Ameriprise Financial Reports Fourth Quarter 2012 Results

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Ameriprise Financial Reports Fourth Quarter 2012 Results

Fourth quarter 2012 net income from continuing operations attributable to Ameriprise Financial per diluted share was $1.80. Fourth quarter 2012 operating earnings per diluted share grew 31 percent to $1.71.

Full year 2012 net income from continuing operations attributable to Ameriprise Financial per diluted share was $4.63. Full year 2012 operating earnings per diluted share grew 8 percent to $5.59.


MINNEAPOLIS--(BUSINESS WIRE)-- Ameriprise Financial, Inc. (NYS: AMP) today reported fourth quarter 2012 net income from continuing operations attributable to Ameriprise Financial of $388 million, or $1.80 per diluted share, compared to $223 million, or $0.95 per diluted share, a year ago. Fourth quarter 2012 operating earnings were $367 million, or $1.71 per diluted share, compared to $308 million, or $1.31 per diluted share, a year ago.

Fourth quarter 2012 operating net revenues increased 6 percent from a year ago to $2.6 billion driven by strong Ameriprise advisor client net inflows, increased client activity and market appreciation. Growth in revenue was partially offset by the decline in investment income from low interest rates as well as outflows in asset management.

Fourth quarter 2012 operating expenses increased 5 percent to $2.2 billion, reflecting higher distribution-related expenses and previously disclosed catastrophe losses related to Superstorm Sandy. General and administrative expenses were flat compared to a year ago as ongoing expense controls offset investments in the business.

The company continues to maintain a strong capital position, generate strong free cash flow and return capital to shareholders. The company's excess capital position remains above $2 billion after returning $446 million to shareholders through share repurchases and dividends during the quarter.

Return on shareholders' equity excluding accumulated other comprehensive income (AOCI) was 12.8 percent for the 12 months ended December 31, 2012. Operating return on equity excluding AOCI was 16.2 percent for the same time period.

"We had a solid quarter led by strong results in our advice and wealth management business," said Jim Cracchiolo, chairman and chief executive officer. "We reported a record high for assets under management and administration driven by strong client net inflows into fee-based accounts and equity market appreciation. We're executing our strategy well and maintaining tight expenses to offset headwinds from low interest rates."

"We continue to generate significant free cash flow and benefit from our strong balance sheet and capital position. Our operating return on equity ended the year above 16 percent and we returned more than 130 percent of our full-year operating earnings to shareholders through ongoing share repurchases and dividends."

 
Ameriprise Financial, Inc.
Fourth Quarter Summary
 

(in millions, except per share amounts, unaudited)

 

Quarter Ended
December 31,

 

Per Diluted Share
Quarter Ended
December 31,

2012 2011 

% Better/
(Worse)

2012 2011 

% Better/
(Worse)

Net income from continuing operations attributable to Ameriprise Financial

$388$22374%$1.80$0.9589%

Adjustments, net of tax(1)

(see reconciliation on p. 11) (21) 85NM (0.09) 0.36NM
Operating earnings$367$30819%$1.71$1.3131%
 
Weighted average common shares outstanding:
Basic210.8230.6
Diluted215.1234.5
 

(1)After-tax is calculated using the statutory tax rate of 35%.

NM Not Meaningful - variance of greater than 100%
 

The company believes the presentation of operating earnings best represents the economics of the business. Operating earnings, after-tax, exclude the consolidation of certain investment entities; net realized gains or losses; integration and restructuring charges; the market impact on variable annuity guaranteed living benefits net of hedges and related deferred acquisition costs (DAC) and deferred sales inducement costs (DSIC) amortization; and income or loss from discontinued operations.

Fourth quarter operating earnings included the following after-tax items(1):

  

Quarter Ended
December 31,

Per Diluted Share
Quarter Ended
December 31,

(in millions, except per share amounts, unaudited)

2012 20112012 2011
Variable annuity model revision$28$$0.13$
Tax adjustment from prior periods$16$$0.07$
Settlement with a third-party service provider$10$$0.05$
Previously disclosed Auto & Home Superstorm Sandy losses$(13)$$(0.06)$
 

(1)After-tax is calculated using the statutory tax rate of 35%.

 

Overall results in the quarter were solid and included the items noted in the table above. In addition, there are other items that are discussed in more detail in the segment commentary and include year-end compensation related true-ups, elevated severance expense, and reserve strengthening in Auto and Home, partially offset by favorable taxes.

Taxes

The fourth quarter 2012 operating effective tax rate was 17.2 percent compared to 25.2 percent a year ago.

During the quarter, the company completed a periodic review of its deferred tax balance. This resulted in the recognition of a $16 million decrease in tax expense related to prior years. In addition, the dividend received deduction in the fourth quarter of 2012 was higher than in prior periods reflecting the acceleration of dividends paid by companies in the fourth quarter in anticipation of tax law changes in 2013.

The company's full year operating effective tax rate, excluding the prior years' recognized benefit, was 27.5 percent, which is in line with the previous estimate the company provided in the third quarter. The company estimates that its 2013 operating effective tax rate will be in the 26 to 28 percent range.

Fourth Quarter 2012 Business Highlights

  • Assets under management and administration increased 8 percent to $681 billion - an all-time high. Strong asset growth was driven by market appreciation and Ameriprise advisor client net inflows.
  • Ameriprise advisor client assets grew 14 percent to $353 billion driven by strong net inflows and market appreciation.
  • Wrap net inflows of $2.1 billion in the quarter increased 53 percent, contributing to a 21 percent growth in total wrap assets.
  • Operating net revenue per advisor increased 11 percent to $103,000 for the quarter driven by higher client assets and improved transactional volumes.
  • The company continued to recruit experienced advisors to Ameriprise, adding 68 advisors in the quarter and 382 advisors for the full year.
  • Asset Management segment AUM increased 5 percent to $455 billion driven by market appreciation. Net outflows of $3.9 billion in the quarter were driven by net outflows in institutional portfolios that included legacy insurance assets, while retail net flows were essentially flat.
  • On a global basis, the company had 111 four- and five-star Morningstar-rated funds, including 51 Columbia Management funds and 60 Threadneedle funds.
  • RiverSource Life continued to generate strong indexed universal life insurance sales with total life insurance cash sales increasing during each of the last five quarters.
  • Ameriprise Auto & Home continued to generate solid core business results with policies in force growing 9 percent.
  • During the quarter, the company ceased operations of Ameriprise Bank, FSB as it transitions to a national trust institution. Formal regulatory submissions have been filed and final approval is pending.
  • Bloomberg, in partnership with the National Conference on Citizenship and Points of Light, recognized Ameriprise Financial as one of America's most community-minded companies in its Civic 50 ranking.

Balance Sheet Summary as of December 31, 2012

  • Cash and cash equivalents were $2.4 billion, with $0.9 billion at the holding company. In addition, the holding company holds more than $0.8 billion in high-quality, short-duration securities.
  • Excess capital remained at $2+ billion after the return of $446 million to shareholders during the quarter through share repurchases and dividends.
  • The company repurchased 5.9 million shares of its common stock in the quarter for $350 million.
  • The total investment portfolio ended the quarter with $3.0 billion in net unrealized gains.
  • During the quarter, Ameriprise Bank returned $250 million of capital to the parent company.

Segment Summaries

 
Ameriprise Financial, Inc.
Advice & Wealth Management Segment Operating Results
 
(in millions, unaudited) Quarter Ended December 31, 

% Better/
(Worse)

2012 2011
Advice & Wealth Management
Net revenues$1,005$90511%
Expenses 886 822(8)
Pretax operating earnings$119$8343
 
Item included in operating earnings:
Bank earnings$

0

 

$13NM
 
Quarter Ended December 31,

% Better/
(Worse)

20122011
Retail client assets (billions)$353$31014%
Mutual fund wrap net flows (billions)$2.1$1.453%
Operating net revenue per branded advisor (thousands)$103$9311%

 

 

NM Not Meaningful — variance of greater than 100%

 

Advice & Wealth Management pretax operating earnings increased 43 percent to $119 million reflecting strong revenue growth, continued expense management and ongoing investments in the business. Fourth quarter 2012 pretax operating margin was 11.8 percent compared to 9.2 percent a year ago and included the earnings impact from the company's decision to transition out of the banking business. Excluding this impact, management estimates that the segment pretax margin would have been 13.1 percent for the fourth quarter and 11.8 percent for the full year.

Operating net revenues increased 11 percent to $1.0 billion driven by strong retail client net inflows, higher client transactional volumes and market appreciation, partially offset by the continued impact of low interest rates and the previously mentioned bank transition. Total retail client assets grew 14 percent to a new high of $353 billion.

Operating expenses increased 8 percent to $886 million, primarily reflecting higher distribution expenses associated with strong growth in client assets and higher activity levels. General and administrative expenses declined by 3 percent, demonstrating on-going expense discipline, lower expenses associated with completion of the brokerage platform conversion, and lower ongoing bank expense, partially offset by higher year-end compensation expense true-ups.

 
Ameriprise Financial, Inc.
Asset Management Segment Operating Results
 
(in millions, unaudited)Quarter Ended December 31, 

% Better/
(Worse)

2012 2011
Asset Management
Net revenues$740$7025%
Expenses 599 575(4)
Pretax operating earnings$141$12711
 
Item included in operating earnings:
CDO liquidation benefit$$11NM
 
Quarter Ended December 31,

% Better/
(Worse)

20122011
Total segment AUM(1) (billions)$455$4365%
Columbia Management AUM$330$3261%
Threadneedle AUM$128$11412%
 
Total segment net flows (billions)$(3.9)$3.8(2)NM
Retail net flows$(0.0)$(0.2)NM
Institutional net flows$(3.3)$5.0

(2)

NM
Alternative net flows$(0.6)$(1.0)38%

 

(1) Subadvisory eliminations between Columbia Management and Threadneedle are included in the company's Fourth Quarter 2012 Statistical Supplement available at ir.ameriprise.com.

(2) Includes $14 billion of inflow from Liverpool Victoria.

 
NM Not Meaningful — variance of greater than 100%
 

Asset Management pretax operating earnings were $141 million, up 11 percent from a year ago, driven by equity market appreciation and continued revenue and expense reengineering, partially offset by the impact of net outflows. Earnings in the year ago quarter included a favorable $11 million impact from the liquidation of a collateralized debt obligation (CDO) that did not recur. Excluding this item, pretax operating earnings growth would have been 22 percent. Fourth quarter 2012 adjusted net pretax operating margin was 33.6 percent compared to 31.4 percent a year ago.

Operating net revenues increased 5 percent to $740 million, primarily driven by growth in assets from market appreciation and performance fees. Revenue growth reflected pressure from net outflows and the shift in flows from equity to fixed income, as well as $15 million of lower revenues from the CDO liquidation in the prior year period.

Operating expenses increased 4 percent to $599 million. Distribution expenses increased 6 percent primarily due to market appreciation. General and administrative expenses increased by $8 million from a year ago due to market appreciation and increased compensation costs associated with higher performance fees, partially offset by expense reengineering.

Total segment assets under management increased 5 percent from a year ago to $455 billion, reflecting market appreciation, partially offset by net outflows.

Asset Management net outflows of $3.9 billion in the quarter were driven by net outflows in institutional portfolios, while retail net flows were essentially flat. Strong Threadneedle retail net inflows were offset by net outflows at Columbia, which included reinvested dividends. Institutional net outflows of $3.3 billion were driven by $1.6 billion of outflows of legacy insurance assets managed by Threadneedle and Columbia.

 
Ameriprise Financial, Inc.
Annuities Segment Operating Results
  
(in millions, unaudited)Quarter Ended December 31,

% Better/
(Worse)

2012 2011
Annuities
Net revenues$636$634
Expenses 465 4701%
Pretax operating earnings$171$1644
 
Variable annuity pretax operating earnings$129$1189%
Fixed annuity pretax operating earnings 42 46(9)
Total pretax operating earnings$171$1644
 
Items included in operating earnings:
Market impact on DAC and DSIC (mean reversion)$2$16(88)%
Index annuity reserve adjustment$

$

(8)NM
Variable annuity liability model revision$43

$

NM
 
Quarter Ended December 31,

% Better/
(Worse)

20122011
Variable annuity ending account balances (billions)$68.1$62.39%
Variable annuity net flows (millions)$(214)$227NM
Fixed annuity ending account balances (billions)$13.8$14.2(3)%
Fixed annuity net flows (millions)$(303)$(158)(92)%
 
NM Not Meaningful — variance of greater than 100%
 

Annuities pretax operating earnings increased 4 percent to $171 million. Results in the quarter included a favorable $43 million impact from a variable annuity living benefit liability model revision that resulted in a reduction in reserves. The reserve release in the quarter represented a cumulative catch up primarily related to prior periods. This revision aligns the model to more accurately reflect best estimate assumptions for living benefit utilization going forward.

Variable annuity operating earnings increased 9 percent to $129 million and included a favorable $43 million from the variable annuity living benefit liability model

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