Ameriprise Financial, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Ameriprise Financial is a diversified financial services company providing financial advice, asset management, insurance, annuity, banking and related products. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Assets under management and administration were $1.144 trillion at March 31, 2021, up 36% from $839.1 billion a year earlier.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenues | $3.355 billion | $3.026 billion | +11% |
| Total net revenues | $3.350 billion | $3.001 billion | +12% |
| Pretax income | $493 million | $2.351 billion | -79% |
| Net income | $437 million | $2.036 billion | -79% |
| Diluted EPS | $3.58 | $15.88 | -77% |
| Adjusted operating earnings | $663 million | $694 million | -4% |
| Adjusted operating earnings per diluted share | $5.43 | $5.41 | Flat |
| Effective tax rate | 11.3% | 13.4% | Lower |
| Net cash from operating activities | $(1.000) billion | $4.893 billion | Decrease |
GAAP net margin was approximately 13.0% in Q1 2021 versus approximately 67.3% in Q1 2020; the comparison is heavily distorted by market-related valuation impacts in both periods. Segment adjusted operating earnings were $389 million for Advice & Wealth Management, $228 million for Asset Management, $183 million for Retirement & Protection Solutions and a $21 million loss for Corporate & Other.
At March 31, 2021, total assets were $165.7 billion, shareholders’ equity was $5.5 billion, cash and cash equivalents excluding consolidated investment entities and other restricted cash were $5.5 billion, and total cash and cash equivalents including restricted amounts were $7.5 billion. Long-term debt was $2.834 billion, short-term borrowings were $200 million, and total reported debt including FHLB advances was approximately $3.034 billion.
The parent company had $905 million of cash, cash equivalents and unencumbered liquid securities. Management estimated parent-company liquidity of approximately $2.3 billion, including an affiliate line of credit and a portion of the $750 million unsecured revolving credit facility. There were no borrowings under the revolving facility, $1 million of letters of credit outstanding, and the company remained in compliance with its covenants.
Material changes versus the prior comparable period
- Management and financial advice fees increased 19% to $2.102 billion, driven primarily by higher average equity markets, wrap-account net inflows and growth in average advisory assets.
- Net investment income increased 15% to $377 million, including $69 million of net realized investment gains compared with a $19 million loss in Q1 2020.
- Distribution fees declined 1% because lower short-term interest rates reduced fees on off-balance-sheet brokerage cash, partially offset by stronger markets and transaction activity.
- Benefits, claims, losses and settlement expenses were $653 million compared with a $1.747 billion benefit in Q1 2020. The prior-year benefit largely reflected COVID-19 market dislocation and favorable changes in the nonperformance-risk adjustment on variable annuity guarantees.
- The market impact on non-traditional long-duration products was a $396 million pretax expense, compared with a $1.783 billion benefit in Q1 2020. Mean-reversion impacts were a $56 million benefit versus a $61 million expense.
- Adjusted operating earnings declined modestly, but adjusted operating earnings per diluted share increased slightly because of share repurchases and a lower share count.
- Ameriprise repurchased 1.7 million shares for approximately $363 million during the quarter and paid $129 million of dividends. Approximately $1.9 billion remained under the repurchase authorization at March 31, 2021.
- Operating cash flow turned negative, primarily because of changes in policyholder balances and benefits, lower net income and lower cash from brokerage deposits.
Guidance, outlook, commentary and risks
Management’s stated long-term financial targets are adjusted operating earnings per diluted share growth of 12% to 15% and adjusted operating return on equity excluding AOCI of more than 30%. The filing does not provide specific quarterly or full-year earnings guidance.
Management expects continued sensitivity to equity markets, interest rates, volatility, client behavior, asset flows and product mix. A sustained low-rate environment may compress spread income, reduce reinvestment yields and increase reserves or alter DAC and DSIC amortization. The company estimated that a hypothetical 10% equity-market decline would reduce pretax income by approximately $150 million after hedging, while a hypothetical 100-basis-point parallel rate increase would increase pretax income by approximately $83 million. These are stress sensitivities, not forecasts.
The COVID-19 pandemic, market volatility, low interest rates, variable annuity guarantee exposure, counterparty and reinsurance risk, credit losses, regulatory and legal matters, operational and cybersecurity risks, Brexit-related uncertainty, LIBOR transition and subsidiary capital or dividend restrictions remain material risks. The filing states that there were no material changes to the risk factors disclosed in the 2020 Form 10-K.
On April 12, 2021, after quarter-end, Ameriprise signed an agreement to acquire BMO Financial Group’s European asset management business for £615 million, or approximately $845 million, in cash. The transaction is expected to add approximately $124 billion of European AUM and is currently expected to close in the fourth quarter of 2021, subject to regulatory approvals.
Unusual items include a $29 million unfavorable out-of-period correction in Q1 2021 other comprehensive income related to defined benefit plans and a $19 million unfavorable out-of-period correction in Q1 2020 management and financial advice fees related to performance fees. Management considered the errors immaterial to prior-period financial statements.
Important facts for investors to verify
- Reconcile GAAP earnings with adjusted operating earnings and assess the sustainability of the large market, hedge, nonperformance-risk and mean-reversion adjustments.
- Monitor the effect of low interest rates on spread income, reinvestment yields, brokerage-cash fees and insurance-product economics.
- Review variable annuity guarantee exposures, hedging effectiveness and sensitivity to equity markets, interest rates, volatility and policyholder behavior.
- Evaluate liquidity and capital at the parent and regulated subsidiaries, including restrictions on upstream dividends and the $845 million planned BMO transaction.
- Track asset flows, investment performance, product mix and the shift toward variable annuity products without living-benefit guarantees.
- Review legal, regulatory, tax, reinsurance, guaranty-fund and counterparty contingencies, including the IRS audits and unrecognized tax benefits.
- Confirm the impact of the new financial system and related internal-control changes as implementation continues.