Ameriprise Financial Reports Second Quarter 2013 Results

Ameriprise Financial Reports Second Quarter 2013 Results

Second quarter 2013 net income⁽¹⁾per diluted share was $1.54.
Operating earnings per diluted share were $1.69.

Second quarter 2013 return on equity excluding AOCI was 15.5 percent.
Operating return on equity excluding AOCI was a record 17.9 percent.

MINNEAPOLIS--(BUSINESS WIRE)-- Ameriprise Financial, Inc. (NYS: AMP) today reported strong second quarter 2013 results. Net income⁽¹⁾ was $322 million, or $1.54 per diluted share, compared to $224 million, or $0.99 per diluted share, a year ago. Operating earnings were $352 million, or $1.69 per diluted share, compared to $254 million, or $1.13 per diluted share, a year ago.

Operating net revenues grew 9 percent to $2.7 billion, primarily driven by robust client net inflows, increased client activity and market appreciation, partially offset by the decline in net investment income from low interest rates.

Operating expenses increased 6 percent to $2.3 billion, primarily reflecting higher distribution costs from business growth. The company's ongoing focus on expense discipline resulted in general and administrative expenses remaining flat compared to a year ago.

The company continues to return capital to shareholders while maintaining a strong financial foundation. In the quarter, a total of $488 million was returned to shareholders through share repurchases and dividends. During the past four quarters, 134 percent of operating earnings was returned to shareholders.

Return on shareholders' equity excluding accumulated other comprehensive income (AOCI) was 15.5 percent for the 12 months ended June 30, 2013. Consistent with its strategy, the company has steadily expanded its return, with operating return on equity excluding AOCI reaching 17.9 percent at quarter end, a 270 basis point increase from a year ago.

"Ameriprise delivered another quarter of strong financial results," said Jim Cracchiolo, chairman and chief executive officer. "Revenues and earnings were up nicely; in fact, our operating return on equity reached an all-time high of 17.9 percent."

"All of our business segments performed well, most notably Advice and Wealth Management. We're experiencing good growth in client acquisition and strong client net inflows, which are key drivers of advisor productivity gains. Even with the pressure of low interest rates, we're delivering meaningful growth in profitability.

"With our strong capital position and ability to generate free cash flow, we're able to reinvest in the business and consistently return capital to shareholders through dividends and share repurchases."

⁽¹⁾ Net income represents net income from continuing operations attributable to Ameriprise Financial

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; the market impact on indexed universal life benefits, net of hedges and related DAC amortization, unearned revenue amortization, and the reinsurance accrual; and income or loss from discontinued operations.

The company's financial results in the quarter included a gain from the sale of Threadneedle's strategic business investment in Cofunds and several items that are detailed in a table on page 12. The net effect of the gain and these items was a $2 million after-tax benefit to earnings, or $0.01 per diluted share in the quarter.

In addition, results in the prior year period included $12 million, or $0.05 per diluted share, in after-tax operating earnings from former banking operations that ceased in the fourth quarter of 2012.

Taxes

The first quarter 2013 operating effective tax rate was 27.9 percent compared to 36.3 percent a year ago due to the previously disclosed tax item in the year ago period. The company estimates that its 2013 operating effective tax rate will be in the 26 to 28 percent range.

Second Quarter 2013 Business Highlights

• Assets under management and administration were $703 billion—a 7 percent increase from a year ago driven by Ameriprise advisor client net inflows and market appreciation.

• Ameriprise advisor client assets grew 13 percent to $373 billion from net inflows, client acquisition and market appreciation.

• Wrap net inflows increased 18 percent to $3.1 billion. Total wrap assets increased 20 percent to $136 billion.

• Operating net revenue per advisor, excluding results from former banking operations, improved 17 percent to $110,000.

• The company added 88 experienced advisors during the quarter, which was consistent with the year ago period.

• Asset Management segment AUM of $459 billion increased 3 percent from a year ago, driven by market appreciation, partially offset by an unfavorable impact from foreign exchange and net outflows. Net outflows were $2.1 billion in the quarter.

• On a global basis, the company managed 123 four- and five-star Morningstar-rated funds, including 51 Columbia Management funds and 72 Threadneedle funds.

• The company made progress strengthening its global asset management capability, bringing together existing Emerging Market Debt and Emerging Market Equity investment teams from Columbia Management and Threadneedle Investments to create global teams that benefit from the full resources and capabilities of both organizations.

• Variable annuity cash sales increased 20 percent from a year ago. The company added three new managed volatility funds for its variable annuity with living benefits and additional fund offerings within its product line of variable annuities without living benefit riders.

• Life and health insurance cash sales grew 32 percent from a year ago, reflecting solid indexed universal life insurance sales and expanded variable universal life insurance sales.

• Auto and home policies in force continued to grow steadily, up 10 percent from a year ago.

• The company announced the launch of its exclusive Confident Retirement^® approach that helps clients and advisors address four fundamental areas of retirement planning: covering essentials, ensuring a lifestyle, preparing for the unexpected, and leaving a legacy.

Balance Sheet Summary as of June 30, 2013

• Cash and cash equivalents were $2.3 billion, with $0.9 billion at the holding company. In addition, the holding company holds $0.7 billion in high-quality, short-duration securities.

• Excess capital remained over $2 billion after the return of $488 million to shareholders during the quarter through share repurchases and dividends.

• The company repurchased 4.9 million shares of its common stock in the quarter for $380 million.

• The total investment portfolio ended the quarter with $1.7 billion in net unrealized gains.

• RiverSource Life Insurance Company's estimated risk-based capital ratio was approximately 470 percent.

Segment Summaries

Advice & Wealth Management pretax operating earnings increased 37 percent to $152 million, reflecting robust revenue growth and expense controls. Earnings growth included a $15 million unfavorable impact in the 2013 period from lower interest rates, as well as the absence of $18 million of earnings from former banking operations.

Second quarter 2013 pretax operating margin was 14.1 percent compared to 11.6 percent a year ago. Results in the year ago quarter included earnings from former banking operations, which contributed 150 basis points to operating margin.

Operating net revenues grew 13 percent to $1.1 billion driven by asset growth in fee-based accounts from client inflows and market appreciation, and improved client activity across annuity, insurance and financial products. The company generated robust revenue growth even after absorbing the bank transition and the negative impact of lower interest rates.

Operating expenses increased 10 percent to $924 million as business growth resulted in higher distribution expenses and higher accruals for retention and performance-based compensation. General and administrative expenses declined 6 percent, demonstrating ongoing expense discipline and the impact of former banking operations.

Total retail client assets grew 13 percent to a record $373 billion driven by client net inflows, client acquisition and market appreciation. Wrap net inflows increased 18 percent to $3.1 billion, and brokerage cash balances reached $18.5 billion. The combination of asset growth and improved client activity drove a 17 percent increase in operating net revenue per advisor, excluding results from former banking operations.

Asset Management pretax operating earnings increased 53 percent to $199 million and included an expected $30 million gain from the sale of a strategic business investment in Cofunds. In addition, earnings included a benefit from the normal course of a CDO liquidation in the quarter.

Second quarter 2013 adjusted net pretax operating margin was 36.2 percent compared to 33.7 percent a year ago and 34.6 percent in the sequential quarter. Adjusted net pretax operating margin excludes the Cofunds gain.

Operating net revenues grew 16 percent to $822 million, primarily driven by asset growth from market appreciation, the previously mentioned gain, higher fees from the CDO liquidation and reengineering benefits, which were partially offset by the impact of net outflows.

Operating expenses increased 8 percent to $623 million, reflecting higher distribution expenses from market growth. General and administrative expenses increased 6 percent from higher performance-based compensation and investments in business growth. Overall, expenses remained well controlled as the company benefited from its expense discipline and reengineering.

Total segment assets under management grew 3 percent from a year ago to $459 billion, reflecting market appreciation, partially offset by net outflows and the impact from foreign exchange.

Asset Management net outflows were $2.1 billion in the quarter. Strong retail client net inflows at Threadneedle were more than offset by retail net outflows at Columbia. Consistent with the industry, outflows in retail fixed income funds were elevated late in the quarter. Institutional net outflows were primarily from legacy insurance assets and low basis point former parent influenced mandates, and were partially offset by the funding of third-party institutional mandates.

Annuities pretax operating earnings increased 7 percent to $124 million, reflecting new business growth and market appreciation partially offset by fixed annuity spread compression and the unfavorable market impact on DAC and DSIC, primarily from the rise in interest rates. In addition, the prior year period included items noted above that negatively impacted earnings.

Variable annuity operating earnings were $82 million as equity market appreciation offset higher distribution expenses from business growth and market appreciation. In addition, results included $7 million of higher reserve funding and amortization of DAC associated with the unlocking of interest rate assumptions in the third quarter of 2012. The market impact on DAC and DSIC was similar in both the current and prior periods, although the rise in interest rates primarily impacted the current quarter and equity market movements primarily impacted the year ago quarter.

Fixed annuity operating earnings increased 27 percent to $42 million primarily due to $17 million of unfavorable items in the year ago quarter. Underlying earnings in the quarter reflected continued spread compression from low interest rates, partially offset by income accretion related to former bank assets transferred to the insurance company last year.

Variable annuity account balances grew 8 percent to $70 billion driven by market appreciation, partially offset by net outflows. Variable annuity net outflows in the quarter reflected the closed book of RiverSource annuities previously sold through third parties, partially offset by $139 million of net inflows in the Ameriprise channel. Fixed annuity account balances declined 4 percent to $13.5 billion due to ongoing net outflows from low client demand given the interest rate environment.