Lincoln National (LNC) Q4 2010 earnings summary

Executive summary

• 2010 net income was $980M versus a $485M loss in 2009; income from operations reached $1.0B, up 10% YoY, and operating revenues rose 9% to $10.6B.

• Share price rose 12%; quarterly dividend increased from $0.01 to $0.05 per share, and $73M of equity was repurchased.

• Deposits grew 6% to $20.9B and assets under management rose 11% to $157.3B; net flows declined 14% to $6.3B.

Financial highlights

• GAAP revenue was $10.407B, up 22% YoY; net income was $980M, including $29M from discontinued operations, versus a $485M net loss in 2009.

• Continuing-operations income was $951M versus a $415M loss; diluted EPS was $2.54 versus a $1.85 loss per share.

• Net investment income rose 9% to $4.541B; realized investment losses fell to $77M from $1.146B, while net OTTI losses recognized in earnings were $152M.

• Deposits increased 6% to $20.902B; total net flows fell 14% to $6.321B; account values increased 11% to $157.257B.

Outlook and guidance

• 2011 spread compression was expected to have minimal earnings impact; assuming interest rates stayed constant through 2012, estimated 2012 impact was an unfavorable $20M, primarily in Life Insurance.

• Group Protection loss ratios were expected to remain above the 71%-74% long-term range well into 2011, with pricing and claims-management actions underway.

• Reserve-financing expenses for secondary-guarantee UL and term products were expected to roughly double in 2011 versus 2010; investments in technology, products and distribution were also expected to raise expenses.

• 2011 priorities included expense discipline, crediting-rate management, reserve financing, product development and monitoring capital and liquidity amid changing markets and regulation.