Nationwide Financial reports second quarter results

Achieving significant market share gains in life insurance market

FOR IMMEDIATE RELEASE

August 6, 2008

Investor Contact:
Mark Barnett
614-249-8437

NFS Media Contact:
Jeff Botti
614-249-6339

Columbus, OH — Nationwide Financial Services, Inc. (NYSE: NFS), a leading provider of long-term savings and retirement products, today reported second quarter 2008 net income of $85.4 million, or $0.62 per diluted share, compared with second quarter 2007 net income of $197.3 million, or $1.37 per diluted share.

Net income for the current quarter includes non-operating realized investment losses of $41.5 million, or $0.29 per diluted share, compared to investment losses of $1.2 million, or $0.01 per diluted share, in the prior year quarter. The current quarter’s $41.5 million investment loss includes $62.1 million of other-than temporary impairments and $1.4 million of net realized losses and is partially offset by $20.5 million of gains related to the mark-to-market of net variable annuity living benefit liabilities.

Nationwide Financial analyzes operating performance using a non-GAAP financial measure called “net operating earnings,” which the company believes enhances understanding and comparability of its performance by highlighting its results from continuing operations and the underlying profitability drivers.
See Exhibit 3 for a description of non-GAAP financial measures included in this earnings announcement, a reconciliation of non-GAAP financial measures to GAAP financial measures, and the substantive reasons why the company believes presentation of these non-GAAP financial measures provides useful information to investors regarding its financial condition and results of operations. The table on the top of page 10 reconciles net operating earnings to net income, including the related diluted per share amounts for the periods indicated.

“Our core businesses delivered solid results despite a very difficult market environment,” said Jerry Jurgensen, chief executive officer. “While our consolidated results reflect the broader economic conditions, our focus on execution and expense management helped us to maintain operating margins in our core business lines, and we continued to make steady progress in improving our overall life insurance market share ranking. Despite the market turmoil, our capital position remains strong, and our investment portfolio is performing as expected.

“Looking forward, we are very pleased to have announced today (in a separate release) that Nationwide Mutual and Nationwide Financial have entered into a definitive agreement for Nationwide to acquire NFS,” added Jurgensen. “This transaction is a key step in our becoming ‘one Nationwide’ with one set of priorities and strategies. It will allow us to set ourselves apart from the competition by aligning our entire product and service portfolio around the customer.”

Highlights from the quarter:

Net operating earnings for the second quarter of 2008 were $127.6 million, or $0.92 per diluted share, compared to $200.4 million, or $1.39 per diluted share, for the same period a year ago. As described below, second quarter 2008 net operating results were negatively impacted by several significant items while the prior year quarter was favorably impacted by significant items.

Excluding these items from both periods, net operating earnings for the second quarter of 2008 were approximately $1.09-$1.11 per diluted share, compared to $1.13 per diluted share, in the prior year.

The current quarter’s significant items were primarily driven by the following:

• A $13.2 million federal income tax expense adjustment related to a change in estimate between the 2007 estimated tax liability and amounts expected to be reported on the company’s 2007 tax return when filed;
• A $6.3 million after-tax operating loss related to the mark-to-market of the company’s trading portfolio;
• A net increase in amortization of deferred policy acquisition costs (DAC) and value of business acquired (VOBA) and other related items totaling $4.2 million after-tax as a result of the company’s comprehensive annual study of DAC assumptions.

The prior year quarter also contained significant items that resulted in a net after-tax benefit of $37.5 million, or $0.26 per diluted share, which included a net benefit resulting from a DAC unlocking, partially offset by several expense and tax related items as detailed in previous earnings releases.