AMERIPRISE CERTIFICATE CO - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 - AMERIPRISE CERTIFICATE CO	acc-ex311x093015.htm
EX-32.1 - EXHIBIT 32.1 - AMERIPRISE CERTIFICATE CO	acc-ex321x093015.htm
EX-31.2 - EXHIBIT 31.2 - AMERIPRISE CERTIFICATE CO	acc-ex312x093015.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2015


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 x 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 x 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 x

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 2, 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



Part I.	Financial Information:
	Item 1.	Financial Statements (Unaudited)
		Consolidated Statements of Operations — Three months and nine months ended September 30, 2015 and 2014	3
		Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2015 and 2014	4
		Consolidated Balance Sheets — September 30, 2015 and December 31, 2014	5
		Consolidated Statements of Shareholder's Equity — Nine months ended September 30, 2015 and 2014	6
		Consolidated Statements of Cash Flows — Nine months ended September 30, 2015 and 2014	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Narrative Analysis	25
	Item 4.	Controls and Procedures	27
Part II.	Other Information:
	Item 1.	Legal Proceedings	28
	Item 1A.	Risk Factors	28
	Item 6.	Exhibits	28
	Signatures		29
	Exhibit Index		E-1

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,
	2015			2014			2015			2014

Investment income	$	22,974		$	21,236		$	66,641		$	65,582
Investment expenses	7,028			6,878			20,398			21,289
Net investment income before provision for certificate reserves and income taxes	15,946			14,358			46,243			44,293
Net provision for certificate reserves	6,889			6,626			19,589			19,979
Net investment income before income taxes	9,057			7,732			26,654			24,314
Income tax expense	3,086			2,781			8,074			8,952
Net investment income	5,971			4,951			18,580			15,362

Net realized gain (loss) on investments	(579		)	(238		)	(1,577		)	234
Income tax expense (benefit)	(203		)	(83		)	(552		)	82
Net realized gain (loss) on investments, after-tax	(376		)	(155		)	(1,025		)	152
Net income	$	5,595		$	4,796		$	17,555		$	15,514

Supplemental Disclosures:
Total other-than-temporary impairment losses on securities	$	—		$	(77	)	$	—		$	(133	)
Portion of loss recognized in other comprehensive income (loss) (before taxes)	—			1			(923		)	(517		)
Net impairment losses recognized in net realized gain (loss) on investments	$	—		$	(76	)	$	(923	)	$	(650	)
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015		2014

Net income	$	5,595		$	4,796		$	17,555	$	15,514
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Net unrealized securities gains (losses) arising during the period	(132		)	(5,876		)	187		3,977
Reclassification of net securities losses (gains) included in net income	215			155			864		(151		)
Total other comprehensive income (loss), net of tax	83			(5,721		)	1,051		3,826
Total comprehensive income (loss)	$	5,678		$	(925	)	$	18,606	$	19,340
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)



	September 30, 2015			December 31, 2014

Assets
Qualified Assets
Cash and cash equivalents	$	117,273		$	68,632
Investments in unaffiliated issuers	4,675,025			4,372,118
Receivables	26,657			25,460
Derivative assets	9,461			45,857
Total qualified assets	4,828,416			4,512,067
Deferred taxes, net	1,243			1,485
Total assets	$	4,829,659		$	4,513,552

Liabilities and Shareholder's Equity
Liabilities
Certificate reserves	$	4,531,932		$	4,206,770
Current taxes payable to parent	5,590			3,133
Derivative liabilities	7,382			40,073
Payable for investment securities purchased	17,464			2,292
Due to related party and other liabilities	15,754			21,353
Total liabilities	4,578,122			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	204,517			201,517
Total retained earnings	48,497			40,942
Accumulated other comprehensive loss, net of tax	(2,977		)	(4,028		)
Total shareholder's equity	251,537			239,931
Total liabilities and shareholder's equity	$	4,829,659		$	4,513,552
See Notes to Consolidated Financial Statements.

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	—	—		—		—			—		15,514			—			15,514
Other comprehensive income, net of tax	—	—		—		—			—		—			3,826			3,826
Total comprehensive income																	19,340
Transfer to appropriated from unappropriated	—	—		—		47			—		(47		)	—			—
Balance at September 30, 2014	150,000	$	1,500	$	201,517	$	73		$	15	$	38,725		$	685		$	242,515

Balance at January 1, 2015	150,000	$	1,500	$	201,517	$	58		$	15	$	40,869		$	(4,028	)	$	239,931
Comprehensive income:
Net income	—	—		—		—			—		17,555			—			17,555
Other comprehensive income, net of tax	—	—		—		—			—		—			1,051			1,051
Total comprehensive income																	18,606
Transfer from appropriated to unappropriated	—	—		—		(40		)	—		40			—			—
Dividend to parent	—	—		—		—			—		(10,000		)	—			(10,000		)
Receipt of capital from parent	—	—		3,000		—			—		—			—			3,000
Balance at September 30, 2015	150,000	$	1,500	$	204,517	$	18		$	15	$	48,464		$	(2,977	)	$	251,537
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Nine Months Ended September 30,
	2015			2014
Cash Flows from Operating Activities
Net income	$	17,555		$	15,514
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums, accretion of discounts, net	21,079			23,499
Deferred income tax benefit	(195		)	(437		)
Net realized loss (gain) on Available-for-Sale securities	404			(882		)
Other net realized gain	—			(1		)
Other-than-temporary impairments and provision for loan loss	1,173			650
Changes in operating assets and liabilities:
Dividends and interest receivable	(4,575		)	(1,284		)
Certificate reserves, net	(3,322		)	(837		)
Deferred taxes, net	(177		)	(1,404		)
Current taxes payable to/receivable from parent, net	2,457			1,026
Derivatives, net of collateral	665			3,434
Other liabilities	(2,744		)	5,426
Other, net	5,144			682
Net cash provided by operating activities	37,464			45,386

Cash Flows from Investing Activities
Available-for-Sale securities:
Sales	8,066			26,277
Maturities, redemptions and calls	845,506			743,172
Purchases	(1,136,019		)	(1,025,867		)
Syndicated loans, commercial mortgage loans and real estate owned:
Sales, maturities and repayments	23,542			14,349
Purchases and fundings	(51,569		)	(20,013		)
Certificate loans, net	167			279
Net cash used in investing activities	(310,307		)	(261,803		)

Cash Flows from Financing Activities
Payments from certificate holders and other additions	2,181,579			1,893,534
Certificate maturities and cash surrenders	(1,853,095		)	(1,645,965		)
Capital contribution from parent	3,000			—
Dividend to parent	(10,000		)	—
Net cash provided by financing activities	321,484			247,569

Net increase in cash and cash equivalents	48,641			31,152
Cash and cash equivalents at beginning of period	68,632			74,526
Cash and cash equivalents at end of period	$	117,273		$	105,678

Supplemental disclosures including non-cash transactions:
Cash paid for income taxes	$	11,133		$	3,854
Cash paid for interest	21,751			23,308
See Notes to Consolidated Financial Statements.

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 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. In August 2015, the FASB updated the accounting standards to defer the effective date by one year. The standard is effective for interim and annual periods beginning after December 15, 2017 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 its consolidated results of operations and financial condition.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

3. Investments

Investments in unaffiliated issuers were as follows (in thousands):



	September 30, 2015		December 31, 2014
Available-for-Sale securities:
Fixed maturities, at fair value (amortized cost: 2015, $4,484,471; 2014, $4,222,747)	$	4,475,909	$	4,212,187
Common stocks, at fair value (cost: 2015, $2,343; 2014, $2,343)	6,188		6,523
Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2015, $3,714; 2014, $3,464; fair value: 2015, $193,660; 2014, $155,829)	192,169		152,482
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	759		926
Total	$	4,675,025	$	4,372,118

Available-for-Sale securities distributed by type were as follows:



	September 30, 2015
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	2,296,612	$	12,189	$	(23,845	)	$	2,284,956	$	(4,582	)
Corporate debt securities	1,390,900		3,310		(3,857		)	1,390,353		3
Commercial mortgage backed securities	347,521		4,638		(140		)	352,019		—
Asset backed securities	402,705		2,214		(3,294		)	401,625		—
State and municipal obligations	46,356		181		(14		)	46,523		—
U.S. government and agencies obligations	377		56		—			433		—
Common stocks	2,343		4,072		(227		)	6,188		2,185
Total	$	4,486,814	$	26,660	$	(31,377	)	$	4,482,097	$	(2,394	)



	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 September 30, 2015 and December 31, 2014, investment securities with a fair value of $21 thousand and $25 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.

At September 30, 2015 and December 31, 2014, fixed maturity securities comprised approximately 93% 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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

many private placement securities, ACC may utilize ratings from other NRSROs or rate the securities internally. At September 30, 2015 and December 31, 2014, approximately $207.0 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:



	September 30, 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	$	1,649,632	$	1,653,115	37	%	$	1,741,510	$	1,746,703	41	%
AA	287,396		286,674		6		223,735		223,636		5
A	726,444		724,921		16		917,024		911,908		22
BBB	1,649,026		1,646,703		37		1,128,592		1,127,802		27
Below investment grade	171,973		164,496		4		211,886		202,138		5
Total fixed maturities	$	4,484,471	$	4,475,909	100	%	$	4,222,747	$	4,212,187	100	%

At September 30, 2015 and December 31, 2014, approximately 66% 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	September 30, 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	61	$	660,532	$	(3,557	)	106	$	784,709	$	(20,288	)	167	$	1,445,241	$	(23,845	)
Corporate debt securities	56	592,475		(2,951		)	10	95,339		(906		)	66	687,814		(3,857		)
Commercial mortgage backed securities	5	26,483		(53		)	1	16,030		(87		)	6	42,513		(140		)
Asset backed securities	10	64,605		(218		)	12	234,785		(3,076		)	22	299,390		(3,294		)
State and municipal obligations	5	15,451		(14		)	—	—		—			5	15,451		(14		)
Common stocks	3	569		(188		)	2	101		(39		)	5	670		(227		)
Total	140	$	1,360,115	$	(6,981	)	131	$	1,130,964	$	(24,396	)	271	$	2,491,079	$	(31,377	)

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



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	)

As part of ACC’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is primarily attributable to improved credit spreads.

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,
	2015		2014			2015			2014
	(in thousands)
Beginning balance	$	51,334	$	83,696		$	64,913		$	83,122
Reductions for securities sold during the period (realized)	—		(18,891		)	(14,502		)	(18,891		)
Credit losses for which an other-than-temporary impairment was previously recognized	—		76			923			650
Ending balance	$	51,334	$	64,881		$	51,334		$	64,881

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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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⁾	6,465			(2,488		)	3,977
Reclassification of gains included in net income	(232		)	81			(151		)
Balance at September 30, 2014	$	1,079		$	(394	)	$	685		⁽²⁾

Balance at January 1, 2015	$	(6,380	)	$	2,352		$	(4,028	)
Net unrealized securities gains arising during the period ⁽¹⁾	336			(149		)	187
Reclassification of losses included in net income	1,327			(463		)	864
Balance at September, 2015	$	(4,717	)	$	1,740		$	(2,977	)	⁽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 $1.6 million and $3.2 million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at September 30, 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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(in thousands)
Gross realized gains	$	73		$	1,224		$	99		$	2,272
Gross realized losses	(402		)	(1,387		)	(503		)	(1,390		)
Other-than-temporary impairments	—			(76		)	(923		)	(650		)
Total	$	(329	)	$	(239	)	$	(1,327	)	$	232

Other-than-temporary impairments for the nine months ended September 30, 2015 and the three months and nine months ended September 30, 2014 related to credit losses on non-agency residential mortgage backed securities.

Available-for-Sale securities by contractual maturity at September 30, 2015 were as follows:



	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	393,792	$	394,692
Due after one year through five years	1,034,929		1,033,521
Due after five years through 10 years	8,700		8,828
Due after 10 years	212		268
	1,437,633		1,437,309
Residential mortgage backed securities	2,296,612		2,284,956
Commercial mortgage backed securities	347,521		352,019
Asset backed securities	402,705		401,625
Common stocks	2,343		6,188
Total	$	4,486,814	$	4,482,097

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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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 nine months ended and the ending balance of the allowance for loan losses by impairment method:



	September 30,
	2015		2014
	(in thousands)
Beginning balance	$	3,464	$	4,461
Charge-offs	—		(997		)
Provisions	250		—
Ending balance	$	3,714	$	3,464

Individually evaluated for impairment	$	—	$	—
Collectively evaluated for impairment	3,714		3,464

The recorded investment in commercial mortgage loans and syndicated loans by impairment method was as follows:



	September 30, 2015		December 31, 2014
	(in thousands)
Individually evaluated for impairment	$	3,537	$	3,619
Collectively evaluated for impairment	192,346		152,327
Total	$	195,883	$	155,946

At September 30, 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 $3.5 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 ended September 30, 2015 and 2014, ACC purchased $47.1 million and $25.3 million, respectively, and sold $0.3 million and nil, respectively, of syndicated loans. During the nine months ended September 30, 2015 and 2014, ACC purchased $52.2 million and $25.3 million, respectively, and sold $0.3 million and nil, respectively, of syndicated loans.

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 $1.9 million as of September 30, 2015 and December 31, 2014. 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 1.7% and 1.8% of total commercial mortgage loans as of September 30, 2015 and December 31, 2014, 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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:



	Loans				Percentage
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
	(in thousands)
East North Central	$	—	$	1,139	—	%	1	%
East South Central	4,096		—		4		—
Middle Atlantic	6,693		7,328		7		8
Mountain	6,468		8,764		7		9
New England	7,619		10,101		8		10
Pacific	25,111		20,986		26		22
South Atlantic	30,342		29,765		31		30
West North Central	9,618		10,301		10		11
West South Central	6,563		8,589		7		9
	96,510		96,973		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	94,169	$	94,632

Concentrations of credit risk of commercial mortgage loans by property type were as follows:



	Loans				Percentage
	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
	(in thousands)
Apartments	$	28,900	$	26,129	30	%	27	%
Industrial	12,396		14,159		13		15
Office	9,065		10,822		9		11
Retail	32,950		31,571		34		33
Hotel	1,139		1,254		1		1
Other	12,060		13,038		13		13
	96,510		96,973		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	94,169	$	94,632

Syndicated Loans

The recorded investment in syndicated loans at September 30, 2015 and December 31, 2014 was $99.4 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 both September 30, 2015 and December 31, 2014 were $1.9 million, which represents 2% and 3% of total syndicated loans at September 30, 2015 and December 31, 2014, respectively.

Troubled Debt Restructurings

There were no loans restructured by ACC during the three months and nine months ended September 30, 2015. During the nine months ended September 30, 2014, ACC restructured one syndicated loan and received three loans in exchange with a recorded investment of $288 thousand. 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, 2014. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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:



	September 30, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	116,288	$	—	$	116,288
Available-for-Sale securities:
Residential mortgage backed securities	—		2,043,063		241,893		2,284,956
Corporate debt securities	—		1,188,384		201,969		1,390,353
Commercial mortgage backed securities	—		352,019		—		352,019
Asset backed securities	—		387,601		14,024		401,625
State and municipal obligations	—		46,523		—		46,523
U.S. government and agencies obligations	433		—		—		433
Common stocks	1,907		4,111		170		6,188
Total Available-for-Sale securities	2,340		4,021,701		458,056		4,482,097
Equity derivative contracts	7		9,454		—		9,461
Total assets at fair value	$	2,347	$	4,147,443	$	458,056	$	4,607,846

Liabilities
Certificate reserves	$	—	$	2,281	$	—	$	2,281
Equity derivative contracts	—		7,382		—		7,382
Total liabilities at fair value	$	—	$	9,663	$	—	$	9,663

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 derivative contracts	—		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 derivative contracts	—		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															Total
	Residential Mortgage Backed Securities			Corporate Debt Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total
				(in thousands)
Balance, July 1, 2015	$	268,685		$	169,944		$	9,992		$	16,550		$	365		$	465,536
Total gains (losses) included in:
Net income	59			(369		)	—			50			—			(260		)	⁽¹⁾
Other comprehensive income	(696		)	(108		)	—			450			3			(351		)
Purchases	55,551			32,502			—			4,474			—			92,527
Settlements	(13,615		)	—			—			(7,500		)	—			(21,115		)
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	(68,091		)	—			(9,992		)	—			(198		)	(78,281		)
Balance, September 30, 2015	$	241,893		$	201,969		$	—		$	14,024		$	170		$	458,056
Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2015	$	59		$	(369	)	$	—		$	50		$	—		$	(260	)

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	Available-for-Sale Securities														Total
	Residential Mortgage Backed Securities			Corporate Debt Securities			Commercial Mortgage Backed Securities		Asset Backed Securities			Common Stocks			Total
	(in thousands)
Balance, July 1, 2014	$	204,004		$	188,929		$	—	$	35,898		$	506		$	429,337
Total gains (losses) included in:
Net income	(40		)	(426		)	—		47			—			(419		)	⁽¹⁾
Other comprehensive income	73			(890		)	—		(114		)	—			(931		)
Purchases	78,666			—			—		—			—			78,666
Settlements	(5,546		)	—			—		(1,184		)	—			(6,730		)
Transfers into Level 3	—			—			—		—			—			—
Transfers out of Level 3	(105,604		)	—			—		—			(213		)	(105,817		)
Balance, September 30, 2014	$	171,553		$	187,613		$	—	$	34,647		$	293		$	394,106
Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2014	$	(40	)	$	(426	)	$	—	$	47		$	—		$	(419	)

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



	Available-for-Sale Securities															Total
	Residential Mortgage Backed Securities			Corporate Debt Securities			Commercial Mortgage Backed 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	(89		)	(696		)	—			114			—			(671		)	⁽¹⁾
Other comprehensive income	(384		)	479			—			250			(57		)	288
Purchases	241,367			36,685			9,992			11,974			—			300,018
Settlements	(34,244		)	—			—			(16,502		)	—			(50,746		)
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	(161,315		)	—			(9,992		)	—			(681		)	(171,988		)
Balance, September 30, 2015	$	241,893		$	201,969		$	—		$	14,024		$	170		$	458,056
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2015	$	89		$	(696	)	$	—		$	114		$	—		$	(493	)

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	Available-for-Sale Securities															Total
	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	(209		)	(1,177		)	—			90			—			(1,296		)	⁽¹⁾
Other comprehensive income	364			31			—			(156		)	22			261
Purchases	285,439			65,727			20,000			21,651			128			392,945
Settlements	(16,248		)	—			—			(4,110		)	—			(20,358		)
Transfers into Level 3	—			—			—			—			456			456
Transfers out of Level 3	(226,699		)	—			(20,000		)	(19,980		)	(586		)	(267,265		)
Balance, September 30, 2014	$	171,553		$	187,613		$	—		$	34,647		$	293		$	394,106
Change in unrealized gains (losses) included in net income related to Level 3 assets held at September 30, 2014	$	(198	)	$	(1,177	)	$	—		$	90		$	—		$	(1,285	)

⁽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:



	September 30, 2015
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	201,966	Discounted cash flow	Yield/spread to U.S. Treasuries	1.2% - 1.8% (1.4%)



	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.

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

The variation margin on futures contracts is classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is 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 and include options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at September 30, 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.

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.



	September 30, 2015
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	98,000	$	—	$	92,713	$	4,170	$	96,883
Commercial mortgage loans	94,169		—		—		96,777		96,777
Certificate loans	759		—		759		—		759
Financial Liabilities
Certificate reserves	$	4,529,651	$	—	$	—	$	4,521,470	$	4,521,470



	December 31, 2014
	Carrying Value		Fair Value
	Carrying 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.

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:



	September 30, 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
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Derivatives:
OTC	$	9,454	$	—	$	9,454	$	(7,382	)	$	(840	)	$	1,232
Exchange-traded	7		—		7		—			—			7
Total	$	9,461	$	—	$	9,461	$	(7,382	)	$	(840	)	$	1,239



	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
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Derivatives	$	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:



	September 30, 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
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Derivatives:
OTC	$	7,382	$	—	$	7,382	$	(7,382	)	$	—	$	—
Total	$	7,382	$	—	$	7,382	$	(7,382	)	$	—	$	—



	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
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Derivatives	$	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.

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
		September 30, 2015		December 31, 2014			September 30, 2015		December 31, 2014
(in thousands)
Equity contracts
Stock market certificates	Derivative assets	$	9,461	$	45,857	Derivative liabilities	$	7,382	$	40,073
Stock market certificates	Receivables	—		—		Payable for investment securities purchased⁽¹⁾	—		5
Stock market certificates embedded derivatives	N/A	—		—		Certificate reserves	2,281		5,875
Total		$	9,461	$	45,857		$	9,663	$	45,953
N/A Not applicable.

⁽¹⁾ Prior to September 30, 2015, the variation margin on futures contracts was included in Receivables or Payable for investment securities purchased. Beginning September 30, 2015, the variation margin on futures contracts is included in Derivative assets or Derivative liabilities.

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,						Nine Months Ended September 30,
		2015			2014			2015			2014
		(in millions)
Equity contracts
Stock market certificates	Net provision for certificate reserves	$	(2,327	)	$	358		$	(1,652	)	$	2,026
Stock market certificates embedded derivatives	Net provision for certificate reserves	2,095			(418		)	1,747			(1,976		)
Total		$	(232	)	$	(60	)	$	95		$	50

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 options was $945.6 million and $997.0 million at September 30, 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 variation margin related to futures contracts is included in Derivative assets or Derivative liabilities in the Consolidated Balance Sheets. The gross notional amount of futures was $382 thousand and $410 thousand at September 30, 2015 and December 31, 2014, respectively. The earnings impact of ACC’s derivatives is included in Net provision for certificate reserves in the Consolidated Statement of Operations.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

During the second quarter of 2015, ACC launched the sale of Ameriprise Step-Up Rate Certificates (“SRC”). The SRC offers the ability to step up to a higher crediting rate based upon the then-current rate for a new SRC with the same term. The SRC product contains an embedded derivative which was not material as of September 30, 2015.

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 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):



AOCI Reclassification	Location of (Gain) Loss Recognized in Income	Three Months Ended September 30,						Nine Months Ended September 30,
AOCI Reclassification	Location of (Gain) Loss Recognized in Income	2015			2014			2015			2014
Unrealized net losses (gains) on Available-for-Sale securities	Net realized gain (loss) on investments	(in thousands)
	Net realized gain (loss) on investments	$	329		$	239		$	1,327		$	(232	)
Tax expense (benefit)	Income tax expense (benefit)	(114		)	(84		)	(463		)	81
Net of tax		$	215		$	155		$	864		$	(151	)

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

10. Income Taxes

The effective tax rate was 34.1% and 36.0% for the three months ended September 30, 2015 and 2014, respectively. The effective tax rate was 30.0% and 36.8% for the nine months ended September 30, 2015 and 2014, respectively. The decrease in the effective rate for the nine months ended September 30, 2015 compared to the prior year period is due to the release of unrecognized tax benefits 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 September 30, 2015 and December 31, 2014.

As of September 30, 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 September 30, 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 increase of $35 thousand and a net decrease of $148 thousand in interest and penalties for the three months and nine months ended September 30, 2015, respectively. ACC recognized a net increase of $63 thousand and $107 thousand for the three months and nine months ended September 30, 2014, respectively. At September 30, 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 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.

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.

Effective May 9, 2015, two- and three-year terms of the Ameriprise Stock Market Certificate are available for new sales and the Ameriprise Market Strategy Certificate was closed to new sales. Additionally, the Ameriprise Step-Up Rate Certificate (“SRC”) was launched on May 9, 2015 and is available for new sales. The following is a summary of the SRC product:


•	Single payment certificate that offers terms of two, three or four years and on which ACC guarantees an initial interest rate, as well as any step-up in rates taken, per the terms of the prospectus.


•	Two- and three-year terms include the opportunity to step up the rate once during the term.


•	Four-year term includes two opportunities to step up the rate during the term.


•	Step-up rate will be the then-current new purchase rate for the same term as current certificate term.


•	Currently sold without a sale charge.


•	Currently bears surrender charges for premature surrenders.


•	Available as qualified investments for IRAs, 401(k) plans, and other qualified retirement plans.


•	Current policy is to re-evaluate the certificate product interest crediting rates weekly to respond to marketplace changes.


•	ACC refers to an independent index or source to set the rates for new sales and must set the rates for an initial purchase of the certificate within a specified range of the rate from such index or source. For renewals, ACC uses such rates as an indication of the competitors’ rates, but is not required to set rates within a specified range.


•	Non-Jumbo Deposits National Rates as published by the FDIC are used as the guide in setting rates.


•	Certain banks offer certificates of deposit that have features similar to this certificate.


•	Twenty year maturity.

These changes did not have a material impact on ACC’s results of operations for the nine months ended September 30, 2015.

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.

AMERIPRISE CERTIFICATE COMPANY

Results of Operations for the Nine Months Ended September 30, 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 $2.1 million, or 14%, to $17.6 million for the nine months ended September 30, 2015 compared to $15.5 million for the prior year period primarily due to an increase in investment income, a decrease in investment expenses and lower income tax expense reflecting a release of unrecognized tax benefits related to certain state income tax positions. These positive impacts were partially offset by an unfavorable change in net realized gains (losses) on investments.

Investment income increased $1.0 million, or 2%, to $66.6 million for the nine months ended September 30, 2015 compared to $65.6 million for the prior year period reflecting higher average investment balances, partially offset by a lower average invested asset rate due to the continued low interest rate environment.

Investment expenses decreased $0.9 million, or 4%, to $20.4 million for the nine months ended September 30, 2015 compared to $21.3 million for the prior year period.

Net provision for certificate reserves decreased $0.4 million, or 2%, to $19.6 million for the nine months ended September 30, 2015 compared to $20.0 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 $1.6 million for the nine months ended September 30, 2015 compared to net realized gain on investments of $0.2 million for the prior year period. Net realized loss on investments for the nine months ended September 30, 2015 included other-than-temporary impairments of $0.9 million, net realized losses from sales, tenders and calls of Available-for-Sale securities of $0.4 million and an increase in provision for syndicated loan losses of $0.3 million. Net realized gain on investments for the prior year period included $0.9 million of realized gains from sales, tenders and calls of Available-for-Sale securities, partially offset by other-than-temporary impairments of $0.7 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 30.0% for the nine months ended September 30, 2015 compared to 36.8% for the nine months ended September 30, 2014. The decrease in the effective rate for the nine months ended September 30, 2015 compared to the prior year period is due to the release of unrecognized tax benefits 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.

AMERIPRISE CERTIFICATE COMPANY

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, 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.

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.

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:	November 2, 2015	/s/ Abu M. Arif
		Abu M. Arif
		Chief Executive Officer


Date:	November 2, 2015	/s/ Ross P. Palacios
		Ross P. Palacios
		Chief Financial Officer

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

AMERIPRISE CERTIFICATE CO - FORM 10-Q - November 2, 2015

Attached files

AMERIPRISE CERTIFICATE CO Reports