UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 1-11917
FBL Financial Group, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 University Avenue, West Des Moines, Iowa 50266
(Address of principal executive offices) (Zip Code)
(515) 225-5400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,716,656 shares of Class A
common stock and 1,192,990 shares of Class B common stock as of April 30, 1997.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1997 - $686,978; 1996 - $709,168) $ 683,876 $ 694,351
Available for sale, at market (amortized cost: 1997 - $1,597,785; 1996 - $1,542,748) 1,593,025 1,573,944
Equity securities, at market (cost: 1997 - $67,039; 1996 - $74,792) 74,130 86,991
Held in inventory, at estimated fair value (amortized
cost: 1997 - $7,545; 1996 - $10,621), substantially all held for sale 10,297 15,899
Mortgage loans on real estate 300,811 293,777
Investment real estate, less allowances for depreciation
of $2,107 in 1997 and $1,930 in 1996 28,081 28,391
Policy loans 119,939 118,996
Other long-term investments 8,381 8,388
Short-term investments 80,157 68,358
---------- ----------
Total investments 2,898,697 2,889,095
Cash and cash equivalents 4,535 3,583
Securities and indebtedness of related parties 36,622 37,213
Accrued investment income 34,397 33,537
Accounts and notes receivable 2,349 2,235
Amounts receivable from affiliates 6,353 4,439
Reinsurance recoverable 37,669 38,919
Deferred policy acquisition costs 174,865 166,912
Value of insurance in force acquired 19,122 19,928
Property and equipment, less allowances for depreciation of
$47,776 in 1997 and $46,824 in 1996 65,709 62,510
Current income taxes recoverable -- 4,002
Goodwill, less accumulated amortization of $2,327 in 1997 and $2,172 in 1996 9,571 9,726
Other assets 17,423 17,050
Assets held in separate accounts 90,421 79,043
---------- ----------
Total assets $3,397,733 $3,368,192
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Universal life and annuity products $1,481,008 $1,471,983
Traditional life insurance and accident and health products 684,276 678,674
Unearned revenue reserve 22,857 22,215
Other policy claims and benefits 9,411 10,737
Reserves on property-casualty policies 43,635 43,189
Unearned premiums on property-casualty policies 29,344 26,774
---------- ----------
2,270,531 2,253,572
Other policyholders' funds:
Supplementary contracts without life contingencies 129,708 125,581
Advance premiums and other deposits 86,435 86,410
Accrued dividends 15,217 14,243
---------- ----------
231,360 226,234
Long-term debt 24,581 24,581
Amounts payable to affiliates 11,276 10,910
Current income taxes payable 10,014 --
Deferred income taxes 16,910 40,612
Other liabilities 101,345 89,915
Liabilities related to separate accounts 90,421 79,043
---------- ----------
Total liabilities 2,756,438 2,724,867
Commitments and contingencies
Minority interest in subsidiaries 4,803 4,803
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series A shares 100,000 100,000
Class A common stock, without par value - authorized
88,500,000 shares, issued and outstanding 17,666,810 shares 43,773 43,773
Class B common stock, without par value - authorized
1,500,000 shares, issued and outstanding 1,192,990 shares 7,567 7,567
Net unrealized investment gains 2,411 27,858
Retained earnings 482,741 459,324
---------- ----------
Total stockholders' equity 636,492 638,522
---------- ----------
Total liabilities and stockholders' equity $3,397,733 $3,368,192
========== ==========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Universal life and annuity product charges $ 11,296 $ 11,317
Traditional life insurance and accident and health premiums 22,548 21,783
Property-casualty premiums 11,207 4,298
Net investment income 54,808 52,428
Realized gains (losses) on investments 21,837 (2,098)
Other income 6,381 5,592
------------ ------------
Total revenues 128,077 93,320
Benefits and expenses:
Universal life and annuity benefits 30,419 30,353
Traditional life insurance and accident and health benefits 14,179 12,096
Increase in traditional and accident and health future policy benefits 5,521 5,294
Distributions to participating policyholders 6,708 6,475
Property-casualty losses and loss adjustment expenses 8,902 3,211
Underwriting, acquisition and insurance expenses 18,331 15,780
Interest expense 376 227
Other expenses 4,484 3,927
------------ ------------
Total benefits and expenses 88,920 77,363
------------ ------------
39,157 15,957
Income taxes (13,138) (5,689)
Minority interest in earnings of subsidiaries (89) (268)
Equity income, net of related income taxes 623 889
------------ ------------
Net income 26,553 10,889
Dividends on preferred stock (1,250) --
------------ ------------
Net income applicable to common stock $ 25,303 $ 10,889
============ ============
Net income per common share $ 1.33 $ 0.46
============ ============
Weighted average common shares outstanding 19,057,448 23,859,800
============ ============
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
COMMON
STOCK AND
CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN
STOCK STOCK STOCK CAPITAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ -- $ -- $ -- $ 146,481
Recapitalization and conversion of common stock -- 139,157 7,324 (146,481)
Net income for three months ended March 31, 1996 -- -- -- --
Change in net unrealized investment gains/losses -- -- -- --
Adjustment resulting from capital transaction of equity investee -- 4,616 243 --
--------- --------- --------- ---------
Balance at March 31, 1996 $ -- $ 143,773 $ 7,567 $ --
========= ========= ========= =========
Balance at January 1, 1997 $ 100,000 $ 43,773 $ 7,567 $ --
Net income for three months ended March 31, 1997 -- -- -- --
Change in net unrealized investment gains/losses -- -- -- --
Dividends on preferred stock -- -- -- --
Dividends on common stock -- -- -- --
--------- --------- --------- ---------
Balance at March 31, 1997 $ 100,000 $ 43,773 $ 7,567 $ --
========= ========= ========= =========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
NET
UNREALIZED TOTAL
INVESTMENT RETAINED STOCKHOLDERS'
GAINS EARNINGS EQUITY
--------- --------- ------------
<S> <C> <C> <C>
Balance at January 1, 1996 $ 37,807 $ 380,010 $ 564,298
Recapitalization and conversion of common stock -- -- --
Net income for three months ended March 31, 1996 -- 10,889 10,889
Change in net unrealized investment gains/losses (24,026) -- (24,026)
Adjustment resulting from capital transaction of equity investee -- -- 4,859
--------- --------- ---------
Balance at March 31, 1996 $ 13,781 $ 390,899 $ 556,020
========= ========= =========
Balance at January 1, 1997 $ 27,858 $ 459,324 $ 638,522
Net income for three months ended March 31, 1997 -- 26,553 26,553
Change in net unrealized investment gains/losses (25,447) -- (25,447)
Dividends on preferred stock -- (1,250) (1,250)
Dividends on common stock -- (1,886) (1,886)
--------- --------- ---------
Balance at March 31, 1997 $ 2,411 $ 482,741 $ 636,492
========= ========= =========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 26,553 $ 10,889
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 25,634 26,353
Charges for mortality and administration (11,687) (11,525)
Deferral of unearned revenues 539 424
Amortization of unearned revenue reserve (148) (216)
Provision for depreciation and amortization 4,199 3,920
Net gains and losses related to investments held in inventory (1,617) (1,831)
Realized (gains) losses on investments (21,837) 2,098
Increase in traditional, accident and health and property-casualty benefit accruals 8,244 6,879
Policy acquisition costs deferred (9,461) (6,998)
Amortization of deferred policy acquisition costs 4,243 2,685
Provision for deferred income taxes (9,999) 1,147
Other 22,870 3,270
--------- ---------
Net cash provided by operating activities 37,533 37,095
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment 10,534 6,920
Fixed maturities - available for sale 89,256 72,811
Equity securities 55,121 9,973
Held in inventory 7,318 6,815
Mortgage loans on real estate 9,208 8,028
Investment real estate 280 11
Policy loans 6,817 6,961
Other long-term investments 3 319
Short-term investments - net -- 13,276
--------- ---------
178,537 125,114
Acquisition of investments:
Fixed maturities - held for investment (24) (44,630)
Fixed maturities - available for sale (143,173) (99,363)
Equity securities (27,295) (17,395)
Held in inventory (99) (4,398)
Mortgage loans on real estate (16,373) (9,085)
Investment real estate (153) (1,370)
Policy loans (7,760) (7,487)
Other long-term investments -- (3)
Short-term investments - net (11,799) --
--------- ---------
(206,676) (183,731)
</TABLE>
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
Three months ended March 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Proceeds from disposal, repayments of advances and other $ 1,649 $ 12,507
distributions from equity investees
Investments in and advances to equity investees (673) (4,485)
Net purchases of property and equipment and other (5,219) (3,339)
-------- --------
Net cash used in investing activities (32,382) (53,934)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to
policyholder account balances 59,749 66,889
Return of policyholder account balances on interest sensitive
products (60,544) (48,954)
Repayments of long-term debt -- (828)
Distributions to minority interests (268) (268)
Dividends paid (3,136) --
-------- --------
Net cash provided by (used in) financing activities (4,199) 16,839
-------- --------
Increase in cash and cash equivalents 952 --
Cash and cash equivalents at beginning of period 3,583 --
-------- --------
Cash and cash equivalents at end of period $ 4,535 $ --
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest $ 369 $ 155
Income taxes 9,810 (444)
</TABLE>
See accompanying notes.
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's annual report on Form 10-K.
2. INVESTMENT OPERATIONS
Fixed maturity securities, comprised of bonds and redeemable preferred stocks,
that the Company has the positive intent and ability to hold to maturity are
designated as "held for investment". Held for investment securities are reported
at cost adjusted for amortization of premiums and discounts. Changes in the
market value of these securities, except for declines that are other than
temporary, are not reflected in the Company's financial statements. Fixed
maturity securities which may be sold are designated as "available for sale".
Available for sale securities are reported at market value and unrealized gains
and losses on these securities are included directly in stockholders' equity,
net of related adjustments to deferred policy acquisition costs, value of
insurance in force acquired, unearned revenue reserve and deferred income taxes.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholders' equity, net of any
related deferred income taxes.
Net unrealized investment gains as reported were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available
for sale $ 2,331 $ 43,395
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs 714 (2,021)
Value of insurance in force acquired 534 1,104
Unearned revenue reserve 131 382
Provision for deferred income taxes (1,299) (15,002)
-------- --------
Net unrealized investment gains $ 2,411 $ 27,858
======== ========
</TABLE>
During 1997, the Company sold equity investments in two affiliates to Farm
Bureau Mutual Insurance Company, another affiliate, at their estimated fair
value. The Company recorded $9.7 million in realized gains on these sales.
3. CREDIT ARRANGEMENTS
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $43.9 million from the FHLB as of March 31, 1997. As of March
31, 1997 and December 31, 1996, the Company had no outstanding debt under this
credit arrangement.
4. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At March 31, 1997, management is not aware
of any claims for which a material loss is reasonably possible.
The Company seeks to limit its exposure to loss on any single insured or event
and to recover a portion of benefits paid by ceding reinsurance to other
insurance enterprises. Reinsurance contracts do not relieve the Company of its
obligations to policyholders. To the extent that reinsuring companies are later
unable to meet obligations under reinsurance agreements, the Company's insurance
subsidiaries would be liable for these obligations, and payment of these
obligations could result in losses to the Company. To limit the possibility of
such losses, the Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk. No allowance for uncollectible amounts
has been established against the reinsurance recoverable since all amounts are
deemed to be collectible.
In connection with an investment in a limited real estate partnership, the
Company has agreed to pay any cash flow deficiencies of a medium-sized shopping
center owned by the partnership through January 1, 2001. At March 31, 1997, the
Company assessed the probability and amount of future cash flows from the
property and determined that no accrual was necessary. The limited partnership
has a $5.4 million mortgage loan, secured by the shopping center, with Farm
Bureau Mutual Insurance Company.
Assessments are, from time to time, levied on the insurance subsidiaries of the
Company by guaranty associations in most states in which the subsidiaries are
licensed to cover losses of policyholders of insolvent or rehabilitated
companies. In some states, these assessments can be partially recovered through
a reduction in future premium taxes. Because the Company is not able to
reasonably estimate the potential amounts of future assessments, the Company
recognizes its obligation for guaranty fund assessments when it receives notice
that an amount is payable to a guaranty fund. Expenses incurred for guaranty
fund assessments were $0.2 million and $0.4 million during the three months
ended March 31, 1997 and 1996, respectively.
5. SUBSEQUENT EVENT - STOCK REPURCHASE PLAN
On March 18, 1997, the Company's Board of Directors approved a plan to
repurchase up to 1,000,000 unregistered shares of the Company's Class A common
stock. On April 4, 1997, the Company repurchased 965,370 shares of Class A
common stock under this plan at $25.725 per share ($24.8 million), the average
of the closing prices over the prior ten days of trading on the New York Stock
Exchange. Net income per common share for the three-month period ended March 31,
1997 is estimated to have been $1.38 if the repurchases would have been
effective January 1, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING ANALYSIS OF THE CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE HEREIN. UNLESS NOTED
OTHERWISE, ALL REFERENCES INCLUDED HEREIN TO THE COMPANY INCLUDE ALL OF ITS
DIRECT AND INDIRECT SUBSIDIARIES, INCLUDING ITS PRIMARY LIFE INSURANCE
SUBSIDIARIES, FARM BUREAU LIFE INSURANCE COMPANY (FARM BUREAU LIFE) AND WESTERN
FARM BUREAU LIFE INSURANCE COMPANY (WESTERN LIFE) (COLLECTIVELY, THE LIFE
COMPANIES) AND ITS PROPERTY-CASUALTY INSURANCE SUBSIDIARY, UTAH FARM BUREAU
INSURANCE COMPANY (UTAH INSURANCE).
Property-casualty business written by Utah Insurance is pooled with business
written by four property-casualty affiliates. Through December 31, 1995, Utah
Insurance's participation in the reinsurance pool was 8%. On June 30, 1996, Utah
Insurance's share of the pool was increased to 20%, retroactive to January 1,
1996. Effective January 1, 1997, Western Agricultural Insurance Company and
Western Farm Bureau Mutual Insurance Company, two affiliates of the Company,
became full participants in the reinsurance pool and Utah Insurance's pool
participation percentage decreased from 20% to 18%. Accordingly, the
property-casualty results included in the statement of operations for the first
quarter of 1996 include that amount applicable to 8% of the reinsurance pool.
The property-casualty results included in the statement of operations for the
first quarter of 1997 include that amount applicable to 18% of the reinsurance
pool, with the exception of development on loss and loss adjustment expense
reserves incurred prior to January 1, 1997, of which Utah Insurance's
participation remains at the rate in effect when the underlying claims were
incurred. In addition, effective January 1, 1997, the reinsurance pool no longer
includes reinsurance assumed from reinsurance intermediaries and certain other
insurance companies. As a result, beginning January 1, 1997, Utah Insurance has
eliminated its exposure to coastal catastrophes.
Utah Insurance's premium volume in 1997 is not expected to be significantly
impacted by the decrease in reinsurance pool participation from 20% to 18% or
the elimination of certain reinsurance assumed business from the pool due to the
increase in the size of the pool with the addition of Western Agricultural
Insurance Company and Western Farm Bureau Mutual Insurance Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
A summary of the Company's premiums and product charges is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Premiums and product charges:
Universal life and annuity product charges $11,296 $11,317
Traditional life insurance and accident and health premiums 22,548 21,783
Property-casualty premiums 11,207 4,298
------- -------
Total $45,051 $37,398
======= =======
</TABLE>
Premiums and product charges increased $7.7 million, or 20.5%, to $45.1 million
for the 1997 period compared to $37.4 million for the 1996 period. This increase
included a $0.8 million, or 3.5%, increase in traditional life insurance and
accident and health premiums which, management believes, is principally
attributable to introduction of a uniform portfolio of life insurance products
throughout the Company's marketing territory in March 1996 and more effective
and increased training of its agency force. Universal life and annuity product
charges totaled $11.3 million during the 1997 and 1996 periods. Increases in
product charges resulting from growth in the volume of business inforce were
offset by decreases in cost of insurance rates ranging from 4% to 12% which took
effect March 14, 1996, and a decrease in the amortization of unearned revenues.
Property-casualty premiums increased $6.9 million, or 160.7%, due to the
increase in Utah Insurance's reinsurance pool participation percentage from 8%
to 18%. The impact on premiums of a 11% to 12% rate decrease on workers'
compensation insurance in Iowa and Minnesota on January 1, 1997 was offset by
modest growth in the volume of business in force. Although the life and
property-casualty insurance industries are competitive, the Company has not
experienced any unusual pricing pressures in its lines of business or in the
states in which it conducts operations.
Net investment income increased $2.4 million, or 4.5%, to $54.8 million for the
1997 period compared to $52.4 million for the 1996 period. The increase resulted
principally from a 9.9% increase in average invested assets, excluding invested
assets of FBL Ventures of South Dakota, Inc. (FBL Ventures), a venture capital
subsidiary, to $2,884 million in the 1997 period from $2,624 million in the 1996
period, partially offset by a six basis point decline in the annualized yield
earned on average invested assets (excluding yield attributable to FBL Ventures)
to 7.75% in the 1997 period from 7.81% in the 1996 period. The increase in
average invested assets is attributable to net positive cash flows from
operating activities totaling $146.2 million during the 12-month period ended
March 31, 1997 and to net positive cash flows from interest sensitive products
totaling $13.6 million during the same period. The decline in annualized yield
is primarily the result of investing a majority of these positive cash flows and
cash from investing activities in securities in which the market interest rates
were lower than the average effective yield of the investment portfolio during
the 12-month period ended March 31, 1997. Also offsetting the increase in net
investment income was a $1.3 million decrease in the net investment income of
FBL Ventures to $0.5 million in the 1997 period from $1.8 million in the 1996
period. See "Adjusted Operating Income."
Realized gains (losses) on investments increased $23.9 million to a gain of
$21.8 million for the 1997 period compared to a loss of $2.1 million for the
1996 period. The increase resulted primarily from a $24.3 million gain from
sales of one equity investment during the 1997 period. In addition, the Company
had other realized gains, primarily from the sale of equity securities, that
were more than offset by $17.7 million in realized losses resulting from
writedowns of investments that became other-than-temporarily impaired during the
1997 period. The writedowns are attributable primarily to two equity securities
and are the result of sustained operating losses, rejection of product design by
regulatory authorities and various other economic factors that became evident in
the 1997 period. The level of realized gains is subject to fluctuation from
period to period depending on the prevailing interest rate and economic
environment and the timing of the sale of investments.
Other income increased $0.8 million, or 14.1%, to $6.4 million for the 1997
period compared to $5.6 million for the 1996 period due primarily to an increase
in the level of investment advisory and management services provided to
affiliates and third parties.
A summary of the Company's policy benefits is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Policy benefits:
Universal life and annuity benefits $30,419 $30,353
Traditional life insurance and accident and health benefits 14,179 12,096
Increase in traditional and accident and health future policy benefits 5,521 5,294
Distributions to participating policyholders 6,708 6,475
Property-casualty losses and loss adjustment expenses 8,902 3,211
------- -------
Total $65,729 $57,429
======= =======
</TABLE>
Policy benefits increased $8.3 million, or 14.5%, to $65.7 million for the 1997
period compared to $57.4 million for the 1996 period. Included in this increase
is a $0.1 million increase in universal life and annuity benefits consisting of
a $0.7 million increase in universal life death benefits in excess of related
account balances offset, in part, by a $0.6 million decrease in interest
credited to these contracts. The decrease in interest credited is attributable
to a decrease in interest crediting rates on these contracts partially offset by
a larger volume of business in force. The weighted average crediting rate for
the Company's universal life liabilities decreased to 6.37% for the 1997 period
from 6.77% for the 1996 period, and the weighted average crediting rate for the
Company's annuity liabilities decreased to 6.21% for the 1997 period from 6.78%
for the 1996 period. The decrease in interest crediting rates was greater than
the decrease (12 basis points) in the annualized yield on the types of invested
assets supporting universal life and annuity liabilities due to the Company's
initiatives (decreases to interest crediting rates) to increase interest rate
spreads and profitability on this business. Traditional life and accident and
health benefits increased $2.3 million, or 13.3%, consisting of a $2.2 million
increase in death and surrender benefits, a $0.2 million increase in the change
in the reserves on these products and a $0.1 million net decrease in other
benefits. Distributions to policyholders increased $0.2 million to $6.7 million
due to an increase in the amount and age of the participating business in force
partially offset by a decrease in the average dividend rate credited to these
policies to 6.12% from 6.35%. Losses and loss adjustment expenses incurred on
property-casualty policies increased $5.7 million, or 177.2%, to $8.9 million
for the 1997 period from $3.2 million for the 1996 period due primarily to the
increase in Utah Insurance's reinsurance pool participation percentage,
resulting in $5.4 million of additional losses and loss adjustment expenses. In
addition, less favorable weather conditions in the 1997 period, namely winter
storms in the midwest, caused an increase in property losses. The loss and loss
adjustment expense ratio increased in the 1997 period to 79.4% from 74.7% in the
1996 period.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals $2,172 $2,443
Amortization of deferred policy acquisition costs 4,243 2,685
Other underwriting, acquisition and insurance expenses, net of deferrals 11,916 10,652
------- -------
Total $18,331 $15,780
======= =======
</TABLE>
Commission expense decreased $0.2 million, or 11.1%, to $2.2 million for the
1997 period compared to $2.4 million for the 1996 period. This decrease occurred
despite a 5.1% increase in direct life insurance premiums collected during the
1997 period. During the 1996 period, first year commissions totaling $0.2
million were charged to expense rather than capitalized due to marginal profits
on products no longer sold by the Company. In addition, commissions decreased
due to multi-tiered commission structures on certain life insurance products
whereby renewal commission rates decline over the life of the underlying
policies.
Amortization of deferred policy acquisition costs increased $1.5 million, or
58.0%, to $4.2 million for the 1997 period compared to $2.7 million for the 1996
period principally due to the increase in Utah Insurance's reinsurance pool
participation which resulted in $1.4 million of additional amortization during
the 1997 period. Amortization attributable to life operations increased $0.1
million.
Other underwriting, acquisition and insurance expenses increased $1.2 million,
or 11.9%, to $11.9 million for the 1997 period compared to $10.7 million for the
1996 period. This increase is principally attributable to a $0.8 million
increase in property-casualty expenses resulting primarily from the increase in
Utah Insurance's reinsurance pool participation. In addition, amortization of
value of insurance in force acquired increased $0.5 million in the 1997 period
compared to the 1996 period due to the impact of realized gains and losses on
investments backing the related policyholder liabilities.
Interest expense was $0.4 million for the 1997 period compared to $0.2 million
for the 1996 period due primarily to an increase in the average debt outstanding
to $24.6 million for the 1997 period from $12.2 million for the 1996 period.
Other expenses increased $0.6 million, or 14.2%, to $4.5 million for the 1997
period compared to $3.9 million for the 1996 period due principally to an
increase in the level of investment advisory, marketing and management services
provided to affiliates and third parties.
Pretax income before minority interest in earnings of subsidiaries and equity
income increased $23.2 million, or 145.4%, to $39.2 million for the 1997 period
compared to $16.0 million for the 1996 period. Essentially all of the pretax
income in the 1997 period is attributable to life operations as the
property-casualty segment experienced a pretax loss of $0.1 million. In the 1996
period the property-casualty segment experienced pretax income of $0.3 million.
The increase in pretax income from life operations is primarily the result of
the impact of realized gains on investments.
Income taxes increased $7.4 million, or 130.9%, to $13.1 million for the 1997
period compared to $5.7 million for the 1996 period. The effective tax rate for
the 1997 period was 33.6% compared to 35.7% for the 1996 period. The effective
tax rate during 1997 was lower than the federal statutory rate of 35% due
primarily to tax exempt interest and dividend income partially offset by state
income taxes. During the 1996 period, the effect of tax exempt interest and
dividend income was more than offset by the establishment of a $0.4 million
deferred tax asset valuation allowance relating to a real estate transaction.
The Company's effective tax rate should not, over the long term, be materially
different from the effective statutory rate.
Net income applicable to common stock increased $14.4 million, or 132.4%, to
$25.3 million for the 1997 period compared to $10.9 million for the 1996 period.
The increase was primarily the result of the changes in pretax income and
effective tax rate discussed above. Partially offsetting the increase in net
income was $1.3 million in dividends paid during the 1997 period to the
Company's preferred stockholder as a result of the exchange of five million
shares of Class A common stock for five million shares of Series A preferred
stock on July 18, 1996.
ADJUSTED OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
which management believes are not indicative of overall operating trends,
including net realized gains on investments (less 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) and net
income from a venture capital investment company subsidiary.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income applicable to common stock $25,303 $10,889
Adjustments:
Net realized gains on investments (13,971) 1,000
Net income from FBL Ventures (326) (1,085)
------- -------
Adjusted operating income applicable to common stock $11,006 $10,804
======= =======
Adjusted operating income per common share $ 0.58 $ 0.45
======= =======
</TABLE>
Adjusted operating income per common share income for the three-month period
ended March 31, 1997 is estimated to have been $0.59 if the stock repurchases
under the Company's stock repurchase plan would have been effective January 1,
1997. See "Stockholders' Equity".
FBL Ventures is a wholly owned investment company subsidiary of Farm Bureau Life
which invests in start-up and mezzanine level venture capital investments in
various sectors. Operating results of FBL Ventures are recognized in accordance
with accounting principles for investment companies and, as such, unrealized and
realized gains and losses on investments are included in net investment income.
Because of the venture capital nature of the underlying investments, the results
of FBL Ventures tend to fluctuate significantly from year to year and need to be
evaluated over a much longer period of time. Therefore, the net income
attributable to FBL Ventures is not included in adjusted operating income. As of
March 31, 1997, FBL Ventures had five venture capital investments with a total
carrying value of $7.2 million.
In 1996, the Company began selling the venture capital investments owned by FBL
Ventures in an attempt to exit most aspects of the venture capital investment
business. It is anticipated the remaining investments held by FBL Ventures will
be redeemed, sold to third parties or transferred to Farm Bureau Life during the
second quarter of 1997.
PENDING ACCOUNTING CHANGE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Statement 128,
which is effective for the Company for the first quarter of 1998, establishes
standards for computing and presenting earnings per share (EPS). Under the
Statement, primary and fully diluted EPS are replaced by basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant
to APB Opinion 15. If Statement 128 were effective for the first quarter of
1997, basic and diluted net income per common share would have been $1.34 and
$1.33, respectively.
LIQUIDITY AND CAPITAL RESOURCES
FBL FINANCIAL GROUP, INC.
Parent company cash flow from operations consists of dividends from
subsidiaries, if declared and paid, and fees which it charges the various
operating subsidiaries and affiliates for management of their operations,
partially offset by the expenses incurred for salaries and other expenses
related to providing such services.
During the 1997 period, the Company paid common stock and preferred stock
dividends totaling $3.1 million. No dividends were paid during the 1996 period.
It is anticipated dividend requirements for the remainder of 1997 will be $0.25
per quarter per preferred share and $0.10 per quarter per common share, or
approximately $9.1 million. FBL Financial Group, Inc. relies primarily on
dividends from the Life Companies to make any dividend payments to its
stockholders. The ability of the Life Companies to pay dividends to FBL
Financial Group, Inc. is limited by law to earned profits (statutory unassigned
surplus) as of the date the dividend is paid, as determined in accordance with
accounting practices prescribed by insurance regulatory authorities of the State
of Iowa for Farm Bureau Life and the State of Colorado for Western Life. In
addition, under the Iowa and Colorado Insurance Holding Company Acts, the Life
Companies may not pay an "extraordinary" dividend without prior notice to and
approval by the respective insurance commissioner. An "extraordinary" dividend
is defined under the Iowa and Colorado Insurance Holding Company Acts as any
dividend or distribution of cash or other property whose fair market value,
together with that of other dividends or distributions made within the preceding
12 months, exceeds the greater of (i) 10% of policyholders' surplus (total
statutory capital stock and statutory surplus) as of December 31 of the
preceding year, or (ii) the statutory net gain from operations of the insurer
for the 12-month period ending December 31 of the preceding year. For the
remainder of 1997, the maximum amount legally available for distribution to FBL
Financial Group, Inc. without further regulatory approval is approximately $5.2
million (after taking into account an anticipated $26.5 million dividend in June
1997 to fund the Company's dividends to stockholders for the second quarter of
1997 and the stock repurchase plan - see "Stockholders' Equity") from Farm
Bureau Life and $8.2 million from Western Life. Similar restrictions exist with
respect to the payments of dividends by Utah Insurance. Such restrictions are
not considered to bear significantly on the ability of the Company to meet its
obligations or its anticipated dividends.
INSURANCE OPERATIONS
The Life Companies' cash inflows consist primarily of premium income, deposits
to policyholder account balances, income from investments, sales, maturities and
calls of investments and repayments of investment principal. The Life Companies'
cash outflows are primarily related to withdrawals of policyholder account
balances, investment purchases, payment of policy acquisition costs,
policyholder benefits, income taxes, dividends and current operating expenses.
Life insurance companies generally produce a positive cash flow which may be
measured by the degree to which cash inflows are adequate to meet benefit
obligations to policyholders and normal operating expenses as they are incurred.
The remaining cash flow is generally used to increase the asset base to provide
funds to meet the need for future policy benefit payments and for writing new
business. The Life Companies' liquidity positions continued to be favorable in
the three-month period ended March 31, 1997, with cash inflows at levels
sufficient to provide the funds necessary to meet their obligations.
For property-casualty operations the major sources of cash inflow are premiums
and investment income. Major sources of cash outflow are losses and loss
adjustment expenses paid and other underwriting expenses. The liquidity position
of Utah Insurance continued to be favorable in the three-month period ended
March 31, 1997, with cash inflows at levels sufficient to provide the funds
necessary to meet its obligations.
For all insurance operations, cash outflow requirements for operations are
typically met from the year's normal premium and deposit cash inflows. This has
been the case for all reported periods as the insurance companies' continuing
operations and financing activities relating to interest sensitive products
provided funds amounting to $35.5 million and $57.6 million in the three-month
periods ended March 31, 1997 and 1996, respectively. These funds were primarily
used to increase the insurance companies' fixed maturity investment portfolios.
Matching the investment portfolio maturities to the cash flow demands of the
type of insurance being provided is an important consideration for each type of
life insurance. The Life Companies continually monitor benefit and claim
statistics to provide projections of future cash requirements. As part of this
monitoring process, the Life Companies perform cash flow testing of their assets
and liabilities under various scenarios to evaluate the adequacy of reserves. In
developing their investment strategy, the Life Companies establish a level of
cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities and mortgage loans, are believed adequate to meet
anticipated short-term and long-term benefit and expense payment obligations.
Through its membership in the Federal Home Loan Bank of Des Moines, Farm Bureau
Life is eligible to borrow on a line of credit available to provide it
additional liquidity. The line of credit available is based on the amount of
capital stock of the Federal Home Loan Bank of Des Moines owned by Farm Bureau
Life, which supported a borrowing capacity of $43.9 million as of March 31,
1997. Interest is payable at a current market rate upon issuance. As of March
31, 1997, no line of credit agreement was open and there were no borrowings
outstanding.
Management anticipates that funds to meet its short-term and long-term capital
expenditures, cash dividends to stockholders and operating cash needs will come
from existing capital and internally generated funds. Management believes that
the current level of cash and available-for-sale and short-term securities,
combined with expected net cash inflows from operations, maturities of fixed
maturity investments, principal payments on mortgage-backed securities, mortgage
loans and its insurance products, are adequate to meet the Company's anticipated
cash obligations. The Company may from time to time review potential acquisition
opportunities. The Company anticipates that funding for any such acquisition may
be provided from available cash resources, debt or equity financing. As of March
31, 1997, the Company had no material commitments for capital expenditures.
INVESTMENTS
The Company's total investment portfolio increased $9.6 million, or 0.3%, to
$2,898.7 million at March 31, 1997 compared to $2,889.1 million at December 31,
1996. This increase is primarily the result of positive cash flows from
operations offset, in part, by a $36.0 million decrease in unrealized
appreciation on fixed maturity securities available for sale.
The Company's investment portfolio is managed by its internal investment
professionals. The investment strategy is designed to achieve superior
risk-adjusted returns consistent with the Company's investment philosophy of
maintaining a largely investment grade portfolio and providing adequate
liquidity for expected liability durations and other requirements. Management
continually reviews the returns on invested assets and changes the mix of
invested assets as deemed prudent under the current market environment to help
maximize current income.
The Company's investment portfolio is summarized in the table below:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
----------------------- -------------------------
CARRYING VALUE PERCENT CARRYING VALUE PERCENT
-------------- ------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
Public $1,706,346 58.9% $1,734,849 60.0%
144A private placement 299,991 10.3 230,446 8.0
Private placement 270,564 9.3 303,000 10.5
---------- ----- ---------- -----
Total fixed maturities 2,276,901 78.5 2,268,295 78.5
Equity securities 74,130 2.6 86,991 3.0
Held in inventory (1) 10,297 0.4 15,899 0.5
Mortgage loans on real estate 300,811 10.4 293,777 10.2
Investment real estate
Acquired for debt 1,750 0.1 2,007 0.1
Investment 26,331 0.9 26,384 0.9
Policy loans 119,939 4.0 118,996 4.1
Other long-term investments 8,381 0.3 8,388 0.3
Short-term investments 80,157 2.8 68,358 2.4
---------- ----- ---------- -----
Total investments $2,898,697 100.0% $2,889,095 100.0%
========== ===== ========== =====
</TABLE>
- -----------------
(1) Held in inventory includes equity securities owned by FBL Ventures
totaling $7.2 million and $13.8 million at March 31, 1997 and December
31, 1996, respectively.
As of March 31, 1997, 93.4% (based on carrying value) of the fixed maturity
securities were investment grade debt securities, defined as being in the
highest two National Association of Insurance Commissioners (NAIC) designations.
Non-investment grade debt securities generally provide higher yields and involve
greater risks than investment grade debt securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment grade issuers. In addition, the trading market for
these securities is usually more limited than for investment grade debt
securities. The Company regularly reviews the percentage of its portfolio which
is invested in non-investment grade debt securities (NAIC designations 3 through
6). As of March 31, 1997, the Company's investment in non-investment grade debt
was 6.6% of fixed maturity securities. At that time no single non-investment
grade holding exceeded 0.4% of total investments.
The following table sets forth the credit quality, by NAIC designation and
Standard & Poors (S & P) rating equivalents, of fixed maturity securities:
<TABLE>
<CAPTION>
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
MARCH 31, 1997
----------------------------
NAIC DESIGNATION EQUIVALENT S & P RATINGS (1) CARRYING VALUE PERCENT
- ---------------- --------------------------------------------------------- -------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1 (AAA, AA, A) $ 1,508,857 66.3%
2 (BBB) 617,070 27.1
------------ -----
Total investment grade 2,125,927 93.4
3 (BB) 98,690 4.3
4 (B) 49,970 2.2
5 (CCC, CC, C) 275 -
6 In or near default 2,039 0.1
------------ -----
Total below investment grade 150,974 6.6
------------ -----
Total fixed maturities $ 2,276,901 100.0%
============ =====
</TABLE>
- ----------------
(1) Private placement securities are generally rated by the Securities
Valuation Office of the NAIC. Comparisons between NAIC designations and
S & P ratings are published by the NAIC. S & P has not rated some of
the fixed maturity securities in the Company's portfolio.
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at March 31, 1997:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
--------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
United States Government and agencies -
mortgage-backed securities $204,325 $5,171 $(1,625) $207,871
Industrial and miscellaneous:
Mortgage-backed securities 474,542 8,099 (9,259) 473,382
Other 5,009 725 (9) 5,725
-------- ------- -------- --------
Total fixed maturities $683,876 $13,995 $(10,893) $686,978
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
United States Government and agencies:
Mortgage and asset-backed securities $ 94,633 $ 2,870 $ (1,313) $ 96,190
Other 142,535 258 (4,889) 137,904
State, municipal and other governments 30,088 601 (296) 30,393
Public utilities 195,317 3,714 (4,429) 194,602
Industrial and miscellaneous:
Mortgage and asset-backed securities 314,381 2,713 (6,599) 310,495
Other 797,504 23,045 (21,281) 799,268
Redeemable preferred stock 23,327 962 (116) 24,173
---------- ---------- ---------- ----------
Total fixed maturities $1,597,785 $ 34,163 $ (38,923) $1,593,025
========== ========== ========== ==========
Equity securities $ 67,039 $ 14,070 $ (6,979) $ 74,130
========== ========== ========== ==========
</TABLE>
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at March 31, 1997, by contractual maturity, are shown
below.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
-------------------------- --------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
---------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 40,920 $ 40,875
Due after one year through five years -- -- 179,551 182,506
Due after five years through ten years -- -- 292,245 294,276
Due after ten years 5,009 5,725 652,728 644,510
---------- ---------- ---------- ----------
5,009 5,725 1,165,444 1,162,167
Mortgage and asset-backed securities 678,867 681,253 409,014 406,685
Redeemable preferred stocks -- -- 23,327 24,173
---------- ---------- ---------- ----------
$ 683,876 $ 686,978 $1,597,785 $1,593,025
========== ========== ========== ==========
</TABLE>
Mortgage and other asset-backed securities constitute a significant portion of
the Company's portfolio of securities. Management believes these types of
investments, in general, provided superior risk-adjusted returns during the
three-month period ended March 31, 1997 compared to returns of more conventional
investments such as corporate bonds and mortgage loans. These securities are
diversified as to collateral types, cash flow characteristics and maturity. At
March 31, 1997, the Company held $624.6 million (21.5% of total investments) in
residential mortgage-backed securities, $281.2 million (9.7% of total
investments) in commercial mortgage-backed securities and $179.7 million (6.2%
of total investments) in other asset-backed securities.
At March 31, 1997, the Company held residential collateralized mortgage
obligation (CMO) investments with a market value of $563.9 million as part of
its mortgage-backed securities holdings. CMOs consist of pools of mortgages
divided into sections or "tranches" which provide sequential retirement of the
bonds. To provide call protection and more stable average lives, the Company
invests in planned amortization classes (PACs), which provide more predictable
cash flows within a range of prepayment speeds (the rate of individuals
refinancing their home mortgages at lower rates) by shifting the prepayment
risks to support tranches. The Company also invests in sequential tranches,
which provide stability in that repayments of principal do not occur until the
previous tranches are paid off. As of March 31, 1997, 76.0% of the Company's CMO
investments are in PAC and sequential pay securities. The Company does not
purchase certain types of collateralized mortgage obligations. These include,
but are not limited to, interest only, principal only, floater, inverse floater,
PAC II, Z and support tranches.
At March 31, 1997, the Company held $300.8 million or 10.4% of invested assets
in mortgage loans. These mortgage loans are diversified as to property type,
location and loan size, and are collateralized by the related properties. At
March 31, 1997, mortgages more than 60 days delinquent accounted for 0.5% of the
carrying value of the mortgage portfolio. The Company's mortgage lending
policies establish limits on the amount that can be loaned to one borrower and
require diversification by geographic location and collateral type. Regions with
the largest concentration of the Company's mortgage loan portfolio at March 31,
1997 include: Pacific (25%) which includes California, Oregon and Washington;
and Mountain (21%) which includes Arizona, Colorado, Idaho, New Mexico, Utah and
Wyoming. Mortgage loans on real estate have also been analyzed by collateral
types with office buildings (47%) and retail facilities (32%) representing the
largest holdings at March 31, 1997.
The Company's investment portfolio at March 31, 1997, also included $80.2
million of short-term investments and $234.1 million in carrying value of U.S.
Government and U.S. Government agency backed securities that could be readily
converted to cash at or near carrying value.
The Company's asset-liability management program includes (i) designing and
developing products which encourage persistency and, as a result, creating a
stable liability structure; and (ii) structuring the investment portfolio with
duration and cash flow characteristics consistent with the duration and cash
flow characteristics of the Company's insurance liabilities. At March 31, 1997,
the weighted average life of the fixed maturity portfolio, based on market
values excluding convertible bonds, was approximately 9.3 years. Based on the
fixed income analytical system utilized by the Company, including its mortgage
backed prepayment assumptions, the effective duration of the fixed income
portfolio was 4.8 as of March 31, 1997.
OTHER ASSETS
Deferred policy acquisition costs increased $8.0 million, or 4.8%, due primarily
to new sales and an adjustment ($2.7 million increase) related to the valuation
of fixed maturity securities designated as available for sale. Assets held in
separate accounts increased $11.4 million, or 14.4%, to $90.4 million at March
31, 1997 due primarily to net transfers to the separate accounts resulting from
sales of the Company's variable products. At March 31, 1997, the Company had
total assets of $3,397.7 million, a 0.9% increase from total assets at December
31, 1996.
LIABILITIES
Policy liabilities and accruals increased $17.0 million, or 0.8%, due
principally to an increase in the volume of business in force. At March 31,
1997, the Company had total liabilities of $2,756.4 million, a 1.2% increase
from total liabilities at December 31, 1996.
STOCKHOLDERS' EQUITY
At March 31, 1997, stockholders' equity was $636.5 million, or $28.45 per common
share, compared to $638.5 million, or $28.55 per common share at December 31,
1996. Included in stockholders' equity per common share is $(0.11) and $1.05 at
March 31, 1997 and December 31, 1996, respectively, attributable to unrealized
investment gains (losses) resulting from marking the Company's fixed maturity
securities classified as available for sale to market value. The change in
unrealized appreciation of fixed maturity and equity securities classified as
available for sale reduced stockholders' equity $25.4 million during the
three-month period ended March 31, 1997, after related adjustments to deferred
policy acquisition costs, value of insurance in force acquired, unearned revenue
reserve and deferred income taxes.
On March 18, 1997, the Company's Board of Directors approved a plan to
repurchase up to 1,000,000 unregistered shares of the Company's Class A common
stock. On April 4, 1997, the Company repurchased 965,370 shares of Class A
common stock under this plan at $25.725 per share ($24.8 million), the average
of the closing prices over the prior ten days of trading on the New York Stock
Exchange. Net income per common share for the three-month period ended March 31,
1997 and stockholders' equity per common share at March 31, 1997 are estimated
to have been $1.38 and $29.96, respectively, if the repurchases would have been
effective January 1, 1997.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects, new
products, and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experiences to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following:
* Changes to interest rate levels and stock market performance
may impact the Company's lapse rates, market value of
investment portfolio and the Company's ability to sell its
life insurance products, notwithstanding product features to
mitigate the financial impact of such changes.
* Extraordinary acts of nature or man may result in higher than
expected claim activity.
* Changes in federal and state income tax laws and regulations
may affect the relative tax advantage of the Company's
products.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 7, 1997
FBL FINANCIAL GROUP, INC.
By /s/ Thomas R. Gibson
-----------------------------------------------
Chief Executive Officer and Director (Principal
Executive Officer)
By /s/ James W. Noyce
-----------------------------------------------
Chief Financial Officer (Principal Financial and
Accounting Officer)
EXHIBIT 11
<TABLE>
<CAPTION>
FBL FINANCIAL GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY
Average shares outstanding 18,859,800 23,859,800
Net effect of stock options - based on the treasury stock
method using average market price 197,648 --
------------ ------------
Weighted average primary shares outstanding 19,057,448 23,859,800
============ ============
Net income $ 26,553 $ 10,889
Dividends on preferred stock (1,250) --
------------ ------------
Net income applicable to common stock $ 25,303 $ 10,889
============ ============
Net income per primary common and common equivalent share $ 1.33 $ 0.46
============ ============
FULLY DILUTED
Average shares outstanding 18,859,800 23,859,800
Net effect of stock options - based on the treasury stock
method using period-end market price, if higher than
average market price 232,875 --
------------ ------------
Weighted average fully diluted shares outstanding 19,092,675 23,859,800
============ ============
Net income $ 26,553 $ 10,889
Dividends on preferred stock (1,250) --
------------ ------------
Net income applicable to common stock $ 25,303 $ 10,889
============ ============
Net income per fully diluted common and common equivalent share $ 1.33 $ 0.46
============ ============
</TABLE>
Note: Net income per fully diluted common and common equivalent share is not
disclosed on the face of the Company's Consolidated Statements of Income because
dilution is less than three percent.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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0
100,000
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45,051
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</TABLE>
