Ameriprise Financial, Inc. — Q1 2023 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, brokerage and related services. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the prior-year quarter. The company reported approximately $1.2 trillion of assets under management and administration at quarter-end.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenues | $3.845 billion | $3.627 billion | 6% |
| Total net revenues | $3.742 billion | $3.625 billion | 3% |
| Pretax income | $496 million | $1.006 billion | (51%) |
| Net income | $417 million | $825 million | (49%) |
| Diluted EPS | $3.79 | $7.10 | (47%) |
| Adjusted operating earnings | $798 million | $676 million | 18% |
| Adjusted operating earnings per diluted share | $7.25 | $5.82 | 25% |
| Net cash provided by operating activities | $1.056 billion | $409 million | +$647 million |
GAAP pretax margin was approximately 13.3%, compared with 27.8% in the prior-year quarter; GAAP net margin was approximately 11.1%, compared with 22.8%. The effective tax rate declined to 15.9% from 18.0%.
- Management and financial advice fees declined 13% to $2.137 billion, reflecting lower market values, cumulative asset-management outflows and lower performance fees.
- Distribution fees increased 16% to $517 million, primarily from higher fees on off-balance-sheet brokerage cash as short-term interest rates increased.
- Net investment income increased to $698 million from $261 million, benefiting from higher interest rates, larger bank and certificate balances, and investment portfolio repositioning.
- Adjusted operating earnings by segment were $693 million for Advice & Wealth Management, $165 million for Asset Management, $194 million for Retirement & Protection Solutions and a $74 million loss for Corporate & Other.
- Total assets were $166.640 billion at March 31, 2023, including $8.386 billion of cash and cash equivalents. Total equity was $4.144 billion.
- Assets under management were $1.001 trillion, down 9% year over year; total assets under management and administration were $1.236 trillion, down 8%.
Debt, liquidity and capital
- Total company debt was $3.761 billion at March 31, 2023, consisting of $3.560 billion of long-term debt and $201 million of short-term FHLB advances.
- Ameriprise issued $750 million of 5.15% unsecured senior notes due May 2033 in March 2023. A $750 million senior note maturity is scheduled during 2023.
- The company had no borrowings under its $1.0 billion unsecured revolving credit facility, with $1 million of letters of credit outstanding; the facility expires in June 2026 and all covenants were satisfied.
- Parent-company cash, cash equivalents and unencumbered liquid securities were $770 million. Management estimated approximately $2.0 billion of parent liquidity, including available credit sources.
- Available Capital for Capital Adequacy was $5.377 billion, compared with $5.209 billion at December 31, 2022.
- Financing activities generated $3.162 billion of cash, principally from $1.768 billion of net investment certificate inflows, $1.702 billion of net banking deposit growth and $741 million of net debt issuance proceeds. Investing activities used $3.146 billion.
Material changes versus the prior comparable period
- GAAP earnings fell sharply because the market impact on non-traditional long-duration products was a $475 million pretax expense in Q1 2023 versus a $180 million benefit in Q1 2022. The effect primarily reflected changes in variable-annuity guaranteed-benefit reserves, structured-variable-annuity embedded derivatives and related hedges.
- Adjusted operating earnings increased despite lower equity markets, supported by higher short-term rates, growth in bank and certificate products, client wrap-account inflows and expense discipline.
- Advice & Wealth Management adjusted operating earnings rose 58% to $693 million, while Asset Management adjusted operating earnings declined 42% to $165 million because of market depreciation, net outflows and lower performance fees.
- Retirement & Protection Solutions adjusted operating earnings rose 11% to $194 million, aided by higher investment income and immediate-annuity sales.
- Operating cash flow improved substantially, while investing cash usage increased because the company purchased more available-for-sale securities.
- The company adopted the long-duration insurance accounting standard, ASU 2018-12, effective January 1, 2023, with prior periods restated. Management states the adoption does not affect overall cash flows, insurance subsidiary dividend capacity or regulatory capital requirements.
- Share repurchases under the existing authorization totaled 1.569 million shares at an average price of $322.54, leaving approximately $1.1 billion available under the authorization at quarter-end. Dividends paid were $138 million.
Guidance, outlook, commentary and risks
Management’s stated multi-year financial targets are adjusted operating earnings per diluted share growth of 12% to 15% and adjusted operating return on equity above 30%. The filing does not provide specific quarterly or full-year earnings guidance.
- Management expects financial results to remain sensitive to equity markets, interest rates, credit spreads, foreign exchange rates, client behavior, asset flows and investment performance.
- The company is continuing to shift its insurance product mix away from variable annuities with living-benefit guarantees. New sales of most GMWB and GMAB products were discontinued by mid-2022.
- Variable-annuity market-risk-benefit valuations remain highly sensitive to equity markets, interest rates, volatility, surrender behavior, benefit utilization, mortality and the company’s nonperformance spread. A hypothetical 10% equity-price decline was estimated to reduce pretax income by $312 million after hedges; a hypothetical 100-basis-point rate increase was estimated to increase pretax income by $598 million. These are not forecasts.
- The investment portfolio had $2.430 billion of gross unrealized losses on available-for-sale securities at March 31, 2023, but management attributed the losses primarily to non-credit factors and did not expect to be required to sell the securities before recovery.
- Reinsurance recoverables were approximately $4.3 billion, including $2.7 billion related to long-term-care business ceded to Genworth. Counterparty and reinsurance collectability remain material risks.
- Legal, regulatory and examination activity remains elevated. The filing states that potential losses from many matters cannot currently be predicted or reasonably estimated.
- The estimated liability for state guaranty-fund assessments increased to $37 million from $12 million at year-end 2022.
- The company expects to be subject to the Inflation Reduction Act share-repurchase excise tax but does not currently expect to owe corporate alternative minimum tax for 2023.
Important facts for investors to verify
- Reconcile GAAP net income and EPS with adjusted operating earnings and assess whether market-related adjustments are recurring or volatile.
- Monitor AUM, asset-management net flows, performance fees and wrap-account flows because these directly affect fee revenue.
- Review the maturity and refinancing plan for the $750 million senior note due in 2023 and the new $750 million note issued in March 2023.
- Evaluate the sensitivity of earnings, equity and capital to interest rates, equity markets, volatility, policyholder behavior and nonperformance-spread assumptions.
- Assess the quality and liquidity of the available-for-sale portfolio, including the $2.430 billion of gross unrealized losses and concentrations in mortgage-backed securities.
- Track long-term-care reserves, Genworth reinsurance protections and other reinsurer exposures.
- Review regulatory, litigation, guaranty-fund and tax contingencies, including $143 million of gross unrecognized tax benefits and ongoing IRS examinations.
- Confirm the impact of ASU 2018-12 restatements when comparing 2023 results with previously reported 2022 figures.