Market Overview

FBL Financial Group Reports Second Quarter 2018 Results

Share:

FBL Financial Group, Inc. (NYSE:FFG):

 

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

Three months ended June 30,
2018   2017
Net income attributable to FBL Financial Group $ 32,428   $ 32,291
Non-GAAP operating income(1) 32,693 30,817
Earnings per common share (assuming dilution):
Net income 1.30 1.29
Non-GAAP operating income(1)     1.31       1.23  
 

FBL Financial Group, Inc. (NYSE:FFG) today reported net income
attributable to FBL Financial Group for the second quarter of 2018 of
$32.4 million, or $1.30 per diluted common share, compared to $32.3
million, or $1.29 per diluted common share, for the second quarter of
2017. Non-GAAP operating income(1) totaled $32.7
million, or $1.31 per common share, for the second quarter of 2018,
compared to $30.8 million, or $1.23 per common share, for the second
quarter of 2017. Second quarter 2018 earnings per share reflects:

  • A growing book of profitable business
  • The benefit of other investment-related income of $0.05 per share
  • Mortality results better than expectations in the Corporate and Other
    Segment
  • A lower effective tax rate due to the Tax Cuts and Jobs Act of 2017

Non-GAAP 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 second quarter 2018 earnings results were
outstanding with net income of $1.30 per share and record non-GAAP
operating income of $1.31 per share," said James P. Brannen, Chief
Executive Officer of FBL Financial Group, Inc. "Our success builds on
the strong financial results achieved in the first quarter and reflects
increased sales in both annuities and life insurance. This positive
momentum drives our strategic focus: to serve our Farm Bureau market
niche, manage spreads, capital and expenses, and to support our
exclusive Farm Bureau agents and FBL employees who deliver on our
purpose to protect livelihoods and futures."

Product Revenues Increase from 2017. Premiums and product charges
for the second quarter of 2018 totaled $82.0 million compared to $79.7
million in the second quarter of 2017. Interest sensitive product
charges increased five percent while traditional life insurance premiums
increased two percent during the quarter. Premiums collected(2)
in the second quarter of 2018 totaled $171.4 million compared to $165.9
million in the second quarter of 2017. Annuity premiums collected
increased four percent and life insurance premiums collected also
increased four percent.

Investment Income of $104 Million in Second Quarter. Net
investment income in the second quarter of 2018 totaled $104.0 million,
compared to $103.9 million in the second quarter of 2017. This increase
reflects an increase in average invested assets partially offset by
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 5.15 percent for the
six months ended June 30, 2018, compared to 5.35 percent for the six
months ended June 30, 2017. At June 30, 2018, 97 percent of the fixed
maturity securities in FBL Financial Group's investment portfolio were
investment grade debt securities.

Benefits and Expenses. Benefits and expenses totaled $153.0
million in the second quarter of 2018, compared to $145.7 million in the
second quarter of 2017. Death benefits, net of reinsurance and reserves
released, totaled $26.6 million in the second quarter of 2018, compared
to $25.8 million in the second quarter of 2017. By its nature, mortality
experience can fluctuate from quarter to quarter.

Net Realized Gains in the Second Quarter. In the second quarter
of 2018, FBL Financial Group recognized net realized gains on
investments of $0.8 million. This is attributable to realized gains on
sales of $1.7 million and unrealized losses on equity securities of $0.9
million. In addition, other-than-temporary impairments totaled $0.5
million.

Stock Repurchases. During the second quarter of 2018, FBL
Financial Group repurchased 29,699 shares of its Class A common stock.
FBL Financial Group has $48.0 million remaining under its current stock
repurchase program.

Capital and Book Value. As of June 30, 2018, the book value per
share of FBL Financial Group common stock totaled $49.35, compared to
$55.59 at December 31, 2017. Book value per share, excluding accumulated
other comprehensive income(3), totaled $44.06 at June 30,
2018, compared to $44.16 at December 31, 2017. The June 30, 2018 company
action level risk based capital ratio of FBL Financial Group's wholly
owned subsidiary, Farm Bureau Life Insurance Company, was approximately
541 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, August 3, 2018, 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 whose purpose is to protect
livelihoods and futures. Operating under the consumer brand name Farm
Bureau Financial Services, it offers a broad range of life insurance and
annuity 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.

   

FBL Financial Group, Inc.
Consolidated Statements
of Operations (Unaudited)

(Dollars in thousands,
except per share data)

 
Three months ended Six months ended
June 30, June 30,
2018   2017 2018   2017
Revenues:
Interest sensitive product charges $ 30,906 $ 29,456 $ 61,004 $ 58,657
Traditional life insurance premiums 51,091 50,262 100,588 98,696
Net investment income 103,974 103,908 204,996 204,902
Net realized capital gains (losses) 841 921 (906 ) 518
Net other-than-temporary impairment losses recognized in earnings (504 ) (1,799 ) (66 )
Other income   3,637     4,450     8,237     8,210  
Total revenues 189,945 188,997 372,120 370,917
 
Benefits and expenses:
Interest sensitive product benefits 62,637 58,251 123,982 121,011
Traditional life insurance benefits 43,725 42,610 89,181 85,564
Policyholder dividends 2,560 2,557 5,111 5,110
Underwriting, acquisition and insurance expenses 37,210 36,341 76,787 70,694
Interest expense 1,213 1,213 2,426 2,425
Other expenses   5,627     4,740     11,220     8,891  
Total benefits and expenses   152,972     145,712     308,707     293,695  
36,973 43,285 63,413 77,222
Income taxes (6,650 ) (13,891 ) (11,337 ) (24,624 )
Equity income, net of related income taxes   2,087     2,924     3,942     6,155  
Net income 32,410 32,318 56,018 58,753
 
Net loss (income) attributable to noncontrolling interest   18     (27 )   41     (29 )
Net income attributable to FBL Financial Group, Inc. $ 32,428   $ 32,291   $ 56,059   $ 58,724  
 
Earnings per common share - assuming dilution $ 1.30   $ 1.29   $ 2.24   $ 2.34  
 
Weighted average common shares 24,916,597 25,031,312 24,960,391 25,033,307
Effect of dilutive securities   12,903     19,663     14,405     20,777  
Weighted average common shares - diluted   24,929,500     25,050,975     24,974,796     25,054,084  
 

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

In addition to net income, FBL Financial Group has consistently utilized
non-GAAP 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. Non-GAAP operating income
equals 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 net unrealized gains and losses on 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 combined presentation and evaluation of
non-GAAP operating income, together with net 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 Six months ended
June 30, June 30,
2018   2017 2018   2017

(Dollars in thousands,
except per share data)

Net income attributable to FBL Financial Group $ 32,428 $ 32,291 $ 56,059 $ 58,724
Adjustments:
Initial impact of the Tax Act(a) 754 1,823
Net realized gains/losses on investments(b) (c) (295 ) (788 ) 2,129 (234 )
Change in net unrealized gains/losses on derivatives(b)   (194 )   (686 )   315     (685 )
Non-GAAP operating income $ 32,693   $ 30,817   $ 60,326   $ 57,805  
 
Non-GAAP operating income per common share - assuming dilution $ 1.31   $ 1.23   $ 2.41   $ 2.30  
 

(a) Amount represents low income housing tax credit
investments (LIHTC) equity losses related to changes in tax rates
under the Tax Act.

(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.

(c) Beginning in 2018, the change in net unrealized
gains/losses on equity securities is included as an adjustment to
net income.

 

(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

   

  June 30,  
2018

December 31,
2017

Book value per share $ 49.35 $ 55.59

Less: Per share impact of accumulated other comprehensive income

  5.29     11.43  
 
Book value per share, excluding accumulated other comprehensive
income
$ 44.06   $ 44.16  
 

Book value per share excluding accumulated other comprehensive income is
a non-GAAP financial measure. Accumulated other comprehensive income
totaled $131.1 million at June 30, 2018 and $285.0 million at
December 31, 2017. 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)

 
June 30,
2018
December 31,
2017
Assets
Investments $ 8,516,674 $ 8,620,243
Cash and cash equivalents 23,705 52,696
Deferred acquisition costs 387,527 302,611
Other assets 429,754 439,100
Assets held in separate accounts   638,061     651,963  
Total assets $ 9,995,721   $ 10,066,613  
 
Liabilities and stockholders' equity
Liabilities
Future policy benefits $ 7,193,923 $ 7,050,465
Other policy funds, claims and benefits 624,843 634,128
Debt 124,000 97,000
Other liabilities 187,206 244,207
Liabilities related to separate accounts   638,061     651,963  
Total liabilities 8,768,033 8,677,763
 
Stockholders' equity
FBL Financial Group, Inc. stockholders' equity:
Preferred stock 3,000 3,000
Class A common stock 153,114 153,589
Class B common stock 72 72
Accumulated other comprehensive income 131,081 284,983
Retained earnings   940,389     947,148  
Total FBL Financial Group, Inc. stockholders' equity 1,227,656 1,388,792
Noncontrolling interest   32     58  
Total stockholders' equity   1,227,688     1,388,850  
Total liabilities and stockholders' equity $ 9,995,721   $ 10,066,613  
 
Common shares outstanding   24,818,209     24,930,526  
 

View Comments and Join the Discussion!