Lincoln Financial Group Reports Third Quarter 2012 Results

          Lincoln Financial Group Reports Third Quarter 2012 Results

Return on Equity of 12% on 7% Growth in Book Value Per Share

Increase in Assets Under Management of 14% to $174 billion

Repurchased $100 million of Shares in the Quarter

PR Newswire

PHILADELPHIA, Nov. 1, 2012

PHILADELPHIA, Nov. 1, 2012 /PRNewswire/ -- Lincoln Financial Group (NYSE: LNC)
today reported net income for the third quarter of 2012 of $402 million, or
$1.41 per diluted share, compared to net income in the third quarter of 2011
of $153 million, or $0.47 per diluted share.

Third quarter income from operations was $335 million, or $1.18 per diluted
share, compared to $329 million, or $1.03 per diluted share, in the third
quarter of 2011.



                               As of or For the        As of or For the
                               Quarter Ended           Nine Months Ended
(millions of dollars except    2012        2011        2012        2011
per share data)
Net Income (Loss)              $      $      $      $     
                                 402       153       971       770
Net Income (Loss) Available to 402         147         971         764
Common Stockholders
Net Income (Loss) Per Diluted
Share Available to Common      1.41        0.47        3.35        2.40
Stockholders
Income (Loss) from Operations  335         329         952         977
Income (Loss) from Operations
Per Diluted Share Available to 1.18        1.03        3.29        3.05
Common Stockholders
Average Diluted Shares         284.7       312.0       289.8       318.5
ROE (Income from Operations)   12.2%       11.6%       11.8%       11.6%
ROE (Net Income)               14.7%       5.4%        12.0%       9.2%
Book Value per Share,          $      $      $      $     
Including AOCI                 55.36      46.34      55.36      46.34
Book Value per Share,          40.28       37.51       40.28       37.51
Excluding AOCI

"Our positive third quarter results reflect the many actions we continue to
take to increase earnings per share and return on equity," said Dennis R.
Glass, president and CEO of Lincoln Financial Group. "We are aggressively
investing to further build our franchise, while at the same time maintaining
our balance sheet strength and flexibility."

Third Quarter 2012 Highlights:

  oConsolidated deposits of $5.5 billion driving positive net flows of $1.3
    billion
  oRetirement Plan Services deposits up 18% contributing to positive net
    flows of $232 million
  oGroup Protection sales up 29% driven by an increase in distribution and
    voluntary sales
  oBook value per share, excluding AOCI, up 7%
  o4.2 million shares of common stock repurchased at a cost of $100 million

The quarter's operating results included $0.12 of net favorable items
primarily related to taxes and an overall positive DAC unlocking adjustment
primarily associated with the company's annual comprehensive review of
actuarial assumptions.

Third Quarter 2012 – Segment Results

Annuities
The Annuities segment reported income from operations of $139 million in the
third quarter of 2012 compared to $153 million in the prior-year quarter.

Variable annuity deposits of $2.2 billion were up 2% from the prior-year
quarter. Variable annuity net flows were $0.5 billion compared to $0.6
billion in the prior-year quarter. During the quarter, over 70% of variable
annuity deposits went into Protected living benefit riders, which are built on
the Protected Strategies series of risk-managed funds.

Fixed annuity deposits of $489 million were down 12% from the prior-year
quarter as low interest rates continued to dampen demand. Fixed annuity net
outflows were $110 million compared to net inflows of $46 million in the
prior-year quarter. 

Account values ended the quarter at $94 billion, up 16% from the prior-year
quarter.

The quarter included $9 million of net negative items attributable primarily
to DAC unlocking. The prior year quarter included $30 million of net positive
items.

Retirement Plan Services
Retirement Plan Services reported income from operations of $29 million
compared to $39 million in the prior-year quarter. Our distribution expansion
and enhanced service capabilities helped drive strong sales and asset growth
for the quarter.

Total deposits of $1.7 billion were up 18% versus the prior-year quarter and
benefitted from a 54% increase in small and mid-to-large new case sales.
Total net flows in the current quarter were $232 million marking our fifth
straight quarter of positive flows, while year-to-date net flows were $638
million, up 124% versus the prior year. 

Account balances at the end of the quarter were $43 billion, an increase of
16% over the prior-year quarter.

Earnings in the quarter included net negative items of $3 million primarily
attributable to DAC unlocking. 

Life Insurance
Life Insurance income from operations was $154 million compared to $154
million in the prior-year quarter.

Life insurance sales of $112 million decreased 28% over the prior-year quarter
reflecting our focus on pricing actions to improve returns. Sales of products
that we are emphasizing, including Indexed Universal Life, Variable Universal
Life, and Term were up 23% over the prior-year quarter.

Life Insurance In-Force of $584 billion grew 2% and average account values of
$36 billion increased 5% over the prior-year quarter.

The quarter included $17 million of net positive items primarily attributable
to DAC unlocking and tax adjustments. The prior year quarter included $12
million of net positive items.

Group Protection
For the third quarter, Group Protection income from operations was $16
million, compared to $27 million in the prior-year period. The non-medical
loss ratio of 75.7% in the current quarter increased from the prior year's
ratio of 71.8% with the majority of the underperformance the result of normal
fluctuations.

Group Protection sales of $97 million increased 29% over the prior-year
quarter driven by a 25% increase in the sales force and a 78% increase in
voluntary sales.

Non-medical net earned premiums of $450 million grew 10% over the prior-year
quarter, benefitting from strong sales, good persistency, and solid in-force
premium growth.

Other Operations
Other Operations reported a loss from operations of $3 million in the quarter
versus a loss of $44 million in the prior-year quarter. The quarter included
net favorable items of approximately $29 million primarily due to tax-related
adjustments and partially offset by elevated expenses.

Realized Gains and Losses
Realized gains/losses (after-tax) in the quarter included:

  oA net gain from general account investments of $3 million, as compared to
    a $98 million net loss in the prior-year quarter.
  oVariable Annuity net derivative results of $38 million, including positive
    hedge program performance of $15 million, a positive unlocking adjustment
    of $84 million and a negative non-economic adjustment of $61 million
    related to the non-performance risk reserve component, which is unhedged.

Unrealized Gains and Losses
The company reported a net unrealized gain of $9.4 billion, pre-tax, on its
available-for-sale securities as of September 30, 2012, compared to a net
unrealized gain of $7.8 billion as of June 30, 2012, and $6.5 billion as of
December 31, 2011.

Capital
During the quarter, the company repurchased 4.2 million shares of stock at a
cost of $100 million. On a year-to-date basis, 16.6 million shares have been
repurchased at a cost of $400 million.

Book Value
As of September 30, 2012, book value per share of common stock, excluding
AOCI, was $40.28 up 7.4% from $37.51 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
capital markets 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.

Lincoln Financial Group will discuss the company's third quarter results with
investors in a conference call beginning at 10:00 a.m. (ET) on Friday,
November 2, 2012. 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 third quarter 2012 statistical supplement on
its website, 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 $174
billion as of September 30, 2012. Through its affiliated companies, Lincoln
Financial Group offers: annuities; life, group life, disability and dental
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.

Definition of Income (Loss) from Operations, Operating Revenues and Return on
Equity
Income (loss) from operations, operating revenues and return on equity ("ROE),
as used in the earnings release, are non-GAAP financial measures and do not
replace GAAP revenues, net income (loss) and ROE. We exclude the after-tax
effects of the following items from GAAP net income (loss) to arrive at income
(loss) from operations: realized gains and losses associated with the
following ("excluded realized gain (loss)"): sale or disposal of securities;
impairments of securities; change in the fair value of derivative investments,
embedded derivatives within certain reinsurance arrangements and our trading
securities; change in the fair value of the derivatives we own to hedge our
guaranteed death benefit ("GDB") riders within our variable annuities, which
is referred to as "GDB derivatives results"; change in the fair value of the
embedded derivatives of our guaranteed living benefit ("GLB") riders within
our variable annuities accounted for under the Derivatives and Hedging and the
Fair Value Measurements and Disclosures Topics of the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") ("embedded
derivative reserves"), net of the change in the fair value of the derivatives
we own to hedge the changes in the embedded derivative reserves, the net of
which is referred to as "GLB net derivative results"; and 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 under the Derivatives and Hedging and the Fair Value Measurements and
Disclosures Topics of the FASB ASC ("indexed annuity forward-starting
option"); change in reserves accounted for under the Financial Services -
Insurance - Claim Costs and Liabilities for Future Policy Benefits Subtopic of
the FASB ASC resulting from benefit ratio unlocking on our GDB and GLB riders
("benefit ratio unlocking"); income (loss) from the initial adoption of new
accounting standards; income (loss) from reserve changes (net of related
amortization) on business sold through reinsurance; gain (loss) on early
extinguishment of debt; losses from the impairment of intangible assets; and
income (loss) from discontinued operations.

Operating revenues represent GAAP revenues excluding the pre-tax effects of
the following items, as applicable: excluded realized gain (loss);
amortization of deferred front-end loads ("DFEL") arising from changes in GDB
and GLB benefit ratio unlocking; amortization of deferred gains arising from
the reserve changes on business sold through reinsurance; and revenue
adjustments from the initial adoption of new accounting standards.

Return on equity measures how efficiently we generate profits from the
resources provided by our net assets. Return on equity is calculated by
dividing annualized net income (loss) 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.

Income (loss) from operations, operating revenues, return on equity (including
and excluding average goodwill within average equity), excluding AOCI, using
annualized income (loss) from operations and return on capital are financial
measures we use to evaluate and assess our results. Management believes that
these performance measures 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.

The company uses its prevailing corporate federal income tax rate of 35% while
taking into account any permanent differences for events recognized
differently in its financial statements and federal income tax returns when
reconciling non-GAAP measures to the most comparable GAAP measure.



Lincoln National Corporation
Reconciliation of Net Income to Income from Operations
(millions of dollars, except per share data)
                         For the Three Months         For the Nine Months
                         Ended                       Ended
                         September 30,                September 30,
                         2012           2011          2012        2011
Total Revenues           $         $        $       $    
                          2,954        2,547        8,568    8,073
Less:
Excluded realized gain   39             (186)         (55)        (239)
(loss)
Amortization of DFEL on  -              (3)           -           (2)
benefit ratio unlocking
Amortization of deferred
gains arising from
reserve
changes on business sold 1              1             2           2
through reinsurance
Total Operating Revenues $         $        $       $    
                          2,914        2,735        8,621    8,312
Net Income (Loss)
Available to Common
                         $         $        $       $    
Stockholders - Diluted      402         147                
                                                      971         764
Less:
Adjustment for deferred
units of LNC stock in
our
deferred compensation    -              (6)           -           (6)
plans ^(1)
Net Income (Loss)        402            153           971         770
Less ^(2):
Excluded realized gain   25             (121)         (35)        (156)
(loss)
Benefit ratio unlocking  10             (42)          24          (39)
Income (loss) from
reserve changes (net of
related
amortization) on
business sold through    1              -             1           1
reinsurance
Gain (loss) on early     -              (5)           -           (5)
extinguishment of debt
Impairment of            2              -             2           -
intangibles
Income (loss) from       29             (8)           27          (8)
discontinued operations
Income (Loss) from       $         $        $       $    
Operations                  335         329                
                                                      952         977
Earnings (Loss) Per
Common Share (Diluted)
Income (loss) from       $         $        $       $    
operations                 1.18        1.03                
                                                      3.29       3.05
Net income (loss)        1.41           0.47          3.35        2.40
Average Stockholders'
Equity
Average equity,          $         $        $       $    
including average AOCI   14,710        13,272        13,894    12,506
Average AOCI             3,764          1,945         3,138       1,286
Average equity,          10,946         11,327        10,756      11,220
excluding AOCI
Average goodwill         2,273          3,019         2,273       3,019
Average equity,          $         $        $       $    
excluding AOCI and        8,673        8,308        8,483    8,201
goodwill
Return on Equity,
Excluding AOCI
Net income (loss) with
average equity including 14.7%          5.4%          12.0%       9.2%
goodwill
Income (loss) from
operations with average
equity
including goodwill       12.2%          11.6%         11.8%       11.6%
Income (loss) from
operations with average
equity
excluding goodwill       15.4%          15.8%         15.0%       15.9%
^(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) We use our federal income tax rate of 35% while taking into account any
permanent differences for events recognized differently in our financial
statements and federal income tax returns when reconciling our non-GAAP
measures to the most comparable GAAP measure.

Definition of 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, assuming conversion of Series
A preferred shares. 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. A reconciliation of book value per share to book
value per share excluding AOCI as of September 30, 2012 and 2011 is set forth
below.



                                     As of September 30,
                                     2012                2011
Book value per share, including AOCI $      55.36  $       46.34
Per share impact of AOCI             15.08               8.83
Book value per share, excluding AOCI 40.28               37.51



Lincoln National Corporation
Digest of Earnings
(millions of dollars, except per
share data)
                                    For the Three Months Ended
                                    September 30,
                                    2012                   2011
Revenues                            $                $      
                                    2,954                 2,547
Net Income (Loss)                   $              $        
                                    402                    153
Adjustment for deferred units of
LNC stock in our
deferred compensation plans ^(1)    -                      (6)
Net Income (Loss) Available to
Common
Stockholders - Diluted              $              $        
                                    402                    147
Earnings (Loss) Per Common Share -  $               $       
Basic                               1.45                  0.50
Earnings (Loss) Per Common Share -  1.41                   0.47
Diluted
Average Shares - Basic              277,883,878            304,779,641
Average Shares - Diluted            284,650,212            311,997,683
                                    For the Nine Months Ended
                                    September 30,
                                    2012                   2011
Revenues                            $                $      
                                    8,568                 8,073
Net Income (Loss)                   $              $        
                                    971                    770
Adjustment for deferred units of
LNC stock in our
deferred compensation plans ^(1)    -                      (6)
Net Income (Loss) Available to
Common
Stockholders - Diluted              $              $        
                                    971                    764
Earnings (Loss) Per Common Share -  $               $       
Basic                               3.43                  2.48
Earnings (Loss) Per Common Share -  3.35                   2.40
Diluted
Average Shares - Basic              282,989,766            310,357,508
Average Shares - Diluted            289,758,774            318,489,182
^(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 involve risks and uncertainties that may cause
actual results to differ materially from the results contained in the
forward-looking statements. Risks and uncertainties that may cause actual
results to vary materially, some of which are described within the
forward-looking statements include, among others:

  oDeterioration 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;
  oAdverse 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;
  oBecause 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;
  oLegislative, 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, or otherwise affect our
    ability to conduct business, including changes to statutory reserve
    requirements related to secondary guarantee universal life and annuities;
    regulations regarding captive reinsurance arrangements; restrictions on
    revenue sharing and 12b-1 payments; and the potential for U.S. Federal tax
    reform;
  oDeclines 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;
  oUncertainty about the effect of rules and regulations to be promulgated
    under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us
    and the economy and financial services sector in particular;
  oThe 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;
  oA decline in the equity markets causing a reduction in the sales of our
    subsidiaries' products, a reduction of asset-based fees that our
    subsidiaries charge on various investment and insurance products, an
    acceleration of amortization of deferred acquisition costs, or "DAC,"
    value of business acquired, or "VOBA," deferred sales inducements, or
    "DSI," and deferred front end sales loads, or "DFEL," and an increase in
    liabilities related to guaranteed benefit features of our subsidiaries'
    variable annuity products;
  oIneffectiveness of our risk management policies and procedures, including
    various hedging strategies used to offset the effect of changes in the
    value of liabilities due to changes in the level and volatility of the
    equity markets and interest rates;
  oA deviation in actual experience regarding future persistency, mortality,
    morbidity, interest rates or equity market returns from the assumptions
    used in pricing our subsidiaries' products, in establishing related
    insurance reserves and in the amortization of DAC, VOBA, DSI and DFEL,
    which may reduce future earnings;
  oChanges in accounting principles generally accepted in the United States,
    or "GAAP," including the potential incorporation of International
    Financial Reporting Standards into the U.S Financial Reporting System
    that may result in unanticipated changes to our net income;
  oLowering of one or more of our debt ratings issued by nationally
    recognized statistical rating organizations and the adverse effect such
    action may have on our ability to raise capital and on our liquidity and
    financial condition;
  oLowering of one or more of the insurer financial strength ratings of our
    insurance subsidiaries and the adverse effect such action may have on the
    premium writings, policy retention, profitability of our insurance
    subsidiaries and liquidity;
  oSignificant credit, accounting, fraud, corporate governance or other
    issues that may adversely affect the value of certain investments in our
    portfolios as well as counterparties to which we are exposed to credit
    risk requiring that we realize losses on investments;
  oInability to protect our intellectual property rights or claims of
    infringement of the intellectual property rights of others;
  oInterruption in telecommunication, information technology or other
    operational systems or failure to safeguard the confidentiality or privacy
    of sensitive data on such systems;
  oThe effect of acquisitions and divestitures, restructurings, product
    withdrawals and other unusual items;
  oThe adequacy and collectibility of reinsurance that we have purchased;
  oActs of terrorism, a pandemic, war or other man-made and natural
    catastrophes that may adversely affect our businesses and the cost and
    availability of reinsurance;
  oCompetitive conditions, including pricing pressures, new product offerings
    and the emergence of new competitors, that may affect the level of
    premiums and fees that our subsidiaries can charge for their products;
  oThe unknown effect on our subsidiaries' businesses resulting from changes
    in the demographics of their client base, as aging baby-boomers move from
    the asset-accumulation stage to the asset-distribution stage of life; and
  oLoss of key management, financial planners or wholesalers.

The risks included here are not exhaustive. Our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and other
documents filed with the SEC include additional factors which could impact our
business 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 impact 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.

(Logo: http://photos.prnewswire.com/prnh/20050830/LFLOGO)

SOURCE Lincoln Financial Group

Website: http://www.LincolnFinancial.com
Contact: Jim Sjoreen, +1-484-583-1420, Investor Relations,
Investorrelations@LFG.com, or Michael Arcaro, +1-484-583-1799, Media
Relations, michael.arcaro@LFG.com
 
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