Ameriprise Financial Reports Second Quarter 2014 Results

Ameriprise Financial, Inc. (NYSE: AMP) today reported second quarter 2014 net income(1) of $374 million, or $1.91 per diluted share. Operating earnings were $408 million, up 16 percent from a year ago, with operating earnings per diluted share up 23 percent to $2.08. Operating earnings per diluted share increased 31 percent when excluding a gain from the sale of Cofunds in the year-ago quarter.

Operating net revenues increased 6 percent to $2.9 billion. Excluding the gain in the year-ago period, operating net revenues grew 8 percent driven by strong fee-based business growth from client net inflows and market appreciation, which more than offset continued pressure from low interest rates.

Operating expenses increased 4 percent to $2.3 billion reflecting higher volume-related distribution expense. General and administrative expenses increased 3 percent compared to a year ago, reflecting the company’s ongoing expense discipline.

In the quarter, the company returned $464 million to shareholders through share repurchases and dividends. The company returned $921 million to shareholders through the first two quarters of the year.

“Ameriprise delivered another quarter of strong financial results with particular strength in our Advice and Wealth Management business,” said Jim Cracchiolo, chairman and chief executive officer. “As we serve our clients and advisors, we continue to generate good revenue and earnings growth and posted another record high operating return on equity, ending the quarter at nearly 22 percent.”

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

Results in the quarter were strong and the segment commentary includes certain items that largely offset and had a negligible impact on total operating earnings in the quarter.

Taxes

The second quarter 2014 operating effective tax rate was 29.5 percent compared to 27.9 percent a year ago. The company estimates that its full year 2014 operating effective tax rate will be in the 28 to 30 percent range.

Second Quarter 2014 Business Highlights

• Total assets under management and administration grew 15 percent from a year ago to $810 billion driven by Ameriprise advisor client net inflows and market appreciation.
• Ameriprise advisor client assets grew 16 percent to a record $435 billion and total wrap assets increased 23 percent to $168 billion. Wrap net inflows in the quarter remained strong at $3.0 billion.
• Advisor productivity continues to improve. On a trailing 12-month basis, operating net revenue per advisor, excluding results from former banking operations, grew 14 percent to $468,000.
• Recruiting remains solid with 54 experienced advisors joining Ameriprise during the quarter reflecting the slowdown in overall recruiting activity for the industry.
• Asset Management segment AUM increased 13 percent to $518 billion, driven by market appreciation and net inflows of $4.4 billion in the quarter.
• The company has 113 four- and five-star rated funds, with 51 funds managed by Columbia Management and 62 managed by Threadneedle.
• Threadneedle launched the Threadneedle Global Corporate Bond Fund, which utilizes the global fixed income platform of both Threadneedle and Columbia.
• Combined, Advice & Wealth Management and Asset Management generated more than 60 percent of company pretax operating earnings(1).
• Variable annuity policyholder account balances grew 10 percent to $78 billion and included $1.2 billion in new sales – 27 percent of sales in the quarter did not include living benefits.
• Excess capital was approximately $2 billion after repurchasing 3.2 million shares of common stock in the quarter for $352 million and paying $112 million in quarterly dividends. The company also currently holds $500 million of capital for contingencies that is above required levels, primarily for variable annuity products.
• During the quarter, the company released its Women and Financial PowerTM study that found that women are feeling confident about their finances with 41 percent of women surveyed stating they are making financial decisions on their own.
• During the quarter, Ameriprise Financial was recognized as a “Social Media All-Star” by DALBAR.

(1) Excludes Corporate & Other segment

Segment Summaries

Advice & Wealth Management pretax operating earnings increased 29 percent to $194 million, reflecting robust revenue growth and expense controls. Second quarter 2014 pretax operating margin reached a record high of 16.2 percent compared to 13.9 percent a year ago.

Operating net revenues grew 11 percent to $1.2 billion driven by asset growth in fee-based accounts from client inflows and market appreciation.

Operating expenses increased 8 percent to $1 billion as business growth resulted in higher distribution expenses. General and administrative expenses increased 2 percent, demonstrating ongoing expense discipline.

Total retail client assets grew 16 percent to $435 billion driven by client net inflows, client acquisition and market appreciation. Wrap net inflows continued to be strong at $3.0 billion, and brokerage cash balances were $18.5 billion. The combination of asset growth and strong client activity drove a 14 percent increase in operating net revenue per advisor, excluding former banking operations, on a trailing 12-month basis.

Asset Management pretax operating earnings increased 3 percent to $199 million. Excluding the gain from the sale of Cofunds in the prior-year period, operating earnings increased 21 percent driven by market appreciation and continued expense management, partially offset by the impact of net outflows in prior periods. Earnings in both the current and prior-year quarters benefitted from CDO liquidations, which occur periodically.

Asset Management margin remains strong. In the second quarter, adjusted net pretax operating margin was 38.7 percent compared to 35.1 percent a year ago.

Operating net revenues grew 3 percent to $844 million. Excluding the impact of the sale of Cofunds in the year ago quarter, revenue increased 7 percent primarily driven by asset growth from market appreciation, partially offset by the impact of net outflows in prior quarters.

Operating expenses increased 3 percent to $645 million, reflecting higher distribution expenses from market growth. Overall, expenses remained well controlled, with general and administrative expenses remaining relatively flat.

AUM grew 13 percent to $518 billion, reflecting market appreciation, partially offset by net outflows in prior periods.

For the quarter, net inflows were $4.4 billion, compared to net outflows of $2.1 billion a year ago. Retail net inflows were $0.6 billion in the quarter reflecting strong underlying net inflows at Threadneedle and normal seasonal increases in reinvested dividends at Columbia. This was partially offset by net outflows related to a portfolio manager change at Threadneedle earlier in the year and retail net outflows at Columbia. Institutional net inflows of $3.5 billion in the quarter reflected good traction in third-party mandates and the funding of a previously announced $5.6 billion mandate from a new client, partially offset by anticipated outflows from legacy insurance and former-parent influenced mandates.

Annuities pretax operating earnings increased 55 percent to $170 million compared to $110 million a year ago, reflecting new business growth, market appreciation and beneficial client behavior.

Variable annuity operating earnings increased 79 percent to $140 million. Market appreciation and beneficial client behavior more than offset higher distribution expenses from market appreciation. Policyholders continued to move assets into the Portfolio Stabilizer funds, with $1.5 billion shifting in the quarter, which resulted in a $10 million benefit to earnings. Variable annuity account balances grew 10 percent to $78 billion driven by market appreciation. Asset growth was partially offset by net outflows primarily from a closed block of variable annuities sold through third-party channels. Variable annuity cash sales remained solid at $1.2 billion.

Fixed annuity operating earnings declined 6 percent to $30 million as improved investment spreads offset the impact of a 7 percent decline in account balances. In addition, the company largely completed the re-pricing of a block of fixed annuities that are out of the guarantee period. Both spread expansion and lapse experience are consistent with our expectations.

Protection pretax operating earnings remained flat at $91 million as good performance in life insurance was offset by elevated catastrophe losses in Auto and Home. Net revenues grew 5 percent, primarily from growth in Auto and Home.

Life and Health earnings reflected continued good claims experience and growth in account values. VUL/UL account balances grew 10 percent, primarily driven by market appreciation. VUL/UL cash sales of $78 million remained strong.

Auto and Home earnings included $33 million of catastrophe losses associated with severe weather during the quarter that were $12 million higher than expectations. Excluding catastrophe losses, overall loss experience remains consistent with our expectations. Auto and Home policy growth remained strong, with policies in force up 12 percent.

Corporate & Other pretax operating loss was $75 million for the quarter compared to a $57 million loss a year ago. Results in the quarter included higher expenses primarily related to the early redemption of corporate debt and provisions for regulatory reserves and long-term performance compensation awards.

At Ameriprise Financial, we have been helping people feel confident about their financial future for 120 years. With a nationwide network of 10,000 financial advisors and extensive asset management, advisory and insurance capabilities, we have the strength and expertise to serve the full range of individual and institutional investors’ financial needs. For more information, visit ameriprise.com.

Ameriprise Financial Services, Inc. offers financial planning services, investments, insurance and annuity products. Columbia Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA and managed by Columbia Management Investment Advisers, LLC. Threadneedle International Limited is an SEC- and FCA-registered investment adviser affiliate of Columbia Management Investment Advisers, LLC based in the U.K. Auto and home insurance is underwritten by IDS Property Casualty Insurance Company, or in certain states, Ameriprise Insurance Company, both in De Pere, WI. RiverSource insurance and annuity products are issued by RiverSource Life Insurance Company, and in New York only by RiverSource Life Insurance Co. of New York, Albany, New York. Only RiverSource Life Insurance Co. of New York is authorized to sell insurance and annuity products in the state of New York. These companies are all part of Ameriprise Financial, Inc. CA License #0684538. RiverSource Distributors, Inc. (Distributor), Member FINRA.

Forward-Looking Statements

This news release contains forward-looking statements that reflect management’s plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. Examples of such forward-looking statements include:

• the statement in this news release that the company expects its full-year 2014 operating effective tax rate to be in the 28 to 30 percent range;
• statements of the company’s plans, intentions, positioning, expectations, objectives or goals, including those relating to asset flows, mass affluent and affluent client acquisition strategy, client retention and growth of our client base, financial advisor productivity, retention, recruiting and enrollments, the introduction, cessation, terms or pricing of new or existing products and services, acquisition integration, general and administrative costs, consolidated tax rate, return of capital to shareholders, and excess capital position and financial flexibility to capture additional growth opportunities;
• other statements about future economic performance, the performance of equity markets and interest rate variations and the economic performance of the United States and of global markets; and
• statements of assumptions underlying such statements.

The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements.

Such factors include, but are not limited to:

• conditions in the interest rate, credit default, equity market and foreign exchange environments, including changes in valuations, liquidity and volatility;
• changes in and the adoption of relevant accounting standards and securities rating agency standards and processes, as well as changes in the litigation and regulatory environment, including ongoing legal proceedings and regulatory actions, the frequency and extent of legal claims threatened or initiated by clients, other persons and regulators, and developments in regulation and legislation, including the rules and regulations implemented or to be implemented in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act;
• investment management performance and distribution partner and consumer acceptance of the company’s products;
• effects of competition in the financial services industry, including pricing pressure, the introduction of new products and services and changes in product distribution mix and distribution channels;
• changes to the company’s reputation that may arise from employee or advisor misconduct, legal or regulatory actions, perceptions of the financial services industry generally, improper management of conflicts of interest or otherwise;
• the company’s capital structure, including indebtedness, limitations on subsidiaries to pay dividends, and the extent, manner, terms and timing of any share or debt repurchases management may effect as well as the opinions of rating agencies and other analysts and the reactions of market participants or the company’s regulators, advisors, distribution partners or customers in response to any change or prospect of change in any such opinion;
• changes to the availability and cost of liquidity and the Company’s credit capacity that may arise due to shifts in market conditions, the Company’s credit ratings and the overall availability of credit;
• risks of default, capacity constraint or repricing by issuers or guarantors of investments the company owns or by counterparties to hedge, derivative, insurance or reinsurance arrangements or by manufacturers of products the company distributes, experience deviations from the company’s assumptions regarding such risks, the evaluations or the prospect of changes in evaluations of any such third parties published by rating agencies or other analysts, and the reactions of other market participants or the company’s regulators, advisors, distribution partners or customers in response to any such evaluation or prospect of changes in evaluation;
• experience deviations from the company’s assumptions regarding morbidity, mortality and persistency in certain annuity and insurance products, or from assumptions regarding market returns assumed in valuing or unlocking DAC and DSIC or market volatility underlying our valuation and hedging of guaranteed living benefit annuity riders, or from assumptions regarding anticipated claims and losses relating to our automobile and home insurance products;
• changes in capital requirements that may be indicated, required or advised by regulators or rating agencies;
• the impacts of the company’s efforts to improve distribution economics and to grow third-party distribution of its products;
• the ability to pursue and complete strategic transactions and initiatives, including acquisitions, divestitures, restructurings, joint ventures and the development of new products and services;
• the ability to realize the financial, operating and business fundamental benefits of strategic transactions and initiatives the company has completed, is pursuing or may pursue in the future, which may be impacted by the ability to obtain regulatory approvals, the ability to effectively manage related expenses and by market, business partner and consumer reactions to such strategic transactions and initiatives;
• the ability and timing to realize savings and other benefits from re-engineering and tax planning;
• interruptions or other failures in our communications, technology and other operating systems, including errors or failures caused by third party service providers, interference or failures caused by third party attacks on our systems, or the failure to safeguard the privacy or confidentiality of sensitive information and data on such systems; and
• general economic and political factors, including consumer confidence in the economy and the financial industry, the ability and inclination of consumers generally to invest as well as their ability and inclination to invest in financial instruments and products other than cash and cash equivalents, the costs of products and services the company consumes in the conduct of its business, and applicable legislation and regulation and changes therein, including tax laws, tax treaties, fiscal and central government treasury policy, and policies regarding the financial services industry and publicly held firms, and regulatory rulings and pronouncements.

Management cautions the reader that the foregoing list of factors is not exhaustive. There may also be other risks that management is unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Management undertakes no obligation to update publicly or revise any forward-looking statements. The foregoing list of factors should be read in conjunction with the “Risk Factors” discussion under Part 1, Item 1A of and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2013 available at ir.ameriprise.com.

The financial results discussed in this news release represent past performance only, which may not be used to predict or project future results. The financial results and values presented in this news release and the below-referenced Statistical Supplement are based upon asset valuations that represent estimates as of the date of this news release and may be revised in the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. For information about Ameriprise Financial entities, please refer to the Second Quarter 2014 Statistical Supplement available at ir.ameriprise.com and the tables that follow in this news release.