Ameriprise Financial, Inc. — Q1 2024 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 months ended March 31, 2024, compared with the three months ended March 31, 2023. The company reported $1.4 trillion of assets under management and administration at March 31, 2024.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenues | $4.325 billion | $3.845 billion | 12% |
| Total net revenues | $4.146 billion | $3.742 billion | 11% |
| Pretax income | $1.219 billion | $496 million | +$723 million |
| Net income | $990 million | $417 million | +$573 million |
| Diluted EPS | $9.46 | $3.79 | 149% |
| Adjusted operating earnings | $878 million | $798 million | 10% |
| Adjusted operating EPS | $8.39 | $7.25 | 16% |
| Effective tax rate | 18.8% | 15.9% | Up 2.9 points |
Revenue growth reflected higher management and advice fees, net investment income and premiums. Net investment income increased 29% to $901 million, primarily because of higher interest rates, larger bank and certificate balances and growth in structured variable annuities. Distribution fees declined 2%, largely because of lower fees on off-balance-sheet brokerage cash.
Total expenses declined 10% to $2.927 billion. The primary driver was a favorable change in the fair value of market risk benefits, which generated an $18 million benefit in Q1 2024 versus a $489 million expense in Q1 2023. Distribution expenses rose 16% to $1.419 billion, reflecting higher advisor compensation, transaction activity and recruiting investments.
Cash flow, balance sheet, debt and liquidity
- Operating cash flow was $1.444 billion, compared with $1.056 billion in Q1 2023.
- Investing cash outflow was $569 million, versus $3.146 billion in the prior-year quarter.
- Financing cash outflow was $1.431 billion, compared with $3.162 billion of financing inflow in Q1 2023.
- Cash and cash equivalents were $7.071 billion at March 31, 2024, down from $7.477 billion at December 31, 2023. Cash including restricted amounts was $8.059 billion.
- Total assets were $179.831 billion and total equity was $4.879 billion at March 31, 2024.
- Long-term debt was $3.398 billion and short-term borrowings were $201 million. The company had no borrowings under its $1.0 billion unsecured revolving credit facility and had $1 million of letters of credit outstanding.
- Parent-company liquidity was estimated at $1.9 billion, including cash, liquid securities, an affiliate line and a portion of the committed credit facility.
- Available Capital for Capital Adequacy was $5.135 billion, down from $5.418 billion at December 31, 2023.
Material changes versus the prior comparable period
- Adjusted operating earnings increased 10% to $878 million, while GAAP net income increased substantially because Q1 2023 included significant unfavorable market impacts on variable annuity guarantees and other long-duration products.
- The market impact on non-traditional long-duration products was a $140 million pretax benefit in Q1 2024, compared with a $475 million pretax expense in Q1 2023.
- Advice & Wealth Management adjusted operating earnings increased 10% to $762 million; adjusted operating margin decreased to 29.8% from 30.6% because expenses grew faster than net revenues.
- Asset Management adjusted operating earnings increased 25% to $206 million, despite net outflows of $5.7 billion during the quarter.
- Retirement & Protection Solutions adjusted operating earnings increased 3% to $199 million. Variable annuity sales increased 32%, while variable annuity net outflows were $3.2 billion.
- Corporate & Other adjusted operating loss widened to $89 million from $74 million, primarily due to higher interest and general and administrative expenses.
- Total assets under management increased 13% year over year to $1.127 trillion, and total assets under administration increased 27% to $297.5 billion. Combined AUM and AUA increased 15% to $1.425 trillion.
- Ameriprise Bank deposits increased to $21.3 billion, while certificate deposits increased to $13.2 billion, both benefiting from the prevailing interest-rate environment.
Capital returns, outlook and management commentary
- The company paid $143 million of common dividends during the quarter and repurchased 1.237 million shares for $507 million, at an average price of $409.96 per share.
- As of March 31, 2024, $2.6 billion remained under the share-repurchase authorization through September 30, 2025.
- Management’s long-term financial targets are adjusted operating EPS growth of 12% to 15% and adjusted operating return on equity above 30%. These are multi-year, on-average-over-time targets rather than quarterly guidance.
- Management expects continued benefits from market appreciation, deposit growth and higher investment yields, but results remain sensitive to equity markets, interest rates, credit conditions, client behavior and asset flows.
- Management stated that cash flows, available cash, borrowing capacity, debt-market access and subsidiary dividends are expected to fund operating liquidity needs and stress requirements.
Risks, contingencies and unusual items
- A hypothetical 10% equity-market decline was estimated to reduce pretax income by approximately $377 million after hedging. A hypothetical 100-basis-point interest-rate increase was estimated to increase pretax income by approximately $596 million after hedging. These scenarios are not forecasts.
- The investment portfolio had $2.185 billion of gross unrealized losses on available-for-sale securities, primarily attributed to higher interest rates rather than credit deterioration. Approximately 97% of securities with unrealized losses were considered investment grade.
- Market risk benefits shifted from a net liability of $335 million at December 31, 2023 to a net asset of $629 million at March 31, 2024, reflecting market movements and hedging effects.
- The company recorded a $50 million liability related to SEC requests concerning preservation of business communications on unapproved electronic messaging platforms. An agreement in principle had been reached with SEC staff, subject to Commission approval.
- The company remains subject to regulatory inquiries, examinations, arbitration, litigation and class actions involving financial advice, product sales, supervision, claims administration, cybersecurity, trading and recordkeeping.
- Long-term care, annuity guarantees, reinsurance counterparties, guaranty-fund assessments and subsidiary dividend restrictions remain material insurance and liquidity considerations. Estimated guaranty-fund assessment liability was $34 million.
- The company is subject to IRS and state tax examinations. Gross unrecognized tax benefits were $156 million at March 31, 2024. Management did not record liabilities for CAMT or Pillar Two taxes based on current estimates.
Important facts investors should verify
- Whether adjusted operating EPS growth and adjusted operating ROE remain consistent with management’s long-term targets.
- The sustainability of Advice & Wealth Management inflows and the reversal or continuation of Asset Management net outflows.
- The sensitivity of earnings, capital and liquidity to equity-market declines, interest-rate changes, credit spreads and volatility.
- Progress and final resolution of the SEC electronic-communications matter and any related penalties or additional proceedings.
- Capital generation, subsidiary dividend capacity and the effect of share repurchases on Available Capital for Capital Adequacy.
- Performance of the investment portfolio, including the significant unrealized loss position and exposure to mortgage-backed, corporate and other fixed-income securities.
- Changes in insurance reserve assumptions, annuity guarantee exposure, reinsurance recoverables and counterparty credit quality.