Lincoln Financial Group Reports First Quarter 2019 Results

Net income EPS of $1.22, down 26%, and adjusted operating EPS of
$2.14, up 9%

Book value per share (BVPS), including AOCI, of $80.88, up 11%; BVPS,
excluding AOCI, of $68.79, up 9%

Operating revenues increased in all four business segments

$316 million of capital returned to shareholders through buybacks and
dividends

RADNOR, Pa.–(BUSINESS WIRE)–Lincoln Financial Group (NYSE: LNC) today reported net income for the
first quarter of 2019 of $252 million, or $1.22 per diluted share
available to common stockholders, compared to net income in the first
quarter of 2018 of $367 million, or $1.64 per diluted share available to
common stockholders. First quarter adjusted income from operations was
$441 million, or $2.14 per diluted share available to common
stockholders, compared to $441 million, or $1.97 per diluted share
available to common stockholders, in the first quarter of 2018.

“We started the year with robust sales growth in every business segment
and a 9% increase in adjusted operating EPS,” said Dennis R. Glass,
president and CEO of Lincoln Financial Group. “Looking forward, I am
confident our strategy and execution of key initiatives will enable us
to sustain strong financial results as we build on sales momentum,
maximize expense efficiency, and prudently manage capital.”

       
    As of or For the

Quarter Ended
March 31,

(in millions, except per share data)     2019     2018
Net Income (Loss) $ 252     $ 367
Net Income (Loss) Available to Common Stockholders 252 365
Net Income (Loss) per Diluted Share Available to Common Stockholders 1.22 1.64
Revenues 3,965 3,609
Adjusted Income (Loss) from Operations 441 441
Adjusted Income (Loss) from Operations per Diluted Share Available
to Common Stockholders
2.14 1.97
Average Diluted Shares 206.0 222.3
ROE, Including AOCI (Net Income) 6.6% 8.8%
Adjusted Operating ROE, Excluding AOCI (Income from Operations) 12.6% 13.0%
Book Value per Share, Including AOCI $ 80.88 $ 73.09
Book Value per Share, Excluding AOCI       68.79       62.88
 

Operating Highlights – First Quarter 2019 versus First Quarter 2018

  • Adjusted operating EPS of $2.14, up 9%
  • Adjusted operating ROE, excluding AOCI, of 12.6%
  • Total Annuity sales of $3.5 billion, up 39%, with positive net flows
    of $492 million in the quarter
  • Life Insurance sales of $191 million, up 10%
  • Retirement Plan Services deposits of $2.5 billion, up 6%
  • Group Protection sales of $119 million, up 116%

There were no notable items within adjusted income from operations for
the current quarter or the prior-year quarter.

First Quarter 2019 – Segment Results

Annuities

The Annuities segment reported income from operations of $250 million
compared to $267 million in the prior-year quarter, primarily driven by
a decrease in account values from the Athene reinsurance transaction
completed in the fourth quarter of 2018.

Total annuity deposits of $3.5 billion were up 39% from the prior-year
quarter. Fixed annuity sales were up 222% versus the prior-year quarter
while variable annuities decreased 5% over the same time period.

Net flows were $492 million in the quarter compared to net outflows of
$606 million in the prior-year period. As a result of the Athene
reinsurance transaction completed in the fourth quarter of 2018, average
account values decreased 8% from the prior-year period.

Retirement Plan Services

Retirement Plan Services reported income from operations of $39 million
compared to $43 million in the prior-year quarter, primarily driven by
lower variable investment income and spread income, which more than
offset an increase in account values.

Total deposits for the quarter of $2.5 billion were up 6% compared to
the prior-year quarter driven by a 4% increase in first-year sales and
7% growth in recurring deposits.

Net outflows totaled $381 million in the quarter compared to $463
million of net inflows in the prior-year period as the current quarter
included one large case termination. Average account values of $70
billion were up 3% from the prior-year quarter driven by net inflows
over the trailing twelve months.

Life Insurance

Life Insurance reported income from operations of $157 million, up 9%
versus the prior-year quarter. The increase in earnings is primarily
attributable to favorable mortality and lower amortization expense,
partially offset by a decrease in alternative investment income.

Total Life Insurance sales were $191 million, up 10% from the prior-year
quarter driven by growth in executive benefits, term and IUL.

Total Life Insurance in-force of $763 billion grew 5% over the
prior-year quarter, and average account values of $50 billion increased
2% over the prior-year quarter.

Group Protection

Group Protection income from operations was $55 million in the quarter,
up 90% compared to the prior-year period. The increase in earnings was
primarily attributable to the acquisition of the Liberty Mutual group
benefits business.

Underlying claim results remained favorable, which produced a total loss
ratio of 74% in the current quarter. The loss ratio increased year over
year due to combining two blocks of business with different loss
characteristics.

Group Protection sales of $119 million in the quarter were up 116%
versus the prior-year quarter primarily driven by the acquisition.
Employee-paid sales were 53% of total sales in the quarter.

Insurance premiums were $1 billion in the quarter, up 101% from the
prior-year period, driven by both the acquisition and continued growth.

Other Operations

Other Operations reported a loss from operations of $60 million versus a
loss of $42 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 predominantly driven by:

  • $143 million in non-economic losses primarily from the accounting
    associated with our recent modified coinsurance arrangement.
  • A $15 million loss from variable annuity hedge program performance.
  • A $15 million acquisition and integration expense.

Unrealized Gains and Losses

The company reported a net unrealized gain of $5.2 billion, pre-tax, on
its available-for-sale securities at March 31, 2019. This compares to a
net unrealized gain of $4.8 billion at March 31, 2018, with the
year-over-year increase primarily driven by lower rates.

Capital

During the quarter, the company repurchased 3.9 million shares of stock
at a cost of $240 million, which included the remaining $90 million from
an accelerated share repurchase program initiated in the fourth quarter
of 2018. The quarter’s average diluted share count of 206.0 million was
down 7% from the first quarter of 2018, the result of repurchasing 17.2
million shares of stock at a cost of $1.1 billion since March 31, 2018.

Book Value

As of March 31, 2019, book value per share, including accumulated other
comprehensive income (“AOCI”), of $80.88 increased 11% from a year ago.
Book value per share, excluding AOCI, of $68.79 increased 9% from the
prior-year period.

The tables attached to this release define and reconcile the non-GAAP
measures adjusted income from operations, adjusted operating return on
equity (“ROE”) and book value per share, excluding AOCI, to net income,
ROE and book value per share, including AOCI, calculated in accordance
with GAAP.

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 2019 statistical supplement available on its website, www.lfg.com/earnings.

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 2, 2019. 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
2, 2019 at www.lfg.com/webcast.
Audio replay will be available from 1:00 p.m. Eastern Time on May 2,
2019 through 12:00 p.m. Eastern Time on May 9, 2019. To access the
re-broadcast, dial: (855) 859-2056 (Domestic) or (404) 537-3406
(International). Enter conference code: 7329339.

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 $253 billion in assets
under management as of March 31, 2019. Lincoln Financial Group is a
committed corporate citizen included on major sustainability indices
including the Dow Jones Sustainability Index North America and
FTSE4Good. Additionally, Lincoln is dedicated to upholding a diverse and
inclusive organization and was recognized by Forbes as one of the Best
Large Employers, Best Employers for Diversity, and Best Employers for
Women and received a perfect score of 100 percent on both the Corporate
Equality Index and Disability Equality Index. Learn more at: www.LincolnFinancial.com.
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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 return on equity and adjusted operating revenues 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 earnings 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 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 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 reflected 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;
    • Changes in the fair value of the embedded derivative liabilities
      related to index call options we may purchase 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”); and
    • Changes in the fair value of equity securities;
  • 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:

  • 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;
  • Annuities – deposits from new and existing customers; 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,

2019     2018
 
Total Revenues $ 3,965 $ 3,609
Less:
Excluded realized gain (loss) (400) (35)
Amortization of DFEL on benefit ratio unlocking   3   (1)
Total Adjusted Operating Revenues $ 4,362 $ 3,645
 
 

Net Income (Loss) Available to Common Stockholders – Diluted

$ 252 $ 365
Less:

Adjustment for deferred units of LNC stock in our deferred
compensation plans(1)

    (2)
Net Income (Loss) 252 367
Less:
Excluded realized gain (loss), after-tax (316) (28)
Benefit ratio unlocking, after-tax 142 (10)
Net impact from the Tax Cuts and Jobs Act (13)

Acquisition and integration costs related to mergers and
acquisitions, after-tax

(15) (4)

Gain (loss) on early extinguishment of debt, after-tax

    (19)
Adjusted Income (Loss) from Operations $ 441 $ 441
 
 
Earnings (Loss) Per Common Share – Diluted
Net income (loss) $ 1.22 $ 1.64
Adjusted income (loss) from operations 2.14 1.97
 
 
Average Stockholders’ Equity
Average Equity, including average AOCI $ 15,384 $ 16,653
Average AOCI   1,430   3,052
Average equity, excluding AOCI 13,954 13,601
Average goodwill   1,780   1,368
Average equity, excluding AOCI and goodwill $ 12,174 $ 12,233
 
 
Return on Equity, Including AOCI
Net income (loss) with average equity including goodwill 6.6% 8.8%
 
 
Adjusted Operating Return on Equity, Excluding AOCI

Adjusted income (loss) from operations with average equity
including goodwill

12.6% 13.0%

Adjusted income (loss) from operations with average equity
excluding goodwill

14.5% 14.4%
 

(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,
2019     2018
 
Book value per share, including AOCI $ 80.88 $ 73.09
Per share impact of AOCI 12.09 10.21
Book value per share, excluding AOCI 68.79 62.88
 
 

Lincoln National Corporation
Digest of Earnings

 
(in millions, except per share data)    

For the Quarter Ended
March 31,

2019     2018
 
Revenues $ 3,965 $ 3,609
 
Net Income (Loss) $ 252 $ 367

Adjustment for deferred units of LNC stock in our deferred
compensation plans(1)

    (2)

Net Income (Loss) Available to Common Stockholders – Diluted

$ 252 $ 365
 
Earnings (Loss) per Common Share – Basic $ 1.23 $ 1.68
Earnings (Loss) per Common Share – Diluted 1.22 1.64
 
Average Shares – Basic 204,290,759 218,368,994
Average Shares – Diluted 205,961,663 222,287,572
 

(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”). 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, and may contain
words like: “believe,” “anticipate,” “expect,” “estimate,” “project,”
“will,” “shall” 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:

  • Deterioration in general economic and business conditions that may
    affect account values, investment results, guaranteed benefit
    liabilities, premium levels, claims experience and the level of
    pension benefit costs, funding and investment results;
  • 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;
  • 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 decline in the eq

Contacts

Chris Giovanni
(484) 583-1793
Investor Relations
[email protected]

Scott Sloat
(484) 583-1625
Media Relations
[email protected]

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