Equitable Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Equitable is a diversified financial services company operating across retirement, investment management, protection, wealth management and legacy businesses. Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $2,230 | $2,357 |
| Income before tax | $247 | Loss of $459 |
| Net income attributable to Holdings | $114 | $177 |
| Net income available to common shareholders; diluted EPS | $100; $0.30 | $163; $0.45 |
| Non-GAAP operating earnings; diluted operating EPS | $490; $1.43 | $364; $0.96 |
| Net cash from operating activities | $31 | $(587) |
| Total assets / total liabilities | $285,577 / $280,831 | $276,814 / $271,656 |
| Cash and cash equivalents | $10,357 | $8,239 |
| Short-term / long-term debt | $0 / $3,821 | $254 / $3,820 |
| Total equity | $3,755 | $4,388 |
Revenue declined 5%, while non-GAAP operating earnings rose 35%. The quarter included substantial market-related accounting volatility: net derivative losses were $1,376, while the change in market risk benefits and purchased benefits was a $1,100 benefit. These items are important to interpreting GAAP earnings and should not be treated as operating cash flows.
Net cash increased $2,284 to $10,357, with $4,945 of financing cash inflow offsetting $2,682 of investing outflow and only $31 of operating cash flow. Financing included a $3,663 increase in collateralized pledged liabilities. Parent-company highly liquid assets were $1,924 at quarter-end, down $74 during the quarter; consolidated cash is not equivalent to unrestricted cash available to Holdings.
Material changes and operating trends
- Net investment income rose to $1,219 from $990, mainly from higher asset balances and yields, alternative investment income and seed-capital income. Investment management and service fees increased to $1,278 from $1,180.
- GAAP net income attributable to Holdings fell by $63 despite the swing to pretax income. Higher derivative losses, expenses and interest credited partly offset the favorable market-risk-benefit change and stronger investment and fee income. The prior-year tax benefit included a $614 million partial release of a deferred-tax valuation allowance, making the tax comparison unusually favorable to 2023.
- Non-GAAP operating earnings increased to $490 from $364. Segment results: Individual Retirement $228 (up from $200); Group Retirement $126 (up from $89); Investment Management and Research $106 (up from $99); Protection Solutions $41 (versus a $35 loss); Wealth Management $43 (up from $32); Legacy $51 (down from $60); Corporate and Other loss of $105 (versus $81).
- Individual Retirement account value was $98.3 billion, up $6.6 billion, including $1.6 billion net inflows. Group Retirement AV and AUA were $38.5 billion, with $132 million net outflows. AllianceBernstein AUM reached $758.7 billion, up $33.5 billion, primarily from market appreciation; long-term net flows were $0.5 billion. Wealth Management AUA was $91.9 billion; advisory net flows were negative $175 million, partly reflecting the departure of a large advisor group.
- Equitable repurchased approximately 7.5 million common shares at an average $33.86 and paid $73 million in common dividends. Approximately $1.203 billion remained authorized for repurchases at March 31.
Outlook, risks and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management states that the company has sufficient operating cash flows to meet 2024 liquidity requirements. This is a management assessment, not a guarantee.
- Management cites equity-market and interest-rate volatility, inflation, geopolitical conflicts, credit and counterparty risk, customer flows and behavior, investment performance, and regulatory changes as factors that may affect fees, reserves, hedging costs, capital and liquidity. Hedging reduces certain economic exposures but does not eliminate them and can increase reported earnings volatility and collateral needs.
- The available-for-sale fixed-income portfolio had $67.6 billion fair value against $75.3 billion amortized cost; gross unrealized losses were approximately $8.0 billion. Management attributed these losses mainly to higher interest rates and credit spreads and said it did not intend, nor was it more likely than not required, to sell the affected securities before recovery. Below-investment-grade fixed maturities were approximately $3.0 billion, or 4.0% of amortized cost.
- Mortgage exposure merits monitoring: commercial loans had an average current LTV of 66%; one $108 million commercial mortgage was in probable foreclosure with a $54 million allowance. The portfolio included $4.9 billion of office loans. The company reported $297 million total mortgage-loan credit-loss allowance.
- For pending litigation and regulatory matters, the company estimates reasonably possible losses above recorded accruals of up to approximately $100 million, while noting some matters cannot be estimated. The Brach cost-of-insurance class settlement and related individual settlements were fully accrued. One related matter received leave to appeal to New York’s highest court in March 2024.
- AB’s Bernstein Research Services transaction with Société Générale closed April 1, 2024, after quarter-end. AB received $304 million before closing and recorded a corresponding liability at March 31; the business was classified as held for sale. The filing reports a $6 million non-cash valuation adjustment for the quarter.
- Other material commitments include $1.3 billion of potential equity financing commitments to investment partnerships and real-estate ventures, $700 million of existing mortgage-loan commitments, and $9.5 billion of collateral pledged to the FHLB. Insurance-subsidiary dividend capacity is constrained: Equitable Financial had no ordinary dividend capacity for 2024 under the applicable formula; Equitable America had approximately $440 million.
- Regulatory developments include proposed changes to NAIC CLO modeling and capital treatment, with implementation expected to be delayed, and the Department of Labor’s finalized fiduciary rule. The SEC climate-disclosure rules were stayed in April 2024 pending judicial review.
Most important facts for investors to verify
- Reconcile GAAP net income with non-GAAP operating earnings, including the impact of derivatives, market risk benefits and the unusually large prior-year tax valuation-allowance release.
- Assess the sustainability of operating cash generation and distinguish parent-company liquidity from cash held in insurance subsidiaries, separate accounts and consolidated entities.
- Review sensitivity of variable-annuity guarantees, statutory capital and collateral requirements to market shocks; confirm current statutory capital measures and dividend capacity.
- Track commercial real-estate credit quality, especially office loans, mortgage allowances, maturities and the foreclosure-probable loan.
- Monitor the outcome and potential costs of litigation, including the COI matters, and confirm completion accounting and economics of the AB/Société Générale transaction.