10-QPeriod: Q3 FY2018

AMERIPRISE FINANCIAL INC Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 5, 2018For Securities:AMP

Summary

Ameriprise Financial, Inc. (AMP) reported solid financial results for the third quarter of 2018, with total revenues increasing by 9% to $3.3 billion. Net income for the quarter was $503 million, a slight decrease of 1% compared to the prior year, primarily due to the impact of "unlocking" adjustments, which are significant accounting changes related to the valuation of certain insurance and annuity products. Despite this, adjusted operating earnings, a non-GAAP measure that excludes these and other items, showed strength, increasing slightly for the quarter and significantly for the year-to-date period. The company saw robust growth in its Advice & Wealth Management segment, driven by higher assets under management and strong net inflows, leading to a 19% increase in adjusted operating earnings for the quarter. The Asset Management segment experienced a slight decline in adjusted operating earnings due to net outflows, while the Annuities segment saw a significant decrease, largely attributable to the aforementioned "unlocking" impacts and lower investment income. The company continued its commitment to returning capital to shareholders through dividends and share repurchases.

Financial Highlights

34 data points
Beta

Revenue

$3.32B

Net Income

$503.00M

15.2% Net Margin

EPS (Diluted)

$3.43

Total Assets

$145.19B

Cash & Equivalents

$4.70B

Free Cash Flow

$611.00M

Financial Statements
Beta
Revenue$3.32B
Operating Expenses$2.70B
Net Income$503.00M
EPS (Basic)$3.48
EPS (Diluted)$3.43
Shares Outstanding (Basic)144.40M
Shares Outstanding (Diluted)146.50M

Key Highlights

  • 1Total net revenues increased by 9% year-over-year to $3.3 billion for the third quarter of 2018.
  • 2Net income was $503 million, a 1% decrease compared to the prior year, impacted by "unlocking" adjustments.
  • 3Adjusted operating earnings (a non-GAAP measure) for the quarter were $548 million, relatively flat year-over-year, but up to $1.65 billion for the nine months ended September 30, 2018, a 15% increase.
  • 4The Advice & Wealth Management segment showed strong performance with a 19% increase in adjusted operating earnings to $355 million for the quarter, driven by growth in assets under management and net inflows.
  • 5The Annuities segment experienced a 46% decline in adjusted operating earnings to $153 million for the quarter, primarily due to "unlocking" impacts and lower investment income.
  • 6Total assets under management and administration (AUM and AUA) grew 5% to $913.5 billion as of September 30, 2018.
  • 7The company repurchased approximately 2.5 million shares of common stock during the quarter and had $944 million remaining under its share repurchase authorization.

Frequently Asked Questions

The slight decrease in net income for the third quarter of 2018, despite revenue growth, was primarily due to significant accounting adjustments referred to as "unlocking." These adjustments relate to changes in market-related inputs and model changes for valuing living benefits, as well as annual reviews of life insurance and annuity valuation assumptions. While these adjustments impacted reported net income, the company's adjusted operating earnings, which exclude these items, showed a more stable performance.

The Advice & Wealth Management segment demonstrated strong performance, with net revenues increasing by 11% and adjusted operating earnings growing by 19% to $355 million for the third quarter of 2018. This growth was driven by a 16% increase in average advisory wrap account assets, fueled by net inflows and market appreciation, leading to higher management and financial advice fees and distribution fees.

The Annuities segment's adjusted operating earnings significantly decreased by 46% to $153 million for the third quarter of 2018. This decline was primarily attributed to the "unlocking" impacts, which resulted in a $147 million increase in benefits, claims, losses, and settlement expenses, and a $15 million decrease in the amortization of deferred acquisition costs. Lower investment income also contributed to the segment's weaker performance.

Ameriprise Financial actively manages its market risk through a comprehensive hedging program, primarily focusing on equity market, interest rate, and volatility exposures related to its variable annuity guaranteed benefits. The company uses derivatives such as options, swaps, and futures to hedge these risks. Sensitivity analyses indicate that a 10% equity price decline would negatively impact pretax income by an estimated $524 million (net of hedges), while a 100 basis point interest rate increase would positively impact pretax income by an estimated $455 million (net of hedges).