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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2003
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transaction period from ____________to ___________.

Commission file number 1-11983

FPIC Insurance Group, Inc.
(Exact Name of Registrant as Specified in its Charter)


Florida
(State or Other Jurisdiction of
Incorporation or Organization)
     59-3359111
(IRS Employer
Identification No.)

225 Water Street, Suite 1400, Jacksonville, Florida     32202
(Address of Principal Executive Offices)               (Zip Code)

(904) 354-2482
(Registrant’s Telephone Number, Including Area Code)

www.fpic.com
(Registrant’s Internet Address)

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 preceding 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 Securities Exchange Act of 1934). Yes |X| No |_|

As of May 7, 2003, there were 9,418,882 shares of the registrant’s common stock outstanding.



FPIC Insurance Group, Inc.
Index to Quarterly Report on Form 10-Q

Part I Financial Information Page
     
Item 1. Condensed Consolidated Financial Statements of FPIC Insurance Group, Inc. and Subsidiaries:
             Condensed Consolidated Statements of Financial Position 3
             Condensed Consolidated Statements of Income (Loss) and Comprehensive
                  Income (Loss) 4
             Condensed Consolidated Statements of Changes in Shareholders’ Equity 5
             Condensed Consolidated Statements of Cash Flows 6
             Notes to the Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and
             Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Disclosure Controls and Procedures 27
     
Part II Other Information Page
     
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
     
Signatures 27
     
Certification of John R. Byers pursuant to 19 U.S.C. Section 1350 as adopted
     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.1
     
Certification of Kim D. Thorpe pursuant to 19 U.S.C. Section 1350 as adopted
     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2



FPIC Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Financial Position
As of March 31, 2003 and December 31, 2002
(In Thousands, Except Share-related Data)

  (unaudited)
March 31,
2003
  Dec 31,
2002
Assets    
   Cash and cash equivalents $ 87,398            86,589
   Bonds and U.S. Government securities, available for sale   464,957   436,970
   Equity securities, available for sale   6   6
   Other invested assets   10,366   10,801
   Real estate   4,210   4,354
            Total cash and investments   566,937   538,720
  
   Premiums receivable, net   114,840   108,494
   Accrued investment income   5,745   5,998
   Reinsurance recoverable on paid losses   5,720   6,529
   Due from reinsurers on unpaid losses and advance premiums   197,567   168,159
   Ceded unearned premiums   87,512   78,889
   Property and equipment, net   5,392   4,334
   Deferred policy acquisition costs   3,235   4,452
   Deferred income taxes   34,108   34,653
   Prepaid expenses   1,592   1,744
   Goodwill   18,870   18,870
   Intangible assets   963   1,034
   Federal income tax receivable   2,106   —
   Other assets   16,242   54,555
                  Total assets $ 1,060,829   1,026,431
Liabilities and Shareholders’ Equity    
   Losses and loss adjustment expenses $ 473,204   440,166
   Unearned premiums   192,126   173,421
   Reinsurance payable   107,371   96,470
   Paid in advance and unprocessed premiums   6,066   14,060
   Revolving credit facility   37,000   37,000
   Term loan   8,750   10,208
   Deferred credit   8,494   8,749
   Deferred ceding commission   4,699   4,669
   Federal income tax payable   —   120
   Accrued expenses and other liabilities   54,222   75,655
            Total liabilities   891,932   860,518
   Commitments and contingencies (Note 11)    
  
   Common stock, $.10 par value, 50,000,000 shares authorized;    
      9,415,548 and 9,390,795 shares issued and outstanding at    
      March 31, 2003 and December 31, 2002, respectively   942   939
   Additional paid-in capital   38,464   38,322
   Accumulated other comprehensive income   5,604   5,525
   Retained earnings   123,887   121,127
            Total shareholders’ equity   168,897   165,913
                  Total liabilities and shareholders’ equity $ 1,060,829   1,026,431

See accompanying notes to the condensed consolidated financial statements.

3



FPIC Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2003 and 2002
(In Thousands, Except Share-related Data)

(unaudited)
Three months ended March 31,
2003 2002
Revenues      
   Net premiums earned $ 28,909             39,342  
   Claims administration and management fees   8,664   7,631  
   Net investment income   3,692   4,888  
   Commission income   1,584   874  
   Net realized investment gains   238   468  
   Finance charges and other income   231   228  
        Total revenues   43,318   53,431  
Expenses      
   Net losses and loss adjustment expenses   26,634   33,825  
   Other underwriting expenses   2,866   6,699  
   Claims administration and management expenses   8,341   7,410  
   Interest expense   1,230   1,216  
   Other expenses   71   71  
        Total expenses   39,142   49,221  
   Income from operations before income taxes and cumulative      
      effect of accounting change   4,176   4,210  
  
        Less: Income taxes   1,416   1,345  
   Income before cumulative effect of accounting      
      change   2,760   2,865  
        Less: Cumulative effect of accounting change      
            (net of an $18,784 income tax benefit) (Note 3)   —   29,578  
   Net income (loss) $ 2,760   (26,713 )
  
Basic earnings (loss) per common share $ 0.29   (2.85 )
Diluted earnings (loss) per common share $ 0.29   (2.81 )
Basic weighted average common shares outstanding   9,409   9,375  
Diluted weighted average common shares outstanding   9,416   9,498  
  
Comprehensive Income (Loss)      
   Net income (loss) $ 2,760   (26,713 )
   Other comprehensive income (loss):      
      Unrealized holding losses on debt and      
        equity securities   (344 ) (5,396 )
      Unrealized holding gains on derivative      
        financial instruments   435   171  
      Income tax (expense) benefit related to unrealized      
        gains and losses   (12 ) 2,022  
           Other comprehensive income (loss) $ 79   (3,203 )
   Comprehensive income (loss) $ 2,839   (29,916 )

See accompanying notes to the condensed consolidated financial statements.

4



FPIC Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
For the Three Months Ended March 31, 2003 and the Year Ended December 31, 2002
(In Thousands)

  Common
Stock
  Additional
Paid-in
Capital
  Accumulated
Other
Comprehensive
(Loss) Income
   Retained
Earnings
   Total  
Balances at December 31, 2001 $ 934         37,837         (26 )       135,829         174,574  
    Net loss   —   —   —   (14,702 ) (14,702 )
    Unrealized gain on debt and            
      equity securities, net   —   —   5,565   —   5,565  
    Unrealized loss on derivative            
      financial instruments, net   —   —   (270 ) —   (270 )
    Amortization of unrealized loss on            
      derivative financial instruments   —   —   256   —   256  
    Issuance of shares   5   485   —   —   490  
Balances at December 31, 2002 $ 939   38,322   5,525   121,127   165,913  
    Net income   —   —   —   2,760   2,760  
    Unrealized loss on debt and            
      equity securities, net   —   —   (210 ) —   (210 )
    Unrealized gain on derivative            
      financial instruments, net   —   —   232   —   232  
    Amortization of unrealized loss on            
      derivative financial instruments   —   —   57   —   57  
    Issuance of shares   3   142   —   —   145  
Balances at March 31, 2003 (unaudited) $ 942   38,464   5,604   123,887   168,897  

See accompanying notes to the condensed consolidated financial statements.

5



FPIC Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
(In Thousands)

(unaudited)
Three months ended March 31,
2003 2002
Cash flows from operating activities:      
   Net income (loss) $ 2,760            (26,713 )
   Adjustments to reconcile net income (loss) to cash provided by operating
     activities:		      
     Cumulative effect of accounting change — 29,578
     Depreciation, amortization and accretion   (1,910 ) 2,002  
     Realized gains on investments   (238 ) (468 )
     Net loss from equity investments   60   301  
     Bad debt expense   3   668  
     Deferred income tax expense (benefit)   532   (176 )
     Changes in assets and liabilities:      
        Premiums receivable, net   (6,349 ) (21,415 )
        Accrued investment income   253   (896 )
        Reinsurance recoverable on paid losses   809   1,426  
        Due from reinsurers on unpaid losses and advance premiums   (29,408 ) (14,907 )
        Ceded unearned premiums   (8,623 ) (11,137 )
        Deferred policy acquisition costs   852   (3,185 )
        Prepaid expenses   152   284  
        Federal income tax receivable/payable   (2,226 ) 3,187  
        Other assets   137   2,491  
        Loss and loss adjustment expenses   33,038   18,699  
        Unearned premiums   18,705   28,009  
        Reinsurance payable   10,901   5,436  
        Paid in advance and unprocessed premiums   (7,994 ) (1,448 )
        Deferred ceding commission   3,099   —  
        Accrued expenses and other liabilities   8,734   1,288  
           Net cash provided by operating activities   23,287