Equitable Holdings, Inc. 2024 Q3 10-Q Summary
Business Context and Reporting Period
This summary covers the quarterly period ended September 30, 2024. Equitable Holdings, Inc. operates as a diversified financial services organization with six reportable segments: Individual Retirement, Group Retirement, Asset Management, Protection Solutions, Wealth Management, and Legacy. The company manages significant variable annuity products with guaranteed benefits (GMxB), utilizing extensive hedging and reinsurance programs to mitigate market risks.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | Q3 2023 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|---|
| Total Revenues | $3,076 million | $3,624 million | $8,816 million | $8,358 million |
| Net Income (Loss) Attributable to Holdings | $(134) million | $1,064 million | $408 million | $2,000 million |
| Net Income Available to Common Shareholders | $(148) million | $1,050 million | $354 million | $1,946 million |
| Diluted EPS (GAAP) | $(0.47) | $3.02 | $1.08 | $5.47 |
| Non-GAAP Operating Earnings | $501 million | $413 million | $1,485 million | $1,218 million |
| Non-GAAP Operating EPS | $1.53 | $1.15 | $4.37 | $3.27 |
| Total Assets | $298,989 million | $276,814 million (Dec 31, 2023) | - | - |
| Long-Term Debt | $3,831 million | $3,820 million (Dec 31, 2023) | - | - |
| Cash and Cash Equivalents | $9,579 million | $8,239 million (Dec 31, 2023) | - | - |
Material Changes vs. Prior Period
- GAAP Net Income Decline: Net income attributable to Holdings decreased significantly from $1.064 billion in Q3 2023 to a loss of $134 million in Q3 2024. This volatility is primarily driven by market-sensitive items excluded from Non-GAAP Operating Earnings.
- Derivative Losses: Net derivative losses increased by approximately $1.3 billion year-over-year in Q3, largely due to higher equity market appreciation in 2024 compared to 2023, which impacted the valuation of hedging instruments.
- Market Risk Benefits (MRB): The change in MRB and purchased MRB increased by $896 million year-over-year, driven by a decrease in interest rates in Q3 2024, partially offset by favorable equity market movements.
- Investment Income Growth: Net investment income increased by $238 million in Q3 2024 compared to Q3 2023, attributed to higher average asset balances, improved yields, and higher alternative investment income.
- Operating Earnings Growth: Despite GAAP volatility, Non-GAAP Operating Earnings increased by $88 million (21%) in Q3 2024 compared to the prior year, reflecting underlying business strength.
Guidance, Outlook, and Management Commentary
- Market Environment: Management notes a resilient U.S. economy with cooling inflation and expectations of monetary easing (interest rate cuts) in late 2024 and 2025. However, geopolitical tensions and election uncertainty remain risks.
- Segment Performance:
- Individual Retirement: Operating earnings increased $5 million to $225 million, driven by higher net investment income and fee-type revenue, offset by increased interest credited to policyholders.
- Asset Management: Operating earnings rose $12 million to $111 million. Assets Under Management (AUM) reached $805.9 billion, up $36.4 billion from the prior quarter, driven by market appreciation and net inflows.
- Protection Solutions: Operating earnings improved significantly to $46 million (from $34 million), aided by lower net mortality.
- Capital Actions: The company continues its share repurchase program. As of September 30, 2024, approximately $706 million of authorized capacity remained. The company also paid common dividends of $0.24 per share in Q3.
- Regulatory Risks: The company is monitoring the Department of Labor's "Final Rule" on fiduciary definitions, which is currently stayed by federal courts. The NAIC is also refining capital requirements for CLOs and other structured securities.
Investor Verification Checklist
- Derivative Hedging Effectiveness: Verify the correlation between equity market performance and the reported net derivative losses to understand the volatility in GAAP earnings.
- Interest Rate Sensitivity: Assess the impact of the Federal Reserve's interest rate cuts on the valuation of Market Risk Benefits (MRB) and the cost of funding agreements.
- Non-GAAP Reconciliation: Review the reconciliation of GAAP Net Income to Non-GAAP Operating Earnings to understand the magnitude of adjustments related to variable annuity features and investment gains/losses.
- Share Repurchase Capacity: Confirm the remaining $706 million authorization and the pace of future buybacks under the current program.
- Regulatory Capital: Monitor the status of the DOL fiduciary rule litigation and NAIC capital requirement changes for CLOs, as these could impact future profitability and capital deployment.