15,750 $ 11,248 $ 32,119 $ 22,977
Net investment income 1,805 1,379 3,376 2,666
Net realized investment gains 87 1,136 417 1,340
Depreciation and amortization 441 277 888 481
Segment (loss) profit before taxes (247) 1,105 1,070 2,161
Segment assets 257,334 241,735
Segment liabilities 182,285 158,048
Expenditures for segment assets 70 219 151 99
5
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):
June 30,
---------------------
2004 2003
--------- ----------
Assets:
Total assets for reportable segment $ 257,334 $ 241,735
Other unallocated amounts 16,821 17,706
--------- ---------
Consolidated total $ 274,155 $ 259,441
========= =========
Liabilities:
Total liabilities for reportable segment $ 182,285 $ 158,048
Other liabilities 16,118 16,584
--------- ---------
Consolidated total $ 198,403 $ 174,632
========= =========
For the Three Months AT or For the Six Months
Ended June 30, Ended June 30,
---------------------- ------------------------
2004 2003 2004 2003
-------- ---------- --------- --------
Revenues from external customers:
Total revenues for reportable segment $ 15,750 $ 11,248 $ 32,119 $ 22,977
Other revenues 1,110 1,351 2,352 2,799
--------- --------- --------- ---------
Consolidated total $ 16,860 $ 12,599 $ 34,471 $ 25,776
========= ========= ========= =========
Net investment income:
Total investment income for reportable
segment $ 1,805 $ 1,379 $ 3,376 $ 2,666
Other investment income 103 10 202 45
--------- --------- --------- ---------
Consolidated total $ 1,908 $ 1,389 $ 3,578 $ 2,711
========= ========= ========= =========
Profit (loss) before taxes:
Total profit (loss) for reportable segment $ (247) $ 1,105 $ 1,070 $ 2,161
Other expenses, net (623) (439) (1,322) (897)
--------- --------- --------- ---------
Consolidated total $ (870) $ 666 $ (252) $ 1,264
========= ========= ========= =========
6
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 For the Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------
2004 2003 2004 2003
-------- ---------- -------- ----------
Net income (loss) $ (437) $ 542 $ 85 $ 1,056
======= ======= ======= =======
Weighted average common
shares outstanding - basic 6,342 6,660 6,340 6,669
Dilutive effect of stock options
and awards 272 157 274 146
------- -------- ------- -------
Weighted average common
shares outstanding - diluted 6,614 6,817 6,614 6,815
======= ======== ======= =======
Net income (loss) per common share:
Basic $ (0.07) $ 0.08 $ 0.01 $ 0.16
======= ======= ======= =======
Diluted $ (0.07) $ 0.08 $ 0.01 $ 0.15
======= ======= ======= =======
Earnings per share is calculated by dividing the net income by the weighted
average shares outstanding.
4. Litigation
On February 13, 2004, a District of Columbia Superior Court jury returned a
verdict in favor of Columbia Hospital for Women Medical Center, Inc. (CHW) in
the premium collection litigation between NCRIC, Inc. and CHW. The verdict
came in a civil action stemming from NCRIC, Inc.'s efforts to collect payment
for nearly $3 million in premiums that NCRIC alleges it is owed by CHW under
a contract with CHW that expired in 2000. The jury ruled against the claim by
NCRIC, Inc. and returned a verdict of $18.2 million in favor of CHW
counterclaims.
The verdict was entered as a judgment on February 20, 2004. On March 5, 2004,
NCRIC filed post-trial motions for judgment as a matter of law and, in the
alternative, for a new trial. As a result of these post-trial motions, the
judgment is not final, and jurisdiction with respect to the verdict remains
with the trial judge. No decision has yet been rendered on the post-trial
motions. In connection with the filing of post-trial motions, NCRIC secured a
$19.5 million appellate bond and associated letter of credit. The amount of
the bond represents the verdict plus a projection of post-trial interest. No
amounts have been drawn upon the letter of credit as of August 10, 2004.
After the post-trial motions have been ruled upon by the judge, any judgment
will be entered as final, but subject to appeal. No liability has been
accrued in these financial statements for any possible loss arising from this
litigation because the judgment is not yet final and remains with the trial
judge and, NCRIC believes that it has meritorious defenses and that it is not
probable that the preliminary judgment will prevail, nor is any potential
final outcome reasonably estimable at this time. Legal expenses to be
incurred for this litigation in 2004 are estimated to be approximately
$750,000. The expenses associated with the $19.5 million appellate bond and
associated letter of credit are estimated to be approximately $300,000.
7
Expenses incurred during the first six months of 2004 for the trial portion
of the litigation were $525,000, reported as a component of underwriting
expenses, and for post-trial costs were $503,000, reported as a component of
other expenses. NCRIC Group, Inc. has indemnified NCRIC, Inc. for post-trial
costs expected to be incurred in 2004 and for any potential final judgment up
to $5.5 million, on an after-tax basis.
5. New accounting guidance
During 2004, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus with respect to guidance to be used in
determining whether an investment within the scope of EITF Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments, is other than temporarily impaired. The guidance should be
applied in other than temporary impairment evaluations made in reporting
periods beginning after June 15, 2004. The Company is currently reviewing
this guidance to assess any potential impact to its fixed income portfolio
and its asset management policy.
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.
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 six
months ended June 30, 2004. 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 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 a
portion of 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.
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 reported net of
reinsurance recoveries.
8
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 contract.
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 is 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 June 30, 2004, resulted from
the 1999 acquisition of three businesses which now operate as divisions of NCRIC
MSO, Inc., a subsidiary of NCRIC Group. Our goodwill impairment testing under
Statement of Financial Standards No.142, Goodwill and Other Intangible Asserts,
concludes that the goodwill asset was not impaired as of June 30, 2004. 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.
New accounting guidance. In July of 2004, the Emerging Issues Task Force of the
Financial Accounting Standards Board reached a consensus with respect to
guidance to be used in determining whether an investment within the scope of
EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, is other than temporarily impaired. The
guidance should be applied in other than temporary impairment evaluations made
in reporting periods beginning after June 15, 2004. We are currently reviewing
this guidance to assess any potential impact to our fixed income portfolio and
our asset management policy.
Overview
Results for the first six months of 2004 were driven by a few key factors:
earned premium growth, moderation of claims frequency and litigation expenses.
Additionally, second quarter 2004 results were depressed by adverse development
on loss reserves related to claims reported in prior years and by costs related
to the fraudulent act of a former sales agent. Positive business indicators of
higher premiums and moderation of new claims were offset by the increase in
severity experienced on prior year claims.
As measured by premium, 54% of our policies have effective dates in the first
six months of the year. During this period, approximately 88% of policies
eligible for renewal did renew. As we have reported previously, in the first
quarter we began non-renewing policies in the West Virginia market at the end of
each policy term. We continue to see market pressures drive physicians to look
for less costly coverage alternatives, such as reducing their medical practice
specialty classification and alternative risk financing. As a result of
non-renewals initiated by NCRIC, both from the annual underwriting process and
from West Virginia, combined with attrition, the overall number of insurance
policies in force went down during the six-month period. Nevertheless, earned
premiums grew due to the rate level increases, new business written in the past
year, and extended reporting endorsements.
Claims frequency, as measured by the number of claims reported, declined in
the first six months of 2004 compared to the first six months of 2003 and in
comparison to the 2003 quarterly average. While the severity of claims
continues to rise, lower frequency has a direct impact on financial results.
9
Claims severity increases impact both claims reported in the current calendar
year and claims originally reported in prior years. In the first half of 2004 we
incurred an increase in the severity of losses, principally from the 2001 report
year claims in Virginia and the 2000 report year claims in the District of
Columbia. In D.C. we experienced a change in the development patterns in which
the ultimate cost of claims, on average, is greater than predicted based on
historical development patterns. The Virginia 2001 report year has continued to
experience increasing severity -- see the discussion of incurred losses, below,
for additional comments.
Book value per share as of June 30, 2004 stood at $10.98 compared to $11.30
at December 31, 2003. The reduction in market value of the fixed maturity
component of the investment portfolio was the driver behind the reduction.
Consolidated net income
Three months ended June 30, 2004 compared to three months ended June 30, 2003
The net loss of $437,000 for the three months ended June 30, 2004 compares to
income of $542,000 for the three months ended June 30, 2003. Net realized
investment gains, after tax, for the second quarter of 2004 totaled $55,000
compared to net realized investment gains of $762,000, after tax, for the second
quarter of 2003. Excluding net realized investment gains, second quarter 2004
revenue was 34% ahead of the second quarter of 2003. The higher revenue was
offset by $1.0 million, after-tax in loss and loss adjustment expenses for
losses on claims reported in 2000 and 2001 and by $393,000, after-tax, resulting
from the fraudulent act of a former sales agent.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Net income was $85,000 for the six months ended June 30, 2004 compared to
income of $1.1 million for the six months ended June 30, 2003. Net realized
investment gains, after tax, for the first half of 2004 totaled $275,000
compared to net realized investment gains of $894,000, after tax, for the first
half of 2003. Excluding net realized investment gains and losses, revenue for
the first half of 2004 was 34% ahead of the first half of 2003. The second
quarter losses incurred for development of claims reported in prior years and
expense incurred as a result of the fraud were the drivers behind the reduced
results.
Segment results
The results of our insurance segment for the three months and six months
ended June 30, 2004 were primarily driven by the recurring elements of
increases in premium revenue and incurred losses. Premium revenue growth
resulted from premium rate increases, expansion of business, primarily in
Delaware, over the past year, and an increase in extended reporting
endorsements. Incurred losses increased due to the adverse development of
losses on prior year claims as well as due to the expanded base of
policyholders. The second quarter results include a $595,000 expense related
to the fraudulent act of a former sales agent.
Net premiums earned
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Net premiums earned increased by $4.6 million, 42%, to $15.6 million from
$11.0 million for the three months ended June 30, 2004 and 2003, respectively.
The increase is driven by the expansion of business in force as a result of the
growth from new premiums written, increases in premium rates, and higher
premiums for extended reporting endorsements.
10
Gross premiums written of $12.0 million for the three months ended June 30,
2004 increased by $2.8 million or 30% compared to the three months ended June
30, 2003, as the result of net new business written combined with the premium
rate increase effective January 1, 2004. The extended reporting endorsement
premium written during the second quarter of 2004 totaled $863,000, or $304,000
above the level of the second quarter of 2003. Written premiums for policies in
West Virginia were down by $287,000 for the second quarter of 2004 compared to
the same period of 2003 due to our decision to not renew West Virginia policies
at the end of their terms. The following chart shows new premium written for the
second quarter (in thousands):
Three Months Ended
June 30,
---------------------
2004 2003
--------- ----------
Direct $ 58 $ 161
Agent 342 2,729
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Net premiums earned increased by 42% to $31.7 million from $22.4 million for
the six months ended June 30, 2004 and 2003, respectively. The increase is
primarily reflective of 1) the growth in business in force resulting from the
new premiums written over the past year, 2) the increases in premium rates
effective with 2004 and 2003 renewals, which average 27%, and 3) 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 $46.2 million for the six months ended June 30,
2004 increased by $7.6 million or 20% over the six months ended June 30, 2003,
due to net new business written, which is new business net of lost business,
combined with the premium rate increases and extended reporting endorsement
premiums. Extended reporting endorsements totaled $3.3 million in the first six
months of 2004 compared to $2.1 million for the same period of 2003. The
following chart shows new business written through the second quarter (in
thousands):
Six Months Ended
June 30,
-------------------
2004 2003
-------- --------
Direct $ 453 $ 327
Agent 979 3,988
The overall level of new business produced in the first six months of 2004 is
lower than for the first six months of 2003, as planned. In 2003 our business in
Delaware expanded to place us in the top market share position, therefore, the
opportunity for growth in Delaware is limited in 2004. The other territory
identified for growth is Virginia. We continue to write new business in
Virginia, however, our product is priced at the high end of the market, which
has the result of constraining growth. We believe our price level is required by
the loss characteristics of the Virginia market. During the second quarter of
2004 we saw the A.M. Best rating reduced for our lowest priced Virginia
competitor. We continue to maintain that pricing integrity is critical to
long-term viability.
The distribution of premiums 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 June 30, 2004 and 2003 (in thousands).
11
Six Months Ended June 30,
-------------------------
2004 2003
-------------- ---------------
District of Columbia $ 18,044 39% $ 17,432 45%
Virginia 12,735 28% 8,862 23%
Maryland 8,461 18% 6,242 16%
Delaware 4,496 10% 2,963 8%
West Virginia 2,487 5% 3,131 8%
-------- --- -------- ---
$ 46,223 100% $ 38,630 100%
======== === ======== ===
Premium collection litigation. During 2000, it was determined that one of our
hospital-sponsored retrospective programs would not be renewed. In accordance
with the terms of the contract, we billed the hospital sponsor, Columbia
Hospital for Women Medical Center, Inc. (CHW), 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. As of June 30,
2004 the amount due to NCRIC for this program was $2.9 million. No amount of net
receivable was accrued due to the pending litigation and questionable
collectability.
On February 13, 2004 a District of Columbia Superior Court jury ruled against
NCRIC's claim for premiums due and returned a verdict in favor of CHW in
counterclaims to the premium collection litigation initiated by NCRIC. The jury
awarded $18.2 million in damages to CHW.
NCRIC filed post-trial motions on March 5, 2004. CHW filed a reply to NCRIC's
motions on March 26, 2004, and NCRIC filed renewed post-trial motions on April
5, 2004. There have been no further developments since then. Since we believe
the verdict against NCRIC was wrong and that we will ultimately prevail, no
liability has been accrued in the financial statements for any possible loss
arising from this litigation. Expenses incurred for this litigation, for
both the trial and post-trial motions, for the three and six months ended June
30, 2004 totaled $106,000 and $867,000, respectively. The expenses associated
with the $19.5 million appellate bond and the collateral letter of credit for
the three and six months ended June 30, 2004 totaled $49,000 and $161,000,
respectively
Net investment income
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Net investment income increased by $519,000 for the three months ended June
30, 2004 compared to the second quarter of 2003 due to an increase in invested
funds partially offset by a decrease in yields. The average effective yield was
approximately 3.94% for the three months ended June 30, 2004 and 4.03% for the
three months ended June 30, 2003. The tax equivalent yield was approximately
4.41% for the second quarter of 2004 and 4.62% for the second quarter of 2003.
The decrease in investment yields reflects the addition of an equity component
to the portfolio in the third quarter of 2003.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Net investment income increased by $867,000 for the six months ended June 30,
2004 compared to the first six months of the prior year due to an increase in
invested funds partially offset by a decrease in yields. Average invested
assets, which include cash equivalents, were higher in the first six months of
2004 by $52.3 million compared to the same period of 2003. The average effective
yield was approximately 3.76% for the six months ended June 30, 2004 and 3.96%
for the six months ended June 30, 2003. The tax equivalent yield was
approximately 4.20% for the first six months of 2004 and 4.51% for the first six
months of 2003. The decrease in investment yields reflects the addition of an
equity component to the portfolio in the third quarter of 2003.
12
Net realized investment gains
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Net realized gains of $83,000 in the second quarter of 2004 resulted from
both fixed maturity and equity security trades made in the course of routine
portfolio management. The second quarter of 2003 included net realized gains of
$1.2 million resulting from the continuation of the portfolio restructuring
initiated by our new fixed income investment portfolio manager beginning in the
first quarter. The portfolio restructuring was performed for the primary purpose
of improving the overall credit quality of the portfolio and secondarily to
improve the structure of the portfolio through diversification of credits and to
shorten average duration.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Net realized gains of $416,000 in first six months of 2004 resulted from
security trades made in the course of normal portfolio management. The first six
months of 2003 included net realized gains of $1.4 million resulting from
portfolio restructuring done by our new investment portfolio manager, 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 did not expect to be temporary based on available financial
information of the issuer.
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 June 30, 2004 compared to three months ended June 30, 2003
Practice management and related revenue of $1.1 million for the three months
ended June 30, 2004 is lower by $185,000 compared to the three months ended June
30, 2003. The decrease is attributable to a continuing decline in the
utilization of our consulting and related financial services, partially offset
by an increase in revenue from retirement and other employee benefit plan
services.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Practice management and related revenue of $2.3 million for the six months
ended June 30, 2004 is down from $2.7 million for the six months ended June 30,
2003. The decrease is attributable to the reasons discussed above.
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 Six Months Ended
June 30, June 30,
------------------------- ------------------------
2004 2003 2004 2003
----------- ------------ ------------ ----------
Incurred loss and LAE related to:
Current year - losses $ 12,618 $ 10,507 $ 25,693 $ 20,240
Prior years - development 1,518 (152) 1,518 (302)
-------- -------- -------- --------
Total incurred for the period $ 14,136 $ 10,355 $ 27,211 $ 19,938
======== ======== ======== ========
13
Following is a summary of the ratios of losses and underwriting expenses
compared to net premiums earned:
Six Months Ended
June 30,
---------------------------
2004 2003
---------- ---------
Loss and LAE ratio 85.8% 89.0%
Underwriting expense ratio 21.8% 21.0%
Combined ratio 107.6% 110.0%
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Total incurred loss and LAE expense of $14.1 million for the second quarter
of 2004 increased by $3.7 million from the $10.4 million incurred for the second
quarter of 2003. The increase in current year losses to $12.6 million for the
second quarter of 2004 reflects 1) the expanded level of exposure as a result of
expanding business combined with 2) a rise in the cost of resolving claims and
3) reserves on extended reporting endorsements. The frequency of claims reported
in the second quarter of 2004 was lower than in the second quarter of 2003,
whereas, the severity of current losses incurred is greater in recognition of
the increased loss trends reported in the year-end reserve valuation. Adverse
development of losses reported in prior years is recognized for the 2001 report
year and reflects experience on claims closed during the quarter in addition to
the continuing upward pressure of severity of losses as noted previously. Prior
years development results from the re-estimation and settlement of individual
losses not covered by reinsurance.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Total incurred loss and LAE expense of $27.2 million for the first six months
of 2004 increased by $7.3 million from the $19.9 million incurred for the first
six months of 2003. The 2004 increase in current year losses and the development
of prior year losses are driven by the same factors discussed for the second
quarter.
The combined ratio of 107.6% for the six months ended June 30, 2004 compared
to 110.0% for the first six months of 2003 reflects the higher level of earned
premiums in relation to the increase in loss and loss adjustment expenses, the
increase in loss severity, and the stable level of core underwriting expenses.
Additionally, expenses stemming from a fraudulent act of a former sales agent,
as discussed in the following Expenses section, added 1.9 points to the 2004
combined ratio and 1.6 points to the 2003 combined ratio in the Underwriting
expenses component.
Expenses
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Underwriting expenses of $3.4 million for the three months ended June 30,
2004 compare to $2.2 million for the three months ended June 30, 2003. The
increase in expenses results from increases in commissions, premium taxes, and
administrative costs related to the increased level of business, particularly
agent-produced business. In addition, in the second quarter of 2004 we incurred
$595,000 for the fraudulent act of a former sales agent, as discussed below.
14
Practice management and related expenses were $1.2 million for the three
months ended June 30, 2004 and $1.3 million for the three months ended June 30,
2003. Adjustments in staffing have been made to alleviate excess capacity
stemming from the decrease in utilization of services.
Interest expense in 2004 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 June 30, 2004 is 5.34% which compares to the
rate of 5.28% as of June 30, 2003.
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 $729,000 for the
three months ended June 30, 2004 compare to $395,000 for the three months ended
June 30, 2003. Other expenses for the three months ended June 30, 2004 include
$133,000 for post-trial costs associated with the CHW premium collection
litigation.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Underwriting expenses increased $2.2 million to $6.9 million for the six
months ended June 30, 2004 from $4.7 million for the six months ended June 30,
2003. The increase in expenses results from increases in commissions, premium
taxes, and administrative costs related to the increased level of business,
particularly agent-produced business. Additionally, in the first half of 2004 we
incurred $525,000 in legal fees related to the trial portion of the premium
collection litigation. 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. In the second
quarter of 2004 we incurred an additional expense of $595,000 from this same
act. We believe that no significant additional costs will be incurred in this
matter.
Practice management and related expenses totaled $2.5 million for the six
months ended June 30, 2004 and $2.7 million for the six months ended June 30,
2003. Expenses decreased primarily due to reasons explained above.
Interest expense in 2004 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 June 30, 2004 is 5.34% compared to 5.28% as
of June 30, 2003.
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 $1.7 million for
the six months ended June 30, 2004 compare to $837,000 for the six months ended
June 30, 2003. Other expenses for the six months ended June 30, 2004 include
$503,000 for post-trial costs associated with the CHW premium collection
litigation.
Federal income taxes
NCRIC realized a tax benefit in the first six months of 2004. In 2003 through
six months the effective rate of the tax provision was 16%. The tax benefit for
2004 is principally a result of the net loss before income taxes combined with
the benefit of income from tax exempt securities and the dividends received
deduction.
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.
15
For the six months ended June 30, 2004, we had cash flows from operations of
$12.9 million compared to $7.0 million from operations for the corresponding
period of 2003. The $5.9 million of increased cash flow results primarily from
higher net premium receipts combined with an acceleration of the timing of
receipt of premium due to implementation of premium financing with a third party
premium finance company. This increased cash flow from premiums was partially
offset by higher payments for claims 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 period to period.
Financial condition and capital resources. Cash flow from operations and the
proceeds of maturing investments have primarily been invested in corporate and
tax-exempt securities. Additionally, during the first six months of 2004 $6.6
million was invested in high-yield bonds through a mutual fund vehicle. As of
June 30, 2004, the carrying value of the securities portfolio was $187.8
million. The portfolio was invested as follows:
At June 30, At December 31,
2004 2003
------------- ----------------
U. S. Government and agencies......................... 16% 17%
Asset and mortgage-backed securities.................. 26 31
Tax-exempt securities................................. 23 21
Corporate bonds....................................... 25 24
High yield bond fund.................................. 3 -
Equity securities..................................... 7 7
At June 30, 2004, over 73% of the portfolio was invested in U.S. Government
and agency securities or had a rating of AAA or AA. For regulatory purposes, 87%
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 loss totaled $1.2 million at June 30, 2004, compared to
accumulated other comprehensive income of $1.5 million at December 31, 2003. At
June 30, 2004, the gross unrealized investment gains totaled $2.4 million and
the gross unrealized investment losses totaled $4.2 million, with no
concentration of unrealized loss in any security or industry.
NCRIC has committed $135,000 for the upgrade of its policy database system.
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 was three years at a floating rate of LIBOR plus
one and one-half percent. The loan was paid off in May of 2004. Interest is
reported as a component of practice management and related expenses.
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. The effective annual rate at June 30, 2004 is 5.34%
which compares to the rate of 5.28% as of June 30, 2003.
Stock Options
On July 7, 2004, the vesting of the 384,322 outstanding stock options granted
in 2003 was accelerated to that date. The options were originally scheduled to
vest during the period from August, 2004 to August, 2008. On the accelerated
vesting date, the per share market value of NCRIC stock of $10.00 was less than
the strike price of the options, which ranges from $10.86 to $11.00 per share.
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.
16
Forward-looking information
Certain statements made in this document are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements may be
identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of those terms. 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.
We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and wish to
advise readers that the factors listed above could affect our financial
performance and could cause actual results for future period to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
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 June 30, 2004, fixed maturity securities comprise
90% of total investments at market value. Equity securities, consisting
primarily of common stock, account for the remainder of the investment
portfolio. U.S. Government and tax-exempt bonds represent 39% of the fixed
maturity securities. The investment in a mutual fund containing high-yield
securities is also classified with equity securities. 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.
17
The increase in interest rate levels in the six months of 2004 resulted in a
decrease in the value of our fixed maturity portfolio. The value of the
portfolio as compared to amortized cost is as follows (in thousands):
Unrealized gain (loss) Unrealized gain
at June 30, 2004 at December 31, 2003
---------------- --------------------
Fixed maturity securities $ (3,158) $ 868
Equity securities 1,369 1,344
-------- -------
Net $ (1,789) $ 2,212
======== =======
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 68% of the portfolio is
Treasury or Agency related or rated AAA, the highest rating for a security.
Management of NCRIC, along with NCRIC's external investment managers, seeks
to maximize after-tax yields while minimizing portfolio credit risk. The
decision to allocate a portion of the portfolio to equity and high yield bond
asset classes 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.
Projected Market Value
Yield Change (bp) Market Yield (in thousands)
------------------ ------------ ----------------------
-300 1.45% $ 192,418
-200 2.45% 184,246
-100 3.45% 176,075
Current Yield** 4.45% 167,904
100 5.45% 159,733
200 6.45% 151,562
300 7.45% 143,390
**Current yield is as of June 30, 2004.
Item 4. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer have concluded, based
on their evaluation as of June 30, 2004, that the disclosure controls and
procedures (as defined in Securities Exchange Act Rules 13a-14(c) and 15d-
14(c)) are effective to ensure that information required to be disclosed in the
reports that we file or submit 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
significant changes in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
18
PART II OTHER INFORMATION
Item 1. Legal proceedings
See Note 4 to the Condensed Consolidated Financial Statements included in
Part I, Item 1 of this Form 10-Q for information on pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of NCRIC Group, Inc. took place on
May 7, 2004.
(b) The following directors were elected and received the following votes:
Number of Votes
-----------------------------
Name For Withheld
--- --------- ---------
Luther W. Gray Jr. 5,576,935 362,310
Leonard M. Parver 5,789,435 149,810
Nelson P. Trujillo 5,576,935 362,310
(c) Other actions taken along with the votes received were:
Number of Votes
---------------------------------
For Against Abstain
--- ------- -------
1. Ratification of Auditors 5,789,249 2,143 147,853
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
19
(b)Filings on Form 8-K during the quarter ending June 30, 2004:
1) On April 21, 2004 the Company filed a Form 8-K pursuant to Item 5
which included a press release dated April 19, 2004 announcing the
affirmation of its A- (Excellent) rating from A.M. Best Company.
2) On May 19, 2004 the Company filed a Form 8-K pursuant to Item 12
which included a press release dated May 12, 2004 relating to earnings
for the quarter end March 31, 2004.
20
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.
August 10, 2004 /s/ R. Ray Pate, Jr.
------------------------------------------
R. Ray Pate, Jr.,
President and Chief Executive Officer
(Duly Authorized Officer)
August 10, 2004 /s/ Rebecca B. Crunk
--------------------------------------------
Rebecca B. Crunk,
Sr. Vice President and Chief Financial Officer
(Principal Financial Officer)
21