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EX-31.2 - EXHIBIT 31.2 - AMERIPRISE CERTIFICATE COacc-ex312x33115.htm
EX-32.1 - EXHIBIT 32.1 - AMERIPRISE CERTIFICATE COacc-ex321x33115.htm
EX-31.1 - EXHIBIT 31.1 - AMERIPRISE CERTIFICATE COacc-ex311x33115.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 March 31, 2015
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 May 4, 2015
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
 
 

 
 
 
 
Consolidated Statements of Operations — Three months ended March 31, 2015 and 2014
3

 
 
Consolidated Statements of Comprehensive Income — Three months ended March 31, 2015 and 2014
4

 
 
Consolidated Balance Sheets — March 31, 2015 and December 31, 2014
5

 
 
Consolidated Statements of Shareholder's Equity — Three months ended March 31, 2015 and 2014
6

 
 
Consolidated Statements of Cash Flows — Three months ended March 31, 2015 and 2014
7

 
 
8

 
22

 
23

 

 
24

 
24

 
24

 
25

 
E-1


2


AMERIPRISE CERTIFICATE COMPANY



PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
 
 
Three Months Ended March 31,
 
2015
 
2014
 
 
 
 
Investment income
$
21,832

 
$
22,155

Investment expenses
6,621

 
7,718

Net investment income before provision for certificate reserves and income taxes
15,211

 
14,437

Net provision for certificate reserves
6,268

 
6,790

Net investment income before income taxes
8,943

 
7,647

Income tax expense
1,779

 
2,898

Net investment income
7,164

 
4,749

 
 
 
 
Net realized gain (loss) on investments
(921
)
 
369

Income tax expense (benefit)
(322
)
 
129

Net realized gain (loss) on investments, after-tax
(599
)
 
240

Net income
$
6,565

 
$
4,989

 
 
 
 
Supplemental Disclosures:
 

 
 

Total other-than-temporary impairment losses on securities
$

 
$
(14
)
Portion of loss recognized in other comprehensive income (before taxes)
(923
)
 
(289
)
Net impairment losses recognized in net realized gain (loss) on investments
$
(923
)
 
$
(303
)
 See Notes to Consolidated Financial Statements.


3


AMERIPRISE CERTIFICATE COMPANY



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)

 
Three Months Ended March 31,
 
2015
 
2014
 
 
 
 
Net income
$
6,565

 
$
4,989

Other comprehensive income, net of tax:
 

 
 

Net unrealized gains on securities:
 

 
 

Net unrealized securities gains arising during the period
5,284

 
3,453

Reclassification of net securities (gains) losses included in net income
599

 
(240
)
Total other comprehensive income, net of tax
5,883

 
3,213

Total comprehensive income
$
12,448

 
$
8,202

See Notes to Consolidated Financial Statements.


4


AMERIPRISE CERTIFICATE COMPANY



CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

 
March 31, 2015
 
December 31, 2014
Assets
(unaudited)
 
 

Qualified Assets
 

 
 

Cash and cash equivalents
$
104,150

 
$
68,632

Investments in unaffiliated issuers
4,466,352

 
4,372,118

Receivables
28,925

 
25,444

Equity options, purchased
33,363

 
45,857

Total qualified assets
4,632,790

 
4,512,051

Deferred taxes, net
1,446

 
1,485

Due from related party
11

 
16

Total assets
$
4,634,247

 
$
4,513,552

 
 
 
 
Liabilities and Shareholder's Equity
 

 
 

Liabilities
 

 
 

Certificate reserves
$
4,309,485

 
$
4,206,770

Current taxes payable to parent
4,438

 
3,133

Equity options, written
28,345

 
40,073

Payable for investment securities purchased
20,180

 
2,292

Due to related party and other liabilities
24,420

 
21,353

Total liabilities
4,386,868

 
4,273,621

 
 
 
 
Shareholder's Equity
 

 
 

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

 
1,500

Additional paid-in capital
201,517

 
201,517

Total retained earnings
42,507

 
40,942

Accumulated other comprehensive income (loss), net of tax
1,855

 
(4,028
)
Total shareholder's equity
247,379

 
239,931

Total liabilities and shareholder's equity
$
4,634,247

 
$
4,513,552

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
 
Unappropriated
 
Accumulated Other Comprehensive Income (Loss), Net of Tax
 
Total
 
Balance at
January 1, 2014
150,000

 
$
1,500

 
$
201,517

 
$
26

 
$
15

 
$
23,258

 
$
(3,141
)
 
$
223,175

Comprehensive income:
Net income

 

 

 

 

 
4,989

 

 
4,989

Other comprehensive income, net of tax

 

 

 

 

 

 
3,213

 
3,213

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
8,202

Transfer to appropriated/from unappropriated

 

 

 
51

 

 
(51
)
 

 

Balance at
March 31, 2014
150,000

 
$
1,500

 
$
201,517

 
$
77

 
$
15

 
$
28,196

 
$
72

 
$
231,377

 
Balance at
January 1, 2015
150,000

 
$
1,500

 
$
201,517

 
$
58

 
$
15

 
$
40,869

 
$
(4,028
)
 
$
239,931

Comprehensive income:
Net income

 

 

 

 

 
6,565

 

 
6,565

Other comprehensive income, net of tax

 

 

 

 

 

 
5,883

 
5,883

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
12,448

Transfer to appropriated/from unappropriated

 

 

 
(15
)
 

 
15

 

 

Dividend/return of capital to parent

 

 

 

 

 
(5,000
)
 

 
(5,000
)
Balance at
March 31, 2015
150,000

 
$
1,500

 
$
201,517

 
$
43

 
$
15

 
$
42,449

 
$
1,855

 
$
247,379

See Notes to Consolidated Financial Statements.



6


AMERIPRISE CERTIFICATE COMPANY



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

 
Three Months Ended March 31,
 
2015
 
2014
Cash Flows from Operating Activities
Net income
$
6,565

 
$
4,989

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums, accretion of discounts, net
6,572

 
7,634

Deferred income tax provision
228

 
154

Net realized gain on Available-for-Sale securities
(2
)
 
(672
)
Other-than-temporary impairments and provision for loan loss
923

 
303

Changes in operating assets and liabilities:
Dividends and interest receivable
(2,234
)
 
(850
)
Certificate reserves, net
(430
)
 
(312
)
Deferred taxes, net
(3,623
)
 
(2,257
)
Current taxes payable to/receivable from parent, net
1,310

 
3,059

Derivatives, net of collateral
566

 
947

Other liabilities
3,347

 
(7,640
)
Other, net
(1,593
)
 
471

Net cash provided by operating activities
11,629

 
5,826

Cash Flows from Investing Activities
Available-for-Sale securities:
Sales

 
11,884

Maturities, redemptions and calls
274,082

 
252,646

Purchases
(349,148
)
 
(299,734
)
Syndicated loans, commercial mortgage loans and real estate owned:
Sales, maturities and repayments
4,766

 
3,478

Purchases and fundings
(3,951
)
 

Certificate loans, net
(5
)
 
41

Net cash used in investing activities
(74,256
)
 
(31,685
)
Cash Flows from Financing Activities
Payments from certificate holders and other additions
662,011

 
617,035

Certificate maturities and cash surrenders
(558,866
)
 
(527,507
)
Dividend/return of capital to parent
(5,000
)
 

Net cash provided by financing activities
98,145

 
89,528

Net increase in cash and cash equivalents
35,518

 
63,669

Cash and cash equivalents at beginning of period
68,632

 
74,526

Cash and cash equivalents at end of period
$
104,150

 
$
138,195

Supplemental disclosures including non-cash transactions:
Cash paid for income taxes
$
4,774

 
$
1,789

Cash paid for interest
7,325

 
7,819

See Notes to Consolidated Financial Statements.

7


AMERIPRISE CERTIFICATE COMPANY



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1.  Basis of Presentation
Ameriprise Certificate Company (“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. 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, 2014, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2015.
ACC reclassified a prior period amount in the Consolidated Statements of Cash Flows to improve the transparency of its cash flows. Within operating activities, the change in other liabilities was reclassified from “Other, net” to its own line. Total cash flows provided by (used in) operating, investing and financing activities did not materially change as a result of the reclassification.
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
Receivables - Troubled Debt Restructuring by Creditors
In January 2014, the Financial Accounting Standards Board (“FASB”) updated the accounting standard related to recognizing residential real estate obtained through a repossession or foreclosure from a troubled debtor. The update clarifies the criteria for derecognition of the loan receivable and recognition of the real estate property. The standard is effective for interim and annual periods beginning after December 15, 2014 and can be applied under a modified retrospective transition method or a prospective transition method. The adoption of the standard did not have any effect on ACC’s consolidated results of operations and financial condition.
Future Adoption of New Accounting Standards
Presentation of Financial Statements - Going Concern
In August 2014, the FASB updated the accounting standard related to an entity’s assessment of its ability to continue as a going concern. The standard requires that management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In situations where there is substantial doubt about an entity’s ability to continue as a going concern, disclosure should be made so that a reader can understand the conditions that raise the substantial doubt, management’s assessment of those conditions and any plan management has to mitigate those conditions. The standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption 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.
Revenue from Contracts with Customers
In May 2014, the FASB updated the accounting standards for revenue from contracts with customers. The update provides a five step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract. In addition, the standard requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2016 and early adoption is prohibited. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. ACC is currently evaluating the impact of the standard on 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):
 
March 31, 2015
 
December 31, 2014
Available-for-Sale securities:
 

 
 

Fixed maturities, at fair value (amortized cost: 2015, $4,309,030; 2014, $4,222,747)
$
4,307,709

 
$
4,212,187

Common stocks, at fair value (cost: 2015, $2,343; 2014, $2,343)
6,601

 
6,523

Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2015, $3,464; 2014, $3,464; fair value: 2015, $155,312; 2014, $155,829)
151,111

 
152,482

Certificate loans — secured by certificate reserves, at cost, which approximates fair value
931

 
926

Total
$
4,466,352

 
$
4,372,118

Available-for-Sale securities distributed by type were as follows:
 
 
March 31, 2015
Description of Securities
 
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
 
(in thousands)
Residential mortgage backed securities
 
$
2,295,856

 
$
14,307

 
$
(26,243
)
 
$
2,283,920

 
$
(5,900
)
Corporate debt securities
 
1,157,996

 
5,944

 
(1,312
)
 
1,162,628

 
3

Commercial mortgage backed securities
 
398,970

 
6,270

 
(189
)
 
405,051

 

Asset backed securities
 
455,830

 
2,438

 
(2,597
)
 
455,671

 

U.S. government and agencies obligations
 
378

 
61

 

 
439

 

Common stocks
 
2,343

 
4,321

 
(63
)
 
6,601

 
2,129

Total
 
$
4,311,373

 
$
33,341

 
$
(30,404
)
 
$
4,314,310

 
$
(3,768
)
 
 
December 31, 2014
Description of Securities
 
Amortized Cost
 
Gross
Unrealized Gains
 
Gross
Unrealized Losses
 
Fair Value
 
Noncredit OTTI (1)
 
 
(in thousands)
Residential mortgage backed securities
 
$
2,234,011

 
$
15,233

 
$
(28,374
)
 
$
2,220,870

 
$
(6,497
)
Corporate debt securities
 
1,108,780

 
3,831

 
(3,367
)
 
1,109,244

 
3

Commercial mortgage backed securities
 
397,659

 
4,508

 
(687
)
 
401,480

 

Asset backed securities
 
481,919

 
2,595

 
(4,354
)
 
480,160

 

U.S. government and agencies obligations
 
378

 
55

 

 
433

 

Common stocks
 
2,343

 
4,224

 
(44
)
 
6,523

 
2,103

Total
 
$
4,225,090

 
$
30,446

 
$
(36,826
)
 
$
4,218,710

 
$
(4,391
)
(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.
As of March 31, 2015 and December 31, 2014, investment securities with a fair value of $23 thousand and $25 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.

9



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

At March 31, 2015 and December 31, 2014, fixed maturity securities comprised approximately 94% and 95%, 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 March 31, 2015 and December 31, 2014, approximately $174.2 million and $200.9 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC (“CMIA”), an affiliate of ACC, using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follows:
 
 
March 31, 2015
 
December 31, 2014
Ratings
 
Amortized Cost
 
Fair Value
 
Percent of Total Fair Value
 
Amortized Cost
 
Fair Value
 
Percent of Total Fair Value
 
 
(in thousands, except percentages)
AAA
 
$
1,738,999

 
$
1,746,588

 
40
%
 
$
1,741,510

 
$
1,746,703

 
41
%
AA
 
262,309

 
261,290

 
6

 
223,735

 
223,636

 
5

A
 
811,667

 
810,512

 
19

 
917,024

 
911,908

 
22

BBB
 
1,292,181

 
1,293,953

 
30

 
1,128,592

 
1,127,802

 
27

Below investment grade
 
203,874

 
195,366

 
5

 
211,886

 
202,138

 
5

Total fixed maturities
 
$
4,309,030

 
$
4,307,709

 
100
%
 
$
4,222,747

 
$
4,212,187

 
100
%
At March 31, 2015 and December 31, 2014, approximately 64% and 63%, 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
 
March 31, 2015
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
49

 
$
517,488

 
$
(3,382
)
 
96

 
$
796,225

 
$
(22,861
)
 
145

 
$
1,313,713

 
$
(26,243
)
Corporate debt securities
35

 
338,497

 
(1,285
)
 
1

 
26,048

 
(27
)
 
36

 
364,545

 
(1,312
)
Commercial mortgage backed securities
1

 
15,139

 
(1
)
 
3

 
28,661

 
(188
)
 
4

 
43,800

 
(189
)
Asset backed securities
8

 
101,896

 
(247
)
 
10

 
204,718

 
(2,350
)
 
18

 
306,614

 
(2,597
)
Common stocks
 
2

 
136

 
(61
)
 
1

 
122

 
(2
)
 
3

 
258

 
(63
)
Total
95

 
$
973,156

 
$
(4,976
)
 
111

 
$
1,055,774

 
$
(25,428
)
 
206

 
$
2,028,930

 
$
(30,404
)
Description of Securities
 
December 31, 2014
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
56

 
$
616,280

 
$
(5,110
)
 
89

 
$
716,633

 
$
(23,264
)
 
145

 
$
1,332,913

 
$
(28,374
)
Corporate debt securities
55

 
597,937

 
(3,367
)
 

 

 

 
55

 
597,937

 
(3,367
)
Commercial mortgage backed securities
9

 
93,220

 
(271
)
 
4

 
36,018

 
(416
)
 
13

 
129,238

 
(687
)
Asset backed securities
7

 
105,452

 
(707
)
 
11

 
207,046

 
(3,647
)
 
18

 
312,498

 
(4,354
)
Common stocks
1

 
85

 
(42
)
 
1

 
10

 
(2
)
 
2

 
95

 
(44
)
Total
128

 
$
1,412,974

 
$
(9,497
)
 
105

 
$
959,707

 
$
(27,329
)
 
233

 
$
2,372,681

 
$
(36,826
)

10



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

As part of ACC’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is attributable to both improved credit spreads and lower interest rates.
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 March 31,
 
2015
 
2014
 
(in thousands)
Beginning balance
$
64,913

 
$
83,122

Credit losses for which an other-than-temporary impairment was previously recognized
923

 
303

Ending balance
$
65,836

 
$
83,425

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, 2014
$
(5,154
)
 
$
2,013

 
$
(3,141
)
 
Net unrealized securities gains arising during the period (1)
5,637

 
(2,184
)
 
3,453
 
 
Reclassification of gains included in net income
(369
)
 
129

 
(240
)
 
Balance at March 31, 2014
$
114

 
$
(42
)
 
$
72
 
(2) 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
(6,380
)
 
$
2,352

 
$
(4,028
)
 
Net unrealized securities gains arising during the period (1)
8,396

 
(3,112
)
 
5,284
 
 
Reclassification of losses included in net income
921

 
(322
)
 
599
 
 
Balance at March 31, 2015
$
2,937

 
$
(1,082
)
 
$
1,855
 
(2) 
(1) 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.
(2) Includes $2.4 million and $6.7 million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at March 31, 2015 and 2014, respectively.
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 March 31,
 
2015
 
2014
 
(in thousands)
Gross realized gains
$
2

 
$
675

Gross realized losses

 
(3
)
Other-than-temporary impairments
(923
)
 
(303
)
Total
$
(921
)
 
$
369

Other-than-temporary impairments for the three months ended March 31, 2015 and 2014 related to credit losses on non-agency residential mortgage backed securities.

11



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

Available-for-Sale securities by contractual maturity at March 31, 2015 were as follows:
 
Amortized Cost
 
Fair Value
 
(in thousands)
Due within one year
$
285,061

 
$
285,790

Due after one year through five years
873,100

 
877,004

Due after five years through 10 years

 

Due after 10 years
213

 
273

 
1,158,374

 
1,163,067

Residential mortgage backed securities
2,295,856

 
2,283,920

Commercial mortgage backed securities
398,970

 
405,051

Asset backed securities
455,830

 
455,671

Common stocks
2,343

 
6,601

Total
$
4,311,373

 
$
4,314,310

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.
Allowance for Loan Losses
The following table presents a rollforward of the allowance for loan losses for commercial mortgage loans and syndicated loans for the three months ended and the ending balance of the allowance for loan losses by impairment method:
 
Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Beginning balance
$
3,464

 
$
4,461

Charge-offs

 
(997
)
Ending balance
$
3,464

 
$
3,464

 
 
 
 
Individually evaluated for impairment
$

 
$

Collectively evaluated for impairment
3,464

 
3,464

The recorded investment in commercial mortgage loans and syndicated loans by impairment method was as follows:
 
March 31, 2015
 
December 31, 2014
 
(in thousands)
Individually evaluated for impairment
$
3,583

 
$
3,619

Collectively evaluated for impairment
150,992

 
152,327

Total
$
154,575

 
$
155,946

As of both March 31, 2015 and December 31, 2014, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $3.6 million. 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 ended March 31, 2015 and 2014, ACC had no significant sales of financing receivables. During the three months ended March 31, 2015, ACC purchased $1.7 million of syndicated loans. During the three months ended March 31, 2014, ACC had no significant purchases of financing receivables.
ACC has not acquired any loans with deteriorated credit quality as of the acquisition date.

12



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

Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were $2.1 million and $1.9 million as of March 31, 2015 and December 31, 2014, 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 1.8% of total commercial mortgage loans as of both March 31, 2015 and December 31, 2014. 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
 
March 31, 2015
 
December 31, 2014
 
March 31, 2015
 
December 31, 2014
 
(in thousands)
 
 
 
 
East North Central
$

 
$
1,139

 
%
 
1
%
Middle Atlantic
7,118

 
7,328

 
7

 
8

Mountain
8,615

 
8,764

 
9

 
9

New England
10,014

 
10,101

 
10

 
10

Pacific
20,643

 
20,986

 
22

 
22

South Atlantic
31,089

 
29,765

 
32

 
30

West North Central
10,076

 
10,301

 
11

 
11

West South Central
8,394

 
8,589

 
9

 
9

 
95,949

 
96,973

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

 
2,341

 
 
Total
$
93,608

 
$
94,632

Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 
Loans
 
Percentage
 
March 31, 2015
 
December 31, 2014
 
March 31, 2015
 
December 31, 2014
 
(in thousands)
 
 
 
 
Apartments
$
27,525

 
$
26,129

 
29
%
 
27
%
Industrial
12,815

 
14,159

 
14

 
15

Office
10,749

 
10,822

 
11

 
11

Retail
30,931

 
31,571

 
32

 
33

Hotel
1,216

 
1,254

 
1

 
1

Other
12,713

 
13,038

 
13

 
13

 
95,949

 
96,973

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

 
2,341

 
 
Total
$
93,608

 
$
94,632

Syndicated Loans
The recorded investment in syndicated loans at March 31, 2015 and December 31, 2014 was $58.6 million and $59.0 million, respectively. 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 March 31, 2015 and December 31, 2014 were $2.1 million and $1.9 million, respectively, which represent 4% and 3% of total syndicated loans at March 31, 2015 and December 31, 2014, respectively.

13



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

Troubled Debt Restructurings
There were no loans restructured by ACC during the three months ended March 31, 2015. During the three months ended March 31, 2014, ACC restructured one syndicated loan and received three loans in exchange with a recorded investment of $288 thousand. The troubled debt restructuring for the three months ended March 31, 2014 resulted in a $997 thousand reduction to ACC’s allowance for loan losses. The troubled debt restructuring did not have a material impact to ACC’s income recognized for the three months ended March 31, 2014. 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.
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:
 
March 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Assets
 

 
 

 
 

 
 

Cash equivalents
$

 
$
99,397

 
$

 
$
99,397

Available-for-Sale securities:
 

 
 

 
 

 
 

Residential mortgage backed securities

 
2,042,619

 
241,301

 
2,283,920

Corporate debt securities

 
996,076

 
166,552

 
1,162,628

Commercial mortgage backed securities

 
405,051

 

 
405,051

Asset backed securities

 
439,485

 
16,186

 
455,671

U.S. government and agencies obligations
439

 

 

 
439

Common stocks
2,409

 
3,331

 
861

 
6,601

Total Available-for-Sale securities
2,848

 
3,886,562

 
424,900

 
4,314,310

Equity options, purchased

 
33,363

 

 
33,363

Total assets at fair value
$
2,848

 
$
4,019,322

 
$
424,900

 
$
4,447,070

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Certificate reserves
$

 
$
5,163

 
$

 
$
5,163

Equity options, written

 
28,345

 

 
28,345

Total liabilities at fair value
$

 
$
33,508

 
$

 
$
33,508


14



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

 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Assets
 

 
 

 
 

 
 

Cash equivalents
$

 
$
27,798

 
$

 
$
27,798

Available-for-Sale securities:
 

 
 

 
 

 
 

Residential mortgage backed securities

 
2,024,312

 
196,558

 
2,220,870

Corporate debt securities

 
943,743

 
165,501

 
1,109,244

Commercial mortgage backed securities

 
401,480

 

 
401,480

Asset backed securities

 
461,972

 
18,188

 
480,160

U.S. government and agencies obligations
433

 

 

 
433

Common stocks
2,315

 
3,300

 
908

 
6,523

Total Available-for-Sale securities
2,748

 
3,834,807

 
381,155

 
4,218,710

Equity options, purchased

 
45,857

 

 
45,857

Total assets at fair value
$
2,748

 
$
3,908,462

 
$
381,155

 
$
4,292,365

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

Certificate reserves
$

 
$
5,875

 
$

 
$
5,875

Equity options, written

 
40,073

 

 
40,073

Total liabilities at fair value
$

 
$
45,948

 
$

 
$
45,948

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
 
Asset Backed
Securities
 
Common
Stocks
 
Total
 
 
(in thousands)
 
 
 
Balance, January 1, 2015
$
196,558

 
$
165,501

 
$
18,188

 
$
908

 
$
381,155

 
Total gains (losses) included in:
 
Net income
(118
)
 
(163
)
 
18

 

 
(263
)
(1) 
Other comprehensive income
302

 
1,214

 
(18
)
 
(47
)
 
1,451

 
Purchases
85,268

 

 

 

 
85,268

 
Settlements
(8,666
)
 

 
(2,002
)
 

 
(10,668
)
 
Transfers into Level 3

 

 

 

 

 
Transfers out of Level 3
(32,043
)
 

 

 

 
(32,043
)
 
Balance, March 31, 2015
$
241,301

 
$
166,552

 
$
16,186

 
$
861

 
$
424,900

 
Change in unrealized gains (losses) included in net income related to Level 3 assets held at March 31, 2015
$
(118
)
 
$
(163
)
 
$
18

 
$

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

15



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
 
Total
 
 
(in thousands)
 
Balance, January 1, 2014
$
128,906

 
$
123,032

 
$

 
$
37,152

 
$
273

 
$
289,363

 
Total gains (losses) included in:
 
Net income
(42
)
 
(328
)
 

 
15

 

 
(355
)
(1) 
Other comprehensive income
23

 
(126
)
 

 
(136
)
 
7

 
(232
)
 
Purchases
70,768

 
51,875

 
20,000

 
21,651

 

 
164,294

 
Settlements
(2,288
)
 

 

 
(1,252
)
 

 
(3,540
)
 
Transfers into Level 3

 

 

 

 
174

 
174

 
Transfers out of Level 3
(121,094
)
 

 

 

 
(273
)
 
(121,367
)
 
Balance, March 31, 2014
$
76,273

 
$
174,453

 
$
20,000

 
$
57,430

 
$
181

 
$
328,337

 
Change in unrealized gains (losses) included in net income related to Level 3 assets held at March 31, 2014
$
(42
)
 
$
(328
)

$


$
15


$

 
$
(355
)
 
(1) Included in investment income in the Consolidated Statements of Operations.
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:
 
March 31, 2015
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
(in thousands)
 
 
 
 
 
 
Corporate debt securities (private placements)
$
166,549

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.0% - 1.4% (1.2%)
 
December 31, 2014
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
(in thousands)
 
 
 
 
 
 
Corporate debt securities (private placements)
$
165,498

 
Discounted cash flow
 
Yield/spread to U.S. Treasuries
 
1.1% - 1.5% (1.2%)
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.

16



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

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 and common stock. The fair value of these Level 2 securities is based on a market approach with prices obtained from 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 Options, 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 March 31, 2015 and December 31, 2014. 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.

17



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

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 tables with balances of assets and liabilities measured at fair value on a recurring basis.
 
March 31, 2015
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Financial Assets
 

 
 

 
 

 
 

 
 

Syndicated loans
$
57,503

 
$

 
$
55,767

 
$
2,156

 
$
57,923

Commercial mortgage loans
93,608

 

 

 
97,389

 
97,389

Certificate loans
931

 

 
931

 

 
931

Financial Liabilities
 

 
 

 
 

 
 

 
 

Certificate reserves
$
4,304,322

 
$

 
$

 
$
4,293,534

 
$
4,293,534

 
December 31, 2014
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Financial Assets
 

 
 

 
 

 
 

 
 

Syndicated loans
$
57,850

 
$

 
$
54,933

 
$
2,603

 
$
57,536

Commercial mortgage loans
94,632

 

 

 
98,293

 
98,293

Certificate loans
926

 

 
926

 

 
926

Financial Liabilities
 

 
 

 
 

 
 

 
 

Certificate reserves
$
4,200,895

 
$

 
$

 
$
4,195,429

 
$
4,195,429

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 using a market approach with observable inputs 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.
 

18



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

6. Offsetting Assets and Liabilities
Certain derivative instruments are eligible for offset in the Consolidated Balance Sheets. ACC’s derivative instruments are subject to master netting arrangements and collateral arrangements and 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 in the Consolidated Balance Sheets.
The following tables present the gross and net information about ACC’s assets subject to master netting arrangements:
 
March 31, 2015
 
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 options, purchased
$
33,363

 
$

 
$
33,363

 
$
(28,345
)
 
$
(3,638
)
 
$
1,380

 
December 31, 2014
 
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 options, purchased
$
45,857

 
$

 
$
45,857

 
$
(40,073
)
 
$
(3,824
)
 
$
1,960

(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:
 
March 31, 2015
 
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 options, written
$
28,345

 
$

 
$
28,345

 
$
(28,345
)
 
$

 
$

 
December 31, 2014
 
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 options, written
$
40,073

 
$

 
$
40,073

 
$
(40,073
)
 
$

 
$

 (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 ACC’s derivative instruments.
 

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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
 
Balance Sheet
Location
 
Asset
 
Balance Sheet
Location
 
Liability
 
 
March 31, 2015
 
December 31, 2014
 
 
March 31, 2015
 
December 31, 2014
(in thousands)
Equity contracts
 
 
 
 
 
 
 
 
Stock market certificates
 
Equity options, purchased
 
$
33,363

 
$
45,857

 
Equity options, written
 
$
28,345

 
$
40,073

Stock market certificates embedded derivatives
 
N/A
 

 

 
Certificate reserves
 
5,163

 
5,875

Total
 
 
 
$
33,363

 
$
45,857

 
 
 
$
33,508

 
$
45,948

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 March 31,
 
 
2015
 
2014
 
 
 
 
(in thousands)
Equity contracts
 
 
 
 

 
 

Stock market certificates
 
Net provision for certificate reserves
 
$
497

 
$
584

Stock market certificates embedded derivatives
 
Net provision for certificate reserves
 
(292
)
 
(608
)
Total
 
 
 
$
205

 
$
(24
)
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. 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 $953.7 million and $997.0 million at March 31, 2015 and December 31, 2014, 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 $412 thousand and $410 thousand at March 31, 2015 and December 31, 2014, 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.
 

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

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 ACC’s financial condition, results of operations or liquidity. Notwithstanding the foregoing, it is possible that the outcome of any such legal, arbitration or regulatory proceedings could have a material impact on ACC’s results of operations in any particular reporting period as the proceedings are resolved.

9.  Shareholder’s Equity
The following table provides information related to amounts reclassified from accumulated other comprehensive income (loss) for the three months ended March 31:
Accumulated Other Comprehensive Income (Loss) Reclassification
 
Location of Gain (Loss) Recognized in Income
 
2015
 
2014
 
 
 
 
(in thousands)
Unrealized net losses (gains) on Available-for-Sale securities
 
Net investment income
 
$
921

 
$
(369
)
Tax expense (benefit)
 
Income tax provision
 
(322
)
 
129

Net of tax
 
 
 
$
599

 
$
(240
)
 
10.  Income Taxes
The effective tax rate was 18.2% for the three months ended March 31, 2015 compared to 37.8% for the three months ended March 31, 2014. The decrease in the effective rate for the three months ended March 31, 2015 compared to the prior year period is a result of release of unrecognized tax benefit related to certain state income tax positions.
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. 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 March 31, 2015 and December 31, 2014.
As of March 31, 2015 and December 31, 2014, ACC had $3.6 million and $5.5 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $1.3 million and $2.5 million, net of federal tax benefits, of the unrecognized tax benefits as of March 31, 2015 and December 31, 2014, 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 up to $3.4 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 a net decrease of $219 thousand and a net increase of $17 thousand in interest and penalties for the three months ended March 31, 2015 and 2014, respectively. At March 31, 2015 and December 31, 2014, ACC had a payable of $1.6 million and $1.8 million, respectively, related to accrued interest and penalties.
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 2011 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 currently auditing the ACC's U.S. income tax returns for 2012 and 2013. ACC's or certain of its subsidiaries' 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.


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AMERIPRISE CERTIFICATE COMPANY



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, 2014, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2015 (“2014 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 2014 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 Three Months Ended March 31, 2015 and 2014
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 $1.6 million, or 32%, to $6.6 million for the three months ended March 31, 2015 compared to $5.0 million for the prior year period primarily due to a decrease in investment expenses and lower income tax expense reflecting a release of unrecognized tax benefit related to certain state income tax positions in the first quarter of 2015, partially offset by net realized losses on investments for the first quarter of 2015 compared to net realized gains on investments for the prior year period.
Investment income decreased $0.4 million, or 1%, to $21.8 million for the three months ended March 31, 2015 compared to $22.2 million for the prior year period reflecting a lower average invested asset rate due to the continued low interest rate environment, partially offset by higher average investment balances compared to the prior year period.
Investment expenses decreased $1.1 million, or 14%, to $6.6 million for the three months ended March 31, 2015 compared to $7.7 million for the prior year period primarily due to lower investment advisory and transfer agent fees.
Net provision for certificate reserves decreased $0.5 million, or 8%, to $6.3 million for the three months ended March 31, 2015 compared to $6.8 million for the prior year period primarily due to lower client rates due to the continued low interest rate environment, partially offset by higher client balances compared to the prior year period.
Net realized loss on investments before income taxes was $0.9 million for the three months ended March 31, 2015 compared to net realized gain on investments of $0.4 million for the prior year period. Net realized loss on investments for the three months ended March 31, 2015 included other-than-temporary impairments of $0.9 million. Net realized gain on investments for the prior year period included $0.7 million of realized gains from sales, tenders and calls of Available-for-Sale securities, partially offset by other-than-temporary impairments of $0.3 million. The other-than-temporary impairments for both periods related to credit losses on non-agency residential mortgage backed securities.
The effective tax rate was 18.2% for the three months ended March 31, 2015 compared to 37.8% for the three months ended March 31, 2014. The decrease in the effective rate for the three months ended March 31, 2015 compared to the prior year period is a result of release of unrecognized tax benefit related to certain state income tax positions.

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 March 31, 2015.
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.


22


AMERIPRISE CERTIFICATE COMPANY



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 2014 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.


23


AMERIPRISE CERTIFICATE COMPANY



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:
May 4, 2015
/s/ Abu M. Arif
 
 
 
Abu M. Arif
 
 
 
Chief Executive Officer
 
 
 
 
 
 
 
 
 
Date:
May 4, 2015
/s/ Ross P. Palacios
 
 
 
Ross P. Palacios
 
 
 
Chief Financial Officer
 

24


AMERIPRISE CERTIFICATE COMPANY



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.
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.
____________________________________________________
* Filed electronically herewithin.



E-1