Lincoln Financial Group Reports Second Quarter 2005 Earnings; Retail and Institutional Net Flows Support Solid Second Quarter Results

Income from operations for the second quarter of 2005 was $218.6million, or $1.25 per diluted share, compared with $181.4 million, or$1.00 per diluted share, in the second quarter of 2004. Return onequity (ROE), based on income from operations, for the quarter was16.2%. The attached table defines and reconciles income fromoperations and ROE, non-GAAP measures, to net income and ROEcalculated in accordance with GAAP.

While benefiting from continued growth in deposits across theenterprise, the second quarter was impacted by better than expectedperformance in Lincoln's alternative investments, specificallypartnership income and fees earned from its standby real estate equitycommitment program. In addition, the quarter's results included afavorable tax adjustment. "Although these income items vary inmagnitude quarter to quarter, they provide economic value that can beinvested into the business or returned to shareholders," said Jon A.Boscia, chairman and chief executive officer of Lincoln FinancialGroup.

Consolidated domestic retail deposits, which include annuities,mutual funds, life insurance and other personal wealth accumulationproducts, reached $6.9 billion, up 48% over the second quarter of2004. Lincoln reported consolidated retail net flows for the quarterof $3.5 billion, up 110% from the prior year quarter. Institutionalnet flows were a record $4.1 billion in the quarter, up 100% over theprior year quarter and up 238% over first quarter, 2005.

"Both the retail and institutional businesses delivered robustresults in the second quarter, as Lincoln continued to shape itsbusiness around clients' retirement and income objectives," saidBoscia.

Lincoln Retirement

Second quarter income from operations for the retirement segmentwas $119.4 million versus $101.8 million for the same period a yearago. Income from operations in 2005 and 2004 benefited fromapproximately $20 million and $14 million respectively, after-tax, ofbetter than expected investment income.

Gross deposits were $2.5 billion for the quarter, while net flowsreached a record $857 million. The second quarter was fueled by strongperformance in the following retirement income products and features:

-- The Lincoln SmartSecurity(SM) Advantage, a step-up withdrawal rider on individual variable annuity products, was elected on 54% of second quarter deposits on those products where the rider is available, consistent with the prior quarter.

-- Lincoln's i4LIFE(R) Advantage, a patented individual variable annuity rider that provides investors with a retirement income management tool, recorded year-to-date elections of $408 million, nearly achieving the full-year 2004 level of $410 million. Total assets under management have now crested at $1 billion.

-- The Lincoln Alliance(R) Program, an employer-sponsored retirement plan solution, reached $336 million in deposits in the second quarter, 2005.

"The strong deposits and net flows across multiple retirementplanning solutions demonstrate Lincoln's ability to respond toprevailing and emerging market needs while adhering to our prescribedrisk tolerance levels," said Boscia.

Life Insurance

Life insurance income from operations was $75.8 million, comparedto $76.2 million in the second quarter of 2004. Income from operationsin 2005 and 2004 included approximately $5 million and $4 millionrespectively, after-tax, of better than expected investment income.The benefit in the second quarter 2005 was partially offset byunfavorable mortality expenses of approximately $2 million.

First year premiums from retail life insurance were consistentwith the prior year quarter. Included in the first year retailpremiums was a 34% increase in variable universal life over secondquarter 2004. "Once again, the strength and diversity in the lifeproduct portfolio, coupled with our strategic partnerships, providedbalance to Lincoln's results," said Boscia. "We are excited to see theinnovative Lincoln VUL-ONE product, a hybrid variable universal lifepolicy with upside potential and downside protection, gaining tractionin the marketplace," added Boscia.

Investment Management

The investment management segment reported income from operationsof $3.9 million for the quarter, compared with income from operationsof $13.4 million for the same period a year ago. The year ago quarterincluded $4 million of income from operations from DelawareInternational Advisors Ltd. (DIAL), which was sold in September, 2004.In the second quarter of 2005, income from operations benefited fromstrong flows and investment performance, offset by net costsassociated with recent investment talent acquisitions of approximately$4 million, consistent with management's first quarter guidance.

Total net flows were a record $6.4 billion, with deposits reachinga record $4.0 billion in the retail division and a record $5.9 billionin the institutional division.

"With the addition of an international value equity team in June,combined with three prior talent acquisitions in key investmentstyles, Delaware is well positioned with strong performance in allmajor asset classes," said Boscia.

Lincoln UK

For the second quarter, the Lincoln UK segment continued toproduce positive results, as it reported income from operations of$10.3 million, which compares with $10.7 million in the second quarterof 2004.

Corporate and Other

Corporate and Other recorded income from operations for the secondquarter of $9.2 million, versus an operating loss of $20.7 million inthe second quarter of 2004. Distribution losses were $9.8 million inthe second quarter of 2005 versus $11.8 million a year ago. Thereduction in distribution losses at Lincoln Financial Distributorsreflects gains in wholesaler productivity and level fixed expenses,despite a nearly 20% increase in the number of wholesalers during thelast year. Progress at Lincoln Financial Advisors reflects theimplementation of their Consistency of Excellence model and theassociated reduction in operating expenses. The second quarter of 2005included a $23.5 million, after-tax, reduction in the deferred taxasset valuation allowance previously established in the company'sBarbados subsidiary.

2005 Outlook

In the second half of 2005, Lincoln expects to deliver soliddeposits and flows in variable annuity, employer-sponsored, andinvestment management businesses. A diverse product portfolio,investment performance, and strategic distribution relationshipsshould continue to drive results.

For the retirement segment, Lincoln anticipates income fromoperations, as reported in the second quarter of 2005, to benefit fromcontinued positive variable flows, excluding the period's better thanexpected investment income items and adjusted for the equity markets.

Lincoln expects the life segment's income from operations to buildfrom results reported in the second quarter after factoring in greaterthan expected investment income items and assuming normalizedmortality. Lincoln's expectation for growth assumes a modest increasein life insurance in-force and is sensitive to the mix of businessbetween permanent and term insurance. Lincoln continues to expectfirst year premiums for 2005 to equal or modestly outperform 2004levels. Life sales continue to be pressured by competitive marketconditions, while the effect of the revised regulatory reservingrequirements on universal life sales is unclear at this time.

For investment management, Lincoln expects income from operationsto build from levels experienced throughout 2004 after adjusting forthe sale of DIAL and incorporating equity market impacts. As outlinedin first quarter guidance, Lincoln anticipates $1 million per quarter,after tax, of additional expenses related to investment talentacquisitions.

Lincoln confirms its previous guidance for a modest improvement indistribution results over 2004 levels, recognizing these resultsremain sensitive to sales, especially life insurance, whichtraditionally increase in the later half of the year. The outlook fordistribution assumes continued successful implementation of the newaffiliation model at Lincoln Financial Advisors as well as continuedwholesaler expansion and productivity gains at Lincoln FinancialDistributors.

Lincoln confirms previous 2005 guidance for the UK segment incomefrom operations, the reinsurance deferred gain amortization income,and the annual pre-tax interest expense. Lincoln's equity marketguidance and spread compression guidance remain unchanged from thesensitivity detailed in its 2004 10-K.

This outlook contains estimates that are forward-looking, andLincoln's actual experience in 2005 will almost certainly differ frommany of the assumptions utilized in the outlook. The company'sexpectations for these and a large number of other factors willprobably change, leading us to revise our estimates over time. Pleasesee the Forward-Looking Statements - Cautionary Language that followfor additional factors that may cause actual results to differmaterially from our current expectations.

Capital and Share Repurchase

As of June 30, 2005, the book value per share of Lincoln NationalCorporation common stock, excluding accumulated other comprehensiveincome, was $31.56, compared with $28.51 a year ago. Book value pershare, including accumulated other comprehensive income, was $36.86,compared with $31.32 a year ago. In the second quarter of 2005, 1.58million shares were repurchased at a total cost of $69 million.

Lincoln National Corporation will discuss the company's secondquarter results with investors in a conference call beginning at 11:00a.m. (ET) on Tuesday, August 2, 2005. The company will also post itssecond quarter 2005 statistical supplement on its Web site,www.LFG.com.

Lincoln Financial Group is the marketing name for Lincoln NationalCorporation (NYSE:LNC) and its affiliates. With headquarters inPhiladelphia, Lincoln Financial Group has consolidated assets of $119billion as of June 30, 2005, and had annual consolidated revenues of$5.4 billion in 2004. Through its wealth accumulation, retirementincome and wealth protection businesses, the company providesannuities, life insurance, 401(k) and 403(b) plans, savings plans,mutual funds, managed accounts, institutional investment, andcomprehensive financial planning and advisory services. For moreinformation please visit www.lfg.com.

Definition of Income (Loss) from Operations and ROE

Income (loss) from operations and ROE, as used in the earningsrelease, are non-GAAP financial measures and are not substitutes fornet income (loss) and ROE, calculated using GAAP measures. Income(loss) from operations represents after-tax results excluding, asapplicable, realized gains or losses on investments and derivatives,cumulative effect of accounting changes, restructuring charges,reserve changes on business sold through reinsurance, gain on sale ofsubsidiaries and book of business and loss on early retirement ofdebt. The earnings used to calculate ROE, as used in the earningsrelease, are income (loss) from operations. Income (loss) fromoperations is an internal measure used by the company in themanagement of its operations. Management believes that thisperformance measure explains the results of the company's ongoingoperations in a manner that allows for a better understanding of theunderlying trends in the company's current business because theexcluded items are either unpredictable and/or not related todecisions regarding the underlying businesses.

For the Quarter For the Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net Income $197.9 $187.0 $376.8 $317.5

Less:
Net realized gain/loss on
investments (5.9) (6.7) (7.7) (19.8)
Restructuring charges (15.0) (3.5) (16.3) (10.9)
Reserve development and
related amortization on
business sold through
reinsurance 0.2 0.2 0.4 0.4
Gain on sale of subsidiaries/
businesses 15.6 9.3 15.6
Cumulative effect of
accounting change (24.5)
--------- --------- --------- ---------
Income from Operations $218.6 $181.4 $391.1 $356.7
========= ========= ========= =========


Earnings per share (diluted)
Net Income $1.13 $1.04 $2.14 $1.75
Income from Operations $1.25 $1.00 $2.22 $1.97

Average Equity
(Excluding accumulated other
comprehensive income) $5,392.3 $5,024.6 $5,365.6 $5,020.7

Return on Equity
Net Income 14.7% 14.9% 14.0% 12.6%
Income from Operations 16.2% 14.4% 14.6% 14.2%




LINCOLN NATIONAL CORPORATION
DIGEST OF EARNINGS

For the Quarter Ended June 30
----------------------------------
2005 2004
----------------------------------

Revenue $1,373,176,000 $1,358,719,000
Net Income 197,862,000 187,003,000

EPS - Basic $1.15 $1.05
EPS - Diluted $1.13 $1.04

Ave. Shares - Basic 172,758,060 177,354,689
Ave. Shares - Diluted 175,353,027 180,301,429


For the Year Ended June 30
----------------------------------
2005 2004
----------------------------------

Revenue $2,686,416,000 $2,617,750,000
Net Income 376,798,000 317,460,000

EPS - Basic $2.18 $1.79
EPS - Diluted $2.14 $1.75

Ave. Shares - Basic 173,224,239 177,815,095
Ave. Shares - Diluted 175,811,246 180,755,830

Forward-Looking Statements - Cautionary Language

Certain statements made in this release and in other written ororal statements made by LNC or on LNC's behalf are "forward-lookingstatements" within the meaning of the Private Securities LitigationReform Act of 1995 ("PSLRA"). A forward-looking statement is astatement that is not a historical fact and, without limitation,includes any statement that may predict, forecast, indicate or implyfuture results, performance or achievements, and may contain wordslike: "believe", "anticipate", "expect", "estimate", "project","will", "shall" and other words or phrases with similar meaning. LNCclaims the protection afforded by the safe harbor for forward-lookingstatements provided by the PSLRA.

Forward-looking statements involve risks and uncertainties thatmay cause actual results to differ materially from the resultscontained in the forward-looking statements. Risks and uncertaintiesthat may cause actual results to vary materially, some of which aredescribed within the forward-looking statements include, among others:

-- Legislative, regulatory or tax changes, both domestic and foreign, including Actuarial Guideline 38, that affect the cost of, or demand for, LNC's 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 requirements related to secondary guarantees under universal life and variable annuity products; restrictions on revenue sharing and 12b-1 payments; and the repeal of the federal estate tax;

-- The institution of legal or regulatory proceedings against LNC or its subsidiaries and the outcome of any legal or regulatory proceedings, such as: (a) adverse actions related to present or past business practices common in businesses in which LNC and its subsidiaries compete; (b) 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; (c) new decisions which change the law; and (d) unexpected trial court rulings;

-- Changes in interest rates causing a reduction of investment income, the margins of LNC's fixed annuity and life insurance businesses and demand for LNC's products;

-- A decline in the equity markets causing a reduction in the sales of LNC's products, a reduction of asset fees that LNC charges on various investment and insurance products, an acceleration of amortization of deferred acquisition costs and an increase in liabilities related to guaranteed benefit features of LNC's variable annuity products;

-- Ineffectiveness of LNC's various hedging strategies used to offset the impact of declines in the equity markets;

-- A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates and equity market returns from LNC's assumptions used in pricing its products, in establishing related insurance reserves, and in the amortization of intangibles that may result in an increase in reserves and a decrease in net income;

-- The effect of life settlement business on persistency assumptions used in pricing life insurance business, which may cause profitability of some business to fall below expectations and could potentially result in deficient reserves;

-- Changes in GAAP that may result in unanticipated changes to LNC's net income;

-- Lowering of one or more of LNC's debt ratings issued by nationally recognized statistical rating organizations, and the adverse impact such action may have on LNC's ability to raise capital and on its liquidity and financial condition;

-- Lowering of one or more of the insurer financial strength ratings of LNC's insurance subsidiaries, and the adverse impact such action may have on the premium writings, policy retention, and profitability of its insurance subsidiaries;

-- Significant credit, accounting, fraud or corporate governance issues that may adversely affect the value of certain investments in the portfolios of LNC's companies requiring that LNC realize losses on such investments;

-- The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including LNC's ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;

-- The adequacy and collectibility of reinsurance that LNC has purchased;

-- Acts of terrorism or war that may adversely affect LNC's businesses and the cost and availability of reinsurance;

-- Competitive conditions that may affect the level of premiums and fees that LNC can charge for its products;

-- The unknown impact on LNC's business resulting from changes in the demographics of LNC's client base, as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life;

-- Loss of key portfolio managers in the Investment Management segment, financial planners in Lincoln Financial Advisors or wholesalers in Lincoln Financial Distributors; and

-- Changes in general economic or business conditions, both domestic and foreign, that may be less favorable than expected and may affect foreign exchange rates, premium levels, claims experience, the level of pension benefit costs and funding, and investment results.

The risks included here are not exhaustive. LNC's annual reportson Form 10-K, current reports on Form 8-K and other documents filedwith the Securities and Exchange Commission include additional factorswhich could impact LNC's business and financial performance. Moreover,LNC operates in a rapidly changing and competitive environment. Newrisk factors emerge from time to time and it is not possible formanagement to predict all such risk factors.

Further, it is not possible to assess the impact of all riskfactors on LNC's business or the extent to which any factor, orcombination of factors, may cause actual results to differ materiallyfrom those contained in any forward-looking statements. Given theserisks and uncertainties, investors should not place undo reliance onforward-looking statements as a prediction of actual results. Inaddition, LNC disclaims any obligation to update any forward-lookingstatements to reflect events or circumstances that occur after thedate of this report.