Ameriprise Financial Reports Third Quarter 2012 Results

Ameriprise Financial Reports Third Quarter 2012 Results

Third quarter 2012 net income from continuing operations per diluted share was $0.79

Third quarter 2012 operating earnings per diluted share increased 11 percent to $1.32 and included a $0.22 per diluted share unfavorable impact from unlocking

Ameriprise Financial Board of Directors declares a $0.45 per share quarterly dividend, a 29 percent increase, or $0.10 per share, and authorizes an additional $2 billion share repurchase program

MINNEAPOLIS--(BUSINESS WIRE)-- Ameriprise Financial, Inc. (NYS: AMP) today reported third quarter 2012 net income from continuing operations attributable to Ameriprise Financial of $174 million, or $0.79 per diluted share, compared to $322 million, or $1.33 per diluted share, a year ago. Third quarter 2012 operating earnings were $289 million, or $1.32 per diluted share, compared to $289 million, or $1.19 per diluted share, a year ago.

Third quarter 2012 operating results included a previously announced $48 million, or $0.22 per diluted share, unfavorable impact from the company's annual review of insurance and annuity valuation assumptions and modeling changes (unlocking). This non-cash expense in the quarter compared to an unfavorable impact of $9 million, or $0.04 per diluted share, a year ago.

Third quarter 2012 operating net revenues of $2.5 billion were unchanged from a year ago and included lower revenues from the impact of unlocking. Net revenues in the year ago quarter included additional investment income recognition. Adjusting for these two items, third quarter 2012 operating net revenues grew 3 percent driven by strong Ameriprise advisor client net inflows and market appreciation, partially offset by a decline in net investment income reflecting continued low short-term interest rates as well as outflows in asset management.

Third quarter 2012 operating expenses were unchanged at $2.1 billion, as higher distribution-related expenses offset lower deferred acquisition costs (DAC) amortization. Operating general and administrative expenses were essentially flat compared to a year ago as ongoing expense controls offset investments.

The company maintains a strong financial foundation and continues to generate free cash flow. During the quarter, the company returned $416 million to shareholders through share repurchases and dividends, and has $482 million remaining on its current share repurchase authorization. In addition, the Ameriprise Financial Board of Directors declared a $0.45 per common share quarterly cash dividend, a 29 percent increase, or $0.10 per share, and also authorized a new $2 billion share repurchase program through 2014.

Return on shareholders' equity excluding accumulated other comprehensive income (AOCI) was 10.7 percent for the 12 months ended September 30, 2012. Operating return on equity excluding AOCI was 15.4 percent for the same time period.

"We had another good quarter, led by solid results in our advisory and asset management businesses," said Jim Cracchiolo, chairman and chief executive officer. "While equity markets improved in the quarter, low interest rates continue to create headwinds."

"Our advisory client base grew nicely in the quarter. We experienced strong retail client net inflows, including more than doubling net inflows into wrap accounts. In Asset Management, we're generating good financial performance, and we're seeing improvement in retail flows. And our annuity and protection businesses continue to generate good returns and remain well positioned.

"The company continues to generate strong returns and good cash flow giving us the ability to return significant capital to shareholders. Today, we declared another increase in our quarterly dividend, up 29 percent. It's our fifth increase since early 2010, bringing our dividend yield to approximately 3 percent. We also authorized a new $2 billion share repurchase program as we accelerated our buybacks over the past two years."

Third Quarter 2012 Summary

In the third quarter of the year, the company conducts an annual review of insurance and annuity valuation assumptions relative to current experience and management expectations. To the extent that expectations change as a result of this review, the company updates valuation assumptions and the impact is reflected as part of annual unlocking. As previously announced, the unlocking impact in the quarter primarily reflected the low interest rate environment and the assumption of continued low interest rates over the near term.

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 DAC and deferred sales inducement costs (DSIC) amortization; and income or loss from discontinued operations.

Taxes

The third quarter 2012 operating effective tax rate was 27.2 percent compared to 23.9 percent a year ago. The third quarter 2012 tax rate was affected by investment losses associated with the Ameriprise Bank transition— the company will realize related investment gains in the fourth quarter that will offset these losses. The company expects its full year 2012 operating effective tax rate will be slightly below its previously disclosed 28 to 30 percent range.

Third Quarter 2012 Business Highlights

• Assets under management and administration increased 13 percent from a year ago to $678 billion primarily driven by market appreciation.

• Ameriprise advisor client assets grew 18 percent from a year ago to $345 billion driven by market appreciation and strong net inflows.

• Wrap assets grew 24 percent to $121 billion, as wrap net inflows in the quarter more than doubled to $2.1 billion compared to the prior year.

• The company continued to recruit experienced advisors to Ameriprise, adding 106 advisors in the quarter and 314 year to date.

• In its study, "Advisor Channel Migration Trends^TM 2012," Cogent Research listed Ameriprise as a top five firm for financial advisors who are likely to move to another broker-dealer.

• During the quarter, the company completed its multi-year brokerage conversion project that will help advisors serve clients more efficiently and effectively.

• Heardable Score, which measures online brand performance, ranked Ameriprise third among full service investment brands online.

• Asset Management net outflows of $3.5 billion in the quarter were driven by net outflows in institutional and alternative portfolios. Retail net flows were slightly positive, as strong net inflows at Threadneedle were offset by net outflows at Columbia, including outflows from a third-party subadvisor and the Value and Restructuring fund. In institutional, net outflows of $2.0 billion were driven by Threadneedle outflows of $1.1 billion of legacy insurance assets and $0.9 billion from the previously announced retender of low margin pension assets, which more than offset improved results at Columbia. Alternative net outflows of $1.6 billion were primarily driven by hedge funds.

• On a global basis, the company had 116 four- and five-star Morningstar-rated funds, including 53 Columbia Management funds and 63 Threadneedle funds.

• RiverSource Life continued to generate strong sales of its indexed universal life insurance product with total life and disability income insurance cash sales increasing during each of the last four quarters. Ameriprise Auto & Home continued to generate solid core business results with policies in force growing a steady 8 percent.

Balance Sheet Summary as of September 30, 2012

Excess capital position and prudent capital management

• Cash and cash equivalents were $3.3 billion, with $0.7 billion at the holding company and $0.8 billion in free cash. In addition, the holding company holds more than $0.8 billion in high-quality, short-duration securities.

• Excess capital remained at $2.0+ billion after the return of $416 million to shareholders during the quarter through share repurchases and dividends.

• The company repurchased 6.3 million shares of its common stock in the quarter for $340 million. The company has $482 million remaining on its current share repurchase authorization. In addition, the board of directors authorized a new $2 billion share repurchase program through 2014.

• The board of directors declared a quarterly cash dividend of $0.45 per common share payable on November 16, 2012 to shareholders of record as of November 5, 2012. The dividend represents a 29 percent increase, or $0.10 per share. Since February 2010, the company has increased its regular quarterly dividend 165 percent.

• The total investment portfolio remains well positioned with no holdings of sovereign debt in financially troubled European countries and has $3.1 billion in net unrealized gains.

Ameriprise Bank Transition Update

In the second quarter of 2012, the company announced its intention to transition Ameriprise Bank from a federal savings bank to a non-depository trust company. The implementation of the deposit and loan disposals is underway and bank operations are on track to close by year end. Final approvals from the appropriate federal and state regulators are pending.

As part of this process, the company recognized $62 million of net investment losses in the quarter and will realize related investment gains in the fourth quarter that will offset third quarter losses.

Segment Summaries

Advice & Wealth Management pretax operating earnings were $119 million. Pretax operating earnings grew 8 percent after adjusting for $6 million of additional investment income recognition in the year ago quarter. Results in the third quarter reflected revenue growth, continued expense management and ongoing investments in the business, including a new brokerage platform. Third quarter 2012 pretax operating margin remained strong at 12.4 percent.

Operating net revenues increased 2 percent to $961 million, or 3 percent after adjusting for the investment income item in the year ago quarter. Solid underlying revenue growth was driven by market appreciation, advisor business growth and client net inflows, partially offset by lower transactional revenues and low interest rates. Total retail client assets grew 18 percent to $345 billion, reflecting market appreciation and continued strong client net inflows.

Operating expenses increased 2 percent to $842 million, primarily reflecting higher distribution expenses associated with strong growth in client assets. General and administrative expenses declined 2 percent, demonstrating on-going expense discipline, which more than offset investments for business growth.

Asset Management pretax operating earnings were $155 million, up 30 percent from a year ago, driven by equity market appreciation, $7 million of redemption-driven hedge fund performance fees and continued expense management. Earnings growth was partially offset by the impact of net outflows and a shift in flows from equity to fixed income. Third quarter 2012 adjusted net pretax operating margin was 37.6 percent compared to 32.7 percent a year ago.

Operating net revenues increased 4 percent to $733 million, primarily driven by growth in assets from market appreciation and redemption-driven hedge fund performance fees, partially offset by net outflows and the shift in flows from equity to fixed income.

Operating expenses improved by 1 percent to $578 million. General and administrative expenses declined $7 million from a year ago reflecting the company's focus on re-engineering to fund investments in the business and included higher compensation-related expenses associated with hedge fund performance fees. The year ago quarter included $10 million of project implementation costs at Threadneedle.

Total segment assets under management increased 11 percent from a year ago to $461 billion, reflecting market appreciation, partially offset by net outflows.

Asset Management net outflows of $3.5 billion in the quarter were driven by net outflows in institutional and alternative portfolios. Retail net flows were slightly positive, as strong net inflows at Threadneedle were offset by net outflows at Columbia, including outflows from a third-party subadvisor and the Value and Restructuring fund. In institutional, net outflows of $2.0 billion were driven by Threadneedle outflows of $1.1 billion of legacy insurance assets and $0.9 billion from the previously announced retender of low margin pension assets, which more than offset improved results at Columbia. Alternative net outflows of $1.6 billion were primarily related to the termination of a hedge fund portfolio manager.

Annuities pretax operating earnings were $91 million reflecting the impact of unlocking and low interest rates, partially offset by market appreciation.

Variable annuity operating earnings were $31 million and