Ameriprise Financial, Inc. Form 10-Q Summary
Business context and reporting period
Ameriprise Financial is a diversified financial services company providing financial advice, wealth management, asset management, insurance, annuities, banking and related products. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the prior-year periods. The company reported approximately $1.3 trillion of assets under management and administration at June 30, 2023.
Financial performance and key metrics
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Total net revenues | $3.876 billion | $3.486 billion | $7.618 billion | $7.111 billion |
| Pretax income | $1.127 billion | $773 million | $1.623 billion | $1.779 billion |
| Net income | $890 million | $614 million | $1.307 billion | $1.439 billion |
| Diluted EPS | $8.21 | $5.37 | $11.97 | $12.48 |
| Adjusted operating earnings | $807 million | $654 million | $1.605 billion | $1.330 billion |
| Adjusted operating EPS | $7.44 | $5.72 | $14.70 | $11.54 |
Second-quarter net revenues increased 11%, pretax income increased 46% and net income increased 45%. The reported pretax margin was approximately 29.1% and the net income margin was approximately 23.0%. For the six-month period, net revenues increased 7%, while pretax income and net income declined 9%; the pretax margin was approximately 21.3% and the net income margin was approximately 17.2%.
- Management and financial advice fees declined 3% in the quarter and 8% year to date, primarily because of lower average fixed-income markets, cumulative asset-management outflows and lower performance fees.
- Net investment income increased to $811 million in the quarter and $1.509 billion year to date, driven by higher interest rates, portfolio repositioning and growth in bank deposits and certificate products.
- Distribution fees increased 5% in the quarter and 10% year to date, benefiting from higher short-term interest rates on off-balance-sheet brokerage cash.
- Adjusted operating earnings increased 23% in the quarter and 21% year to date. Advice & Wealth Management adjusted operating earnings rose 49% in the quarter and 53% year to date, while Asset Management declined 27% and 36%, respectively.
- Retirement & Protection Solutions adjusted operating earnings increased 13% in the quarter and 12% year to date.
Operating cash flow was $1.617 billion for the six months ended June 30, 2023, compared with $1.818 billion in the prior-year period. Investing cash flow was negative $6.020 billion, primarily reflecting purchases of available-for-sale securities. Financing cash flow was positive $4.352 billion, supported by investment certificate additions, increased banking deposits and the March debt issuance. Cash and cash equivalents, including restricted amounts, were $8.732 billion at June 30, 2023, compared with $8.755 billion at year-end 2022.
Total assets were $169.781 billion and total equity was $4.080 billion at June 30, 2023. Cash and cash equivalents excluding consolidated investment entities and other restricted cash were $7.3 billion. Available Capital for Capital Adequacy was $5.011 billion, compared with $5.209 billion at December 31, 2022.
Total Ameriprise debt was $3.758 billion, consisting of $3.557 billion of long-term debt and $201 million of FHLB advances. The company issued $750 million of 5.15% unsecured senior notes due 2033 in March 2023. It had no borrowings under its $1.0 billion unsecured revolving credit facility, which expires in June 2026, and remained in compliance with its covenants. Management estimated parent-company liquidity of approximately $2.1 billion, including cash, liquid securities, an affiliate line and a portion of the committed facility.
Material changes versus the prior comparable period
- Rising interest rates materially improved investment yields, bank and certificate economics and Advice & Wealth Management profitability, but also increased funding and interest-crediting costs.
- Market-related results on non-traditional long-duration products were a $127 million pretax benefit in the second quarter, compared with a $19 million expense in the prior-year quarter. For the six months, the impact was a $348 million expense versus a $161 million benefit in 2022.
- Market risk benefit fair-value expense declined to $99 million in the quarter from $519 million and to $390 million year to date from $619 million.
- Asset Management experienced net outflows of $5.3 billion in the quarter and $7.8 billion year to date. Segment adjusted operating earnings declined because of outflows, lower average fixed-income markets and lower performance fees.
- Total AUM and AUA increased 9% year over year to $1.2768 trillion. AUM increased 7% to $1.0288 trillion, while AUA increased 16% to $248.0 billion.
- Bank cash sweep balances increased to $20.9 billion and Ameriprise Certificate Company deposits increased to $12.1 billion at June 30, 2023.
- The company repurchased 3.2 million shares for approximately $998 million during the first six months and paid $284 million of dividends. A new $3.5 billion repurchase authorization was approved on July 24, 2023.
Guidance, outlook, risks and unusual items
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 quarterly or full-year earnings guidance.
Management expects continued sensitivity to equity markets, interest rates, credit spreads, investment performance, client behavior, asset flows and foreign exchange rates. A hypothetical 10% equity-price decline as of June 30, 2023 was estimated to reduce pretax income by approximately $303 million after hedging. A hypothetical 100-basis-point parallel increase in interest rates was estimated to increase pretax income by approximately $559 million after hedging; actual outcomes may differ materially.
Key risks include market volatility, asset-management outflows, insurance reserve and policyholder-behavior assumptions, variable-annuity guarantees, derivative and reinsurance counterparty risk, investment-credit losses, liquidity and collateral requirements, regulatory and legal matters, cybersecurity and operational disruptions, acquisition integration and the ability of subsidiaries to remit capital to the parent.
The company adopted targeted improvements for long-duration insurance contracts, with prior periods restated. The adoption reduced total equity by approximately $1.9 billion at January 1, 2021 and materially changed the presentation of market risk benefits, insurance reserves and acquisition-cost amortization. The company also early adopted a lease accounting amendment in the second quarter without a material effect. On July 13, 2023, it withdrew applications to convert Ameriprise Bank and establish a limited-purpose national trust bank; the bank will continue under its existing OCC and FDIC-regulated structure.
The company reports ongoing regulatory inquiries, examinations, arbitration and litigation in the ordinary course. The filing does not identify a specific material loss amount for these matters. The estimated guaranty-fund assessment liability increased to $37 million from $12 million at year-end 2022.
Important facts for investors to verify
- Whether elevated interest rates and bank and certificate deposit growth remain sufficient to offset higher funding and crediting costs.
- The sustainability and composition of Advice & Wealth Management inflows and the continued Asset Management net outflows.
- The sensitivity of earnings and capital to equity markets, interest rates, volatility, credit spreads and policyholder behavior.
- The adequacy of variable-annuity, long-term-care and other insurance reserves, including the effect of annual assumption reviews.
- The company’s liquidity after the $750 million debt issuance, share repurchases, dividends and the $750 million senior-note maturity in 2023.
- Reinsurance recoverability, particularly the approximately $2.7 billion of long-term-care recoverables from Genworth-related arrangements.
- Regulatory, litigation, tax and guaranty-fund exposures, including the $132 million of gross unrecognized tax benefits at June 30, 2023.
- The reconciliation and comparability of GAAP results with adjusted operating earnings and Available Capital for Capital Adequacy.