AMERIPRISE FINANCIAL INC quarterly report, Q3 FY2019

Ameriprise Financial, Inc. — Q3 2019 Form 10-Q Summary

Business context and reporting period

Ameriprise Financial is a diversified financial services company providing financial advice, asset management, annuity, insurance, banking and related products. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, with comparisons to the same 2018 periods. The company reported $921.3 billion of assets under management and administration at September 30, 2019.

Key financial metrics

Metric	Q3 2019	Q3 2018	9M 2019	9M 2018
Total revenues	$3.351 billion	$3.316 billion	$9.786 billion	$9.716 billion
Total net revenues	$3.317 billion	$3.292 billion	$9.680 billion	$9.656 billion
Pretax income	$641 million	$588 million	$1.698 billion	$1.832 billion
Net income	$543 million	$503 million	$1.430 billion	$1.559 billion
Diluted EPS	$4.04	$3.43	$10.40	$10.45
Adjusted operating EPS	$4.12	$3.61	$11.92	$10.84
Adjusted operating earnings	$554 million	$529 million	$1.639 billion	$1.617 billion

Q3 net income margin was approximately 16.4% of net revenues, compared with 15.3% in the prior-year quarter. The nine-month net income margin was approximately 14.8%, compared with 16.1% in 2018. Pretax margins were approximately 19.3% in Q3 and 17.5% for the nine-month period.

Q3 net revenues increased 1%, while pretax income increased 9% and net income increased 8%.
Nine-month net revenues were essentially flat; pretax income declined 7% and net income declined 8%.
Q3 management and financial advice fees increased 3% to $1.794 billion; distribution fees increased 2% to $480 million; net investment income declined 8% to $356 million.
Nine-month management and financial advice fees increased 1% to $5.153 billion, while net investment income declined 7% to $1.121 billion.
Adjusted operating earnings rose 5% in Q3 and 1% for nine months. Nine-month adjusted operating EPS increased 10% due partly to share repurchases.

Cash flow, liquidity, capital and debt

Cash provided by operating activities was $2.574 billion for the first nine months of 2019, compared with $1.109 billion in 2018.
Cash used in investing activities was $1.736 billion, compared with $349 million in the prior-year period, mainly reflecting increased purchases of available-for-sale securities and the fixed annuity reinsurance arrangement.
Cash provided by financing activities was $1.064 billion, compared with $1.204 billion used in 2018, driven primarily by $2.543 billion of net banking deposit inflows and debt issuance.
Cash and cash equivalents excluding consolidated investment entities were $5.290 billion at September 30, 2019, compared with $2.931 billion at year-end 2018. Total cash and cash equivalents including restricted amounts were $7.566 billion.
Total company debt was $3.302 billion, including $3.101 billion of long-term debt and $201 million of short-term borrowings. The company issued $500 million of 3.0% senior notes due 2022 and repaid $300 million of 7.3% notes at maturity.
The company had no borrowings under its $750 million unsecured revolving credit facility, with $1 million of letters of credit outstanding, and was in compliance with its covenants.
The company repurchased 9.8 million shares for $1.3 billion during the first nine months and had $1.7 billion remaining under its repurchase authorization at September 30, 2019. Dividends paid totaled $390 million.

Material changes versus the prior comparable period

Advice & Wealth Management: Q3 adjusted operating earnings increased 12% to $396 million; nine-month earnings increased 10% to $1.122 billion. Growth reflected wrap-account inflows, higher markets, brokerage cash earnings and banking-related income.
Asset Management: Q3 adjusted operating earnings declined 12% to $173 million; nine-month earnings declined 16% to $483 million. Managed assets declined 3% year over year to $468.6 billion, with $10.4 billion of nine-month net outflows.
Annuities: Q3 adjusted operating earnings declined 7% to $120 million, while nine-month earnings were flat at $377 million. Low interest rates, fixed annuity runoff, reinsurance and variable annuity outflows pressured results.
Protection: Q3 adjusted operating earnings declined 5% to $57 million; nine-month earnings increased 4% to $196 million. Comparisons benefited from lower unfavorable insurance assumption updates than in 2018.
Corporate & Other: Q3 adjusted operating loss improved to $91 million from $120 million; nine-month loss improved to $215 million from $255 million, mainly due to lower long-term-care impacts and improved Auto & Home results.
Assets under management increased 1% to $734.8 billion, while assets under administration were essentially flat at $186.5 billion. Advice & Wealth Management AUM increased 9%; Asset Management AUM declined 3%.
Other comprehensive income was $628 million for the first nine months, compared with a $472 million loss in 2018, primarily due to higher unrealized securities gains.

Guidance, outlook, commentary and unusual items

Management stated multi-year, average-over-time targets of 6%–8% adjusted operating total net revenue growth, 12%–15% adjusted operating diluted EPS growth and 19%–23% adjusted operating ROE excluding AOCI.
Management expects continuing low interest rates to pressure spread income, reinvestment yields, reserves and DAC/DSIC amortization. Fixed annuity earnings are expected to trend down as the existing book gradually runs off.
Q3 included annual assumption updates and model changes, or “unlocking.” The combined unfavorable impact of unlocking and long-term-care loss recognition was $16 million, compared with $53 million in Q3 2018. Interest-rate assumption changes accounted for a significant portion of the unfavorable impact.
Q3 other-than-temporary impairment losses were $15 million, primarily related to credit losses on corporate debt securities. Nine-month net impairment losses recognized in net investment income were $20 million.
Ameriprise Bank, FSB launched in Q2 2019. Cash sweep balances were $2.5 billion at September 30, and management expected to add mortgage and savings products in 2020.
Ameriprise completed the sale of Ameriprise Auto & Home on October 1, 2019 for $1.135 billion of gross cash proceeds and approximately $1.035 billion of net proceeds, subject to post-closing adjustments expected to be finalized by Q1 2020.
Key market sensitivities at September 30 included an estimated $90 million pretax net adverse impact from a 10% equity-price decline and a $37 million pretax net favorable impact from a 100-basis-point parallel interest-rate increase. These estimates depend on significant assumptions and are not forecasts.
The company disclosed elevated legal and regulatory activity involving product sales, advisor supervision, insurance and annuity claims, client information security, trading supervision and transaction-monitoring systems. The filing states that potential losses cannot generally be predicted or estimated.
The company is monitoring Brexit-related uncertainty, which contributed to European retail outflows and could affect future flows and foreign-currency translation.

Most important facts for investors to verify

Whether Advice & Wealth Management inflows and banking expansion can offset persistent Asset Management outflows.
The sustainability of adjusted EPS and ROE growth after separating operating performance from market impacts, assumption changes and share repurchases.
Exposure to low interest rates, spread compression, reinvestment risk and declining fixed annuity earnings.
The adequacy and volatility of variable annuity guarantee reserves and the effectiveness of related hedging programs.
Long-term-care morbidity, interest-rate and premium-rate assumptions, including the potential for additional reserve strengthening.
Final proceeds and post-closing adjustments from the Auto & Home sale, and the use of the resulting capital.
Credit quality, unrealized losses and impairment risk in the investment portfolio, including Level 3 valuations and corporate debt securities.
Pending legal, regulatory, tax and guaranty-fund matters, for which the filing does not provide a clear aggregate maximum loss value.