FBL Financial Group Reports Second Quarter 2003 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)--July 30, 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
June 30,
2003 2002
--------------------------
Net income applicable to common stock $20,513 $10,890
Operating income applicable to common stock 17,948 13,355
Earnings per common share (assuming
dilution):
Net income 0.72 0.39
Operating income 0.63 0.47
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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 $0.72 ($20,513,000) for the quarter ended June June: see month. 30, 2003, compared to $0.39 ($10,890,000) in the year ago quarter. Net income includes 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. on investments of $0.09 per share in the second quarter of 2003 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. on investments of $0.08 per share in the second quarter of 2002. 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. (a). Operating income, which excludes the impact of realized gains and losses on investments, totaled $17,948,000 for the quarter ended June 30, 2003, versus $13,355,000 in the second quarter of 2002. Diluted operating income per common share totaled $0.63 in the second quarter of 2003, a 34 percent increase over $0.47 in the second quarter of 2002. Operating income in the second quarter of 2003 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 compared to a $0.01 per share contribution in the second quarter of 2002. (a) 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. Because realized gains and losses on investments may fluctuate greatly from quarter to quarter, FBL believes a measure excluding their impact is useful in analyzing core operating trends. 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 accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. tables. Commenting on FBL's second quarter results, Chief Executive Officer Bill Oddy stated, "This was an exceptional quarter for FBL with record operating income. Prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. fee income boosted our investment income, our traditional life and fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. business produced strong results, and equity income from our limited partnership investments grew. Based on these impressive results for the first half of the year, we are revising our operating income guidance upward to $2.15-$2.20 per common share for the full year 2003 from our previous guidance of $1.97-$2.07." "Despite the outstanding quarter, we are not without our challenges. After experiencing increasing production from our Farm Bureau sales force over the last several quarters, sales moderated during the quarter, and premiums collected were not as high as the very strong levels achieved in the second quarter of 2002 due to a decrease in variable premiums. Also, like others in our industry, we at FBL are challenged to maintain our investment spreads in this low interest rate environment and are utilizing interest rate swaps Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. , as appropriate, in the asset liability management process for our fixed annuity portfolio." Product Revenues Up Five Percent. Premiums and product charges for the second quarter of 2003 increased five percent to $56,148,000 compared to $53,463,000 in the second quarter of 2002. Interest sensitive product charges and traditional life insurance premiums each increased five percent. Premiums collected totaled $314,574,000 in the second quarter of 2003, which includes $175,098,000 assumed under the coinsurance agreement with American Equity. Excluding the impact of the American Equity coinsurance agreement, collected premiums decreased two 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 14 percent, the traditional and universal life insurance segment increasing three percent and the variable segment decreasing 29 percent. In the second quarter of 2002, premiums assumed from American Equity totaled $234,992,000. Investment Income. Net investment income in the second quarter of 2003 increased over 20 percent to $99,970,000 compared to $82,977,000 in the second quarter of 2002. This increase is due to an increase in average invested assets, resulting primarily from cash received in 2002 and the first half of 2003 pursuant to the American Equity coinsurance agreement and 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 7.20 percent for the six months ended June 30, 2003, compared to 7.25 percent for the same period of 2002. The 2003 yield reflects the impact of a decline in market interest rates, partially offset by an increase in investment fee income. Fee income from bond calls and mortgage loan prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. totaled $3,994,000 in the second quarter of 2003 compared to less than $100,000 in the second quarter of 2002. 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 $10,708,000 in the second quarter of 2003, compared to a derivative loss of $8,655,000 in the second quarter of 2002. The increase in 2003 derivative income is due primarily to the unrealized appreciation 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 American Equity. 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 Gains on Investments. In the second quarter of 2003, FBL recognized net realized gains on investments of $4,516,000, compared to net realized losses on investments of $5,823,000 in the second quarter of 2002. Second quarter 2003 realized gains include realized gains from sales of securities of $7,301,000, realized losses from sales of securities of $341,000 and realized losses from the write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of securities that became other-than-temporarily impaired See assistive technology. of $2,444,000. Benefits and Expenses. Benefits and expenses totaled $143,952,000 in the second quarter of 2003, compared to $108,285,000 in the second quarter of 2002. This increase is due primarily to an increase in the volume of business in force resulting from the coinsurance agreement with American Equity. Additionally, death benefits for the second quarter of 2003 were higher than the second quarter of 2002, but still within a reasonable range. Partially offsetting these increases was the impact of reductions in dividend and interest crediting rates on many products throughout 2002 and 2003. Income from Equity Investments. Equity income, net of related income taxes, was $1,438,000 in the second quarter of 2003, compared to $679,000 in the second quarter of 2002. Equity income in the second quarter of 2003 includes $945,000 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 second quarter of 2003 were driven by strong increases in the traditional annuity and traditional and universal life insurance segments. Further detail by segment is provided in FBL's financial supplement, which is available on FBL's web site, www.fblfinancial.com. Assets Total $7.4 Billion. Total assets increased $634 million to $7.4 billion at June 30, 2003, from $6.8 billion at December December: see month. 31, 2002. At June 30, 2003, 94 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 12 percent to $26.44 at June 30, 2003, from $23.71 at December 31, 2002. Conference Call. FBL management will hold a conference call with investors to discuss second quarter 2003 results. The call will be held tomorrow, July July: see month. 31, 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. 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) internal growth within its traditional Farm Bureau distribution network, (2) alliances and relationships with other companies and (3) consolidations. - FINANCIAL INFORMATION FOLLOWS -
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three months ended
June 30,
2003 2002
----------- -----------
REVENUES
Interest sensitive product charges $20,628 $19,608
Traditional life insurance premiums 35,281 33,677
Accident and health premiums 239 178
Net investment income 99,970 82,977
Derivative income (loss) 10,708 (8,655)
Realized gains (losses) on investments 4,516 (5,823)
Other income 4,422 4,338
----------- -----------
Total revenues 175,764 126,300
BENEFITS AND EXPENSES
Interest sensitive product benefits 71,706 42,958
Traditional life insurance and accident and
health benefits 18,996 19,286
Increase in traditional life and accident and
health future policy benefits 10,996 11,659
Distributions to participating policyholders 6,583 7,696
Underwriting, acquisition and insurance
expenses 31,773 23,681
Interest expense 108 181
Other expenses 3,790 2,824
----------- -----------
Total benefits and expenses 143,952 108,285
----------- -----------
31,812 18,015
Income taxes (10,470) (5,450)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary
trust (1,212) (1,212)
Other 61 (62)
Equity income, net of related income taxes 1,438 679
----------- -----------
Net income 21,629 11,970
Dividends on Series B and C preferred stock (1,116) (1,080)
----------- -----------
Net income applicable to common stock $20,513 $10,890
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Earnings per common share - assuming dilution $0.72 $0.39
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Weighted average common shares 27,897,773 27,599,815
Effect of dilutive securities 469,649 625,877
----------- -----------
Weighted average common shares - diluted 28,367,422 28,225,692
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FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Six months ended
June 30,
2003 2002
----------- -----------
REVENUES
Interest sensitive product charges $41,250 $38,380
Traditional life insurance premiums 66,654 63,140
Accident and health premiums 326 270
Net investment income 197,917 162,514
Derivative income (loss) 5,635 (9,437)
Realized losses on investments (1,116) (3,577)
Other income 8,431 8,797
----------- -----------
Total revenues 319,097 260,087
BENEFITS AND EXPENSES
Interest sensitive product benefits 125,786 91,226
Traditional life insurance and accident and
health benefits 38,631 36,668
Increase in traditional life and accident and
health future policy benefits 18,393 19,504
Distributions to participating policyholders 14,239 15,667
Underwriting, acquisition and insurance
expenses 64,653 48,372
Interest expense 226 358
Other expenses 7,314 6,100
----------- -----------
Total benefits and expenses 269,242 217,895
----------- -----------
49,855 42,192
Income taxes (16,083) (13,121)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary
trust (2,425) (2,425)
Other 11 (95)
Equity income (loss), net of related income
taxes 2,217 (1,036)
----------- -----------
Net income 33,575 25,515
Dividends on Series B and C preferred stock (2,222) (2,151)
----------- -----------
Net income applicable to common stock $31,353 $23,364
=========== ===========
Earnings per common share - assuming dilution $1.11 $0.83
=========== ===========
Weighted average common shares 27,861,670 27,538,285
Effect of dilutive securities 460,009 571,231
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Weighted average common shares - diluted 28,321,679 28,109,516
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FBL FINANCIAL GROUP, INC.
RECONCILIATION OF NET INCOME TO OPERATING INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three months ended
June 30,
2003 2002
--------- ---------
Net income applicable to common stock $20,513 $10,890
Adjustment:
Net realized (gains) losses on investments (1) (2,565) 2,465
--------- ---------
Operating income applicable to common stock $17,948 $13,355
========= =========
Operating earnings per common share - assuming
dilution $0.63 $0.47
========= =========
Six months ended
June 30,
2003 2002
--------- ---------
Net income applicable to common stock $31,353 $23,364
Adjustment:
Net realized losses on investments (1) 990 1,424
--------- ---------
Operating income applicable to common stock $32,343 $24,788
========= =========
Operating earnings per common share - assuming
dilution $1.14 $0.88
========= =========
(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
(gains) losses.
FBL FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share data)
June 30, December 31,
2003 2002
------------ ------------
Assets
Investments $6,064,492 $5,387,369
Cash and cash equivalents 119,684 263,011
Deferred policy acquisition costs 502,746 468,793
Other assets 353,763 332,559
Assets held in separate accounts 392,708 347,717
------------ ------------
Total assets $7,433,393 $6,799,449
============ ============
Liabilities and stockholders' equity
Policy liabilities and accruals $5,299,009 $4,856,207
Other policyholders' funds 494,030 462,113
Debt 40,000 40,000
Other liabilities 282,958 249,325
Liabilities related to separate accounts 392,708 347,717
------------ ------------
Total liabilities 6,508,705 5,955,362
Minority interest in subsidiaries 97,086 97,210
Series C redeemable preferred stock 86,978 85,514
Stockholders' equity 740,624 661,363
------------ ------------
Total liabilities and stockholders' equity $7,433,393 $6,799,449
============ ============
Book Value Per Share, securities at market $26.44 $23.71
============ ============
Book Value Per Share, securities at cost (2) $21.20 $20.28
============ ============
Common Shares Outstanding 27,902,063 27,771,269
============ ============
(2) Book value per share with securities at cost, a non-GAAP financial
measure, is based on stockholders' equity excluding the effect of
accumulated other comprehensive income, which was $146.2 million at
June 30, 2003 and $95.1 million at December 31, 2002. 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.
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