Net income EPS of $0.15, down 88% and adjusted
operating EPS of $2.24, up 5%
Net income ROE, including AOCI, of 1.1% and
adjusted operating ROE, excluding AOCI, of 13.5%
BVPS, including AOCI, of $85.79, up 6%; BVPS,
excluding AOCI, of $70.24, up 2%
$304 million of capital returned to
shareholders in the quarter
Lincoln Financial Group (NYSE: LNC) today reported net income
for the first quarter of 2020 of $52 million, or $0.15 per diluted
share available to common stockholders, compared to net income in
the first quarter of 2019 of $252 million, or $1.22 per diluted
share available to common stockholders. First quarter adjusted
income from operations was $465 million, or $2.24 per diluted share
available to common stockholders, compared to adjusted income from
operations of $441 million, or $2.14 per diluted share available to
common stockholders, in the first quarter of 2019.
“First quarter operating results were strong during a period of
rapid change,” said Dennis R. Glass, president and CEO of Lincoln
Financial Group. “We have been focused on doing what is best for
all our external stakeholders and employees by prioritizing health
and safety while ensuring our businesses operations and customer
service are strong. We came into this environment very well
capitalized and are confident that the strategies we have in place
combined with actions we are taking will drive long-term
shareholder value.”
As of or For the
Quarter Ended
March 31,
(in millions, except per share data)
2020
2019
Net Income (Loss)
$
52
$
252
Net Income (Loss) Available to Common
Stockholders
29
252
Net Income (Loss) per Diluted Share
Available to Common Stockholders
0.15
1.22
Revenues
4,425
3,965
Adjusted Income (Loss) from Operations
465
441
Adjusted Income (Loss) from Operations per
Diluted Share Available to Common Stockholders
2.24
2.14
Average Diluted Shares
197.3
206.0
Return on Equity (ROE), Including
Accumulated Other Comprehensive Income (AOCI) (Net Income)
1.1%
6.6%
Adjusted Operating ROE, Excluding AOCI
(Income from Operations)
13.5%
12.6%
Book Value per Share, Including AOCI
$
85.79
$
80.88
Book Value per Share, Excluding AOCI
70.24
68.79
Operating Highlights – First Quarter 2020 vs First Quarter
2019
- Adjusted income from operations of $465 million, up 5%
- Adjusted operating revenues of $4.5 billion, up 3%
- Total Annuity sales of $3.7 billion, up 5%, with positive net
flows of $528 million in the quarter
- Retirement Plan Services deposits of $2.8 billion, up 11%
- Life Insurance operating revenues of $1.8 billion, up 7%
- Group Protection insurance premiums of $1.1 billion, up 7%
There were no notable items within adjusted income from
operations for the current quarter or the prior-year quarter.
First Quarter 2020 – Segment Results
Annuities
Annuities reported income from operations of $261 million, up 4%
from the prior-year quarter. This increase was primarily driven by
growth in average account values.
Total annuity deposits of $3.7 billion were up 5% from the
prior-year quarter. Variable annuity sales were up 37% versus the
prior-year quarter primarily driven by growth in indexed-variable
annuity sales. Fixed annuity sales decreased 33% over the same
period.
Net flows were $528 million in the quarter, which included
positive flows from both variable and fixed annuities. Average
account values of $138 billion were up 8% over the prior-year
quarter while end-of-period account values decreased 3%.
Retirement Plan Services
Retirement Plan Services reported income from operations of $40
million compared to $39 million in the prior-year quarter driven by
strong expense management.
Total deposits for the quarter of $2.8 billion were up 11%
driven by 5% growth in first-year sales and a 15% increase in
recurring deposits.
Net flows totaled $671 million in the quarter compared to $381
million of outflows in the prior-year quarter. Average account
values of $76 billion were up 8% over the prior-year quarter while
end-of-period account values decreased 3%.
Life Insurance
Life Insurance reported income from operations of $171 million,
up 9% compared to the prior-year quarter. This increase was
primarily driven by growth in new business. Mortality was favorable
in both the current period and the prior-year quarter.
Total Life Insurance sales were $169 million compared to $191
million in the prior-year quarter. Strong growth in IUL and term
was offset by declines in all other individual life insurance
products and executive benefits.
Total Life Insurance in-force of $843 billion grew 10% over the
prior-year quarter, and average account values of $53 billion
increased 5% over the same period.
Group Protection
Group Protection income from operations was $40 million in the
quarter compared to $55 million in the prior-year period. The
decrease was primarily driven by unfavorable risk results.
The total loss ratio was 79% in the current quarter compared to
74% in the prior-year quarter.
Group Protection sales were $102 million compared to $119
million in the prior-year quarter driven by a decline in life
sales. Employee-paid sales represented 60% of total sales.
Insurance premiums of $1.1 billion were up 7%.
Other Operations
Other Operations reported a loss from operations of $47 million
versus a loss of $60 million in the prior-year quarter.
Realized Gains and Losses / Impacts to Net Income
Realized gains/losses and impacts to net income (after-tax) in
the quarter were primarily driven by:
- A $349 million loss from variable annuity net derivative
results.
- A $30 million realized loss related to financial assets, which
includes $16 million of credit loss expense on other financial
assets.
- A $30 million loss from indexed annuity forward-starting
options.
Unrealized Gains and Losses
The company reported a net unrealized gain of $6.4 billion,
pre-tax, on its available-for-sale securities at March 31, 2020.
This compares to a net unrealized gain of $5.2 billion at March 31,
2019, with the year-over-year increase primarily driven by lower
treasury rates.
Capital
The quarter’s average diluted share count of 197.3 million was
down 4% from the first quarter of 2019, the result of repurchasing
10.3 million shares of stock at a cost of $625 million since March
31, 2019.
Book Value
As of March 31, 2020, book value per share, including AOCI,
increased 6% from the prior-year period to $85.79. Book value per
share, excluding AOCI, increased 2% from the prior-year period to
$70.24.
The tables attached to this release define and reconcile the
non-GAAP measures adjusted income from operations, adjusted
operating ROE and BVPS, excluding AOCI, to net income, ROE and
BVPS, including AOCI, calculated in accordance with GAAP. The
tables also include a reconciliation of adjusted operating EPS
excluding notable items to adjusted operating EPS.
This press release may contain statements that are
forward-looking, and actual results may differ materially. Please
see the Forward Looking Statements – Cautionary Language at the end
of this release for factors that may cause actual results to differ
materially from our current expectations.
For other financial information, please refer to the company’s
first quarter 2020 statistical supplement and investment portfolio
supplement available on its website, www.lfg.com/investor.
Lincoln Financial Group will discuss the company’s first quarter
results with investors in a conference call beginning at 10:00 a.m.
Eastern Time on Thursday, May 7, 2020. The conference call will be
broadcast live through the company website at www.lfg.com/webcast.
Please log on at least fifteen minutes prior to the call to
register and download any necessary streaming media software. To
participate via phone: (866) 394-4575 (U.S./Canada) or (678)
509-7536 (International). Ask for the Lincoln National Conference
Call.
A replay of the call will be available by 1:00 p.m. Eastern Time
on May 7, 2020 at www.lfg.com/webcast. Audio replay will be
available from 1:00 p.m. Eastern Time on May 7, 2020 through 12:00
p.m. Eastern Time on May 14, 2020. To access the re-broadcast,
dial: (855) 859-2056 (Domestic) or (404) 537-3406 (International).
Enter conference code: 9338535.
About Lincoln Financial Group
Lincoln Financial Group provides advice and solutions that help
empower people to take charge of their financial lives with
confidence and optimism. Today, more than 17 million customers
trust our retirement, insurance and wealth protection expertise to
help address their lifestyle, savings and income goals, as well as
to guard against long-term care expenses. Headquartered in Radnor,
Pennsylvania, Lincoln Financial Group is the marketing name for
Lincoln National Corporation (NYSE:LNC) and its affiliates. The
company had $247 billion in end-of-period account values as of
March 31, 2020. Lincoln Financial Group is a committed corporate
citizen included on major sustainability indices including the Dow
Jones Sustainability Index North America and FTSE4Good. Dedicated
to diversity and inclusion, Lincoln earned perfect 100 percent
scores on the Corporate Equality Index and the Disability Equality
Index. Lincoln has also been recognized in Newsweek’s Most
Responsible Companies and is among Forbes’ World’s Best Employers,
Best Large Employers, Best Employers for Diversity, Best Employers
for Women and ranked on the JUST 100 list. Learn more at:
www.LincolnFinancial.com. Follow us on Facebook, Twitter, LinkedIn,
and Instagram. Sign up for email alerts at
http://newsroom.lfg.com.
Explanatory Notes on Use of Non-GAAP
Measures
Management believes that adjusted income from operations
(adjusted operating income), adjusted operating return on equity,
adjusted operating revenues, and adjusted operating EPS better
explain the results of the company’s ongoing businesses in a manner
that allows for a better understanding of the underlying trends in
the company’s current business because the excluded items are
unpredictable and not necessarily indicative of current operating
fundamentals or future performance of the business segments, and,
in most instances, decisions regarding these items do not
necessarily relate to the operations of the individual segments.
Management also believes that using book value excluding
accumulated other comprehensive income (“AOCI”) enables investors
to analyze the amount of our net worth that is primarily
attributable to our business operations. Book value per share
excluding AOCI is useful to investors because it eliminates the
effect of items that can fluctuate significantly from period to
period, primarily based on changes in interest rates.
For the historical periods, reconciliations of non-GAAP measures
used in this press release to the most directly comparable GAAP
measure may be included in this Appendix to the press release
and/or are included in the Statistical Reports for the
corresponding periods contained in the Earnings section of the
Investor Relations page on our website: www.lfg.com/investor.
Definitions of Non-GAAP Measures Used
in this Press Release
Adjusted income (loss) from operations, adjusted operating
revenues and adjusted operating return on equity (including and
excluding average goodwill within average equity), excluding AOCI,
using annualized adjusted income (loss) from operations are
financial measures we use to evaluate and assess our results.
Adjusted income (loss) from operations, adjusted operating revenues
and adjusted operating return on equity (“ROE”), as used in the
press release, are non-GAAP financial measures and do not replace
GAAP net income (loss), revenues and ROE, the most directly
comparable GAAP measures.
Adjusted Income (Loss) from Operations
Adjusted income (loss) from operations is GAAP net income (loss)
excluding the after-tax effects of the following items, as
applicable:
- Realized gains and losses associated with the following
(“excluded realized gain (loss)”):
- Sales or disposals and impairments of financial assets;
- Changes in the fair value of equity securities;
- Changes in the fair value of derivatives, embedded derivatives
within certain reinsurance arrangements and trading securities
(“gain (loss) on the mark-to-market on certain instruments”);
- Changes in the fair value of the derivatives we own to hedge
our guaranteed death benefit (“GDB”) riders within our variable
annuities;
- Changes in the fair value of the embedded derivatives of our
guaranteed living benefit (“GLB”) riders reflected within variable
annuity net derivative results accounted for at fair value;
- Changes in the fair value of the derivatives we own to hedge
our GLB riders reflected within variable annuity net derivative
results; and
- Changes in the fair value of the embedded derivative
liabilities related to index options we may purchase or sell in the
future to hedge contract holder index allocations applicable to
future reset periods for our indexed annuity products accounted for
at fair value (“indexed annuity forward-starting options”);
- Changes in reserves resulting from benefit ratio unlocking on
our GDB and GLB riders (“benefit ratio unlocking”);
- Income (loss) from reserve changes, net of related
amortization, on business sold through reinsurance;
- Gains (losses) on early extinguishment of debt;
- Losses from the impairment of intangible assets;
- Income (loss) from discontinued operations;
- Acquisition and integration costs related to mergers and
acquisitions; and
- Income (loss) from the initial adoption of new accounting
standards, regulations and policy changes including the net impact
from the Tax Cuts and Jobs Act.
Adjusted Operating Revenues
Adjusted operating revenues represent GAAP revenues excluding
the pre-tax effects of the following items, as applicable:
- Excluded realized gain (loss);
- Revenue adjustments from the initial adoption of new accounting
standards;
- Amortization of deferred front-end loads (“DFEL”) arising from
changes in GDB and GLB benefit ratio unlocking; and
- Amortization of deferred gains arising from reserve changes on
business sold through reinsurance.
Adjusted Operating Return on Equity
Adjusted operating return on equity measures how efficiently we
generate profits from the resources provided by our net assets.
- It is calculated by dividing annualized adjusted income (loss)
from operations by average equity, excluding accumulated other
comprehensive income (loss) ("AOCI").
- Management evaluates return on equity by both including and
excluding average goodwill within average equity.
Definition of Notable Items
Adjusted income (loss) from operations, excluding notable items,
is a non-GAAP measure that excludes items which, in management’s
view, do not reflect the company’s normal, ongoing operations.
- We believe highlighting notable items included in adjusted
income (loss) from operations enables investors to better
understand the fundamental trends in its results of operations and
financial condition.
Book Value Per Share, Excluding AOCI
Book value per share, excluding AOCI is calculated based upon a
non-GAAP financial measure.
- It is calculated by dividing (a) stockholders' equity,
excluding AOCI by (b) common shares outstanding.
- We provide book value per share excluding AOCI to enable
investors to analyze the amount of our net worth that is primarily
attributable to our business operations.
- Management believes book value per share, excluding AOCI is
useful to investors because it eliminates the effect of items that
can fluctuate significantly from period to period, primarily based
on changes in interest rates.
- Book value per share is the most directly comparable GAAP
measure.
Special Note
Sales
Sales as reported consist of the following:
- Annuities and Retirement Plan Services – deposits from new and
existing customers;
- MoneyGuard® – 15% of total expected premium deposits;
- Universal life (“UL”), indexed universal life (“IUL”), variable
universal life (“VUL”) – first-year commissionable premiums plus 5%
of excess premiums received;
- Executive Benefits – single premium bank-owned UL and VUL, 15%
of single premium deposits, and corporate-owned UL and VUL,
first-year commissionable premiums plus 5% of excess premium
received;
- Term – 100% of annualized first-year premiums; and
- Group Protection – annualized first-year premiums from new
policies.
Lincoln National
Corporation
Reconciliation of Net Income
to Adjusted Income from Operations
(in millions, except per share data)
For the Quarter Ended
March 31,
2020
2019
Total Revenues
$
4,425
$
3,965
Less:
Excluded realized gain (loss)
(75)
(400)
Amortization of DFEL on benefit ratio
unlocking
(9)
3
Total Adjusted Operating
Revenues
$
4,509
$
4,362
Net Income (Loss) Available to Common
Stockholders – Diluted
$
29
$
252
Less:
Adjustment for deferred units of LNC stock
in our deferred compensation plans(1)
(23)
-
Net Income (Loss)
52
252
Less:
Excluded realized gain (loss),
after-tax
(60)
(316)
Benefit ratio unlocking, after-tax
(349)
142
Acquisition and integration costs related
to mergers and acquisitions, after-tax
(4)
(15)
Total adjustments
(413)
(189)
Adjusted Income (Loss) from
Operations
$
465
$
441
Earnings (Loss) Per Common Share –
Diluted
Net income (loss)
$
0.15
$
1.22
Adjusted income (loss) from operations
2.24
2.14
Average Stockholders’ Equity
Average Equity, including average AOCI
$
18,132
$
15,384
Average AOCI
4,338
1,430
Average equity, excluding AOCI
13,794
13,954
Average goodwill
1,778
1,780
Average equity, excluding AOCI and
goodwill
$
12,016
$
12,174
Return on Equity, Including
AOCI
Net income (loss) with average equity
including goodwill
1.1%
6.6%
Adjusted Operating Return on Equity,
Excluding AOCI
Adjusted income (loss) from operations
with average equity including goodwill
13.5%
12.6%
Adjusted income (loss) from operations
with average equity excluding goodwill
15.5%
14.5%
(1)
The numerator used in the calculation of our diluted EPS is
adjusted to remove the mark-to-market adjustment for deferred units
of LNC stock in our deferred compensation plans if the effect of
equity classification would result in a more dilutive EPS.
Lincoln National
Corporation
Reconciliation of Book Value
per Share
As of March 31,
2020
2019
Book value per share, including AOCI
$
85.79
$
80.88
Per share impact of AOCI
15.55
12.09
Book value per share, excluding AOCI
70.24
68.79
Lincoln National
Corporation
Digest of Earnings
(in millions, except per share data)
For the Quarter Ended
March 31,
2020
2019
Revenues
$
4,425
$
3,965
Net Income (Loss)
$
52
$
252
Adjustment for deferred units of LNC stock
in our deferred compensation plans(1)
(23)
-
Net Income (Loss) Available to Common
Stockholders – Diluted
$
29
$
252
Earnings (Loss) per Common Share –
Basic
$
0.27
$
1.23
Earnings (Loss) per Common Share –
Diluted
0.15
1.22
Average Shares – Basic
195,076,797
204,290,759
Average Shares – Diluted
197,264,842
205,961,663
(1)
The numerator used in the calculation of our diluted EPS is
adjusted to remove the mark-to-market adjustment for deferred units
of LNC stock in our deferred compensation plans if the effect of
equity classification would be more dilutive to our diluted
EPS.
Forward Looking Statements — Cautionary Language
Certain statements made in this press release and in other
written or oral statements made by Lincoln or on Lincoln's behalf
are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (“PSLRA”). These
forward-looking statements are intended to enhance the reader’s
ability to assess our future financial performance. A
forward-looking statement is a statement that is not a historical
fact and, without limitation, includes any statement that may
predict, forecast, indicate or imply future results, performance or
achievements. Forward-looking statements may contain words like:
"anticipate," "believe," "estimate," "expect," "project," "shall,"
"will," and other words or phrases with similar meaning in
connection with a discussion of future operating or financial
performance. In particular, these include statements relating to
future actions, trends in Lincoln's businesses, prospective
services or products, future performance or financial results, and
the outcome of contingencies, such as legal proceedings. Lincoln
claims the protection afforded by the safe harbor for
forward-looking statements provided by the PSLRA.
Forward-looking statements are subject to risks and
uncertainties. Actual results could differ materially from those
expressed in or implied by such forward-looking statements due to a
variety of factors, including:
- The continuation of the COVID-19 pandemic, or future outbreaks
of COVID-19, and uncertainty surrounding the length and severity of
future impacts on the global economy and on our business, results
of operations and financial condition;
- Continued deterioration in general economic and business
conditions that may affect account values, investment results,
guaranteed benefit liabilities, premium levels and claims
experience;
- Adverse global capital and credit market conditions could
affect our ability to raise capital, if necessary, and may cause us
to realize impairments on investments and certain intangible
assets, including goodwill and the valuation allowance against
deferred tax assets, which may reduce future earnings and/or affect
our financial condition and ability to raise additional capital or
refinance existing debt as it matures;
- Because of our holding company structure, the inability of our
subsidiaries to pay dividends to the holding company in sufficient
amounts could harm the holding company’s ability to meet its
obligations;
- Legislative, regulatory or tax changes, both domestic and
foreign, that affect: the cost of, or demand for, our subsidiaries'
products; the required amount of reserves and/or surplus; our
ability to conduct business and our captive reinsurance
arrangements as well as restrictions on the payment of revenue
sharing and 12b-1 distribution fees; the impact of U.S. Federal tax
reform legislation on our business, earnings and capital; and the
impact of any “best interest” standards of care adopted by the
Securities and Exchange Commission (“SEC”) or other regulations
adopted by federal or state regulators or self-regulatory
organizations relating to the standard of care owed by investment
advisers and/or broker dealers;
- Actions taken by reinsurers to raise rates on in-force
business;
- Continued declines in or sustained low interest rates causing a
reduction in investment income, the interest margins of our
businesses, estimated gross profits and demand for our
products;
- Rapidly increasing interest rates causing contract holders to
surrender life insurance and annuity policies, thereby causing
realized investment losses, and reduced hedge performance related
to variable annuities;
- Uncertainty about the effect of continuing promulgation and
implementation of rules and regulations under the Dodd-Frank Wall
Street Reform and Consumer Protection Act on us, the economy and
the financial services sector in particular;
- The initiation of legal or regulatory proceedings against us,
and the outcome of any legal or regulatory proceedings, such as:
adverse actions related to present or past business practices
common in businesses in which we compete; adverse decisions in
significant actions including, but not limited to, actions brought
by federal and state authorities and class action cases; new
decisions that result in changes in law; and unexpected trial court
rulings;
- A continued decline in the equity markets causing a reduction
in the sales of our subsidiaries' products; a reduction of
asset-based fees that our subsidiaries charge on various investment
and insurance products; an acceleration of the net amortization of
deferred acquisition costs ("DAC"), value of business acquired
("VOBA"), deferred sales inducements ("DSI") and deferred front-end
loads ("DFEL"); and an increase in liabilities related to
guaranteed benefit features of our subsidiaries' variable annuity
products;
- Ineffectiveness of our risk management policies and procedures,
including various hedging strategies used to offset the effect of
changes in the value of liabilities due to changes in the level and
volatility of the equity markets and interest rates;
- A deviation in actual experience regarding future persistency,
mortality, morbidity, interest rates or equity market returns from
the assumptions used in pricing our subsidiaries' products, in
establishing related insurance reserves and in the net amortization
of DAC, VOBA, DSI and DFEL, which may reduce future earnings;
- Changes in accounting principles that may affect our financial
statements;
- Lowering of one or more of our debt ratings issued by
nationally recognized statistical rating organizations and the
adverse effect such action may have on our ability to raise capital
and on our liquidity and financial condition;
- Lowering of one or more of the insurer financial strength
ratings of our insurance subsidiaries and the adverse effect such
action may have on the premium writings, policy retention,
profitability of our insurance subsidiaries and liquidity;
- Significant credit, accounting, fraud, corporate governance or
other issues that may adversely affect the value of certain
financial assets, as well as counterparties to which we are exposed
to credit risk requiring that we realize losses on financial
assets;
- Inability to protect our intellectual property rights or claims
of infringement of the intellectual property rights of others;
- Interruption in telecommunication, information technology or
other operational systems, or failure to safeguard the
confidentiality or privacy of sensitive data on such systems from
cyberattacks or other breaches of our data security systems;
- The effect of acquisitions and divestitures, restructurings,
product withdrawals and other unusual items, including the
successful implementation of integration strategies or the
achievement of anticipated synergies and operational efficiencies
related to an acquisition;
- The adequacy and collectability of reinsurance that we have
purchased;
- The continuation of the COVID-19 pandemic, or future outbreaks
of COVID-19 or other pandemics, acts of terrorism, war or other
man-made and natural catastrophes that may adversely affect our
businesses and the cost and availability of reinsurance;
- Competitive conditions, including pricing pressures, new
product offerings and the emergence of new competitors, that may
affect the level of premiums and fees that our subsidiaries can
charge for their products;
- The unknown effect on our subsidiaries' businesses resulting
from evolving market preferences and the changing demographics of
our client base; and
- The unanticipated loss of key management, financial planners or
wholesalers.
The risks and uncertainties included here are not exhaustive.
Our most recent Form 10-K, as well as other reports that we file
with the SEC, include additional factors that could affect our
businesses and financial performance. Moreover, we operate in a
rapidly changing and competitive environment. New risk factors
emerge from time to time, and it is not possible for management to
predict all such risk factors.
Further, it is not possible to assess the effect of all risk
factors on our businesses or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of
actual results. In addition, Lincoln disclaims any obligation to
update any forward-looking statements to reflect events or
circumstances that occur after the date of this press release.
The reporting of Risk Based Capital (“RBC”) measures is not
intended for the purpose of ranking any insurance company or for
use in connection with any marketing, advertising or promotional
activities.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200506005938/en/
Chris Giovanni (484) 583-1793 Investor Relations
InvestorRelations@LFG.com
Scott Sloat (484) 583-1625 Media Relations
scott.sloat@LFG.com
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