RADNOR, Pa.–(BUSINESS WIRE)–Lincoln Financial Group (NYSE: LNC) today reported net income for the third quarter of 2018 of $490 million, or $2.24 per diluted share available to common stockholders, compared to net income in the third quarter of 2017 of $418 million, or $1.87 per diluted share available to common stockholders. Third quarter adjusted income from operations was $510 million, or $2.34 per diluted share available to common stockholders, compared to $454 million, or $2.03 per diluted share available to common stockholders, in the third quarter of 2017.
The board of directors of Lincoln National Corporation approved raising the quarterly dividend on its common shares to $0.37 per share. The dividend represents a 12% increase over the prior-year level. The increased dividend on the common stock will be payable on February 1, 2019 to shareholders of record at the close of business on January 10, 2019.
‚ÄúWe delivered record adjusted operating EPS and a 14.5% ROE in the third quarter driven by double-digit earnings growth in nearly every business,‚ÄĚ said Dennis R. Glass, president and CEO of Lincoln Financial Group. ‚ÄúTargeted management actions are further enhancing our results with annuity net flows close to turning positive, group results benefitting from our Liberty acquisition, strategic investments improving expense efficiencies and future growth opportunities, and capital management remaining ever important.‚ÄĚ
|¬†||As of or For the||¬†||As of or For the|
Nine Months Ended
|(in millions, except per share data)||¬†||2018||¬†||2017||¬†||2018||¬†||2017|
|Net Income (Loss)||$||490||¬†||$||418||$||1,242||¬†||$||1,264|
|Net Income (Loss) Available to Common Stockholders||490||418||1,236||1,269|
|Net Income (Loss) per Diluted Share Available to Common Stockholders||2.24||1.87||5.59||5.58|
|Adjusted Income (Loss) from Operations||510||454||1,405||1,314|
|Adjusted Income (Loss) from Operations per Diluted Share Available to Common
|Average Diluted Shares||218.5||223.9||221.1||227.4|
|ROE, Including AOCI (Net Income)||13.0%||10.3%||10.5%||10.9%|
|Adjusted Operating ROE, Excluding AOCI (Income from Operations)||14.5%||13.6%||13.5%||13.3%|
|Book Value per Share, Including AOCI||$||70.17||$||74.31||$||70.17||$||74.31|
|Book Value per Share, Excluding AOCI||¬†||¬†||66.27||¬†||¬†||61.29||¬†||¬†||66.27||¬†||¬†||61.29|
Operating Highlights ‚Äď Third Quarter 2018 versus Third Quarter 2017
Notable items in the current quarter included net unfavorable items of approximately $0.01 per share primarily related to the company‚Äôs annual review of DAC and reserve assumptions. The prior-year quarter included net favorable items of approximately $0.09 per share primarily related to tax adjustments.
Third Quarter 2018 ‚Äď Segment Results
The Annuities segment reported income from operations of $302 million, up 9% compared to the prior-year period driven by higher fee income from account value growth and a lower reported tax rate as a result of tax reform.
Total annuity deposits of $3.1 billion were up 61% from the prior-year quarter as both variable and fixed annuities benefitted from product and distribution expansion. Variable annuity sales were up 43% versus the prior-year quarter, and fixed annuity sales increased 132% over the same period.
Net outflows improved to $81 million compared to outflows of $841 million in the prior-year period driven by growth in deposits. When combined with favorable equity market performance, average account values of $139 billion increased 5% from the prior-year quarter.
The current quarter included net favorable items of $13 million related to the company‚Äôs annual review of DAC and reserve assumptions. The prior-year results included net favorable items of $15 million related to the company‚Äôs annual review of DAC and reserve assumptions.
Retirement Plan Services
Retirement Plan Services reported income from operations of $40 million, up 14% compared to the prior-year quarter. This increase is attributable to a lower reported tax rate as a result of tax reform, higher fee income and lower expenses.
Total deposits for the quarter of $3.3 billion were up 74% versus the prior-year period. First-year sales were up 194% versus the prior-year quarter, driven by growth in target markets combined with one large case, and recurring deposits increased 9% over the same period.
Net flows totaled $1.4 billion in the quarter compared to $442 million in the prior-year quarter. When combined with favorable equity market performance, average account values for the quarter increased 12% to $71 billion.
The current quarter included net unfavorable items of $2 million related to the company‚Äôs annual review of DAC and reserve assumptions. The prior-year results included net unfavorable items of $1 million related to the company‚Äôs annual review of DAC and reserve assumptions.
Life Insurance reported income from operations of $176 million, up 45% versus the prior-year quarter. This increase is attributable to favorable mortality coupled with revenue growth and a lower reported tax rate as a result of tax reform.
Total Life Insurance sales were $167 million in the quarter, down 6% versus the prior-year period, but up 3% sequentially driven by growth in VUL sales.
Average Life Insurance in-force of $733 billion increased 4% over the prior-year quarter, and average account values of $50 billion were up 6% over the same period.
The current quarter included net unfavorable items of $20 million related to the company‚Äôs annual review of DAC and reserve assumptions. The prior-year results included net unfavorable items of $16 million related to the company‚Äôs annual review of DAC and reserve assumptions.
Group Protection income from operations was $63 million in the quarter versus $41 million in the prior-year period. This increase in earnings was primarily attributable to the acquisition of the Liberty Mutual group benefits business.
Underlying claim results remain favorable, which produced a total non-medical loss ratio of 74%. The loss ratio increased versus the prior-year quarter due to combining two blocks of business with different loss characteristics.
Group Protection sales were $158 million in the quarter, up 68%, primarily driven by the acquisition. Employee-paid sales represented 40% of total sales.
Non-medical earned premiums were $1.0 billion, up 102% from the prior-year quarter driven by both the acquisition and continued growth.
This quarter included net favorable items of $7 million related to the company‚Äôs annual review of reserve assumptions. The prior-year results included net favorable items of $3 million related to the recapture of previously reinsured business.
Other Operations reported a loss from operations of $71 million versus a loss of $20 million in the prior-year quarter. The decrease is attributable to tax items, funding the recent acquisition, and a planned increase in strategic digitization expenses.
There were no notable items in the current quarter. The prior-year results included net favorable items of $20 million related to tax adjustments.
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:
Unrealized Gains and Losses
The company reported a net unrealized gain of $2.4 billion, pre-tax, on its available-for-sale securities at September 30, 2018. This compares to a net unrealized gain of $7.2 billion at September 30, 2017, with the year-over-year decline primarily driven by an increase in interest rates.
The quarter‚Äôs average diluted share count of 218.5 million was down 2% from the third quarter of 2017, the result of repurchasing 5.9 million shares of stock at a cost of $400 million since September 30, 2017.
As of September 30, 2018, book value per share, including accumulated other comprehensive income (‚ÄúAOCI‚ÄĚ), of $70.17 decreased 6% from a year ago. Book value per share, excluding AOCI, of $66.27 increased 8% 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 (‚ÄúROE‚ÄĚ) 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, especially given the current economic and capital market conditions. Please see the Forward Looking Statements ‚Äď Cautionary Language that follow for additional factors that may cause actual results to differ materially from our current expectations.
For other financial information, please refer to the company‚Äôs third quarter 2018 statistical supplement available on its website, www.lfg.com/earnings.
Earnings Conference Call Information
Lincoln Financial Group will discuss the company‚Äôs third quarter results with investors in a conference call beginning at 10:00 a.m. Eastern Time on Friday, November 2, 2018. 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 November 2, 2018 at www.lfg.com/webcast. Audio replay will be available from 1:00 p.m. Eastern Time on November 2, 2018 through 12:00 p.m. Eastern Time on November 9, 2018. To access the re-broadcast, dial: (855) 859-2056 (Domestic) or (404) 537-3406 (International). Enter conference code: 3590255.
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 $262 billion in assets under management as of September 30, 2018.¬†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 in 2018 and received a perfect score of 100 percent in 2018 on both the Corporate Equality Index and Disability Equality Index.¬†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 return on equity and adjusted operating revenues better explain the results of the company‚Äôs ongoing businesses in a manner that allows for a better understanding of the underlying trends in the company‚Äôs 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 (‚ÄúROE‚ÄĚ), 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
We exclude the after-tax effects of the following items from GAAP net income (loss) to arrive at adjusted income (loss) from operations:
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 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‚Äôs view, do not reflect the company‚Äôs normal, ongoing operations.
Book Value Per Share Excluding AOCI
Book value per share excluding AOCI is calculated based upon a non-GAAP financial measure.
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 Nine Months Ended|
|September 30,||September 30,|
|Excluded realized gain (loss)||(98)||(97)||(188)||(229)|