Ameriprise Financial, Inc. — 2021 Q2 Form 10-Q Summary
Business context and reporting period
Ameriprise Financial is a diversified financial services company providing financial planning, advice, asset management, insurance, annuities, banking and related products. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared primarily with the corresponding 2020 periods. The company reported approximately $1.2 trillion of assets under management and administration at June 30, 2021.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Total revenues | $3.420 billion | $2.730 billion | $6.775 billion | $5.756 billion |
| Total net revenues | $3.418 billion | $2.712 billion | $6.768 billion | $5.713 billion |
| Pretax income (loss) | $721 million | $(526) million | $1.214 billion | $1.825 billion |
| Net income (loss) | $591 million | $(539) million | $1.028 billion | $1.497 billion |
| Diluted EPS | $4.88 | $(4.31) | $8.45 | $11.77 |
| Adjusted operating earnings | $639 million | $333 million | $1.302 billion | $1.027 billion |
| Adjusted operating earnings per diluted share | $5.27 | $2.64 | $10.70 | $8.07 |
Calculated net profit margin was approximately 17.3% for the quarter and 15.2% for the first six months. Calculated pretax margins were approximately 21.1% and 17.9%, respectively. Adjusted operating return on equity excluding AOCI was 37.5% for the trailing twelve months ended June 30, 2021, compared with 35.6% in the prior-year period.
- Management and financial advice fees increased 32% in the quarter and 25% year to date, primarily due to higher equity markets, larger wrap-account balances and net inflows.
- Distribution fees increased 21% in the quarter and 8% year to date.
- Net investment income declined 9% in the quarter but increased 3% year to date; low interest rates reduced investment yields and brokerage-cash earnings.
- Total assets were $171.703 billion at June 30, 2021, compared with $165.883 billion at December 31, 2020. Separate account assets increased to $96.854 billion from $92.611 billion.
- Total AUM increased 29% year over year to $978.0 billion, while total AUM and AUA increased 28% to $1.2113 trillion. Advice and Wealth Management AUM was $426.5 billion and Asset Management AUM was $593.4 billion.
- Operating cash flow was $931 million for the first six months, versus $4.703 billion in the prior-year period. Investing cash flow was $(909) million and financing cash flow was $(101) million.
- Cash and cash equivalents, excluding consolidated investment entities and other restricted cash, were $7.121 billion at June 30, 2021. Cash and cash equivalents including restricted amounts totaled $8.833 billion.
- Long-term debt was $2.833 billion and short-term borrowings were $200 million. The company had no borrowings under its $1.0 billion unsecured revolving credit facility and remained in compliance with its covenants.
Material changes versus the prior comparable periods
- Second-quarter net income improved by $1.130 billion from the prior-year loss, largely because the prior-year period reflected extreme COVID-19-related market impacts on variable-annuity guarantees and embedded derivatives.
- Despite higher quarterly earnings, first-half net income declined 31% because the prior-year first half benefited from unusually favorable market-related impacts, while 2021 included a $483 million expense from market impacts on non-traditional long-duration products compared with a $670 million benefit in 2020.
- Adjusted operating earnings increased 92% in the quarter and 27% year to date. Advice and Wealth Management adjusted operating earnings increased 56% in the quarter and 25% year to date; Asset Management increased 79% and 61%, respectively.
- Retirement & Protection Solutions adjusted operating earnings declined 18% in the quarter and 6% year to date, reflecting higher normalized benefits, claims and DAC amortization. Corporate & Other reported an adjusted operating loss of $77 million in the quarter and $98 million year to date.
- Benefits, claims, losses and settlement expenses were $404 million in the quarter compared with a $1.467 billion expense in the prior-year quarter; for the first six months, the expense was $1.057 billion versus a $280 million benefit in 2020.
- The company repurchased 3.4 million shares for $813 million during the first six months and paid $263 million of dividends. Approximately $1.5 billion remained under the share-repurchase authorization at June 30, 2021.
Guidance, outlook, commentary, risks and unusual items
- Management’s stated long-term financial targets are adjusted operating earnings per diluted share growth of 12% to 15% and adjusted operating return on equity excluding AOCI above 30%; the filing does not provide specific quarterly or full-year earnings guidance.
- The company agreed to acquire BMO Financial Group’s European asset-management business for approximately $845 million in cash, subject to adjustments and regulatory approvals. The transaction was expected to close in the fourth quarter of 2021 and was expected to add approximately $124 billion of European AUM.
- RiverSource Life entered into an agreement to reinsure approximately $8.0 billion of fixed deferred and immediate annuity policies. The RiverSource Life transaction closed July 8, 2021; the RiverSource Life of New York transaction remained subject to regulatory approval.
- COVID-19 continued to create uncertainty involving markets, client behavior, operations, claims and the broader economy. The company also identified low interest rates, equity-market volatility, credit spreads, counterparty and reinsurance risk, regulatory activity, legal proceedings, cyber and operational risks, and changes in insurance assumptions as material risk areas.
- A hypothetical 10% equity-market decline as of June 30, 2021 was estimated to reduce pretax income by approximately $122 million after hedges. A hypothetical 100-basis-point parallel increase in interest rates was estimated to increase pretax income by approximately $80 million. These are sensitivity scenarios, not forecasts.
- Market-sensitive fair-value adjustments remained significant. The company reported $2.569 billion of Level 3 policyholder-related embedded-derivative liabilities and $397 million of Level 3 available-for-sale securities at June 30, 2021.
- The filing disclosed normal-course legal and regulatory inquiries and proceedings but did not provide a clear aggregate amount of reasonably possible losses. The IRS was auditing the company’s 2016–2018 federal tax returns; gross unrecognized tax benefits were $124 million.
- The company implemented a new financial system during the first quarter of 2021. Management concluded that disclosure controls were effective at a reasonable level of assurance as of June 30, 2021.
Most important facts for investors to verify
- Completion, purchase price adjustments and expected benefits of the BMO European asset-management acquisition.
- Regulatory approval and capital-release effects of the remaining RiverSource Life of New York reinsurance transaction.
- Sustainability of AUM growth, client net inflows and elevated market-driven advice and asset-management fees.
- Sensitivity of earnings, statutory capital and hedging results to equity prices, interest rates, volatility and nonperformance credit spreads.
- Evolution of low-interest-rate spread compression, fixed-annuity runoff and reinvestment yields.
- Cash-flow conversion and the decline in operating cash flow versus the prior year.
- Long-term-care insurance claims, variable-annuity guarantees, reserve adequacy and reinsurance-counterparty exposure.
- Remaining share-repurchase capacity, dividend funding and restrictions on subsidiary dividends or capital transfers.