FBL Financial Group Reports Fourth Quarter 2002 Results.Business Editors WEST DES MOINES West Des Moines (də moin`), city (1990 pop. 31,702), Polk co., S central Iowa, a growing suburb W of Des Moines; inc. 1893 as Valley Junction, renamed 1938. Products manufactured there include cement, metal items, and pumps. , Iowa--(BUSINESS WIRE)--Feb. 11, 2003 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 ):
Financial Highlights
(Dollars in thousands, except per share data)
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Three Months Ended
December 31,
2002 2001
--------------------------------
Net income applicable to common stock $6,633 $6,304
Operating income applicable to common
stock 14,233 14,001
Earnings per common share (assuming
dilution):
Net income 0.24 0.23
Operating income 0.50 0.50
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FBL Financial Group, Inc. (NYSE:FFG) 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 totaled $0.24 ($6,633,000) for the quarter ended December December: see month. 31, 2002, compared to $0.23 ($6,304,000) in the year ago quarter. Net income includes the impact of 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. on investments of $0.26 per common share in the fourth quarter of 2002 and $0.27 in the fourth quarter of 2001. 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. , which 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 cumulative effect of change in accounting principle, totaled $14,233,000 for the quarter ended December 31, 2002, versus $14,001,000 in the fourth quarter of 2001. Diluted operating income per common share totaled $0.50 in both the fourth quarter of 2002 and the fourth quarter of 2001. Operating income in the fourth quarter includes a $0.06 per share contribution from FBL's coinsurance A provision of an insurance policy that provides that the insurance company and the insured will apportion between them any loss covered by the policy according to a fixed percentage of the value for which the property, or the person, is insured. agreement with American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Equity Investment Life Insurance Company (AE) and $0.04 per share from FBL's coinsurance agreement with National Travelers Life Company. "We had a very good fourth quarter with strong results from both our core distribution and our coinsurance arrangements," said Bill Oddy, Chief Executive Officer. "The results of this quarter cap off a nice year of growth for FBL. For the full year of 2002, our premiums collected more than doubled, our total assets increased 21 percent to $6.8 billion and our 2002 operating income per common share increased 20 percent. We expect that 2003 will be another strong year as we continue to implement our growth strategies of internal growth, alliances and consolidations." Product Revenues Up Six Percent. Premiums and product charges for the fourth quarter of 2002 increased six percent to $49,861,000 compared to $46,982,000 in the fourth quarter of 2001. Interest sensitive product charges increased eight percent while traditional life insurance premiums increased five percent. Premiums collected totaled $303,375,000 in the fourth quarter of 2002. Excluding the impact of the AE coinsurance agreement, collected premiums increased 15 percent, with the traditional 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. segment increasing 52 percent, the traditional and universal life insurance segment increasing three percent and the variable segment decreasing 10 percent. Investment Income. Net investment income in the fourth quarter of 2002 increased 28 percent to $97,027,000 compared to $76,009,000 in the fourth quarter of 2001. This increase is due to an increase in average invested assets, resulting primarily from cash received pursuant to the AE coinsurance agreement and growth in sales from FBL's core Farm Bureau distribution force. 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 was 7.19 percent for the year ended December 31, 2002, compared to 7.40 percent for 2001. The 2002 yield reflects the impact of a decline in market interest rates and a decrease in investment fee income for the year. Fee income from bond calls and mortgage loan prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. totaled $965,000 in the fourth quarter of 2002 compared to $1,466,000 in the fourth quarter of 2001. The impact of these items on the yield was partially offset by an increase in discount accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the on mortgage- and asset-backed securities Asset-backed security A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate. asset-backed security A debt security collateralized by specific assets. . Derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. Income. FBL's derivative income totaled $152,000 in the fourth quarter of 2002, compared to $1,629,000 in the fourth quarter of 2001. Derivative income (loss) can fluctuate from period to period based upon the performance of the bond and stock indexes underlying the call options purchased to fund returns on equity-indexed annuities equity-indexed annuity A contract with an insurance company that promises periodic payments keyed in a specified manner to a stock market index. Unlike variable annuities, equity-indexed annuities specify a guaranteed minimum return that is typically 3%. assumed from AE. Gains and losses on call options and proceeds from option settlements are partially offset by changes in the value of the embedded Inserted into. See embedded system. 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. in the underlying equity-indexed contracts and index credits to the contract holder, which are recorded as a component of interest sensitive product benefits. Realized Losses on Investments. In the fourth quarter of 2002, FBL recognized net realized losses on investments of $12,985,000, compared to net realized losses on investments of $14,388,000 in the fourth quarter of 2001. The fourth quarter 2002 losses include $7,803,000 of United Air Lines related losses and fourth quarter 2001 losses include $8,412,000 of Enron Enron A U.S. energy-trading and utilities company that housed one of the biggest accounting frauds in history. Enron's executives employed accounting practices that falsely inflated the company's revenues, which, at the height of the scandal, made the firm become the seventh related losses. Benefits and Expenses. Benefits and expenses totaled $126,638,000 in the fourth quarter of 2002, compared to $102,139,000 in the fourth quarter of 2001. This increase is largely due to an increase in the volume of business in force resulting primarily from the coinsurance agreement with AE and growth in sales from FBL's core Farm Bureau distribution force. In addition, death benefits increased in the fourth quarter due to several large claims that were under FBL's reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. retention limits. Income from Equity Investments. Equity income (loss), net of related income taxes, was $172,000 in the fourth quarter of 2002, compared to a loss of $315,000 in the fourth quarter of 2001. Equity income in the fourth quarter of 2002 includes $612,000 of income, net of taxes, from FBL's 32 percent ownership interest in American Equity Investment Life Holding Company. 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 . Due to the nature of investment partnerships, it is not unusual to experience fluctuations on a quarter-to-quarter basis. Operating Results by Segment. FBL's favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. operating results for the fourth quarter of 2002 were driven by an 80 percent increase in the pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta operating income for the traditional annuity segment. Pre-tax operating income in the variable segment was negatively impacted by higher than normal death benefits. Further detail by segment is provided in FBL's financial supplement, which is available on FBL's web site, www.fblfinancial.com. Assets Total $6.8 Billion. Total assets increased $1.2 billion to $6.8 billion at December 31, 2002, from $5.6 billion at December 31, 2001. At December 31, 2002, 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: , with securities at market, increased 15 percent to $23.71 at December 31, 2002, from $20.53 at December 31, 2001. Book value per common share, with securities at cost, increased six percent to $20.28 from $19.10 at December 31, 2001. Earnings Outlook. While subject to volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the resulting from a number of factors, including mortality experience and investment results, FBL reiterates its full year 2003 net income and operating income guidance of a range of $1.97 to $2.07 per common share. This is a $0.03 to $0.13 increase over FBL's 2002 operating income per share. The 2003 guidance includes approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.01 per common share for the expensing of stock options, which FBL will begin in 2003. Conference Call. FBL management will hold a conference call with investors to discuss fourth quarter 2002 results. The call will be held tomorrow, February February: see month. 12, 2003, 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. Operating Income. In addition to net income, FBL Financial Group views operating income, a non-GAAP financial measure, as an important indicator Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. of financial performance. 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 profitability and results of operations. Operating income equals net income adjusted to eliminate the impact of realized gains and losses on investments and the cumulative effect of change in accounting principle. 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 and the marketing success of FBL's alliance partners. 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) internal growth within its traditional Farm Bureau distribution network, (2) alliances and relationships with other companies and (3) consolidations.
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three months ended
December 31,
2002 2001
---------- -----------
REVENUES
Interest sensitive product charges $20,182 $18,625
Traditional life insurance premiums 29,499 28,171
Accident and health premiums 180 186
Net investment income 97,027 76,009
Derivative income 152 1,629
Realized losses on investments (12,985) (14,388)
Other income 4,096 4,014
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Total revenues 138,151 114,246
BENEFITS AND EXPENSES
Interest sensitive product benefits 62,945 46,334
Traditional life insurance and accident
and health benefits 17,517 17,252
Increase in traditional life and
accident and health future policy
benefits 8,893 6,642
Distributions to participating
policyholders 7,267 7,515
Underwriting, acquisition and insurance
expenses 26,254 20,459
Interest expense 152 254
Other expenses 3,610 3,683
---------- -----------
Total benefits and expenses 126,638 102,139
---------- -----------
11,513 12,107
Income taxes (2,659) (3,190)
Minority interest in earnings of
subsidiaries:
Dividends on company-obligated
mandatorily redeemable preferred stock
of subsidiary trust (1,212) (1,212)
Other (83) (23)
Equity income (loss), net of related
income taxes 172 (315)
---------- -----------
Net income 7,731 7,367
Dividends on Series B and C preferred
stock (1,098) (1,063)
---------- -----------
Net income applicable to common stock $6,633 $6,304
========== ===========
Earnings per common share - assuming
dilution $0.24 $0.23
========== ===========
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Year ended
December 31,
2002 2001
---------- ----------
REVENUES
Interest sensitive product charges $78,475 $70,492
Traditional life insurance premiums 121,999 114,998
Accident and health premiums 493 3,044
Net investment income 348,359 285,087
Derivative income (loss) (10,418) 100
Realized losses on investments (14,879) (15,878)
Other income 17,086 16,747
---------- ----------
Total revenues 541,115 474,590
BENEFITS AND EXPENSES
Interest sensitive product benefits 208,578 169,272
Traditional life insurance and
accident and health benefits 74,728 80,492
Increase in traditional life and
accident and health future policy
benefits 33,262 23,680
Distributions to participating
policyholders 29,540 29,564
Underwriting, acquisition and
insurance expenses 102,449 92,475
Interest expense 685 1,778
Other expenses 12,500 13,643
---------- ----------
Total benefits and expenses 461,742 410,904
---------- ----------
79,373 63,686
Income taxes (23,869) (18,576)
Minority interest in earnings of
subsidiaries:
Dividends on company-obligated
mandatorily redeemable preferred
stock of subsidiary trust (4,850) (4,850)
Other (200) (113)
Equity income, net of related income
taxes 214 254
---------- ----------
Income before cumulative effect of
change in accounting principle 50,668 40,401
Cumulative effect of change in
accounting for derivative
instruments - 344
---------- ----------
Net income 50,668 40,745
Dividends on Series B and C preferred
stock (4,337) (4,202)
---------- ----------
Net income applicable to common stock $46,331 $36,543
========== ==========
Earnings per common share - assuming
dilution:
Income before accounting change $1.64 $1.30
Cumulative effect of change in
accounting for derivative
instruments - 0.01
---------- ----------
Earnings per common share - assuming
dilution $1.64 $1.31
========== ==========
FBL FINANCIAL GROUP, INC.
RECONCILIATION OF NET INCOME TO OPERATING INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three months ended
December 31,
2002 2001
----------- -----------
Net income applicable to common stock $6,633 $6,304
Adjustment:
Net realized losses on investments (1) 7,600 7,697
----------- -----------
Operating income applicable to common
stock $14,233 $14,001
=========== ===========
Operating earnings per common share -
assuming dilution $0.50 $0.50
=========== ===========
Weighted average common shares 27,726,895 27,405,848
Effect of dilutive securities 487,968 510,464
----------- -----------
Weighted average common shares - diluted 28,214,863 27,916,312
=========== ===========
Year ended
December 31,
2002 2001
----------- -----------
Net income applicable to common stock $46,331 $36,543
Adjustments:
Net realized losses on investments (1) 8,294 9,019
Cumulative effect of change in
accounting for derivative instruments - (344)
----------- -----------
Operating income applicable to common
stock $54,625 $45,218
=========== ===========
Operating earnings per common share -
assuming dilution $1.94 $1.62
=========== ===========
Weighted average common shares 27,624,662 27,378,242
Effect of dilutive securities 543,846 488,898
----------- -----------
Weighted average common shares - diluted 28,168,508 27,867,140
=========== ===========
(1) Net of adjustments for that portion of amortization of deferred
policy acquisition costs, unearned revenue reserve, value of insurance
in force acquired and income taxes attributable to such losses.
FBL FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share data)
December 31,
2002 2001
----------- -----------
Assets
Investments $5,387,369 $4,300,856
Cash and cash equivalents 263,011 271,459
Deferred policy acquisition costs 468,793 360,156
Other assets 332,559 340,270
Assets held in separate accounts 347,717 356,448
----------- -----------
Total assets $6,799,449 $5,629,189
=========== ===========
Liabilities and stockholders' equity
Policy liabilities and accruals $4,856,207 $3,795,897
Other policyholders' funds 462,113 390,037
Debt 40,000 40,000
Other liabilities 249,325 301,192
Liabilities related to separate
accounts 347,717 356,448
----------- -----------
Total liabilities 5,955,362 4,883,574
Minority interest in subsidiaries 97,210 97,131
Series C redeemable preferred stock 85,514 82,691
Stockholders' equity 661,363 565,793
----------- -----------
Total liabilities and stockholders'
equity $6,799,449 $5,629,189
=========== ===========
Book Value Per Share, securities at
market $23.71 $20.53
=========== ===========
Book Value Per Share, securities at
cost $20.28 $19.10
=========== ===========
Common Shares Outstanding 27,771,269 27,408,675
=========== ===========
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