Ameriprise Financial, Inc.

Welcome to the Q1 2023 earnings call. My name is Beau, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you do have a question, please press star 1 on your touchtone phone. And as a reminder, the conference is being recorded. I will now turn the call over to Alicia Charity. Alicia, you may begin.

Thank you, and good morning. Welcome to Ameriprise Financial's first quarter earnings call. On the call with me today are Jim Cracciolo, Chairman and CEO, and Walter Berman, our Chief Financial Officer. Following their remarks, we'd be happy to take your questions. Turning to our earnings presentation materials that are available on our website, on slide two you will see a discussion of four looking statements. Specifically, during the call, You will have references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website. Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties. A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in our first quarter 2023 earnings release, our 2022 annual report to shareholders, and our 2022 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On slide three, You see our GAAP financial results at the top of the page for the first quarter. Below that, you see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. And with that, I'll turn it over to Jim.

Good morning everyone and thanks for joining today's call. As you saw in our release, Ameriprise had an excellent first quarter building on a strong year in 2022. As you know, equity markets were choppy, up for the quarter but still down 9% from a year ago, and interest rates were up strongly year over year. However, questions around whether we'll see a hard or soft landing continues to play in the background, and the failure of certain regional banks and another large financial institution caused investor concern. To confirm, Ameriprise has no exposure to the recently affected banks. With regard to our bank, our deposit base is extremely stable, our investment portfolio is high quality with a short duration, and it's all held as available for sale. In addition, all of our client cash suite deposits and wealth management and the bank are FDIC or SIPC insured. As we reflect on the quarter, I'd like to reinforce some important points. Ameriprise remains strong and stable. We navigate environmental uncertainty extremely well for our clients in the business, and we demonstrated that again. Ameriprise is a diversified business with wealth management representing two-thirds of the firm's earnings, complemented by our retirement protection solutions and asset management businesses. This diversity enables us to generate strong results and multiple revenue streams across market cycles and offsets pressures. We can also quickly capitalize on opportunities and deal with risk. Last and importantly, our financial foundation, risk management, and expense discipline are all excellent. We're able to consistently invest in business growth across market cycles and return to shareholders at attractive levels. With that as background, I'll discuss the strong adjusted operating results we achieved in the first quarter. Revenues grew 3% to $3.7 billion, driven by double-digit growth in advice and wealth management. Earnings were up nicely, with pre-tax adjusted operating earnings up 20% and EPS up 25%, which is significant. And the return on equity, excluding AOCI, was 50%. Our return on equity continues to be among the best across financial services. Our assets under management and administration ended the quarter at $1.2 trillion. It's down from a year ago due to lower markets and a negative impact from foreign exchange translation, which was partially offset by our strong client flows. Let's turn to business highlights. In advice and wealth management, we delivered another excellent quarter. We're bringing in strong flows as we focus on providing more advice to more clients and deepening our relationships. Client inflows continue to be robust, more than $12 billion in the quarter, up 18%, and very close to an all-time high. And this builds on our record year in 2022. Both RAC flows and transactional activities were impacted due to market volatility. We expect to see a pickup in RAC and other solutions as markets and the environment settle over time. The Ameriprise client experience helps drive leading client engagement. Our advisors are supporting clients with our excellent market volatility resources and advice-based client experience. Even during this period of heightened uncertainty, client satisfaction remains very high at 4.9 out of 5 stars. Our advisor value proposition is another differentiator. Ameriprise advisory attention is among the best. and productivity continues to grow nicely, increasing 5% to $847,000. Advisors continue to tell us that they love our technology, tools, and support. For example, we're rolling out a great new capability called eMeeting that reduces advisor meeting prep time down to just a matter of minutes and generates a highly personalized professional presentation focused on client goal achievement. In addition to our legacy advisors, Our experienced advisor recruits appreciate our client and advisor value propositions, as well as the firm's financial strength. Another 83 experienced advisors joined us in the first quarter. The quality of the people we're bringing in continues to build in terms of practice size and productivity, and we're seeing a nice recruiting pipeline ahead. As you know, we began building the Ameriprise Financial Institutions Group channel a few years ago. Since then, we partnered with a number of quality financial institutions who want to work with a firm like Ameriprise that can provide excellent client and advisor service. In the quarter, we announced a new bank partner, Comerica Bank. This partnership will bring approximately 100 financial advisors and $18 billion in assets by the end of the year. Regarding our bank, it's growing nicely. We're adding additional deposits that have grown it to $20 billion in just a few years. It's an attractive complement to gain spread revenue in this rate environment. And we've had strong growth in our certificate business with assets now close to $12 billion, as well as good growth in our pledge loan business. At the end of the quarter, we launched a new savings product, and we'll follow that with our home broker CD in May, as well as preferred savings vehicle later in the year. As we grow in the marketplace, we continue to build on our strong brand awareness. In the quarter, we launched the next phase of our advertising to further promote our referable advice value proposition and the excellent client satisfaction we consistently earn. And the Ameriprise team and I are also immensely proud to be recognized for how we operate and do business. Some of our recent awards include being ranked as one of the most trusted wealth managers by Investors Business Daily. Ameriprise is also ranked number two in trust on Forrester's U.S. Customer Trust Index. In addition, we were named one of America's best customer service companies for 2023 by Newsweek. And for the fourth consecutive year, J.D. Powers recognized Ameriprise for providing an outstanding customer service experience for our phone support for advisors. Overall, for our wealth management business, earnings were up strongly again. 58% year over year, and our margin was 30.6%, a new record for Ameriprise. Turning to retirement and protection, we continue to perform nicely while adding value and stability in this environment. This business consistently generates good returns and strong free cash flow. We maintain solid books, and our investment portfolios are high quality. With the improved interest rate environment, we're able to reposition our portfolio, And as investments mature, we're able to reinvest and generate better returns. In terms of priorities, as you know, we are very much focused on asset accumulation products that align with our client needs and our risk profile, which results in a very solid liability base. Our structured annuity product is our bestseller, combined with our Rava annuities without living benefits. And in our life business, we've shifted to concentrate on VUL and disability products that are appropriate for clients in this environment and generate strong returns. Sales are down, but we are similar to the industry. Even with slowest sales, we continue to generate good earnings up to 11% from a year ago. In fact, last year, Alive Company was ranked as the second highest returning company in the industry. Now let's turn to our asset management business. We've been impacted by market volatility and industry-wide sales pressure. However, the business continues to perform well and generated good returns and margin. Assets under management were $608 billion at the end of the first quarter, down 13% from a year ago, largely driven by lower markets and the impact of negative foreign exchange translation. Regarding flows, total outflows were $1.7 billion, excluding legacy insurance partner flows. In U.S. retail, like others in active management, we remain in net outflows as gross sales were pressured from market volatility. That said, redemptions are better sequentially. In EMEA, our flows improved a bit from a year ago. In institutional, we had another good quarter. We had inflows of $2.8 billion, excluding legacy insurance partner flows, driven by wins in fixed income, real estate, and LDI. Expanding our alternatives capability is a long-term priority, including global real estate where we are building out the business and earned a large mandate in the quarter. With regard to investment performance, we continue to have stronger long-term performance across equities, fixed income, and asset allocation strategies. While our one-year numbers were impacted by market volatility, primarily in certain fixed income strategies, We're starting to see those numbers come back this year as interest rates stabilize and given our strength in credit. And we maintain 118 four and five Morningstar rated funds globally. Across regions, we're earning important recognition, including recent LIPA awards and other accolades. In addition to focusing on investment performance, we continue to work through our EMEA integration. We plan to complete much of it by the latter part of the year, and look forward to deriving additional synergies. In asset management, we also continue to manage G&A tightly. So overall, I feel very good about the firm, how we're engaging clients, and the results we're driving. We have not had to divert from our charted costs, and we're generating strong growth and returns in a rocky climate. We continue to have strong free cash flow, as well as the ability to return to shareholders. In the quarter, we returned another $641 million in buyback and dividends, and we just announced another dividend increase up 8%, our 19th increase since going public in 2005. To close, Ameriprise delivered an excellent quarter, and we're well positioned to continue to navigate the environment, manage expenses well, while investing for growth. Now, Walter will provide further detail on our financials. and we'll answer your questions after his remarks. Walter?

Thank you. As Jim said, results this quarter continue to demonstrate the strength of the American Prize value proposition as adjusted EPS increased 25% to $7.25. Wealth management, business momentum, higher interest rates, and expense discipline more than offset the equity and fixed income market dislocation over the past year. This reinforced the value of our diversified business model. Wealth management earnings grew 58% and represented 66% of the firm's adjusted operating earnings, a new record. This is up from 49% a year ago. Asset management was challenged with industry flow pressures as well as substantial market impacts to AUM. and retirement and protection solutions delivered a good 11% growth, primarily from opportunistically repositioning the investment portfolio, as well as from the lower sales levels given the environment. Across the firm, we continue to manage expenses tightly relative to the revenue opportunity within each segment. As a result, we continue to make investments in the bank and other growth initiatives, particularly in wealth management, but prudently managing overall firm-wide expenses. In the quarter, G&A was down 1%. Our balance sheet fundamentals remained strong, and we saw limited impacts from the significant market disruption in the quarter. Our portfolios positioned well, and no assets are accounted for as held to maturity. We had strong capital and liquidity positions, as well as effective hedging. This allowed us to return $641 million of capital to shareholders, a strong return at 80% of our operating earnings. Let's turn to slide six. Assets under management administration ended the quarter at $1.2 trillion, down 8%. While AUMA benefited from strong client flows, we experienced significant market impacts. Equity and fixed markets were down 9% and 5%, respectively, year over year. In addition, asset management AUM levels were substantially impacted by weakening of the pound and the euro, resulting in non-U.S. AUM down to approximately 36% of the total. The portfolio effect of our business mix garnered robust earnings growth with pre-tax earnings up 20% from last year. meaningful benefits from strong client flows and interest rates more than offsetting significant negative equity and fixed income markets and foreign exchange impacts. Free cash flow generation remains strong. Let's turn to individual segment performance beginning with our strongest growth business of wealth management on slide 7. Wealth management client assets declined 3% to $799 billion. Strong organic growth in client flows was more than offset by significant market depreciation over the past year. The total client net flows remain strong at $12.3 billion, up 18% from last year, evenly split between wrap accounts and non-advisory accounts. A flexible model and broad offering allow advisors and clients to pivot as markets and client preferences shift. while keeping money within the system. Revenue provides have reached $847,000 and a quarter, a 5% from the prior year, from higher spread revenue, enhanced productivity, and business growth. Turning to slide eight, I'd like to provide some additional insights into the sustainability of our client cash. The safety of these deposits and our investment approach in managing cash that is, at our bank and certificate companies. Our cash balances are relatively stable in total at $44.3 billion in the quarter and about 5.5% of total client assets. While there is some seasonality with cash levels, particularly with tax payments in March and April, cash has always been a component within the client's asset allocation and generally remains above 4% of client assets. Sweet Cash specifically has an average size of $7,000 per account and over 60% of the cash is in accounts with less than $100,000. As I mentioned, we have a broad set of product offerings to meet our client needs across environments. From a cash perspective, we have our Sweet Cash and certificate offerings with many options for clients seeking yield and looking to ladder their liquidity. In the quarter, We launched a new savings account option within the bank and we'll be adding a preferred savings account and broker CD later this year. Lastly, we have no assets that are accounted for as held to maturity and our portfolios are constructed under the rigor of our asset liability modeling approach. Our bank portfolio is AAA rated with a 3.1 year duration. The overall yield on the portfolio is 4.3% and the yield on investments made in the first quarter was over 6%. A certificate company portfolio is highly liquid with over 55% of the portfolio in cash, governments, and agencies. It is AA plus rated and on average with a 0.8 year duration. The yields on this portfolio is 5.3% and purchases in the quarter were at a yield of 5.2%. On slide nine, we delivered extremely strong results in the wealth management on all fronts. Profitability increased 58% in the quarter, with strong organic growth and the benefit of higher interest rates offsetting the impacts from market depreciation. Pre-tax operating margin reached nearly 31%, up over 910 basis points year over year. and up 70 basis points sequentially. Adjusted operating expenses declined 2%, with distribution expenses down 5%, reflecting lower transactional activity and asset balances. G&A is up 7% in the quarter as we continue to invest for growth, including the bank. Let's turn to asset management on slide 10. We are managing the business well through a challenging market. Total assets under management declined 13% to $608 billion, primarily from equity and fixed income market depreciation and negative foreign exchange impact. Asset management, like the industry, was in outflows in the quarter. Continued strength in our global institutional business offset a meaningful portion of retail outflows. Like others, we experienced pressure from global market volatility a risk-off investor sentiment, and continued geopolitical strain in EMEA. As a reminder, flows in the prior year included $2.6 billion related to the U.S. asset transfer associated with the BMO acquisition. On slide 11, you can see asset management financial results reflected the market environment. As anticipated, earnings declined to $165 million reflecting market depreciation foreign currency weakening and outflows, as well as lower performance fees than a year ago. Importantly, we continue to manage the areas we can control. Expenses remain well managed. Total expenses were down 13%, aided by 11% decline in G&A, which benefited from lower performance fee compensation. We continue to make market-driven trade-offs in discretionary spending and remain committed to managing expenses very tightly in the current revenue environment. Margins in the quarter improved sequentially to 31%, returning to our targeted range of 31% to 35%. Let's turn to slide 12. Retirement and protection solutions continue to deliver good earnings and free cash flow generation, reflecting the high quality of the business. As you are aware, the long-duration target improvements accounting change went into effect in the first quarter. Our current period and historic results are now being reported under this framework. While this accounting change impacts GAAP equity and earnings, it does not impact our dividend capacity, excess capital, or cash flow generation, which are based upon statutory accounting framework. In the quarter, pre-tax adjusted operating earnings was $194 million, up 11% from the prior year, primarily as a result of higher investment yields from the portfolio repositioning we executed over the past six months. We estimate that LDTI would reduce RPS earnings by approximately $50 million for full year 2023 versus the $63 million impact in 2022. As relates to the year, we remain comfortable with the $800 million run rate taking into consideration the impact of LDTI and the benefit from portfolio repositioning and higher rates. Sales in the quarter, similar to the industry, declined as a result of the volatile market environment, as well as management action to discontinue sales of variable annuities with living benefits to further reduce the risk profile of the business. Protection sales remain concentrated in higher margin asset accumulation, VUL, which now represents over one-third of the total insurance in force. Annuity sales in the quarter were in lower risk products without guarantees and structured variable annuities. These products represent over 40% of our total VA account value. Now let's move to the balance sheet on slide 13. Our balance sheet fundamentals remain strong and our diversified, high-quality investment portfolio remains well-positioned. In total, the average credit rating of the portfolio is AA, with only 1.3% of the portfolio in below-investment-grade securities. Despite significant market dislocation in the quarter, VA hedging effectiveness remains very strong at 95%. Our diversified business model benefits from significant and stable free cash flow contributions from all business segments. This supports the consistent and differentiated level of capital return to shareholders, even during periods of market depreciation. In light of the LVTI accounting change, we incorporated a new non-GAAP disclosure in our earnings release of available capital for capital adequacy. This represents how we manage capital and is unchanged as a result of LDTI. During the quarter, we turned $641 million to shareholders and still ended the quarter with $1.3 billion of excess capital and $1.6 billion of holding company liquidity.

With that, we'll take your question. Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound key. And if you are using a speakerphone, you may need to pick up the handset before pressing the numbers. Again, if you have a question, star one, please. We'll take our first question this morning from Brendan Hawken of UBS. Please go ahead.

Good morning. Thanks for taking my questions. I'd love to start on cash and the outlook for rate earnings in AWM. So you've seen growth in certificates. You mentioned a high yield offering in the bank that you just launched and then further brokered CDs. And certainly this will satisfy demand for yield that we see for cash equivalents. But do you think that the current level of NII can be maintained going forward? Is the increasing deposit costs enough to offset the shift to the bank or Are you able, is the shift to the bank able to keep things steady here at the current levels? Thanks.

Okay, so yes, the answer is yes. What we're seeing is that certainly we, looking at the way the sweep accounts have performed, that we have the opportunity to shift more into the bank and we'll be evaluating that because basically the way that it's performed right now, and that that will give us additional yield as it relates to that. And also, we also see on the search that we will, based on timing, we will also see that the spread will increase in that. So we guess the answer is absolutely yes, both from shifting additional funds into the bank, which has a higher profitability, and also the search as we look at the spread increasing from a timing standpoint as we adjust. So yes, the answer is yes.

Okay, thank you for that. And then, you know, at this point through April, you've moved $3 billion, which I believe you previously indicated as your plan for the year. Do you plan to move further balances into the bank? And then beyond the balance transfers, do you expect that these new savings offerings could allow you to actually see organic, you know, non-transfer oriented growth coming out of the bank as well? Okay, so...

On the first one, yes. So as we look at the sorting and certainly, you know, in the in the first quarter, you always have the tax, but we have clearly it is performing the way we thought and is slowing and that gives us the opportunity. We're evaluating that, but we do have additional opportunity with the buffers and everything we have in our sweep accounts to move more in. And that's what we're evaluating. So you that is a distinct possibility.

Take your second question. So we just, in March, launched a savings product. We'll be launching a broker CD in May and then a high yield savings account a bit later in the year. And we see the opportunity to garner more cash from clients bringing it in from their banking institutions now that we'll have some of these products. But in addition to what we're holding ourselves and whether it's a sweep or even our certificate, We have much more cash that our clients are holding externally in broken CDs they put money in that came into the firm or in money markets. And so we think we can garner some of that cash back in. So in total, there's about $66 billion of cash. We have about $44 billion. We actually think by offering the broken CDs and things like that, that have gone out to banking institutions that our clients have put money in that would feel much more comfortable having them at Ameriprise. So we think there's an opportunity there for us as we continue to build out the bank. And we're also holding a lot more cash as a general so that our sweep activities is only about 4%, which has really always been around that level for transactional 4% to 5%. So we feel very good that there is opportunity for us.

Okay. Thanks for taking my question. Thank you. We'll go next now to Eric Bass at Autonomous Research.

Hi. Thank you. Just maybe a broader question for advice and wealth and just how you're thinking about the margin from here. And do you still see potential upside to margins or is your goal more to maintain them at the current kind of 30% level?

Well, I think the way we look at it is, listen, we're probably at one of the highest margins out there in the industry, including the big wires that have had banking activities for a long period of time. But money is, as I said, still sitting on the sidelines in cash. We're holding upwards of $66 billion. Some of that money, not necessarily from transactional activity that they'll hold for expenses and other things, Some of that money will go back into wrap. I mean, what's a positive is we brought in 12 billion of client flows. We've been bringing in record numbers for us over the last so many quarters and that hasn't been deployed yet. So as they put money back into transactions and contracts and wrap a business that will also earn us fees. So I can't tell you exactly what that margin is, but I would say it's an excellent margin. and our business has some good opportunity to continue. And so from my perspective, I think it was a very positive quarter building on a very positive year last year.

Got it. Makes sense. And then maybe building on your comments about organic growth, I mean, it has accelerated. They've been running at over 6% annualized the past couple of quarters in wealth management. Can you talk a little bit about what's driven that acceleration in inflows and given the pipeline that you have and clients and advisors coming in. Do you see that as a sustainable run rate?

Well, we think so because we are, our advisors are engaged. We've helped them with a lot of tools and capabilities and support. Even in this climate, you know, we give them a lot of information and appropriate communications for their clients on market volatility. We help them really help their clients stick to their goals and what they need to achieve over time, balancing out the volatility. We are engaging and bringing in a lot of good new client flows and deepening. And we're also adding highly productive advisors. We added another 83 in the quarter. We have very good books of business. We have a good pipeline. So, yes, we see it continuing. We're adding new capabilities like our e-meeting things that's going to help our advisors actually conduct even more meetings very efficiently. So we feel good about how we're situated in this climate.

Thank you. Thank you. We go next now to Craig Siegenthaler at Bank of America. Thanks. Good morning, everyone.

So on the back of the Comerica win, can you update us on your pipeline for additional financial institution group wins? And how should we think about the frequency of these wins going forward and also the size range?

Yes, so we've added a number of financial institutions over the last year. Now, Comerica was a bit larger, so it was a little bit longer to orchestrate and more comprehensive based on the nature that they had their own broker deal, etc., But we've been winning business for other banks out there and at financial institutions. I think now we're opening it so that we can work with a bit larger institutions like CoAmerica. And I think we are in a good situation. We bring a lot of good capability. They like our service. They like the ability of what we can do to support their advisors. They like the goal-based solution we provide for their clients. So this is something we think we can build upon as we move forward. So again, I can't sit here to tell you exactly when deals get orchestrated, but we have a good pipeline and we think we'll be adding more business there as we move forward.

Great. And I just had a follow-up on recruiting. So advisor count was down very modestly on the franchise side and up a hair on the employee side, but down on a total basis from last quarter. So I'm just wondering if you could provide us any perspective on this downward trend, including, you know, reminding us of any first quarter seasonality. And then I wanted to hear how the bank failures in March impacted both your ability to recruit new advisors, but also retain existing advisors in March and now April because persistently look pretty robust.

Yeah. So no, our numbers in franchisee is very strong and stable. Retention is very strong. As with anything, I mean, we have 7,000, so 8,000 advisors there. So you have some turnover in some of their assistant advisors. You also have some retirements that occur in the first quarter. But there's nothing different than what we've seen, and the retention rate is quite strong, and the assets are here. So we're not concerned about that as we go through succession planning, et cetera. As far as the pipeline, we feel it's very good. One of the things that people have told us is they value very much what we do and what we provide, but they also value the strength and the integrity of the firm and how we're positioned. I've mentioned a few accolades about how clients trust us, but when you have a very stable institution like Ameriprise that is able to really navigate these market circumstances and really stand by their clients,

That's what advisors are looking for as well. Thank you. Thank you. We go next now to Ryan Krueger of KBW.

Thanks. Good morning. My first question was on the Comerica partnership. Can you give us what type of assets are the $18 billion that are coming over into your platform?

So it's a mix of assets. As an example, advisors hold various assets that are invested in the market. There is a combination of WRAP type of assets. There's funds, other things like that. There's an insurance contract. But what we've been able to do is show what we can do to help those advisors and that client deepening and expand that base. and add more clients to their base for the bank. So we feel very good that the $18 billion will transfer with that. There's an opportunity for us to help them grow that, and that's what they're looking to do.

Got it. Thanks. And then on your initiative to introduce new savings products within the bank, do you see the earnings characteristics of that as similar to the certificate? balances or do you have a preference from a profitability standpoint within the bank versus certificate we believe actually it will be higher based on the investment strategy and the other elements within it so we would actually pick up the yield on that thanks and then just one last quick one the 66 billion of total client cash you mentioned does that include cds from outside of AmeriPrize as well as money market funds, or is that predominantly CDs?

Yeah, so it would include our clients, our advisors putting their clients in broken CDs we have on the platform from financial institutions.

Okay, great. Thank you. We'll go next now to Alex Blobstein of Goldman Sachs.

Hey guys, this is Michael on for Alex. I was wondering if we could maybe get an update on cash balances so far in 2Q and maybe how that's trended on a monthly basis. All else equal, I'm trying to figure out what the seasonal impact might be on taxes. It sounds like you guys might have seen that in March and April already, but it looks like historically that might be a 2% to 3% sequential impact. So any update on cash balances that you can give us so far in the quarter?

I think the best we can give you from that standpoint, looking at the sweep, it is totally, it is the, the basically sorting is totally slowed from that standpoint. And so, and as I indicated, We have now, for $100,000 and under, it's moved, if you look at the end of the fourth quarter, it was something like 52% of the percentage of it. Now it's almost 60% of it. So basically, it's very stable at that standpoint. We feel very comfortable from that standpoint that it's performing the way we thought it would. And so on that basis, the sorting is there, and we are growing on surge. uh from that uh and certainly as i mentioned before we are strongly considering transferring more in fact into the bank once we finish our analytics on it great that's helpful oh go ahead i'm sorry no no no as i just mentioned it's a seasonal element when you go from the fourth quarter to the first quarter because of the taxes i can't i don't can't give you the exact two percent whatever but it's certainly uh There's outflows that relate to that.

Thanks. And then maybe for the follow-up, can you help us maybe think through the NIM impact at the bank from the upcoming maturity roll-on, roll-off yield, maybe the mix of assets between fixed and variable at the bank and what the duration profile of those might look like?

Yeah, so that's an interesting point because, as we mentioned, we have somewhere in the area $2.5 billion rolling off, and certainly that is going to, to the previous question, increase our basically spread as it relates to it. And right now, as we assess it and certainly looking at the supply, we continue with that same strategy and mix that we currently have, which is the 3.1-year duration. So we feel very comfortable with that. But that redeployment of the maturing will certainly increase the yields.

Thank you. Thank you. We go next now to Jeff Schmidt at William Blair.

Hi. Thank you. I may have missed it, but I think you had mentioned the reinvestment rate in the bank was around 6.5% at the end of last year. What was it in the first quarter, and do you continue to invest mainly in MBS, or has that strategy shifted at all?

The reinvestment in the bank... Yes. So from that standpoint, I'm not sure I understand the question.

The reinvestment rate, I think you'd mentioned, was around over 6% at the end of last year.

Essentially the new money yield.

I'm not getting your question. I'm sorry.

Are you referring to the first quarter, not the end of last year?

Yeah. What was it in the first quarter? The reinvestment yield. Well done.

The reinvestment yield in the quarter was 6%, I believe, in the first quarter, as I indicated. We're tracking at 6%. Sorry, I didn't get to question it first.

Okay. And then, you know, when you look at client allocations of the certificates, just as interest rates go up, you know, it's around 25% of the mix now. I think when we look back in 2019, it reached a similar level. But just with interest rates higher and for longer in this cycle, do you have any sense on where that could go or what's your expectation there?

Yeah. So, listen, you are seeing it certainly increase. And from that standpoint, it basically gives the clients as you get into the three and six, primarily in the three and six month, it gives them that opportunity to basically meet their objective set. So we see it still increasing there. But as Jim mentioned, we are certainly be offering more. the brokerage products in the bank, which will certainly provide us additional yield. So I would think it will still grow. And from that standpoint, I think it's tracking what you see based on the alternatives that we provide to our clients.

Yeah, it's going to grow because we're bringing in more client assets, right, and not all of it's going to be deployed directly in the market. So there's going to be some that go into cash type of holdings. So some of it that the clients will use for transactional activity and holding for emergency expenses will be, you know, kept in the type sweep accounts and others that positional cash will be put into things earning some of the yield that they're looking for. And a lot of these CDs are not necessarily long-term CDs, right, broken CDs as well. So that's where the cash will grow, and some of it has been coming from the regional bank activity, I would imagine. So I feel like the certificate program can grow. That's why we're also going to offer our own brokerage CD to garner some of that cash that clients want to move into the firm.

And we've clearly seen a pattern from basically what we call the cash reserve, which is a short term. and more cash basically going into the three and six months. So people are taking advantage of that opportunity because of the competitiveness of the rates and from that standpoint.

Okay, thank you. Thank you. We'll go next now to Sunita Math at Jefferies.

Yeah, thanks. Just a couple more on cash. So you'd mentioned that $66 billion number, of which I think you have $44 billion. So as we think about The $22 billion balance, I guess, what would you think is a realistic expectation in terms of how much of that you could bring onto your platform and over what time period?

Well, Sunit, I think the way I would think about it is that that's roughly around 8% of the total assets now, which is a bit higher for our clients, right? Usually it's around the 5% mark or something like that. So there's more cash being held right now. So I think as we go through this cycle and people are looking for some alternatives coming from their banking institutions, et cetera, we think that we can garner some of that other cash coming in as well from banks, or even as some of these CDs and other things roll over that we're holding can go into our own banking institution. But I also think over time, that some of that cash will be deployed back into WRAP-type programs, et cetera, as the market volatility settles or as people feel more comfortable. So it's not as though money isn't being deployed into the market. It is, right? We had over $6 billion going back into WRAP in every quarter, but that could pick up as well in other transactions can pick up. So it's hard for me to say exactly, but the idea is we're helping to bring more client flows in, and then some of that goes into cash-type products, which we can garner our piece, and then others will, over time, be deployed back in the market. So we think it's an opportunity for us.

Yeah, understood. And then I guess if we think about just the cash sweep balance, I don't know if you've commented on this, but it was down, I guess, $6 billion quarter over quarter to around $10 billion. Can you give us some help in terms of how you see that $10 billion trending maybe over the next couple of quarters? And I guess of that $6 billion decline, I think some of it went into the bank, some of it went into certs. But can you give us some help in terms of where sort of the rest of it went? Because I'm having a little bit of trouble seeing exactly where that cash went.

So obviously, as Jim mentioned, the cash was up in total. And so, yes, you're exactly right. We pulled into the bank, and certainly a portion of that went into the search. So the issue is some of that went into a brokerage. But the point is we have it. It's within our basic overall. It's cycling through. So I would say we feel there, and I'm indicating again, it is clearly, as we see the pattern, that sorting is basically slowing, and it is basically within a range, and the base of the fact that we have 60% in the 100,000 below, and the average account balance has dropped from 8,000 to 7,000 is an important factor for us as we evaluate.

Yes, Suneet, so you had, I think, 46 going to 44. Part of that $3 billion from the 10 went into the bank. And then you had, I don't know, a few billion went into certs, but you also had some use of cash for tax payments and others. Okay, it's hard for us to put. We had more client flow coming in, and then some of it might have went into broken CDs or other things. So, you know, overall, I think we've held pretty well compared to what we've seen in the industry. And we had a positive of more client flow coming in as well. And as I said, I think we can't necessarily box a number ideally, but it's a fluid situation regarding why clients use their money as well. But it's pretty stable overall. So it's about 4% in total sweep. And the $10 billion is mainly from a shift for the bank and other things. So I wouldn't look at that in isolation.

Makes sense. And maybe just one last one on Comerica. As we think about that opportunity, should we, Walter, be expecting any incremental costs associated with that platform as we kind of move through the year?

I think, again, this has a short payback for us as you look at it from a P&L standpoint. So the answer is obviously there will be some costs, but certainly the revenue will do it, and we have a very quick payback on it. But it's a good economic relationship for us and for Comerica.

Yeah, I mean, you got onboarding expense and stuff and moving the clients and the advisors and stuff. But overall, we think it's a good arrangement and one that will work for both parties.

Okay, thank you. Thank you.

We go next now to Stephen Chewback at Wolf Research.

Hey, good morning. It's Michael Anagnostakis on for Stephen. I wanted to touch on, I know you guys gave the cash per account metric of $7,000 per the quarter, certainly a helpful metric to have. Where are we for that metric relative to the trough you had seen last cycle? Just trying to gauge the potential downside relative to cash as a percentage of AUM.

I really can't give, but I would say it's always been a stability factor for us, that portion and the working capital and the balance there. So I can't give you an exact. As I said, it just dropped from, you know, if you look at the previous quarter, it's dropped by 1,000. So it is, from that standpoint, we feel very good about it. It's been the stable element within it, and it did increase a lot, certainly, as we went through the cycle coming up. through and that was again in the heart of balances. So I just can't give you the numbers going back that far.

Got it. No worries. Okay. So I did want to touch on asset management too. Expenses very well controlled. You reached that 31% low end of the target range. I guess assuming stable markets, is the 31% sustainable run rate given the efficiency efforts you're continuing to deliver on or? you know, is there some downside to that? Just any color there would be helpful. Thanks.

I think there's downsides. It's a lot of variability in it as you look at rates and look at mix and look at it. But certainly the expenses are being extremely well managed from that standpoint. So that's the controllable factor in it as we look at it. And certainly as we look at hopefully that we start getting back on a better pattern. But we're certainly aligned with the industry where that is. And We're certainly moving into that 31 to 35 is basically you feel comfortable, but it's, again, a lot of variability.

Thanks so much. Thank you. We go next now to Tom Gallagher of Evercore.

Good morning, Walter. Just a follow-up on the customer cash balances. I think one of the earlier questions had asked you whether or not you would expect the earnings contribution from Evercore customer cash balances to be stable. Let me ask it in a different way. What do you expect the earnings contribution to be for the next couple of quarters? Do you expect it to be stable or up higher, you know, just some kind of range?

I can't give you an exact range, but let me be clear. The drivers of it are clearly, as we indicated, the maturity element as it relates to the bank and shifting in there. So as we get to maturity zone, those being resident, that's going to take the interest rate up. We certainly see the sorting really slowing down on it. The bank transfer will certainly take that up again as we get more comfortable. To certs, looking at the timing from the standpoint where the rate's increasing, we do see an opportunity that the net spread will increase there. So I would say certainly to look at stable to up as we look at the elements, but please, now you have rate movements in there, you have different elements, but it's that stability factor of what is embedded today. So if everything got frozen, yes, you should feel stable to up.

Got it. Stable to up. That's what I was looking for. Thanks. Now, in terms of the 6% new money yields, I've definitely been getting questions on that. Like, what are you buying exactly? Is it still RMBS? Is it floating rate?

We have a combination of floating rate, but it is really structured, and that's where we basically are, and it's the highest quality. So we are being very selective there, but the yields are there, and we just – We're patient, but like I said, the bank especially, it's AAA, and we feel very comfortable, especially in this environment, sticking there. But those are the levels we are finding. We're certainly having the benefit of having CTI manage that and help us work through that. So it is strictly, you should look at it, the majority is in the structure.

And the crediting rate on that, we'll call it $1.7 billion of net deposits into the bank, was that consistent with... the cash sweep, like 50 basis points? Or what would the incremental credit rate have been?

The bank is basically a part of AWM, and that is its cost of funds. And that's why we feel comfortable with that. And certainly if rates go up and down, we will evaluate the deposit belt debaters. But yeah, that is, you're exactly spot on.

So the incremental spread is over 500 basis points right now on the assets you're shifting in.

As the source, yes, because the source of those deposits is the spread. It's coming out of the sweep.

Thanks. And, Jen, just one final one on Comerica. I heard what you said to Sunit, but is that going to just be a revenue share or is there some upfront cash payment that will be made to them that's going to use up excess capital at the end of the year? How is that going to work?

No, I do not believe, again, that this is like any deal, like to ask you basically up front, and you then get the paybacks that work through it, and we feel very comfortable with the combination. So it will, as I said, make certainly from a P&L standpoint a contribution, and then we look at the cash break even. So we feel very good of it. As Jim said, we'll have some upfront expenses, but it's a good economic deal for both of us.

Okay, thanks. Thank you. We go next now to John Barnage of Piper Sandler.

Good morning. Thank you very much for the opportunity. My question is on the asset management segment. Can you talk about C rates on the flows leaving versus coming in? And then institutional tends to have a longer sales cycle. So any visibility into the pipeline there would be helpful. Thank you.

Yes. So, you know, if we have retail outflows, they're always of a bit higher margin than the a fee rate than the institutional side. The good thing on the institutional, some of the flows we got in were real estate, which is very good fee rates. And that looks like we have a decent pipeline as well going forward. But of course, in retail is your a bit higher fee rate. So that's where on the outflows, we're probably on net-net, a bit negative there. And so but hopefully the retail will turn around. We look like Europe is actually slowed. It was almost neutral in the quarter, which is good. And if that picks up, that has positive fee rates even more than the U.S. So that would be positive for us there. But the U.S. is still a bit weaker on the growth side. But the redemptions has come down. So hopefully we'll see a turnaround. And, you know, so I think that we see more stabilization occurring, and hopefully that'll pick up as we go through the year.

Great. Thank you. And then my follow-up question, you were talking about additional synergies in asset management with integration to be completed by end of 23. Those additional synergies, I know sometimes in Europe, A notice period may be longer. Are you talking about those synergies being announced or actually flowing through earnings by the end of the year? Thank you.

So we should garner about, you know, as it relates to it, not realize but certainly garner around 57% of it, you know, in that range, 50% in this year. So it's tracking, and you're right, it's certainly what's going on. But we feel comfortable we're on track.

Thank you. Did that answer your question?

I was talking about the additional synergies you talked about.

Yeah, I'm talking about BMO synergies right now, if you're talking about that.

Yeah, so we're tracking. We're getting some of them this year and then more of them as we close out the year into next year because we're going through a lot more of the technology integration now. And then from that, we can then continue to do the middle and back office. And to your point, it does take a bit longer in Europe and the UK as we go through different legal entities, et cetera. But we're on target to what we originally said.

Basically, as we talked about, we talked about in the 85 range, we will have 57 million, we think, will probably be the number that we will certainly not realize but certainly achieve by the end of this year.

Thank you very much. Thank you. We'll go next now to Andrew Kligerman of Credit Suisse.

Good morning. So a couple of quick follow-ups. Comerica, so with the $18 billion in assets that you bring in, how should we think, you know, once you get finished with the onboarding, how should we think about margins on that $18 billion relative to the $350 billion plus of your other non-RAP assets? Will it be materially better? Will it be in line? How should we think about that?

I would say from looking at it, a direct contribution margin there is certainly within our range, and we feel very comfortable with it. Like I said, I distinguish the P&L and the cash, certainly from that standpoint, but the P&L side of this direct contribution is totally acceptable within as we look at this channel, and it's strong. It's good, and like I said, but it's good because it's balanced for them and for us, and certainly what will add and the ability to grow that activity. So the contribution margins will not be denigrating to anything we have. How's that? Got it.

Perfect. And then with respect to the 83 advisors you brought in, could you give us a sense of maybe the the AUM per advisor relative to the AUM per advisor that you have now? And maybe a little color on their sweet spot. Are they in that 500,000 to 5 million net worth? You know, what end of the spectrum do they come in at?

Yeah, I would say less. We are continuing to have that track pattern of really the quality and of the AUM and the GDC, the trailing GDC is stronger and we keep on growing that. So we feel very good about that. We're being very selective to ensure that they fit into basically our relationship and approach that we have. And so it's very much aligned on that. So we feel very good about the quality of them.

So, Walter, so net assets per advisor are a little better than your average?

I would tell you it continues to be better than our average.

Got it. And then lastly, just on the capital management, it looks like your payout ratio as a percent of operating earnings is coming in around 80-ish percent, maybe a little less. Historically, you were at 90% or maybe even better. And I guess with the bank having grown a lot, should we expect something in that sort of 75, 80% payout range going forward? Anything likely to change there?

So, as we said, you know, we talked about we have, from our standpoint, we are building organically. And, yes, there's capital, but we have the capacity and we feel that we've given an indication that it will be in that 80% range. But we really have the ability to, as we look at opportunistically, to basically take it up. But we will evaluate the market and everything from that standpoint. But the 80% is a reasonable number at this stage, as we've indicated. And most people have built that into their projection set.

Yeah, we have. Thanks a lot. Thank you. And we have no further questions at this time, ladies and gentlemen. This will conclude today's conference. Thank you for participating. You