FBL Financial Group Reports Second Quarter 2006 Results.WEST DES MOINES, Iowa West Des Moines is a city in Polk, Dallas, and Warren counties in the U.S. state of Iowa. As of the 2000 census, the city population was 46,403; a special census taken in the spring of 2005 counted 51,744 residents. -- 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)
Three Months Ended
June 30,
2006 2005
------------------
Net income applicable to common stock $17,665 $18,258
Operating income applicable to common stock 20,274 18,308
Earnings per common share (assuming
dilution):
Net income 0.59 0.62
Operating income 0.68 0.62
----------------------------------------------------------------------
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 $0.59 ($17,665,000) for the quarter ended June June: see month. 30, 2006, compared to $0.62 ($18,258,000) 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 $20,274,000 for the quarter ended June 30, 2006, from $18,308,000 in the second quarter of 2005. Diluted operating income per common share increased to $0.68 in the second quarter of 2006 from $0.62 in the second quarter of 2005. 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/unrealized gains and losses on investments, 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. and a lawsuit lawsuit: see procedure; tort. settlement. 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 second quarter results, Chief Executive Officer Bill Oddy stated, "Our second quarter results were excellent with operating income per share increasing 10 percent and premiums collected increasing 50 percent. Sales growth was led by our EquiTrust Life independent channel, which had $442 million of premiums collected in the quarter, up 59 percent from the first quarter of 2006 and 89 percent from the second quarter of 2005. As a result of these strong sales, we are confident this unit will exceed its premiums collected target of $1.2 billion for the year." Commenting on FBL's earnings outlook, Oddy added, "As a result of our strong second quarter results and our positive outlook for the remainder of the year, we are increasing our 2006 operating income guidance $0.10 per share to a range of $2.50 to $2.60 per common share. We maintain our 2006 net income guidance at $2.75 to $2.85 per share." This earnings outlook is 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. Product Revenues Up. Premiums and product charges for the second quarter of 2006 increased two percent to $62,457,000 from $61,394,000 in the second quarter of 2005. Interest sensitive and index product charges increased nine percent due primarily to an increase in the volume and aging of business in force, while traditional life insurance premiums decreased three percent. Premiums collected(2) in the second quarter of 2006 increased 50 percent to $572,251,000 from $381,725,000 in the second quarter of 2005. This increase is due to growth in FBL's EquiTrust Life independent channel, which had $441,713,000 of premiums collected in the second quarter of 2006. Premiums collected from FBL's exclusive Farm Bureau Life distribution channel totaled $116,431,000 in the second quarter of 2006, declining 12 percent from the second quarter of 2005, primarily due to lower 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. sales. Investment Income. Net investment income in the second quarter of 2006 increased nine percent to $128,972,000 from $117,931,000 in the second quarter of 2005. This increase is due to an increase in average invested assets resulting primarily from inflows from Farm Bureau Life and EquiTrust Life. 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 6.09 percent for the six months ended June 30, 2006, compared to 6.36 percent for the same period of 2005. Derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. Loss. FBL's derivative loss totaled $22,431,000 in the second quarter of 2006, compared to derivative income of $120,000 in the second quarter of 2005. The derivative loss reflects a decrease in the value of the underlying equity market indices on which call options supporting FBL's index annuity business are based. Additionally, the loss reflects an increased cost of money for call options primarily due to the impact of growth in the volume of index annuities in force. Realized/Unrealized Gains on Investments. In the second quarter of 2006, FBL recognized net realized/unrealized gains on investments of $222,000, compared to realized/unrealized gains on investments of $2,876,000 in the second quarter of 2005. Second quarter 2006 realized/unrealized gains include 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. from sales of investments of $238,000, 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 $8,000, and unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. on trading securities of $8,000. Benefits and Expenses. Benefits and expenses totaled $149,027,000 in the second quarter of 2006, compared to $159,801,000 in the second quarter of 2005. The decrease in benefits and expenses is primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to lower index product benefits resulting from a decline in the value of underlying equity market indices supporting the index annuity business. Underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , acquisition and insurance expenses include a pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of $4,880,000 ($0.11 per common share after tax) in the second quarter of 2006 from the settlement of a lawsuit with a husband and wife who had applied for life insurance policies. The settlement ends litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. regarding the process Farm Bureau Life followed in denying insurance coverage for medical reasons. The settlement was entered into after adverse judicial rulings were made against Farm Bureau Life in June 2006. Prior to the issuance of the adverse judicial rulings, a material loss, net of insurance recoveries, was not deemed to be reasonably possible. Insurance claims have been filed under FBL's professional and general liability insurance policies for reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. of the settlement amount, but coverage has been denied. FBL believes these claims are valid and has filed lawsuits against the insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. and an insurance broker to recover damages. Any recoveries from third parties will be reported in subsequent accounting periods. Operating Results by Segment. Consistent with prior quarters, the majority of FBL's operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before for the second quarter of 2006 are attributable to the traditional annuity and traditional and universal life insurance segments. Further detail and results by segment are provided in FBL's financial supplement, which is available on FBL's website, www.fblfinancial.com. Assets Total $10.6 Billion. Total assets increased $492 million to $10.6 billion at June 30, 2006, from $10.2 billion at December December: see month. 31, 2005. At June 30, 2006, 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: declined to $23.97 at June 30, 2006 from $28.88 at December 31, 2005, reflecting unrealized changes in the fair market value of investments caused principally by changes in market interest rates. 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 (loss)(3) increased five percent to $27.29 at June 30, 2006, from $26.05 at December 31, 2005. Conference Call. FBL management will hold a conference call with investors to discuss second quarter 2006 results. The call will be held tomorrow, August 4, 2006, 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 website, 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. The risks and uncertainties that could cause actual results to differ materially are detailed in FBL's reports filed with the Securities and Exchange Commission and include interest rate changes, competitive factors, volatility of financial markets, the ability to attract and retain sales agents and a change in ratings. These forward-looking statements are based on assumptions which FBL Financial Group believes to be reasonable. No assurance can be given that the assumptions will prove to be correct. 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
June 30,
2006 2005
----------- -----------
REVENUES
Interest sensitive and index product charges $26,495 $24,293
Traditional life insurance premiums 35,773 36,915
Accident and health premiums 189 186
Net investment income 128,972 117,931
Derivative income (loss) (22,431) 120
Realized/unrealized gains on investments 222 2,876
Other income 5,976 5,423
----------- -----------
Total revenues 175,196 187,744
BENEFITS AND EXPENSES
Interest sensitive and index product benefits 54,678 75,352
Traditional life insurance and accident and
health benefits 22,590 23,166
Increase in traditional life and accident and
health future policy benefits 10,558 10,408
Distributions to participating policyholders 5,794 5,678
Underwriting, acquisition and insurance
expenses 47,156 37,038
Interest expense 2,878 3,375
Other expenses 5,373 4,784
----------- -----------
Total benefits and expenses 149,027 159,801
----------- -----------
26,169 27,943
Income taxes (8,684) (9,829)
Minority interest in earnings of subsidiaries (71) (9)
Equity income, net of related income taxes 288 190
----------- -----------
Net income 17,702 18,295
Dividends on Series B preferred stock (37) (37)
----------- -----------
Net income applicable to common stock $17,665 $18,258
=========== ===========
Earnings per common share - assuming dilution $0.59 $0.62
=========== ===========
Weighted average common shares 29,381,931 28,849,494
Effect of dilutive securities 473,666 477,412
----------- -----------
Weighted average common shares - diluted 29,855,597 29,326,906
=========== ===========
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Six months ended
June 30,
2006 2005
----------- -----------
REVENUES
Interest sensitive and index product charges $51,809 $48,061
Traditional life insurance premiums 70,161 70,248
Accident and health premiums 259 206
Net investment income 251,352 232,037
Derivative loss (5,599) (12,280)
Realized/unrealized gains on investments 11,826 3,288
Other income 11,455 10,392
----------- -----------
Total revenues 391,263 351,952
BENEFITS AND EXPENSES
Interest sensitive and index product benefits 141,380 130,910
Traditional life insurance and accident and
health benefits 45,251 43,937
Increase in traditional life and accident and
health future policy benefits 19,311 18,658
Distributions to participating policyholders 11,491 11,842
Underwriting, acquisition and insurance
expenses 88,962 75,506
Interest expense 5,839 6,670
Other expenses 10,870 9,550
----------- -----------
Total benefits and expenses 323,104 297,073
----------- -----------
68,159 54,879
Income taxes (23,065) (19,203)
Minority interest in earnings of subsidiaries (126) (107)
Equity income (loss), net of related income
taxes 468 (69)
----------- -----------
Net income 45,436 35,500
Dividends on Series B preferred stock (75) (75)
----------- -----------
Net income applicable to common stock $45,361 $35,425
=========== ===========
Earnings per common share - assuming dilution $1.52 $1.21
=========== ===========
Weighted average common shares 29,305,216 28,804,596
Effect of dilutive securities 505,343 495,810
----------- -----------
Weighted average common shares - diluted 29,810,559 29,300,406
=========== ===========
(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/unrealized
gains and losses on investments, the change in net unrealized
gains and losses on derivatives and a lawsuit settlement. FBL uses
operating income, in addition to net income, to measure its
performance since realized/unrealized gains and losses on
investments and the change in net unrealized gains and losses on
derivatives can fluctuate greatly from quarter to quarter, and the
lawsuit settlement in the second quarter of 2006 is a one-time,
nonrecurring item. Any recoveries from third parties for this
lawsuit will be reported in subsequent accounting periods as an
operating income reconciling item. These fluctuations make it
difficult to analyze core operating trends. In addition, for
derivatives not designated as hedges, there is a mismatch between
the valuation of the asset and liability when deriving 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
June 30,
2006 2005
--------- --------
Net income applicable to common stock $17,665 $18,258
Adjustments:
Net realized/unrealized gains on investments (a) (88) (1,274)
Net change in unrealized gains/losses on
derivatives (a) (475) 1,324
Lawsuit settlement (a) 3,172 -
--------- --------
Operating income applicable to common stock $20,274 $18,308
========= ========
Operating income per common share - assuming
dilution $0.68 $0.62
========= ========
Six months ended
June 30,
2006 2005
-------- --------
Net income applicable to common stock $45,361 $35,425
Adjustments:
Net realized/unrealized gains on investments (a) (7,781) (1,801)
Net change in unrealized gains/losses on
derivatives (a) (2,930) 1,491
Lawsuit settlement (a) 3,172 -
-------- --------
Operating income applicable to common stock $37,822 $35,115
======== ========
Operating income per common share - assuming
dilution $1.27 $1.20
======== ========
(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 these items.
(2) Premiums Collected - Net statutory premiums collected, a measure
of sales production, is a non-GAAP measure and includes premiums
collected from annuities and universal life-type products. For GAAP
reporting, these premiums received are not reported as revenues.
(3) Reconciliation of Book Value Per Share Excluding Accumulated Other
Comprehensive Income (Unaudited)
June 30, December 31,
2006 2005
----------- ------------
Book value per common share $23.97 $28.88
Accumulated other comprehensive income (loss) (3.32) 2.83
----------- ------------
Book value per common share, excluding
accumulated other comprehensive income
(loss) $27.29 $26.05
=========== ============
Book value per common share excluding accumulated other comprehensive
income (loss) is a non-GAAP financial measure. Accumulated other
comprehensive income (loss) totaled a loss of $98,149,000 at June 30,
2006 and income of $82,301,000 at December 31, 2005. Since accumulated
other comprehensive income (loss) 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)
June 30, December 31,
2006 2005
------------ ------------
Assets
Investments $8,597,109 $8,299,208
Cash and cash equivalents 20,666 5,120
Deferred policy acquisition costs 777,011 695,067
Deferred sales inducements 188,288 146,978
Other assets 377,159 367,665
Assets held in separate accounts 685,750 639,895
------------ ------------
Total assets $10,645,983 $10,153,933
============ ============
Liabilities and stockholders' equity
Policy liabilities and accruals $8,326,055 $7,634,922
Other policyholders' funds 556,947 560,863
Debt 218,421 218,446
Other liabilities 146,315 255,412
Liabilities related to separate accounts 685,750 639,895
------------ ------------
Total liabilities 9,933,488 9,309,538
Minority interest in subsidiaries 208 164
Stockholders' equity 712,287 844,231
------------ ------------
Total liabilities and stockholders' equity $10,645,983 $10,153,933
============ ============
Common Shares Outstanding 29,588,222 29,133,331
============ ============
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