AMERIPRISE CERTIFICATE CO - FORM 10-Q

Attached files

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EX-32 - EX-32 - AMERIPRISE CERTIFICATE CO	accexhibit32-x33121.htm
EX-31.2 - EX-31.2 - AMERIPRISE CERTIFICATE CO	accexhibit312-x33121.htm
EX-31.1 - EX-31.1 - AMERIPRISE CERTIFICATE CO	accexhibit311-x33121.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

☒

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

For the Quarterly Period Ended

March 31, 2021

☐

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes

☒

☐

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 the 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

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☐

Emerging growth company

☐


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.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at May 10, 2021

Common Stock (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)			3
	Consolidated Statements of Operations — Three months ended March 31, 2021 and 2020		3
	Consolidated Statements of Comprehensive Income — Three months ended March 31, 2021 and 2020		4
	Consolidated Balance Sheets — March 31, 2021 and December 31, 2020		5
	Consolidated Statements of Shareholder's Equity — Three months ended March 31, 2021 and 2020		6
	Consolidated Statements of Cash Flows — Three months ended March 31, 2021 and 2020		7
	Notes to Consolidated Financial Statements		8
	1.	Basis of Presentation	8
	2.	Recent Accounting Pronouncements	8
	3.	Investments	9
	4.	Financing Receivables	12
	5.	Fair Values of Assets and Liabilities	14
	6.	Offsetting Assets and Liabilities	18
	7.	Derivatives and Hedging Activities	19
	8.	Contingencies	20
	9.	Shareholder’s Equity	20
	10.	Income Taxes	21
Item 2. Management’s Narrative Analysis			22
Item 4. Controls and Procedures			23

Part II. Other Information			24
Item 1. Legal Proceedings			24
Item 1A. Risk Factors			24
Item 6. Exhibits			24
Signatures			25

AMERIPRISE CERTIFICATE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Investment income	$	20,996	$	47,391
Investment expenses	7,902		10,916
Net investment income before provision for certificate reserves and income taxes	13,094		36,475
Net provision for certificate reserves	3,740		23,251
Net investment income before income taxes	9,354		13,224
Income tax expense	2,403		3,255
Net investment income, after-tax	6,951		9,969

Net realized gain (loss) on investments before income taxes	1,462		(739)
Income tax expense (benefit)	307		(155)
Net realized gain (loss) on investments, after-tax	1,155		(584)
Net income	$	8,106	$	9,385
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Net income	$	8,106	$	9,385
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Net unrealized gains (losses) on securities arising during the period	2,596		(102,883)
Reclassification of net (gains) losses on securities included in net income	(612)		(190)
Total other comprehensive income (loss), net of tax	1,984		(103,073)
Total comprehensive income (loss)	$	10,090	$	(93,688)
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	March 31, 2021		December 31, 2020
	(in thousands, except share data)
Assets
Qualified Assets
Cash and cash equivalents	$	495,344	$	562,652
Investments in unaffiliated issuers (allowance for credit losses: 2021, $2,470; 2020, $3,190)	6,200,499		6,645,068
Receivables	17,173		16,299
Derivative assets	65,908		66,663
Total qualified assets	6,778,924		7,290,682


Due from related party	—		74
Total assets	$	6,778,924	$	7,290,756

Liabilities and Shareholder’s Equity
Liabilities
Certificate reserves	$	6,257,927	$	6,760,431
Deferred taxes, net	9,596		8,242
Taxes payable to parent	2,596		810
Derivative liabilities	60,355		59,924
Payables to brokers, dealers and clearing organizations	3,584		10,256
Due to related party	2,446		1,056
Accrued expenses and other liabilities	38,586		29,293
Total liabilities	6,375,090		6,870,012

Shareholder’s Equity
Common shares ($10 par value, 150,000 shares authorized and issued)	1,500		1,500
Additional paid-in capital	341,700		341,700
Total retained earnings	25,954		44,848
Accumulated other comprehensive income (loss), net of tax	34,680		32,696
Total shareholder’s equity	403,834		420,744
Total liabilities and shareholder’s equity	$	6,778,924	$	7,290,756


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, January 1, 2020	150,000	$	1,500	$	331,700	$	321	$	15	$	96,467	$	12,263	$	442,266
Cumulative effect of adoption of current expected credit losses guidance	—	—		—		—		—		585		—		585
Comprehensive income (loss):
Net income	—	—		—		—		—		9,385		—		9,385
Other comprehensive income (loss), net of tax	—	—		—		—		—		—		(103,073)		(103,073)
Total comprehensive income (loss)														(93,688)
Transfer to unappropriated from appropriated	—	—		—		(124)		—		124		—		—
Dividend to parent	—	—		—		—		—		(32,000)		—		(32,000)
Receipt of capital from parent	—	—		10,000		—		—		—		—		10,000
Balance, March 31, 2020	150,000	$	1,500	$	341,700	$	197	$	15	$	74,561	$	(90,810)	$	327,163

Balance, January 1, 2021	150,000	$	1,500	$	341,700	$	21	$	15	$	44,812	$	32,696	$	420,744

Comprehensive income (loss):
Net income	—	—		—		—		—		8,106		—		8,106
Other comprehensive income (loss), net of tax	—	—		—		—		—		—		1,984		1,984
Total comprehensive income (loss)	—	—		—		—		—		—		—		10,090
Transfer to unappropriated from appropriated	—	—		—		(10)		—		10		—		—
Dividend to parent	—	—		—		—		—		(27,000)		—		(27,000)
Receipt of capital from parent	—	—		—		—		—		—		—		—
Balance, March 31, 2021	150,000	$	1,500	$	341,700	$	11	$	15	$	25,928	$	34,680	$	403,834

See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Cash Flows from Operating Activities
Net income	$	8,106	$	9,385
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of premiums, accretion of discounts, net	409		(5,670)
Deferred income tax expense (benefit)	—		3,991
Net realized (gain) loss on Available-for-Sale securities	(774)		(241)
Other net realized (gain) loss	31		(13)
Provision for credit losses	(720)		993
Changes in operating assets and liabilities:
Dividends and interest receivable	1,583		8,113
Certificate reserves, net	(996)		(8,869)
Deferred taxes, net	728		—
Taxes payable to/receivable from parent, net	1,786		(1,073)
Derivatives, net of collateral	76		517
Other liabilities	10,402		(7,954)
Other receivables	108		(388)


Other, net	1,402		70
Net cash provided by (used in) operating activities	22,141		(1,139)

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

Maturities, redemptions and calls	1,350,911		1,274,137
Purchases	(920,810)		(766,217)
Syndicated loans and commercial mortgage loans:
Sales, maturities and repayments	12,699		12,188
Purchases and fundings	(3,806)		(19,185)


Certificate loans, net	65		5
Net cash provided by (used in) investing activities	439,059		500,928

Cash Flows from Financing Activities
Payments from certificate holders and other additions	722,804		1,270,929
Certificate maturities and cash surrenders	(1,224,312)		(1,448,576)
Capital contribution from parent	—		10,000
Dividend to parent	(27,000)		(32,000)
Net cash provided by (used in) financing activities	(528,508)		(199,647)

Net increase (decrease) in cash and cash equivalents	(67,308)		300,142
Cash and cash equivalents at beginning of period	562,652		384,194
Cash and cash equivalents at end of period	$	495,344	$	684,336

Supplemental disclosures including non-cash transactions:
Cash paid (received) for income taxes	$	310	$	485
Cash paid for interest	5,545		24,943

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, 2020, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021 (“2020 10-K”).

ACC evaluated events or transactions that occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions requiring recognition or disclosure were identified.

2. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Income Taxes – Simplifying the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) updated the accounting standards to simplify the accounting for income taxes. The update eliminates certain exceptions to: (1) accounting principles related to intra-period tax allocation to be applied on a prospective basis, (2) deferred tax liabilities related to outside basis differences to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption, and (3) year-to-date losses in interim periods to be applied on a prospective basis. The update also amends existing guidance related to situations when an entity receives: (1) a step-up in the tax basis of goodwill to be applied on a prospective basis, (2) an allocation of income tax expense when members of a consolidated tax filing group issue separate financial statements to be applied on a retrospective basis for all periods presented, (3) interim recognition of enactment of tax laws or rate changes to be applied on a prospective basis, and (4) franchise taxes and other taxes partially based on income to be applied on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The standard is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. ACC adopted the standard on January 1, 2021. The adoption of the standard did not have an impact on ACC’s consolidated results of operations and financial condition.

Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments

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. At adoption, the initial estimate of the expected credit losses will be recorded through retained earnings 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 credit loss model for Available-for-Sale debt securities did 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. 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 adopted the standard on January 1, 2020. The adoption of this update did not have a material impact on ACC’s consolidated results of operations or financial condition.

Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB updated the accounting standards related to disclosures for fair value measurements. The update eliminates the following disclosures: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy of timing of transfers between levels of the fair value hierarchy, and (3) the valuation processes for Level 3 fair value measurements. The new disclosures include changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated. The new disclosures are required on a prospective basis; all other provisions should be applied retrospectively. The update is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for the entire standard or only the provisions to eliminate or modify disclosure requirements. ACC early adopted the provisions of the standard to eliminate or modify disclosure requirements in the fourth quarter of 2018. The Company adopted the provisions of the standard to include new disclosures on January 1, 2020. The update did not have an impact on ACC’s consolidated results of operations or financial condition.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Future Adoption of New Accounting Standards

Reference Rate Reform – Expedients for Contract Modifications

In March 2020, the FASB updated the accounting standards to provide optional expedients and exceptions for applying GAAP to contracts, hedging or other transactions that are affected by reference rate reform (i.e., the elimination of LIBOR). The following expedients are provided for modified contracts whose reference rate is changed: (1) receivables and debt contracts are accounted for prospectively by adjusting the effective interest rate, (2) leases are accounted for as a continuation of the existing contracts with no reassessments of the lease classification and discount rate or remeasurements of lease payments that otherwise would be required, and (3) an entity is not required to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract. The amendments in this update were effective upon issuance and must be elected prior to December 31, 2022. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions. In January 2021, FASB updated the standard to allow an entity to elect to apply the treatment under the original guidance to derivative instruments that use an interest rate that for margining, discounting or contract price alignment that will be modified due to reference rate reform but did not qualify under the original guidance. The Company has not yet applied any of the optional expedients. The adoption of the standard is not expected to have an impact on ACC’s consolidated results of operations and financial condition.

3. Investments


Investments in unaffiliated issuers were as follows:	March 31, 2021		December 31, 2020
	(in thousands)
Available-for-Sale securities: Fixed maturities, at fair value (allowance for credit losses: 2021 and 2020, nil; amortized cost: 2021, $5,897,100; 2020, $6,334,451)	$	5,940,520	$	6,375,260
Commercial mortgage loans and syndicated loans, at cost (allowance for credit losses: 2021, $2,470; 2020, $3,190; fair value: 2021, $263,486; 2020, $274,739)	259,802		269,540
Equity securities, at fair value (cost: 2021 and 2020, $115)	30		56
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	147		212
Total	$	6,200,499	$	6,645,068

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


Description of Securities	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Residential mortgage backed securities	$	2,212,042	$	30,536	$	(1,660)	$	—	$	2,240,918
Corporate debt securities	238,376		3,310		—		—		241,686
Commercial mortgage backed securities	1,445,988		6,352		(398)		—		1,451,942
Asset backed securities	658,940		5,006		(294)		—		663,652
State and municipal obligations	16,833		288		—		—		17,121
U.S. government and agency obligations	1,324,921		280		—		—		1,325,201
Total	$	5,897,100	$	45,772	$	(2,352)	$	—	$	5,940,520


Description of Securities	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(in thousands)
Residential mortgage backed securities	$	2,496,350	$	35,943	$	(2,368)	$	—	$	2,529,925
Corporate debt securities	264,199		5,621		—		—		269,820
Commercial mortgage backed securities	1,475,446		7,150		(9,818)		—		1,472,778
Asset backed securities	626,777		4,778		(991)		—		630,564
State and municipal obligations	16,839		327		—		—		17,166
U.S. government and agency obligations	1,454,840		167		—		—		1,455,007
Total	$	6,334,451	$	53,986	$	(13,177)	$	—	$	6,375,260

As of March 31, 2021 and December 31, 2020, accrued interest of $6.5 million and $7.4 million, respectively, is excluded from the amortized cost basis of Available-for-Sale securities in the tables above and is recorded in receivables on the Consolidated Balance Sheets.

As of March 31, 2021 and December 31, 2020, investment securities with a fair value of $150 thousand and $242 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

As of March 31, 2021 and December 31, 2020, fixed maturity securities comprised approximately 89% and 88%, 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 both March 31, 2021 and December 31, 2020, nil 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	March 31, 2021						December 31, 2020
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in thousands, except percentages)
AAA	$	5,410,095	$	5,444,960	92	%	$	5,774,067	$	5,803,399	91	%
AA	177,510		179,942		3		219,978		223,221		3
A	166,519		170,073		3		165,442		169,520		3
BBB	136,460		138,957		2		166,734		170,885		3
Below investment grade	6,516		6,588		—		8,230		8,235		—
Total fixed maturities	$	5,897,100	$	5,940,520	100	%	$	6,334,451	$	6,375,260	100	%

As of both March 31, 2021 and December 31, 2020, approximately 34% of securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities. No holdings of any issuer were greater than 10% of total equity.

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:


	March 31, 2021
	Less than 12 months					12 months or more					Total
Description of Securities	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	13	$	89,741	$	(596)	58	$	196,242	$	(1,064)	71	$	285,983	$	(1,660)
Commercial mortgage backed securities	9	96,642		(61)		9	188,364		(337)		18	285,006		(398)
Asset backed securities	2	51,988		(12)		8	119,619		(282)		10	171,607		(294)
Total	24	$	238,371	$	(669)	75	$	504,225	$	(1,683)	99	$	742,596	$	(2,352)


	December 31, 2020
	Less than 12 months					12 months or more					Total
Description of Securities	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	49	$	144,057	$	(751)	56	$	317,650	$	(1,617)	105	$	461,707	$	(2,368)

Commercial mortgage backed securities	20	406,473		(4,810)		11	177,503		(5,008)		31	583,976		(9,818)
Asset backed securities	5	49,916		(214)		10	151,440		(777)		15	201,356		(991)


Total	74	$	600,446	$	(5,775)	77	$	646,593	$	(7,402)	151	$	1,247,039	$	(13,177)

As part of ACC’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities for which an allowance for credit losses has not been recognized during the three months ended March 31, 2021 is primarily attributable to a slight decline in short-term rates along with spread tightening ACC did not recognize any of the total unrealized losses in earnings because it was determined that such losses were due to non-credit factors. ACC does not intend to sell these securities and does not believe that it is more likely than not that ACC will be required to sell these securities before the anticipated recovery of the remaining amortized cost basis. As of March 31, 2021 and December 31, 2020, 98% and 96%, respectively, of the total of Available-for-Sale securities with gross unrealized losses were considered investment grade.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

There were no amounts recognized in the allowance for credit losses on Available-for-Sale securities during the three months ended March 31, 2021 and 2020.

The change in net unrealized gains (losses) on securities in OCI includes two components, net of tax: (i) unrealized gains (losses) that arose from changes in the fair 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 impairments to credit losses.

The following table presents a rollforward of the net unrealized gains (losses) on Available-for-Sale securities included in AOCI:


	Net Unrealized Gains (Losses) on Securities		Deferred Income Tax		Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Gains (Losses) on Securities
	(in thousands)
Balance at January 1, 2020	$	13,958	$	(1,695)	$	12,263
Net unrealized gains (losses) on securities arising during the period (1)	(135,572)		32,689		(102,883)
Reclassification of net (gains) losses on securities included in net income	(241)		51		(190)
Balance at March 31, 2020	$	(121,855)	$	31,045	$	(90,810)

Balance at January 1, 2021	$	40,810	$	(8,114)	$	32,696
Net unrealized gains (losses) on securities arising during the period (1)	3,384		(788)		2,596
Reclassification of net (gains) losses on securities included in net income	(774)		162		(612)
Balance at March 31, 2021	$	43,420	$	(8,740)	$	34,680

(1) Net unrealized gains (losses) on securities arising during the period include impairments on Available-for-Sale securities related to factors other than credit that were recognized in OCI during the period.

Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in net realized gain (loss) on investments were as follows:


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Gross realized gains	$	774	$	241
Gross realized losses	—		—
Total	$	774	$	241

Available-for-Sale securities by contractual maturity as of March 31, 2021 were as follows:


	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	1,501,028	$	1,502,446
Due after one year through five years	78,894		81,307
Due after five years through 10 years	208		255

	1,580,130		1,584,008
Residential mortgage backed securities	2,212,042		2,240,918
Commercial mortgage backed securities	1,445,988		1,451,942
Asset backed securities	658,940		663,652
Total	$	5,897,100	$	5,940,520

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 were not included in the maturities distribution.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. Financing Receivables

Financing receivables are comprised of commercial loans and certificate loans.

Allowance for Credit Losses

The following tables present a rollforward of the allowance for credit losses for the three months ended March 31:


	Commercial Loans
	(in thousands)
Balance, January 1, 2021	$	3,190
Provisions	(720)


Balance, March 31, 2021	$	2,470


	Commercial Loans
	(in thousands)
Balance, December 31, 2019 (1)	$	3,022
Cumulative effect of adoption of current expected credit losses guidance	(771)
Balance, January 1, 2020	2,251
Provisions	993


Balance, March 31, 2020	$	3,244

(1) Prior to January 1, 2020, the allowance for credit losses was based on an incurred loss model that did not require estimating expected credit losses over the expected life of the asset.

As of both March 31, 2021 and December 31, 2020, accrued interest on commercial loans was $1.0 million and is recorded in receivables on the Consolidated Balance Sheets and excluded from the amortized cost basis of commercial loans.

Purchases and Sales

During the three months ended March 31, 2021 and 2020, ACC purchased $3.1 million and $15.4 million, respectively, of syndicated loans and sold $1.2 million and $0.7 million, respectively, of syndicated loans.

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

Credit Quality Information

Nonperforming loans were $0.8 million and $2.9 million as of March 31, 2021 and December 31, 2020, respectively. All other loans were considered to be performing.

Commercial Loans

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. Loan-to-value ratio is the primary credit quality indicator included in this review. Total commercial mortgage loans past due were nil as of both March 31, 2021 and December 31, 2020.

Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates when credit risk changes. Commercial mortgage loans which management has assigned its highest risk rating were nil as of both March 31, 2021 and December 31, 2020. 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.

The tables below present the amortized cost basis of commercial mortgage loans by year of origination and loan-to-value ratio:


	March 31, 2021
Loan-to-Value Ratio	2021		2020		2019		2018		2017		Prior		Total
	(in thousands)
> 100%	$	—	$	—	$	—	$	—	$	—	$	—	$	—
80% - 100%	—		—		—		3,328		—		—		3,328
60% - 80%	—		4,216		8,592		—		3,028		3,627		19,463
40% - 60%	—		3,000		6,198		—		7,745		9,384		26,327
< 40%	—		—		6,889		10,782		11,167		43,208		72,046
Total	$	—	$	7,216	$	21,679	$	14,110	$	21,940	$	56,219	$	121,164

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


	December 31, 2020
Loan-to-Value Ratio	2020		2019		2018		2017		2016		Prior		Total
	(in thousands)
> 100%	$	—	$	—	$	—	$	—	$	—	$	—	$	—
80% - 100%	—		—		3,344		—		—		—		3,344
60% - 80%	4,237		13,002		—		3,050		—		3,657		23,946
40% - 60%	3,000		7,331		—		7,788		1,379		8,076		27,574
< 40%	—		1,531		11,004		11,430		5,564		38,857		68,386
Total	$	7,237	$	21,864	$	14,348	$	22,268	$	6,943	$	50,590	$	123,250

Loan-to-value ratio is based on income and expense data provided by borrowers at least annually and long-term capitalization rate assumptions based on property type.

In addition, ACC reviews the concentrations of credit risk by region and property type. Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:


	Loans				Percentage
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
	(in thousands)
East North Central	$	8,793	$	8,926	7	%	7	%
East South Central	3,448		3,614		3		3
Middle Atlantic	13,054		13,211		11		11
Mountain	12,661		12,863		10		10
New England	6,930		6,983		6		6
Pacific	40,631		41,284		34		34
South Atlantic	17,219		17,550		14		14
West North Central	6,478		6,668		5		5
West South Central	11,950		12,151		10		10
	121,164		123,250		100	%	100	%
Less: allowance for credit losses	931		931
Total	$	120,233	$	122,319

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


	Loans				Percentage
	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
	(in thousands)
Apartments	$	33,022	$	33,460	27	%	27	%
Industrial	25,448		25,971		22		21
Mixed use	11,385		11,532		9		10
Office	14,175		14,332		12		12
Retail	36,626		37,307		30		30
Hotel	254		300		—		—
Other	254		348		—		—
	121,164		123,250		100	%	100	%
Less: allowance for credit losses	931		931
Total	$	120,233	$	122,319

Syndicated Loans

The recorded investment in syndicated loans as of March 31, 2021 and December 31, 2020 was $141.1 million and $149.5 million, respectively. ACC’s syndicated loan portfolio is diversified across industries and issuers. Total syndicated loans past due were nil as of both March 31, 2021 and December 31, 2020, respectively. ACC assigns an internal risk rating to each syndicated loan in its portfolio ranging from 1 through 5, with 5 reflecting the lowest quality.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The tables below present the amortized cost basis of syndicated loans by origination year and internal risk rating:


	March 31, 2021
Internal Risk Rating	2021		2020		2019		2018		2017		Prior		Total
	(in thousands)
Risk 5	$	—	$	—	$	—	$	—	$	—	$	817	$	817
Risk 4	—		—		—		343		1,646		1,497		3,486
Risk 3	—		415		2,198		3,712		4,692		9,537		20,554
Risk 2	1,303		6,397		12,399		15,066		17,809		11,052		64,026
Risk 1	1,049		3,975		6,341		12,427		14,108		14,325		52,225
Total	$	2,352	$	10,787	$	20,938	$	31,548	$	38,255	$	37,228	$	141,108


	December 31, 2020
Internal Risk Rating	2020		2019		2018		2017		2016		Prior		Total
	(in thousands)
Risk 5	$	—	$	—	$	266	$	—	$	—	$	786	$	1,052
Risk 4	—		—		977		2,148		—		2,317		5,442
Risk 3	—		1,935		2,231		6,309		3,145		6,543		20,163
Risk 2	6,970		14,516		16,643		17,946		3,338		10,397		69,810
Risk 1	3,443		7,109		12,260		14,796		5,535		9,870		53,013
Total	$	10,413	$	23,560	$	32,377	$	41,199	$	12,018	$	29,913	$	149,480

Certificate Loans

Certificate loans do not exceed the cash surrender value at origination. As there is minimal risk of loss related to certificate loans, ACC does not record an allowance for credit losses.

Troubled Debt Restructurings

There were no loans accounted for as a troubled debt restructuring by ACC during both the three months ended March 31, 2021 and 2020. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.

5. Fair Values of Assets and Liabilities

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.

Valuation Hierarchy

ACC categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by ACC’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 1 Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

Level 2 Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:


	March 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	476,935	$	—	$	476,935
Available-for-Sale securities:
Residential mortgage backed securities	—		2,240,918		—		2,240,918
Corporate debt securities	—		235,636		6,050		241,686
Commercial mortgage backed securities	—		1,451,942		—		1,451,942
Asset backed securities	—		658,761		4,891		663,652
State and municipal obligations	—		17,121		—		17,121
U.S. government and agency obligations	1,325,201		—		—		1,325,201
Total Available-for-Sale securities	1,325,201		4,604,378		10,941		5,940,520
Equity securities	—		30		—		30
Equity derivative contracts	11		65,897		—		65,908
Total assets at fair value	$	1,325,212	$	5,147,240	$	10,941	$	6,483,393

Liabilities
Stock market certificate embedded derivatives	$	—	$	6,898	$	—	$	6,898
Equity derivative contracts	—		60,355		—		60,355
Total liabilities at fair value	$	—	$	67,253	$	—	$	67,253


	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	544,283	$	—	$	544,283
Available-for-Sale securities:
Residential mortgage backed securities	—		2,529,925		—		2,529,925
Corporate debt securities	—		263,763		6,057		269,820
Commercial mortgage backed securities	—		1,472,778		—		1,472,778
Asset backed securities	—		625,673		4,891		630,564
State and municipal obligations	—		17,166		—		17,166
U.S. government and agency obligations	1,455,007		—		—		1,455,007
Total Available-for-Sale securities	1,455,007		4,909,305		10,948		6,375,260
Equity securities	—		56		—		56
Equity derivative contracts	19		66,644		—		66,663
Total assets at fair value	$	1,455,026	$	5,520,288	$	10,948	$	6,986,262

Liabilities
Stock market certificate embedded derivatives	$	—	$	8,282	$	—	$	8,282
Equity derivative contracts	—		59,924		—		59,924
Total liabilities at fair value	$	—	$	68,206	$	—	$	68,206

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables provide a summary of changes in Level 3 assets measured at fair value on a recurring basis:


	Available-for-Sale Securities
	Corporate Debt Securities		Asset Backed Securities		Total
	(in thousands)
Balance, January 1, 2021	$	6,057	$	4,891	$	10,948
Total gains (losses) included in:

Other comprehensive income (loss)	(7)		—		(7)






Balance, March 31, 2021	$	6,050	$	4,891	$	10,941


Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at March 31, 2021	$	(7)	$	—	$	(7)


	Available-for-Sale Securities				Equity Securities
	Corporate Debt Securities		Asset Backed Securities					Total
	(in thousands)
Balance, January 1, 2020	$	14,270	$	4,834	$	19,104		$	72
Total gains (losses) included in:
Net income	(10)		10		—		(1)	—
Other comprehensive income (loss)	28		(10)		18			—


Settlements	(1,300)		—		(1,300)			—

Transfers out of Level 3	—		—		—			(72)
Balance, March 31, 2020	$	12,988	$	4,834	$	17,822		$	—

Changes in unrealized gains (losses) in net income relating to assets held at March 31, 2020	$	(10)	$	10	$	—	(1)	$	—
Changes in unrealized gains (losses) in other comprehensive income (loss) relating to assets held at March 31, 2020	$	28	$	(10)	$	18		$	—

(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.

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:

March 31, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(in thousands)

Corporate debt securities
(private placements)

6,047

Discounted cash flow

Yield/spread to U.S. Treasuries

1.0%

1.0

December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(in thousands)

Corporate debt securities
(private placements)

6,054

Discounted cash flow

Yield/spread to U.S. Treasuries

1.1%

1.1

The weighted average for the yield/spread to U.S. Treasuries for corporate debt securities (private placements) is weighted based on the security’s market value as a percentage of the aggregate market value of the securities.

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.

Uncertainty of Fair Value Measurements

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 have resulted 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 time deposits and other highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less. U.S. Treasuries are classified as Level 1. ACC’s remaining 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 and Equity 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 include U.S. Treasuries.

Level 2 securities include residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities, state and municipal obligations and equity securities. 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 include certain non-agency residential mortgage backed securities, corporate bonds, asset backed securities, commercial mortgage backed securities and equity securities. The fair value of these Level 3 securities 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 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 both March 31, 2021 and December 31, 2020. 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.

Fair Value on a Nonrecurring Basis

During the reporting periods, there were no material assets or liabilities measured at fair value on a nonrecurring basis.

Assets and Liabilities Not Reported at Fair Value

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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


	March 31, 2021
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	139,569	$	—	$	132,819	$	6,173	$	138,992
Commercial mortgage loans	120,233		—		—		124,494		124,494
Certificate loans	147		—		147		—		147
Financial Liabilities
Certificate reserves	$	6,251,029	$	—	$	—	$	6,248,140	$	6,248,140


	December 31, 2020
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	147,221	$	—	$	139,180	$	7,838	$	147,018
Commercial mortgage loans	122,319		—		—		127,721		127,721
Certificate loans	212		—		212		—		212
Financial Liabilities
Certificate reserves	$	6,752,149	$	—	$	—	$	6,751,705	$	6,751,705

See Note 4 for additional information on syndicated, commercial mortgage and certificate loans. Certificate reserves represent customer deposits for fixed rate certificates and stock market certificates.

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:


	March 31, 2021
	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
							Financial Instruments (1)		Cash Collateral
	(in thousands)
Derivatives:
OTC	$	65,897	$	—	$	65,897	$	(60,355)	$	(5,533)	$	9
Exchange-traded	11		—		11		—		—		11
Total	$	65,908	$	—	$	65,908	$	(60,355)	$	(5,533)	$	20


	December 31, 2020
	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
							Financial Instruments (1)		Cash Collateral
	(in thousands)
Derivatives:
OTC	$	66,644	$	—	$	66,644	$	(59,924)	$	(6,693)	$	27
Exchange-traded	19		—		19		—		—		19
Total	$	66,663	$	—	$	66,663	$	(59,924)	$	(6,693)	$	46

(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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables present the gross and net information about ACC’s liabilities subject to master netting agreements:


	March 31, 2021
	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
							Financial Instruments (1)		Cash Collateral
	(in thousands)
Derivatives:
OTC	$	60,355	$	—	$	60,355	$	(60,355)	$	—	$	—
Total	$	60,355	$	—	$	60,355	$	(60,355)	$	—	$	—


	December 31, 2020
	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
							Financial Instruments (1)		Cash Collateral
	(in thousands)
Derivatives:
OTC	$	59,924	$	—	$	59,924	$	(59,924)	$	—	$	—
Total	$	59,924	$	—	$	59,924	$	(59,924)	$	—	$	—

(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 amount 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.

When the fair value of collateral accepted by ACC is less than the amount due to ACC, there is a risk of loss if the counterparty fails to perform or provide additional collateral. To mitigate this risk, ACC monitors collateral values regularly and requires additional collateral when necessary. When the value of collateral pledged by ACC declines, it may be required to post additional collateral.

Cash collateral accepted by ACC is reflected in other liabilities. 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:


	March 31, 2021						December 31, 2020
	Notional		Gross Fair Value				Notional		Gross Fair Value
			Assets		Liabilities				Assets		Liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Equity contracts (1)	$	552,183	$	65,908	$	60,355	$	586,976	$	66,663	$	59,924
Embedded derivatives
Stock market certificates (2)	N/A		—		6,898		N/A		—		8,282
Total derivatives	$	552,183	$	65,908	$	67,253	$	586,976	$	66,663	$	68,206

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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following table presents 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 March 31,
		2021		2020
		(in thousands)
Equity contracts
Stock market certificates	Net provision for certificate reserves	$	616	$	(7,425)
Stock market certificates embedded derivatives	Net provision for certificate reserves	(467)		6,846
Total		$	149	$	(579)

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 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. The SRC was closed to new sales effective April 1, 2020. 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 both March 31, 2021 and December 31, 2020.

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 AOCI:


Accumulated Other Comprehensive Income (Loss) Reclassification	Location of (Gain) Loss Recognized in Income	Three Months Ended March 31,
		2021		2020
		(in thousands)
Unrealized net (gains) losses on Available-for-Sale securities	Net realized gain (loss) on investments	$	(774)	$	(241)
Tax expense (benefit)	Income tax expense (benefit)	162		51
Net of tax		$	(612)	$	(190)

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

During the three months ended March 31, 2021 and 2020, ACC received cash contributions from Ameriprise Financial of nil and $10.0 million, respectively. ACC received these contributions to maintain compliance with capital requirements 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 2020 10-K.

During the three months ended March 31, 2021 and 2020, ACC paid dividends to Ameriprise Financial of $27.0 million and $32.0 million, respectively.

10. Income Taxes

ACC’s effective tax rate was 25.1% and 24.8% for the three months ended March 31, 2021 and 2020, respectively. The effective tax rate for the three months ended March 31, 2021 is higher than the statutory rate primarily as a result of state income taxes, net of federal benefit. The effective tax rate for the three months ended March 31, 2020 is higher than the statutory rate primarily as a result of state income taxes, net of federal benefit, and uncertain 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 both March 31, 2021 and December 31, 2020.

As of March 31, 2021 and December 31, 2020, ACC had $3.6 million and $3.5 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $2.8 million, net of federal tax benefits, of the unrecognized tax benefits as of both March 31, 2021 and December 31, 2020 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 $9 thousand in the next 12 months primarily due to state exams.

ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized a net increase of $40 thousand and $36 thousand in interest and penalties for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, ACC had a payable of $553 thousand and $513 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 state jurisdictions. The federal statute of limitations are closed on years through 2015, except for one issue for 2014 and 2015 which was claimed on amended returns. The Internal Revenue Service (“IRS”) is currently auditing Ameriprise Financial’s U.S. income tax returns for 2016, 2017 and 2018. Ameriprise Financial’s or its subsidiaries’, including ACC’s, state income tax returns are currently under examination by various jurisdictions for years ranging from 2010 through 2019.

AMERIPRISE CERTIFICATE COMPANY

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS

The following information should be read in conjunction with Ameriprise Certificate Company’s (“ACC’s”) Consolidated Financial Statements and 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, 2020, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021 (“2020 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, LLC (“AFS”), an affiliate of ACC. AFS 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.

Recent Developments Regarding the COVID-19 Pandemic

The coronavirus disease 2019 (‘‘COVID-19’’) pandemic has presented ongoing significant economic and societal disruption and market unpredictability, which has affected ACC’s business and operating environment driven by a low interest rate environment and volatility and changes in the equity markets and the potential associated implications to client behavior. In early 2020, ACC and its affiliates implemented a work-from-home protocol for virtually all of the employee population, restricted business travel, and provided resources for complying with the guidance from the World Health Organization, the U.S. Centers for Disease Control and governments. ACC and its affiliates are thoughtfully undergoing a phased reopening of its office locations while complying with applicable health agencies’ guidelines and governmental orders. Though there are indications that the effects of the virus are lessening in some areas, COVID-19 continues to deeply impact other areas and has been occurring in multiple waves, so there are still no reliable estimates of how long the implications from the pandemic will last, how many people are likely to be affected by it, or its impact on the overall economy. Given the impact of the pandemic, financial results may not be comparable to previous years and the results presented in this report may not necessarily be indicative of future operating results. For further information regarding the impact of the COVID-19 pandemic, and any potentially material effects, see Part 1 - Item 1A “Risk Factors” of ACC’s 2020 10-K.

Significant Accounting Policies

ACC’s significant accounting policies are discussed in detail in “Management’s Narrative Analysis – Recent Accounting Pronouncements and Significant Accounting Policies” in ACC’s 2020 10-K.

Recent Accounting Pronouncements

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

Results of Operations for the Three Months Ended March 31, 2021 and 2020

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 decreased $1.3 million, or 14%, to $8.1 million for the three months ended March 31, 2021 compared to $9.4 million for the prior year period primarily due to lower investment income. This decline was partially offset by lower net provision for certificate reserves, lower investment expenses and higher net realized gains.

Investment income decreased $26.4 million, or 56%, to $21.0 million for the three months ended March 31, 2021 compared to $47.4 million for the prior year period reflecting a decrease in the average invested asset yield due to lower short-term interest rates and lower average investment balances.

Investment expenses decreased $3.0 million, or 27%, to $7.9 million for the three months ended March 31, 2021 compared to $10.9 million for the prior year period primarily due to volume-driven decreases in distribution, investment advisory, and transfer agent fees.

AMERIPRISE CERTIFICATE COMPANY

Net provision for certificate reserves decreased $19.6 million, or 84%, to $3.7 million for the three months ended March 31, 2021 compared to $23.3 million for the prior year period primarily due to lower average client crediting rates as well as lower average certificate balances.

ACC’s effective tax rate was 25.1% for the three months ended March 31, 2021 compared to 24.8% for the prior year period.

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 track,” “project,” “continue,” “able to remain,” “resume,” “deliver,” “develop,” “evolve,” “drive,” “enable,” “flexibility,” “scenario,” “case” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. ACC undertakes no obligation to update or revise any forward-looking statements.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

ACC’s management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC’s Chief Executive Officer and Chief Financial Officer have concluded that ACC’s disclosure controls and procedures were effective at a reasonable level of assurance as of March 31, 2021.

Changes in Internal Control over Financial Reporting

ACC implemented a new financial system during the first quarter of fiscal 2021. The new system allows it to maximize financial system functionality, enable a scalable platform and simplify processes for reporting and analytics. As part of the financial system implementation, ACC enhanced and modified certain existing internal controls within the general ledger, accounts payable, fixed assets, and financial reporting functions. ACC will continue to monitor and ensure effectiveness of any changes in internal controls. There have been no other 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 2020 10-K.

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 Jason S. Bartylla pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32*			Certification of Abu M. Arif and Jason S. Bartylla 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:	May 10, 2021	By:	/s/ Abu M. Arif
			Abu M. Arif
			Chief Executive Officer


Date:	May 10, 2021	By:	/s/ Jason S. Bartylla
			Jason S. Bartylla
			Chief Financial Officer

AMERIPRISE CERTIFICATE CO - FORM 10-Q - May 10, 2021

Attached files

AMERIPRISE CERTIFICATE CO Reports