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 September 30, 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.
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(Exact name of registrant as specified in its charter)
Iowa 42-1411715
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5400 University Avenue, West Des Moines, Iowa 50266-5997
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(Address of principal executive offices) (Zip Code)
(515) 225-5400
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(Registrant's telephone number, including area code)
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(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: 16,744,692 shares of Class A
common stock and 1,192,990 shares of Class B common stock as of October 31,
1997.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1997 - $683,388; 1996 -
$709,168) ........................................................... $ 660,843 $ 694,351
Available for sale, at market (amortized cost: 1997 - $1,651,622; 1996 -
$1,542,748) ......................................................... 1,716,695 1,573,944
Equity securities, at market (cost: 1997 - $50,605; 1996 - $74,792) ...... 61,877 86,991
Held in inventory, at estimated fair value (amortized cost: 1997 - $3,019;
1996 - $10,621) ........................................................ 3,349 15,899
Mortgage loans on real estate ............................................ 301,656 293,777
Investment real estate, less allowances for depreciation of $2,461 in 1997
and $1,930 in 1996 ..................................................... 37,454 28,391
Policy loans ............................................................. 121,481 118,996
Other long-term investments .............................................. 8,356 8,388
Short-term investments ................................................... 107,482 68,358
------------ ------------
Total investments ........................................................... 3,019,193 2,889,095
Cash and cash equivalents ................................................... 2,692 3,583
Securities and indebtedness of related parties .............................. 35,725 37,213
Accrued investment income ................................................... 36,433 33,537
Accounts and notes receivable ............................................... 1,602 2,235
Amounts receivable from affiliates .......................................... 6,719 4,439
Reinsurance recoverable ..................................................... 39,023 38,919
Deferred policy acquisition costs ........................................... 180,647 166,912
Value of insurance in force acquired ........................................ 16,607 19,928
Property and equipment, less allowances for depreciation of $46,345 in 1997
and $46,824 in 1996 ...................................................... 61,775 62,510
Current income taxes recoverable ............................................ 5,033 4,002
Goodwill, less accumulated amortization of $2,637 in 1997 and $2,172 in
1996 ..................................................................... 9,261 9,726
Other assets ................................................................ 17,415 17,050
Assets held in separate accounts ............................................ 123,614 79,043
------------ ------------
Total assets ........................................................ $ 3,555,739 $ 3,368,192
============ ============
</TABLE>
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Universal life and annuity products ............................... $ 1,499,970 $ 1,471,983
Traditional life insurance and accident and health products ....... 704,940 678,674
Unearned revenue reserve .......................................... 23,229 22,215
Other policy claims and benefits ..................................... 8,966 10,737
Reserves on property-casualty policies ............................... 46,929 43,189
Unearned premiums on property-casualty policies ...................... 30,167 26,774
------------ ------------
2,314,201 2,253,572
Other policyholders' funds:
Supplementary contracts without life contingencies ................... 135,110 125,581
Advance premiums and other deposits .................................. 85,487 86,410
Accrued dividends .................................................... 12,356 14,243
------------ ------------
232,953 226,234
Long-term debt ......................................................... 24,578 24,581
Amounts payable to affiliates .......................................... 10,173 10,910
Deferred income taxes .................................................. 39,153 40,612
Other liabilities ...................................................... 121,409 89,915
Liabilities related to separate accounts ............................... 123,614 79,043
------------ ------------
Total liabilities ................................................. 2,866,081 2,724,867
Commitments and contingencies
Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock of subsidiary
trust ................................................................ 97,000 --
Other .................................................................. 4,503 4,803
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series B shares in
1997 and 5,000,000 Series A shares in 1996 ........................... 3,000 100,000
Class A common stock, without par value - authorized 88,500,000 shares,
issued and outstanding 16,744,692 shares in 1997 and 17,666,810 shares
in 1996 ............................................................. 42,273 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 ........................................ 46,511 27,858
Retained earnings ...................................................... 488,804 459,324
------------ ------------
Total stockholders' equity ........................................... 588,155 638,522
------------ ------------
Total liabilities and stockholders' equity ........................ $ 3,555,739 $ 3,368,192
============ ============
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Universal life and annuity product charges ..... $ 12,362 $ 10,661 $ 35,568 $ 33,118
Traditional life insurance and accident and
health premiums .............................. 22,044 22,437 71,445 71,680
Property-casualty premiums ..................... 13,437 12,949 36,539 21,876
Net investment income .......................... 56,220 50,706 167,061 155,342
Realized gains on investments .................. 10,533 16,529 34,486 15,946
Other income ................................... 7,072 6,522 20,429 18,102
------------- ------------- ------------- -------------
Total revenues ............................... 121,668 119,804 365,528 316,064
Benefits and expenses:
Universal life and annuity benefits ............ 30,424 29,534 92,785 89,565
Traditional life insurance and accident and
health benefits .............................. 11,923 15,167 41,579 41,187
Increase in traditional and accident and health
future policy benefits ....................... 6,076 5,715 19,775 21,074
Distributions to participating policyholders ... 5,751 6,052 19,398 19,446
Property-casualty losses and loss adjustment
expenses ..................................... 11,758 12,440 30,310 19,245
Underwriting, acquisition and insurance expenses 18,862 17,787 55,069 48,966
Interest expense ............................... 357 200 1,122 573
Other expenses ................................. 4,767 4,464 14,231 13,024
------------- ------------- ------------- -------------
Total benefits and expenses .................. 89,918 91,359 274,269 253,080
------------- ------------- ------------- -------------
31,750 28,445 91,259 62,984
Income taxes ...................................... (11,086) (8,692) (30,739) (20,179)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary trust (1,213) -- (1,617) --
Other .......................................... (89) (180) (266) (448)
Equity income, net of related income taxes ........ 762 913 878 2,593
------------- ------------- ------------- -------------
Net income ........................................ 20,124 20,486 59,515 44,950
Dividends on Series A and B preferred stock ....... (37) (1,000) (2,133) (1,000)
------------- ------------- ------------- -------------
Net income applicable to common stock ............. $ 20,087 $ 19,486 $ 57,382 $ 43,950
============= ============= ============= =============
Net income per common share ....................... $ 1.10 $ 0.98 $ 3.10 $ 1.95
============= ============= ============= =============
Weighted average common shares outstanding ........ 18,270,168 19,816,593 18,527,971 22,512,468
============= ============= ============= =============
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK AND NET
CLASS A CLASS B ADDITIONAL UNREALIZED TOTAL
PREFERRED COMMON COMMON PAID-IN INVESTMENT RETAINED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL GAINS EARNINGS EQUITY
--------- --------- ------ --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ........... $ -- $ -- $ -- $ 146,481 $ 37,807 $ 380,010 $ 564,298
Recapitalization and conversion
of common stock .................. -- 139,157 7,324 (146,481) -- -- --
Exchange of common stock for
preferred stock .................. 100,000 (100,000) -- -- -- -- --
Net income for nine months
ended September 30, 1996 ........ -- -- -- -- -- 44,950 44,950
Change in net unrealized
investment gains/losses ......... -- -- -- -- (8,300) -- (8,300)
Adjustment resulting from
capital transaction of equity
investee ........................ -- 4,616 243 -- -- -- 4,859
Dividends on preferred stock ...... -- -- -- -- -- (1,000) (1,000)
--------- --------- ------ --------- -------- --------- ---------
Balance at September 30, 1996 ........ $ 100,000 $ 43,773 $7,567 $ -- $ 29,507 $ 423,960 $ 604,807
========= ========= ====== ========= ======== ========= =========
Balance at January 1, 1997 ........... $ 100,000 $ 43,773 $7,567 $ -- $ 27,858 $ 459,324 $ 638,522
Net income for nine
months ended September 30, 1997 . -- -- -- -- -- 59,515 59,515
Change in net unrealized
investment gains/losses ......... -- -- -- -- 18,653 -- 18,653
Purchase of Series A preferred
stock ........................... (100,000) -- -- -- -- -- (100,000)
Issuance of Series B preferred
stock ........................... 3,000 -- -- -- -- -- 3,000
Purchase of 965,370 shares of
common stock .................... -- (2,402) -- -- -- (22,432) (24,834)
Issuance of 43,252 shares of
common stock under stock
option plan, including
related income tax benefit ...... -- 902 -- -- -- -- 902
Dividends on preferred stock ...... -- -- -- -- -- (2,133) (2,133)
Dividends on common stock ......... -- -- -- -- -- (5,470) (5,470)
--------- --------- ------ --------- -------- --------- ---------
Balance at September 30, 1997 ........ $ 3,000 $ 42,273 $7,567 $ -- $ 46,511 $ 488,804 $ 588,155
========= ========= ====== ========= ======== ========= =========
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................................... $ 59,515 $ 44,950
Adjustments to reconcile net income to net cash provided by operating
activities:
Adjustments related to interest sensitive products:
Interest credited to account balances ......................... 76,674 76,210
Charges for mortality and administration ...................... (36,099) (33,799)
Deferral of unearned revenues ................................. 1,782 1,342
Amortization of unearned revenue reserve ...................... (563) (661)
Provision for depreciation and amortization ...................... 13,614 11,278
Net gains and losses related to investments held in inventory .... (1,038) (1,647)
Realized gains on investments .................................... (34,486) (15,946)
Increase in traditional, accident and health and property-casualty
benefit accruals .............................................. 27,437 45,823
Policy acquisition costs deferred ................................ (29,335) (26,266)
Amortization of deferred policy acquisition costs ................ 13,098 10,577
Provision for deferred income taxes .............................. (11,529) 534
Other ............................................................ 20,732 13,464
--------- ---------
Net cash provided by operating activities ............................ 99,802 125,859
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment ........................... 33,819 31,496
Fixed maturities - available for sale ............................ 227,736 199,942
Equity securities ................................................ 98,489 47,785
Held in inventory ................................................ 230 14,533
Mortgage loans on real estate .................................... 33,070 16,351
Investment real estate ........................................... 832 5,075
Policy loans ..................................................... 21,416 19,828
Other long-term investments ...................................... 27 712
--------- ---------
415,619 335,722
Acquisition of investments:
Fixed maturities - held for investment ........................... (74) (53,667)
Fixed maturities - available for sale ............................ (334,800) (322,260)
Equity securities ................................................ (30,350) (25,186)
Held in inventory ................................................ (1,615) (5,246)
Mortgage loans on real estate .................................... (41,672) (36,861)
Investment real estate ........................................... (6,902) (3,932)
Policy loans ..................................................... (23,901) (22,346)
Other long-term investments ...................................... -- (3)
Short-term investments - net ..................................... (39,124) (32,994)
--------- ---------
(478,438) (502,495)
</TABLE>
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Proceeds from disposal, repayments of advances and other distributions from
equity investees ...................................................... $ 8,994 $ 20,156
Investments in and advances to equity investees ........................... (6,241) (8,208)
Net purchases of property and equipment and other ......................... (8,872) (7,168)
---------- ----------
Net cash used in investing activities ..................................... (68,938) (161,993)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to policyholder account
balances .............................................................. 175,578 170,985
Return of policyholder account balances on interest sensitive products .... (173,371) (140,460)
Proceeds from long-term debt .............................................. -- 14,000
Repayments of long-term debt .............................................. (3) (2,480)
Dividends on company-obligated mandatorily redeemable preferred stock of ..
subsidiary trust ...................................................... (1,617) --
Other distributions to minority interests ................................. (663) (348)
Purchase of common stock .................................................. (24,834) --
Issuance of common stock under stock option plan .......................... 758 --
Dividends paid ............................................................ (7,603) (1,000)
---------- ----------
Net cash provided by (used in) financing activities ....................... (31,755) 40,697
---------- ----------
Increase in cash and cash equivalents ..................................... (891) 4,563
Cash and cash equivalents at beginning of period .......................... 3,583 --
---------- ----------
Cash and cash equivalents at end of period ................................ $ 2,692 $ 4,563
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest .............................................................. $ 1,115 $ 439
Income taxes .......................................................... 43,634 7,521
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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- and nine-month periods ended
September 30, 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. MINORITY INTEREST AND STOCKHOLDERS' EQUITY
On May 30, 1997, FBL Financial Group Capital Trust (the "Trust"), a consolidated
wholly-owned subsidiary of the Company, issued $97.0 million of 5.0% Preferred
Securities to the Company's majority stockholder, the Iowa Farm Bureau
Federation. In connection with the Trust's issuance of the 5.0% Preferred
Securities and the related purchase by the Company of all of the Trust's common
securities, the Company issued to the Trust $100.0 million principal amount of
its 5.0% Subordinated Deferrable Interest Notes, due June 30, 2047 (the
"Notes"). The sole assets of the Trust are and will be the Notes and any
interest accrued thereon. The interest payment dates on the Notes correspond to
the distribution dates on the 5.0% Preferred Securities. The 5.0% Preferred
Securities, which have a liquidation value of $1,000.00 per share plus accrued
and unpaid distributions, mature simultaneously with the Notes. As of September
30, 1997, 97,000 shares of 5.0% Preferred Securities were outstanding, all of
which are unconditionally guaranteed by the Company.
Concurrent with the issuance of the 5.0% Preferred Securities, the Company
purchased from the Iowa Farm Bureau Federation 5,000,000 shares of the Company's
Series A preferred stock at its liquidation value of $100.0 million. In
addition, the Company issued 5,000,000 shares of Series B preferred stock to the
Iowa Farm Bureau Federation for $3.0 million. Each share of Series B preferred
stock has a liquidation preference of $0.60 and voting rights identical to that
of Class A common stock. The Series B preferred stock pays cumulative annual
cash dividends of $0.03 per share, payable quarterly, and is redeemable by the
Company, at the option of the Company, at $0.60 per share plus unpaid dividends
if the stock ceases to be beneficially owned by a Farm Bureau organization.
The purchase of Series A preferred stock and simultaneous issuance of Series B
preferred stock and 5.0% Preferred Securities were treated as noncash
transactions for purposes of the statement of cash flows.
On March 18, 1997, the Company's Board of Directors approved a plan to
repurchase up to 1,000,000 unregistered shares of Company's Class A common
stock. On April 4, 1997, the Company purchased 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. The purchase amount was allocated partly to Class A common stock based
on the average common stock balance per share on the acquisition date with the
remainder allocated to retained earnings.
3. 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
<PAGE>
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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available
for sale ............................................................ $ 76,345 $ 43,395
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs ................................... (4,523) (2,021)
Value of insurance in force acquired ................................ (826) 1,104
Unearned revenue reserve ............................................ 587 382
Provision for deferred income taxes ..................................... (25,072) (15,002)
---------- ----------
Net unrealized investment gains ......................................... $ 46,511 $ 27,858
========== ==========
</TABLE>
In March 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.
4. 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 September 30, 1997. The
Company had no outstanding debt under this credit arrangement as of September
30, 1997 or December 31, 1996.
5. 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 September 30, 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 real estate limited 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 September 30, 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.
<PAGE>
From time to time assessments are 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. 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 $0.3 million
and $0.5 million during the nine months ended September 30, 1997 and 1996,
respectively.
In August 1997, the Financial Accounting Standards Board (FASB) issued a
Statement of Position (SOP) entitled "Accounting by Insurance and Other
Enterprises for Guaranty-Fund and Certain other Insurance-Related Assessments".
The provisions of the SOP include (1) guidance for determining when an insurance
enterprise should recognize a liability for guaranty fund and other assessments,
(2) guidance on how to measure the liability and (3) criteria for when an asset
may be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. While the SOP is effective for years beginning after December 15,
1997, earlier application is permitted by the FASB. The Company is currently
analyzing the impact of this SOP and anticipates adopting its provisions during
the first quarter of 1998. The impact of adoption is not expected to be material
to the Company.
<PAGE>
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 currently pooled with
business written by four property-casualty affiliates. Through December 31,
1995, Utah Insurance's participation in the reinsurance pool (which only
included three companies at the time) 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 include that amount applicable to 8% of
the reinsurance pool for the six months ended June 30, 1996, 20% of the
reinsurance pool for the three month period ended September 30, 1996 and 18% of
the reinsurance pool for the nine month period ended September 30, 1997.
Participation in the development on loss and loss adjustment expense reserves
during the periods remain 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 has not been and 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
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
A summary of the Company's premiums and product charges is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Premiums and product charges:
Universal life and annuity product charges ................ $ 35,568 $ 33,118
Traditional life insurance and accident and health premiums 71,445 71,680
Property-casualty premiums ................................ 36,539 21,876
---------- ----------
Total .................................................. $ 143,552 $ 126,674
========== ==========
</TABLE>
Premiums and product charges increased $16.9 million, or 13.3%, to $143.6
million for the 1997 period compared to $126.7 million for the 1996 period.
Universal life and annuity product charges increased $2.5 million, or 7.4%, due
to an increase in the volume and age of business in force, partially offset by
decreases in cost of insurance rates ranging from 4% to 12% which took effect
March 14, 1996. Traditional life and accident and health insurance premiums
decreased $0.2 million, or 0.3%, to $71.4 million for the 1997 period.
Management believes the sale of traditional life insurance products decreased
due to a marketing emphasis placed on the sale of variable universal life
insurance products. Premiums collected on variable universal life insurance
products increased 22.7% to $23.7 million in the 1997 period from $19.3 million
in the 1996 period. Property-casualty premiums increased $14.7 million, or
67.0%, due to the changes in Utah Insurance's reinsurance pool participation.
The impact on premiums
<PAGE>
of rate decreases on private passenger auto and workers' compensation insurance
was offset by modest growth in the volume of business in force.
Net investment income increased $11.8 million, or 7.5%, to $167.1 million for
the 1997 period compared to $155.3 million for the 1996 period. The increase
resulted principally from a 6.8% increase in average invested assets, excluding
invested assets of FBL Ventures of South Dakota, Inc. (FBL Ventures), a venture
capital subsidiary, to $2,908.5 million in the 1997 period from $2,723.6 million
in the 1996 period, and a seven basis point increase in the annualized yield
earned on average invested assets (excluding yield attributable to FBL Ventures)
to 7.67% in the 1997 period from 7.60% in the 1996 period. The increase in
average invested assets is attributable to net positive cash flows from
operating activities totaling $119.8 million during the 12-month period ended
September 30, 1997 and to net gains on investments during the same period.
Offsetting the increase in net investment income was a $0.4 million decrease in
the net investment income of FBL Ventures to $1.1 million in the 1997 period
from $1.5 million in the 1996 period. See "Adjusted Operating Income".
Realized gains on investments increased $18.6 million to $34.5 million for the
1997 period compared to $15.9 million for the 1996 period. The 1997 and 1996
gains resulted primarily from sales of equity securities. Realized gains during
the 1997 period were partially offset by $19.4 million in realized losses
resulting from writedowns of investments that became other-than-temporarily
impaired during the 1997 period. These writedowns are attributable primarily to
three 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 $2.3 million, or 12.9%, to $20.4 million for the 1997
period compared to $18.1 million for the 1996 period due primarily to an
increase in the level of leasing, management and financial services provided to
affiliates and third parties.
A summary of the Company's policy benefits is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Policy benefits:
Universal life and annuity benefits .................................. $ 92,785 $ 89,565
Traditional life insurance and accident and health benefits .......... 41,579 41,187
Increase in traditional and accident and health future policy benefits 19,775 21,074
Distributions to participating policyholders ......................... 19,398 19,446
Property-casualty losses and loss adjustment expenses ................ 30,310 19,245
--------- ---------
Total ............................................................. $ 203,847 $ 190,517
========= =========
</TABLE>
Policy benefits increased $13.3 million, or 7.0%, to $203.8 million for the 1997
period compared to $190.5 million for the 1996 period. Included in this increase
is a $3.2 million increase in universal life and annuity benefits consisting of
a $2.4 million increase in universal life death benefits in excess of related
account balances and a $0.8 million increase in interest credited to these
contracts. The increase in interest credited is attributable to a larger volume
of business in force partially offset by a decrease in interest crediting rates
on these contracts. The weighted average crediting rate for the Company's
universal life liabilities decreased to 6.22% for the 1997 period from 6.59% for
the 1996 period, and the weighted average crediting rate for the Company's
annuity liabilities decreased to 6.15% for the 1997 period from 6.57% for the
1996 period. The decrease in interest crediting rates was greater than the
reduction (one basis point) 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 decreased $0.9 million, or 1.5%, consisting of a $1.3 million
decrease in the change in the reserves on these products, a $1.0 million
decrease in death benefits, a $2.3 million increase in surrender benefits and a
$0.9 million net decrease in other
<PAGE>
benefits. Distributions to policyholders were $19.4 million during the 1997 and
1996 periods. Increases due to growth in the amount and age of the participating
business in force were offset by a decrease in the average dividend rate
credited to these policies to 5.98% at September 30, 1997 from 6.11% at
September 30, 1996. Losses and loss adjustment expenses incurred on
property-casualty policies increased $11.1 million, or 57.5%, to $30.3 million
for the 1997 period from $19.2 million for the 1996 period due primarily to the
changes in Utah Insurance's reinsurance pool participation. The loss and loss
adjustment expense ratio decreased in the 1997 period to 82.9% from 88.0% in the
1996 period due to more favorable weather conditions during the 1997 period.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals ................................ $ 6,896 $ 7,271
Amortization of deferred policy acquisition costs ................... 13,098 10,577
Other underwriting, acquisition and insurance expenses, net of deferrals 35,075 31,118
--------- ---------
Total ............................................................... $ 55,069 $ 48,966
========= =========
</TABLE>
Commission expense decreased $0.4 million, or 5.2%, to $6.9 million for the 1997
period compared to $7.3 million for the 1996 period. This decrease occurred
despite a 3.0% 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 $2.5 million, or
23.8%, to $13.1 million for the 1997 period compared to $10.6 million for the
1996 period. Amortization attributable to property-casualty operations increased
$2.1 million due primarily to the increase in Utah Insurance's reinsurance pool
participation. Amortization attributable to life operations increased $0.4
million.
Other underwriting, acquisition and insurance expenses increased $4.0 million,
or 12.7%, to $35.1 million for the 1997 period compared to $31.1 million for the
1996 period. This increase is principally attributable to a $1.7 million
increase in property-casualty expenses resulting primarily from the change in
Utah Insurance's reinsurance pool participation. In addition, amortization of
value of insurance in force acquired increased $1.6 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 and improved
profitability of the underlying life insurance business.
Interest expense was $1.1 million for the 1997 period compared to $0.6 million
for the 1996 period due primarily to an increase in the average debt outstanding
to $24.6 million for the 1997 period from $12.9 million for the 1996 period.
Other expenses increased $1.2 million, or 9.3%, to $14.2 million for the 1997
period compared to $13.0 million for the 1996 period due principally to an
increase in the level of leasing, management and financial services provided to
affiliates and third parties.
Pretax income before minority interest and equity income increased $28.3
million, or 44.9%, to $91.3 million for the 1997 period compared to $63.0
million for the 1996 period. All of the pretax income in the 1997 period is
attributable to life operations as the property-casualty segment experienced a
pretax loss of $0.5 million. In the 1996 period the property-casualty segment
experienced a pretax loss of $1.8 million. The increase in pretax income from
life operations is primarily the result of the impact of realized gains on
investments and an increase in income earned on invested assets.
<PAGE>
Income taxes increased $10.5 million, or 52.3%, to $30.7 million for the 1997
period compared to $20.2 million for the 1996 period. The effective tax rate for
the 1997 period was 33.7% compared to 32.0% for the 1996 period. The effective
tax rates were lower than the federal statutory rate of 35% due primarily to tax
exempt interest and dividend income partially offset by state income taxes. In
addition, during the 1997 period the Company realized a tax benefit associated
with the payment of dividends on mandatorily redeemable preferred stock of
subsidiary trust. See "Liquidity and Capital Resources - FBL Financial Group,
Inc." and Note 2 to the consolidated financial statements.
Equity income, net of related income taxes, decreased $1.7 million, or 66.1%, to
$0.9 million during the 1997 period compared to $2.6 million for the 1996
period. Equity income includes the Company's proportionate share of gains and
losses on investments owned by the underlying partnerships and joint ventures.
The level of these gains and losses is subject to fluctuation from period to
period depending on the prevailing economic environment and the timing of the
sale of investments held by the partnerships and joint ventures.
Net income applicable to common stock increased $13.4 million, or 30.6%, to
$57.4 million for the 1997 period compared to $44.0 million for the 1996 period.
The increase was the result of the changes in pretax income discussed above.
Partially offsetting the increase in net income was $2.1 million in dividends
paid during the 1997 period to the Company's preferred stockholder arising from
the exchange of five million shares of Class A common stock for five million
shares of Series A preferred stock on July 18, 1996. Dividend payments on the
parent company's preferred stock currently are $37,500 per quarter as a result
of the purchase of the Series A preferred stock and issuance of Series B
preferred stock on May 30, 1997. This decrease is offset by an increase in
dividends on the company-obligated mandatorily redeemable preferred stock of
subsidiary trust. See "Liquidity and Capital Resources - FBL Financial Group,
Inc." and Note 2 to the consolidated financial statements.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
A summary of the Company's premiums and product charges is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Premiums and product charges:
Universal life and annuity product charges ................ $ 12,362 $ 10,661
Traditional life insurance and accident and health premiums 22,044 22,437
Property-casualty premiums ................................ 13,437 12,949
--------- ---------
Total .................................................. $ 47,843 $ 46,047
========= =========
</TABLE>
Premiums and product charges increased $1.8 million, or 3.9%, to $47.8 million
for the third quarter of 1997 compared to $46.0 million for the third quarter of
1996. Universal life and annuity product charges increased $1.7 million, or
16.0%, due primarily to an increase in the volume and age of business in force.
Traditional life insurance and accident and health premiums decreased $0.4
million, or 1.8%, to $22.0 million for the third quarter of 1997. Management
believes the sale of traditional life insurance products was down slightly due
to a marketing emphasis placed on the sale of variable life insurance products.
Premiums collected on variable universal life insurance products increased 16.3%
to $7.7 million in the third quarter of 1997 from $6.7 million in the third
quarter of 1996. Property-casualty premiums increased $0.5 million, or 3.8%. The
impact on premiums of an 11% to 12% rate decrease on workers' compensation
insurance in Iowa and Minnesota and approximately 5.5% decrease on private
passenger auto insurance rates were offset by growth in the volume of business
in force.
Net investment income increased $5.5 million, or 10.9%, to $56.2 million for the
third quarter of 1997 compared to $50.7 million for the third quarter of 1996.
The increase resulted principally from a 5.6% increase in average invested
assets, excluding invested assets of FBL Ventures, to $2,933.2 million in the
1997 quarter from $2,779.0 million in the 1996 quarter and a ten basis point
increase in the annualized yield earned on average invested assets (excluding
yield attributable to FBL Ventures) to 7.89% in the 1997 quarter from 7.79% in
the 1996 quarter. The
<PAGE>
increase in average invested assets is attributable to net positive cash flows
from operating activities totaling $119.8 million during the 12-month period
ended September 30, 1997 and to net gains on investments during the same period.
The increase 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 higher than the average effective yield of
the investment portfolio during the 12-month period ended September 30, 1997.
This was accomplished during a period of declining interest rates partly through
the sale of equity securities and reinvestment of the proceeds in fixed maturity
securities which generate a higher level of current income. Offsetting the
increase in net investment income was a $1.9 million net investment loss of FBL
Ventures in the third quarter of 1996. FBL Ventures was dissolved on June 30,
1997. See "Adjusted Operating Income".
Realized gains on investments decreased $6.0 million to $10.5 million for the
third quarter of 1997 compared to $16.5 million for the third quarter of 1996.
The 1997 and 1996 gains resulted primarily from sales of equity securities. 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 $0.6 million, or 8.4%, to $7.1 million for the third
quarter of 1997 compared to $6.5 million for the third quarter of 1996 due
primarily to an increase in the level of management and financial services
provided to affiliates and third parties.
A summary of the Company's policy benefits is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Policy benefits:
Universal life and annuity benefits .................................. $ 30,424 $ 29,534
Traditional life insurance and accident and health benefits .......... 11,923 15,167
Increase in traditional and accident and health future policy benefits 6,076 5,715
Distributions to participating policyholders ......................... 5,751 6,052
Property-casualty losses and loss adjustment expenses ................ 11,758 12,440
--------- ---------
Total ............................................................. $ 65,932 $ 68,908
========= =========
</TABLE>
Policy benefits decreased $3.0 million, or 4.3%, to $65.9 million for the third
quarter of 1997 compared to $68.9 million for the third quarter of 1996.
Universal life and annuity benefits increased $0.9 million, or 3.0%, to $30.4
million for the third quarter of 1997 due to an increase in universal life death
benefits in excess of related account balances. Interest credited to universal
life and annuity contracts was $26.4 million for both periods as increases
resulting from growth in the volume of business in force were offset by
decreases to interest crediting rates. Traditional life and accident and health
benefits decreased $2.9 million, or 13.8%, consisting of a $3.0 million decrease
in death benefits, a $0.4 million increase in the change in the reserves on
these products and a $0.3 million net decrease in other benefits. Distributions
to policyholders decreased $0.3 million to $5.8 million for the third quarter of
1997 compared to $6.1 million for the third quarter of 1996 due primarily to a
decrease in the average dividend rate credited to these policies to 5.98% at
September 30, 1997 from 6.11% at September 30, 1996. Losses and loss adjustment
expenses incurred on property-casualty policies decreased $0.6 million, or 5.5%,
to $11.8 million for the third quarter of 1997 from $12.4 million for the third
quarter of 1996 due primarily to more favorable weather conditions during the
third quarter of 1997. The loss and loss adjustment expense ratio decreased in
the third quarter of 1997 to 87.5% from 96.1% in the third quarter of 1996.
<PAGE>
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals ................................... $ 2,277 $ 2,256
Amortization of deferred policy acquisition costs ...................... 5,174 5,116
Other underwriting, acquisition and insurance expenses, net of deferrals 11,411 10,415
--------- ---------
Total ............................................................... $ 18,862 $ 17,787
========= =========
</TABLE>
Commission expense was $2.3 million for the third quarter of 1997 and 1996 as
there was little change in the level of premiums collected on life insurance
policies.
Amortization of deferred policy acquisition costs increased $0.1 million, or
1.1%, to $5.2 million for the third quarter of 1997 compared to $5.1 million for
the third quarter of 1996. Amortization attributable to life operations
increased $0.7 million principally due to increased profits on the underlying
life insurance business and growth in the volume of business in force.
Amortization attributable to property-casualty operations decreased $0.6
million, or 21.2%, to $2.3 million for the third quarter of 1997 compared to
$2.9 million for the third quarter of 1996. During the third quarter of 1996,
$0.9 million of amortization was recorded relating to the increase in Utah
Insurance's pool participation on June 30, 1996.
Other underwriting, acquisition and insurance expenses increased $1.0 million,
or 9.6%, to $11.4 million for the third quarter of 1997 compared to $10.4
million for the third quarter of 1996. Amortization of value of insurance in
force acquired increased $0.7 million in the third quarter of 1997 compared to
the third quarter of 1996 due to the impact of realized gains and losses on
investments backing the related policyholder liabilities and increased
profitability of the underlying life insurance business.
Interest expense was $0.4 million for the third quarter of 1997 compared to $0.2
million for the third quarter of 1996 due primarily to an increase in the
average debt outstanding during the 1997 quarter.
Other expenses increased $0.3 million, or 6.8%, to $4.8 million for the third
quarter of 1997 compared to $4.5 million for the third quarter of 1996 due
principally to an increase in the level of management and financial services
provided to affiliates and third parties.
Pretax income before minority interest and equity income increased $3.4 million,
or 11.6%, to $31.8 million for the third quarter of 1997 compared to $28.4
million for the third quarter of 1996. All of the pretax income in the 1997
quarter is attributable to life operations as the property-casualty segment
experienced a pretax loss of $0.3 million. In the third quarter of 1996, the
property-casualty segment experienced a pretax loss of $2.4 million. The
increase in pretax income from life operations is primarily the result of
favorable mortality experience and an increase in income earned on invested
assets. The decrease in the net loss from the property-casualty segment is
primarily due to more favorable weather conditions during the third quarter of
1997.
Income taxes increased $2.4 million, or 27.5%, to $11.1 million for the third
quarter of 1997 compared to $8.7 million for the third quarter of 1996. The
effective tax rate for the third quarter of 1997 was 34.9% compared to 30.6% for
the third quarter of 1996. The effective tax rates were lower than the federal
statutory rate of 35% for both periods due primarily to tax exempt interest and
dividend income partially offset by state income taxes. In addition, during the
1997 period the Company realized a tax benefit associated with the payment of
dividends on mandatorily redeemable preferred stock of subsidiary trust. See
"Liquidity and Capital Resources - FBL Financial Group, Inc." and Note 2 to the
consolidated financial statements. The increase in the effective rate in the
1997 quarter is attributable to an increase in state income taxes in the 1997
quarter and the impact of permanent differences between book and taxable income
on certain investment transactions during the 1996 quarter.
<PAGE>
Equity income, net of related income taxes, decreased $0.1 million, or 16.5%, to
$0.8 million for the third quarter of 1997 compared to $0.9 million for the
third quarter of 1996. Equity income includes the Company's proportionate share
of gains and losses on investments owned by the underlying partnerships and
joint ventures. The level of these gains and losses is subject to fluctuation
from period to period depending on the prevailing economic environment and the
timing of the sale of investments held by the partnerships and joint ventures.
Net income applicable to common stock increased $0.6 million, or 3.1%, to $20.1
million for the third quarter of 1997 compared to $19.5 million for the third
quarter of 1996. Minority interest in earnings of subsidiaries increased $1.1
million as a result of the issuance of company obligated mandatorily redeemable
preferred stock of subsidiary trust during the second quarter of 1997. This
increase was partially offset by a decrease in dividends on Series A and B
preferred stock. See "Liquidity and Capital Resources - FBL Financial Group,
Inc." and Note 2 to the consolidated financial statements.
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income applicable to common stock .... $ 20,087 $ 19,486 $ 57,382 $ 43,950
Adjustments:
Net realized gains on investments ..... (6,569) (10,961) (21,914) (11,059)
Net income from FBL Ventures .......... -- 1,229 (723) (1,001)
------------ ------------ ------------ ------------
Adjusted operating income applicable to
common stock .......................... $ 13,518 $ 9,754 $ 34,745 $ 31,890
------------ ------------ ------------ ------------
Adjusted operating income per common share $ 0.74 $ 0.49 $ 1.88 $ 1.42
============ ============ ============ ============
</TABLE>
FBL Ventures was a wholly owned investment company subsidiary of Farm Bureau
Life which invested in start-up and mezzanine level venture capital investments
in various sectors. Operating results of FBL Ventures were recognized in
accordance with accounting principles for investment companies and, as such,
unrealized and realized gains and losses on investments were included in net
investment income. Because of the venture capital nature of the underlying
investments, the results of FBL Ventures tended to fluctuate significantly from
year to year and needed to be evaluated over a much longer period of time.
Therefore, the net income attributable to FBL Ventures was not included in
adjusted operating income.
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. On June 30, 1997, the remaining investments of FBL Ventures (five
venture capital securities with a total carrying value of $7.8 million) were
transferred to Farm Bureau Life and FBL Ventures was dissolved. The transfer of
investments had no impact on net income.
PENDING ACCOUNTING CHANGES
In August 1997, the Financial Accounting Standards Board (FASB) issued a
Statement of Position (SOP) entitled "Accounting by Insurance and Other
Enterprises for Guaranty-Fund and Certain other Insurance-Related Assessments".
The provisions of the SOP include (1) guidance for determining when an insurance
enterprise should recognize a liability for guaranty fund and other assessments,
(2) guidance on how to measure the liability and (3) criteria for when an asset
may be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. While the SOP is effective for years beginning
<PAGE>
after December 15, 1997, earlier application is permitted by the FASB. The
Company is currently analyzing the impact of this SOP and anticipates adopting
its provisions during the first quarter of 1998. The impact of adoption is not
expected to be material to the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" and Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information". Statement 130 establishes standards for reporting comprehensive
income and its components which include net income and items currently recorded
directly in equity such as unrealized gains and losses on fixed maturity
securities available for sale. Statement 131 establishes standards for reporting
information about operating segments, products and markets. Statement 130 is
effective for the first quarter of 1998 and Statement 131 is effective for the
year ended December 31, 1998. The impact of these statements, which the Company
plans to adopt in the respective period in which they are required, is not
expected to be material to the Company.
In February 1997, the FASB 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 primary EPS pursuant to APB Opinion 15. If Statement
128 were effective, basic and diluted net income per common share would have
been $1.12 and $1.10, respectively, for the third quarter of 1997 and $3.15 and
$3.10, respectively, for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
FBL FINANCIAL GROUP, INC.
Parent company cash inflows from operations consist primarily of dividends from
subsidiaries, if declared and paid, and fees which it charges the various
subsidiaries and affiliates for management of their operations. Cash outflows
are principally for salaries and other expenses related to providing such
management services and for interest on holding company debt. In addition, the
parent company will on occasion enter into capital transactions such as the
acquisition of its common stock.
On May 30, 1997, FBL Financial Group Capital Trust (the "Trust"), a consolidated
wholly-owned subsidiary of the Company, issued $97.0 million of 5.0% Preferred
Securities to the Company's majority shareholder, the Iowa Farm Bureau
Federation. In connection with the Trust's issuance of the 5.0% Preferred
Securities and the related purchase of all of the Trust's common securities, the
parent company issued to the Trust $100.0 million principal amount of its 5.0%
Subordinated Deferrable Interest Notes, due June 30, 2047 (the "Notes").
Concurrent with the issuance of the Notes, the Company purchased from the Iowa
Farm Bureau Federation 5,000,000 shares of the parent company's Series A
preferred stock at its liquidation value of $100.0 million. In addition, the
parent company issued 5,000,000 shares of Series B preferred stock to the Iowa
Farm Bureau Federation for $3.0 million.
The purchase of Series A preferred stock and simultaneous issuance of Series B
preferred stock and 5.0% Preferred Securities were noncash transactions. Except
for the maturity of the Notes on June 1, 2047, the parent company's future cash
flow requirements were not changed significantly by the aforementioned
transactions. See Note 2 to the consolidated financial statements for additional
information.
On April 4, 1997, the parent company purchased 965,370 shares of its Class A
common stock under a stock repurchase plan for $24.8 million. The shares were
purchased from certain Farm Bureau property-casualty insurance companies which
had a concentration of their investments in the Company. The concentrations
arose principally due to the appreciation of the Company's stock price which
caused the investments to exceed statutory or internal guidelines.
<PAGE>
During the nine months ended September 30, 1997, the parent company paid common
and preferred stock dividends totaling $7.6 million. Preferred dividends
totaling $1.0 million were paid during the corresponding 1996 period. It is
anticipated dividend requirements for the remainder of 1997 will be $0.10 per
quarter per common share and $0.0075 per quarter per preferred share, or
approximately $1.8 million. In addition, interest payments on the Notes are
estimated to be $1.3 million for the remainder of 1997. FBL Financial Group,
Inc. relies primarily on dividends from the Life Companies to make any dividend
payments to its stockholders and interest payments on its Notes. 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 $5.0 million from Farm Bureau Life and $4.3
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 nine-month period ended September 30, 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 nine-month period ended
September 30, 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 $104.4 million and $114.4 million in the nine-month
periods ended September 30, 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 and asset-backed securities and mortgage loans, are believed adequate
to meet anticipated short-term and long-term benefit and expense payment
obligations.
<PAGE>
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 September 30,
1997. Interest is payable at the current market rate on the date of issuance. As
of September 30, 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 and asset-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 September 30, 1997, the Company had no material
commitments for capital expenditures.
INVESTMENTS
The Company's total investment portfolio increased $130.1 million, or 4.5%, to
$3,019.2 million at September 30, 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 the acquisition of 965,370 shares of Class A
common stock for $24.8 million during the second quarter of 1997.
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.
<PAGE>
The Company's investment portfolio is summarized in the table below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------------- -------------------------------
CARRYING VALUE PERCENT CARRYING VALUE PERCENT
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Fixed maturities: (DOLLARS IN THOUSANDS)
Public .................... $ 1,832,987 60.7% $ 1,734,849 60.0%
144A private placement .... 274,283 9.0 230,446 8.0
Private placement ......... 270,268 9.0 303,000 10.5
------------ ------------ ------------ ------------
Total fixed maturities .... 2,377,538 78.7 2,268,295 78.5
Equity securities ........... 61,877 2.0 86,991 3.0
Held in inventory ........... 3,349 0.1 15,899 0.5
Mortgage loans on real estate 301,656 10.0 293,777 10.2
Investment real estate:
Acquired for debt ......... 1,721 0.1 2,007 0.1
Investment ................ 35,733 1.2 26,384 0.9
Policy loans ................ 121,481 4.0 118,996 4.1
Other long-term investments . 8,356 0.3 8,388 0.3
Short-term investments ...... 107,482 3.6 68,358 2.4
------------ ------------ ------------ ------------
Total investments ...... $ 3,019,193 100.0% $ 2,889,095 100.0%
============ ============ ============ ============
</TABLE>
As of September 30, 1997, 94.5% (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 September 30, 1997, the Company's investment in non-investment grade
debt was 5.5% of fixed maturity securities. At that time no single
non-investment grade holding exceeded 0.3% 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:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
NAIC DESIGNATION EQUIVALENT S&P RATINGS (1) CARRYING VALUE PERCENT
- -------------------------- ----------------------------------------------- ---------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1 (AAA, AA, A).................................. $ 1,582,049 66.5 %
2 (BBB)......................................... 665,042 28.0
--------------- ------------
Total investment grade........................ 2,247,091 94.5
3 (BB).......................................... 79,156 3.4
4 (B)........................................... 48,072 2.0
5 (CCC, CC, C).................................. 275 -
6 In or near default............................ 2,944 0.1
--------------- ------------
Total below investment grade.................. 130,447 5.5
--------------- ------------
Total fixed maturities........................ $ 2,377,538 100.0 %
=============== ============
</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.
<PAGE>
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at September 30, 1997:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
Corporate securities ........ $ 5,008 $ 894 $ (8) $ 5,894
Mortgage-backed securities .. 655,835 24,431 (2,772) 677,494
---------- ---------- ---------- ----------
Total fixed maturities .......... $ 660,843 $ 25,325 $ (2,780) $ 683,388
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
--------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
United States Government and agencies . $ 121,791 $ 899 $ (803) $ 121,887
State, municipal and other governments 63,625 2,240 (132) 65,733
Public utilities ...................... 146,000 6,298 (607) 151,691
Corporate securities .................. 850,577 49,524 (6,776) 893,325
Mortgage and asset-backed securities .. 438,503 14,355 (1,348) 451,510
Redeemable preferred stock ................ 31,126 1,431 (8) 32,549
------------ ------------ ------------ ------------
Total fixed maturities .................... $ 1,651,622 $ 74,747 $ (9,674) $ 1,716,695
============ ============ ============ ============
Equity securities ......................... $ 50,605 $ 17,385 $ (6,113) $ 61,877
============ ============ ============ ============
</TABLE>
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at September 30, 1997, by contractual maturity, are
shown below.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
------------------------------- -------------------------------
ESTIMATED ESTIMATED
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
-------------- ------------ -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less .............. $ -- $ -- $ 28,927 $ 29,033
Due after one year through five years -- -- 194,092 200,646
Due after five years through ten years 5,008 5,894 292,019 306,573
Due after ten years .................. -- -- 666,955 696,384
------------ ------------ ------------ ------------
5,008 5,894 1,181,993 1,232,636
Mortgage and asset-backed securities . 655,835 677,494 438,503 451,510
Redeemable preferred stocks .......... -- -- 31,126 32,549
------------ ------------ ------------ ------------
$ 660,843 $ 683,388 $ 1,651,622 $ 1,716,695
============ ============ ============ ============
</TABLE>
Mortgage and other asset-backed securities constitute a significant portion of
the Company's portfolio of securities. These securities were purchased at a time
when, management believes, these types of investments provided superior
risk-adjusted returns 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 September 30, 1997,
the Company held $638.5 million (21.1% of total investments) in residential
mortgage-backed securities, $275.1 million (9.1% of total investments) in
commercial mortgage-backed securities and $193.7 million (6.4% of total
investments) in other asset-backed securities.
<PAGE>
At September 30, 1997, the Company held residential collateralized mortgage
obligation (CMO) investments with a market value of $591.9 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 (e.g., 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 September 30, 1997, 80.0% of the Company's
CMO investments are in PAC and sequential pay securities. The Company does not
purchase certain types of collateralized mortgage obligations which it believes
subjects the investment portfolio to greater than average risk. These include,
but are not limited to, interest only, principal only, floater, inverse floater,
PAC II, Z and support tranches.
At September 30, 1997, the Company held $301.7 million or 10.0% 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 September 30, 1997, mortgages more than 60 days delinquent accounted for 0.3%
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 September
30, 1997 include: Pacific (23%) which includes California, Oregon and
Washington; and West North Central (19%) which includes Iowa, Kansas, and
Missouri. Mortgage loans on real estate have also been analyzed by collateral
types with office buildings (49%) and retail facilities (31%) representing the
largest holdings at September 30, 1997.
The Company's investment portfolio at September 30, 1997, also included $107.5
million of short-term investments and $237.8 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 September 30,
1997, the weighted average life of the fixed maturity portfolio, based on market
values excluding convertible bonds, was approximately 8.0 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 4.7 as of September 30, 1997.
OTHER ASSETS
Deferred policy acquisition costs increased $13.7 million, or 8.2%, due
principally to the capitalization of costs incurred with new sales. Assets held
in separate accounts increased $44.6 million, or 56.4%, to $123.6 million at
September 30, 1997 due primarily to net transfers to the separate accounts
resulting from sales of the Company's variable products and appreciation in the
value of separate account investments. At September 30, 1997, the Company had
total assets of $3,555.7 million, a 5.6% increase from total assets at December
31, 1996.
LIABILITIES AND MINORITY INTEREST
Policy liabilities and accruals increased $60.6 million, or 2.7%, due primarily
to an increase in the volume of business in force. At September 30, 1997, the
Company had total liabilities of $2,866.1 million, a 5.2% increase from total
liabilities at December 31, 1996. Minority interest in subsidiaries increased
$96.7 million to $101.5 million at September 30, 1997, as a result of the
issuance of 5.0% Preferred Securities during May 1997. See "Liquidity and
Capital Resources - FBL Financial Group, Inc." and Note 2 to the consolidated
financial statements for more information regarding this transaction.
<PAGE>
STOCKHOLDERS' EQUITY
Stockholders' equity decreased $50.3 million, or 7.9%, to $588.2 million at
September 30, 1997 compared to $638.5 million at December 31, 1996. This
decrease is principally attributable to a $97 million decrease in preferred
stock. On May 30, 1997, the Company purchased $100.0 million of Series A
preferred stock from and issued $3.0 million of Series B preferred stock to the
Iowa Farm Bureau Federation. In addition, on April 4, 1997, the Company
purchased 965,370 shares of its Class A common stock under a stock repurchase
plan for $24.8 million. See "Liquidity and Capital Resources - FBL Financial
Group, Inc." and Note 2 to the consolidated financial statements for more
information regarding these transactions. These decreases were offset by net
income during the nine month period ended September 30, 1997 and net unrealized
appreciation of securities classified as available for sale.
At September 30, 1997, common stockholders' equity was $585.2 million, or $32.62
per share, compared to $538.5 million, or $28.55 per share at December 31, 1996.
Included in stockholders' equity per common share is $2.18 and $1.05 at
September 30, 1997 and December 31, 1996, respectively, attributable to
unrealized investment gains 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 increased stockholders' equity $18.7 million during the
nine-month period ended September 30, 1997, after related adjustments to
deferred policy acquisition costs, value of insurance in force acquired,
unearned revenue reserve and deferred income taxes.
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.
<PAGE>
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 filed during the quarter ended September 30, 1997:
None
<PAGE>
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: November 10, 1997
FBL FINANCIAL GROUP, INC.
By /s/ Thomas R. Gibson
----------------------------------------
Chief Executive Officer (Principal Executive
Officer)
By /s/ James W. Noyce
----------------------------------------
Chief Financial Officer (Principal Financial
and Accounting Officer)
EXHIBIT 11
FBL FINANCIAL GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding .................. 17,920,281 19,750,211 18,240,354 22,489,937
Net effect of stock options - based on the
treasury stock method using average
market price ............................. 349,887 66,382 287,617 22,531
------------- ------------- ------------- -------------
Weighted average primary shares outstanding . 18,270,168 19,816,593 18,527,971 22,512,468
============= ============= ============= =============
Net income .................................. $ 20,124 $ 20,486 $ 59,515 $ 44,950
Dividends on Series A and B preferred stock . (37) (1,000) (2,133) (1,000)
------------- ------------- ------------- -------------
Net income applicable to common stock ....... $ 20,087 $ 19,486 $ 57,382 $ 43,950
============= ============= ============= =============
Net income per primary common and common
equivalent share ......................... $ 1.10 $ 0.98 $ 3.10 $ 1.95
============= ============= ============= =============
FULLY DILUTED
Average shares outstanding .................. 17,920,281 19,750,211 18,240,354 22,489,937
Net effect of stock options-based on the
treasury stock method using period-end
market price, if higher than average
market price ............................. 376,572 102,024 381,517 34,629
------------- ------------- ------------- -------------
Weighted average fully diluted shares
outstanding .............................. 18,296,853 19,852,235 18,621,871 22,524,566
============= ============= ============= =============
Net income .................................. $ 20,124 $ 20,486 $ 59,515 $ 44,950
Dividends on Series A and B preferred stock . (37) (1,000) (2,133) (1,000)
------------- ------------- ------------- -------------
Net income applicable to common stock ....... $ 20,087 $ 19,486 $ 57,382 $ 43,950
============= ============= ============= =============
Net income per fully diluted common and
common equivalent share .................. $ 1.10 $ 0.98 $ 3.08 $ 1.95
============= ============= ============= =============
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,716,695
<DEBT-CARRYING-VALUE> 660,843
<DEBT-MARKET-VALUE> 683,388
<EQUITIES> 61,877
<MORTGAGE> 301,656
<REAL-ESTATE> 37,454
<TOTAL-INVEST> 3,019,193
<CASH> 2,692
<RECOVER-REINSURE> 39,023
<DEFERRED-ACQUISITION> 180,647
<TOTAL-ASSETS> 3,555,739
<POLICY-LOSSES> 2,251,839
<UNEARNED-PREMIUMS> 30,167
<POLICY-OTHER> 32,195
<POLICY-HOLDER-FUNDS> 232,953
<NOTES-PAYABLE> 24,578
0
3,000
<COMMON> 49,840
<OTHER-SE> 535,315
<TOTAL-LIABILITY-AND-EQUITY> 3,555,739
143,552
<INVESTMENT-INCOME> 167,061
<INVESTMENT-GAINS> 34,486
<OTHER-INCOME> 20,429
<BENEFITS> 184,449
<UNDERWRITING-AMORTIZATION> 13,098
<UNDERWRITING-OTHER> 41,971
<INCOME-PRETAX> 91,259
<INCOME-TAX> 30,739
<INCOME-CONTINUING> 59,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,515
<EPS-PRIMARY> 3.10
<EPS-DILUTED> 3.08
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
