AMERIPRISE CERTIFICATE CO - FORM 10-Q

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EX-32 - EXHIBIT 32 - AMERIPRISE CERTIFICATE CO	acc-ex32x093016.htm
EX-31.2 - EXHIBIT 31.2 - AMERIPRISE CERTIFICATE CO	acc-ex312x093016.htm
EX-31.1 - EXHIBIT 31.1 - AMERIPRISE CERTIFICATE CO	acc-ex311x093016.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended September 30, 2016


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

For the Transition Period from _________________________ to _________________________

Commission File No. 811-00002

AMERIPRISE CERTIFICATE COMPANY

(Exact name of registrant as specified in its charter)



Delaware		41-6009975
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1099 Ameriprise Financial Center, Minneapolis, Minnesota		55474
(Address of principal executive offices)		(Zip Code)

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

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

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

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

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



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

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

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



Class		Outstanding at November 2, 2016
Common Shares (par value $10 per share)		150,000 shares

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

AMERIPRISE CERTIFICATE COMPANY

FORM 10-Q

INDEX



Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations — Three months and nine months ended September 30, 2016 and 2015				3
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2016 and 2015				4
Consolidated Balance Sheets — September 30, 2016 and December 31, 2015				5
Consolidated Statements of Shareholder's Equity — Nine months ended September 30, 2016 and 2015				6
Consolidated Statements of Cash Flows — Nine months ended September 30, 2016 and 2015				7
Notes to Consolidated Financial Statements				8
1. Basis of Presentation				8
2. Recent Accounting Pronouncements				8
3. Investments				9
4. Commercial Mortgage, Syndicated and Certificate Loans				13
5. Fair Values of Assets and Liabilities				15
6. Offsetting Assets and Liabilities				21
7. Derivatives and Hedging Activities				22
8. Contingencies				23
9. Shareholder’s Equity				23
10. Income Taxes				24
Item 2. Management’s Narrative Analysis				25
Item 4. Controls and Procedures				26

Part II. Other Information				27
Item 1. Legal Proceedings				27
Item 1A. Risk Factors				27
Item 6. Exhibits				27
Signatures				28
Exhibit Index				E-1

AMERIPRISE CERTIFICATE COMPANY

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in thousands)
Investment income	$	29,130		$	22,974		$	85,065		$	66,641
Investment expenses	8,308			7,028			24,143			20,398
Net investment income before provision for certificate reserves and income taxes	20,822			15,946			60,922			46,243
Net provision for certificate reserves	11,505			6,889			27,706			19,589
Net investment income before income taxes	9,317			9,057			33,216			26,654
Income tax expense	3,344			3,086			11,550			8,074
Net investment income, after-tax	5,973			5,971			21,666			18,580

Net realized gain (loss) on investments before income taxes	1,031			(579		)	62			(1,577		)
Income tax expense (benefit)	360			(203		)	21			(552		)
Net realized gain (loss) on investments, after-tax	671			(376		)	41			(1,025		)
Net income	$	6,644		$	5,595		$	21,707		$	17,555

Supplemental Disclosures:
Total other-than-temporary impairment losses on securities	$	—		$	—		$	—		$	—
Portion of loss recognized in other comprehensive income (loss) (before taxes)	(1		)	—			(71		)	(923		)
Net impairment losses recognized in net realized gain (loss) on investments	$	(1	)	$	—		$	(71	)	$	(923	)
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in thousands)
Net income	$	6,644		$	5,595		$	21,707		$	17,555
Other comprehensive income, net of tax:
Net unrealized gains (losses) on securities:
Net unrealized securities gains (losses) arising during the period	4,631			(132		)	22,812			187
Reclassification of net securities losses (gains) included in net income	(671		)	215			(41		)	864
Total other comprehensive income, net of tax	3,960			83			22,771			1,051
Total comprehensive income	$	10,604		$	5,678		$	44,478		$	18,606
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)



	September 30, 2016		December 31, 2015
	(in thousands, except share amounts)
Assets
Qualified Assets
Cash and cash equivalents	$	195,525	$	137,557
Investments in unaffiliated issuers	5,760,879		4,937,750
Receivables	31,176		22,122
Derivative assets	36,712		18,493
Total qualified assets	6,024,292		5,115,922
Current taxes receivable from parent	—		2,803
Deferred taxes, net	859		1,947
Total assets	$	6,025,151	$	5,120,672

Liabilities and Shareholder's Equity
Liabilities
Certificate reserves	$	5,646,316	$	4,834,896
Current taxes payable to parent	1,197		—
Derivative liabilities	30,164		14,932
Payable for investment securities purchased	2,729		2,304
Due to related party and other liabilities	24,445		17,718
Total liabilities	5,704,851		4,869,850

Shareholder's Equity
Common shares ($10 par value, 150,000 shares authorized and issued)	1,500		1,500
Additional paid-in capital	239,517		214,517
Total retained earnings	75,320		53,613
Accumulated other comprehensive income (loss), net of tax	3,963		(18,808		)
Total shareholder's equity	320,300		250,822
Total liabilities and shareholder's equity	$	6,025,151	$	5,120,672
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)



						Retained Earnings
	Number of Outstanding Shares	Common Shares		Additional Paid-In Capital		Appropriated for Pre-Declared Additional Credits and Interest			Appropriated for Additional Interest on Advance Payments		Unappropriated			Accumulated Other Comprehensive Income (Loss), Net of Tax			Total
	(in thousands, except share data)
Balance at January 1, 2015	150,000	$	1,500	$	201,517	$	58		$	15	$	40,869		$	(4,028	)	$	239,931
Comprehensive income:
Net income	—	—		—		—			—		17,555			—			17,555
Other comprehensive income, net of tax	—	—		—		—			—		—			1,051			1,051
Total comprehensive income																	18,606
Transfer from appropriated to unappropriated	—	—		—		(40		)	—		40			—			—
Dividend to parent	—	—		—		—			—		(10,000		)	—			(10,000		)
Receipt of capital from parent	—	—		3,000		—			—		—			—			3,000
Balance at September 30, 2015	150,000	$	1,500	$	204,517	$	18		$	15	$	48,464		$	(2,977	)	$	251,537

Balance at January 1, 2016	150,000	$	1,500	$	214,517	$	8		$	15	$	53,590		$	(18,808	)	$	250,822
Comprehensive income:
Net income	—	—		—		—			—		21,707			—			21,707
Other comprehensive income, net of tax	—	—		—		—			—		—			22,771			22,771
Total comprehensive income																	44,478
Transfer from appropriated to unappropriated	—	—		—		(8		)	—		8			—			—
Receipt of capital from parent	—	—		25,000		—			—		—			—			25,000
Balance at September 30, 2016	150,000	$	1,500	$	239,517	$	—		$	15	$	75,305		$	3,963		$	320,300
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended September 30,
	2016			2015
	(in thousands)
Cash Flows from Operating Activities
Net income	$	21,707		$	17,555
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums, accretion of discounts, net	17,622			21,079
Deferred income tax benefit	(27		)	(195		)
Net realized (gain) loss on Available-for-Sale securities	(133		)	404
Other-than-temporary impairments and provision for loan loss	71			1,173
Changes in operating assets and liabilities:
Dividends and interest receivable	(4,707		)	(4,575		)
Certificate reserves, net	3,986			(3,322		)
Deferred taxes, net	(12,261		)	(177		)
Current taxes payable to/receivable from parent, net	4,000			2,457
Derivatives, net of collateral	(87		)	665
Other liabilities	3,398			(2,744		)
Other, net	(48		)	5,144
Net cash provided by operating activities	33,521			37,464

Cash Flows from Investing Activities
Available-for-Sale securities:
Sales	7,036			8,066
Maturities, redemptions and calls	1,173,295			845,506
Purchases	(2,017,710		)	(1,136,019		)
Syndicated loans, commercial mortgage loans and real estate owned:
Sales, maturities and repayments	46,331			23,542
Purchases and fundings	(17,085		)	(51,569		)
Certificate loans, net	146			167
Net cash used in investing activities	(807,987		)	(310,307		)

Cash Flows from Financing Activities
Payments from certificate holders and other additions	3,183,717			2,181,579
Certificate maturities and cash surrenders	(2,376,283		)	(1,853,095		)
Capital contribution from parent	25,000			3,000
Dividend to parent	—			(10,000		)
Net cash provided by financing activities	832,434			321,484

Net increase in cash and cash equivalents	57,968			48,641
Cash and cash equivalents at beginning of period	137,557			68,632
Cash and cash equivalents at end of period	$	195,525		$	117,273

Supplemental disclosures including non-cash transactions:
Cash paid for income taxes	$	17,827		$	11,133
Cash paid for interest	25,413			21,751
See Notes to Consolidated Financial Statements.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

Ameriprise Certificate Company (“ACC”), is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial” or the “Parent”). ACC is registered as an investment company under the Investment Company Act of 1940. The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). ACC uses the consolidation method of accounting for its wholly owned subsidiary, Investors Syndicate Development Corp. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. All adjustments made were of a normal recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2016 (“2015 10-K”).

In the third quarter of 2016, ACC recorded an out-of-period correction related to its Stock Market Certificate reserves. The correction was a $1.8 million increase to net provision for certificate reserves on the consolidated statement of operations, offset by a related increase in certificate reserves on the consolidated balance sheet. The previously reported pretax income for the three months and six months ended June 30, 2016 was overstated by $1.8 million ($1.2 million after-tax).

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

2. Recent Accounting Pronouncements

Future Adoption of New Accounting Standards

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

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

Financial Instruments - Measurement of Credit Losses

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

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

In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for certain provisions. Generally, the update should be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption. ACC is currently evaluating the impact of the standard on its 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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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 and requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Subsequent related updates provide clarification on certain revenue recognition guidance in the new standard. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for interim and annual periods beginning after December 15, 2016. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. ACC is currently evaluating the impact of the standard on its consolidated results of operations, financial condition and disclosures.

3. Investments

Investments in unaffiliated issuers were as follows:



	September 30, 2016		December 31, 2015
	(in thousands)
Available-for-Sale securities:
Fixed maturities, at fair value (amortized cost: 2016, $5,583,459; 2015, $4,768,263)	$	5,585,597	$	4,734,442
Common stocks, at fair value (cost: 2016, $2,313; 2015, $2,273)	6,464		6,237
Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2016, $3,755; 2015, $3,964; fair value: 2016, $169,338; 2015, $195,595)	168,278		196,385
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	540		686
Total	$	5,760,879	$	4,937,750

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



Description of Securities	September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	3,021,219	$	14,293	$	(23,801	)	$	3,011,711	$	(544	)
Corporate debt securities	1,534,472		9,894		(545		)	1,543,821		3
Commercial mortgage backed securities	426,557		2,669		(315		)	428,911		—
Asset backed securities	551,896		1,803		(2,613		)	551,086		—
State and municipal obligations	48,939		693		(6		)	49,626		—
U.S. government and agencies obligations	376		66		—			442		—
Common stocks	2,313		4,317		(166		)	6,464		2,316
Total	$	5,585,772	$	33,735	$	(27,446	)	$	5,592,061	$	1,775



Description of Securities	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI ⁽¹⁾
	(in thousands)
Residential mortgage backed securities	$	2,543,904	$	9,628	$	(29,686	)	$	2,523,846	$	(3,707	)
Corporate debt securities	1,426,967		842		(11,344		)	1,416,465		3
Commercial mortgage backed securities	318,962		1,534		(1,125		)	319,371		—
Asset backed securities	428,694		1,509		(5,161		)	425,042		—
State and municipal obligations	49,359		73		(140		)	49,292		—
U.S. government and agencies obligations	377		49		—			426		—
Common stocks	2,273		4,179		(215		)	6,237		2,185
Total	$	4,770,536	$	17,814	$	(47,671	)	$	4,740,679	$	(1,519	)

⁽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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

As of September 30, 2016 and December 31, 2015, investment securities with a fair value of $66 thousand and $22 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.

At September 30, 2016 and December 31, 2015, fixed maturity securities comprised approximately 94% 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 September 30, 2016 and December 31, 2015, approximately $149.0 million and $193.0 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC (“CMIA”), an affiliate of ACC, using criteria similar to those used by NRSROs.

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



Ratings	September 30, 2016						December 31, 2015
	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in thousands, except percentages)
AAA	$	2,779,439	$	2,783,262	50	%	$	1,909,817	$	1,903,427	40	%
AA	318,688		316,956		6		328,041		326,326		7
A	639,929		638,660		11		705,780		700,629		15
BBB	1,703,273		1,707,431		31		1,647,627		1,633,796		35
Below investment grade	142,130		139,288		2		176,998		170,264		3
Total fixed maturities	$	5,583,459	$	5,585,597	100	%	$	4,768,263	$	4,734,442	100	%

At September 30, 2016 and December 31, 2015, approximately 60% and 66%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.

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



Description of Securities	September 30, 2016
	Less than 12 months						12 months or more						Total
	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	73	$	974,923	$	(4,397	)	135	$	884,318	$	(19,404	)	208	$	1,859,241	$	(23,801	)
Corporate debt securities	24	271,979		(389		)	6	45,146		(156		)	30	317,125		(545		)
Commercial mortgage backed securities	10	74,545		(267		)	2	14,766		(48		)	12	89,311		(315		)
Asset backed securities	14	71,650		(1,029		)	13	195,423		(1,584		)	27	267,073		(2,613		)
State and municipal obligations	3	4,564		(6		)	—	—		—			3	4,564		(6		)
Common stocks	—	—		—			3	662		(166		)	3	662		(166		)
Total	124	$	1,397,661	$	(6,088	)	159	$	1,140,315	$	(21,358	)	283	$	2,537,976	$	(27,446	)

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



Description of Securities	December 31, 2015
	Less than 12 months						12 months or more						Total
	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	91	$	1,147,485	$	(8,645	)	112	$	778,481	$	(21,041	)	203	$	1,925,966	$	(29,686	)
Corporate debt securities	81	1,055,464		(9,109		)	13	116,913		(2,235		)	94	1,172,377		(11,344		)
Commercial mortgage backed securities	16	127,376		(922		)	1	15,776		(203		)	17	143,152		(1,125		)
Asset backed securities	23	127,431		(1,156		)	13	243,721		(4,005		)	36	371,152		(5,161		)
State and municipal obligations	13	34,829		(140		)	—	—		—			13	34,829		(140		)
Common stocks	2	522		(166		)	2	91		(49		)	4	613		(215		)
Total	226	$	2,493,107	$	(20,138	)	141	$	1,154,982	$	(27,533	)	367	$	3,648,089	$	(47,671	)

As part of ACC’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is attributable to a decrease in interest rates and a tightening of 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,
	2016		2015		2016			2015
	(in thousands)
Beginning balance	$	46,486	$	51,334	$	51,966		$	64,913
Reductions for securities sold during the period (realized)	—		—		(5,550		)	(14,502		)
Credit losses for which an other-than-temporary impairment was previously recognized	1		—		71			923
Ending balance	$	46,487	$	51,334	$	46,487		$	51,334

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):



	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, 2015	$	(6,380	)	$	2,352			$	(4,028	)
Net unrealized securities gains arising during the period ⁽¹⁾	336			(149		)		187
Reclassification of losses included in net income	1,327			(463		)		864
Balance at September 30, 2015	$	(4,717	)	$	1,740			$	(2,977	)	⁽²⁾

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

⁽²⁾ Includes $1.2 million and $(1.6) million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities at September 30, 2016 and 2015, 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,
	2016			2015			2016			2015
	(in thousands)
Gross realized gains	$	1,032		$	73		$	1,290		$	99
Gross realized losses	—			(402		)	(1,157		)	(503		)
Other-than-temporary impairments	(1		)	—			(71		)	(923		)
Total	$	1,031		$	(329	)	$	62		$	(1,327	)

Other-than-temporary impairments for the three months and nine months ended September 30, 2016 and the nine months ended September 30, 2015 are related to credit losses on non-agency residential mortgage backed securities.

Available-for-Sale securities by contractual maturity at September 30, 2016 were as follows:



	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	371,894	$	372,468
Due after one year through five years	1,201,695		1,210,862
Due after five years through 10 years	9,986		10,282
Due after 10 years	212		277
	1,583,787		1,593,889
Residential mortgage backed securities	3,021,219		3,011,711
Commercial mortgage backed securities	426,557		428,911
Asset backed securities	551,896		551,086
Common stocks	2,313		6,464
Total	$	5,585,772	$	5,592,061

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. Commercial Mortgage, Syndicated and Certificate Loans

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

Allowance for Loan Losses

The following table presents a rollforward of the allowance for loan losses for commercial mortgage loans and syndicated loans for the nine months ended and the ending balance of the allowance for loan losses by impairment method:



	September 30,
	2016			2015
	(in thousands)
Beginning balance	$	3,964		$	3,464
Charge-offs	(209		)	—
Provisions	—			250
Ending balance	$	3,755		$	3,714

Individually evaluated for impairment	$	—		$	—
Collectively evaluated for impairment	3,755			3,714

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



	September 30, 2016		December 31, 2015
	(in thousands)
Individually evaluated for impairment	$	3,423	$	4,173
Collectively evaluated for impairment	168,610		196,176
Total	$	172,033	$	200,349

As of September 30, 2016 and December 31, 2015, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $3.4 million and $4.2 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, 2016, ACC purchased $4.4 million and $11.0 million, respectively, of syndicated loans. During the three months and nine months ended September 30, 2015, ACC purchased $47.1 million and $52.2 million, respectively, of syndicated loans. There were no sales of financing receivables during the three months and nine months ended September 30, 2016. During the three months and nine months ended September 30, 2015, ACC sold $0.3 million of syndicated loans.

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

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $1.9 million as of both September 30, 2016 and December 31, 2015. 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 1.9% and 1.7% of total commercial mortgage loans as of September 30, 2016 and December 31, 2015, respectively. Loans with the highest risk rating represent distressed loans which ACC has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, ACC reviews the concentrations of credit risk by region and property type.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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



	Loans				Percentage
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
	(in thousands)
East North Central	$	3,115	$	3,327	4	%	3	%
East South Central	5,660		6,107		7		6
Middle Atlantic	9,266		6,477		11		6
Mountain	5,976		6,347		7		6
New England	7,313		7,544		9		8
Pacific	11,873		24,715		14		25
South Atlantic	24,057		29,971		30		31
West North Central	7,385		9,385		9		9
West South Central	7,374		6,378		9		6
	82,019		100,251		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	79,678	$	97,910

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



	Loans				Percentage
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
	(in thousands)
Apartments	$	14,850	$	28,576	18	%	29	%
Industrial	16,727		15,510		20		15
Office	6,638		8,955		8		9
Retail	32,111		34,384		40		34
Hotel	982		1,100		1		1
Other	10,711		11,726		13		12
	82,019		100,251		100	%	100	%
Less: allowance for loan losses	2,341		2,341
Total	$	79,678	$	97,910

Syndicated Loans

The recorded investment in syndicated loans at September 30, 2016 and December 31, 2015 was $90.0 million and $100.1 million, respectively. ACC’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at both September 30, 2016 and December 31, 2015 were $1.9 million, which represents 2% of total syndicated loans at both September 30, 2016 and December 31, 2015.

Troubled Debt Restructurings

During the three months and nine months ended September 30, 2016, ACC restructured two syndicated loans and received one loan and common stock in exchange with a recorded investment of $156 thousand. The troubled debt restructuring did not have a material impact to ACC’s allowance for loan losses or income recognized for the three months and nine months ended September 30, 2016. There were no loans restructured by ACC during the three months and nine months ended September 30, 2015. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

5. Fair Values of Assets and Liabilities

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

Valuation Hierarchy

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


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


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


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

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



	September 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	187,332	$	—	$	187,332
Available-for-Sale securities:
Residential mortgage backed securities	—		2,847,478		164,233		3,011,711
Corporate debt securities	—		1,394,786		149,035		1,543,821
Commercial mortgage backed securities	—		428,911		—		428,911
Asset backed securities	—		518,372		32,714		551,086
State and municipal obligations	—		49,626		—		49,626
U.S. government and agencies obligations	442		—		—		442
Common stocks	1,881		4,096		487		6,464
Total Available-for-Sale securities	2,323		5,243,269		346,469		5,592,061
Equity derivative contracts	9		36,703		—		36,712
Total assets at fair value	$	2,332	$	5,467,304	$	346,469	$	5,816,105

Liabilities
Certificate reserves	$	—	$	7,780	$	—	$	7,780
Equity derivative contracts	—		30,164		—		30,164
Total liabilities at fair value	$	—	$	37,944	$	—	$	37,944

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)



	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	134,537	$	—	$	134,537
Available-for-Sale securities:
Residential mortgage backed securities	—		2,327,512		196,334		2,523,846
Corporate debt securities	—		1,226,161		190,304		1,416,465
Commercial mortgage backed securities	—		319,371		—		319,371
Asset backed securities	—		395,527		29,515		425,042
State and municipal obligations	—		49,292		—		49,292
U.S. government and agencies obligations	426		—		—		426
Common stocks	1,941		4,067		229		6,237
Total Available-for-Sale securities	2,367		4,321,930		416,382		4,740,679
Equity derivative contracts	—		18,493		—		18,493
Total assets at fair value	$	2,367	$	4,474,960	$	416,382	$	4,893,709

Liabilities
Certificate reserves	$	—	$	4,130	$	—	$	4,130
Equity derivative contracts	4		14,928		—		14,932
Total liabilities at fair value	$	4	$	19,058	$	—	$	19,062

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

Change in unrealized gains (losses) relating to Level 3 assets held at September 30, 2016 included in:
Investment income	$	114		$	(99	)	$	45		$	—	$	60

⁽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, July 1, 2015	$	268,685		$	169,944		$	9,992		$	16,550		$	365		$	465,536
Total gains (losses) included in:
Net income	59			(369		)	—			50			—			(260		)	⁽¹⁾
Other comprehensive income	(696		)	(108		)	—			450			3			(351		)
Purchases	55,551			32,502			—			4,474			—			92,527
Settlements	(13,615		)	—			—			(7,500		)	—			(21,115		)
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	(68,091		)	—			(9,992		)	—			(198		)	(78,281		)
Balance, September 30, 2015	$	241,893		$	201,969		$	—		$	14,024		$	170		$	458,056

Change in unrealized gains (losses) relating to Level 3 assets held at September 30, 2015 included in:
Investment income	$	59		$	(369	)	$	—		$	50		$	—		$	(260	)

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



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

Change in unrealized gains (losses) relating to Level 3 assets held at September 30, 2016 included in:
Investment income	$	460		$	(295	)	$	101		$	—		$	266

⁽¹⁾ Represents a $1.1 million loss included in net realized gain (loss) on investments and a $73 thousand gain included in investment income in the Consolidated Statements of Operations.

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, 2015	$	196,558		$	165,501		$	—		$	18,188		$	908		$	381,155
Total gains (losses) included in:
Net income	(89		)	(696		)	—			114			—			(671		)	⁽¹⁾
Other comprehensive income	(384		)	479			—			250			(57		)	288
Purchases	241,367			36,685			9,992			11,974			—			300,018
Settlements	(34,244		)	—			—			(16,502		)	—			(50,746		)
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	(161,315		)	—			(9,992		)	—			(681		)	(171,988		)
Balance, September 30, 2015	$	241,893		$	201,969		$	—		$	14,024		$	170		$	458,056

Change in unrealized gains (losses) relating to Level 3 assets held at September 30, 2015 included in:
Investment income	$	89		$	(696	)	$	—		$	114		$	—		$	(493	)

⁽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. ACC recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.

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



	September 30, 2016
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	149,032	Discounted cash flow	Yield/spread to U.S. Treasuries	1.0% - 1.8% (1.2%)



	December 31, 2015
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in thousands)
Corporate debt securities (private placements)	$	190,301	Discounted cash flow	Yield/spread to U.S. Treasuries	1.2% - 1.9% (1.4%)

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

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.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

Cash Equivalents

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

Available-for-Sale Securities

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

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

Derivatives

The variation margin on futures contracts is classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial at September 30, 2016 and December 31, 2015. See Note 6 and Note 7 for further information on the credit risk of derivative instruments and related collateral.

Certificate Reserves

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

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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



	September 30, 2016
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	88,600	$	—	$	85,539	$	3,207	$	88,746
Commercial mortgage loans	79,678		—		—		80,592		80,592
Certificate loans	540		—		540		—		540
Financial Liabilities
Certificate reserves	$	5,638,536	$	—	$	—	$	5,632,274	$	5,632,274



	December 31, 2015
	Carrying Value		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial Assets
Syndicated loans	$	98,475	$	—	$	93,224	$	2,947	$	96,171
Commercial mortgage loans	97,910		—		—		99,424		99,424
Certificate loans	686		—		686		—		686
Financial Liabilities
Certificate reserves	$	4,830,766	$	—	$	—	$	4,822,541	$	4,822,541

Syndicated Loans

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

Commercial Mortgage Loans

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

Certificate Loans

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

Certificate Reserves

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

6. Offsetting Assets and Liabilities

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

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



	September 30, 2016
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets						Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Derivatives:
OTC	$	36,704	$	—	$	36,704	$	(30,164	)	$	(4,992	)	$	1,548
Exchange-traded	8		—		8		—			—			8
Total	$	36,712	$	—	$	36,712	$	(30,164	)	$	(4,992	)	$	1,556



	December 31, 2015
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets						Net Amount
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral			Net Amount
	(in thousands)
Derivatives:
OTC	$	18,493	$	—	$	18,493	$	(14,928	)	$	(1,950	)	$	1,615
Total	$	18,493	$	—	$	18,493	$	(14,928	)	$	(1,950	)	$	1,615

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

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



	September 30, 2016
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets					Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Derivatives:
OTC	$	30,164	$	—	$	30,164	$	(30,164	)	$	—	$	—
Total	$	30,164	$	—	$	30,164	$	(30,164	)	$	—	$	—



	December 31, 2015
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets					Net Amount
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets				Financial Instruments ⁽¹⁾			Cash Collateral		Net Amount
	(in thousands)
Derivatives:
OTC	$	14,928	$	—	$	14,928	$	(14,928	)	$	—	$	—
Exchange-traded	4		—		4		—			—		4
Total	$	14,932	$	—	$	14,932	$	(14,928	)	$	—	$	4

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

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

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

7. Derivatives and Hedging Activities

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

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



	September 30, 2016						December 31, 2015
	Notional		Gross Fair Value				Notional		Gross Fair Value
	Notional		Assets		Liabilities		Notional		Assets		Liabilities
	(in thousands)
Derivatives not designated as hedging instruments
Equity contracts⁽¹⁾	$	921,713	$	36,712	$	30,164	$	935,957	$	18,493	$	14,932
Embedded derivatives
Stock market certificates⁽²⁾	N/A		—		7,780		N/A		—		4,130
Total derivatives	$	921,713	$	36,712	$	37,944	$	935,957	$	18,493	$	19,062

N/A Not applicable

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

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

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

The following tables present a summary of the impact of derivatives not designated as hedging instruments 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,
		2016			2015			2016			2015
		(in thousands)
Equity contracts
Stock market certificates	Net provision for certificate reserves	$	1,475		$	(2,327	)	$	1,044		$	(1,652	)
Stock market certificates embedded derivatives	Net provision for certificate reserves	(1,338		)	2,095			(1,334		)	1,747
Total		$	137		$	(232	)	$	(290	)	$	95

Ameriprise SMC offer a return based upon the relative change in a major stock market index between the beginning and end of the certificate’s term. The SMC product contains an embedded derivative. The equity based return of the certificate must be separated from the host contract and accounted for as a derivative instrument. As a result of fluctuations in equity markets, and the corresponding changes in value of the embedded derivative, the amount of expenses incurred by ACC related to the SMC product will positively or negatively impact reported earnings. As a means of hedging its obligations under the provisions for these certificates, ACC purchases and writes call options on the S&P 500 Index^®. ACC views this strategy as a prudent management of equity market sensitivity, such that earnings are not exposed to undue risk presented by changes in equity market levels. ACC also purchases futures on the S&P 500 Index to economically hedge its obligations. The futures are marked-to-market daily and exchange traded, exposing ACC to minimal counterparty risk.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

Credit Risk

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

8. Contingencies

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

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

9. Shareholder’s Equity

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



AOCI Reclassification	Location of (Gain) Loss Recognized in Income	Three Months Ended September 30,						Nine Months Ended September 30,
AOCI Reclassification	Location of (Gain) Loss Recognized in Income	2016			2015			2016			2015
		(in thousands)
Unrealized net losses (gains) on Available-for-Sale securities	Net realized loss (gain) on investments	$	(1,031	)	$	329		$	(62	)	$	1,327
Tax expense (benefit)	Income tax expense (benefit)	360			(114		)	21			(463		)
Net of tax		$	(671	)	$	215		$	(41	)	$	864

ACC received cash contributions of $6 million and $25 million from Ameriprise Financial during the three months and nine months ended September 30, 2016, respectively, to maintain compliance with minimum capital requirements. These contributions were received outside of the Capital Support Agreement between Ameriprise Financial and ACC. ACC received cash contributions of $3 million from Ameriprise Financial during the three months and nine months ended September 30, 2015. See additional discussion on the Capital Support Agreement in ACC’s 2015 10-K.

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

10. Income Taxes

The effective tax rate was 35.8% and 34.1% for the three months ended September 30, 2016 and 2015, respectively. The higher effective tax rate for the three months ended September 30, 2016 was due to increased state income taxes. The effective tax rate was 34.8% and 30.0% for the nine months ended September 30, 2016 and 2015, respectively. The lower effective rate for the nine months ended September 30, 2015 was due to the release of unrecognized tax benefits related to certain state income tax positions.

ACC is required to establish a valuation allowance for any portion of the deferred tax assets that management believes will not be realized. Significant judgment is required in determining if a valuation allowance should be established and the amount of such allowance if required. Factors used in making this determination include estimates relating to the performance of the business. Consideration is given to, among other things in making this determination, i) future taxable income exclusive of reversing temporary differences and carryforwards, ii) future reversals of existing taxable temporary differences, iii) taxable income in prior carryback years, and iv) tax planning strategies. Based on analysis of ACC’s tax positions, management believes it is more likely than not that ACC’s results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable ACC to utilize all of the deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of both September 30, 2016 and December 31, 2015.

As of September 30, 2016 and December 31, 2015, ACC had $1.3 million and $1.9 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $832 thousand and $1.3 million, net of federal tax benefits, of the unrecognized tax benefits as of September 30, 2016 and December 31, 2015, respectively, would affect the effective tax rate.

Based on the current audit position of ACC, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $654 thousand in the next 12 months.

ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized a net increase of $10 thousand and a net decrease of $1.4 million in interest and penalties for the three months and nine months ended September 30, 2016, respectively. ACC recognized a net increase of $35 thousand and a net decrease of $148 thousand in interest and penalties for the three months and nine months ended September 30, 2015, respectively. At September 30, 2016 and December 31, 2015, ACC had a payable of $227 thousand and $1.7 million, respectively, related to accrued interest and penalties.

ACC files income tax returns, as part of its inclusion in the consolidated federal income tax returns of Ameriprise Financial, in the U.S. federal jurisdiction, and various states jurisdictions. The Internal Revenue Service (“IRS”) has completed its examinations of the 1997 through 2011 tax returns and these years are effectively settled; however, the statutes of limitation, except for 2007, remain open for certain carryover adjustments. The IRS is currently auditing Ameriprise Financial’s U.S. income tax returns for 2012 and 2013. Ameriprise Financial’s or certain of its subsidiaries’, including ACC’s, state income tax returns are currently under examination by various jurisdictions for years ranging from 2005 through 2014. State income tax examinations prior to 2005 are effectively settled; however, the statutes of limitation are open in certain jurisdictions back to 1997 due to potential carryover adjustments related to the IRS audit.

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, 2015, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2016 (“2015 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 2015 10-K.

Recent Accounting Pronouncements

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

Results of Operations for the Nine Months Ended September 30, 2016 and 2015

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 $4.1 million, or 23%, to $21.7 million for the nine months ended September 30, 2016 compared to $17.6 million for the prior year period primarily due to higher investment income and changes in net realized gain (loss) on investments, partially offset by higher investment expenses, net provision for certificate reserves and income tax expense.

Investment income increased $18.5 million, or 28%, to $85.1 million for the nine months ended September 30, 2016 compared to $66.6 million for the prior year period reflecting higher average investment balances and an increase in the invested assets rate.

Investment expenses increased $3.7 million, or 18%, to $24.1 million for the nine months ended September 30, 2016 compared to $20.4 million for the prior year period primarily due to higher distribution and investment advisory fees.

Net provision for certificate reserves increased $8.1 million or 41%, to $27.7 million for the nine months ended September 30, 2016 compared to $19.6 million for the prior year period primarily due to higher average certificate balances and higher client crediting rates.

Net realized gain on investments before income taxes was $0.1 million for the nine months ended September 30, 2016 compared to net realized loss on investments of $1.6 million for the prior year period. Net realized loss on investments for the nine months ended September 30, 2015 included other-than-temporary impairments of $0.9 million, net realized losses from sales, tenders and calls of Available-for-Sale securities of $0.4 million and an increase in provision for syndicated loan losses of $0.3 million.

The effective tax rate was 34.8% for the nine months ended September 30, 2016 compared to 30.0% for the prior year period. The lower effective rate for the nine months ended September 30, 2015 was due to the release of unrecognized tax benefits related to certain state income tax positions.

AMERIPRISE CERTIFICATE COMPANY

Fair Value Measurements

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

Forward-Looking Statements

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

ACC’s management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC’s Chief Executive Officer and Chief Financial Officer have concluded that ACC’s disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2016.

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

Other than as described in ACC’s Quarterly Report on Form 10-Q for the quarters ended June 30, 2016 and March 31, 2016, there have been no material changes in the risk factors provided in Part I, Item 1A of ACC’s 2015 10-K.

ITEM 6. EXHIBITS

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

AMERIPRISE CERTIFICATE COMPANY

SIGNATURES

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



			AMERIPRISE CERTIFICATE COMPANY
			(Registrant)

Date:	November 2, 2016	By	/s/ Abu M. Arif
			Abu M. Arif
			Chief Executive Officer


Date:	November 2, 2016	By	/s/ Janet C. Langner
			Janet C. Langner
			Chief Financial Officer

AMERIPRISE CERTIFICATE COMPANY

EXHIBIT INDEX

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


Exhibit	Description


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


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


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


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


32*	Certification of Abu M. Arif and Janet C. Langner pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

____________________________________________________

* Filed electronically herewithin.

E-1

AMERIPRISE CERTIFICATE CO - FORM 10-Q - November 2, 2016

Attached files

AMERIPRISE CERTIFICATE CO Reports