• FFG: $56.85

Press Release

FBL Financial Group Reports Third Quarter 2019 Results

Company Release - 10/31/2019 4:15 PM ET

WEST DES MOINES, Iowa--(BUSINESS WIRE)-- FBL Financial Group, Inc. (NYSE: FFG):

Financial Highlights
(Dollars in thousands, except per share data)

 

Three months ended September 30,

 

2019

 

2018

Net income attributable to FBL Financial Group

$

25,129

 

$

31,010

Adjusted operating income(1)

25,215

 

31,872

Earnings per common share (assuming dilution):

 

 

 

Net income

1.01

 

1.24

Adjusted operating income(1)

1.02

 

1.28

FBL Financial Group, Inc. (NYSE: FFG) today reported net income attributable to FBL Financial Group for the third quarter of 2019 of $25.1 million, or $1.01 per diluted common share, compared to $31.0 million, or $1.24 per diluted common share, for the third quarter of 2018. Adjusted operating income(1) totaled $25.2 million, or $1.02 per common share, for the third quarter of 2019, compared to $31.9 million, or $1.28 per common share, for the third quarter of 2018. Third quarter 2019 earnings per share reflects:

  • A negative impact of $0.09 per share from unlocking actuarial assumptions used in the calculation of deferred acquisition costs, unearned revenue reserves and certain reserves on interest sensitive products
  • Unfavorable mortality results in the Life segment
  • Lower spread income in the Annuity segment
  • Continued investment in the Wealth Management initiative
  • A nonrecurring tax benefit totaling $0.10 per share due to the execution of a tax planning strategy

Adjusted operating income differs from the GAAP measure, net income attributable to FBL Financial Group, in that it excludes the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in net unrealized gains and losses on derivatives and equity securities. For further information on this non-GAAP financial measure, please refer to Note (1) and the reconciliation provided within this release.

"FBL Financial Group's third quarter 2019 earnings results were below our expectations. This was due to several factors, including our annual actuarial assumption review, higher mortality benefits and lower spread income from the decline in investment yields," said James P. Brannen, Chief Executive Officer of FBL Financial Group, Inc. "We continue to benefit from our balanced book of life and annuity business to provide earnings stability. As we look ahead toward the close of 2019, we remain focused on financial discipline and supporting our exclusive Farm Bureau agency force as we work together to serve the needs of the Farm Bureau niche market."

Product Revenues. Premiums and product charges for the third quarter of 2019 totaled $78.1 million compared to $79.3 million in the third quarter of 2018. Interest sensitive product charges were flat while traditional life insurance premiums decreased two percent during the quarter. Premiums collected(2) in the third quarter of 2019 totaled $142.1 million compared to $141.7 million in the third quarter of 2018. Total life insurance premiums collected increased two percent while annuity premiums collected were flat, impacted by the low market interest rate environment.

Investment Income. Net investment income in the third quarter of 2019 totaled $101.5 million, compared to $105.8 million in the third quarter of 2018. This decrease is due to a decrease in derivative income and the impact of lower investment yields. The annualized yield earned on average invested assets, with securities at amortized cost, including investments held as securities and indebtedness of related parties, was 4.97 percent for the nine months ended September 30, 2019 compared to 5.16 percent for the nine months ended September 30, 2018. At September 30, 2019, 98 percent of the fixed maturity securities in FBL Financial Group's investment portfolio were investment grade debt securities.

Benefits, Expenses and Taxes. Benefits and expenses totaled $158.6 million in the third quarter of 2019, compared to $153.9 million in the third quarter of 2018. Death benefits, net of reinsurance and reserves released, totaled $30.2 million in the third quarter of 2019, compared to $29.4 million in the third quarter of 2018. By its nature, mortality experience can fluctuate from quarter to quarter. Federal income taxes were reduced $2.5 million, or $0.10 per share, during the third quarter of 2019 due to the execution of a tax planning strategy.

Unlocking. During the third quarter of 2019, FBL Financial Group unlocked the assumptions used in the calculation of deferred acquisition costs, unearned revenue reserves and certain reserves on interest sensitive products. This unlocking resulted in a pre-tax unfavorable impact of $2.7 million, or $0.09 per share after-tax.

Net Realized Gains. In the third quarter of 2019, FBL Financial Group recognized net realized gains on investments of $0.7 million. This is attributable to realized gains of $0.5 million and a gain from the increase in fair value of equity securities of $0.2 million.

Stock Repurchases. During the third quarter of 2019, FBL Financial Group did not repurchase any shares of its Class A or Class B common stock. FBL Financial Group has $36.3 million remaining under its current stock repurchase program.

Capital and Book Value. As of September 30, 2019, the book value per share of FBL Financial Group common stock totaled $61.28, compared to $47.78 at December 31, 2018. Book value per share, excluding accumulated other comprehensive income(3), totaled $44.81 at September 30, 2019, compared to $44.09 at December 31, 2018. The September 30, 2019 company action level risk based capital ratio of FBL Financial Group's wholly owned subsidiary, Farm Bureau Life Insurance Company, was approximately 555 percent.

Further Financial Information. Further information on FBL Financial Group's financial results, including results by segment, may be found in FBL Financial Group's financial supplement, available on its website, www.fblfinancial.com.

Conference Call. FBL Financial Group will hold a conference call with investors tomorrow, November 1, 2019, at 11:00 a.m. Eastern Time. The call will be webcast and a replay will be available on FBL Financial Group's website.

Certain statements in this release concerning FBL Financial Group's prospects for the future are forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act. These statements generally can be identified by their context, including terms such as “believes,” “anticipates,” “expects,” or similar words. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statement. These risks and uncertainties are detailed in FBL Financial Group's reports filed with the Securities and Exchange Commission and include, but are not limited to, changes in interest rates, difficult conditions in financial markets and the economy, lack of liquidity and access to capital, investment valuations, competitive factors, a decrease in ratings, changes in laws and regulations, differences between actual claims experience and underwriting assumptions, relationships with Farm Bureau organizations, the ability to attract and retain sales agents and adverse results from litigation. These forward-looking statements are based on assumptions which FBL Financial Group believes to be reasonable; however, no assurance can be given that the assumptions will prove to be correct. FBL Financial Group undertakes no obligation to update any forward-looking statements.

FBL Financial Group is a holding company with the purpose to protect livelihoods and futures. Operating under the consumer brand name Farm Bureau Financial Services, its affiliates offer a broad range of life insurance, annuity and investment products distributed by multiline exclusive Farm Bureau agents. In addition, FBL Financial Group manages all aspects of two Farm Bureau affiliated property-casualty insurance companies for a management fee. Headquartered in West Des Moines, Iowa, FBL Financial Group is traded on the New York Stock Exchange under the symbol FFG. For more information, please visit www.fblfinancial.com and www.fbfs.com.

- FINANCIAL INFORMATION AND NOTES FOLLOW -

FBL Financial Group, Inc.

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share data)

 

 

Three months ended

 

Nine months ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

Interest sensitive product charges

$

31,135

 

 

$

31,161

 

 

$

94,935

 

 

$

92,165

 

Traditional life insurance premiums

46,982

 

 

48,124

 

 

147,361

 

 

148,712

 

Net investment income

101,478

 

 

105,757

 

 

316,012

 

 

310,753

 

Net realized capital gains (losses)

696

 

 

(709

)

 

11,230

 

 

(1,615

)

Net other-than-temporary impairment losses recognized in earnings

(50

)

 

(50

)

 

(919

)

 

(1,090

)

Other income

4,417

 

 

3,828

 

 

12,501

 

 

12,065

 

Total revenues

184,658

 

 

188,111

 

 

581,120

 

 

560,990

 

 

 

 

 

 

 

 

 

Benefits and expenses:

 

 

 

 

 

 

 

Interest sensitive product benefits

67,147

 

 

70,145

 

 

202,966

 

 

194,127

 

Traditional life insurance benefits

42,877

 

 

44,168

 

 

131,512

 

 

133,349

 

Policyholder dividends

2,441

 

 

2,480

 

 

7,539

 

 

7,591

 

Underwriting, acquisition and insurance expenses

39,197

 

 

30,834

 

 

114,334

 

 

107,621

 

Interest expense

1,213

 

 

1,212

 

 

3,637

 

 

3,638

 

Other expenses

5,764

 

 

5,061

 

 

18,649

 

 

16,281

 

Total benefits and expenses

158,639

 

 

153,900

 

 

478,637

 

 

462,607

 

 

26,019

 

 

34,211

 

 

102,483

 

 

98,383

 

Income taxes

(1,642

)

 

(4,818

)

 

(13,429

)

 

(14,462

)

Equity income, net of related income taxes

799

 

 

1,642

 

 

2,423

 

 

3,441

 

Net income

25,176

 

 

31,035

 

 

91,477

 

 

87,362

 

 

Net (income) loss attributable to noncontrolling interest

(47

)

 

(25

)

 

(7

)

 

16

 

Net income attributable to FBL Financial Group, Inc.

$

25,129

 

 

$

31,010

 

 

$

91,470

 

 

$

87,378

 

 

 

 

 

 

 

 

 

Earnings per common share - assuming dilution

$

1.01

 

 

$

1.24

 

 

$

3.69

 

 

$

3.50

 

 

 

 

 

 

 

 

 

Weighted average common shares

24,758,639

 

 

24,918,725

 

 

24,760,311

 

 

24,946,752

 

Effect of dilutive securities

10,035

 

 

11,076

 

 

10,773

 

 

13,317

 

Weighted average common shares - diluted

24,768,674

 

 

24,929,801

 

 

24,771,084

 

 

24,960,069

 

 

 

 

 

 

 

 

 

(1) Reconciliation of Net Income Attributable to FBL Financial Group to Adjusted Operating Income - Unaudited

FBL Financial Group consistently utilizes adjusted operating income, a financial measure common in the life insurance industry that is not prepared in accordance with U.S. generally accepted accounting principles (GAAP), as a primary economic measure to evaluate its financial performance. Adjusted operating income consists of net income attributable to FBL Financial Group adjusted to exclude the initial impact of changes in federal statutory income tax rates and tax laws, realized gains and losses on investments, and the change in fair value of derivatives and equity securities, which can fluctuate greatly from period to period. 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 (loss). Specifically, call options relating to indexed business are one-year assets while the embedded derivatives in the indexed contracts represent the rights of the contract holder to receive index credits over the entire period the indexed products are expected to be in force. This non-GAAP measure is used for goal setting, determining short-term incentive compensation and evaluating performance on a basis comparable to that used by many in the investment community. FBL Financial Group believes the presentation and evaluation of adjusted operating income provides information that may enhance an investor's understanding of FBL Financial Group's underlying results and profitability. A reconciliation is provided in the following table:

 

Three months ended

 

Nine months ended

 

September 30,

 

September 30,

 

2019

 

2018

 

2019

 

2018

 

(Dollars in thousands,

except per share data)

Net income attributable to FBL Financial Group

$

25,129

 

 

$

31,010

 

 

$

91,470

 

 

$

87,378

 

Adjustments:

 

 

 

 

 

 

 

Initial impact of the Tax Act(a)

 

 

(617

)

 

 

 

(617

)

Net realized gains/losses on investments(b)

(440

)

 

603

 

 

(7,960

)

 

2,132

 

Change in net unrealized gains/losses on derivatives(b)

526

 

 

876

 

 

(657

)

 

1,191

 

Adjusted operating income

$

25,215

 

 

$

31,872

 

 

$

82,853

 

 

$

90,084

 

 

 

 

 

 

 

 

 

Adjusted operating income per common share - assuming dilution

$

1.02

 

 

$

1.28

 

 

$

3.34

 

 

$

3.60

 

 

 

 

 

(a) Amount represents a change in the provisional estimate of the impact of the Tax Cuts and Jobs Act of 2017 on deferred tax assets and liabilities as of December 31, 2017.

(b) Net of adjustments, as applicable, to amortization of unearned revenue reserves, deferred acquisition costs, value of insurance in force acquired, interest sensitive policy reserves and income taxes attributable to these items.

(2) Premiums Collected - Net statutory premiums collected is a non-GAAP measure and includes premiums collected from annuities and universal life-type products. It is a useful metric for investors as it is a measure of sales production.

For GAAP reporting, these premiums received are not reported as revenues.

(3) Reconciliation of Book Value Per Share Excluding Accumulated Other Comprehensive Income - Unaudited

 

September 30,

 

December 31,

2019

2018

Book value per share

$

61.28

 

$

47.78

Less: Per share impact of accumulated other comprehensive income

16.47

 

3.69

Book value per share, excluding accumulated other comprehensive income

$

44.81

 

$

44.09

Book value per share excluding accumulated other comprehensive income is a non-GAAP financial measure. Accumulated other comprehensive income totaled $406.2 million at September 30, 2019 and $91.3 million at December 31, 2018. Since accumulated other comprehensive income fluctuates from quarter to quarter due to unrealized changes in the fair value of investments caused principally by changes in market interest rates, FBL Financial Group believes this non-GAAP financial measure provides useful supplemental information.

FBL Financial Group, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

 

 

September 30,

 

December 31,

2019

 

2018

Assets

 

 

 

Investments

$

9,109,125

 

$

8,414,118

Cash and cash equivalents

13,007

 

19,035

Deferred acquisition costs

253,112

 

418,802

Other assets

441,139

 

420,394

Assets held in separate accounts

612,338

 

561,281

Total assets

$

10,428,721

 

$

9,833,630

 

 

 

 

Liabilities and stockholders' equity

 

 

 

Liabilities

 

 

 

Future policy benefits

$

7,325,794

 

$

7,205,471

Other policy funds, claims and benefits

595,453

 

615,177

Debt

113,000

 

97,000

Other liabilities

267,799

 

170,442

Liabilities related to separate accounts

612,338

 

561,281

Total liabilities

8,914,384

 

8,649,371

 

 

 

 

Stockholders' equity

 

 

 

FBL Financial Group, Inc. stockholders' equity:

 

 

 

Preferred stock

3,000

 

3,000

Class A common stock

152,566

 

152,652

Class B common stock

72

 

72

Accumulated other comprehensive income

406,175

 

91,318

Retained earnings

952,397

 

937,097

Total FBL Financial Group, Inc. stockholders' equity

1,514,210

 

1,184,139

Noncontrolling interest

127

 

120

Total stockholders' equity

1,514,337

 

1,184,259

Total liabilities and stockholders' equity

$

10,428,721

 

$

9,833,630

 

 

 

 

Common shares outstanding

24,662,308

 

24,718,815

 

Kathleen Till Stange, V.P. Corporate & Investor Relations
(515) 226-6780, Kathleen.TillStange@FBLFinancial.com

Source: FBL Financial Group, Inc.