AMERIPRISE CERTIFICATE CO - FORM 10-Q

Attached files

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EX-14.(C) - EX-14.(C) - AMERIPRISE CERTIFICATE CO	a13-13758_1ex14dc.htm
EX-32.1 - EX-32.1 - AMERIPRISE CERTIFICATE CO	a13-13758_1ex32d1.htm
EX-31.2 - EX-31.2 - AMERIPRISE CERTIFICATE CO	a13-13758_1ex31d2.htm
EX-31.1 - EX-31.1 - AMERIPRISE CERTIFICATE CO	a13-13758_1ex31d1.htm
EX-14.(A) - EX-14.(A) - AMERIPRISE CERTIFICATE CO	a13-13758_1ex14da.htm
EX-14.(B) - EX-14.(B) - AMERIPRISE CERTIFICATE CO	a13-13758_1ex14db.htm

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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 June 30, 2013

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

For the Transition Period from to

Commission File No. 811-00002

AMERIPRISE CERTIFICATE COMPANY

(Exact name of registrant as specified in its charter)

Delaware		41-6009975
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1099 Ameriprise Financial Center, Minneapolis, Minnesota		55474
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (612) 671-3131

Former name, former address and former fiscal year, if changed since last report: Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer x	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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

Class		Outstanding at July 31, 2013
Common Shares (par value $10 per share)		150,000 shares

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

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AMERIPRISE CERTIFICATE COMPANY

FORM 10-Q

INDEX

Part I.	Financial Information:

	Item 1.	Financial Statements

		Consolidated Statements of Operations — Three Months and Six Months Ended June 30, 2013 and 2012	3

		Consolidated Statements of Comprehensive Income — Three Months and Six Months Ended June 30, 2013 and 2012	4

		Consolidated Balance Sheets — June 30, 2013 and December 31, 2012	5

		Consolidated Statements of Shareholder’s Equity — Six Months Ended June 30, 2013 and 2012	6

		Consolidated Statements of Cash Flows — Six Months Ended June 30, 2013 and 2012	7

		Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Narrative Analysis	24

	Item 4.	Controls and Procedures	25

Part II.	Other Information:

	Item 1.	Legal Proceedings	26

	Item 1A.	Risk Factors	26

	Item 6.	Exhibits	26

	Signatures		27

	Exhibit Index		E-1

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AMERIPRISE CERTIFICATE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

Investment income	$	21,483		$	22,148		$	43,877		$	45,579
Investment expenses	6,345			5,152			12,758			10,560
Net investment income before provision for certificate reserves and income taxes	15,138			16,996			31,119			35,019
Net provision for certificate reserves	7,589			6,866			15,696			13,947
Net investment income before income taxes	7,549			10,130			15,423			21,072
Income tax expense	2,742			3,658			5,659			7,616
Net investment income	4,807			6,472			9,764			13,456

Net realized loss on investments	(768		)	(2,748		)	(2,108		)	(5,390		)
Income tax benefit	(269		)	(962		)	(738		)	(1,887		)
Net realized loss on investments, after-tax	(499		)	(1,786		)	(1,370		)	(3,503		)
Net income	$	4,308		$	4,686		$	8,394		$	9,953

Supplemental Disclosures:

Total other-than-temporary impairment losses on securities	$	(279	)	$	(7,596	)	$	(283	)	$	(8,562	)
Portion of loss recognized in other comprehensive income (loss) (before taxes)	(235		)	4,953			(1,682		)	3,316
Net impairment losses recognized in net realized loss on investments	$	(514	)	$	(2,643	)	$	(1,965	)	$	(5,246	)

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012

Net income	$	4,308		$	4,686	$	8,394		$	9,953
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Net unrealized securities gains (losses) arising during the period	(20,172		)	1,645		(17,135		)	15,871
Reclassification of net securities losses included in net income	494			1,769		1,358			3,486
Total other comprehensive income (loss), net of tax	(19,678		)	3,414		(15,777		)	19,357
Total comprehensive income (loss)	$	(15,370	)	$	8,100	$	(7,383	)	$	29,310

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)

	June 30, 2013			December 31, 2012
Assets
Qualified Assets
Cash and cash equivalents	$	65,141		$	89,232
Investments in unaffiliated issuers	3,833,949			3,583,630
Receivables	21,674			20,415
Equity derivatives, purchased	57,652			37,003
Total qualified assets	3,978,416			3,730,280
Deferred taxes, net	29,929			22,070
Current taxes receivable from parent	—			1,383
Total assets	$	4,008,345		$	3,753,733

Liabilities and Shareholder’s Equity
Liabilities
Certificate reserves	$	3,718,515		$	3,511,995
Current taxes payable to parent	2,151			—
Equity derivatives, written	50,039			29,532
Accounts payable, accrued liabilities and other liabilities	32,483			4,666
Total liabilities	3,803,188			3,546,193

Shareholder’s Equity
Common shares ($10 par value, 150,000 shares authorized and issued)	1,500			1,500
Additional paid-in capital	196,517			191,517
Total retained earnings	17,546			9,152
Accumulated other comprehensive income (loss), net of tax	(10,406		)	5,371
Total shareholder’s equity	205,157			207,540
Total liabilities and shareholder’s equity	$	4,008,345		$	3,753,733

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)

(in thousands, except share data)

							Retained Earnings
							Appropriated		Appropriated					Accumulated
							for		for					Other
							Pre-Declared		Additional					Comprehensive
	Number of			Additional			Additional		Interest on					Income
	Outstanding	Common		Paid-In			Credits and		Advance					(Loss),
	Shares	Shares		Capital			Interest		Payments		Unappropriated			Net of Tax			Total
Balance at January 1, 2012	150,000	$	1,500	$	160,250		$	—	$	15	$	—		$	(47,093	)	$	114,672
Comprehensive income:
Net income	—	—		—			—		—		9,953			—			9,953
Other comprehensive income, net of tax	—	—		—			—		—		—			19,357			19,357
Total comprehensive income																	29,310
Dividend/return of capital to parent	—	—		(5,733		)	—		—		(5,267		)	—			(11,000		)
Balance at June 30, 2012	150,000	$	1,500	$	154,517		$	—	$	15	$	4,686		$	(27,736	)	$	132,982

Balance at January 1, 2013	150,000	$	1,500	$	191,517		$	—	$	15	$	9,137		$	5,371		$	207,540
Comprehensive income:
Net income	—	—		—			—		—		8,394			—			8,394
Other comprehensive loss, net of tax	—	—		—			—		—		—			(15,777		)	(15,777		)
Total comprehensive loss																	(7,383		)
Transfer to appropriated/ from unappropriated	—	—		—			4		—		(4		)	—			—
Capital contribution from parent	—	—		5,000			—		—		—			—			5,000
Balance at June 30, 2013	150,000	$	1,500	$	196,517		$	4	$	15	$	17,527		$	(10,406	)	$	205,157

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended June 30,
	2013			2012
Cash Flows from Operating Activities
Net income	$	8,394		$	9,953
Adjustments to reconcile net income to net cash provided by operating activities:
Interest added to certificate loans	(24		)	(54		)
Amortization of premiums, accretion of discounts, net	15,852			4,524
Deferred income taxes	1,105			(4,262		)
Net realized loss on Available-for-Sale securities	2,089			5,363
Other net realized loss	19			27
Changes in operating assets and liabilities:
Dividends and interest receivable	(582		)	745
Certificate reserves, net	297			2,217
Due to/from parent for income taxes, net	3,534			(8,088		)
Derivatives, net	123			(2,662		)
Derivatives collateral, net	195			854
Other, net	7,581			(2,619		)
Net cash provided by operating activities	38,583			5,998

Cash Flows from Investing Activities
Available-for-Sale securities:
Sales	11,825			13,782
Maturities, redemptions and calls	485,116			359,024
Purchases	(794,427		)	(270,845		)
Syndicated loans and commercial mortgage loans:
Sales	2,781			—
Maturities, redemptions and calls	25,918			26,915
Purchases and fundings	(5,513		)	(10,625		)
Certificate loans:
Payments	420			201
Fundings	(17		)	(127		)
Net cash provided by (used in) investing activities	(273,897		)	118,325

Cash Flows from Financing Activities
Payments from certificate owners	1,105,461			366,667
Certificate maturities and cash surrenders	(899,238		)	(412,401		)
Capital contribution from parent	5,000			—
Dividend/return of capital to parent	—			(11,000		)
Net cash provided by (used in) financing activities	211,223			(56,734		)

Net increase (decrease) in cash and cash equivalents	(24,091		)	67,589
Cash and cash equivalents at beginning of period	89,232			74,498
Cash and cash equivalents at end of period	$	65,141		$	142,087

Supplemental disclosures including non-cash transactions:
Cash paid (received) for income taxes	$	(992	)	$	17,132
Cash paid for interest	19,122			15,508
Certificate maturities and surrenders through loan reductions	173			218

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

Ameriprise Certificate Company (“ACC” or the “Company”), is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). ACC is registered as an investment company under the Investment Company Act of 1940. The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). ACC uses the consolidation method of accounting for its wholly owned subsidiary, Investors Syndicate Development Corp. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. All adjustments made were of a normal recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2013.

ACC evaluated events or transactions that occurred after the consolidated balance sheet date for potential recognition or disclosure through the date the consolidated financial statements were issued.

2. Recent Accounting Pronouncements

Adoption of New Accounting Standards

Comprehensive Income

In February 2013, the Financial Accounting Standards Board (“FASB”) updated the accounting standard related to comprehensive income. The update requires entities to provide information about significant amounts reclassified out of accumulated other comprehensive income (“AOCI”). The standard is effective for interim and annual periods beginning after December 15, 2012 and is required to be applied prospectively. ACC adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on ACC’s consolidated results of operations and financial condition. See Note 9 for the required disclosures.

Balance Sheet

In December 2011, the FASB updated the accounting standards to require new disclosures about offsetting assets and liabilities. The standard requires an entity to disclose both gross and net information about certain financial instruments and transactions subject to master netting arrangements (or similar agreements) or eligible for offset in the statement of financial position. The standard is effective for interim and annual periods beginning on or after January 1, 2013 on a retrospective basis. ACC adopted the standard in the first quarter of 2013. The adoption of the standard did not have any effect on ACC’s consolidated results of operations and financial condition. See Note 6 for the required disclosures.

Future Adoption of New Accounting Standards

Income Taxes

In July 2013, the FASB updated the accounting standard for income taxes. The update provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard is effective for interim and annual periods beginning after December 15, 2013 and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. ACC is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

Investment Companies

In June 2013, the FASB updated the accounting standard related to investment companies. The standard provides a new two-tiered approach for determining whether a company is an investment company and requires new disclosures for investment companies. The standard is effective for interim and annual periods beginning after December 15, 2013 and is required to be applied prospectively. The adoption of the standard will not impact ACC’s consolidated results of operations and financial condition.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

3. Investments

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

	June 30, 2013		December 31, 2012
Available-for-Sale securities:
Fixed maturities, at fair value (amortized cost: 2013, $3,715,254; 2012, $3,418,374)	$	3,696,139	$	3,424,910
Common stocks, at fair value (cost: 2013, $2,203; 2012, $2,204)	5,004		4,094
Syndicated loans and commercial mortgage loans, at cost (less allowance for loan losses: 2013, $4,695; 2012, $5,660; fair value: 2013, $135,739; 2012, $156,730)	131,472		150,813
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	1,334		1,886
Real estate owned, at fair value less costs to sell	—		1,927
Total	$	3,833,949	$	3,583,630

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

	June 30, 2013
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI (1)
	(in thousands)
Residential mortgage backed securities	$	1,841,390	$	15,504	$	(49,119	)	$	1,807,775	$	(24,355	)
Corporate debt securities	998,063		9,257		(3,926		)	1,003,394		3
Commercial mortgage backed securities	331,895		6,047		(412		)	337,530		—
Asset backed securities	543,526		6,024		(2,536		)	547,014		—
U.S. government and agencies obligations	380		46		—			426		—
Common stocks	2,203		2,801		—			5,004		1,194
Total	$	3,717,457	$	39,679	$	(55,993	)	$	3,701,143	$	(23,158	)

	December 31, 2012
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI (1)
	(in thousands)
Residential mortgage backed securities	$	1,661,052	$	24,077	$	(49,671	)	$	1,635,458	$	(33,283	)
Corporate debt securities	957,964		14,628		(2,188		)	970,404		3
Commercial mortgage backed securities	402,877		12,013		(180		)	414,710		—
Asset backed securities	396,101		8,141		(355		)	403,887		—
U.S. government and agencies obligations	380		71		—			451		—
Common stocks	2,204		1,902		(12		)	4,094		721
Total	$	3,420,578	$	60,832	$	(52,406	)	$	3,429,004	$	(32,559	)

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

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

At June 30, 2013 and December 31, 2012, fixed maturity securities comprised approximately 95% and 93%, respectively, of ACC’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”), and Fitch Ratings Ltd. (“Fitch”). ACC uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, as is the case for many private placement securities, ACC may utilize ratings from other NRSROs or rate the securities internally. At June 30, 2013 and December 31, 2012, approximately $105.4 million and $110.9 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC (“CMIA”) using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follows:

	June 30, 2013						December 31, 2012
	Amortized				Percent of Total		Amortized				Percent of Total
Ratings	Cost		Fair Value		Fair Value		Cost		Fair Value		Fair Value
	(in thousands, except percentages)
AAA	$	1,653,002	$	1,661,117	45	%	$	1,482,332	$	1,507,947	44	%
AA	130,135		133,036		4		92,712		95,778		3
A	830,031		825,694		22		759,808		767,931		22
BBB	798,185		804,574		22		750,410		761,850		22
Below investment grade	303,901		271,718		7		333,112		291,404		9
Total fixed maturities	$	3,715,254	$	3,696,139	100	%	$	3,418,374	$	3,424,910	100	%

At June 30, 2013 and December 31, 2012, approximately 47% and 42%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.

The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:

	June 30, 2013
	Less than 12 months						12 months or more						Total
	Number						Number						Number
Description of	of Sec-	Fair		Unrealized			of Sec-	Fair		Unrealized			of Sec-	Fair		Unrealized
Securities	urities	Value		Losses			urities	Value		Losses			urities	Value		Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	73	$	873,446	$	(10,329	)	66	$	283,642	$	(38,790	)	139	$	1,157,088	$	(49,119	)
Corporate debt securities	42	458,809		(3,897		)	1	11,460		(29		)	43	470,269		(3,926		)
Commercial mortgage backed securities	6	41,617		(409		)	1	919		(3		)	7	42,536		(412		)
Asset backed securities	21	283,827		(2,536		)	—	—		—			21	283,827		(2,536		)
Total	142	$	1,657,699	$	(17,171	)	68	$	296,021	$	(38,822	)	210	$	1,953,720	$	(55,993	)

	December 31, 2012
	Less than 12 months						12 months or more						Total
	Number						Number						Number
Description of	of Sec-	Fair		Unrealized			of Sec-	Fair		Unrealized			of Sec-	Fair		Unrealized
Securities	urities	Value		Losses			urities	Value		Losses			urities	Value		Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	16	$	300,375	$	(641	)	81	$	364,204	$	(49,030	)	97	$	664,579	$	(49,671	)
Corporate debt securities	31	310,622		(2,188		)	—	—		—			31	310,622		(2,188		)
Commercial mortgage backed securities	5	35,073		(180		)	—	—		—			5	35,073		(180		)
Asset backed securities	8	98,536		(355		)	—	—		—			8	98,536		(355		)
Common stocks	2	99		(12		)	—	—		—			2	99		(12		)
Total	62	$	744,705	$	(3,376	)	81	$	364,204	$	(49,030	)	143	$	1,108,909	$	(52,406	)

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

The following table presents a rollforward of the cumulative amounts recognized in the Consolidated Statements of Operations for other-than-temporary impairments related to credit losses on securities for which a portion of the securities’ total other-than-temporary impairments was recognized in other comprehensive income (loss):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in thousands)
Beginning balance	$	81,008	$	67,148	$	79,557	$	64,545
Credit losses for which an other-than-temporary impairment was not previously recognized	—		541		—		541
Credit losses for which an other-than-temporary impairment was previously recognized	514		2,102		1,965		4,705
Ending balance	$	81,522	$	69,791	$	81,522	$	69,791

The change in net unrealized securities gains (losses) in other comprehensive income (loss) includes two components, net of tax: (i) unrealized gains (losses) that arose from changes in the market value of securities that were held during the period and (ii) (gains) losses that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities and due to the reclassification of noncredit other-than-temporary impairment losses to credit losses.

The following table presents a rollforward of the net unrealized securities gains (losses) on Available-for-Sale securities included in accumulated other comprehensive income (loss):

							Accumulated Other
	Net						Comprehensive Income
	Unrealized						(Loss) Related to Net
	Investment			Deferred			Unrealized Investment
	Gains (Losses)			Income Tax			Gains (Losses)
	(in thousands)
Balance at January 1, 2012	$	(74,315	)	$	27,222		$	(47,093	)
Net unrealized securities gains arising during the period (2)	25,413			(9,542		)	15,871
Reclassification of losses included in net income	5,363			(1,877		)	3,486
Balance at June 30, 2012	$	(43,539	)	$	15,803		$	(27,736	)(1)

Balance at January 1, 2013	$	8,426		$	(3,055	)	$	5,371
Net unrealized securities losses arising during the period (2)	(26,829		)	9,694			(17,135		)
Reclassification of losses included in net income	2,089			(731		)	1,358
Balance at June 30, 2013	$	(16,314	)	$	5,908		$	(10,406	)(1)

(1) Includes $15.1 million and $32.8 million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at June 30, 2013 and 2012, respectively.

(2) Net unrealized securities gains (losses) arising during the period include other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income (loss) during the period.

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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Gross realized gains	$	157		$	29		$	278		$	59
Gross realized losses	(402		)	(107		)	(402		)	(176		)
Other-than-temporary impairments	(514		)	(2,643		)	(1,965		)	(5,246		)
Total	$	(759	)	$	(2,721	)	$	(2,089	)	$	(5,363	)

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

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Available-for-Sale securities by contractual maturity at June 30, 2013 were as follows:

	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	153,185	$	154,293
Due after one year through five years	845,040		849,268
Due after five years through 10 years	4		5
Due after 10 years	214		254
	998,443		1,003,820
Residential mortgage backed securities	1,841,390		1,807,775
Commercial mortgage backed securities	331,895		337,530
Asset backed securities	543,526		547,014
Common stocks	2,203		5,004
Total	$	3,717,457	$	3,701,143

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential mortgage backed securities, commercial mortgage backed securities and asset backed securities are not due at a single maturity date. As such, these securities, as well as common stocks, were not included in the maturities distribution.

4. Commercial Mortgage, Syndicated and Certificate Loans

ACC’s financing receivables include commercial mortgage loans, syndicated loans and certificate loans. Certificate loans do not exceed the cash surrender value of the certificate at origination. As there is minimal risk of loss related to certificate loans, ACC does not record an allowance for loan losses for certificate loans.

Allowance for Loan Losses

The following tables present a rollforward of the allowance for loan losses for the six months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:

	June 30, 2013
	Commercial
	Mortgage Loans		Syndicated Loans			Total
	(in thousands)
Beginning balance	$	2,576	$	3,084		$	5,660
Charge-offs	—		(965		)	(965		)
Ending balance	$	2,576	$	2,119		$	4,695

Individually evaluated for impairment	$	250	$	—		$	250
Collectively evaluated for impairment	2,326		2,119			4,445

	June 30, 2012
	Commercial
	Mortgage Loans		Syndicated Loans			Total
	(in thousands)
Beginning balance	$	2,576	$	4,163		$	6,739
Charge-offs	—		(929		)	(929		)
Ending balance	$	2,576	$	3,234		$	5,810

Individually evaluated for impairment	$	1,000	$	669		$	1,669
Collectively evaluated for impairment	1,576		2,565			4,141

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The recorded investment in financing receivables by impairment method and type of loan was as follows:

	June 30, 2013
	Commercial
	Mortgage Loans		Syndicated Loans		Total
	(in thousands)
Individually evaluated for impairment	$	3,574	$	1,818	$	5,392
Collectively evaluated for impairment	114,536		16,239		130,775
Total	$	118,110	$	18,057	$	136,167

	December 31, 2012
	Commercial
	Mortgage Loans		Syndicated Loans		Total
	(in thousands)
Individually evaluated for impairment	$	3,892	$	1,474	$	5,366
Collectively evaluated for impairment	119,933		31,174		151,107
Total	$	123,825	$	32,648	$	156,473

As of June 30, 2013 and December 31, 2012, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $3.7 million and $3.6 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to ACC’s total loan balance. During the three months and six months ended June 30, 2013, ACC sold $572 thousand and $821 thousand, respectively, of syndicated loans. There were no significant sales of financing receivables during the three months and six months ended June 30, 2012. There were no significant purchases of financing receivables during the three months and six months ended June 30, 2013 and 2012.

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 $3.0 million and $3.2 million as of June 30, 2013 and December 31, 2012, respectively. All other loans were considered to be performing.

Commercial Mortgage Loans

ACC reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 3.0% and 3.1% of total commercial mortgage loans as of June 30, 2013 and December 31, 2012, respectively. Loans with the highest risk rating represent distressed loans which ACC has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, ACC reviews the concentrations of credit risk by region and property type.

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

	Loans				Percentage
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
	(in thousands)
East North Central	$	5,046	$	5,089	4	%	4	%
Middle Atlantic	8,547		8,893		7		7
Mountain	9,711		10,026		8		8
New England	10,603		10,763		9		9
Pacific	30,855		32,183		26		26
South Atlantic	31,309		35,862		27		29
West North Central	14,077		15,079		12		12
West South Central	7,962		5,930		7		5
	118,110		123,825		100	%	100	%
Less: allowance for loan losses	2,576		2,576
Total	$	115,534	$	121,249

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

	Loans				Percentage
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
	(in thousands)
Apartments	$	35,001	$	35,042	30	%	28	%
Industrial	23,812		24,782		20		20
Office	13,031		13,172		11		11
Retail	33,707		35,194		29		28
Other	12,559		15,635		10		13
	118,110		123,825		100	%	100	%
Less: allowance for loan losses	2,576		2,576
Total	$	115,534	$	121,249

Syndicated Loans

ACC’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at June 30, 2013 and December 31, 2012 were $1.3 million and $1.5 million, respectively, which represent 7% and 5% of total syndicated loans at June 30, 2013 and December 31, 2012, respectively.

Troubled Debt Restructurings

The following table presents the number of loans restructured by ACC during the period and their recorded investment at the end of the period:

Three Months Ended June 30,

Six Months Ended June 30,

2013

2012

2013

2012

Number

Recorded

Number

Recorded

Number

Recorded

Number

Recorded

of Loans

Investment

of Loans

Investment

of Loans

Investment

of Loans

Investment

(in thousands, except number of loans)

Syndicated loans

244

—

244

475

The troubled debt restructuring did not have a material impact to ACC’s allowance for loan losses or income recognized for the three months and six months ended June 30, 2013 and 2012. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.

5. Fair Values of Assets and Liabilities

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

Valuation Hierarchy

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

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

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

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

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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:

	June 30, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	64,098	$	—	$	64,098
Available-for-Sale securities:
Residential mortgage backed securities	—		1,788,375		19,400		1,807,775
Corporate debt securities	—		894,757		108,637		1,003,394
Commercial mortgage backed securities	—		291,759		45,771		337,530
Asset backed securities	—		487,057		59,957		547,014
U.S. government and agencies obligations	426		—		—		426
Common stocks	1,974		2,801		229		5,004
Total Available-for-Sale securities	2,400		3,464,749		233,994		3,701,143
Equity derivatives, purchased	—		57,652		—		57,652
Total assets at fair value	$	2,400	$	3,586,499	$	233,994	$	3,822,893

Liabilities
Certificate reserves	$	—	$	7,872	$	—	$	7,872
Equity derivatives, written	—		50,039		—		50,039
Total liabilities at fair value	$	—	$	57,911	$	—	$	57,911

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	81,098	$	—	$	81,098
Available-for-Sale securities:
Residential mortgage backed securities	—		1,382,860		252,598		1,635,458
Corporate debt securities	—		859,761		110,643		970,404
Commercial mortgage backed securities	—		378,650		36,060		414,710
Asset backed securities	—		381,664		22,223		403,887
U.S. government and agencies obligations	451		—		—		451
Common stocks	1,054		2,216		824		4,094
Total Available-for-Sale securities	1,505		3,005,151		422,348		3,429,004
Equity derivatives, purchased	—		37,003		—		37,003
Total assets at fair value	$	1,505	$	3,123,252	$	422,348	$	3,547,105

Liabilities
Certificate reserves	$	—	$	7,904	$	—	$	7,904
Equity derivatives, written	—		29,532		—		29,532
Total liabilities at fair value	$	—	$	37,436	$	—	$	37,436

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

	Available-for-Sale Securities
	Residential					Commercial
	Mortgage		Corporate			Mortgage			Asset
	Backed		Debt			Backed			Backed			Common
	Securities		Securities			Securities			Securities			Stocks			Derivatives		Total
	(in thousands)
Balance, April 1, 2013	$	—	$	110,852		$	35,922		$	160,615		$	247		$	—	$	307,636
Total gains (losses) included in:
Net income	—		(283		)(1)	(41		)(1)	35		(1)	—			—		(289		)
Other comprehensive loss	—		(1,932		)	(80		)	(476		)	(18		)	—		(2,506		)
Purchases	19,400		—			9,970			32,462			—			—		61,832
Settlements	—		—			—			(1,585		)	—			—		(1,585		)
Transfers into Level 3	—		—			—			7,872			—			—		7,872
Transfers out of Level 3	—		—			—			(138,966		)	—			—		(138,966		)
Balance, June 30, 2013	$	19,400	$	108,637		$	45,771		$	59,957		$	229		$	—	$	233,994
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2013	$	—	$	(283	)(1)	$	(41	)(1)	$	35	(1)	$	—		$	—	$	(289	)

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

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage			Asset
	Backed			Debt			Backed			Backed			Common
	Securities			Securities			Securities			Securities			Stocks			Derivatives		Total
	(in thousands)
Balance, April 1, 2012	$	78,538		$	29,109		$	25,941		$	25,818		$	645		$	—	$	160,051
Total gains (losses) included in:
Net income	(2,652		)(1)	(15		)(2)	(7		)(2)	67		(2)	—			—		(2,607		)
Other comprehensive income	5,281			139			(31		)	147			(22		)	—		5,514
Purchases	21,992			—			—			—			—			—		21,992
Settlements	(6,851		)	—			—			(1,550		)	—			—		(8,401		)
Transfers into Level 3	10,905			3			—			—			—			—		10,908
Transfers out of Level 3	—			—			—			—			(335		)	—		(335		)
Balance, June 30, 2012	$	107,213		$	29,236		$	25,903		$	24,482		$	288		$	—	$	187,122
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2012	$	(2,652	)(1)	$	(15	)(2)	$	(7	)(2)	$	67	(2)	$	—		$	—	$	(2,607	)

(1) Represents a $(2,643) loss included in net realized gain (loss) on investments and a $(9) loss included in investment income in the Consolidated Statements of Operations.

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

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage			Asset
	Backed			Debt			Backed			Backed			Common
	Securities			Securities			Securities			Securities			Stocks			Derivatives		Total
	(in thousands)
Balance, January 1, 2013	$	252,598		$	110,643		$	36,060		$	22,223		$	824		$	—	$	422,348
Total gains (losses) included in:
Net income	—			(565		)(1)	(89		)(1)	65		(1)	—			—		(589		)
Other comprehensive loss	—			(1,437		)	(170		)	(190		)	(18		)	—		(1,815		)
Purchases	19,400			—			9,970			171,338			—			—		200,708
Settlements	—			—			—			(2,385		)	—			—		(2,385		)
Transfers into Level 3	—			—			—			7,872			—			—		7,872
Transfers out of Level 3	(252,598		)	(4		)	—			(138,966		)	(577		)	—		(392,145		)
Balance, June 30, 2013	$	19,400		$	108,637		$	45,771		$	59,957		$	229		$	—	$	233,994
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2013	$	—		$	(565	)(1)	$	(89	)(1)	$	65	(1)	$	—		$	—	$	(589	)

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

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage			Asset
	Backed			Debt			Backed			Backed			Common
	Securities			Securities			Securities			Securities			Stocks			Derivatives			Total
	(in thousands)
Balance, January 1, 2012	$	80,580		$	12,984		$	—		$	27,812		$	340		$	4		$	121,720
Total gains (losses) included in:
Net income	(5,254		)(1)	(24		)(2)	(9		)(2)	142		(2)	—			—			(5,145		)
Other comprehensive income	10,164			164			326			341			(13		)	—			10,982
Purchases	21,992			17,730			2,037			—			296			—			42,055
Sales	—			—			—			—			—			(4		)	(4		)
Settlements	(11,174		)	(1,621		)	—			(3,813		)	—			—			(16,608		)
Transfers into Level 3	10,905			3			23,549			—			—			—			34,457
Transfers out of Level 3	—			—			—			—			(335		)	—			(335		)
Balance, June 30, 2012	$	107,213		$	29,236		$	25,903		$	24,482		$	288		$	—		$	187,122
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2012	$	(5,254	)(1)	$	(24	)(2)	$	(9	)(2)	$	142	(2)	$	—		$	—		$	(5,145	)

(1) Represents a $(5,246) loss included in net realized gain (loss) on investments and a $(8) loss included in investment income in the Consolidated Statements of Operations.

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

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Securities transferred from Level 3 primarily represent securities with fair values that are now obtained from a third party pricing service with observable inputs. Securities transferred to Level 3 represent securities with fair values that are now based on a single non-binding broker quote. ACC recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.

The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by ACC or reasonably available to ACC of Level 3 assets and liabilities:

	June 30, 2013
					Range
	Fair Value		Valuation Technique	Unobservable Input	(Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	87,164	Discounted cash flow	Yield/spread to U.S. Treasuries	1.3% - 1.6% (1.5%)

	December 31, 2012
					Range
	Fair Value		Valuation Technique	Unobservable Input	(Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	88,530	Discounted cash flow	Yield/spread to U.S. Treasuries	1.4% - 1.7% (1.5%)

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

Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs

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

Determination of Fair Value

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

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

Cash Equivalents

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

Available-for-Sale Securities

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and common stocks. Level 2 securities primarily include residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities, U.S. agency securities and common stock. The fair value of these Level 2 securities is based on a market approach with prices obtained from third party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain non-agency residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities and common stocks. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to ACC.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third party pricing services are subjected to exception reporting that identifies investments with significant daily price movements as well as no movements. ACC reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. ACC also performs subsequent transaction testing. ACC performs annual due diligence of third party pricing services. ACC’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies, and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. ACC also considers the results of its exception reporting controls and any resulting price challenges that arise.

Derivatives (Equity Derivatives, Purchased and Written)

The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at June 30, 2013 and December 31, 2012. See Note 6 and Note 7 for further information on the credit risk of derivative instruments and related collateral.

Certificate Reserves

ACC uses various Black-Scholes calculations to determine the fair value of the embedded derivative liability associated with the provisions of its stock market certificates. The inputs to these calculations are primarily market observable and include interest rates, volatilities, and equity index levels. As a result, these measurements are classified as Level 2.

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

The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities measured at fair value on a recurring basis.

	June 30, 2013
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
					(in thousands)
Financial Assets
Syndicated loans	$	15,938	$	—	$	16,740	$	—	$	16,740
Commercial mortgage loans	115,534		—		—		118,999		118,999
Certificate loans	1,334		—		1,334		—		1,334
Financial Liabilities
Certificate reserves	$	3,710,643	$	—	$	—	$	3,392,189	$	3,392,189

	December 31, 2012
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
					(in thousands)
Financial Assets
Syndicated loans	$	29,564	$	—	$	30,164	$	369	$	30,533
Commercial mortgage loans	121,249		—		—		126,197		126,197
Certificate loans	1,886		—		1,886		—		1,886
Financial Liabilities
Certificate reserves	$	3,504,091	$	—	$	—	$	3,494,304	$	3,494,304

Syndicated Loans

The fair value of syndicated loans is obtained from a third party pricing service or non-binding broker quotes. Syndicated loans that are priced by multiple non-binding broker quotes are classified as Level 2 and loans priced using a single non-binding broker quote are classified as Level 3.

Commercial Mortgage Loans

The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities and

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

The fair value of certificate loans is determined using discounted cash flows. The fair value of certificate loans is classified as Level 2 as the discount rate used to determine fair value is based on market interest rates.

Certificate Reserves

The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and ACC’s nonperformance risk specific to these liabilities. Given the use of significant unobservable inputs to this valuation, the measurement is classified as Level 3.

6. Offsetting Assets and Liabilities

Certain financial instruments and derivative instruments are eligible for offset in the Consolidated Balance Sheets under GAAP. ACC’s derivative instruments are subject to master netting arrangements and collateral arrangements and meet the GAAP guidance to qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. ACC’s policy is to recognize amounts subject to master netting arrangements on a gross basis on the Consolidated Balance Sheets.

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

June 30, 2013

Amounts

Gross Amounts Not

Gross

Gross Amounts

of Assets

Offset in the Consolidated

Amounts of

Offset in the

Presented in

Balance Sheets

Recognized

Consolidated

the Consolidated

Financial

Cash

Net

Assets

Balance Sheets

Instruments (1)

Collateral

Amount

(in thousands)

Equity derivatives, purchased

57,652

—

57,652

(50,039

)

(2,607

)

5,006

December 31, 2012

Amounts

Gross Amounts Not

Gross

Gross Amounts

of Assets

Offset in the Consolidated

Amounts of

Offset in the

Presented in

Balance Sheets

Recognized

Consolidated

the Consolidated

Financial

Cash

Net

Assets

Balance Sheets

Instruments (1)

Collateral

Amount

(in thousands)

Equity derivatives, purchased

37,003

—

37,003

(29,532

)

(2,412

)

5,059

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

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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:

June 30, 2013

Amounts

Gross Amounts Not

Gross

Gross Amounts

of Liabilities

Offset in the Consolidated

Amounts of

Offset in the

Presented in

Balance Sheets

Recognized

Consolidated

the Consolidated

Financial

Cash

Net

Liabilities

Balance Sheets

Instruments (1)

Collateral

Amount

(in thousands)

Equity derivatives, written

50,039

—

50,039

(50,039

)

—

December 31, 2012

Amounts

Gross Amounts Not

Gross

Gross Amounts

of Liabilities

Offset in the Consolidated

Amounts of

Offset in the

Presented in

Balance Sheets

Recognized

Consolidated

the Consolidated

Financial

Cash

Net

Liabilities

Balance Sheets

Instruments (1)

Collateral

Amount

(in thousands)

Equity derivatives, written

29,532

—

29,532

(29,532

)

—

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

In the tables above, the amounts of assets or liabilities presented in the Consolidated Balance Sheets are offset first by financial instruments that have the right of offset under master netting or similar arrangements, then any remaining amount is reduced by the amount of cash and securities collateral. The actual amounts of collateral may be greater than amounts presented in the tables.

See Note 7 for additional disclosures related to the Company’s derivative instruments.

7. Derivatives and Hedging Activities

Derivative instruments enable ACC to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity and interest rate indices or prices. ACC primarily enters into derivative agreements for risk management purposes related to ACC’s products.

ACC uses derivatives as economic hedges of equity risk related to stock market certificates. ACC does not designate any derivatives for hedge accounting. The following table presents the balance sheet location and the gross fair value of derivative instruments, including embedded derivatives, by type of derivative and product:

		Asset					Liability
Derivatives not designated as	Balance Sheet	June 30,		December 31,		Balance Sheet	June 30,		December 31,
hedging instruments	Location	2013		2012		Location	2013		2012
		(in thousands)					(in thousands)
Equity
Stock market certificates	Equity derivatives, purchased	$	57,652	$	37,003	Equity derivatives, written	$	50,039	$	29,532
Stock market certificates embedded derivatives	N/A	—		—		Certificate reserves	7,872		7,904
Total		$	57,652	$	37,003		$	57,911	$	37,436

N/A Not applicable.

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

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

The following tables present a summary of the impact of derivatives not designated as hedging instruments on the Consolidated Statements of Operations for the three months and six months ended June 30:

		Amount of Gain (Loss) on
		Derivatives Recognized in Income
Derivatives Not Designated as	Location of Gain (Loss) on	Three Months Ended June 30,
Hedging Instruments	Derivatives Recognized in Income	2013			2012
		(in thousands)
Equity
Stock market certificates	Net provision for certificate reserves	$	597		$	(1,186	)
Stock market certificates embedded derivatives	Net provision for certificate reserves	(367		)	444
Total		$	230		$	(742	)

		Amount of Gain (Loss) on
		Derivatives Recognized in Income
Derivatives Not Designated as	Location of Gain (Loss) on	Six Months Ended June 30,
Hedging Instruments	Derivatives Recognized in Income	2013			2012
		(in thousands)
Equity
Stock market certificates	Net provision for certificate reserves	$	3,898		$	3,997
Stock market certificates embedded derivatives	Net provision for certificate reserves	(3,554		)	(3,449		)
Total		$	344		$	548

Ameriprise Stock Market Certificates (“SMC”) offer a return based upon the relative change in a major stock market index between the beginning and end of the SMC’s term. The SMC product contains an embedded derivative. The equity based return of the certificate must be separated from the host contract and accounted for as a derivative instrument. As a result of fluctuations in equity markets, and the corresponding changes in value of the embedded derivative, the amount of expenses incurred by ACC related to the SMC product will positively or negatively impact reported earnings. As a means of hedging its obligations under the provisions for these certificates, ACC purchases and writes call options on the S&P 500 Index. ACC views this strategy as a prudent management of equity market sensitivity, such that earnings are not exposed to undue risk presented by changes in equity market levels. The gross notional amount of these derivative contracts was $1.1 billion at both June 30, 2013 and December 31, 2012. ACC also purchases futures on the S&P 500 Index to economically hedge its obligations. The futures are marked-to-market daily and exchange traded, exposing ACC to no counterparty risk. The gross notional amount of these derivative contracts was $480 thousand and $781 thousand at June 30, 2013 and December 31, 2012, respectively.

Credit Risk

Credit risk associated with ACC’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, ACC has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting arrangements and collateral arrangements whenever practical. See Note 6 for additional information on ACC’s credit exposure related to derivative assets.

8. Contingencies

The level of regulatory activity and inquiry in the financial services industry remains elevated. From time to time, ACC receives requests for information from, and/or has been subject to examination by, both the SEC and the Minnesota Department of Commerce concerning its business activities and practices. In addition, a number of state and federal regulatory agencies have initiated examinations and other inquiries related to unclaimed property and escheatment practices and procedures. The Ameriprise organization has cooperated and will continue to cooperate with applicable regulators regarding their inquiries.

ACC may in the normal course of business be a party to legal, regulatory or arbitration proceedings concerning matters arising in connection with the conduct of its business activities. The outcome of any such proceeding cannot be predicted with any certainty. ACC believes that it is not a party to, nor are any of its properties the subject of, any pending legal, regulatory or arbitration proceedings that are reasonably likely to have a material adverse effect on its financial condition or results of operations. However, it is possible that the outcome of any such proceedings could have a material impact on ACC’s financial position or results of operations.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

9. Shareholder’s Equity

The following table provides information related to amounts reclassified from AOCI:

		Amount Reclassified from AOCI
	Location of Loss	Three Months Ended			Six Months Ended
AOCI Reclassification	Recognized in Income	June 30, 2013			June 30, 2013
		(in thousands)
Unrealized net losses on Available-for-Sale securities	Net investment income	$	759		$	2,089
Tax benefit	Income tax provision	(265		)	(731		)
Net of tax		$	494		$	1,358

10. Income Taxes

The effective tax rate was 36.5% and 37.0% for the three months and six months ended June 30, 2013, respectively, compared to 36.5% for both the three months and six months ended June 30, 2012.

ACC is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains. Consideration is given to, among other things in making this determination, i) future taxable income exclusive of reversing temporary differences and carryforwards, ii) future reversals of existing taxable temporary differences, iii) taxable income in prior carryback years, and iv) tax planning strategies. Based on analysis of ACC’s tax positions, management believes it is more likely than not that ACC’s results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable ACC to utilize all of the deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of June 30, 2013 and December 31, 2012.

As of June 30, 2013 and December 31, 2012, ACC had $1.9 million and $736 thousand, respectively, of gross unrecognized tax benefits. If recognized, approximately $173 thousand and $1.0 million, net of federal tax benefits, of the unrecognized tax benefits as of June 30, 2013 and December 31, 2012, respectively, would affect the effective tax rate.

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of ACC, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $1.7 million in the next 12 months.

ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized interest and penalties of $18 thousand and $101 thousand for the three months and six months ended June 30, 2013, respectively. ACC recognized no interest and penalties for the three months and six months ended June 30, 2012. ACC had $1.2 million and $1.1 million for the payment of interest and penalties accrued at June 30, 2013 and December 31, 2012, respectively.

ACC files income tax returns, as part of its inclusion in the consolidated federal income tax returns of Ameriprise Financial, in the U.S. federal jurisdiction, and various states jurisdictions. The Internal Revenue Service (“IRS”) has completed its field examination of the 1997 through 2007 tax returns. However, for federal income tax purposes these years, except for 2007, continue to remain open as a consequence of certain unagreed upon issues. The IRS is in the process of completing the audit of Ameriprise Financial’s U.S. income tax returns for 2008 and 2009, and began auditing 2010 and 2011 in the fourth quarter of 2012. ACC’s or its subsidiary’s state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 2008 and remain open for all years after 2008.

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ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS

The following information should be read in conjunction with Ameriprise Certificate Company’s (“ACC”) Financial Statements and related notes presented in Part I, Item 1. This discussion may contain forward-looking statements that reflect ACC’s plans, estimates and beliefs. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.” ACC believes it is useful to read its management’s narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2013 (“2012 10-K”), as well as its current reports on Form 8-K and other publicly available information.

ACC is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). ACC is registered as an investment company under the Investment Company Act of 1940 and is in the business of issuing face-amount investment certificates. Face-amount investment certificates issued by ACC entitle the certificate owner to receive at maturity a stated amount of money and interest or credits declared from time to time by ACC, at its discretion. The certificates issued by ACC are not insured by any government agency. ACC’s certificates are sold primarily by Ameriprise Financial Services, Inc., an affiliate of ACC. Ameriprise Financial Services, Inc. is registered as a broker-dealer in all 50 states, the District of Columbia and Puerto Rico. ACC’s investment portfolio is managed by Columbia Management Investment Advisers, LLC (“CMIA”), a wholly owned subsidiary of Ameriprise Financial.

Management’s narrative analysis of the results of operations is presented in lieu of management’s discussion and analysis of financial condition and results of operations, pursuant to General Instructions H(2)(a) of Form 10-Q.

Critical Accounting Policies

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

Recent Accounting Pronouncements

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

Results of Operations for the Six Months Ended June 30, 2013 and 2012

ACC’s net income is derived primarily from the after-tax yield on investments and realized investment gains (losses), less investment expenses and interest credited on certificate reserve liabilities. Net income trends occur largely due to changes in returns on ACC’s investment portfolio, from realization of investment gains (losses) and from changes in interest credited to certificate products. ACC follows U.S. generally accepted accounting principles (“GAAP”).

Net income decreased $1.6 million, or 16%, to $8.4 million for the six months ended June 30, 2013, compared to $10.0 million for the prior year period, primarily due to a decrease in investment income as a result of lower average yields, higher investment expenses and an increase in the provision for certificate reserves, partially offset by lower other-than-temporary impairments on non-agency residential mortgage backed securities.

Investment income decreased $1.7 million, or 4%, to $43.9 million for the six months ended June 30, 2013 compared to $45.6 million for the prior year period. Although average investment balances increased compared to the prior year period, the negative impact of the low interest rate environment more than offset the income from higher average balances.

Investment expenses increased $2.2 million, or 21%, to $12.8 million for the six months ended June 30, 2013 compared to $10.6 million in the prior year period. This increase is primarily due to higher fees as a result of higher certificate reserve balances compared to the prior year period.

Net provision for certificate reserves increased $1.8 million, or 13%, to $15.7 million for the six months ended June 30, 2013 compared to $13.9 million in the prior year period. This increase is a result of client inflows primarily associated with the relaunch of the Ameriprise Cash Reserve Certificate in May of 2012. In addition, changes to Ameriprise Financial’s banking business in late 2012 favorably impacted ACC’s inflows as clients purchased Ameriprise Certificates to meet their needs for guaranteed returns and principal.

Net realized loss on investments before income taxes was $2.1 million for the six months ended June 30, 2013 compared to $5.4 million for the prior year period. Included in net realized investment losses for the six months ended June 30, 2013 and 2012 were other-than-temporary impairments of $2.0 million and $5.2 million, respectively, which related primarily to credit losses on non-agency residential mortgage backed securities.

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The effective tax rate was 37.0% for the six months ended June 30, 2013 compared to 36.5% for the six months ended June 30, 2012.

It is possible there will be corporate tax reform in the next few years. While impossible to predict, corporate tax reform is likely to include a reduction in the corporate tax rate coupled with reductions in tax preferred items. Any changes could have a material impact on ACC’s income tax expense and the deferred tax balances.

Fair Value Measurements

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

Forward-Looking Statements

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

ACC’s management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC’s Chief Executive Officer and Chief Financial Officer have concluded that ACC’s disclosure controls and procedures were effective at a reasonable level of assurance as of June 30, 2013.

Changes in Internal Control over Financial Reporting

There have not been any changes in ACC’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, ACC’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

ITEM 6. EXHIBITS

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

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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: July 31, 2013	/s/ Abu M. Arif
	Abu M. Arif
	Chief Executive Officer


Date: July 31, 2013	/s/ Ross P. Palacios
	Ross P. Palacios
	Chief Financial Officer

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EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report:

Exhibit		Description

3(a)		Amended and Restated Certificate of Incorporation of American Express Certificate Company, dated August 1, 2005, filed electronically on or about March 10, 2006 as Exhibit 3(a) to Registrant’s Form 10-K is incorporated by reference.

3(b)		By-Laws of Ameriprise Certificate Company, filed electronically on or about November 5, 2010 as Exhibit 3(b) to Registrant’s Form 10-Q, are incorporated herein by reference.

*14(a)		Code of Ethics under Rule 17j-1 for Ameriprise Certificate Company dated September 9, 2008, is filed electronically herewith as Exhibit 14(a) to Registrant’s Form 10-Q.

*14(b)		Code of Ethics under Rule 17j-1 for Registrant’s investment adviser, dated July 1, 2013, is filed electronically herewith as Exhibit 14(b) to Registrant’s Form 10-Q.

*14(c)		Code of Conduct under Rule 17j-1 for Registrant’s underwriter, dated February 2013, is filed electronically herewith as Exhibit 14(c) to Registrant’s Form 10-Q.

* 31.1		Certification of Abu M. Arif pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*31.2		Certification of Ross P. Palacios pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

*32.1		Certification of Abu M. Arif and Ross P. Palacios pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed electronically herewithin.

E-1

AMERIPRISE CERTIFICATE CO - FORM 10-Q - July 31, 2013

Attached files

AMERIPRISE CERTIFICATE CO Reports