FBL Financial Group Reports Third 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)--Oct. 29, 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
September 30,
2003 2002
-----------------------
Net income applicable to common stock $14,704 $16,334
Operating income applicable to common stock 14,798 15,603
Earnings per common share (assuming
dilution):
Net income 0.51 0.58
Operating income 0.52 0.55
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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 $0.51 ($14,704,000) for the quarter ended September September: see month. 30, 2003, compared to $0.58 ($16,334,000) 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 $0.01 per share in the third quarter of 2003 and 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 $0.03 per share in the third 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 $14,798,000 for the quarter ended September 30, 2003, versus $15,603,000 in the third quarter of 2002. Diluted operating income per common share totaled $0.52 in the third quarter of 2003, compared to $0.55 in the third quarter of 2002. The decrease in operating income for the third quarter of 2003 is primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to an increase in the amortization of deferred policy acquisition costs. In addition, the 2002 third quarter benefited from a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. release of a group life reserve due to the exiting of that business. Operating income in the third quarter of 2003 includes an $0.08 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 $0.02 per share contribution in the third 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 third quarter results, Chief Executive Officer Bill Oddy stated, "This was another good quarter for FBL with operating income meeting our expectations of $0.52 per common share. We continue to see an increase in premiums collected from our core distribution, and our relationship with American Equity remains a positive contributor to our earnings. We are reaffirming our full year 2003 operating income guidance of $2.15-$2.20 per common share and expect fourth quarter 2003 earnings to be within a range of $0.49-$0.54 per common share." "We remain optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about FBL's future and are pleased to announce that we have reached an agreement in principle to renew our coinsurance agreement with American Equity Investment Life Insurance Company for at least another two years. Under this agreement, we expect to coinsure co·in·sure tr.v. co·in·sured, co·in·sur·ing, co·in·sures 1. To insure jointly. 2. To insure with coinsurance. Verb 1. at least $500 million of certain fixed and 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%. , annually. We are also pleased to report that we recently renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. our variable product alliance with United Farm Family Life Insurance Company of Indiana Indiana, state, United States Indiana, midwestern state in the N central United States. It is bordered by Lake Michigan and the state of Michigan (N), Ohio (E), Kentucky, across the Ohio R. (S), and Illinois (W). for another three years." Product Revenues Up Six Percent. Premiums and product charges for the third quarter of 2003 increased six percent to $52,324,000 compared to $49,316,000 in the third quarter of 2002. Interest sensitive product charges and traditional life insurance premiums each increased six percent due to an increase in the volume of business in force. Premiums collected totaled $336,749,000 in the third quarter of 2003, which includes $212,129,000 assumed under the coinsurance agreement with American Equity. Excluding the impact of the American Equity coinsurance agreement, collected premiums increased three 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 eight percent, the traditional and universal life insurance segment increasing four percent and the variable segment decreasing eight percent. In the third quarter of 2002, premiums assumed from American Equity totaled $232,528,000. Investment Income. Net investment income in the third quarter of 2003 increased 11 percent to $98,541,000 compared to $88,818,000 in the third quarter of 2002. This increase is due to an increase in average invested assets, resulting primarily from cash received under 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 6.98 percent for the nine months ended September 30, 2003, compared to 7.18 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 for the year. Fee income from bond calls and mortgage loan prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. and the impact of changing prepayments speeds 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. at quarter end totaled $1,957,000 in the third quarter of 2003 compared to $1,453,000 in the third 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 $2,078,000 in the third quarter of 2003, compared to a derivative loss of $1,133,000 in the third quarter of 2002. The increase in 2003 derivative income is due primarily to gains on the various indexes underlying the call options purchased to fund returns on equity-indexed annuities assumed from American Equity. Gains and losses on these 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 holders, which are recorded as a component of interest sensitive product benefits. Realized Losses on Investments. In the third quarter of 2003, FBL recognized net realized losses on investments of $318,000, compared to net realized gains on investments of $1,683,000 in the third quarter of 2002. Third quarter 2003 realized losses include realized gains from sales of securities of $1,834,000, realized losses from sales of securities of $1,000 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 $2,151,000. Benefits and Expenses. Benefits and expenses totaled $135,488,000 in the third quarter of 2003, compared to $117,209,000 in the third quarter of 2002. This increase is due primarily to an increase in the volume of business in force resulting principally from the coinsurance agreement with American Equity. Partially offsetting this was the impact of reductions in dividend and interest crediting rates on many products throughout 2002 and 2003. Interest expense increased due to the reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of dividends on company-obligated mandatorily Adv. 1. mandatorily - in a manner that cannot be evaded; "the ministry considers that contributions to such a fund should be met from voluntary donations rather than from rates compulsorily levied." compulsorily, obligatorily redeemable Redeemable Eligible for redemption under the terms of an indenture. preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. of subsidiary trust and Series C preferred stock beginning in the third quarter of 2003 in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the adoption of Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." In conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the adoption of this Statement, the company-obligated mandatorily redeemable preferred stock of subsidiary trust and Series C redeemable preferred stock were reclassified to debt on the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. . All reclassifications made due to the adoption of Statement No. 150 were permitted on a prospective basis only and are not reflected in prior periods. Income from Equity Investments. Equity income, net of related income taxes, was $1,534,000 in the third quarter of 2003, compared to $1,078,000 in the third quarter of 2002. Equity income in the third quarter of 2003 includes $1,357,000 of income, net of taxes, from FBL's 33 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 operating results for the third quarter of 2003 reflect strong increases 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 and variable product segments. The traditional and universal life insurance segment experienced a 32 percent decrease in pre-tax operating income primarily due to an increase in the amortization of deferred policy acquisition costs. Further detail by segment is provided in FBL's financial supplement, which is available on FBL's web site, www.fblfinancial.com. Assets Total $7.7 Billion. Total assets increased $940 million to $7.7 billion at September 30, 2003, from $6.8 billion at December December: see month. 31, 2002. At September 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 nine percent to $25.83 at September 30, 2003, from $23.71 at December 31, 2002. Conference Call. FBL management will hold a conference call with investors to discuss third quarter 2003 results. The call will be held tomorrow, October October: see month. 30, 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.
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Three months ended
Sept. 30,
2003 2002
----------- -----------
REVENUES
Interest sensitive product charges $21,027 $19,913
Traditional life insurance premiums 31,232 29,360
Accident and health premiums 65 43
Net investment income 98,541 88,818
Derivative income (loss) 2,078 (1,133)
Realized gains (losses) on investments (318) 1,683
Other income 3,980 4,193
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Total revenues 156,605 142,877
BENEFITS AND EXPENSES
Interest sensitive product benefits 61,653 54,407
Traditional life insurance and accident and
health benefits 19,377 20,543
Increase in traditional life and accident and
health future policy benefits 7,069 4,865
Distributions to participating policyholders 6,381 6,606
Underwriting, acquisition and insurance
expenses 34,976 27,823
Interest expense 2,406 175
Other expenses 3,626 2,790
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Total benefits and expenses 135,488 117,209
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21,117 25,668
Income taxes (7,921) (8,089)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary
trust - (1,213)
Other 11 (22)
Equity income, net of related income taxes 1,534 1,078
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Net income 14,741 17,422
Dividends on Series B and C preferred stock (37) (1,088)
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Net income applicable to common stock $14,704 $16,334
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Earnings per common share - assuming dilution $0.51 $0.58
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Weighted average common shares 27,993,153 27,692,367
Effect of dilutive securities 638,588 553,452
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Weighted average common shares - diluted 28,631,741 28,245,819
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FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
Nine months ended
Sept. 30,
2003 2002
----------- -----------
REVENUES
Interest sensitive product charges $62,277 $58,293
Traditional life insurance premiums 97,886 92,500
Accident and health premiums 391 313
Net investment income 296,458 251,332
Derivative income (loss) 7,713 (10,570)
Realized losses on investments (1,434) (1,894)
Other income 12,411 12,990
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Total revenues 475,702 402,964
BENEFITS AND EXPENSES
Interest sensitive product benefits 187,439 145,633
Traditional life insurance and accident and
health benefits 58,008 57,211
Increase in traditional life and accident and
health future policy benefits 25,462 24,369
Distributions to participating policyholders 20,620 22,273
Underwriting, acquisition and insurance
expenses 99,629 76,195
Interest expense 2,632 533
Other expenses 10,940 8,890
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Total benefits and expenses 404,730 335,104
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70,972 67,860
Income taxes (24,004) (21,210)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary
trust (2,425) (3,638)
Other 22 (117)
Equity income, net of related income taxes 3,751 42
----------- -----------
Net income 48,316 42,937
Dividends on Series B and C preferred stock (2,259) (3,239)
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Net income applicable to common stock $46,057 $39,698
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Earnings per common share - assuming dilution $1.62 $1.41
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Weighted average common shares 27,905,979 27,590,210
Effect of dilutive securities 526,080 565,645
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Weighted average common shares - diluted 28,432,059 28,155,855
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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
Sept. 30,
2003 2002
-------- --------
Net income applicable to common stock $14,704 $16,334
Adjustment:
Net realized losses (gains) on investments (1) 94 (731)
-------- --------
Operating income applicable to common stock $14,798 $15,603
======== ========
Operating earnings per common share - assuming
dilution $0.52 $0.55
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Nine months ended
Sept. 30,
2003 2002
-------- --------
Net income applicable to common stock $46,057 $39,698
Adjustment:
Net realized losses on investments (1) 1,084 693
-------- --------
Operating income applicable to common stock $47,141 $40,391
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Operating earnings per common share - assuming
dilution $1.66 $1.43
======== ========
(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
(gains).
FBL FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share data)
Sept. 30, Dec. 31,
2003 2002
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Assets
Investments $6,137,780 $5,387,369
Cash and cash equivalents 278,268 263,011
Deferred policy acquisition costs 545,664 468,793
Other assets 366,832 332,559
Assets held in separate accounts 410,527 347,717
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Total assets $7,739,071 $6,799,449
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Liabilities and stockholders' equity
Policy liabilities and accruals $5,549,479 $4,856,207
Other policyholders' funds 505,204 462,113
Debt 224,724 40,000
Other liabilities 320,453 249,325
Liabilities related to separate accounts 410,527 347,717
----------- -----------
Total liabilities 7,010,387 5,955,362
Minority interest in subsidiaries 109 97,210
Series C redeemable preferred stock - 85,514
Stockholders' equity 728,575 661,363
----------- -----------
Total liabilities and stockholders' equity $7,739,071 $6,799,449
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Book Value Per Share, securities at market $25.83 $23.71
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Book Value Per Share, securities at cost (2) $21.59 $20.28
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Common Shares Outstanding 28,088,631 27,771,269
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(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 $119.2 million at
September 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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