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EX-14.A - EX-14A - AMERIPRISE CERTIFICATE COaccexhibit14a.htm
EX-32.1 - EX-32.1 - AMERIPRISE CERTIFICATE COampcertificateco-ex321.htm
EX-31.2 - EX-31.2 - AMERIPRISE CERTIFICATE COampcertificateco-ex312.htm
EX-31.1 - EX-31.1 - AMERIPRISE CERTIFICATE COampcertificateco-ex311.htm

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from   _________________________ to   _________________________
Commission File No. 811-00002
AMERIPRISE CERTIFICATE COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
41-6009975
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1099 Ameriprise Financial Center, Minneapolis, Minnesota
 
55474
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (612) 671-3131
Former name, former address and former fiscal year, if changed since last report:  Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  o
Accelerated Filer  o
Non-Accelerated Filer  x
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No ý 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 4, 2013
Common Shares (par value $10 per share)
 
150,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
 
 



AMERIPRISE CERTIFICATE COMPANY
 
FORM 10-Q
 
INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


AMERIPRISE CERTIFICATE COMPANY
 
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Investment income
$
20,146

 
$
22,465

 
$
64,023

 
$
68,044

Investment expenses
6,250

 
5,444

 
19,008

 
16,004

Net investment income before provision for certificate reserves and income taxes
13,896

 
17,021

 
45,015

 
52,040

Net provision for certificate reserves
7,209

 
7,081

 
22,905

 
21,028

Net investment income before income taxes
6,687

 
9,940

 
22,110

 
31,012

Income tax expense
2,431

 
3,534

 
8,090

 
11,150

Net investment income
4,256

 
6,406

 
14,020

 
19,862

 
 
 
 
 
 
 
 
Net realized gain (loss) on investments
163

 
(6,474
)
 
(1,945
)
 
(11,864
)
Income tax expense (benefit)
57

 
(2,265
)
 
(681
)
 
(4,152
)
Net realized gain (loss) on investments, after-tax
106

 
(4,209
)
 
(1,264
)
 
(7,712
)
Net income
$
4,362

 
$
2,197

 
$
12,756

 
$
12,150

 
 
 
 
 
 
 
 
Supplemental Disclosures:
 

 
 

 
 

 
 

Total other-than-temporary impairment losses on securities
$
(299
)
 
$
(5,066
)
 
$
(582
)
 
$
(13,628
)
Portion of loss recognized in other comprehensive income (loss) (before taxes)
(11
)
 
(1,688
)
 
(1,693
)
 
1,628

Net impairment losses recognized in net realized gain (loss) on investments
$
(310
)
 
$
(6,754
)
 
$
(2,275
)
 
$
(12,000
)
 See Notes to Consolidated Financial Statements.


3


AMERIPRISE CERTIFICATE COMPANY
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Net income
$
4,362

 
$
2,197

 
$
12,756

 
$
12,150

Other comprehensive income (loss), net of tax:
 

 
 

 
 

 
 

Net unrealized gains (losses) on securities:
 

 
 

 
 

 
 

Net unrealized securities gains (losses) arising during the period
6,717

 
22,365

 
(10,418
)
 
38,236

Reclassification of net securities (gains) losses included in net income
(106
)
 
4,216

 
1,252

 
7,702

Total other comprehensive income (loss), net of tax
6,611

 
26,581

 
(9,166
)
 
45,938

Total comprehensive income
$
10,973

 
$
28,778

 
$
3,590

 
$
58,088

See Notes to Consolidated Financial Statements.


4


AMERIPRISE CERTIFICATE COMPANY
 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)

 
September 30, 2013
 
December 31,
2012
Assets
 

 
 

Qualified Assets
 

 
 

Cash and cash equivalents
$
120,791

 
$
89,232

Investments in unaffiliated issuers
3,962,135

 
3,583,630

Receivables
24,622

 
20,415

Equity derivatives, purchased
55,520

 
37,003

Total qualified assets
4,163,068

 
3,730,280

Deferred taxes, net
26,330

 
22,070

Current taxes receivable from parent

 
1,383

Total assets
$
4,189,398

 
$
3,753,733

 
 
 
 
Liabilities and Shareholder's Equity
 

 
 

Liabilities
 

 
 

Certificate reserves
$
3,886,103

 
$
3,511,995

Current taxes payable to parent
3,972

 

Equity derivatives, written
48,605

 
29,532

Payable for investment securities purchased
25,749

 
1,084

Due to related party and other liabilities
3,839

 
3,582

Total liabilities
3,968,268

 
3,546,193

 
 
 
 
Shareholder's Equity
 

 
 

Common shares ($10 par value, 150,000 shares authorized and issued)
1,500

 
1,500

Additional paid-in capital
201,517

 
191,517

Total retained earnings
21,908

 
9,152

Accumulated other comprehensive income (loss), net of tax
(3,795
)
 
5,371

Total shareholder's equity
221,130

 
207,540

Total liabilities and shareholder's equity
$
4,189,398

 
$
3,753,733

See Notes to Consolidated Financial Statements.



5


AMERIPRISE CERTIFICATE COMPANY
 
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)
(in thousands, except share data)
 
 
 
 
 
 
 
 
Retained Earnings
 
 
 
 
 
Number of
Outstanding
Shares
 
Common
Shares
 
Additional
Paid-In
Capital
 
Appropriated for
Pre-Declared
Additional
Credits and
Interest
 
Appropriated
for
Additional
Interest on
Advance
Payments
 
Unappro-priated
 
Accumulated Other
Comprehensive
Income
(Loss),
Net of Tax
 
Total
Balance at
January 1, 2012
150,000

 
$
1,500

 
$
160,250

 
$

 
$
15

 
$

 
$
(47,093
)
 
$
114,672

Comprehensive income:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income

 

 

 

 

 
12,150

 

 
12,150

Other comprehensive income, net of tax

 

 

 

 

 

 
45,938

 
45,938

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
58,088

Dividend/return of capital to parent

 

 
(5,733
)
 

 

 
(5,267
)
 

 
(11,000
)
Receipt of capital from parent

 

 
15,000

 

 

 

 

 
15,000

Balance at
September 30, 2012
150,000

 
$
1,500

 
$
169,517

 
$

 
$
15

 
$
6,883

 
$
(1,155
)
 
$
176,760

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at
January 1, 2013
150,000

 
$
1,500

 
$
191,517

 
$

 
$
15

 
$
9,137

 
$
5,371

 
$
207,540

Comprehensive income:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income

 

 

 

 

 
12,756

 

 
12,756

Other comprehensive loss, net of tax

 

 

 

 

 

 
(9,166
)
 
(9,166
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
3,590

Transfer to appropriated/ from unappropriated

 

 

 
8

 

 
(8
)
 

 

Receipt of capital from parent

 

 
10,000

 

 

 

 

 
10,000

Balance at
September 30, 2013
150,000

 
$
1,500

 
$
201,517

 
$
8

 
$
15

 
$
21,885

 
$
(3,795
)
 
$
221,130

See Notes to Consolidated Financial Statements.






 


6


AMERIPRISE CERTIFICATE COMPANY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
Nine Months Ended September 30,
 
2013
 
2012
Cash Flows from Operating Activities
 

 
 

Net income
$
12,756

 
$
12,150

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Interest added to certificate loans
(34
)
 
(71
)
Amortization of premiums, accretion of discounts, net
25,198

 
6,800

Deferred income taxes
950

 
(2,918
)
Net realized loss on Available-for-Sale securities
1,926

 
11,850

Other net realized loss
19

 
14

Changes in operating assets and liabilities:
 

 
 

Dividends and interest receivable
(1,837
)
 
81

Certificate reserves, net
(315
)
 
2,970

Due to/from parent for income taxes, net
5,355

 
(5,243
)
Derivatives, net
824

 
(3,436
)
Derivatives collateral, net
(341
)
 
2,189

Other, net
(2,094
)
 
(5,186
)
Net cash provided by operating activities
42,407

 
19,200

 
 
 
 
Cash Flows from Investing Activities
 

 
 

Available-for-Sale securities:
 

 
 

Sales
27,957

 
29,765

Maturities, redemptions and calls
780,845

 
541,538

Purchases
(1,223,983
)
 
(749,015
)
Syndicated loans, commercial mortgage loans and other investments:
 

 
 

Sales
2,781

 
1,427

Maturities, redemptions and calls
27,955

 
32,157

Purchases and fundings
(11,274
)
 
(18,100
)
Certificate loans:
 

 
 

Payments
498

 
265

Fundings
(50
)
 
(171
)
Net cash used in investing activities
(395,271
)
 
(162,134
)
 
 
 
 
Cash Flows from Financing Activities
 

 
 

Payments from certificate owners
1,723,815

 
905,039

Certificate maturities and cash surrenders
(1,349,392
)
 
(610,842
)
Capital contribution from parent
10,000

 
15,000

Dividend/return of capital to parent

 
(11,000
)
Net cash provided by financing activities
384,423

 
298,197

 
 
 
 
Net increase in cash and cash equivalents
31,559

 
155,263

Cash and cash equivalents at beginning of period
89,232

 
74,498

Cash and cash equivalents at end of period
$
120,791

 
$
229,761

 
 
 
 
Supplemental disclosures including non-cash transactions:
 

 
 

Cash paid (received) for income taxes
$
(243
)
 
$
13,991

Cash paid for interest
28,053

 
23,560

Certificate maturities and surrenders through loan reductions
197

 
363

See Notes to Consolidated Financial Statements.

7


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1.  Basis of Presentation
 
Ameriprise Certificate Company (“ACC” or the “Company”), is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). ACC is registered as an investment company under the Investment Company Act of 1940. The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). ACC uses the consolidation method of accounting for its wholly owned subsidiary, Investors Syndicate Development Corp. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. All adjustments made were of a normal recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2013.
 
ACC evaluated events or transactions that occurred after the consolidated balance sheet date for potential recognition or disclosure through the date the consolidated financial statements were issued.
 
2.  Recent Accounting Pronouncements
 
Adoption of New Accounting Standards
 
Comprehensive Income
 
In February 2013, the Financial Accounting Standards Board (“FASB”) updated the accounting standard related to comprehensive income. The update requires entities to provide information about significant amounts reclassified out of accumulated other comprehensive income (“AOCI”). The standard is effective for interim and annual periods beginning after December 15, 2012 and is required to be applied prospectively. ACC adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on ACC’s consolidated results of operations and financial condition. See Note 9 for the required disclosures.
 
Balance Sheet
 
In December 2011, the FASB updated the accounting standards to require new disclosures about offsetting assets and liabilities. The standard requires an entity to disclose both gross and net information about certain financial instruments and transactions subject to master netting arrangements (or similar agreements) or eligible for offset in the statement of financial position. The standard is effective for interim and annual periods beginning on or after January 1, 2013 on a retrospective basis. ACC adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on ACC’s consolidated results of operations and financial condition. See Note 6 for the required disclosures.
 
Future Adoption of New Accounting Standards
 
Income Taxes
 
In July 2013, the FASB updated the accounting standard for income taxes. The update provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard is effective for interim and annual periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of the standard is not expected to have a material impact on ACC's consolidated results of operations and financial condition.
 
Investment Companies
 
In June 2013, the FASB updated the accounting standard related to investment companies. The standard provides a new two-tiered approach for determining whether a company is an investment company and requires new disclosures for investment companies. The standard is effective for interim and annual periods beginning after December 15, 2013 and is required to be applied prospectively. The adoption of the standard will not impact ACC’s consolidated results of operations and financial condition.

8


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

3.  Investments
 
Investments in unaffiliated issuers were as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
Available-for-Sale securities:
 

 
 

Fixed maturities, at fair value (amortized cost: 2013, $3,829,364; 2012, $3,418,374)
$
3,820,099

 
$
3,424,910

Common stocks, at fair value (cost: 2013, $2,203 2012, $2,204)
5,518

 
4,094

Syndicated loans and commercial mortgage loans, at cost (less allowance for loan losses: 2013, $4,461; 2012, $5,660; fair value: 2013, $137,424; 2012, $156,730)
133,516

 
150,813

Certificate loans — secured by certificate reserves, at cost, which approximates fair value
1,275

 
1,886

Real estate owned, at fair value less costs to sell
1,727

 
1,927

Total
$
3,962,135

 
$
3,583,630

 
Available-for-Sale securities distributed by type were as follows:
 
 
September 30, 2013
Description of Securities
 
Amortized 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Noncredit
OTTI (1)
 
 
(in thousands)
Residential mortgage backed securities
 
$
2,066,605

 
$
15,982

 
$
(42,135
)
 
$
2,040,452

 
$
(19,577
)
Corporate debt securities
 
971,765

 
10,186

 
(1,305
)
 
980,646

 
3

Commercial mortgage backed securities
 
254,986

 
5,484

 
(443
)
 
260,027

 

Asset backed securities
 
535,629

 
5,014

 
(2,089
)
 
538,554

 

U.S. government and agencies obligations
 
379

 
41

 

 
420

 

Common stocks
 
2,203

 
3,315

 

 
5,518

 
1,375

Total
 
$
3,831,567

 
$
40,022

 
$
(45,972
)
 
$
3,825,617

 
$
(18,199
)
 
 
December 31, 2012
Description of Securities
 
Amortized 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Noncredit
OTTI (1)
 
 
(in thousands)
Residential mortgage backed securities
 
$
1,661,052

 
$
24,077

 
$
(49,671
)
 
$
1,635,458

 
$
(33,283
)
Corporate debt securities
 
957,964

 
14,628

 
(2,188
)
 
970,404

 
3

Commercial mortgage backed securities
 
402,877

 
12,013

 
(180
)
 
414,710

 

Asset backed securities
 
396,101

 
8,141

 
(355
)
 
403,887

 

U.S. government and agencies obligations
 
380

 
71

 

 
451

 

Common stocks
 
2,204

 
1,902

 
(12
)
 
4,094

 
721

Total
 
$
3,420,578

 
$
60,832

 
$
(52,406
)
 
$
3,429,004

 
$
(32,559
)
(1) Represents the amount of other-than-temporary impairment (“OTTI”) losses in accumulated other comprehensive income (loss). Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.

At September 30, 2013 and December 31, 2012, fixed maturity securities comprised approximately 94% and 93%, respectively, of ACC’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”), and Fitch Ratings Ltd. (“Fitch”). ACC uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, as is the case for many private placement securities, ACC may utilize ratings from other NRSROs or rate the securities internally. At September 30, 2013 and December 31, 2012, approximately $94.0 million and $110.9 million, respectively, of

9


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

securities were internally rated by Columbia Management Investment Advisers, LLC (“CMIA”) using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follows:
 
 
September 30, 2013
 
December 31, 2012
Ratings
 
Amortized 
Cost
 
Fair Value
 
Percent of 
Total
Fair Value
 
Amortized
Cost
 
Fair Value
 
Percent of 
Total
Fair Value
 
 
(in thousands, except percentages)
AAA
 
$
1,622,729

 
$
1,629,304

 
42
%
 
$
1,482,332

 
$
1,507,947

 
44
%
AA
 
113,051

 
115,501

 
3

 
92,712

 
95,778

 
3

A
 
1,038,676

 
1,037,992

 
27

 
759,808

 
767,931

 
22

BBB
 
780,302

 
788,166

 
21

 
750,410

 
761,850

 
22

Below investment grade
 
274,606

 
249,136

 
7

 
333,112

 
291,404

 
9

Total fixed maturities
 
$
3,829,364

 
$
3,820,099

 
100
%
 
$
3,418,374

 
$
3,424,910

 
100
%
 
At September 30, 2013 and December 31, 2012, approximately 53% and 42%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.
 
The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
Description of Securities
 
September 30, 2013
 
Less than 12 months
 
12 months or more
 
Total
 
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands, except number of securities)
Residential mortgage backed securities
 
75

 
$
944,116

 
$
(9,489
)
 
67

 
$
296,360

 
$
(32,646
)
 
142

 
$
1,240,476

 
$
(42,135
)
Corporate debt securities
 
25

 
254,155

 
(1,273
)
 
1

 
14,007

 
(32
)
 
26

 
268,162

 
(1,305
)
Commercial mortgage backed securities
 
9

 
50,712

 
(442
)
 
1

 
368

 
(1
)
 
10

 
51,080

 
(443
)
Asset backed securities
 
24

 
320,443

 
(2,089
)
 

 

 

 
24

 
320,443

 
(2,089
)
Total
 
133

 
$
1,569,426

 
$
(13,293
)
 
69

 
$
310,735

 
$
(32,679
)
 
202

 
$
1,880,161

 
$
(45,972
)

Description of Securities
 
December 31, 2012
 
Less than 12 months
 
12 months or more
 
Total
 
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
Number of Securities
 
Fair
Value
 
Unrealized
Losses
 
 
(in thousands, except number of securities)
Residential mortgage backed securities
 
16

 
$
300,375

 
$
(641
)
 
81

 
$
364,204

 
$
(49,030
)
 
97

 
$
664,579

 
$
(49,671
)
Corporate debt securities
 
31

 
310,622

 
(2,188
)
 

 

 

 
31

 
310,622

 
(2,188
)
Commercial mortgage backed securities
 
5

 
35,073

 
(180
)
 

 

 

 
5

 
35,073

 
(180
)
Asset backed securities
 
8

 
98,536

 
(355
)
 

 

 

 
8

 
98,536

 
(355
)
Common stocks
 
2

 
99

 
(12
)
 

 

 

 
2

 
99

 
(12
)
Total
 
62

 
$
744,705

 
$
(3,376
)
 
81

 
$
364,204

 
$
(49,030
)
 
143

 
$
1,108,909

 
$
(52,406
)

As part of ACC’s ongoing monitoring process, management determined that a majority of the gross unrealized losses on its Available-for-Sale securities are attributable to movement in credit spreads primarily related to non-agency residential mortgage backed securities purchased prior to 2008.
 

10


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Beginning balance
$
81,522

 
$
69,791

 
$
79,557

 
$
64,545

Credit losses for which an other-than-temporary impairment was not previously recognized

 
860

 

 
1,401

Credit losses for which an other-than-temporary impairment was previously recognized
310

 
5,894

 
2,275

 
10,599

Ending balance
$
81,832

 
$
76,545

 
$
81,832

 
$
76,545

 
The change in net unrealized securities gains (losses) in other comprehensive income (loss) includes two components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period and (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit losses.
 
The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income (loss):
 
Net
Unrealized
Investment
Gains (Losses)
 
Deferred
Income Tax
 
Accumulated Other
Comprehensive Income
(Loss) Related to Net
Unrealized Investment
Gains (Losses)
 
(in thousands)
Balance at January 1, 2012
$
(74,315
)
 
$
27,222

 
$
(47,093
)
 
Net unrealized securities gains arising during the period (2)
60,651

 
(22,415
)
 
38,236
 
 
Reclassification of losses included in net income
11,850

 
(4,148
)
 
7,702
 
 
Balance at September 30, 2012
$
(1,814
)
 
$
659

 
$
(1,155
)
(1) 
 
 
 
 
 
 
 
Balance at January 1, 2013
$
8,426

 
$
(3,055
)
 
$
5,371
 
 
Net unrealized securities losses arising during the period (2)
(16,302
)
 
5,884

 
(10,418
)
 
Reclassification of losses included in net income
1,926

 
(674
)
 
1,252
 
 
Balance at September 30, 2013
$
(5,950
)
 
$
2,155

 
$
(3,795
)
(1) 
(1) Includes $11.8 million and $26.1 million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at September 30, 2013 and 2012, respectively.
(2) Net unrealized securities gains (losses) arising during the period include other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.


11


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Gross realized gains
$
473

 
$
283

 
$
751

 
$
342

Gross realized losses

 
(16
)
 
(402
)
 
(192
)
Other-than-temporary impairments
(310
)
 
(6,754
)
 
(2,275
)
 
(12,000
)
Total
$
163

 
$
(6,487
)
 
$
(1,926
)
 
$
(11,850
)

Other-than-temporary impairments for the three months and nine months ended September 30, 2013 and 2012 primarily related to credit losses on non-agency residential mortgage backed securities.

Available-for-Sale securities by contractual maturity at September 30, 2013 were as follows:
 
Amortized 
Cost
 
Fair
Value
 
(in thousands)
Due within one year
$
155,594

 
$
156,339

Due after one year through five years
816,332

 
824,472

Due after five years through 10 years
4

 
5

Due after 10 years
214

 
250

 
972,144

 
981,066

Residential mortgage backed securities
2,066,605

 
2,040,452

Commercial mortgage backed securities
254,986

 
260,027

Asset backed securities
535,629

 
538,554

Common stocks
2,203

 
5,518

Total
$
3,831,567

 
$
3,825,617

 
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities, as well as common stocks, were not included in the maturities distribution.
 
4.  Commercial Mortgage, Syndicated and Certificate Loans
 
ACC’s financing receivables include commercial mortgage loans, syndicated loans and certificate loans. Certificate loans do not exceed the cash surrender value of the certificate at origination. As there is minimal risk of loss related to certificate loans, ACC does not record an allowance for loan losses for certificate loans.

12


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Allowance for Loan Losses
 
The following tables present a rollforward of the allowance for loan losses for the nine months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:
 
September 30, 2013
 
Commercial
Mortgage Loans
 
Syndicated 
Loans
 
Total
 
(in thousands)
Beginning balance
$
2,576

 
$
3,084

 
$
5,660

Charge-offs
(235
)
 
(964
)
 
(1,199
)
Ending balance
$
2,341

 
$
2,120

 
$
4,461

 
 
 
 
 
 
Individually evaluated for impairment
$

 
$

 
$

Collectively evaluated for impairment
2,341

 
2,120

 
4,461


 
September 30, 2012
 
Commercial
Mortgage Loans
 
Syndicated 
Loans
 
Total
 
(in thousands)
Beginning balance
$
2,576

 
$
4,163

 
$
6,739

Charge-offs

 
(929
)
 
(929
)
Ending balance
$
2,576

 
$
3,234

 
$
5,810

 
 
 
 
 
 
Individually evaluated for impairment
$
1,000

 
$
669

 
$
1,669

Collectively evaluated for impairment
1,576

 
2,565

 
4,141


The recorded investment in financing receivables by impairment method and type of loan was as follows:
 
September 30, 2013
 
Commercial
Mortgage Loans
 
Syndicated 
Loans
 
Total
 
(in thousands)
Individually evaluated for impairment
$
1,836

 
$
2,066

 
$
3,902

Collectively evaluated for impairment
118,214

 
15,861

 
134,075

Total
$
120,050

 
$
17,927

 
$
137,977


 
December 31, 2012
 
Commercial
Mortgage Loans
 
Syndicated 
Loans
 
Total
 
(in thousands)
Individually evaluated for impairment
$
3,892

 
$
1,474

 
$
5,366

Collectively evaluated for impairment
119,933

 
31,174

 
151,107

Total
$
123,825

 
$
32,648

 
$
156,473


As of September 30, 2013 and December 31, 2012, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $3.9 million and $3.6 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to ACC’s total loan balance. During the three months and nine months ended September 30, 2013, ACC sold nil and $821 thousand, respectively, of syndicated loans. During the three months and nine months ended September 30, 2012, ACC sold $1.4 million of syndicated loans. There were no significant purchases of financing receivables during the three months and nine months ended September 30, 2013 and 2012.

13


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

ACC has not acquired any loans with deteriorated credit quality as of the acquisition date.
 
Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $1.5 million and $3.2 million as of September 30, 2013 and December 31, 2012, respectively. All other loans were considered to be performing.
 
Commercial Mortgage Loans
 
ACC reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 1.5% and 3.1% of total commercial mortgage loans as of September 30, 2013 and December 31, 2012, respectively. Loans with the highest risk rating represent distressed loans which ACC has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, ACC reviews the concentrations of credit risk by region and property type.
 
Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:
 
Loans
 
Percentage
 
September 30,
2013
 
December 31,
2012
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
 
 
 
 
East North Central
$
3,298

 
$
5,089

 
3
%
 
4
%
Middle Atlantic
8,349

 
8,893

 
7

 
7

Mountain
9,557

 
10,026

 
8

 
8

New England
10,522

 
10,763

 
9

 
9

Pacific
30,295

 
32,183

 
25

 
26

South Atlantic
34,673

 
35,862

 
29

 
29

West North Central
13,817

 
15,079

 
11

 
12

West South Central
9,539

 
5,930

 
8

 
5

 
120,050

 
123,825

 
100
%
 
100
%
Less: allowance for loan losses
2,341

 
2,576

 
 

 
 

Total
$
117,709

 
$
121,249

 
 

 
 


Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 
Loans
 
Percentage
 
September 30,
2013
 
December 31,
2012
 
September 30,
2013
 
December 31,
2012
 
(in thousands)
 
 
 
 
Apartments
$
34,591

 
$
35,042

 
29
%
 
28
%
Industrial
23,443

 
24,782

 
20

 
20

Office
11,227

 
13,172

 
9

 
11

Retail
34,740

 
35,194

 
29

 
28

Other
16,049

 
15,635

 
13

 
13

 
120,050

 
123,825

 
100
%
 
100
%
Less: allowance for loan losses
2,341

 
2,576

 
 

 
 

Total
$
117,709

 
$
121,249

 
 

 
 

 

14


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Syndicated Loans
 
ACC’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at both September 30, 2013 and December 31, 2012 were $1.5 million, which represent 8% and 5% of total syndicated loans at September 30, 2013 and December 31, 2012, respectively.
 
Troubled Debt Restructurings
 
There were no loans restructured by ACC during the three months ended September 30, 2013 and 2012. The following table presents the number of loans restructured by ACC during the nine months ended September 30 and their recorded investment at the end of the period:
 
2013
 
2012
 
Number
of Loans
 
Recorded
Investment
 
Number
of Loans
 
Recorded
Investment
 
(in thousands, except number of loans)
Commercial mortgage loans
1

 
$
1,988

 

 
$

Syndicated loans
1

 
244

 
1

 
475

Total
2

 
$
2,232

 
1

 
$
475


The troubled debt restructuring did not have a material impact to ACC’s allowance for loan losses or income recognized for the three months and nine months ended September 30, 2013 and 2012. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.
 
5.  Fair Values of Assets and Liabilities
 
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.
 
Valuation Hierarchy
 
ACC categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by ACC’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1
Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2
Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.


15


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:
 
September 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Assets
 

 
 

 
 

 
 

Cash equivalents
$

 
$
81,299

 
$

 
$
81,299

Available-for-Sale securities:
 

 
 

 
 

 
 

Residential mortgage backed securities

 
1,841,977

 
198,475

 
2,040,452

Corporate debt securities

 
871,634

 
109,012

 
980,646

Commercial mortgage backed securities

 
260,027

 

 
260,027

Asset backed securities

 
516,270

 
22,284

 
538,554

U.S. government and agencies obligations
420

 

 

 
420

Common stocks
2,208

 
3,099

 
211

 
5,518

Total Available-for-Sale securities
2,628

 
3,493,007

 
329,982

 
3,825,617

Equity derivatives, purchased

 
55,520

 

 
55,520

Total assets at fair value
$
2,628

 
$
3,629,826

 
$
329,982

 
$
3,962,436

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Certificate reserves
$

 
$
7,232

 
$

 
$
7,232

Equity derivatives, written

 
48,605

 

 
48,605

Total liabilities at fair value
$

 
$
55,837

 
$

 
$
55,837

 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Assets
 

 
 

 
 

 
 

Cash equivalents
$

 
$
81,098

 
$

 
$
81,098

Available-for-Sale securities:
 

 
 

 
 

 
 

Residential mortgage backed securities

 
1,382,860

 
252,598

 
1,635,458

Corporate debt securities

 
859,761

 
110,643

 
970,404

Commercial mortgage backed securities

 
378,650

 
36,060

 
414,710

Asset backed securities

 
381,664

 
22,223

 
403,887

U.S. government and agencies obligations
451

 

 

 
451

Common stocks
1,054

 
2,216

 
824

 
4,094

Total Available-for-Sale securities
1,505

 
3,005,151

 
422,348

 
3,429,004

Equity derivatives, purchased

 
37,003

 

 
37,003

Total assets at fair value
$
1,505

 
$
3,123,252

 
$
422,348

 
$
3,547,105

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Certificate reserves
$

 
$
7,904

 
$

 
$
7,904

Equity derivatives, written

 
29,532

 

 
29,532

Total liabilities at fair value
$

 
$
37,436

 
$

 
$
37,436





16


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:
 
Available-for-Sale Securities
 
 
 
 
 
Residential Mortgage
Backed
Securities
 
Corporate
Debt
Securities
 
Commercial Mortgage
Backed
Securities
 
Asset
Backed
Securities
 
Common
Stocks
 
Derivatives
 
Total
 
(in thousands)
Balance, July 1, 2013
$
19,400

 
$
108,637

 
$
45,771

 
$
59,957

 
$
229

 
$

 
$
233,994

Total gains (losses) included in:
 
 

 
 
 
 
 
 

 
 

 
 

Net income
(29
)
(1) 
(283
)
(1) 
(86
)
(1) 
49

(1) 

 

 
(349
)
Other comprehensive income
(61
)
 
658

 
(226
)
 
(322
)
 
(18
)
 

 
31

Purchases
200,384

 

 

 

 

 

 
200,384

Settlements
(1,819
)
 

 
(35,489
)
 
(918
)
 

 

 
(38,226
)
Transfers out of Level 3
(19,400
)
 

 
(9,970
)
 
(36,482
)
 

 

 
(65,852
)
Balance, September 30, 2013
$
198,475

 
$
109,012

 
$

 
$
22,284

 
$
211

 
$

 
$
329,982

Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2013
$
(29
)
(1) 
$
(283
)
(1) 
$

 
$
49

(1) 
$

 
$

 
$
(263
)
(1) Included in investment income in the Consolidated Statements of Operations.

 
Available-for-Sale Securities
 
 
 
 
 
Residential Mortgage
Backed
Securities
 
Corporate
Debt
Securities
 
Commercial Mortgage
Backed
Securities
 
Asset
Backed
Securities
 
Common
Stocks
 
Derivatives
 
Total
 
(in thousands)
Balance, July 1, 2012
$
107,213

 
$
29,236

 
$
25,903

 
$
24,482

 
$
288

 
$

 
$
187,122

Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
 

Net income
148

(1) 
(15
)
(1) 
(7
)
(1) 
73

(1) 

 

 
199

Other comprehensive income
159

 
500

 
124

 
374

 

 

 
1,157

Purchases
53,740

 
15,000

 

 

 

 

 
68,740

Settlements
(3,411
)
 
(778
)
 

 
(1,376
)
 

 

 
(5,565
)
Transfers out of Level 3
(86,041
)
 

 

 

 
(41
)
 

 
(86,082
)
Balance, September 30, 2012
$
71,808

 
$
43,943

 
$
26,020

 
$
23,553

 
$
247

 
$

 
$
165,571

Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2012
$
148

(1) 
$
(15
)
(1) 
$
(7
)
(1) 
$
73

(1) 
$

 
$

 
$
199

(1)  Included in investment income in the Consolidated Statements of Operations.

17


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 
Available-for-Sale Securities
 
 
 
 
 
Residential Mortgage
Backed
Securities
 
Corporate
Debt
Securities
 
Commercial Mortgage
Backed
Securities
 
Asset
Backed
Securities
 
Common
Stocks
 
Derivatives
 
Total
 
(in thousands)
Balance, January 1, 2013
$
252,598

 
$
110,643

 
$
36,060

 
$
22,223

 
$
824

 
$

 
$
422,348

Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
(29
)
(1) 
(848
)
(1) 
(175
)
(1) 
114

(1) 

 

 
(938
)
Other comprehensive loss
(61
)
 
(779
)
 
(396
)
 
(512
)
 
(36
)
 

 
(1,784
)
Purchases
219,784

 

 
9,970

 
171,338

 

 

 
401,092

Settlements
(1,819
)
 

 
(35,489
)
 
(3,303
)
 

 

 
(40,611
)
Transfers into Level 3

 

 

 
7,872

 

 

 
7,872

Transfers out of Level 3
(271,998
)
 
(4
)
 
(9,970
)
 
(175,448
)
 
(577
)
 

 
(457,997
)
Balance, September 30, 2013
$
198,475

 
$
109,012

 
$

 
$
22,284

 
$
211

 
$

 
$
329,982

Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2013
$
(29
)
(1) 
$
(848
)
(1) 
$

 
$
104

(1) 
$

 
$

 
$
(773
)
(1) Included in investment income in the Consolidated Statements of Operations.

 
Available-for-Sale Securities
 
 
 
 
 
Residential Mortgage
Backed
Securities
 
Corporate
Debt
Securities
 
Commercial Mortgage
Backed
Securities
 
Asset
Backed
Securities
 
Common
Stocks
 
Derivatives
 
Total
 
(in thousands)
Balance, January 1, 2012
$
80,580

 
$
12,984

 
$

 
$
27,812

 
$
340

 
$
4

 
$
121,720

Total gains (losses) included in:
 
 

 
 

 
 

 
 

 
 

 
 

Net income
(5,106
)
(1) 
(39
)
(2) 
(17
)
(2) 
215

(2) 

 

 
(4,947
)
Other comprehensive income
10,323

 
664

 
451

 
715

 
(14
)
 

 
12,139

Purchases
75,732

 
32,730

 
2,037

 

 
296

 

 
110,795

Sales

 

 

 

 

 
(4
)
 
(4
)
Settlements
(14,585
)
 
(2,399
)
 

 
(5,189
)
 

 

 
(22,173
)
Transfers into Level 3
10,905

 
3

 
23,549

 

 

 

 
34,457

Transfers out of Level 3
(86,041
)
 

 

 

 
(375
)
 

 
(86,416
)
Balance, September 30, 2012
$
71,808

 
$
43,943

 
$
26,020

 
$
23,553

 
$
247

 
$

 
$
165,571

Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2012
$
175

(1) 
$
(39
)
(2) 
$
(17
)
(2) 
$
215

(2) 
$

 
$

 
$
334

(1) Represents a $(5,246) loss included in net realized gain (loss) on investments and a $140 gain included in investment income in the Consolidated Statements of Operations.
(2) Included in investment income in the Consolidated Statements of Operations.


18


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. ACC recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
 
The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by ACC or reasonably available to ACC of Level 3 assets and liabilities:
 
September 30, 2013
 
Fair Value
 
Valuation 
Technique
 
Unobservable 
Input
 
Range (Weighted 
Average)
 
(in thousands)
 
 
 
 
 
 
Corporate debt securities (private placements)
$
87,900

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.2% - 1.5% (1.4%)
 
December 31, 2012
 
Fair Value
 
Valuation 
Technique
 
Unobservable 
Input
 
Range (Weighted 
Average)
 
(in thousands)
 
 
 
 
 
 
Corporate debt securities (private placements)
$
88,530

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.4% - 1.7% (1.5%)
 
Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs are not reasonably available to ACC.
 
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
 
Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.
 
Determination of Fair Value
 
ACC uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. ACC’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. ACC’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, ACC maximizes the use of observable inputs and minimizes the use of unobservable inputs.
 
The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.
 
Cash Equivalents
 
Cash equivalents include highly liquid investments with original maturities of 90 days or less. ACC’s cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.
 
Available-for-Sale Securities
 
When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and common stocks. Level 2 securities primarily include residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities, U.S. agency securities and common stock. The fair value of these Level 2 securities is based on a market approach with prices obtained from

19


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

third party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain non-agency residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities and common stocks. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to ACC. ACC’s privately placed corporate bonds are typically based on a single non-binding broker quote. In addition to the general pricing controls, ACC reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.

In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. ACC reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. ACC also performs subsequent transaction testing. ACC performs annual due diligence of third party pricing services. ACC’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. ACC also considers the results of its exception reporting controls and any resulting price challenges that arise.
 
Derivatives (Equity Derivatives, Purchased and Written)
 
The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at September 30, 2013 and December 31, 2012. See Note 6 and Note 7 for further information on the credit risk of derivative instruments and related collateral.
 
Certificate Reserves
 
ACC uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities, and equity index levels. As a result, these measurements are classified as Level 2.
 
During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.
 
The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities measured at fair value on a recurring basis.
 
September 30, 2013
 
Carrying 
Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Financial Assets
 

 
 

 
 

 
 

 
 

Syndicated loans
$
15,807

 
$

 
$
16,431

 
$

 
$
16,431

Commercial mortgage loans
117,709

 

 

 
120,993

 
120,993

Certificate loans
1,275

 

 
1,275

 

 
1,275

Financial Liabilities
 

 
 

 
 

 
 

 
 

Certificate reserves
$
3,878,871

 
$

 
$

 
$
3,878,288

 
$
3,878,288



20


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

 
December 31, 2012
 
Carrying 
Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Financial Assets
 

 
 

 
 

 
 

 
 

Syndicated loans
$
29,564

 
$

 
$
30,164

 
$
369

 
$
30,533

Commercial mortgage loans
121,249

 

 

 
126,197

 
126,197

Certificate loans
1,886

 

 
1,886

 

 
1,886

Financial Liabilities
 

 
 

 
 

 
 

 
 

Certificate reserves
$
3,504,091

 
$

 
$

 
$
3,494,304

 
$
3,494,304


Syndicated Loans
 
The fair value of syndicated loans is obtained from a third party pricing service or non-binding broker quotes. Syndicated loans that are priced by multiple non-binding broker quotes are classified as Level 2 and loans priced using a single non-binding broker quote are classified as Level 3.
 
Commercial Mortgage Loans
 
The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for ACC’s estimate of the amount recoverable on the loan. Given the significant unobservable inputs to the valuation of commercial mortgage loans, these measurements are classified as Level 3.
 
Certificate Loans
 
Certificate loans represent loans made against and collateralized by the underlying certificate balance. These loans do not transfer to third parties separate from the underlying certificate. The outstanding balance of these loans is considered a reasonable estimate of fair value and is classified as Level 2.
 
Certificate Reserves
 
The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and ACC’s nonperformance risk specific to these liabilities. Given the use of significant unobservable inputs to this valuation, the measurement is classified as Level 3.
 
6. Offsetting Assets and Liabilities
 
Certain derivative instruments are eligible for offset in the Consolidated Balance Sheets under GAAP. ACC’s derivative instruments are subject to master netting arrangements and collateral arrangements and meet the GAAP guidance to qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. ACC’s policy is to recognize amounts subject to master netting arrangements on a gross basis on the Consolidated Balance Sheets.
 

21


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables present the gross and net information about ACC’s assets subject to master netting arrangements:
 
September 30, 2013
 
Gross
Amounts of
Recognized Assets
 
Gross Amounts
Offset in the
Consolidated
Balance Sheets
 
Amounts of Assets Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Net Amount
 
(in thousands)
Equity derivatives, purchased
$
55,520

 
$

 
$
55,520

 
$
(48,605
)
 
$
(2,071
)
 
$
4,844

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
Gross
Amounts of
Recognized Assets
 
Gross Amounts
Offset in the
Consolidated
Balance Sheets
 
Amounts of Assets Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Net Amount
 
(in thousands)
Equity derivatives, purchased
$
37,003

 
$

 
$
37,003

 
$
(29,532
)
 
$
(2,412
)
 
$
5,059

(1) Represents the amount of assets that could be offset by liabilities with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.

The following tables present the gross and net information about ACC’s liabilities subject to master netting agreements:
 
September 30, 2013
 
Gross
Amounts of
Recognized Liabilities
 
Gross Amounts
Offset in the
Consolidated
Balance Sheets
 
Amounts of Liabilities Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Net Amount
 
(in thousands)
Equity derivatives, written
$
48,605

 
$

 
$
48,605

 
$
(48,605
)
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
Gross
Amounts of
Recognized Liabilities
 
Gross Amounts
Offset in the
Consolidated
Balance Sheets
 
Amounts of Liabilities Presented in the Consolidated Balance Sheets
 
Gross Amounts Not Offset in the Consolidated Balance Sheets
 
 
 
 
 
 
Financial Instruments (1)
 
Cash Collateral
 
Net Amount
 
(in thousands)
Equity derivatives, written
$
29,532

 
$

 
$
29,532

 
$
(29,532
)
 
$

 
$

(1) Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Consolidated Balance Sheets.
 
In the tables above, the amounts of assets or liabilities presented in the Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral.  The actual amounts of collateral may be greater than amounts presented in the tables.
 
See Note 7 for additional disclosures related to the Company’s derivative instruments.
 

22


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

7.  Derivatives and Hedging Activities
 
Derivative instruments enable ACC to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices. ACC primarily enters into derivative agreements for risk management purposes related to ACC’s products.
 
ACC uses derivatives as economic hedges of equity risk related to stock market certificates. ACC does not designate any derivatives for hedge accounting. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives, by type of derivative and product:
Derivatives not designated as hedging instruments
 
 
 
Asset
 
 
 
Liability
 
Balance Sheet
Location
 
September 30,
2013
 
December 31,
2012
 
Balance Sheet
Location
 
September 30,
2013
 
December 31,
2012
 
 
 
 
(in thousands)
 
 
 
(in thousands)
Equity
 
 
 
 
 
 
 
 
Stock market certificates
 
Equity derivatives, purchased
 
$
55,520

 
$
37,003

 
Equity derivatives, written
 
$
48,605

 
$
29,532

Stock market certificates embedded derivatives
 
N/A
 

 

 
Certificate reserves
 
7,232

 
7,904

Total
 
 
 
$
55,520

 
$
37,003

 
 
 
$
55,837

 
$
37,436

N/A Not applicable.

See Note 5 for additional information regarding ACC’s fair value measurement of derivative instruments.

The following tables present a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operations:
Derivatives not designated as hedging instruments
 
Location of Gain (Loss) on Derivatives Recognized in Income
 
Amount of Gain (Loss) on Derivatives Recognized in Income
 
 
Three Months Ended September 30,
 
 
2013
 
2012
 
 
 
 
(in thousands)
Equity
 
 
 
 

 
 

Stock market certificates
 
Net provision for certificate reserves
 
$
1,131

 
$
1,869

Stock market certificates embedded derivatives
 
Net provision for certificate reserves
 
(798
)
 
(1,424
)
Total
 
 
 
$
333

 
$
445

Derivatives not designated as hedging instruments
 
Location of Gain (Loss) on Derivatives Recognized in Income
 
Amount of Gain (Loss) on Derivatives Recognized in Income
 
 
Nine Months Ended September 30,
 
 
2013
 
2012
 
 
 
 
(in thousands)
Equity
 
 
 
 

 
 

Stock market certificates
 
Net provision for certificate reserves
 
$
5,029

 
$
5,866

Stock market certificates embedded derivatives
 
Net provision for certificate reserves
 
(4,352
)
 
(4,873
)
Total
 
 
 
$
677

 
$
993


Ameriprise Stock Market Certificates (“SMC”) offer a return based upon the relative change in a major stock market index between the beginning and end of the SMC’s term. The SMC product contains an embedded derivative. The equity based return of the certificate must be separated from the host contract and accounted for as a derivative instrument. As a result of fluctuations in equity markets, and the corresponding changes in value of the embedded derivative, the amount of expenses incurred by ACC related to the SMC product will positively or negatively impact reported earnings. As a means of hedging its obligations under the provisions for these certificates, ACC purchases and writes call options on the S&P 500 Index.

23


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

ACC views this strategy as a prudent management of equity market sensitivity, such that earnings are not exposed to undue risk presented by changes in equity market levels. The gross notional amount of these derivative contracts was $1.0 billion and $1.1 billion at September 30, 2013 and December 31, 2012, respectively. ACC also purchases futures on the S&P 500 Index to economically hedge its obligations. The futures are marked-to-market daily and exchange traded, exposing ACC to no counterparty risk. The gross notional amount of these derivative contracts was $502 thousand and $781 thousand at September 30, 2013 and December 31, 2012, respectively.
 
Credit Risk
 
Credit risk associated with ACC’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, ACC has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical. See Note 6 for additional information on ACC’s credit exposure related to derivative assets.
 
8.  Contingencies
 
The level of regulatory activity and inquiry in the financial services industry remains elevated. From time to time, ACC receives requests for information from, and/or has been subject to examination by, both the SEC and the Minnesota Department of Commerce concerning its business activities and practices. In addition, a number of state and federal regulatory agencies have initiated examinations and other inquiries related to unclaimed property and escheatment practices and procedures.  The Ameriprise organization has cooperated and will continue to cooperate with applicable regulators regarding their inquiries.
 
ACC may in the normal course of business be a party to legal, regulatory or arbitration proceedings concerning matters arising in connection with the conduct of its business activities. The outcome of any such proceeding cannot be predicted with any certainty. ACC believes that it is not a party to, nor are any of its properties the subject of, any pending legal, regulatory or arbitration proceedings that are reasonably likely to have a material adverse effect on its financial condition or results of operations. However, it is possible that the outcome of any such proceedings could have a material impact on ACC’s financial position or results of operations.

9.  Shareholder’s Equity
 
The following table provides information related to amounts reclassified from AOCI:
 
 
 
 
Amount Reclassified from AOCI
AOCI Reclassification
 
Location of Loss Recognized in Income
 
Three Months Ended 
 September 30, 2013
 
Nine Months Ended 
 September 30, 2013
 
 
 
 
(in thousands)
Unrealized net losses (gains) on
Available-for-Sale securities
 
Net investment income
 
$
(163
)
 
$
1,926

Tax expense (benefit)
 
Income tax provision
 
57

 
(674
)
Net of tax
 
 
 
$
(106
)
 
$
1,252

 

24


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

10.  Income Taxes
 
The effective tax rate was 36.3% and 36.7% for the three months and nine months ended September 30, 2013, respectively, compared to 36.6% for both the three months and nine months ended September 30, 2012.
 
ACC is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, i) future taxable income exclusive of reversing temporary differences and carryforwards, ii) future reversals of existing taxable temporary differences, iii) taxable income in prior carryback years, and iv) tax planning strategies. Based on analysis of ACC’s tax positions, management believes it is more likely than not that ACC’s results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable ACC to utilize all of the deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of September 30, 2013 and December 31, 2012.
 
As of September 30, 2013 and December 31, 2012, ACC had $1.9 million and $736 thousand, respectively, of gross unrecognized tax benefits. If recognized, approximately $173 thousand and $1.0 million, net of federal tax benefits, of the unrecognized tax benefits as of September 30, 2013 and December 31, 2012, respectively, would affect the effective tax rate.
 
It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of ACC, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $1.7 million in the next 12 months.
 
ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized interest and penalties of $19 thousand and $120 thousand for the three months and nine months ended September 30, 2013, respectively. ACC recognized no interest and penalties for the three months and nine months ended September 30, 2012. ACC had $1.2 million and $1.1 million for the payment of interest and penalties accrued at September 30, 2013 and December 31, 2012, respectively.
 
ACC files income tax returns, as part of its inclusion in the consolidated federal income tax returns of Ameriprise Financial, in the U.S. federal jurisdiction, and various states jurisdictions. The Internal Revenue Service (“IRS”) has completed its field examination of the 1997 through 2007 tax returns. However, for federal income tax purposes these years, except for 2007, continue to remain open as a consequence of certain unagreed upon issues. The IRS is in the process of completing the audit of Ameriprise Financial’s U.S. income tax returns for 2008 and 2009, and began auditing 2010 and 2011 in the fourth quarter of 2012. ACC’s or its subsidiary’s state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 2008 and remain open for all years after 2008.

25


AMERIPRISE CERTIFICATE COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


ITEM 2.  MANAGEMENT'S NARRATIVE ANALYSIS
 
The following information should be read in conjunction with Ameriprise Certificate Company's (“ACC”) Financial Statements and related notes presented in Part I, Item 1. This discussion may contain forward-looking statements that reflect ACC's plans, estimates and beliefs. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.” ACC believes it is useful to read its management's narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2013 (“2012 10-K”), as well as its current reports on Form 8-K and other publicly available information.
 
ACC is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). ACC is registered as an investment company under the Investment Company Act of 1940 and is in the business of issuing face-amount investment certificates. Face-amount investment certificates issued by ACC entitle the certificate owner to receive at maturity a stated amount of money and interest or credits declared from time to time by ACC, at its discretion. The certificates issued by ACC are not insured by any government agency. ACC's certificates are sold primarily by Ameriprise Financial Services, Inc., an affiliate of ACC. Ameriprise Financial Services, Inc. is registered as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico. ACC's investment portfolio is managed by Columbia Management Investment Advisers, LLC (“CMIA”), a wholly owned subsidiary of Ameriprise Financial.
 
Management's narrative analysis of the results of operations is presented in lieu of management's discussion and analysis of financial condition and results of operations, pursuant to General Instructions H(2)(a) of Form 10-Q.

Critical Accounting Policies
 
ACC's critical accounting policies are discussed in detail in “Management's Narrative Analysis — Critical Accounting Policies” in its 2012 10-K.

Recent Accounting Pronouncements
 
For information regarding recent accounting pronouncements and their expected impact on ACC's future results of operations or financial condition, see Note 2 to the consolidated financial statements.

Results of Operations for the Nine Months Ended September 30, 2013 and 2012
 
ACC's net income is derived primarily from the after-tax yield on investments and realized investment gains (losses), less investment expenses and interest credited on certificate reserve liabilities. Net income trends occur largely due to changes in returns on ACC's investment portfolio, from realization of investment gains (losses) and from changes in interest credited to certificate products. ACC follows U.S. generally accepted accounting principles (“GAAP”).
 
Net income increased $0.6 million, or 5%, to $12.8 million for the nine months ended September 30, 2013, compared to $12.2 million for the prior year period, primarily due to lower realized losses on investments as a result of decreased other-than-temporary impairments on non-agency residential mortgage backed securities, partially offset by a decrease in investment income as a result of lower yields, higher investment expenses and an increase in the provision for certificate reserves.
 
Investment income decreased $4.0 million, or 6%, to $64.0 million for the nine months ended September 30, 2013 compared to $68.0 million for the prior year period. Although average investment balances increased compared to the prior year period, the negative impact of the low interest rate environment more than offset the income from higher average balances.
 
Investment expenses increased $3.0 million, or 19%, to $19.0 million for the nine months ended September 30, 2013 compared to $16.0 million for the prior year period. This increase is primarily due to higher fees as a result of higher certificate reserve balances compared to the prior year period.
 
Net provision for certificate reserves increased $1.9 million, or 9%, to $22.9 million for the nine months ended September 30, 2013 compared to $21.0 million for the prior year period. This increase is a result of client inflows primarily associated with the relaunch of the Ameriprise Cash Reserve Certificate in May of 2012. In addition, changes to Ameriprise Financial's banking business in late 2012 favorably impacted ACC's inflows as clients purchased Ameriprise Certificates to meet their needs for guaranteed returns and principal.
 

26


Net realized loss on investments before income taxes was $1.9 million for the nine months ended September 30, 2013 compared to $11.9 million for the prior year period. Included in net realized investment losses for the nine months ended September 30, 2013 and 2012 were other-than-temporary impairments of $2.3 million and $12.0 million, respectively, which related primarily to credit losses on non-agency residential mortgage backed securities. The other-than-temporary impairments for the nine months ended September 30, 2013 were partially offset by net realized gains from sales, tenders and calls of Available-for-Sale securities.

The effective tax rate was 36.7% for the nine months ended September 30, 2013 compared to 36.6% for the nine months ended September 30, 2012.
 
It is possible there will be corporate tax reform in the next few years. While impossible to predict, corporate tax reform is likely to include a reduction in the corporate tax rate coupled with reductions in tax preferred items. Any changes could have a material impact on ACC's income tax expense and the deferred tax balances.

Fair Value Measurements
 
ACC reports certain assets and liabilities at fair value; specifically, derivatives, embedded derivatives, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions. Companies are not permitted to use market prices that are the result of a forced liquidation or distressed sale. ACC includes actual market prices or observable inputs in its fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. ACC validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 5 to the consolidated financial statements for additional information regarding ACC's fair value measurements.

Forward-Looking Statements
 
This report contains forward-looking statements that reflect management's plans, estimates and beliefs. Actual results could differ materially from those described in these forward-looking statements. The words “believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” “forecast,” “on pace,” “project” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. ACC undertakes no obligation to update or revise any forward-looking statements.

ITEM 4.  CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
ACC maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to ACC's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, ACC's disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.
 
ACC's management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC's Chief Executive Officer and Chief Financial Officer have concluded that ACC's disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2013.
 
Changes in Internal Control over Financial Reporting
 
There have not been any changes in ACC's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, ACC's internal control over financial reporting.

27


PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
 
The information set forth in Note 8 to the Consolidated Financial Statements in Part I, Item 1 is incorporated herein by reference.

ITEM 1A.  RISK FACTORS
 
There have been no material changes in the risk factors provided in Part I, Item 1A of ACC's 2012 10-K.

ITEM 6.  EXHIBITS
 
The list of exhibits required to be filed as exhibits to this report are listed on page E-1 hereof, under “Exhibit Index,” which is incorporated herein by reference.

28


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

 
 
AMERIPRISE CERTIFICATE COMPANY
 
 
(Registrant)
 
 
 
Date:
November 4, 2013
/s/ Abu M. Arif
 
 
Abu M. Arif
 
 
Chief Executive Officer
 
 
 
 
 
 
Date:
November 4, 2013
/s/ Ross P. Palacios
 
 
Ross P. Palacios
 
 
Chief Financial Officer

29


EXHIBIT INDEX
 
The following exhibits are filed as part of this Quarterly Report:
 
Exhibit        Description

3(a)
Amended and Restated Certificate of Incorporation of American Express Certificate Company, dated August 1, 2005, filed electronically on or about March 10, 2006 as Exhibit 3(a) to Registrant's Form 10-K is incorporated by reference.
3(b)
By-Laws of Ameriprise Certificate Company, filed electronically on or about November 5, 2010 as Exhibit 3(b) to Registrant's Form 10-Q, are incorporated herein by reference.
14(a)*
Code of Ethics under Rule 17j-1 for Ameriprise Certificate Company effective August 21, 2013, is filed electronically herewith as Exhibit14(a) to Registrant’s Form 10-Q.
31.1*
Certification of Abu M. Arif pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Ross P. Palacios pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*
Certification of Abu M. Arif and Ross P. Palacios pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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* Filed electronically herewithin.



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