Ameriprise Financial, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Ameriprise Financial is a diversified financial services company providing financial advice, asset management, insurance, annuities, banking, certificates and related products. The unaudited filing covers the three and nine months ended September 30, 2023, with comparisons to the same periods in 2022. Results were affected by higher interest rates, equity-market conditions, client flows, insurance valuation assumptions and hedging results. The company reported $1.2 trillion of assets under management and administration at September 30, 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenues | $4.076 billion | $3.499 billion | $11.928 billion | $10.615 billion |
| Total net revenues | $3.925 billion | $3.484 billion | $11.543 billion | $10.595 billion |
| Pretax income | $1.117 billion | $1.335 billion | $2.740 billion | $3.114 billion |
| Net income | $872 million | $1.061 billion | $2.179 billion | $2.500 billion |
| Diluted EPS | $8.14 | $9.41 | $20.08 | $21.85 |
| Adjusted operating earnings per diluted share | $6.96 | $7.30 | $21.66 | $18.82 |
GAAP net margin was approximately 22.2% in Q3 2023 versus 30.4% in Q3 2022, and approximately 18.9% for the first nine months versus 23.6% in the prior-year period. Adjusted operating earnings were $745 million in Q3 and $2.350 billion for the first nine months.
Revenue, segment and operating trends
- Q3 management and financial advice fees increased 5% to $2.287 billion, supported by market appreciation and wrap-account net inflows. Nine-month fees declined 4% because of asset-management outflows, fixed-income market depreciation and lower performance fees.
- Net investment income increased to $809 million in Q3 and $2.318 billion for nine months, primarily due to higher interest rates, portfolio repositioning and growth in bank deposits and certificate products.
- Advice & Wealth Management adjusted operating earnings increased 23% to $729 million in Q3 and 41% to $2.153 billion for nine months. Q3 adjusted operating margin was 30.3%, compared with 27.8% in the prior-year quarter.
- Asset Management adjusted operating earnings increased 4% to $199 million in Q3 but declined 25% to $526 million for nine months. Nine-month managed-asset net flows were negative $12.0 billion.
- Retirement & Protection Solutions adjusted operating earnings declined 69% to $100 million in Q3 and 28% to $483 million for nine months, primarily due to unfavorable insurance assumption unlocking and higher structured-variable-annuity activity.
- Total AUM increased 11% year over year to $990.4 billion, while total AUM and AUA increased 12% to $1.2328 trillion. Advice & Wealth Management wrap assets ended at $444.1 billion, including $439.3 billion of advisory assets.
Cash flow, balance sheet, debt and liquidity
| Balance-sheet or cash-flow item | September 30, 2023 | December 31, 2022 |
|---|---|---|
| Total assets | $165.136 billion | $158.852 billion |
| Cash and cash equivalents | $7.010 billion | $6.964 billion |
| Customer deposits | $36.109 billion | $30.775 billion |
| Long-term debt | $3.557 billion | $2.821 billion |
| Total debt, including short-term borrowings | $3.758 billion | $3.022 billion |
| Total equity | $3.825 billion | $3.803 billion |
- Cash provided by operating activities was $2.542 billion for the first nine months, versus $3.190 billion in 2022.
- Investing activities used $7.342 billion, compared with $9.241 billion in the prior-year period. Financing activities provided $4.030 billion, compared with $6.213 billion.
- Cash and cash equivalents including restricted amounts declined to $7.991 billion from $8.755 billion at year-end 2022.
- Available Capital for Capital Adequacy was $5.247 billion, compared with $5.209 billion at December 31, 2022. Management estimated parent-company liquidity of $1.9 billion, including cash, unencumbered liquid securities, an affiliate line and part of the committed credit facility.
- The company issued $750 million of 5.15% senior notes due 2033 in March 2023. It had $550 million of senior notes maturing in 2024 and subsequently repaid $750 million of 4.0% senior notes at maturity on October 16, 2023.
Material changes versus the prior comparable period
- Q3 net income decreased 18% and nine-month net income decreased 13%, despite higher revenue, primarily because of insurance valuation and market-related expense volatility.
- Q3 pretax income included a $99 million unfavorable unlocking impact, compared with a $133 million favorable impact in Q3 2022. The nine-month unfavorable unlocking impact was also $99 million, versus a $133 million benefit in 2022.
- The Q3 market impact on non-traditional long-duration products was a $211 million benefit, compared with a $405 million benefit in the prior-year quarter. For nine months, the impact was a $137 million expense, compared with a $566 million benefit in 2022.
- Banking and deposit interest expense rose to $151 million in Q3 and $385 million for nine months, reflecting higher crediting rates and larger certificate and bank-deposit balances.
- Share repurchases totaled approximately $1.5 billion for the first nine months, comprising 4.7 million shares. The board authorized an additional $3.5 billion of repurchases in July 2023; $3.6 billion remained authorized at September 30.
- The company adopted the long-duration insurance accounting standard effective January 1, 2023, with prior periods restated. The transition reduced January 1, 2021 total equity by approximately $1.9 billion but did not affect overall cash flows or regulatory capital requirements.
Guidance, outlook, commentary and risks
- Management’s multi-year financial targets are adjusted operating earnings per diluted share growth of 12% to 15% on average over time and adjusted operating return on equity above 30%. No specific near-term earnings guidance was provided in the filing.
- Management expects continued sensitivity to equity markets, interest rates, credit conditions, foreign exchange, client behavior, asset flows and regulatory developments. Rising rates have supported investment yields and banking profitability but can increase funding and credited-rate costs and create valuation volatility.
- The company is shifting its variable-annuity mix toward lower-risk products and expects the proportion of business with living-benefit guarantees to decline over time. Variable-annuity account values were $75.1 billion at September 30, with 55% associated with living-benefit riders.
- Ameriprise withdrew applications to convert Ameriprise Bank to a state-chartered industrial bank and to establish a limited-purpose national trust bank. The bank will continue operating under its existing OCC and FDIC regulatory framework.
- A $20 million third-quarter accrual was recorded for an SEC matter involving preservation of business communications on unapproved electronic messaging platforms. Resolution discussions were ongoing, with no assurance of settlement.
- Legal, regulatory, reinsurance, guaranty-fund, cyber, operational, counterparty, investment-credit and reserve risks remain material. Estimated guaranty-fund assessment liabilities increased to $37 million from $12 million at year-end 2022. Gross unrealized losses on available-for-sale securities increased to $3.410 billion, primarily because of higher interest rates; management stated these losses were non-credit-related.
- The company stated that disclosure controls were effective at a reasonable level of assurance and that there were no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Reconcile GAAP net income and diluted EPS with adjusted operating earnings and the effects of unlocking, market impacts, realized investment losses and restructuring charges.
- Monitor asset-management net outflows, performance fees, wrap-account inflows and the sustainability of AUM-based revenue.
- Assess sensitivity to interest rates and equity markets, including the disclosed estimated net pretax impact of approximately $581 million from a 100-basis-point rate increase and negative $292 million from a 10% equity-price decline.
- Review variable-annuity guarantee exposure, hedging effectiveness and the Level 3 assumptions for surrender, utilization, mortality, volatility and nonperformance risk.
- Verify debt maturities, the October 2023 repayment, future refinancing needs and the availability of parent-company liquidity and subsidiary dividends.
- Follow developments in the SEC electronic-communications matter, other regulatory inquiries, reinsurance counterparties and long-term-care reserve assumptions.