Equitable(US:EQH)2023-08-08 16:00PART I - FINANCIAL INFORMATION Consolidated Financial Statements The company's Q2 2023 net income decreased year-over-year, while total assets grew since year-end 2022 Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Investments | $97,722 | $93,097 | | Total Assets | $269,006 | $252,702 | | Total Liabilities | $263,215 | $249,106 | | Total Equity | $5,260 | $3,141 | Consolidated Income Statement Highlights (in millions, except EPS) | Income Statement Item | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,377 | $4,690 | $4,734 | $7,836 | | Net Derivative Gains (Losses) | $(917) | $1,858 | $(1,758) | $2,017 | | Net Income (Loss) Attributable to Holdings | $759 | $967 | $936 | $1,497 | | Diluted EPS | $2.06 | $2.47 | $2.49 | $3.77 | Consolidated Cash Flow Highlights (in millions) | Cash Flow Item (Six Months Ended June 30) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(226) | $(540) | | Net cash provided by (used in) investing activities | $(2,517) | $(1,748) | | Net cash provided by (used in) financing activities | $6,143 | $2,261 | | Change in cash and cash equivalents | $3,416 | $(79) | Notes to Consolidated Financial Statements The notes detail the significant impact of adopting the LDTI accounting standard and other key disclosures - Effective January 1, 2023, the Company adopted ASU 2018-12 (LDTI) for long-duration insurance contracts, applied on a modified retrospective basis for most items4546 Transition Impact of ASU 2018-12 Adoption on Equity as of Jan 1, 2021 (in millions) | Item | Retained Earnings | AOCI | Total | | :--- | :--- | :--- | :--- | | Liability for future policy benefits | $30 | $(1,343) | $(1,313) | | Market risk benefits | $(3,398) | $(902) | $(4,300) | | DAC | — | $1,548 | $1,548 | | Unearned revenue liability and sales inducement assets | — | $(166) | $(166) | | Total transition adjustment (net of taxes) | $(2,661) | $(682) | $(3,343) | - In Q4 2022, the company established a $1.6 billion valuation allowance against deferred tax assets, which was reduced by a net $990 million in the first half of 2023338339 - AB and Société Générale announced a joint venture for their cash equities and research businesses, resulting in AB's research services business being classified as held-for-sale408409 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance, the impact of LDTI adoption, and a new internal reinsurance treaty - Effective January 1, 2023, the company reorganized its business into six reportable segments, with prior period results revised to reflect the new structure383384428 - An internal reinsurance treaty became effective on April 1, 2023, to diversify sources of regulated cash flows and support stable dividends430431 Reconciliation of Net Income to Non-GAAP Operating Earnings (in millions) | Description | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Holdings | $759 | $967 | $936 | $1,497 | | Adjustments (Variable annuity features, Investment gains/losses, etc) | $(318) | $(474) | $(131) | $(499) | | Non-GAAP Operating Earnings | $441 | $493 | $805 | $992 | - Q2 2023 net income decreased by $208 million year-over-year, largely due to a $2.8 billion unfavorable swing in net derivative results486 Results of Operations by Segment Segment performance varied, with Individual Retirement growing while Protection Solutions earnings declined Operating Earnings by Segment - Q2 2023 vs Q2 2022 (in millions) | Segment | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Individual Retirement | $234 | $186 | | Group Retirement | $107 | $111 | | Investment Management and Research | $99 | $101 | | Protection Solutions | $24 | $110 | | Wealth Management | $42 | $24 | | Legacy | $45 | $57 | | Corporate and Other | $(110) | $(96) | | Total Non-GAAP Operating Earnings | $441 | $493 | - Individual Retirement operating earnings increased by $48 million in Q2 2023, driven by a $162 million increase in net investment income504 - Protection Solutions operating earnings decreased by $86 million in Q2 2023, mainly due to an $88 million increase in policyholders' benefits from higher net mortality533 Liquidity and Capital Resources The holding company maintained $1.6 billion in liquid assets after capital contributions and shareholder returns Holding Company Sources and Uses of Highly Liquid Assets - 6 Months Ended June 30, 2023 (in millions) | Item | Amount | | :--- | :--- | | Beginning Balance | $1,992 | | Dividends from subsidiaries | $1,335 | | Capital contributions to subsidiaries | $(1,050) | | Purchase of treasury shares | $(440) | | Shareholder dividends paid | $(150) | | Net Debt Activity | $(20) | | Ending Balance | $1,632 | - During the first half of 2023, Holdings made a $1.1 billion cash capital contribution to Equitable America to support the new internal Reinsurance Treaty583 - Equitable Financial has the capacity to pay an Ordinary Dividend of up to approximately $1.7 billion in 2023 and paid dividends totaling this amount in May and July 2023587 Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures remain materially unchanged from the Recast 2022 Annual Report - There have been no material changes to the quantitative and qualitative disclosures about market risk as described in the Recast 2022 Annual Report661 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the quarter-end - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective663 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023664 PART II - OTHER INFORMATION Legal Proceedings The company estimates potential legal losses up to $250 million and has settled a key class action lawsuit - As of June 30, 2023, the company estimates the aggregate range of reasonably possible losses for certain legal matters to be up to approximately $250 million360 - The company reached a settlement in the Brach class action lawsuit concerning cost of insurance (COI) rate increases and is fully accrued for this settlement363 Risk Factors No material changes to risk factors are reported, referencing the Recast 2022 Annual Report - The report refers to the "Risk Factors" section in the Recast 2022 Annual Report for a comprehensive description of risks facing the company667 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 8.9 million shares in Q2 2023, with $629 million remaining in its buyback program Share Repurchases for Q2 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 2,391,391 | $25.09 | | May 2023 | 2,208,121 | $24.77 | | June 2023 | 4,333,971 | $25.76 | | Total | 8,933,483 | $25.33 | - As of June 30, 2023, approximately $629 million remained available for future purchases under the company's repurchase plans668 Other Information Several executives adopted prearranged Rule 10b5-1 trading plans in February 2023 - In February 2023, key executives including the CEO, COO, and Head of Retirement adopted Rule 10b5-1 trading plans for future sales of company stock674 - During Q2 2023, no directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement676