FBL Financial Group Reports First Quarter 2005 Results; Net Income Up 31 Percent to $0.59 Per Share.
Financial Highlights
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
2005 2004
--------------------
Net income applicable to common stock $17,167 $13,144
Operating income applicable to common stock 16,807 12,654
Earnings per common share (assuming dilution):
Net income 0.59 0.45
Operating income 0.57 0.44
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FBL FBL Full Bell Lines (coin grading) FBL Fly by Light FBL FIATA Bill of Lading FBL Functional Baseline FBL Foundation for a Better Life FBL Federal Barge Lines, Inc. Financial Group, Inc. (NYSE NYSE See: New York Stock Exchange :FFG FFG Forschungsförderungsgesellschaft (German: Austrian research promotion agency) FFG Flash Flood Guidance FFG Guided Missile Frigate FFG Fall from Grace (band) FFG Fast Frigates FFG Freeware Flight Group ) today announced that diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. net income per common share increased 31 percent to $0.59 ($17,167,000) for the quarter ended March 31, 2005 from $0.45 ($13,144,000) in the year ago quarter. Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (1). Operating income increased to $16,807,000 for the quarter ended March 31, 2005, from $12,654,000 in the first quarter of 2004. Diluted operating income per common share increased 30 percent to $0.57 in the first quarter of 2005 from $0.44 in the first quarter of 2004. Operating income differs from the GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure, net income, in that it excludes the impact of realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. and losses on investments and the change in net unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and losses on derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. . For further information on this non-GAAP financial measure, please refer to Note (1) and the reconciliation provided within this release. Commenting on FBL's first quarter results, Chief Executive Officer Bill Oddy stated, "We are very pleased with our 31 percent increase in net income per share, our 30 percent increase in operating income per share and our 43 percent increase in collected premiums. Farm Bureau Life had a solid quarter with collected premiums of $122 million. EquiTrust Life collected $201 million in premiums in the first quarter, led by its independent agent channel which achieved a record $185 million in premiums and is on track to reach its target of $750 million for the year. Likewise, we continue growth in EquiTrust's agent count as it increased 27 percent during the quarter." "With these strong first quarter results and our growing sales, we are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the remainder of the year. Therefore, we expect our full year 2005 net income and operating income per share to be toward the high end of the $2.00 to $2.10 range we previously provided," Oddy added. Product Revenues Up. Premiums and product charges for the first quarter of 2005 increased two percent to $57,121,000 from $55,827,000 in the first quarter of 2004. This increase was driven by eight percent growth in interest sensitive and index product charges due primarily to an increase in the volume and aging of business in force. Premiums collected in the first quarter of 2005 increased 43 percent to $322,634,000 from $226,376,000 in the first quarter of 2004. This increase reflects growth in FBL's EquiTrust Life independent channel, which had $185,339,000 of premiums collected in the first quarter of 2005. Premiums collected from FBL's exclusive distribution channel totaled $121,980,000 in the first quarter of 2005, a decline of three percent, primarily due to lower sales of Farm Bureau Life's annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. products. Investment Income. Net investment income in the first quarter of 2005 increased 16 percent to $114,106,000 from $98,546,000 in the first quarter of 2004. This increase is due to an increase in average invested assets resulting primarily from premium inflows from Farm Bureau Life and EquiTrust Life. Net investment income in the first quarter of 2005 includes $882,000 of non-recurring investment income relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. of a bond that had been impaired See assistive technology. in a prior period and the payment of past due interest. The annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. yield earned on average invested assets, with securities at cost, was 6.40 percent for the three months ended March 31, 2005, compared to 6.34 percent for the first quarter of 2004. The 2005 yield reflects the non-recurring investment income, an increase in investment fee income and a more fully invested portfolio with a lower cash position. Investment fee income, which includes income from bond calls and mortgage loan prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. , totaled $340,000 in the first quarter of 2005 compared to a loss of $156,000 in the first quarter of 2004. Derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. Income (Loss). FBL's derivative income (loss) totaled a loss of $12,400,000 in the first quarter of 2005, compared to income of $4,212,000 in the first quarter of 2004. This loss primarily reflects a decrease in the value of the underlying equity market indices on which call options supporting FBL's index annuity business are based. Gains from these options are generally passed on to the contract holders in the form of index credits. Realized Gains on Investments. In the first quarter of 2005, FBL recognized net realized gains on investments of $412,000 compared to $64,000 in the first quarter of 2004. First quarter 2005 realized gains include realized gains from sales of securities of $2,275,000 and realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. from sales of securities of $1,863,000. Benefits and Expenses. Benefits and expenses totaled $137,272,000 in the first quarter of 2005, compared to $143,640,000 in the first quarter of 2004. This decrease reflects a decline in index product benefits primarily due to less appreciation in the underlying equity market indices on which options are based. Mortality experience was in line with expectations. Income (Loss) from Equity Investments. Equity income (loss), net of related income taxes, was a loss of $259,000 in the first quarter of 2005, compared to income of $255,000 in the first quarter of 2004. Included in equity income is FBL's share of income and losses from investments in various partnerships and joint ventures, the majority of which are booked a quarter in arrears Adv. 1. in arrears - in debt; "he fell behind with his mortgage payments"; "a month behind in the rent"; "a company that has been run behindhand for years"; "in arrears with their utility bills" behindhand, behind . Operating Results by Segment. FBL's operating results for the first quarter of 2005 reflect an increase in all product segments, with the largest increase in the traditional annuity - exclusive distribution segment, which had a 40 percent increase in pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta operating income to $8,774,000. Segment results for the first quarter of 2005 are impacted by a change in capital allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as and a change in methodology in how indirect expenses are allocated among segments. Further detail of these changes and results by segment are provided in FBL's financial supplement, which is available on FBL's web site, www.fblfinancial.com. Assets Total $9.3 Billion. Total assets increased $169,308,000 to $9.3 billion at March 31, 2005, from $9.1 billion at December December: see month. 31, 2004. At March 31, 2005, 95 percent of the fixed maturity securities in FBL's investment portfolio were investment grade debt securities. Book value per common share Book Value Per Common Share A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: totaled $28.38 at March 31, 2005 compared to $28.87 at December 31, 2004. Book value per share excluding accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as (2) increased to $24.42 at March 31, 2005, from $23.96 at December 31, 2004. Conference Call. FBL management will hold a conference call with investors to discuss first quarter 2005 results. The call will be held tomorrow, May 10, 2005, at 11 a.m. Eastern Time. The call will be webcast over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , and a replay will be available on FBL's web site, www.fblfinancial.com. The statements in this release concerning FBL's prospects for the future are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve certain risks and uncertainties, including the continued acceptance of FBL's insurance products by customers, the continued success of FBL's marketing efforts, the marketing success of FBL's alliance partners, and fluctuations in mortality experience and investment results. These forward-looking statements are based on assumptions which FBL Financial Group believe to be reasonable. No assurance can be given that the assumptions will prove to be correct, and the difference between assumptions and actual results could be material. FBL Financial Group (www.fblfinancial.com) is a holding company whose primary operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. are Farm Bureau Life Insurance Company and EquiTrust Life Insurance Company. FBL underwrites, markets and distributes life insurance, annuities and mutual funds to individuals and small businesses. In addition, FBL manages all aspects of three Farm Bureau affiliated af·fil·i·ate v. af·fil·i·at·ed, af·fil·i·at·ing, af·fil·i·ates v.tr. 1. To adopt or accept as a member, subordinate associate, or branch: property-casualty insurance companies for a management fee. FBL's three-pronged Adj. 1. three-pronged - having three prongs divided - separated into parts or pieces; "opinions are divided" growth strategy includes (1) growth through its traditional Farm Bureau Life distribution channel, (2) growth in EquiTrust Life through independent and other distribution channels and (3) acquisitions or consolidations.
FBL Financial Group, Inc.
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
Three months ended
March 31,
2005 2004
----------- -----------
REVENUES
Interest sensitive and index product charges $23,768 $22,019
Traditional life insurance premiums 33,333 33,734
Accident and health premiums 20 74
Net investment income 114,106 98,546
Derivative income (loss) (12,400) 4,212
Realized gains on investments 412 64
Other income 4,969 4,701
----------- -----------
Total revenues 164,208 163,350
BENEFITS AND EXPENSES
Interest sensitive and index product benefits 55,558 63,270
Traditional life insurance and accident and
health benefits 20,771 21,825
Increase in traditional life and accident and
health future policy benefits 8,250 6,732
Distributions to participating policyholders 6,164 6,723
Underwriting, acquisition and insurance
expenses 38,468 38,359
Interest expense 3,295 2,033
Other expenses 4,766 4,698
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Total benefits and expenses 137,272 143,640
----------- -----------
26,936 19,710
Income taxes (9,374) (6,720)
Minority interest in loss of subsidiaries (98) (63)
Equity income (loss), net of related income
taxes (259) 255
----------- -----------
Net income 17,205 13,182
Dividends on Series B preferred stock (38) (38)
----------- -----------
Net income applicable to common stock $17,167 $13,144
=========== ===========
Earnings per common share - assuming dilution $0.59 $0.45
=========== ===========
Weighted average common shares 28,759,200 28,391,050
Effect of dilutive securities 514,208 641,285
----------- -----------
Weighted average common shares - diluted 29,273,408 29,032,335
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(1) Reconciliation of Net Income to Operating Income (Unaudited) In addition to net income, FBL Financial Group has consistently utilized operating income, a non-GAAP financial measure commonly used in the life insurance industry, as a primary economic measure to evaluate its financial performance. Operating income equals net income adjusted to eliminate the impact of realized gains and losses on investments and changes in net unrealized gains and losses on derivatives. Prior to 2005, operating income included the changes in net unrealized gains and losses on derivatives that were not designated as hedges. The impact of this change in definition for the first quarter of 2004 was to decrease operating income $0.02 per share. Operating results for 2004 have been modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the 2005 presentation. Further detail on this change is provided in FBL's March 31, 2005 financial supplement, available at www.fblfinancial.com. FBL uses operating income, in addition to net income, to measure its performance since realized gains and losses on investments and the change in net unrealized gains and losses on derivatives can fluctuate greatly from quarter to quarter. These fluctuations make it difficult to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. core operating trends. In addition, for derivatives not designated as hedges, there is a mismatch mismatch 1. in blood transfusions and transplantation immunology, an incompatibility between potential donor and recipient. 2. one or more nucleotides in one of the double strands in a nucleic acid molecule without complementary nucleotides in the same position on the other between the valuation of the asset and liability when deriving de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. net income. This non-GAAP measure is used for goal setting, determining company-wide bonuses and evaluating performance on a basis comparable to that used by many in the investment community. FBL believes the combined presentation and evaluation of operating income, together with net income, provides information that may enhance an investor's understanding of FBL's underlying results and profitability. A reconciliation of net income to operating income is provided in the following table (dollars in thousands, except per share data):
Three months ended
March 31,
2005 2004
---------- ----------
Net income applicable to common stock $17,167 $13,144
Adjustments:
Net realized gains/losses on investments (a) (527) 210
Net change in unrealized gains/losses on
derivatives (a) 167 (700)
---------- ----------
Operating income applicable to common stock $16,807 $12,654
========== ==========
Operating income per common share - assuming
dilution $0.57 $0.44
========== ==========
(a) Net of adjustments, as applicable, to amortization of unearned
revenue reserves, deferred policy acquisition costs, deferred sales
inducements, value of insurance in force acquired and income taxes
attributable to gains and losses on investments and derivatives.
(2) Reconciliation of Book Value Per Share
Excluding Accumulated Other Comprehensive Income (Unaudited)
March 31, December 31,
2005 2004
----------- ------------
Book value per share $28.38 $28.87
Less: Accumulated other comprehensive income 3.96 4.91
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Book value per share, excluding accumulated
other comprehensive income $24.42 $23.96
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Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Accumulated other comprehensive income totaled $114.4 million at March 31, 2005 and $141.2 million at December 31, 2004. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair market value of investments caused principally by changes in market interest rates, FBL believes this non-GAAP financial measure provides useful supplemental information.
FBL Financial Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share data)
March 31, December 31,
2005 2004
----------- ------------
Assets
Investments $7,626,007 $7,501,680
Cash and cash equivalents 17,174 27,957
Deferred policy acquisition costs 614,977 587,391
Deferred sales inducements 93,936 78,443
Other assets 363,552 353,236
Assets held in separate accounts 554,398 552,029
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Total assets $9,270,044 $9,100,736
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Liabilities and stockholders' equity
Policy liabilities and accruals $6,856,574 $6,650,973
Other policyholders' funds 556,257 549,968
Debt 263,560 263,183
Other liabilities 216,349 251,781
Liabilities related to separate accounts 554,398 552,029
----------- ------------
Total liabilities 8,447,138 8,267,934
Minority interest in subsidiaries 200 191
Stockholders' equity 822,706 832,611
----------- ------------
Total liabilities and stockholders' equity $9,270,044 $9,100,736
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Common shares outstanding 28,881,459 28,734,857
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