阿默普萊斯金融 (AMP) 2020 Q2 法說會逐字稿

Welcome to the Second Quarter 2020 Earnings Call. My name is Sylvia, and I will be your operator for today's call. (Operator Instruction]. Please note that this conference is being recorded.

I will now turn the call over to Alicia Charity. Alicia, you may begin.

Thank you, Sylvia, and good morning. Welcome to Ameriprise Financial's Second Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'll be happy to take your questions. Turning to our earnings presentation materials that are available on our website. On Slide 2, you will see a discussion of forward-looking statements. Specifically, during the call, you will hear references to various non-GAAP financial measures, which we believe provide insights into the company's operations. Due to unprecedented external events in the second quarter, we believe GAAP results are not comparable to the prior year period. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials. 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 second quarter 2020 earnings release and our 2019 annual report to shareholders, and these may be supplemented in our second quarter 2020 10-Q report. We make no obligation to update publicly or revise these forward-looking statements.

On Slide 3, you see our GAAP financial results at the top of the page for the second quarter. Below that, you'll 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, and thanks for joining us. Ameriprise delivered another good quarter given the market headwinds and the challenging operating environment. The strength and stability of our diversified business continues to help us serve clients exceptionally well. I'm very proud of our team, how well we're operating during this time and the results we're generating. Clearly, the Fed decision to lower interest rates in March and the volatility in the equity markets affected our business in the second quarter. Markets will continue to experience a level of volatility based on the shape of the recovery. But we are well positioned to manage through this uncertainty. Today, I'll provide an update on our second quarter results and how the business is performing. Importantly, I will discuss these results in the context of the key themes and long-term priorities that we spoke to you about at our Investor Day presentation in November.

First, further strengthening our position as a leading wealth manager with a great reputation, compelling capabilities and deep client relationships. Second, continuing to transform our global asset management business to meet client needs for active management, evidenced by our net inflows in the quarter. Third, managing our insurance and annuity books of business thoughtfully and strategically. And finally, we're driving shareholder value through our combination of businesses, free cash flow and capital management. Our financial strength positions us well to continue managing ongoing volatility and economic uncertainty. Our balance sheet and liquidity are very strong, and we generate a high return for shareholders.

As I reflect on the quarter and the first half of the year, I feel good about our strategic direction, how we're executing and the results we're generating. We're focused on our clients in delivering good organic growth in client flows. We're navigating this climate well.

Regarding financials, on an adjusted operating basis, ex Auto & Home, net revenues were $2.8 billion, down 6% compared to last year, reflecting significant pressure from interest rates and lower average equity markets that I highlighted. For the quarter, adjusted operating EPS was $2.64 and was substantially impacted by the reversal of the tax benefit realized in the first quarter and the Fed cuts. Excluding these items, EPS growth would have been 12% and ROE was 35.6%, which remains among the best in the industry.

As you review our financial results, you'll see that we were able to mitigate some of the revenue pressure through good expense management and strong capital management. In fact, adjusted for the impact of the tax item, EPS growth is good, and our ROE is near the top of the industry. And our assets under management and administration ended the quarter at $947 billion, up 3%, reflecting strong client flows and point-to-point market appreciation.

Now I'll discuss Advice & Wealth Management, where we're delivering good growth in assets and flows and absorbing market pressure as well. Total client assets were up 4% to $630 billion. In the quarter, we had strong client flows with nearly $5 billion in wrap net inflows, which is consistent with our strong start to the year. And very good when considering the volatility and unease in the markets. Clients' brokerage cash balances remain high but came down a bit on a sequential basis as clients started putting money back to work as markets stabilized.

Our goal-based value proposition is resonating with clients as they navigate these markets. We're seeing good uptake and foundational advice and much greater use of our digital capabilities, including online gold tracking and record engagement on our websites and mobile apps. In fact, site visits are up 50% over last year and traffic to the Ameriprise app increased 70%. And clients are highly satisfied with the Ameriprise advice experience. 96% say their adviser provided advice that addressed their needs and that they were highly satisfied with the outcome of their experience with their adviser. 92% say they are likely to recommend the experience to friends or family. Additionally, our CRM platform is an important component of the Ameriprise client experience, particularly in this remote working environment as advisers leverage these capabilities to track and act on client data and activity.

We consistently invest in our own technology, which is leading to continued strong client satisfaction, engagement and growth and adviser productivity. In fact, net revenue per adviser increased 5%, which is quite good considering the weight of low interest rates on the business as well as lower average equity markets and the change in methodology of billing based on beginning of the month asset levels.

On the recruiting front, we welcomed 75 productive advisers to the firm in the quarter across all our channels. Adviser movement in the industry slowed considerably in April due to market dislocation. We quickly moved to an all virtual recruiting program and activity picked up in May and June. Many advisers have more time to evaluate options and they're taking advantage of our video sessions, webinars, virtual VIP meetings and open houses to get to know Ameriprise. It is a very efficient way to showcase our effective adviser value proposition.

These experienced highly productive advisers are attracted to our client-first culture, and they've been particularly impressed with our technology as well as how we've been supporting our advisers during a challenging time. We're very well positioned on the recruiting front, and the pipeline looks good.

With regard to Ameriprise Bank, this is an important growth area for us that we continue to ramp up. We're beginning to invest out the cash that we move to the bank. We're also building out our capabilities. We just launched our mortgage product in July, and we will be rolling out our pledge loan capability in the fourth quarter. So in terms of AWM financials, margins remained quite strong at nearly 18%, and that's after the significant impact of the Fed interest rate reduction. We've consistently had strong sustained margins in AWM that compares very favorably to peers, and that remains true today. And as we grow the business, we are closely managing expenses given the revenue environment, while still investing to drive future growth.

In Insurance & Annuities, we've been very deliberate in how we're managing these businesses. We've adjusted our products, features and pricing consistent with our risk management approach and the environment. In Annuities, total variable annuities sales were down 17%, reflecting client concerns about the pandemic and market volatility as well as the mix shift we are driving. We continue to see very good uptake of our structured annuity we launched earlier this year. When you combine these sales with our flagship RAVA VA product, more than 50% of new RiverSource annuity sales in the quarter were in products without living benefit guarantees. As we progress through the year, we should increase even further consistent with our plan. I'd also add that due to the rate environment, we stopped new sales of fixed and fixed index annuities.

In Protection, life sales were also down. However, we've been focused on shifting from IUL to VUL, where we have been a leader. VUL sales was stable, and the decline was in IUL. As with our variable annuities, we continue to make pricing and benefit adjustments, including cap rate reductions and adjustments to our underwriting as appropriate. Like others, we have seen a slowdown in long-dated products, and we're working hard to help advisers serve their clients and grow their books with Insurance & Annuity solutions in this largely virtual world. Overall, we will continue to manage this business prudently, and it continues to be a good source of free cash flow.

Moving to Asset Management. We had a good quarter that reflects the momentum in the business that we've been building and discussing with you. The trends in the business are quite positive, especially in North America. At the end of the second quarter, AUM was $476 billion, up 2% from 1 year ago, even after reflecting lower weighted equity markets. It was also up 12% sequentially, reflecting the recovery in the U.S. equity markets in the quarter and our improved flow picture. Our AUM growth was driven by our North America business.

We are generating good earnings in Asset Management. And while pretax adjusted operating earnings were down, that was largely due to lower performance fees and lower average equity markets compared to a year ago. The success we're driving in our flows is a result of our focus and progress in a number of key areas. First and foremost, our strong investment performance. Our short and longer-term equity performance has remained strong through this volatile period, with around 70% of our funds above medium or beating benchmarks on an asset-weighted basis. Performance is especially good in key strategies like income-oriented equities, an asset class that we believe will continue to be critical for years to come. And in fixed income, we saw a bounce back from underperformance in March that impact the short-term numbers. Long-term numbers across equities, fixed income and asset allocation remained strong in both the U.S. and EMEA.

In addition to good investment performance, we're concentrating even more on strategies that align with investor needs and also improve the effectiveness of our distribution. Columbia Threadneedle was in net inflows in May and June and ended the quarter with $2.6 billion in net inflows for the quarter, a more than $4 billion improvement from 1 year ago. This is a nice continuation of the improving trends that we've seen over the last year.

Regarding global retail net inflows. North America retail was in net inflows of $3.1 billion ex-parent with $400 million of outflows in EMEA. U.S. retail had very good results across distribution channels including large broker-dealer firms, independents and DCIO. We're generating good results from our effective segmentation and targeting as well as the benefits of our data strategy. In fact, North America was in net inflows in 4 of the first 6 months of the year, led by strong flows in equity income and complemented by certain fixed income asset allocation and other strategies. In addition to these North America retail inflows I spoke about, we continue to build out our model delivery business and had $315 million of assets under administration flows in the quarter.

In EMEA retail, we were in net outflows as the equity market environment there is more challenging and investors remain cautious. That said, overall flows improved nicely from a year ago, particularly in key markets including the U.K., Germany and Italy.

And in global institutional, excluding former parent assets, we had net inflows of $211 million, a nice improvement from last year, and that includes outflows of $900 million of low-fee assets from an insurance client that we expected. We were able to offset that by winning higher fee mandates, including improved traction in Asia and with nice diversity across equity and fixed income. Key to these strong results is our excellent virtual engagement with intermediary and institutional clients that reflects the benefits of the technology investments that we've made across the firm. Going forward, our teams will operate using both in-person and virtual engagements, which should further improve efficiency and cost of acquisition. So to wrap up Asset Management, we're delivering good results and improving trends, and the team is focused on continuing our progress going forward.

Now let's turn to our ability to return capital to shareholders, which is underpinned by excellent free cash flow generation and balance sheet strength. The business continues to generate good free cash flow that we invest for future growth and return to shareholders. Our balance sheet remains very strong with approximately $2.2 billion of liquidity that we held at high levels since increasing it early in the year given the volatility in the market and economic uncertainty. Excess capital remained strong at $1.9 billion, and as we have noted, we have a high-quality, diversified investment portfolio with an average rating of AA- and a limited exposure to industries that are currently under pressure. And we restarted our buyback program in May, reflecting the strength of our free cash flow generation and capital position.

In closing, we continue to focus on our clients and helping them navigate this environment. As I've discussed, we're getting good traction in Advice & Wealth Management and the trends in Asset Management are positive. Overall, the company remains strong. And we're able to return to shareholders at a differentiated level through an increase in our dividend and restarting our share repurchases.

Regarding our team, while the vast majority of our employees and advisers continue to work from home during the second quarter, we have begun to gradually initiate a return to office. As you expect, we're taking a thoughtful, phased approach. We're beginning to open a number of corporate sites and our branches and franchise offices around the U.S. are starting to reopen safely. Throughout this period, our top priorities have been serving our clients as well as the health and safety of the Ameriprise team. Our people are collaborating well and they're highly engaged, and it's getting noticed. I'm pleased that we were named once again as a Best Place to Work by the Minneapolis-St. Paul Business Journal. I feel good about how we're executing and operating through this pandemic. Uncertainty remains in the environment, but we're very well positioned.

Now I'll turn it over to Walter, and then I'll take your questions.

Thank you, Jim. As you are aware, we are operating in a challenging environment with interest rates, equity market volatility and the pandemic continuing to create significant headwinds. Ameriprise delivered adjusted operating EPS of $2.64 in the quarter as strong underlying business performance was negatively impacted by $1.90 from the reversal of the first quarter tax benefit and the full impact of the Federal Reserve cuts in March. Strong momentum inflows continued in the quarter with nearly $5 billion of wrap net flows and over $2 billion of net inflows in Asset Management. Balance sheet and risk fundamentals remain strong. We have successfully maintained strong engagement with clients, advisers and sales teams to deliver exceptional service while nearly 95% of our workforce continues to work remotely. Excess capital ended the quarter strong at $1.9 billion as we continue to generate substantial free cash flow. Let's turn to Page 6.

The market dislocation in March related to COVID-19 continue to adversely impact financial performance. We realized the full impact of the Fed rate cuts in March as well as a 3% lower average equity market. Additionally, reduced sales and longer-dated Insurance & Annuity products negatively impacted transaction activity in the quarter. Our underlying business trends remained solid in the second quarter. Flows were very strong in both wealth management and Asset Management. We are managing expenses very tightly in this environment, and we have returned nearly 90% of earnings to shareholders so far this year after resuming our share repurchase program in May. Let's turn to Page 7.

As we continue to navigate this operating environment, balance sheet strength and risk management foundation will remain keys to our success. We ended the quarter with $1.9 billion of excess capital and substantial liquidity. Year-to-date, we have generated free cash flow of nearly 100% of earnings. Our investment portfolio continues to remain defensively positioned and performed well in the quarter. We are currently in a $2.1 billion unrealized gain and less than $4 million of impairments and loan reserves in the quarter. We continue to manage the business prudently from a risk perspective with effective hedging. And as you would expect, we are making appropriate product changes to address the interest rate environment.

From an operational risk perspective, we continue to meet client and adviser needs while ensuring the safety of our employees. And our business has performed well during the pandemic as demonstrated by flows in Wealth Management and Asset Management. Life mortality remained stable despite the pandemic, reflecting the unique characteristics of our client base and approximately 70% of our block is reinsured. In the quarter, our closed LTC blocks saw fewer clients entering nursing homes and increased mortality-related terminations from clients on claims.

As you can see on Page 8, financial results were clearly impacted by headwinds from rates, markets and client behavioral changes related to the pandemic. Advice & Wealth management adjusted operating net revenues declined 7%, absorbing the expected $122 million impact of lower revenue from the precipitous decline in short-term interest rates, as well as $37 million from lower transactional activities associated with the pandemic and $27 million from lower average equity markets. We are navigating this market environment as we have demonstrated during previous downturns.

Importantly, organic growth remained strong with solid client flows including nearly $5 billion of wrap net flows, 9% growth in wrap assets and improved adviser productivity. And as Jim has mentioned, adviser recruiting in the quarter was very good, and that momentum continues. These business metric trends will continue to support good organic growth as we move through this uncertain period.

Revenue in the quarter did not fully reflect the growth in wrap assets because of our methodology of billings based upon beginning of the month assets. While markets were down 3% on average, the impact of markets based upon our billing implies an impact of markets being down 5% on average. As a result, equity market appreciation in the second quarter will benefit third quarter revenues. Expenses were well-managed in the quarter, down 1%. G&A expenses increased 1%, in line with expectations as we continue to invest for future growth where appropriate, including the bank. Excluding the bank, G&A expenses were down 1%. We will continue to prudently manage our expense base and adjust accordingly based upon the environment. Pretax adjusted operating margin was 18% in the quarter, a strong result in this environment. Turning to Page 9.

Asset Management delivered strong net inflows, a continuation of the favorable trends over the past several quarters. We remain optimistic in our continued traction on flows and favorable fee mix shift. We will continue to leverage global operational capabilities and provide diverse product offerings with strong investment performance. We are encouraged by the progress the business is making and how that will contribute to revenues over time. Adjusted operating revenues decreased 6% as $2.6 billion of net inflows partially mitigated the impact of lower average equity markets, lower performance fees and the impact of net outflows from prior quarters.

Adjusted operating expenses improved 4%. G&A expenses declined 2%, reflecting disciplined expense management with reengineering initiatives funding target investments for growth. Pretax adjusted margin remained strong at 35%. Turning to Page 10.

Annuities and Protection results continued to perform in line with expectations in this market environment. Variable annuity pretax adjusted operating earnings increased $32 million to $151 million, primarily as a result of lower surrenders and withdrawals that reduce the amortization of deferred acquisition cost as well as lower sales and higher ending market levels. Fixed annuity pretax adjusted operating earnings were $4 million, reflecting continued lower interest rates and net outflows.

Protection continued to deliver stable earnings during the quarter at $70 million, reflecting favorable claims. While variable annuity sales declined overall, we are seeing the desired mix shift in sales to products without living benefit guarantees. We recently launched our structured variable annuity product and over half of variability sales during the quarter with those without living benefit guarantees. We expect this trend to continue. Additionally, we discontinued new sales of proprietary fixed annuities and fixed index annuities given the low interest rate environment.

Now let's move to the balance sheet on Slide 11. I've already highlighted many of the elements of our balance sheet fundamentals, our strong liquidity position, substantial excess capital, effective hedging, and a defensive positioned investment portfolio. Our adjusted operating return on equity in the quarter remained strong at 36%. We resumed buyback in early May and through the first half of the year have returned nearly 90% of earnings to shareholders.

With that, we will take your questions.

[Operator Instruction]. Our first question comes from Erik Bass with Autonomous Research.

I was hoping you could provide some more color on the outlook for expenses in the Advice & Wealth segment. And are you making any adjustments to the plan you talked about previously, given the revenue headwinds in the business?

Yes. This is Walter. So let me -- Jim, you want to do it?

No, go ahead.

Yes. So if you look at our expenses, we are targeting right now for AMP totally to be down about $125 million year-over-year. And when you consider that normally you have volume increases and certainly, of investments being made. That's a substantial savings of over $200 million. And we -- so we've looked at the situation, we have evaluated and we've put that in play as it relates to AWM, we are certainly continuing to invest for growth, but we will still monitor the situation as it relates to the revenue generation and keep in proportion, certainly looking at the expenses that we have. So the answer is we are, and we have implemented programs.

Got it. I mean I guess, does that imply that expenses or G&A ex the bank could continue to be down year-over-year?

Yes, you should expect that they will certainly track and be level or down as we move into the balance of the year period.

And then just 2 quick things for Annuities. You mentioned the favorable benefit from DAC amortization this quarter. So just hoping you could help us think about the earnings run rate for that business going forward. And then does the decision to stop selling fixed annuities? Have any implications for how you're thinking about the in-force block?

Well, okay. So let me start latter. On the fixed annuities, we decided because we felt from a standpoint it was not meeting our shareholder objectives, and we certainly have other products that are available. And we still intend to pursue reinsurance of the fixed annuity block as situations evolve. So from that standpoint, I think it's totally aligned with the objectives that we've said before.

On the VA, certainly, we have seen our lapses improve from that standpoint. And that was part of the benefit, but we also had the big lift relating to the equity markets and a shortfall in sales. So as sales improve, we will see some denigration. But we certainly -- we see that we got a lift in this quarter because of those items, and we should be back to a more moderate pattern as we go into the third quarter and the fourth quarter, but still a very good performance.

Got it. So should we sort of average the first 2 quarters of the year to sort of think about the run rate? Would that be reasonable?

Actually, it's -- yes, it's an interesting way of approaching it, but it is probably going to be in that range, yes.

Our following question comes from Suneet Kamath Citi.

Just sticking with Advice & Wealth Management. First, on the transactional revenues, I guess, down -- I think you said $37 million versus last year. Can you just talk about what the strategies are in terms of trying to turn that around? Does it require sort of new products that are more competitive? Or just what's the strategy behind that?

So I'll comment...

Jim, I'm going to -- first, obviously, in this quarter, it's very difficult to sell some of the long-dated products when you're not face-to-face. And so they're adjusting on that. So certainly, that has caused a bit of a dislocation as it relates to the ability, and certainly the environment. As people see this sort of environment they pause. So as it relates to products, we are adjusting the products for the environment. And certainly, we've launched a new structured project, which seems to be doing very well and meeting our expectations. So I think it's a combination of that. Jim, I don't know if you want to add to anything on that?

Yes. Suneet, I think, as you would imagine, after the tremendous market volatility and market depreciation that occurred at the end of the first quarter and then moving to virtual, advisers were very much focused on engaging clients, keeping them on track to what they needed to achieve longer term, managing their various portfolios. And having types of conversations remotely regarding protection and life insurance and longer-term contracts wasn't necessarily their priority, and they find that probably a little more difficult to do. I think you can see that across the industry.

So we do believe it will come back. But to our point, we have a whole range of products on the shelf that has nothing to do with our individual products for them to sell. But imagine they're not really locking in some longer-term fixed type of contracts like IUL and in insurance right now with the lower rates. But our structured annuities are really doing well, and we just launched that. So that will ramp up. And I do believe this will come back in time, but you got to look at the dislocation and working remotely and where advisers had to keep their focus.

Okay. Got it. And then the second question is just as we think about -- like there's a lot of moving pieces in Advice & Wealth Management. But when we think about that sort of earnings base of, I think it was $271 million pretax or the margin, how should we think about those 2 things trending over the balance of the year? I know you don't give guidance, but just any color to try to get sense of all these moving pieces would be really helpful.

Yes. I would say this. I think, overall, listen, we really have been impacted as others have with the short-term interest reduction. The almost -- the full effect is in our numbers right now. But if you look at where our margins were -- when the Fed rates were this low back 2 or 3 years ago, you'll find that our margins have continued to improve, disregarding the spread revenue. I think as I look at it, we have billed -- we do bill or wrap accounts at the beginning of the month, so we didn't get the full benefit of the market recovering there.

Our wrap flows continue to be quite strong of $5 billion. We brought in just as much in new client business during that time. We have good productivity improvements in our adviser base. They're uptaking our technology really well, even through this pandemic. We have really great engagement remotely. And I do believe that we're making good progress in getting more adviser-based relationships that will both cause more growth and deepening. The clients we are serving now, as I mentioned in my talking points, the satisfaction is really high. So that will mean good flows for the future and good referrals. And I think we'll continue to work on getting that productivity as we continue to work through the pandemic. So I feel good.

And the last point very clearly is we invested in the bank for a good reason. We believe that over time, we will get good spread out of the bank as we invest and as we grow the banking institution. We don't really have any bad credit on the bank right now. And so it's a positive for us as we start to invest and grow. And I think all those things will come to fruition, but I feel like we're still very much on track to where we were and how, but you're going to have some impacts based on the market volatility and the interest rate environment. But I don't feel any different. I actually would say, I feel really great about the type of results we got in the second quarter through this pandemic.

Our next question comes from Humphrey Lee from Dowling & Partners.

Just a follow-up on AWM. So you talked about the advisers focus in -- during the second quarter was kind of engaging customers to focus on long-term objectives and selling some of the insurance products were not their priority. But do you see any change kind of throughout the quarter and maybe into July? Has there any change in terms of transactional activities? And how -- maybe how should we think about that in the third quarter?

The transaction activity is improving gradually, but it is really -- we have to -- we're watching that because as it evolves, but it's beginning to show some signs, but again, it's -- we're monitoring it right now.

Okay. Shifting gear. In Asset Management, very good net flows for the quarter. I think in retail, it's probably the first time we've seen positive net new sales for quite some time. Can you talk about like what you saw in the quarter? And how should we think about the momentum that you're seeing in Asset Management in general?

Yes. I would say, as I looked at the number of managers reporting so far, we're one of, I don't know, 3 so far that I saw in positive inflows during the quarter, a significant improvement for us and a continuation of the improvement we've seen over the last few quarters. We're getting good results. I mean we've been in nice inflows in our equity business, which is different than what you'll see in the industry. And we feel very good about our activity levels, particularly in the U.S. across our distribution channels. So that continues to do well for us. And the blip up that we saw in the redemptions in March and beginning of April have back -- come back down to more normalized levels. So our net sales have really increased tremendously year-over-year.

In Europe, it's still a bit weaker. It's improved nicely from where it was a year ago. But it's still a bit weaker based on the European risk-off markets, but that's starting to recover. And we see some of that improving, continue in improving as we go through. So overall, we're feeling good about the Asset Management business. People have been able to really engage remotely and we're continuing to have a good lineup of funds. The investment performances are really good so far. And we're hoping that we can even gain a bit more traction into the fixed income that would be complementary for us.

And then in your prepared remarks, you talked about you're able to win some higher fee mandates in Asia. Can you talk about like what is the potential in that particular market?

Yes. So where we've been focused really is -- one of our big outflows in the quarter was a very low fee insurance mandate that we expected based upon some changes in the business that we were supporting from the outside client. But we are bringing in a bit better in the mandates, both in some fixed income as well as equity product. And some of those are from our institutional -- international clients, both in APA as well as in EMEA. And so we feel that we can continue to improve that pipeline and get some good mandates that have some good fees.

Our next question comes from Andrew Kligerman from Crédit Suisse.

I wanted to go back to Advice & Wealth and talk a little bit about the sweep accounts, which were very high still at about $31 billion. And then the bank deposits declined, I think, from $6.2 billion down to $5.3 million. So the question is, why did the bank kind of go backward a little bit in terms of deposits? And how can you -- or can you move a good chunk of those sweep assets over to the bank over time?

Yes. So Andrew, let me answer that. Obviously, there are 2 programs that work within the bank. One is from the sweep account itself, which have more of a permanent nature, which we're starting to now build. The other is a program that we transfer in money for our -- to the bank for managed account activities, which obviously has pretty high velocity in and out. And that's what you saw at the end of the first quarter, a lot of managed activity came in, in cash.

And we -- obviously, some of that got redeployed in the quarter. So that was the drop. But now you'll be seeing us starting to build more of the sweep balances coming over to the bank as part of moving from -- away from a third-party on the Promontory. And that would be a building event. So it was just the aberration of that short-term cash that went in and out at the end of the first quarter and started getting redeployed in the second quarter.

I see. And Walter, could you -- and that makes a lot of sense. Could you possibly put numbers around your expectations for bank deposit growth?

Yes. We -- again, if you look at peers and look at us -- and certainly, we see a very large opportunity of the mix that we have of funds deployed to Promontory, third-party banks versus being redeployed at the bank, as Jim said, it's a big opportunity for us to take advantage since the sweep accounts are at certainly low earning point, to start swinging in. So you will see from our standpoint, we haven't -- we're working through our plans now. But in the ranges of $3 billion to $5 billion coming out over -- between now and the end of next year, that seems like it's reasonable as we work through our plans. That's the sort of numbers that we can see. And we certainly have the capacity to do.

Got it. And then, Walter, with regard to share repurchases, this quarter was great. You started in May. You did $251 million. I think you're targeting somewhere in the 90% to 100% of earnings range. Do you see a path to getting back to kind of that normal -- more normal level of maybe more than $400 million a quarter in share repurchases?

Again, Andrew, we have the capacity. There's no question about it. As we evaluate it, we are certainly one of the few that are actually redeploying capital back to shareholders to repurchase. So we're going to continue to monitor, but certainly, it's going to be one of the areas that will certainly continue to return. I'm not exactly sure at this stage where the levels will be. But certainly, with the strength and capacity we have that will be an opportunity for us as we look forward. I don't -- again, I'm not going to quote whether we go to $400 million, whatever. But we are certainly one of the few that are actually buying back.

And just lastly, are there any M&As out there that you could deploy capital toward right now that seem more imminent?

Well, Jim?

Well, Andrew, we have flexibility. And I think as opportunities arise, we continue to sort of look at things appropriately. We feel, however, we have a good organic hand that we continue to play. But if there are complementary things, and let's say, Advice & Wealth or in some of the sectors of the asset management world, we have the ability, and we've been very successful in the past. So those are the things that, depending on the environment, may come out.

Our next question comes from John Barnidge from Piper Sandler.

Given we're all sheltered in place, and I know how much travel factors in for the asset management industry broadly, both on the buy and sell side. Can you talk about savings you've seen from lack of travel? And how much you see that remaining on a maybe semi-permanent to permanent basis?

Yes. So I think...

Yes. So certainly, as we looked at our T&E and our meetings as the world has changed. From that standpoint, we -- that is part of the savings that when I spoke about that we will have as the difference versus last year. T&E, perhaps in meetings is a reasonable, I would say, of the savings, maybe in the area of about 25%. And the redeployment is going to be based upon how we reassess our ability to do business in this environment. And so we're not really exactly sure. We're working through plans about how we do face-to-face or we do virtual and as we change the way our business model works in this environment. So that's an open switch right now. But certainly, we are getting good savings coming from -- and that's going to certainly increase as we go through. But this first quarter was basically a freeze, and then we'll start evaluating that hybrid model of how we operate going forward.

Yes. I would say that we will, going forward, have a hybrid model. We see good opportunity to engage virtually that will be complemented by face-to-face. We don't think that face-to-face will go away. We think that may be important in certain new types of business activities and engagement. And as well as for more deeper engagement, but we do believe that we can complement it with the virtual capabilities that we have and that we've been learning from. And we think that will be embedded in the way we do business moving forward.

Our next question comes from Alex Blostein from Goldman Sachs.

A couple of follow-ups on the bank. I guess the one more explicit, I guess, near-term question. Walter, can you tell us what the NII at the bank was in the second quarter? And then slightly, I guess, bigger picture, strategy related, heard your comments about moving $3 billion to $5 billion. I guess that's through the end of next year from third-party bank sweep to the Ameriprise Bank. That doesn't seem particularly aggressive, I guess, given that it's -- you guys are sitting on $22-plus billion of third-party cash sweeps. So why not move a little bit faster?

It feels like you could pick up anywhere from 50 to 70 basis points on that cash right now. Is that something client-related, meaning you guys need clients to actually opt-in to go to the Ameriprise Bank? Or what are sort of the constraints you're dealing with there that's preventing you from going a little faster?

Yes. So I think there's 2 things that -- let me deal with that part of your question. One is, we have arrangements with Promontory banks, and we said we honor those arrangements. It is not a customer restricted element from that standpoint at all. And also, it's a matter of ensuring we have -- this is where it becomes trying to gauge the investment opportunity that we want to make that has the right return, but also has the right risk elements to it. So I'm giving you a range. We certainly have flexibility within that. And it depends on, again, deploying that cash effectively that meets our return and risk characteristics is probably a gating factor as we're evaluating this environment. That is one of the factors that will go into the evaluation.

All right. And NII at the bank in the second quarter?

The net -- I'm trying to -- the net interest margin from -- interest income in the bank trying to see from -- I don't actually have that in front of me. I will have to get that to you, okay? I'm sorry about that. All right?

Okay. Yes. No worries. And then just a follow-up question, again sticking with AWM for a second. Again, near-term and the longer-term piece there. But I guess in the near term, any way you can just give us G&A guidance for third quarter and fourth quarter and give us a sense of how much of that is still related to the bank buildout and when you expect that to fade out?

And then a bigger picture question for both you and Jim. I guess when you think about the experience in that segment over the last several months and the ability to still recruit pretty aggressively despite people working from home, what are sort of the key lessons learned that we might take away from that, that could improve upon the profitability of recruiting going forward?

All right. So as far as the expenses, as I said, the expenses, we are anticipating, certainly, that it will build. As you take a look at what we saw, what the expense differential was in the first half as we go to second, you'll see a build there. As it relates to savings, as we get towards that target of being $125 million under for the company. And the bank does play a big role in the expense base that we have in AWM, it's in $50 million range, and we build through it. So it's a factor, but again, we're making investments for our growth, and the bank is an important part of that.

And now on the recruiting side, I think we have seen a good recovery. The teams have gotten in and really developed a capability of virtually meeting with prospective experienced advisers. And now they're evaluating, again, certainly seeing a lot of advisers. Now the question is the close rate and how to handle it. And I think we are feeling confident that we getting a good trend line as we adjust to this hybrid model. And I think that we've been quite effective, not only in arranging meetings with them and then coming to closure, but also on onboarding. It's been extremely effective. So we're feeling quite good about our situation right now.

Our next question comes from Tom Gallagher from Evercore.

Yet another question on AWM to start with. The -- if I just look at NII in the segment, it dropped from around $100 million last quarter to $77 million this quarter sequentially. What -- why did it drop so much? Are those floating rate assets? And would you expect that NII to stabilize?

Yes. So we have a combination of what's been taking place in our net interest income and distribution as you look at the bank and other things. We have certainly in the bank have had -- the majority of the assets that we had in the bank were floating rate. And then we started augmenting them in the third quarter -- at the end -- excuse me, at the end of the first quarter and beginning of the second quarter with fixed maturity. So you've been getting a combination. But clearly, the investments that we've had in the bank are -- were totally floating rate, agency high-quality paper that obviously has gone down, and then we started now investing that on fixed maturity. So that's the combination that you're seeing.

Plus -- from that standpoint, that is an impact. And we've adjusted our transfer pricing, okay? So as it relates to the market. But that's between the institutions. But that's what's taking place. It's primarily floating assets dropping off, us now starting to add fixed maturity assets, which are higher yield, being very prudent about what investments we look at, and that is the main driver.

And Walter, where -- would you expect incremental pressure? Or do you feel like that should be more stable going forward?

I think we're at a pretty good point of stable from the floating range side. Listen, I can't -- I'm not predicting, but certainly, as it relates to it and as we now start investing out on the fixed maturity curve, you're going to start seeing that increment up. And especially as we add -- as we position the portfolio and we add new liabilities in to invest out on.

Got you. So that could actually go up a little bit, then?

Yes. Yes. Yes. Again, it depends on -- we're being very, very measured and trying to be -- certainly, there's opportunities out there, but we want to make sure as we do our investments that it's meeting our yield curve objectives, yield objectives, but also meeting our risk objectives. So we're -- the team is doing a great job. But again, it's -- you have to be careful with the paper out there.

Got it. And I guess just a follow-up. So broadly, then the cash sweep, it looks like the margin compression there should be behind you. And then when you think about spread income, whether that's bank NIM or otherwise, would you say if you look out, assuming rates remain where they are over the next few quarters, do -- would you expect any incremental rate pressure, adding all these things up? Or do you -- would you expect that to be behind you?

I would say that as we start implementing the strategy for fixed maturity investments, we are going to start seeing that spread income giving us a lift. And I do believe that the floating side, again, I can't tell you where rates are going to go, but certainly, I believe that, that's probably more behind us than versus headwinds, but who knows where the environment is. But certainly, with us taking out positive actions to start investing out on fixed maturities will start to yield and improve our yield.

Got you. And then that's helpful. And then just my final question is just on long-term care. One question is -- that's clearly trending favorably right now. Would you -- just given, I guess, the big -- both, we'll call it, mortality-related plus lower submitted claims incidents, would you expect that to remain at a similar profitability level? Or at least at a higher than normal profitability level for the next couple of quarters...

Yes. So listen...

So on LTC...

Yes. I -- we have seen unfortunate improvement because, obviously, it has impacts to our clients. Certainly, from our standpoint, we don't know if that's a long-term trend. But on the short-term end, with what's going on in the various states, certainly, it looks like it's continuing to be problematic. I don't know if it's going to spill over to the nursing homes. The actuaries are looking at it and -- but we are seeing the benefit so far. I can't really tell you if it's going to continue. Certainly, it's not going to get worse for us from that standpoint. But I can't really tell you where that trend is going to continue, but it's one that we benefited in this quarter, for sure.

Our last question will be from Ryan Krueger from KBW.

Walter, first, I just wanted to clarify your comment that expenses were expected to be down $125 million year-over-year on a consolidated basis. Was that total expenses or specific to G&A expenses?

That was G&A. That was -- I was talking about G&A.

And then on fixed annuity reinsurance, I mean, I guess, should we -- I guess, are you -- would you still consider doing a transaction in the current interest rate environment if you can get acceptable pricing? Or should we think about that as more off-the-table in the near term contingent on rates rising?

Our objective has not changed. It's certainly is something that we intend to do. We are getting inbounds, and we are evaluating them. But there is a challenge with the interest rate environment. But certainly, we are getting inbounds coming in, and we're evaluating it. So it's something that is not -- if we can to do it, it's when we're going to do it and what is going to be appropriate balance on a shareholder basis. But it's still our objective set.

We have no further questions. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.