AMERIPRISE CERTIFICATE CO - FORM 10-Q

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EX-10.B - EXHIBIT10B - AMERIPRISE CERTIFICATE CO	acc-ex10b09302014.htm
EX-31.1 - EXHIBIT31.1 - AMERIPRISE CERTIFICATE CO	acc-ex311093014.htm
EX-32.1 - EXHIBIT32.1 - AMERIPRISE CERTIFICATE CO	acc-ex321093014.htm
EX-31.2 - EXHIBIT31.2 - AMERIPRISE CERTIFICATE CO	acc-ex312093014.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended September 30, 2014


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

For the Transition Period from _________________________ to _________________________

Commission File No. 811-00002

AMERIPRISE CERTIFICATE COMPANY

(Exact name of registrant as specified in its charter)



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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No o

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



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

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

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



Class		Outstanding at November 3, 2014
Common Shares (par value $10 per share)		150,000 shares

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

AMERIPRISE CERTIFICATE COMPANY

FORM 10-Q

INDEX



Part I.	Financial Information:
	Item 1.	Financial Statements
		Consolidated Statements of Operations — Three Months and Nine Months Ended September 30, 2014 and 2013	3
		Consolidated Statements of Comprehensive Income — Three Months and Nine Months Ended September 30, 2014 and 2013	4
		Consolidated Balance Sheets — September 30, 2014 and December 31, 2013	5
		Consolidated Statements of Shareholder's Equity — Nine Months Ended September 30, 2014 and 2013	6
		Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2014 and 2013	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Narrative Analysis	25
	Item 4.	Controls and Procedures	26
Part II.	Other Information:
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 6.	Exhibits	27
	Signatures		28
	Exhibit Index		E-1

AMERIPRISE CERTIFICATE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013

Investment income	$	21,236		$	20,146		$	65,582		$	64,023
Investment expenses	6,878			6,250			21,289			19,008
Net investment income before provision for certificate reserves and income taxes	14,358			13,896			44,293			45,015
Net provision for certificate reserves	6,626			7,209			19,979			22,905
Net investment income before income taxes	7,732			6,687			24,314			22,110
Income tax expense	2,781			2,431			8,952			8,090
Net investment income	4,951			4,256			15,362			14,020

Net realized gain (loss) on investments	(238		)	163			234			(1,945		)
Income tax expense (benefit)	(83		)	57			82			(681		)
Net realized gain (loss) on investments, after-tax	(155		)	106			152			(1,264		)
Net income	$	4,796		$	4,362		$	15,514		$	12,756

Supplemental Disclosures:
Total other-than-temporary impairment losses on securities	$	(77	)	$	(299	)	$	(133	)	$	(582	)
Portion of loss recognized in other comprehensive income (loss) (before taxes)	1			(11		)	(517		)	(1,693		)
Net impairment losses recognized in net realized gain (loss) on investments	$	(76	)	$	(310	)	$	(650	)	$	(2,275	)
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013

Net income	$	4,796		$	4,362		$	15,514		$	12,756
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities:
Net unrealized securities gains (losses) arising during the period	(5,876		)	6,717			3,977			(10,418		)
Reclassification of net securities (gains) losses included in net income	155			(106		)	(151		)	1,252
Total other comprehensive income (loss), net of tax	(5,721		)	6,611			3,826			(9,166		)
Total comprehensive income (loss)	$	(925	)	$	10,973		$	19,340		$	3,590
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)



	September 30, 2014		December 31, 2013
Assets	(unaudited)
Qualified Assets
Cash and cash equivalents	$	105,678	$	74,526
Investments in unaffiliated issuers	4,389,018		4,118,758
Receivables	28,799		26,586
Equity options, purchased	39,769		72,848
Total qualified assets	4,563,264		4,292,718
Deferred taxes, net	680		1,245
Total assets	$	4,563,944	$	4,293,963

Liabilities and Shareholder's Equity
Liabilities
Certificate reserves	$	4,230,439	$	3,983,707
Current taxes payable to parent	3,950		2,924
Equity options, written	34,103		65,958
Payable for investment securities purchased	27,165		1,566
Due to related party and other liabilities	25,772		16,633
Total liabilities	4,321,429		4,070,788

Shareholder's Equity
Common shares ($10 par value, 150,000 shares authorized and issued)	1,500		1,500
Additional paid-in capital	201,517		201,517
Total retained earnings	38,813		23,299
Accumulated other comprehensive income (loss), net of tax	685		(3,141		)
Total shareholder's equity	242,515		223,175
Total liabilities and shareholder's equity	$	4,563,944	$	4,293,963
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)

(in thousands, except share data)



						Retained Earnings
	Number of Outstanding Shares	Common Shares		Additional Paid-In Capital		Appropriated for Pre-Declared Additional Credits and Interest		Appropriated for Additional Interest on Advance Payments		Unappropriated			Accumulated Other Com-prehensive Income (Loss), Net of Tax			Total

Balance at January 1, 2013	150,000	$	1,500	$	191,517	$	—	$	15	$	9,137		$	5,371		$	207,540
Comprehensive income:
Net income	—	—		—		—		—		12,756			—			12,756
Other comprehensive loss, net of tax	—	—		—		—		—		—			(9,166		)	(9,166		)
Total comprehensive income																3,590
Transfer to appropriated/from unappropriated	—	—		—		8		—		(8		)	—			—
Receipt of capital from parent	—	—		10,000		—		—		—			—			10,000
Balance at September 30, 2013	150,000	$	1,500	$	201,517	$	8	$	15	$	21,885		$	(3,795	)	$	221,130

Balance at January 1, 2014	150,000	$	1,500	$	201,517	$	26	$	15	$	23,258		$	(3,141	)	$	223,175
Comprehensive income:
Net income	—	—		—		—		—		15,514			—			15,514
Other comprehensive income, net of tax	—	—		—		—		—		—			3,826			3,826
Total comprehensive income																19,340
Transfer to appropriated/from unappropriated	—	—		—		47		—		(47		)	—			—
Balance at September 30, 2014	150,000	$	1,500	$	201,517	$	73	$	15	$	38,725		$	685		$	242,515
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Nine Months Ended September 30,
	2014			2013
Cash Flows from Operating Activities
Net income	$	15,514		$	12,756
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums, accretion of discounts, net	23,499			25,198
Deferred income tax provision (benefit)	(437		)	950
Net realized gain on Available-for-Sale securities	(882		)	(349		)
Other net realized (gain) loss	(1		)	19
Other-than-temporary impairments and provision for loan loss	650			2,275
Changes in operating assets and liabilities:
Dividends and interest receivable	(1,284		)	(1,469		)
Certificate reserves, net	(837		)	(590		)
Deferred taxes, net	(1,404		)	—
Current taxes payable to/receivable from parent, net	1,026			5,355
Derivatives, net of collateral	3,434			215
Other liabilities	5,426			622
Other, net	682			(3,013		)
Net cash provided by operating activities	45,386			41,969
Cash Flows from Investing Activities
Available-for-Sale securities:
Sales	26,277			27,957
Maturities, redemptions and calls	743,172			780,845
Purchases	(1,025,867		)	(1,223,983		)
Syndicated loans, commercial mortgage loans and real estate owned:
Sales, maturities and repayments	14,349			30,736
Purchases and fundings	(20,013		)	(11,274		)
Certificate loans, net	279			611
Net cash used in investing activities	(261,803		)	(395,108		)
Cash Flows from Financing Activities
Payments from certificate holders and other additions	1,893,534			1,751,868
Certificate maturities and cash surrenders	(1,645,965		)	(1,377,170		)
Capital contribution from parent	—			10,000
Net cash provided by financing activities	247,569			384,698
Net increase in cash and cash equivalents	31,152			31,559
Cash and cash equivalents at beginning of period	74,526			89,232
Cash and cash equivalents at end of period	$	105,678		$	120,791
Supplemental disclosures including non-cash transactions:
Cash paid (received) for income taxes	$	3,854		$	(243	)
Cash paid for interest	23,308			28,053
See Notes to Consolidated Financial Statements.

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, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2014.

ACC reclassified certain prior period amounts in the Consolidated Statements of Cash Flows, as listed below, to improve the transparency of its cash flows. Total cash flows provided by (used in) operating, investing and financing activities did not materially change as a result of the reclassifications.

Within operating activities, the change in derivatives collateral was reclassified from “Derivatives collateral, net” to “Derivatives, net of collateral”. As a result of this reclassification, changes in all freestanding derivatives and related collateral are included in one line within operating cash flows. Also within operating activities, other-than-temporary impairments were reclassified from “Net realized gain on Available-for-Sale securities” to “Other-than-temporary impairments and provision for loan loss”, the change in open payables and receivables related to ACC's derivatives was reclassified from “Derivatives, net” to “Other, net” and the change in other liabilities was reclassified from “Other, net” to its own line.

Within investing activities, “Sales of syndicated loans, commercial mortgage loans and real estate owned” was combined with “Maturities, redemptions and calls of syndicated loans, commercial mortgage loans and real estate owned”.

Within financing activities, the increase in certificate account balances for interest credited was reclassified from “Certificate maturities and cash surrenders” to “Payments from certificate holders and other additions”.

Additionally, for the nine months ended September 30, 2014, ACC reclassified $438 thousand out of cash flows provided by operating activities and $163 thousand and $275 thousand into cash flows provided by (used in) investing activities and financing activities, respectively. These changes related to ACC's certificate loans and surrender charges.

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

Income Taxes

In July 2013, the Financial Accounting Standards Board (“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 adopted the standard in the first quarter of 2014. The adoption of the standard did not have a material impact on the ACC’s 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 did not have a material impact on ACC’s consolidated results of operations and financial condition.

Future Adoption of New Accounting Standards

Presentation of Financial Statements - Going Concern

In August 2014, the FASB updated the accounting standard related to an entity’s assessment of its ability to continue as a going concern. The standard requires that management evaluate whether there are conditions or events, considered in the aggregate, that

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. In situations where there is substantial doubt about an entity’s ability to continue as a going concern, disclosure should be made so that a reader can understand the conditions that raise the substantial doubt, management’s assessment of those conditions and any plan management has to mitigate those conditions. The standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The adoption of the standard is not expected to have a material impact on ACC’s consolidated results of operations and financial condition.

Revenue from Contracts with Customers

In May 2014, the FASB updated the accounting standards for revenue from contracts with customers. The update provides a five step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract. In addition, the standard requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2016 and early adoption is prohibited. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. ACC is currently evaluating the impact of the standard on ACC’s consolidated results of operations and financial condition.

Receivables - Troubled Debt Restructuring by Creditors

In January 2014, the FASB updated the accounting standard related to recognizing residential real estate obtained through a repossession or foreclosure from a troubled debtor. The update clarifies the criteria for derecognition of the loan receivable and recognition of the real estate property. The standard is effective for interim and annual periods beginning after December 15, 2014 and can be applied under a modified retrospective transition method or a prospective transition method. Early adoption is permitted. The adoption of the standard is not expected to have a material impact on ACC’s consolidated results of operations and financial condition.

3. Investments

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



	September 30, 2014		December 31, 2013
Available-for-Sale securities:
Fixed maturities, at fair value (amortized cost: 2014, $4,239,186; 2013, $3,987,510)	$	4,235,238	$	3,978,248
Common stocks, at fair value (cost: 2014, $2,343; 2013, $2,215)	7,370		6,323
Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2014, $3,464; 2013, $4,461; fair value: 2014, $147,820; 2013, $134,114)	144,443		131,241
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	940		1,219
Real estate owned, at fair value less costs to sell	1,027		1,727
Total	$	4,389,018	$	4,118,758

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



	September 30, 2014
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	2,242,368	$	15,782	$	(28,544	)	$	2,229,606	$	(7,146	)
Corporate debt securities	1,095,363		6,571		(1,538		)	1,100,396		3
Commercial mortgage backed securities	401,042		4,482		(741		)	404,783		—
Asset backed securities	500,035		3,066		(3,070		)	500,031		—
U.S. government and agencies obligations	378		44		—			422		—
Common stocks	2,343		5,044		(17		)	7,370		2,220
Total	$	4,241,529	$	34,989	$	(33,910	)	$	4,242,608	$	(4,923	)

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	December 31, 2013
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	2,230,983	$	15,580	$	(38,506	)	$	2,208,057	$	(14,697	)
Corporate debt securities	935,794		9,847		(1,254		)	944,387		3
Commercial mortgage backed securities	303,071		4,273		(506		)	306,838		—
Asset backed securities	517,283		4,195		(2,921		)	518,557		—
U.S. government and agencies obligations	379		30		—			409		—
Common stocks	2,215		4,109		(1		)	6,323		1,839
Total	$	3,989,725	$	38,034	$	(43,188	)	$	3,984,571	$	(12,855	)

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

As of September 30, 2014 and December 31, 2013, investment securities with a fair value of $25 thousand and $67 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.

At September 30, 2014 and December 31, 2013, fixed maturity securities comprised approximately 94% and 95%, respectively, of ACC’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”), and Fitch Ratings Ltd. (“Fitch”). ACC uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, as is the case for many private placement securities, ACC may utilize ratings from other NRSROs or rate the securities internally. At September 30, 2014 and December 31, 2013, approximately $178.1 million and $106.3 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC (“CMIA”), an affiliate of ACC, using criteria similar to those used by NRSROs.

A summary of fixed maturity securities by rating was as follows:



	September 30, 2014						December 31, 2013
Ratings	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in thousands, except percentages)
AAA	$	1,769,681	$	1,776,381	42	%	$	1,763,939	$	1,766,688	44	%
AA	248,014		248,196		6		102,397		104,544		3
A	948,909		945,216		22		1,125,224		1,122,795		28
BBB	1,054,205		1,057,385		25		733,685		741,023		19
Below investment grade	218,377		208,060		5		262,265		243,198		6
Total fixed maturities	$	4,239,186	$	4,235,238	100	%	$	3,987,510	$	3,978,248	100	%

At September 30, 2014 and December 31, 2013, approximately 63% and 58%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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



Description of Securities	September 30, 2014
	Less than 12 months						12 months or more						Total
	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	55	$	636,978	$	(6,322	)	85	$	629,255	$	(22,222	)	140	$	1,266,233	$	(28,544	)
Corporate debt securities	38	443,439		(1,526		)	1	11,864		(12		)	39	455,303		(1,538		)
Commercial mortgage backed securities	8	92,941		(479		)	3	29,629		(262		)	11	122,570		(741		)
Asset backed securities	8	97,111		(479		)	10	188,690		(2,591		)	18	285,801		(3,070		)
Common stocks	3	209		(17		)	—	—		—			3	209		(17		)
Total	112	$	1,270,678	$	(8,823	)	99	$	859,438	$	(25,087	)	211	$	2,130,116	$	(33,910	)



Description of Securities	December 31, 2013
	Less than 12 months						12 months or more						Total
	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	74	$	902,004	$	(10,923	)	70	$	365,396	$	(27,583	)	144	$	1,267,400	$	(38,506	)
Corporate debt securities	20	189,333		(997		)	2	20,084		(257		)	22	209,417		(1,254		)
Commercial mortgage backed securities	11	103,111		(506		)	2	136		—			13	103,247		(506		)
Asset backed securities	24	312,094		(2,905		)	1	6,116		(16		)	25	318,210		(2,921		)
Common stocks	1	11		(1		)	—	—		—			1	11		(1		)
Total	130	$	1,506,553	$	(15,332	)	75	$	391,732	$	(27,856	)	205	$	1,898,285	$	(43,188	)

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

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
	(in thousands)
Beginning balance	$	83,696		$	81,522	$	83,122		$	79,557
Reductions for securities sold during the period (realized)	(18,891		)	—		(18,891		)	—
Credit losses for which an other-than-temporary impairment was previously recognized	76			310		650			2,275
Ending balance	$	64,881		$	81,832	$	64,881		$	81,832

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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



	Net Unrealized Investment Gains (Losses)			Deferred Income Tax			Accumulated Other Comprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance at January 1, 2013	$	8,426		$	(3,055	)	$	5,371
Net unrealized securities losses arising during the period ⁽¹⁾	(16,302		)	5,884			(10,418		)
Reclassification of losses included in net income	1,926			(674		)	1,252
Balance at September 30, 2013	$	(5,950	)	$	2,155		$	(3,795	)	⁽²⁾

Balance at January 1, 2014	$	(5,154	)	$	2,013		$	(3,141	)
Net unrealized securities gains arising during the period ⁽¹⁾	6,465			(2,488		)	3,977
Reclassification of gains included in net income	(232		)	81			(151		)
Balance at September 30, 2014	$	1,079		$	(394	)	$	685		⁽²⁾

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

⁽²⁾ Includes $3.2 million and $11.8 million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at September 30, 2014 and 2013, respectively.

Net realized gains and losses on Available-for-Sale securities, determined using the specific identification method, recognized in earnings were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Gross realized gains	$	1,224		$	473		$	2,272		$	751
Gross realized losses	(1,387		)	—			(1,390		)	(402		)
Other-than-temporary impairments	(76		)	(310		)	(650		)	(2,275		)
Total	$	(239	)	$	163		$	232		$	(1,926	)

Other-than-temporary impairments for the three months and nine months ended September 30, 2014 and 2013 related to credit losses on non-agency residential mortgage backed securities.

Available-for-Sale securities by contractual maturity at September 30, 2014 were as follows:



	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	230,370	$	231,486
Due after one year through five years	865,158		869,075
Due after five years through 10 years	—		—
Due after 10 years	213		257
	1,095,741		1,100,818
Residential mortgage backed securities	2,242,368		2,229,606
Commercial mortgage backed securities	401,042		404,783
Asset backed securities	500,035		500,031
Common stocks	2,343		7,370
Total	$	4,241,529	$	4,242,608

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. Commercial Mortgage, Syndicated and Certificate Loans

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

Allowance for Loan Losses

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



	September 30, 2014
	Commercial Mortgage Loans		Syndicated Loans			Total
	(in thousands)
Beginning balance	$	2,341	$	2,120		$	4,461
Charge-offs	—		(997		)	(997		)
Ending balance	$	2,341	$	1,123		$	3,464
Individually evaluated for impairment	$	—	$	—		$	—
Collectively evaluated for impairment	2,341		1,123			3,464



	September 30, 2013
	Commercial Mortgage Loans			Syndicated Loans			Total
	(in thousands)
Beginning balance	$	2,576		$	3,084		$	5,660
Charge-offs	(235		)	(964		)	(1,199		)
Ending balance	$	2,341		$	2,120		$	4,461
Individually evaluated for impairment	$	—		$	—		$	—
Collectively evaluated for impairment	2,341			2,120			4,461

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



	September 30, 2014
	Commercial Mortgage Loans		Syndicated Loans		Total
	(in thousands)
Individually evaluated for impairment	$	1,763	$	1,874	$	3,637
Collectively evaluated for impairment	106,161		38,109		144,270
Total	$	107,924	$	39,983	$	147,907



	December 31, 2013
	Commercial Mortgage Loans		Syndicated Loans		Total
	(in thousands)
Individually evaluated for impairment	$	1,814	$	3,374	$	5,188
Collectively evaluated for impairment	116,398		14,116		130,514
Total	$	118,212	$	17,490	$	135,702

As of September 30, 2014 and December 31, 2013, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $3.6 million and $5.2 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to ACC’s total loan balance. During the three months and nine months ended September 30, 2014, ACC purchased $25.3 million of syndicated loans

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

and had no significant sales of financing receivables. During the three months and nine months ended September 30, 2013, ACC had no significant purchases of financing receivables and sold nil and $821 thousand, respectively, of syndicated loans.

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

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $1.9 million and $1.5 million as of September 30, 2014 and December 31, 2013, respectively. All other loans were considered to be performing.

Commercial Mortgage Loans

ACC reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 1.6% and 1.5% of total commercial mortgage loans at September 30, 2014 and December 31, 2013, 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
	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
	(in thousands)
East North Central	$	3,210	$	3,276	3	%	3	%
Middle Atlantic	7,536		8,148		7		7
Mountain	8,941		9,402		8		8
New England	10,187		10,440		10		9
Pacific	27,190		29,830		25		25
South Atlantic	30,087		34,188		28		29
West North Central	11,990		13,576		11		11
West South Central	8,783		9,352		8		8
	107,924		118,212		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	105,583	$	115,871

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



	Loans				Percentage
	September 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
	(in thousands)
Apartments	$	33,713	$	34,199	31	%	29	%
Industrial	16,434		23,069		15		20
Office	10,913		11,141		10		9
Retail	32,215		34,099		30		29
Hotel	1,292		1,403		1		1
Other	13,357		14,301		13		12
	107,924		118,212		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	105,583	$	115,871

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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 September 30, 2014 and December 31, 2013 were $1.9 million and $1.5 million, respectively, which represent 5% and 9% of total syndicated loans at September 30, 2014 and December 31, 2013, respectively.

Troubled Debt Restructurings

There were no loans restructured by ACC during the three months ended September 30, 2014 and 2013. The following table presents the number of loans restructured by ACC during the nine months ended September 30, and their recorded investment at the end of the period:



	2014				2013
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(in thousands, except number of loans)
Commercial mortgage loans	$	—	$	—	$	1	$	1,988
Syndicated loans	1		288		1		244
Total	$	1	$	288	$	2	$	2,232

During the nine months ended September 30, 2014, ACC restructured one syndicated loan and received three loans in exchange. The troubled debt restructuring did not have a material impact to ACC’s allowance for loan losses or income recognized for the three months and nine months ended September 30, 2014. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.

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:



	September 30, 2014
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	82,695	$	—	$	82,695
Available-for-Sale securities:
Residential mortgage backed securities	—		2,058,053		171,553		2,229,606
Corporate debt securities	—		912,783		187,613		1,100,396
Commercial mortgage backed securities	—		404,783		—		404,783
Asset backed securities	—		465,384		34,647		500,031
U.S. government and agencies obligations	422		—		—		422
Common stocks	2,858		4,219		293		7,370
Total Available-for-Sale securities	3,280		3,845,222		394,106		4,242,608
Equity options, purchased	—		39,769		—		39,769
Total assets at fair value	$	3,280	$	3,967,686	$	394,106	$	4,365,072

Liabilities
Certificate reserves	$	—	$	5,838	$	—	$	5,838
Equity options, written	—		34,103		—		34,103
Total liabilities at fair value	$	—	$	39,941	$	—	$	39,941



	December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	71,598	$	—	$	71,598
Available-for-Sale securities:
Residential mortgage backed securities	—		2,079,151		128,906		2,208,057
Corporate debt securities	—		821,355		123,032		944,387
Commercial mortgage backed securities	—		306,838		—		306,838
Asset backed securities	—		481,405		37,152		518,557
U.S. government and agencies obligations	409		—		—		409
Common stocks	2,568		3,482		273		6,323
Total Available-for-Sale securities	2,977		3,692,231		289,363		3,984,571
Equity options, purchased	—		72,848		—		72,848
Total assets at fair value	$	2,977	$	3,836,677	$	289,363	$	4,129,017

Liabilities
Certificate reserves	$	—	$	7,160	$	—	$	7,160
Equity options, written	—		65,958		—		65,958
Total liabilities at fair value	$	—	$	73,118	$	—	$	73,118

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

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



	Available-for-Sale Securities
	Residential Mortgage Backed Securities			Corporate Debt Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total
	(in thousands)
Balance, July 1, 2013	$	19,400		$	108,637		$	45,771		$	59,957		$	229		$	233,994
Total gains (losses) included in:
Net income	(29		)	(283		)	(86		)	49			—			(349		)	⁽¹⁾
Other comprehensive income	(61		)	658			(226		)	(322		)	(18		)	31
Purchases	200,384			—			—			—			—			200,384
Settlements	(1,819		)	—			(35,489		)	(918		)	—			(38,226		)
Transfers out of Level 3	(19,400		)	—			(9,970		)	(36,482		)	—			(65,852		)
Balance, September 30, 2013	$	198,475		$	109,012		$	—		$	22,284		$	211		$	329,982
Changes in unrealized gains (losses) relating to assets held at September 30, 2013 included in investment income:	$	(29	)	$	(283	)	$	—		$	49		$	—		$	(263	)

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	Available-for-Sale Securities
	Residential Mortgage Backed Securities			Corporate Debt Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total
	(in thousands)
Balance, January 1, 2014	$	128,906		$	123,032		$	—		$	37,152		$	273		$	289,363
Total gains (losses) included in:
Net income	(209		)	(1,177		)	—			90			—			(1,296		)	⁽¹⁾
Other comprehensive income	364			31			—			(156		)	22			261
Purchases	285,439			65,727			20,000			21,651			128			392,945
Settlements	(16,248		)	—			—			(4,110		)	—			(20,358		)
Transfers into Level 3	—			—			—			—			456			456
Transfers out of Level 3	(226,699		)	—			(20,000		)	(19,980		)	(586		)	(267,265		)
Balance, September 30, 2014	$	171,553		$	187,613		$	—		$	34,647		$	293		$	394,106
Changes in unrealized gains (losses) relating to assets held at September 30, 2014 included in investment income:	$	(198	)	$	(1,177	)	$	—		$	90		$	—		$	(1,285	)

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



	Available-for-Sale Securities
	Residential Mortgage Backed Securities			Corporate Debt Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Common Stocks			Total
	(in thousands)
Balance, January 1, 2013	$	252,598		$	110,643		$	36,060		$	22,223		$	824		$	422,348
Total gains (losses) included in:
Net income	(29		)	(848		)	(175		)	114			—			(938		)	⁽¹⁾
Other comprehensive loss	(61		)	(779		)	(396		)	(512		)	(36		)	(1,784		)
Purchases	219,784			—			9,970			171,338			—			401,092
Settlements	(1,819		)	—			(35,489		)	(3,303		)	—			(40,611		)
Transfers into Level 3	—			—			—			7,872			—			7,872
Transfers out of Level 3	(271,998		)	(4		)	(9,970		)	(175,448		)	(577		)	(457,997		)
Balance, September 30, 2013	$	198,475		$	109,012		$	—		$	22,284		$	211		$	329,982
Changes in unrealized gains (losses) relating to assets held at September 30, 2013 included in investment income:	$	(29	)	$	(848	)	$	—		$	104		$	—		$	(773	)

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

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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



	September 30, 2014
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	167,579	Discounted cash flow	Yield/spread to U.S. Treasuries	0.9% - 1.3% (1.1%)



	December 31, 2013
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	102,187	Discounted cash flow	Yield/spread to U.S. Treasuries	0.9% - 1.3% (1.2%)

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

Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs

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

Determination of Fair Value

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

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

Cash Equivalents

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

Available-for-Sale Securities

When available, the fair value of securities is based on quoted prices in active markets. If quoted prices are not available, fair values are obtained from third party pricing services, non-binding broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and common stocks. Level 2 securities primarily include residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities and common stock. The fair value of these Level 2 securities is based on a market approach with prices obtained from third party pricing services. Observable inputs used to value these securities can include, but are not limited to, reported trades, benchmark yields, issuer spreads and non-binding broker quotes. Level 3 securities primarily include certain non-agency residential mortgage backed securities, corporate bonds, commercial mortgage backed securities, asset backed securities and common stocks. The fair value of corporate bonds, non-agency residential mortgage backed securities, commercial mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to ACC. ACC’s privately placed corporate bonds are typically based on a single non-binding broker quote. In addition to the general pricing controls, ACC reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.

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 Options, Purchased and Written)

The fair value of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at September 30, 2014 and December 31, 2013. 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.



	September 30, 2014
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	38,860	$	—	$	37,992	$	1,079	$	39,071
Commercial mortgage loans	105,583		—		—		108,749		108,749
Certificate loans	940		—		940		—		940
Financial Liabilities
Certificate reserves	$	4,224,601	$	—	$	—	$	4,218,075	$	4,218,075



	December 31, 2013
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	15,370	$	—	$	15,834	$	94	$	15,928
Commercial mortgage loans	115,871		—		—		118,186		118,186
Certificate loans	1,219		—		1,219		—		1,219
Financial Liabilities
Certificate reserves	$	3,976,547	$	—	$	—	$	3,982,012	$	3,982,012

Syndicated Loans

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Commercial Mortgage Loans

The fair value of commercial mortgage loans, except those with significant credit deterioration, is determined by discounting contractual cash flows using discount rates that reflect current pricing for loans with similar remaining maturities, liquidity and characteristics including loan-to-value ratio, occupancy rate, refinance risk, debt-service coverage, location, and property condition. For commercial mortgage loans with significant credit deterioration, fair value is determined using the same adjustments as above with an additional adjustment for ACC’s estimate of the amount recoverable on the loan. Given the significant unobservable inputs to the valuation of commercial mortgage loans, these measurements are classified as Level 3.

Certificate Loans

Certificate loans represent loans made against and collateralized by the underlying certificate balance. These loans do not transfer to third parties separate from the underlying certificate. The outstanding balance of these loans is considered a reasonable estimate of fair value and is classified as Level 2.

Certificate Reserves

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

6. Offsetting Assets and Liabilities

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

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



	September 30, 2014
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Equity options, purchased	$	39,769	$	—	$	39,769	$	(34,103	)	$	(3,787	)	$	1,879



	December 31, 2013
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Equity options, purchased	$	72,848	$	—	$	72,848	$	(65,958	)	$	(1,700	)	$	5,190

⁽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:



	September 30, 2014
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Equity options, written	$	34,103	$	—	$	34,103	$	(34,103	)	$	—	$	—



	December 31, 2013
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Equity options, written	$	65,958	$	—	$	65,958	$	(65,958	)	$	—	$	—

⁽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:



Derivatives not designated as hedging instruments	Balance Sheet Location	Asset				Balance Sheet Location	Liability
Derivatives not designated as hedging instruments	Balance Sheet Location	September 30, 2014		December 31, 2013		Balance Sheet Location	September 30, 2014		December 31, 2013
(in thousands)
Equity
Stock market certificates	Equity options, purchased	$	39,769	$	72,848	Equity options, written	$	34,103	$	65,958
Stock market certificates embedded derivatives	N/A	—		—		Certificate reserves	5,838		7,160
Total		$	39,769	$	72,848		$	39,941	$	73,118
N/A Not applicable.

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 on the Consolidated Statements of Operations:



Derivatives not designated as hedging instruments	Location of Gain (Loss) on Derivatives Recognized in Income	Amount of Gain (Loss) on Derivatives Recognized in Income
		Three Months Ended September 30,						Nine Months Ended September 30,
		2014			2013			2014			2013
		(in thousands)
Equity
Stock market certificates	Net provision for certificate reserves	$	358		$	1,131		$	2,026		$	5,029
Stock market certificates embedded derivatives	Net provision for certificate reserves	(418		)	(798		)	(1,976		)	(4,352		)
Total		$	(60	)	$	333		$	50		$	677

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 $1.0 billion at both September 30, 2014 and December 31, 2013. 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 $393 thousand and $368 thousand at September 30, 2014 and December 31, 2013, 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 ACC’s consolidated financial condition, results of operations or liquidity. Notwithstanding the foregoing, it is possible that the outcome of any such legal, arbitration or regulatory proceeding could have a material impact on results of operations in any particular reporting period as the proceedings are resolved.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

9. Shareholder’s Equity

The following table provides information related to amounts reclassified from accumulated other comprehensive income (“AOCI”):



AOCI Reclassification	Location of (Gain) Loss Recognized in Income	Three Months Ended September 30,						Nine Months Ended September 30,
AOCI Reclassification	Location of (Gain) Loss Recognized in Income	2014			2013			2014			2013
		(in thousands)
Unrealized net losses (gains) on Available-for-Sale securities	Net investment income	$	239		$	(163	)	$	(232	)	$	1,926
Tax expense (benefit)	Income tax provision	(84		)	57			81			(674		)
Net of tax		$	155		$	(106	)	$	(151	)	$	1,252

10. Income Taxes

The effective tax rate was 36.0% and 36.8% for the three months and nine months ended September 30, 2014, respectively, compared to 36.3% and 36.7% for the three months and nine months ended September 30, 2013, respectively.

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 September 30, 2014 and December 31, 2013.

As of September 30, 2014 and December 31, 2013, ACC had $5.9 million and $5.8 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $2.8 million and $2.7 million, net of federal tax benefits, of the unrecognized tax benefits as of September 30, 2014 and December 31, 2013, respectively, would affect the effective tax rate.

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of ACC, it is estimated that the total amount of gross unrecognized tax benefits may decrease by up to $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 $63 thousand and $107 thousand for the three months and nine months ended September 30, 2014, respectively, and $19 thousand and $120 thousand for the three months and nine months ended September 30, 2013, respectively. As of September 30, 2014 and December 31, 2013, ACC had accrued $1.7 million and $1.6 million, respectively, for the payment of interest and penalties.

ACC files income tax returns, as part of its inclusion in the consolidated federal income tax returns of Ameriprise Financial, in the U.S. federal jurisdiction, and various states jurisdictions. The Internal Revenue Service (“IRS”) has completed its field examination of the 1997 through 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 completed the audits of Ameriprise Financial’s 2008 and 2009 U.S. income tax returns in the first quarter of 2014. The IRS is in the process of completing audits of Ameriprise Financial’s U.S. income tax returns for 2010 and 2011, and these audits are expected to be completed in 2014. ACC’s or its subsidiary’s state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 2011 and remain open for all years after 2011.

AMERIPRISE CERTIFICATE COMPANY

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS

The following information should be read in conjunction with Ameriprise Certificate Company’s (“ACC”) Financial Statements and related notes presented in Part I, Item 1. This discussion may contain forward-looking statements that reflect ACC’s plans, estimates and beliefs. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.” ACC believes it is useful to read its management’s narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2014 (“2013 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 2013 10-K.

Recent Accounting Pronouncements

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

Results of Operations for the Nine Months Ended September 30, 2014 and 2013

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

Net income increased $2.7 million, or 21%, to $15.5 million for the nine months ended months ended September 30, 2014 compared to $12.8 million for the prior year period primarily due to a decrease in the provision for certificate reserves, net realized gains on investments compared to net realized losses in the prior year period and higher investment income. These positive impacts were partially offset by higher investment expenses.

Investment income increased $1.6 million, or 3%, to $65.6 million for the nine months ended September 30, 2014 compared to $64.0 million for the prior year period primarily due to higher average investment balances compared to the prior year period, partially offset by the negative impact of continued low interest rates.

Investment expenses increased $2.3 million, or 12%, to $21.3 million for the nine months ended September 30, 2014 compared to $19.0 million for the prior year period primarily due to higher investment advisory fees.

Net provision for certificate reserves decreased $2.9 million, or 13%, to $20.0 million for the nine months ended September 30, 2014 compared to $22.9 million for the prior year period as a result of lower client rates due to the continued low interest rate environment, partially offset by higher client balances compared to the prior year period.

Net realized gain on investments before income taxes was $0.2 million for the nine months ended September 30, 2014, compared to net realized loss on investments of $1.9 million for the prior year period. For the nine months ended September 30, 2014, net realized gains from sales, tenders and calls of Available-for-Sale securities of $0.9 million were partially offset by other-than-temporary impairments of $0.7 million. For the nine months ended September 30, 2013, net realized loss on investments included other-than-temporary impairments of $2.3 million. The other-than-temporary impairments for both periods related to credit losses on non-agency residential mortgage backed securities.

The effective tax rate was 36.8% for the nine months ended September 30, 2014 compared to 36.7% for the nine months ended September 30, 2013.

AMERIPRISE CERTIFICATE COMPANY

Fair Value Measurements

ACC reports certain assets and liabilities at fair value; specifically, derivatives, embedded derivatives, and most investments and cash equivalents. Fair value assumes the exchange of assets or liabilities occurs in orderly transactions. Companies are not permitted to use market prices that are the result of a forced liquidation or distressed sale. ACC includes actual market prices or observable inputs in its fair value measurements to the extent available. 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 September 30, 2014.

Changes in Internal Control over Financial Reporting

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

AMERIPRISE CERTIFICATE COMPANY

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors provided in Part I, Item 1A of ACC’s 2013 10-K.

ITEM 6. EXHIBITS

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

AMERIPRISE CERTIFICATE COMPANY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		AMERIPRISE CERTIFICATE COMPANY
		(Registrant)

Date:	November 3, 2014	/s/ Abu M. Arif
		Abu M. Arif
		Chief Executive Officer


Date:	November 3, 2014	/s/ Ross P. Palacios
		Ross P. Palacios
		Chief Financial Officer

AMERIPRISE CERTIFICATE COMPANY

EXHIBIT INDEX

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

Exhibit Description


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


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

10(b)*

Distribution Agreement, dated Dec. 31, 2006, between Registrant and Ameriprise Financial Services, Inc. filed electronically on or about Feb. 26, 2007 as Exhibit 1 to Post-Effective Amendment No. 35 to Registration Statement No. 2-95577 for Ameriprise Flexible Savings Certificate is incorporated herein by reference, as amended by that certain restated Exhibit A, effective September 19, 2014, filed electronically herewith as Exhibit 10(b) 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 - November 3, 2014

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AMERIPRISE CERTIFICATE CO Reports