Ameriprise Financial, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Ameriprise Financial is a diversified financial services company providing financial planning, wealth management, asset management, insurance, annuities, banking and related services. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the same period in 2021. The company reported approximately $1.3 trillion of assets under management and administration at quarter-end, including $1.1 trillion of assets under management and $238.9 billion of assets under administration.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenues | $3.657 billion | $3.355 billion | Up 9% |
| Total net revenues | $3.655 billion | $3.350 billion | Up 9% |
| Pretax income | $923 million | $493 million | Up 87% |
| Net income | $761 million | $437 million | Up 74% |
| Diluted EPS | $6.55 | $3.58 | Up 83% |
| Adjusted operating earnings | $695 million | $663 million | Up 5% |
| Adjusted operating earnings per diluted share | $5.98 | $5.43 | Up 10% |
| Operating cash flow | $409 million | $(1.000) billion | Improved $1.409 billion |
GAAP pretax margin was approximately 25.3%, compared with 14.7% in the prior-year quarter. GAAP net margin was approximately 20.8%, compared with 13.0%. The effective tax rate increased to 17.6% from 11.3%.
- Management and financial advice fees increased 17% to $2.459 billion, supported by higher average equity markets, continued wrap-account inflows, the BMO Global Asset Management EMEA acquisition and higher performance fees.
- Distribution fees declined 3% to $446 million because of lower transactional activity.
- Net investment income declined 31% to $261 million, reflecting lower realized gains, lower average invested assets following reinsurance transactions and continued low interest rates.
- Benefits, claims, losses and settlement expenses fell 68% to $211 million, primarily due to favorable year-over-year market impacts on variable-annuity guarantees; the prior-year period also included larger unfavorable nonperformance-spread and market impacts.
- Amortization of deferred acquisition costs increased to $96 million from $5 million, reflecting market and mean-reversion-related effects.
- General and administrative expense increased 15% to $947 million, primarily due to the acquired BMO business, higher performance-fee compensation and $10 million of integration-related expenses.
Balance sheet, liquidity and capital
| Balance-sheet item | March 31, 2022 | December 31, 2021 |
|---|---|---|
| Total assets | $167.525 billion | $175.979 billion |
| Cash and cash equivalents | $6.623 billion | $7.127 billion |
| Investments | $36.040 billion | $35.810 billion |
| Separate account assets | $89.669 billion | $97.491 billion |
| Customer deposits | $22.048 billion | $20.227 billion |
| Long-term debt | $2.330 billion | $2.832 billion |
| Total equity | $5.010 billion | $5.685 billion |
Cash and cash equivalents, including restricted amounts, were $8.811 billion at March 31, 2022. Parent-company cash, cash equivalents and unencumbered liquid securities were $316 million. Management estimated parent-company liquidity of approximately $1.5 billion, including available cash, unencumbered liquid securities, an affiliate line of credit and a portion of the committed revolving facility.
The company had a $1.0 billion unsecured revolving credit facility expiring in June 2026, with no borrowings and $1 million of letters of credit outstanding. It also had $200 million of FHLB advances. The company repaid $500 million of senior notes at maturity on March 22, 2022. Operating, investing and financing cash flows were $409 million, $(1.665) billion and $518 million, respectively.
Material changes versus the prior comparable period
- Total AUM increased 19% year over year to $1.100 trillion, while total AUM and AUA increased 17% to $1.339 trillion. Asset Management AUM rose 24%, primarily reflecting the BMO acquisition and net inflows.
- Advice & Wealth Management adjusted operating earnings increased 13% to $440 million; the segment margin increased to 21.5% from 20.7%.
- Asset Management adjusted operating earnings increased 25% to $285 million.
- Retirement & Protection Solutions adjusted operating earnings increased 4% to $191 million.
- Corporate & Other adjusted operating loss widened to $76 million from $21 million, primarily because long-term-care claims returned toward normalized levels after COVID-19-related benefits in the prior year.
- Wrap-account assets declined 4% during the quarter to $447.0 billion because $26.4 billion of market depreciation exceeded $8.7 billion of net inflows.
- Global Asset Management experienced $0.7 billion of net outflows, compared with $4.9 billion of net inflows in Q1 2021, including $1.9 billion of retail net outflows.
- Shareholders received $133 million of dividends. The company repurchased 1.4 million shares for $429 million at an average price of $299.14 per share and had approximately $3.0 billion remaining under repurchase authorizations.
- Accumulated other comprehensive loss changed from $3 million of income at year-end 2021 to $(895) million, primarily because of $853 million of after-tax unrealized securities losses and $46 million of foreign-currency translation losses.
Guidance, outlook, risks and unusual items
- Management’s multi-year 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 quarterly earnings guidance.
- Management expects continued sensitivity to equity markets, interest rates, credit spreads, volatility, client behavior, asset flows and investment performance. A hypothetical 10% equity-price decline was estimated to reduce pretax income by approximately $182 million, including hedge impacts.
- A hypothetical 100-basis-point parallel increase in interest rates was estimated to increase pretax income by approximately $192 million, although actual results could differ materially.
- The company discontinued substantially all new sales of variable annuities with living-benefit guarantees at the end of 2021 and expected a full exit by mid-2022. It also discontinued new sales of certain universal life and fixed universal life products.
- The company is implementing the new long-duration insurance accounting standard effective for periods beginning after December 15, 2022 and expects adoption to have a material impact on consolidated results of operations and financial condition.
- Management continues to identify COVID-19, market volatility, low interest rates, credit and counterparty risk, reinsurance recoverability, insurance claims and reserve assumptions, regulatory inquiries, litigation, cybersecurity, operational failures and acquisition integration as material risks.
- Legal and regulatory matters remain ongoing, but the filing does not identify a specific proceeding for which a material loss is currently estimable. The company states that adverse outcomes could affect financial condition, results, liquidity or reputation.
- The company has reinsurance exposure to Genworth Life Insurance Company related to reinsured long-term-care business and believes contractual credit protections materially reduce its net exposure, although those protections are not guaranteed to eliminate all risk.
Important facts for investors to verify
- Reconcile GAAP net income and EPS with adjusted operating earnings, particularly the large market, hedge, mean-reversion and nonperformance-spread adjustments.
- Monitor the effect of rising rates, widening credit spreads and equity-market declines on investment marks, AOCI, DAC, variable-annuity guarantees and hedging results.
- Assess the sustainability of advice and asset-management inflows, performance fees and AUM following Q1 market depreciation and asset-management net outflows.
- Review the expected material impact, transition method and capital effects of the new long-duration insurance accounting standard.
- Evaluate liquidity at the parent and regulated-subsidiary levels, including dividend capacity, debt maturities, FHLB collateral requirements and the reliance on subsidiary distributions.
- Track long-term-care claims, reinsurance recoverability, variable-annuity guarantee exposure and the company’s continuing exit from higher-risk insurance products.
- Confirm the timing and economic effect of the BMO acquisition integration, share repurchases and future capital-return actions.