AMERIPRISE CERTIFICATE CO - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - AMERIPRISE CERTIFICATE CO	acc093017-ex32.htm
EX-31.2 - EXHIBIT 31.2 - AMERIPRISE CERTIFICATE CO	acc093017-ex312.htm
EX-31.1 - EXHIBIT 31.1 - AMERIPRISE CERTIFICATE CO	acc093017-ex311.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, 2017


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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o		Smaller reporting company o
Non-Accelerated Filer x		Emerging growth company o
Accelerated Filer o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 1, 2017
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, 2017 and 2016				3
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2017 and 2016				4
Consolidated Balance Sheets — September 30, 2017 and December 31, 2016				5
Consolidated Statements of Shareholder's Equity — Nine months ended September 30, 2017 and 2016				6
Consolidated Statements of Cash Flows — Nine months ended September 30, 2017 and 2016				7
Notes to Consolidated Financial Statements				8
1. Basis of Presentation				8
2. Recent Accounting Pronouncements				8
3. Investments				9
4. Commercial Mortgage, Syndicated and Certificate Loans				13
5. Fair Values of Assets and Liabilities				15
6. Offsetting Assets and Liabilities				21
7. Derivatives and Hedging Activities				22
8. Contingencies				23
9. Shareholder’s Equity				23
10. Income Taxes				24
Item 2. Management’s Narrative Analysis				25
Item 4. Controls and Procedures				26

Part II. Other Information				27
Item 1. Legal Proceedings				27
Item 1A. Risk Factors				27
Item 6. Exhibits				28
Signatures				29

AMERIPRISE CERTIFICATE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(in thousands)
Investment income	$	37,890		$	29,130		$	106,014		$	85,065
Investment expenses	9,489			8,308			27,913			24,143
Net investment income before provision for certificate reserves and income taxes	28,401			20,822			78,101			60,922
Net provision for certificate reserves	11,701			11,505			32,403			27,706
Net investment income before income taxes	16,700			9,317			45,698			33,216
Income tax expense	5,479			3,344			16,225			11,550
Net investment income, after-tax	11,221			5,973			29,473			21,666

Net realized gain (loss) on investments before income taxes	(43		)	1,031			8,854			62
Income tax expense (benefit)	(15		)	360			3,099			21
Net realized gain (loss) on investments, after-tax	(28		)	671			5,755			41
Net income	$	11,193		$	6,644		$	35,228		$	21,707

Supplemental Disclosures:
Total other-than-temporary impairment losses on securities	$	—		$	—		$	—		$	—
Portion of loss recognized in other comprehensive income (loss) (before taxes)	—			(1		)	(193		)	(71		)
Net impairment losses recognized in net realized gain (loss) on investments	$	—		$	(1	)	$	(193	)	$	(71	)
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
	(in thousands)
Net income	$	11,193	$	6,644		$	35,228		$	21,707
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Net unrealized securities gains (losses) arising during the period	587		4,631			16,110			22,812
Reclassification of net securities (gains) losses included in net income	37		(671		)	(5,742		)	(41		)
Total other comprehensive income (loss), net of tax	624		3,960			10,368			22,771
Total comprehensive income	$	11,817	$	10,604		$	45,596		$	44,478
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	September 30, 2017		December 31, 2016
	(in thousands, except share amounts)
Assets
Qualified Assets
Cash and cash equivalents	$	190,333	$	134,189
Investments in unaffiliated issuers	6,605,184		6,134,674
Receivables	37,846		29,775
Derivative assets	45,538		45,098
Total qualified assets	6,878,901		6,343,736
Deferred taxes, net	45		492
Total assets	$	6,878,946	$	6,344,228

Liabilities and Shareholder's Equity
Liabilities
Certificate reserves	$	6,373,076	$	5,935,051
Taxes payable to parent	6,183		3,505
Derivative liabilities	38,819		38,319
Payable for investment securities purchased	58,275		6,969
Due to related party and other liabilities	31,205		34,592
Total liabilities	6,507,558		6,018,436

Shareholder's Equity
Common shares ($10 par value, 150,000 shares authorized and issued)	1,500		1,500
Additional paid-in capital	252,517		247,517
Total retained earnings	112,168		81,940
Accumulated other comprehensive income (loss), net of tax	5,203		(5,165		)
Total shareholder's equity	371,388		325,792
Total liabilities and shareholder's equity	$	6,878,946	$	6,344,228
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)



	Number of Outstanding Shares	Common Shares		Additional Paid-In Capital		Retained Earnings								Accumulated Other Comprehensive Income (Loss), Net of Tax			Total
						Appropriated for Pre-Declared Additional Credits and Interest			Appropriated for Additional Interest on Advance Payments		Un-appropriated
	(in thousands, except share data)
Balance at January 1, 2016	150,000	$	1,500	$	214,517	$	8		$	15	$	53,590		$	(18,808	)	$	250,822
Comprehensive income:
Net income	—	—		—		—			—		21,707			—			21,707
Other comprehensive income (loss), net of tax	—	—		—		—			—		—			22,771			22,771
Total comprehensive income																	44,478
Transfer from appropriated to unappropriated	—	—		—		(8		)	—		8			—			—
Receipt of capital from parent	—	—		25,000		—			—		—			—			25,000
Balance at September 30, 2016	150,000	$	1,500	$	239,517	$	—		$	15	$	75,305		$	3,963		$	320,300

Balance at January 1, 2017	150,000	$	1,500	$	247,517	$	—		$	15	$	81,925		$	(5,165	)	$	325,792
Comprehensive income:
Net income	—	—		—		—			—		35,228			—			35,228
Other comprehensive income (loss), net of tax	—	—		—		—			—		—			10,368			10,368
Total comprehensive income																	45,596
Dividend to parent	—	—		—		—			—		(5,000		)	—			(5,000		)
Receipt of capital from parent	—	—		5,000		—			—		—			—			5,000
Balance at September 30, 2017	150,000	$	1,500	$	252,517	$	—		$	15	$	112,153		$	5,203		$	371,388
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended September 30,
	2017			2016
	(in thousands)
Cash Flows from Operating Activities
Net income	$	35,228		$	21,707
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of premiums, accretion of discounts, net	16,714			17,622
Deferred income tax expense (benefit)	(50		)	(27		)
Net realized (gain) loss on Available-for-Sale securities	(9,026		)	(133		)
Other net realized (gain) loss	(21		)	—
Other-than-temporary impairments and provision for loan loss	193			71
Changes in operating assets and liabilities:
Dividends and interest receivable	(4,418		)	(4,707		)
Certificate reserves, net	1,258			3,986
Deferred taxes, net	(5,583		)	(12,261		)
Taxes payable to/receivable from parent, net	2,678			4,000
Derivatives, net of collateral	(809		)	(87		)
Other liabilities	(2,782		)	3,398
Other receivables	(25		)	(12		)
Other, net	277			(36		)
Net cash provided by (used in) operating activities	33,634			33,521

Cash Flows from Investing Activities
Available-for-Sale securities:
Sales	90,498			7,036
Maturities, redemptions and calls	1,495,221			1,173,295
Purchases	(1,987,024		)	(2,017,710		)
Syndicated loans, commercial mortgage loans and real estate owned:
Sales, maturities and repayments	32,423			46,331
Purchases and fundings	(45,447		)	(17,085		)
Certificate loans, net	72			146
Net cash provided by (used in) investing activities	(414,257		)	(807,987		)

Cash Flows from Financing Activities
Payments from certificate holders and other additions	3,594,855			3,183,717
Certificate maturities and cash surrenders	(3,158,088		)	(2,376,283		)
Capital contribution from parent	5,000			25,000
Dividend to parent	(5,000		)	—
Net cash provided by (used in) financing activities	436,767			832,434

Net increase (decrease) in cash and cash equivalents	56,144			57,968
Cash and cash equivalents at beginning of period	134,189			137,557
Cash and cash equivalents at end of period	$	190,333		$	195,525

Supplemental disclosures including non-cash transactions:
Cash paid for income taxes	$	13,359		$	17,827
Cash paid for interest	34,815			25,413
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” or the “Parent”). 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, 2016, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2017 (“2016 10-K”).

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. No subsequent events or transactions were identified.

2. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments

In August 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to classification of certain cash receipts and cash payments on the statement of cash flows because current standards lacked sufficient guidance to consistently classify cash payments and receipts. The update includes amendments addressing the classification of eight specific cash flow issues. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted and all amendments must be adopted during the same period. ACC early adopted the standard for the interim period ended March 31, 2017 on a retrospective basis. The adoption of the standard did not have a material impact on the ACC’s consolidated statements of cash flows.

Future Adoption of New Accounting Standards

Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB updated the accounting standards to amend the hedge accounting recognition and presentation requirements. The objectives of the update are to better align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities and simplify the application of the hedge accounting guidance. The update also adds new disclosures and amends existing disclosure requirements. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis. Early adoption is permitted. ACC is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB updated the accounting standards related to the recognition of income tax impacts on intra-entity transfers. The update requires entities to recognize the income tax consequences of intra-entity transfers, other than inventory, upon the transfer of the asset. The update requires the selling entity to recognize a current tax expense or benefit and the purchasing entity to recognize a deferred tax asset or liability when the transfer occurs. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. ACC is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

Financial Instruments - Measurement of Credit Losses

In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. Generally, the initial estimate of the expected credit losses and subsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the balance sheet. The current credit loss model for Available-for-Sale debt securities does not change; however, the credit loss calculation and subsequent recoveries are required to be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption will be permitted for interim and annual periods beginning after December 15, 2018. A modified retrospective cumulative adjustment to retained earnings should be recorded as of the first reporting period in which the guidance is effective for loans, receivables, and other financial instruments subject to the new expected credit loss model. Prospective adoption is required for establishing an allowance related to Available-for-Sale debt securities, certain beneficial interests, and financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. 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)

Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for certain provisions. Generally, the update should be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption. The update is not expected to have a material impact on ACC’s consolidated statement of financial condition. During periods in which the market value of equity securities materially changes, ACC may experience volatility in investment income recognized in its consolidated results of operations.

3. Investments

Investments in unaffiliated issuers were as follows:



	September 30, 2017		December 31, 2016
	(in thousands)
Available-for-Sale securities:
Fixed maturities, at fair value (amortized cost: 2017, $6,404,740; 2016, $5,966,057)	$	6,409,626	$	5,953,701
Common stocks, at fair value (cost: 2017, $2,238; 2016, $2,448)	5,606		6,609
Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2017, $3,283; 2016, $3,283; fair value: 2017, $190,941; 2016, $176,211)	189,475		173,815
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	477		549
Total	$	6,605,184	$	6,134,674

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



Description of Securities	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	3,308,646	$	11,956	$	(9,870	)	$	3,310,732	$	—
Corporate debt securities	1,485,293		3,035		(2,003		)	1,486,325		3
Commercial mortgage backed securities	758,495		1,497		(2,057		)	757,935		—
Asset backed securities	789,850		3,901		(1,766		)	791,985		—
State and municipal obligations	62,245		250		(103		)	62,392		—
U.S. government and agencies obligations	211		46		—			257		—
Common stocks	2,238		3,546		(178		)	5,606		2,917
Total	$	6,406,978	$	24,231	$	(15,977	)	$	6,415,232	$	2,920

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



Description of Securities	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI ⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	3,192,055	$	13,075	$	(21,731	)	$	3,183,399	$	209
Corporate debt securities	1,595,907		3,358		(4,188		)	1,595,077		3
Commercial mortgage backed securities	500,170		1,348		(1,646		)	499,872		—
Asset backed securities	629,277		1,357		(4,211		)	626,423		—
State and municipal obligations	48,272		345		(107		)	48,510		—
U.S. government and agencies obligations	376		44		—			420		—
Common stocks	2,448		4,384		(223		)	6,609		2,668
Total	$	5,968,505	$	23,911	$	(32,106	)	$	5,960,310	$	2,880

⁽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, 2017 and December 31, 2016, investment securities with a fair value of $79 thousand and $75 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.

As of September 30, 2017 and December 31, 2016, 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. As of September 30, 2017 and December 31, 2016, approximately $138.5 million and $148.4 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:



Ratings	September 30, 2017						December 31, 2016
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in thousands, except percentages)
AAA	$	3,993,445	$	3,995,886	62	%	$	3,084,275	$	3,080,096	52	%
AA	404,685		405,144		6		278,147		277,010		5
A	727,774		726,882		11		705,520		702,031		12
BBB	1,246,724		1,249,367		20		1,755,986		1,754,223		29
Below investment grade	32,112		32,347		1		142,129		140,341		2
Total fixed maturities	$	6,404,740	$	6,409,626	100	%	$	5,966,057	$	5,953,701	100	%

As of September 30, 2017 and December 31, 2016, approximately 44% and 57%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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, 2017
	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	69	$	901,209	$	(3,769	)	87	$	646,258	$	(6,101	)	156	$	1,547,467	$	(9,870	)
Corporate debt securities	38	461,237		(1,308		)	12	139,242		(695		)	50	600,479		(2,003		)
Commercial mortgage backed securities	24	218,953		(1,655		)	7	29,636		(402		)	31	248,589		(2,057		)
Asset backed securities	23	270,138		(1,113		)	10	42,321		(653		)	33	312,459		(1,766		)
State and municipal obligations	11	27,143		(57		)	3	4,524		(46		)	14	31,667		(103		)
Common stocks	—	—		—			3	650		(178		)	3	650		(178		)
Total	165	$	1,878,680	$	(7,902	)	122	$	862,631	$	(8,075	)	287	$	2,741,311	$	(15,977	)



Description of Securities	December 31, 2016
	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	74	$	1,116,318	$	(6,009	)	131	$	847,998	$	(15,722	)	205	$	1,964,316	$	(21,731	)
Corporate debt securities	59	676,198		(3,945		)	7	57,535		(243		)	66	733,733		(4,188		)
Commercial mortgage backed securities	24	205,284		(1,365		)	4	32,547		(281		)	28	237,831		(1,646		)
Asset backed securities	28	273,193		(2,312		)	16	174,793		(1,899		)	44	447,986		(4,211		)
State and municipal obligations	8	17,308		(107		)	—	—		—			8	17,308		(107		)
Common stocks	—	—		—			3	605		(223		)	3	605		(223		)
Total	193	$	2,288,301	$	(13,738	)	161	$	1,113,478	$	(18,368	)	354	$	3,401,779	$	(32,106	)

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 tighter 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 available-for-sale 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,
	2017		2016		2017			2016
	(in thousands)
Beginning balance	$	—	$	46,486	$	46,522		$	51,966
Reductions for securities sold during the period (realized)	—		—		(46,715		)	(5,550		)
Credit losses for which an other-than-temporary impairment was previously recognized	—		1		193			71
Ending balance	$	—	$	46,487	$	—		$	46,487

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, 2016	$	(29,858	)	$	11,050			$	(18,808	)
Net unrealized securities gains (losses) arising during the period ⁽¹⁾	36,209			(13,397		)		22,812
Reclassification of (gains) losses included in net income	(62		)	21				(41		)
Balance at September 30, 2016	$	6,289		$	(2,326	)		$	3,963		⁽²⁾

Balance at January 1, 2017	$	(8,195	)	$	3,030			$	(5,165	)
Net unrealized securities gains (losses) arising during the period ⁽¹⁾	25,282			(9,172		)		16,110
Reclassification of (gains) losses included in net income	(8,833		)	3,091				(5,742		)
Balance at September 30, 2017	$	8,254		$	(3,051	)		$	5,203		⁽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 $1.9 million and $1.2 million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities as of September 30, 2017 and 2016, 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,
	2017			2016			2017			2016
	(in thousands)
Gross realized gains	$	—		$	1,032		$	11,107		$	1,290
Gross realized losses	(58		)	—			(2,081		)	(1,157		)
Other-than-temporary impairments	—			(1		)	(193		)	(71		)
Total	$	(58	)	$	1,031		$	8,833		$	62

Other-than-temporary impairments for the nine months ended September 30, 2017 and the three months and nine months ended September 30, 2016 are related to credit losses on non-agency residential mortgage backed securities.

Available-for-Sale securities by contractual maturity as of September 30, 2017 were as follows:



	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	701,031	$	701,294
Due after one year through five years	841,519		842,377
Due after five years through 10 years	4,988		5,046
Due after 10 years	211		257
	1,547,749		1,548,974
Residential mortgage backed securities	3,308,646		3,310,732
Commercial mortgage backed securities	758,495		757,935
Asset backed securities	789,850		791,985
Common stocks	2,238		5,606
Total	$	6,406,978	$	6,415,232

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,
	2017		2016
	(in thousands)
Beginning balance	$	3,283	$	3,964
Charge-offs	—		(209		)
Provisions	—		—
Ending balance	$	3,283	$	3,755

Individually evaluated for impairment	$	—	$	—
Collectively evaluated for impairment	3,283		3,755

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



	September 30, 2017		December 31, 2016
	(in thousands)
Individually evaluated for impairment	$	309	$	1,550
Collectively evaluated for impairment	192,449		175,548
Total	$	192,758	$	177,098

As of September 30, 2017 and December 31, 2016, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was nil and $1.6 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to ACC’s total loan balance.

During the three months and nine months ended September 30, 2017, ACC purchased $4.3 million and $33.0 million, respectively, of syndicated loans. During the three months and nine months ended September 30, 2016, ACC purchased $4.4 million and $11.0 million, respectively, of syndicated loans. During the three months and nine months ended September 30, 2017, ACC sold $2.3 million and $3.5 million, respectively, of syndicated loans. There were no sales of financing receivables during the three months and nine months ended September 30, 2016.

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 $309 thousand and nil as of September 30, 2017 and December 31, 2016, 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 nil and 1.8% of total commercial mortgage loans as of September 30, 2017 and December 31, 2016, 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, 2017		December 31, 2016		September 30, 2017		December 31, 2016
	(in thousands)
East North Central	$	6,123	$	3,043	6	%	4	%
East South Central	5,048		5,509		5		6
Middle Atlantic	10,138		10,881		10		12
Mountain	8,313		5,850		9		7
New England	7,264		7,424		8		9
Pacific	22,949		16,511		24		19
South Atlantic	23,455		23,846		24		27
West North Central	6,845		7,253		7		8
West South Central	6,562		7,174		7		8
	96,697		87,491		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	94,356	$	85,150

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



	Loans				Percentage
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
	(in thousands)
Apartments	$	16,438	$	16,527	17	%	19	%
Industrial	23,430		16,637		24		19
Mixed use	4,678		4,968		5		6
Office	6,283		6,551		6		7
Retail	35,735		31,500		37		36
Hotel	819		941		1		1
Other	9,314		10,367		10		12
	96,697		87,491		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	94,356	$	85,150

Syndicated Loans

The recorded investment in syndicated loans as of September 30, 2017 and December 31, 2016 was $96.1 million and $89.6 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 as of September 30, 2017 and December 31, 2016 were $309 thousand and nil, respectively. The nonperforming syndicated loans at September 30, 2017 represents less than 1% of total syndicated loans.

Troubled Debt Restructurings

There were no loans restructured by ACC during the three months and nine months ended months ended September 30, 2017. During the three months and nine months ended September 30, 2016, ACC restructured two syndicated loans and received one loan and common stock in exchange with a recorded investment of $156 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, 2016. 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, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	144,884	$	—	$	144,884
Available-for-Sale securities:
Residential mortgage backed securities	—		3,234,526		76,206		3,310,732
Corporate debt securities	—		1,364,785		121,540		1,486,325
Commercial mortgage backed securities	—		727,935		30,000		757,935
Asset backed securities	—		778,798		13,187		791,985
State and municipal obligations	—		62,392		—		62,392
U.S. government and agencies obligations	257		—		—		257
Common stocks	1,420		4,044		142		5,606
Total Available-for-Sale securities	1,677		6,172,480		241,075		6,415,232
Equity derivative contracts	6		45,532		—		45,538
Total assets at fair value	$	1,683	$	6,362,896	$	241,075	$	6,605,654

Liabilities
Stock market certificate embedded derivatives	$	—	$	8,721	$	—	$	8,721
Equity derivative contracts	—		38,819		—		38,819
Total liabilities at fair value	$	—	$	47,540	$	—	$	47,540

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	December 31, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	111,385	$	—	$	111,385
Available-for-Sale securities:
Residential mortgage backed securities	—		3,030,216		153,183		3,183,399
Corporate debt securities	—		1,440,921		154,156		1,595,077
Commercial mortgage backed securities	—		499,872		—		499,872
Asset backed securities	—		595,635		30,788		626,423
State and municipal obligations	—		48,510		—		48,510
U.S. government and agencies obligations	420		—		—		420
Common stocks	2,416		3,476		717		6,609
Total Available-for-Sale securities	2,836		5,618,630		338,844		5,960,310
Equity derivative contracts	—		45,098		—		45,098
Total assets at fair value	$	2,836	$	5,775,113	$	338,844	$	6,116,793

Liabilities
Stock market certificate embedded derivatives	$	—	$	8,183	$	—	$	8,183
Equity derivative contracts	6		38,313		—		38,319
Total liabilities at fair value	$	6	$	46,496	$	—	$	46,502

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, 2017	$	82,214		$	143,322		$	—	$	3,049		$	268		$	228,853
Total gains (losses) included in:
Net income	5			(124		)	—		1			—			(118		)	⁽¹⁾
Other comprehensive income (loss)	(57		)	29			—		(9		)	35			(2		)
Purchases	—			1,313			30,000		—			—			31,313
Settlements	(7,682		)	(23,000		)	—		—			—			(30,682		)
Transfers into Level 3	20,182			—			—		13,195			—			33,377
Transfers out of Level 3	(18,456		)	—			—		(3,049		)	(161		)	(21,666		)
Balance, September 30, 2017	$	76,206		$	121,540		$	30,000	$	13,187		$	142		$	241,075

Changes in unrealized gains (losses) relating to assets held at September 30, 2017	$	5		$	(124	)	$	—	$	1		$	—		$	(118	)	⁽¹⁾

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	Available-for-Sale Securities											Total
	Residential Mortgage Backed Securities			Corporate Debt Securities			Asset Backed Securities			Common Stocks		Total
	(in thousands)
Balance, July 1, 2016	$	137,109		$	153,167		$	35,299		$	74	$	325,649
Total gains (losses) included in:
Net income	114			(105		)	45			—		54			⁽¹⁾
Other comprehensive income (loss)	1,666			(27		)	(67		)	53		1,625
Purchases	37,386			—			12,500			—		49,886
Settlements	(12,042		)	(4,000		)	—			—		(16,042		)
Transfers into Level 3	—			—			—			360		360
Transfers out of Level 3	—			—			(15,063		)	—		(15,063		)
Balance, September 30, 2016	$	164,233		$	149,035		$	32,714		$	487	$	346,469

Changes in unrealized gains (losses) relating to assets held at September 30, 2016	$	114		$	(99	)	$	45		$	—	$	60		⁽¹⁾



	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, 2017	$	153,183		$	154,156		$	—	$	30,788		$	717		$	338,844
Total gains (losses) included in:
Net income	94			(348		)	—		2			64			(188		)	⁽²⁾
Other comprehensive income (loss)	105			(249		)	—		1			263			120
Purchases	65,138			13,481			30,000		—			—			108,619
Sales	—			—			—		—			(151		)	(151		)
Settlements	(29,077		)	(45,500		)	—		—			—			(74,577		)
Transfers into Level 3	20,182			—			—		16,232			3,568			39,982
Transfers out of Level 3	(133,419		)	—			—		(33,836		)	(4,319		)	(171,574		)
Balance, September 30, 2017	$	76,206		$	121,540		$	30,000	$	13,187		$	142		$	241,075

Changes in unrealized gains (losses) relating to assets held at September 30, 2017	$	(7	)	$	(345	)	$	—	$	1		$	—		$	(351	)	⁽¹⁾

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	Available-for-Sale Securities
	Residential Mortgage Backed Securities			Corporate Debt Securities			Asset Backed Securities			Common Stocks			Total
	(in thousands)
Balance, January 1, 2016	$	196,334		$	190,304		$	29,515		$	229		$	416,382
Total gains (losses) included in:
Net income	460			(1,624		)	101			—			(1,063		)	⁽³⁾
Other comprehensive income (loss)	296			2,355			(129		)	53			2,575
Purchases	37,386			—			28,289			—			65,675
Settlements	(45,644		)	(42,000		)	—			—			(87,644		)
Transfers into Level 3	—			—			—			360			360
Transfers out of Level 3	(24,599		)	—			(25,062		)	(155		)	(49,816		)
Balance, September 30, 2016	$	164,233		$	149,035		$	32,714		$	487		$	346,469

Changes in unrealized gains (losses) relating to assets held at September 30, 2016	$	460		$	(295	)	$	101		$	—		$	266		⁽¹⁾

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

⁽²⁾ Represents a $253 thousand loss included in investment income and a $65 thousand gain included in net realized gain (loss) on investments in the Consolidated Statements of Operations.

⁽³⁾Represents a $1.1 million loss included in net realized gain (loss) on investments and a $73 thousand gain 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 value 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:



	September 30, 2017
	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
	(in thousands)
Corporate debt securities (private placements)	$	121,537	Discounted cash flow	Yield/spread to U.S. Treasuries	0.8% - 1.2%	0.9%



	December 31, 2016
	Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
	(in thousands)
Corporate debt securities (private placements)	$	154,153	Discounted cash flow	Yield/spread to U.S. Treasuries	0.9% - 1.7%	1.1%

Level 3 measurements not included in the table above are obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to ACC.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs

Significant increases (decreases) in the yield/spread to U.S. Treasuries used in the fair value measurement of Level 3 corporate debt securities in isolation would result in a significantly lower (higher) fair value measurement.

Determination of Fair Value

ACC uses valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. ACC’s market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. ACC’s income approach uses valuation techniques to convert future projected cash flows to a single discounted present value amount. When applying either approach, ACC maximizes the use of observable inputs and minimizes the use of unobservable inputs.

The following is a description of the valuation techniques used to measure fair value and the general classification of these instruments pursuant to the fair value hierarchy.

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. ACC’s cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value because of the short time between the purchase of the instrument and its expected realization.

Available-for-Sale Securities

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third-party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and common stocks. Level 2 securities primarily include residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities, state and municipal obligations 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 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 as of September 30, 2017 and December 31, 2016. See Note 6 and Note 7 for further information on the credit risk of derivative instruments and related collateral.

Stock Market Certificate Embedded Derivatives

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, 2017
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	95,119	$	—	$	87,115	$	8,198	$	95,313
Commercial mortgage loans	94,356		—		—		95,628		95,628
Certificate loans	477		—		477		—		477

Financial Liabilities
Certificate reserves	$	6,364,355	$	—	$	—	$	6,351,068	$	6,351,068



	December 31, 2016
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	88,665	$	—	$	85,368	$	4,516	$	89,884
Commercial mortgage loans	85,150		—		—		86,327		86,327
Certificate loans	549		—		549		—		549

Financial Liabilities
Certificate reserves	$	5,926,868	$	—	$	—	$	5,913,672	$	5,913,672

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 contracts with similar terms and characteristics, with adjustments for 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 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, 2017
	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						Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Derivatives:
OTC	$	45,532	$	—	$	45,532	$	(38,819	)	$	(6,283	)	$	430
Exchange-traded	6		—		6		—			—			6
Total	$	45,538	$	—	$	45,538	$	(38,819	)	$	(6,283	)	$	436



	December 31, 2016
	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						Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Derivatives:
OTC	$	45,098	$	—	$	45,098	$	(38,313	)	$	(6,785	)	$	—
Total	$	45,098	$	—	$	45,098	$	(38,313	)	$	(6,785	)	$	—

⁽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, 2017
	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					Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Derivatives:
OTC	$	38,819	$	—	$	38,819	$	(38,819	)	$	—	$	—
Total	$	38,819	$	—	$	38,819	$	(38,819	)	$	—	$	—



	December 31, 2016
	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					Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Derivatives:
OTC	$	38,313	$	—	$	38,313	$	(38,313	)	$	—	$	—
Exchange-traded	6		—		6		—			—		6
Total	$	38,319	$	—	$	38,319	$	(38,313	)	$	—	$	6

⁽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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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.

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 (“SMC”). ACC does not designate any derivatives for hedge accounting. The following table presents the notional value and the gross fair value of derivative instruments, including embedded derivatives:



	September 30, 2017						December 31, 2016
	Notional		Gross Fair Value				Notional		Gross Fair Value
	Notional		Assets		Liabilities		Notional		Assets		Liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Equity contracts⁽¹⁾	$	877,309	$	45,538	$	38,819	$	911,871	$	45,098	$	38,319
Embedded derivatives
Stock market certificates⁽²⁾	N/A		—		8,721		N/A		—		8,183
Total derivatives	$	877,309	$	45,538	$	47,540	$	911,871	$	45,098	$	46,502

N/A Not applicable

⁽¹⁾ The gross fair value of equity contracts is included in Derivative assets and Derivative liabilities on the Consolidated Balance Sheets.

⁽²⁾ The gross fair value of SMC embedded derivatives is included in Certificate reserves on the Consolidated Balance Sheets.

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, including embedded derivatives, 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,
		2017			2016			2017			2016
Equity contracts
Stock market certificates	Net provision for certificate reserves	$	956		$	1,475		$	2,975		$	1,044
Stock market certificates embedded derivatives	Net provision for certificate reserves	(1,024		)	(1,338		)	(2,889		)	(1,334		)
Total		$	(68	)	$	137		$	86		$	(290	)

Ameriprise SMC offers a return based upon the relative change in a major stock market index between the beginning and end of the certificate’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. 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 minimal counterparty risk.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Ameriprise Step-Up Rate Certificates (“SRC”) offer the ability to step up to a higher crediting rate based upon the then-current rate for a new SRC with the same term. ACC does not currently hedge the interest rate risk related to the SRC product. The SRC product contains an embedded derivative which was not material as of September 30, 2017 and December 31, 2016.

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 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.

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):



Accumulated Other Comprehensive Income (Loss) Reclassification	Location of (Gain) Loss Recognized in Income	Three Months Ended September 30,						Nine Months Ended September 30,
	Location of (Gain) Loss Recognized in Income	2017			2016			2017			2016
Unrealized net (gains) losses on Available-for-Sale securities	Net realized gains (losses) on investments	$	58		$	(1,031	)	$	(8,833	)	$	(62	)
Tax expense (benefit)	Income tax expense (benefit)	(21		)	360			3,091			21
Net of tax		$	37		$	(671	)	$	(5,742	)	$	(41	)

During the three months and nine months ended September 30, 2017, ACC received cash contributions from Ameriprise Financial of nil and $5 million, respectively. During the three months and nine months ended September 30, 2016, ACC received cash contributions from Ameriprise Financial of $6 million and $25 million, respectively. ACC received these contributions to maintain compliance with capital requirements due to growth of the business, and these contributions were outside of the Capital Support Agreement between Ameriprise Financial and ACC. See additional discussion on the Capital Support Agreement in ACC’s 2016 10-K.

During both the three months and nine months ended September 30, 2017, ACC paid dividends to Ameriprise Financial of $5 million. ACC did not pay any dividends to Ameriprise Financial during the three months and nine months ended September 30, 2016.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

10. Income Taxes

The effective tax rate was 32.8% and 35.8% for the three months ended September 30, 2017 and 2016, respectively. The effective tax rate was 35.4% and 34.8% for the nine months ended September 30, 2017 and 2016, respectively. The lower effective tax rate for the three months ended September 30, 2017 compared to September 30, 2016 is mainly due to a benefit related to taxes applicable to prior years.

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 both September 30, 2017 and December 31, 2016.

As of September 30, 2017 and December 31, 2016, ACC had $2.4 million and $2.5 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $1.6 million net of federal tax benefits, of the unrecognized tax benefits for both September 30, 2017 and December 31, 2016 would affect the effective tax rate.

It is reasonably possible that the total amount of unrecognized tax benefits will change in the next 12 months. ACC estimates that the total amount of gross unrecognized tax benefits may decrease by $600 thousand to $700 thousand in the next 12 months primarily due to resolution of audits and statute expirations.

ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized a net increase of $18 thousand and a net decrease of $100 thousand in interest and penalties for the three months and nine months ended September 30, 2017, respectively. ACC recognized a net increase of $10 thousand and a net decrease of $1.4 million in interest and penalties for the three months and nine months ended September 30, 2016, respectively. As of September 30, 2017 and December 31, 2016, ACC had a payable of $150 thousand and $250 thousand, 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. In the quarter, Ameriprise Financial received final cash settlements for resolution of the 2006 and 2011 audits. The IRS has completed its examination of the 2008 through 2010 tax returns and these years are effectively settled; however, the statutes of limitation, remain open for certain carryover adjustments. The IRS is currently auditing Ameriprise Financial’s U.S. income tax returns for 2012 through 2015. Ameriprise Financial’s or its subsidiaries’, including ACC’s, state income tax returns are currently under examination by various jurisdictions for years ranging from 2005 through 2015.

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, 2016, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2017 (“2016 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 2016 10-K.

Recent Accounting Pronouncements

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

Results of Operations for the Nine Months Ended September 30, 2017 and 2016

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 $13.5 million, or 62%, to $35.2 million for the nine months ended September 30, 2017 compared to $21.7 million for the prior year period due to higher investment income and net realized gains on investments in the current year period, partially offset by higher income tax expense, net provision for certificate reserves, and investment expenses.

Investment income increased $20.9 million, or 25%, to $106.0 million for the nine months ended September 30, 2017 compared to $85.1 million for the prior year period reflecting higher average investment balances from certificate net inflows and an increase in the invested assets rate.

Investment expenses increased $3.8 million, or 16%, to $27.9 million for the nine months ended September 30, 2017 compared to $24.1 million for the prior year period primarily due to higher investment advisory, transfer agent, and distribution fees.

Net provision for certificate reserves increased $4.7 million, or 17%, to $32.4 million for the nine months ended September 30, 2017 compared to $27.7 million for the prior year period due to higher average certificate balances from certificate net inflows.

Net realized gain on investments before income taxes was $8.9 million for the nine months ended September 30, 2017 compared to net realized gain on investments of $0.1 million for the prior year period. Net realized gain on investments for the nine months ended September 30, 2017 included net realized gains from sales, tenders and calls of Available-for-Sale securities of $9.0 million primarily due to the sale of non-agency residential mortgage backed securities as well as common stock, partially offset by other-than-temporary impairments of $0.2 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 35.4% for the nine months ended September 30, 2017 compared to 34.8% for the prior year period.

AMERIPRISE CERTIFICATE COMPANY

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. Non-binding broker quotes are obtained when quotes from third-party pricing services are not available. ACC validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors. See Note 5 to the consolidated financial statements for additional information regarding ACC’s fair value measurements.

Forward-Looking Statements

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

ACC maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be reported in the Exchange Act filings is recorded, processed, summarized and reported within the time periods specified in and pursuant to SEC regulations, including controls and procedures designed to ensure that this information is accumulated and communicated to ACC’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. It should be noted that, because of inherent limitations, ACC’s disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

ACC’s management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC’s Chief Executive Officer and Chief Financial Officer have concluded that ACC’s disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2017.

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 2016 10-K.

AMERIPRISE CERTIFICATE COMPANY

ITEM 6. EXHIBITS

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 Janet C. Langner pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32*	Certification of Abu M. Arif and Janet C. Langner pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed electronically herewithin.

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 1, 2017	By	/s/ Abu M. Arif
			Abu M. Arif
			Chief Executive Officer


Date:	November 1, 2017	By	/s/ Janet C. Langner
			Janet C. Langner
			Chief Financial Officer

AMERIPRISE CERTIFICATE CO - FORM 10-Q - November 1, 2017

Attached files

AMERIPRISE CERTIFICATE CO Reports