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This document is dated July 28, 2010. It may not be accurate after such date and LNC does not undertake to update or keep it accurate after such date.

Forward-Looking Statements — Cautionary Language

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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

Topics:   Second Quarter 2010 — Segment Results   | Retirement Solutions  | Insurance Solutions  | Other Operations  | Alternative Investment Income  | Realized Gains and Losses  | Unrealized Gains and Losses  | Capital  | 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) 2010 2009
Net Income (Loss) $ 255  $ (161)
Net Income (Loss) available to common stockholders 104  (161)
Net Income (Loss) per diluted share available to common stockholders1,2 0.33  (0.62)
Income from Operations 290  207 
Income from Operations per diluted share available to common stockholders1 0.86  0.79 
Average Diluted Shares 314.6  262.4 

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

Retirement Solutions

Individual Annuities
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
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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Insurance Solutions

Life Insurance
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.

Group Protection
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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Other Operations

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.

Book Value

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.


Investor Contacts:
Jim Sjoreen
484 583-1420
E-mail: InvestorRelations@LFG.com

Media Contact:
Laurel O'Brien
484 583-1735
E-mail: MediaRelations@LFG.com


Financial data will be posted at www.LincolnFinancial.com/earnings


Forward Looking Statements — Cautionary Language

Certain statements made in these materials and in other written or oral statements made by Lincoln, or "we," "us," or "our," 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:

  • Deterioration 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;
  • Economic declines and credit market illiquidity could cause us to realize additional impairments on investments and certain intangible assets, including goodwill and a 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;
  • Uncertainty about the impact of existing or new stimulus legislation on the economy;
  • The restrictions, oversight, cost and other consequences of being a savings and loan holding company, including from the supervision, regulation and examination by the Office of Thrift Supervision, and arising from our participation in the U.S. Department of the Treasury's, or the "U.S. Treasury," Capital Purchase Program, or "CPP," certain requirements of which may continue to apply to us so long as U.S. Treasury holds the warrant that we issued as a part of our participation in the CPP even after Lincoln's repurchase of the preferred stock issued to the Treasury as part of the CPP;
  • Legislative, 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 reserves and/or risk-based capital, or "RBC," requirements related to secondary guarantees under universal life and variable annuity products such as Actuarial Guideline 43, or "AG43" (also known as Commissioners Annuity Reserve Valuation Method for Variable Annuities or "VACARVM"); restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. Federal tax reform;
  • The 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 extra-contractual and class action damage cases; new decisions that result in changes in law; and unexpected trial court rulings;
  • Changes in interest rates causing a reduction of investment income, the margins of our subsidiaries' fixed annuity and life insurance businesses and demand for their products;
  • A 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;
  • Ineffectiveness of our various hedging strategies used to offset the impact of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;
  • A 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 elevated impairments on investments and amortization of intangible assets that may cause an increase in reserves and/or a reduction in assets, resulting in a corresponding decrease in net income;
  • Changes in accounting principles generally accepted in the United States, or "GAAP," that may result in unanticipated changes to our net income;
  • Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse impact such action may have on our ability to raise capital and on our liquidity and financial condition;
  • Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity;
  • Significant credit, accounting, fraud or corporate governance issues that may adversely affect the value of certain investments in our portfolios requiring that we realize losses on such investments;
  • The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
  • The adequacy and collectibility of reinsurance that we have purchased;
  • Acts 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;
  • Competitive 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;
  • The unknown impact 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
  • Loss 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 business 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 the report.

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Lincoln Financial Group is the marketing name for Lincoln National Corporation and insurance
company affiliates, including The Lincoln National Life Insurance Company, Fort Wayne, IN,
and in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY. Variable products
distributed by broker/dealer-affiliate Lincoln Financial Distributors, Inc., Radnor, PA. Securities
and investment advisory services offered through other affiliates. Explore Lincoln.