Lincoln Financial Group Reports Second Quarter 2010 Results
Growth in Account Values and Net Investment Income Drive Earnings Increase
All Businesses Record Positive Net Flows
Second Quarter 2010 Segment Results
| Retirement Solutions
| Insurance Solutions
| Other Operations
| Alternative Investment Income
| Realized Gains and Losses
| Unrealized Gains and Losses
| Book Value
| Reconciliation Table
| Digest of Earnings
| General Account Supplement
PHILADELPHIA, July 28, 2010 Lincoln Financial Group (NYSE:LNC) today reported net income for the second quarter of 2010 of $255 million, or $0.33 of net income per diluted share available to common stockholders, compared to a net loss in the second quarter of 2009 of $161 million, or $0.62 per diluted share. Net income available to common stockholders in the quarter of $104 million included the write-off of unamortized discount on preferred stock of $131 million associated with the repurchase of all of the preferred shares issued to the U.S. Treasury under its Capital Purchase Program (CPP) along with the accrued dividend and accretion of discount on the preferred stock of $18.3 million in the quarter.
||For the Quarter Ended
|($ in millions except per share data)
|Net Income (Loss)
|Net Income (Loss) available to common stockholders
|Net Income (Loss) per diluted share available to common stockholders1,2
|Income from Operations
|Income from Operations per diluted share available to common stockholders1
|Average Diluted Shares
1Earnings per share available to common shareholders is net of preferred dividends and the accretion of discount related to preferred shares. (See the reconciliation of net income to net income available to common stockholders in the Digest of Earnings attached to this release.)
2The per share calculation for the loss per share uses basic shares.
The second quarter income from operations was $290 million, or $0.86 per diluted share available to common stockholders, compared to $207 million, or $0.79 per diluted share, in the second quarter of 2009. The quarter-over-quarter increase in income from operations was driven by higher asset-based revenues and net investment income.
Income from Operations in the quarter included offsetting notable items including favorable DAC amortization in individual annuities and unfavorable loss ratios in group protection.
Dennis R. Glass, president and CEO, said, "Continued strength in our business fundamentals delivered another quarter of solid top and bottom line results. Strong sales across all segments combined with good persistency drove growth in net flows, the result of distribution-related productivity gains and shelf space expansion and comprehensive product offerings."
"Given the resilience of our operating model and the success of our capital actions, we are moving into the second half of the year with the financial strength and flexibility to support our growth strategies. I am confident that Lincoln today is well-positioned to deliver on the strong demand for insurance and retirement solutions."
Second Quarter 2010 Operating Highlights:
Consolidated deposits of $5.3 billion and positive net flows of $2.0 billion.
Total account balances increased 12% year-over-year to $140 billion, driven by strong net flows and improved equity markets.
Life sales of $140 million driven by strength in
MoneyGuard® and term life with a combined growth rate of 54% year-over-year.
Individual variable annuity deposits of $2.2 billion up 27% and net flows of $870 million up 34%, year-over-year.
Defined Contribution account values of $35 billion up 12% year-over-year.
Group Protection annualized sales of $65 million up 10% year-over-year.
Second Quarter 2010 Segment Results
The Individual Annuities segment reported income from operations of $116 million in the second quarter of 2010 versus income from operations of $65 million in the year-ago period, reflecting a 24% increase in the average annuity account values.
Gross annuity deposits of $2.8 billion and net flows of $1.2 billion, were up 8% and 11%, respectively, versus the prior year. Variable annuity deposits of $2.2 billion and net flows of almost $0.9 billion were up 27% and 34%, respectively, over the prior-year quarter reflecting improved wholesaler productivity and shelf space expansion.
Defined Contribution reported income from operations of $36 million, versus income from operations of $28 million for the same period a year ago, reflecting a 19% increase in the average account values.
Gross deposits of $1.4 billion were up 22% versus the prior-year quarter. Total net flows in the current quarter were $182 million as compared to $256 million in the 2009 quarter.
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Life Insurance income from operations was $151 million, compared to $133 million in the second quarter of 2009. The prior-year quarter's results included a loss on alternative investments.
Life insurance sales of $140 million increased 13% over the prior-year quarter reflecting strong double-digit sales increases of MoneyGuard® and term life insurance. MoneyGuard® sales reflect our market leading position and expansion of wholesaling support. Universal life sales of $78 million were down 8% from the prior-year quarter reflecting the change in consumer preferences and economic conditions.
For the second quarter, Group Protection's income from operations was $23 million, compared to $34 million in the prior-year period. The non-medical loss ratio was 76% in the current quarter, compared to 68% in the second quarter of 2009 with the change primarily attributable to an increase in the disability product line.
Non-medical net earned premiums were $383 million in the second quarter, up 8% over the year-ago period. Annualized sales of $65 million increased 10% year-over-year.
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The operating loss in Other Operations was $36 million in the quarter, versus a loss of $52 million in the prior-year quarter. A charge of approximately $19 million, after tax, related to expense-save initiatives was included in the 2009 quarter's results.
Alternative Investment Income
Income from operations in the second quarter of 2010 included alternative investment income of $11 million, after DAC, after tax, compared to a loss of $29 million in the year-ago quarter. The company's alternative investment portfolio, of approximately $700 million of book value, performed consistent with our long-term return expectations.
Realized Gains and Losses
Total gross realized losses from the sale and impairment of general account investments in the quarter were $37 million, pre tax, as compared to $236 million in the prior-year quarter and $109 million in the first quarter of 2010.
Realized gains and losses also includes the change in value of certain securities subject to mark-to-market accounting including credit linked notes, credit default swaps, trading securities and other derivatives. The net change in the value of these securities in the quarter was a loss of $46 million, pre tax, versus a loss of $13 million in the year-ago quarter. 2010 results reflect the company's recent adoption of Accounting Standards Update ("ASU") No. 2009-17, "Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities" ("ASU 2009-17") effective January 1, 2010.
Unrealized Gains and Losses
The company reported a net unrealized gain of approximately $3 billion, pre tax, on its available-for-sale securities at June 30, 2010. This compares to a net unrealized loss of $3.7 billion at June 30, 2009.
During the quarter, the company completed a series of capital-related transactions:
Closed on a $2 billion bank credit facility to be used primarily to provide letters of credit in support of certain life insurance reserves, including a $1.5 billion credit facility expiring in 2015 and a 364-day $500 million credit facility.
Redeemed $950 million in Series B preferred shares pursuant to the U.S. Treasury's Capital Purchase Program (CPP) with the net proceeds of $368 million from the issuance of common stock, the issuance of $250 million of 5-year senior notes and cash on hand.
Completed the issuance of $500 million of 30-year senior notes to be used as part of a long-term financing solution supporting universal life reserves of Lincoln Financial's insurance subsidiaries.
As of June 30, 2010, the book value per share of common stock, including accumulated other comprehensive income ("AOCI"), was $39.89 compared to $30.02 a year ago. Book value per share, excluding AOCI, was $36.93, compared to $35.67 a year ago.
This press release may contain statements that are forward-looking, and actual results may differ materially, especially given the current economic and credit conditions. Please see the Forward-Looking Statements Cautionary Language that follow for additional factors that may cause actual results to differ materially from our current expectations.
The tables attached to this release define and reconcile income from operations, return on equity ("ROE"), and book value per share excluding AOCI, non-GAAP measures, to net income, ROE, and book value per share including AOCI calculated in accordance with GAAP.
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Lincoln Financial Group will discuss the company's second quarter results with investors in a conference call beginning at 11:00 a.m. (ET) on Thursday, July 29, 2010. Interested persons are invited to listen through the internet. Please go to www.LincolnFinancial.com/webcast at least fifteen minutes prior to the event to register, download and install any necessary streaming media software. Interested persons may also listen to the call by dialing the following numbers:
Dial: 877 776-4049 (Domestic)
914 495-8602 (International)
Ask for the Lincoln National Conference Call.
The company will also post its second quarter 2010 statistical supplement and a general account supplement on its Web site, www.LincolnFinancial.com/earnings.
Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. With headquarters in the Philadelphia region, the companies of Lincoln Financial Group had assets under management of $140 billion as of June 30, 2010. Through its affiliated companies, Lincoln Financial Group offers: annuities; life, group life and disability insurance;
401(k) and 403(b) plans; savings plans; and comprehensive financial planning and advisory services. For more information, including a copy of our most recent SEC reports containing our balance sheets, please visit www.LincolnFinancial.com.
Financial data will be posted at www.LincolnFinancial.com/earnings