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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Lincoln National Corporation | NYSE:LNC | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.85 | 3.16% | 27.78 | 28.40 | 27.325 | 27.47 | 1,931,824 | 01:00:00 |
Net loss EPS of $(0.49) and adjusted operating EPS of $0.97
Results included elevated claims experience from COVID-19 estimated to be $(0.65) to $(0.75) and below targeted alternative investment income of $(0.62)
General and administrative expenses improved 7%
Holding company available liquidity of $774 million
Lincoln Financial Group (NYSE: LNC) today reported net loss for the second quarter of 2020 of $(94) million, or $(0.49) per diluted share available to common stockholders, compared to net income in the second quarter of 2019 of $363 million, or $1.79 per diluted share available to common stockholders. Second quarter adjusted income from operations was $187 million, or $0.97 per diluted share available to common stockholders, compared to adjusted income from operations of $478 million, or $2.36 per diluted share available to common stockholders, in the second quarter of 2019.1
“Second quarter results were impacted by elevated claims experience from COVID-19 and negative returns within our alternative investment portfolio, consistent with our expectations,” said Dennis R. Glass, president and CEO of Lincoln Financial Group. “Based on what we know today, we expect earnings to recover to more normal levels in the third quarter, excluding potential impacts from our annual assumption review. During these unpredictable times, we remain focused on further improving our already strong balance sheet, achieving appropriate returns on capital, and executing initiatives to improve productivity and lower expenses, which will drive long-term shareholder value.”
As of or For the
Quarter Ended
June 30,
As of or For the
Six Months Ended
June 30,
(in millions, except per share data)
2020
2019
2020
2019
Net Income (Loss)
$
(94)
363
(42)
616
Net Income (Loss) Available to Common Stockholders
(94)
363
(52)
616
Net Income (Loss) per Diluted Share Available to Common Stockholders1
(0.49)
1.79
(0.27)
3.01
Revenues
3,517
4,310
7,942
8,275
Adjusted Income (Loss) from Operations
187
478
652
919
Adjusted Income (Loss) from Operations per Diluted Share Available to Common Stockholders
0.97
2.36
3.27
4.50
Average Diluted Shares
193.8
202.9
196.2
204.4
Return on Equity (ROE), Including Accumulated Other Comprehensive Income (AOCI) (Net Income)
-2.0%
8.3%
-0.5%
7.5%
Adjusted Operating ROE, Excluding AOCI (Income from Operations)
5.5%
13.6%
9.6%
13.1%
Book Value per Share (BVPS), Including AOCI
$
107.28
$
91.92
$
107.28
$
91.92
Book Value per Share, Excluding AOCI
69.38
70.32
69.38
70.32
1 Due to reporting a net loss for the three and six months ended June 30, 2020, basic shares were used in the diluted EPS calculation for these periods as the use of diluted shares would have resulted in a lower loss per share
Operating Highlights – Second Quarter 2020 vs Second Quarter 2019
There were no notable items within adjusted income from operations for the current quarter or the prior-year quarter.
Second Quarter 2020 – Segment Results
Annuities
Annuities reported income from operations of $237 million compared to $266 million in the prior-year quarter. This decrease was primarily driven by negative returns within the company’s alternative investment portfolio.
Total annuity deposits of $2.5 billion were down 31% from the prior-year quarter. Variable annuity sales were down 6% versus the prior-year quarter as growth in products without guaranteed living benefits was more than offset by a decline in guaranteed living benefit sales. Fixed annuity sales decreased 77% over the same period due to product actions taken to respond to lower interest rates.
Net flows were $58 million in the quarter, driven by sales growth from variable annuities without guarantees. Average account values of $134 billion were up 2% over the prior-year quarter and end-of-period account values increased 4%.
Retirement Plan Services
Retirement Plan Services reported income from operations of $30 million compared to $42 million in the prior-year quarter driven primarily by negative returns within the company’s alternative investment portfolio.
Total deposits for the quarter of $2.3 billion were up 11% driven by 36% growth in first-year sales and a 1% increase in recurring deposits.
Net outflows totaled $1.2 billion in the quarter compared to $307 million of positive flows in the prior-year quarter as the current quarter included two large case terminations. Average account values of $74 billion were up 1% over the prior-year quarter and end-of-period account values increased 3%.
Life Insurance
Life Insurance reported a loss from operations of $37 million compared to income from operations of $168 million in the prior-year quarter. This decrease was driven primarily by mortality related to COVID-19, which was consistent with the company’s previously stated expectations, and negative returns within the company’s alternative investment portfolio.
Total Life Insurance sales were $159 million compared to $210 million in the prior-year quarter. Growth in VUL was offset by declines in other life insurance products.
Total Life Insurance in-force of $863 billion grew 10% over the prior-year quarter, and average account values of $53 billion increased 2% over the same period.
Group Protection
Group Protection income from operations was $39 million in the quarter compared to $68 million in the prior-year period. The decrease was primarily driven by unfavorable risk results, including impacts from COVID-19, and negative returns within the company’s alternative investment portfolio. The total loss ratio was 78% in the current quarter compared to 74% in the prior-year quarter driven by unfavorable life and disability experience, partially offset by favorable dental experience.
Group Protection sales were $105 million, up 11% compared to the prior-year quarter driven by an increase in life and disability sales. Employee-paid sales represented 52% of total sales. Insurance premiums of $1.1 billion were up 5%.
Other Operations
Other Operations reported a loss from operations of $82 million versus a loss of $66 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:
Unrealized Gains and Losses
The company reported a net unrealized gain of $14.7 billion, pre-tax, on its available-for-sale securities at June 30, 2020. This compares to a net unrealized gain of $8.5 billion at June 30, 2019, with the year-over-year increase primarily driven by lower treasury rates.
Share Count
The quarter’s average diluted share count of 193.8 million was down 4% from the second quarter of 2019, the result of repurchasing 8.0 million shares of stock since June 30, 2019. No shares were repurchased in the quarter.
Book Value
As of June 30, 2020, book value per share, including AOCI, increased 17% from the prior-year period to $107.28. Book value per share, excluding AOCI, decreased 1% from the prior-year period to $69.38.
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.
This press release contains 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 the company’s current expectations.
For other financial information, please refer to the company’s second quarter 2020 statistical supplement and earnings and investment portfolio supplement available on its website, http://www.lfg.com/investor.
Lincoln Financial Group will discuss the company’s second quarter results with investors in a conference call beginning at 10:00 a.m. Eastern Time on Thursday, August 6, 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 August 6, 2020 at www.lfg.com/webcast. Audio replay will be available from 1:00 p.m. Eastern Time on August 6, 2020 through 12:00 p.m. Eastern Time on August 13, 2020. To access the re-broadcast, dial: (855) 859-2056 (Domestic) or (404) 537-3406 (International). Enter conference code: 5964583.
1 Due to reporting a net loss for the three months ended June 30, 2020, basic shares were used in the diluted EPS calculation for that period as the use of diluted shares would have resulted in a lower loss per share.
About Lincoln Financial Group
Lincoln Financial Group provides advice and solutions that help people 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, and 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 $270 billion in end-of-period account values as of June 30, 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, we earned perfect 100 percent scores on the Corporate Equality Index and the Disability Equality Index, and rank among Forbes’ World’s Best Employers, Best Large Employers, Best Employers for Diversity, Best Employers for Women and JUST 100, and Newsweek’s Most Responsible Companies. 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:
Adjusted Operating Revenues
Adjusted operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:
Adjusted Operating Return on Equity
Adjusted operating return on equity measures how efficiently we generate profits from the resources provided by our net assets.
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.
Book Value Per Share, Excluding AOCI
Book value per share, excluding AOCI is calculated based upon a non-GAAP financial measure.
Special Note
Sales
Sales as reported consist of the following:
Lincoln National Corporation
Reconciliation of Net Income to Adjusted Income from Operations
(in millions, except per share data)
For the Quarter Ended
For the Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Total Revenues
$
3,517
$
4,310
$
7,942
$
8,275
Less:
Excluded realized gain (loss)
(694)
(161)
(770)
(562)
Amortization of DFEL on benefit ratio unlocking
2
1
(7)
4
Total Adjusted Operating Revenues
$
4,209
$
4,470
$
8,719
$
8,833
Net Income (Loss) Available to Common Stockholders – Diluted
$
(94)
$
363
$
(52)
$
616
Less:
Adjustment for deferred units of LNC stock in our deferred compensation plans (1)
-
-
(10)
-
Net Income (Loss)
(94)
363
(42)
616
Less:
Excluded realized gain (loss), after-tax
(548)
(128)
(609)
(443)
Benefit ratio unlocking, after-tax
282
46
(67)
188
Acquisition and integration costs related to mergers and acquisitions, after-tax
(3)
(33)
(6)
(48)
Gain (loss) on early extinguishment of debt, after-tax
(12)
-
(12)
-
Total adjustments
(281)
(115)
(694)
(304)
Adjusted Income (Loss) from Operations
$
187
$
478
$
652
$
919
Earnings (Loss) Per Common Share -- Diluted
Net income (loss) (2)
$
(0.49)
$
1.79
$
(0.27)
$
3.01
Adjusted income (loss) from operations
0.97
2.36
3.27
4.50
Average Stockholders’ Equity
Average equity, including average AOCI
$
18,653
$
17,436
$
18,393
$
16,410
Average AOCI
5,164
3,394
4,751
2,412
Average equity, excluding AOCI
13,489
14,042
13,642
13,998
Average goodwill
1,778
1,778
1,778
1,779
Average equity, excluding AOCI and goodwill
$
11,711
$
12,264
$
11,864
$
12,219
Return on Equity, Including AOCI
Net income (loss) with average equity including goodwill
-2.0%
8.3%
-0.5%
7.5%
Adjusted Operating Return on Equity, Excluding AOCI
Adjusted income (loss) from operations with average equity including goodwill
5.5%
13.6%
9.6%
13.1%
Adjusted income (loss) from operations with average equity excluding goodwill
6.4%
15.6%
11.0%
15.0%
(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.
(2)Due to reporting a net loss for the three and six months ended June 30, 2020, basic shares were used in the diluted EPS calculation for these periods as the use of diluted shares would have resulted in a lower loss per share.
Lincoln National Corporation
Reconciliation of Book Value per Share
As of June 30,
2020
2019
Book value per share, including AOCI
$
107.28
$
91.92
Per share impact of AOCI
37.90
21.60
Book value per share, excluding AOCI
69.38
70.32
Lincoln National Corporation
Digest of Earnings
(in millions, except per share data)
For the Quarter Ended
June 30,
2020
2019
Revenues
$
3,517
$
4,310
Net Income (Loss)
$
(94)
$
363
Adjustment for deferred units of LNC stock in our deferred compensation plans (1)
-
-
Net Income (Loss) Available to Common Stockholders – Diluted
$
(94)
$
363
Earnings (Loss) Per Common Share – Basic
$
(0.49)
$
1.80
Earnings (Loss) Per Common Share – Diluted (2)
(0.49)
1.79
Average Shares – Basic
193,228,547
201,498,137
Average Shares – Diluted
193,776,452
202,905,913
For the Six Months Ended
June 30,
2020
2019
Revenues
$
7,942
$
8,275
Net Income (Loss)
$
(42)
$
616
Adjustment for deferred units of LNC stock in our deferred compensation plans (1)
(10)
-
Net Income (Loss) Available to Common Stockholders – Diluted
$
(52)
$
616
Earnings (Loss) Per Common Share – Basic
$
(0.22)
$
3.03
Earnings (Loss) Per Common Share – Diluted (2)
(0.27)
3.01
Average Shares – Basic
194,152,672
202,886,733
Average Shares – Diluted
196,236,491
204,426,073
(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.
(2)Due to reporting a net loss for the three and six months ended June 30, 2020, basic shares were used in the diluted EPS calculation for these periods as the use of diluted shares would have resulted in a lower loss per share.
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. 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 risks and uncertainties included here are not exhaustive. Our most recent Form 10-K and our Form 10-Q for the quarter ended March 31, 2020, 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/20200805006019/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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