UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-Q


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

For the Quarterly Period Ended March 31, 2017


OR


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|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)


Delaware41-6009975(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)1099 Ameriprise Financial Center, Minneapolis, Minnesota55474(Address of principal executive offices)(Zip Code)


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


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


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


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


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large Accelerated FileroSmaller reporting companyoNon-Accelerated FilerxEmerging growth companyoAccelerated FileroIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o


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


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


ClassOutstanding at May 3, 2017Common Shares (par value $10 per share)150,000 shares


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








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AMERIPRISE CERTIFICATE COMPANY





FORM 10-Q


INDEX


Part I.  Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Statements of Operations — Three months ended March 31, 2017 and 20163Consolidated Statements of Comprehensive Income — Three months ended March 31, 2017 and 20164Consolidated Balance Sheets — March 31, 2017 and December 31, 20165Consolidated Statements of Shareholder's Equity — Three months ended March 31, 2017 and 20166Consolidated Statements of Cash Flows — Three months ended March 31, 2017 and 20167Notes to Consolidated Financial Statements81.  Basis of Presentation82.  Recent Accounting Pronouncements83.  Investments94.  Commercial Mortgage, Syndicated and Certificate Loans135.  Fair Values of Assets and Liabilities156.  Offsetting Assets and Liabilities197.  Derivatives and Hedging Activities208.  Contingencies219.  Shareholder’s Equity2210.  Income Taxes22Item 2.  Management’s Narrative Analysis23Item 4.  Controls and Procedures24Part II.  Other Information25Item 1.  Legal Proceedings25Item 1A.  Risk Factors25Item 6.  Exhibits25Signatures26Exhibit IndexE-1








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AMERIPRISE CERTIFICATE COMPANY





PART I.  FINANCIAL INFORMATION





ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)





CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


Three Months Ended March 31,20172016(in thousands)Investment income$33,024$27,619Investment expenses9,1737,777Net investment income before provision for certificate reserves and income taxes23,85119,842Net provision for certificate reserves10,1608,487Net investment income before income taxes13,69111,355Income tax expense5,2434,165Net investment income, after-tax8,4487,190Net realized gain (loss) on investments before income taxes1,705(1,202)Income tax expense (benefit)597(421)Net realized gain (loss) on investments, after-tax1,108(781)Net income$9,556$6,409Supplemental Disclosures:Total other-than-temporary impairment losses on securities$—$—Portion of loss recognized in other comprehensive income (loss) (before taxes)(193)(70)Net impairment losses recognized in net realized gain (loss) on investments$(193)$(70)See Notes to Consolidated Financial Statements.








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AMERIPRISE CERTIFICATE COMPANY





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


Three Months Ended March 31,20172016(in thousands)Net income$9,556$6,409Other comprehensive income, net of tax:Net unrealized gains (losses) on securities:Net unrealized securities gains arising during the period4,9566,890Reclassification of net securities losses (gains) included in net income(1,106)781Total other comprehensive income, net of tax3,8507,671Total comprehensive income$13,406$14,080See Notes to Consolidated Financial Statements.








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CONSOLIDATED BALANCE SHEETS (UNAUDITED)


March 31, 2017December 31, 2016(in thousands, except share amounts)AssetsQualified AssetsCash and cash equivalents$223,321$134,189Investments in unaffiliated issuers6,273,7996,134,674Receivables47,08329,775Derivative assets46,62645,098Total qualified assets6,590,8296,343,736Deferred taxes, net326492Total assets$6,591,155$6,344,228Liabilities and Shareholder's EquityLiabilitiesCertificate reserves$6,137,130$5,935,051Taxes payable to parent14,7023,505Derivative liabilities39,76038,319Payable for investment securities purchased15,5276,969Due to related party and other liabilities39,83834,592Total liabilities6,246,9576,018,436Shareholder's EquityCommon shares ($10 par value, 150,000 shares authorized and issued)1,5001,500Additional paid-in capital252,517247,517Total retained earnings91,49681,940Accumulated other comprehensive loss, net of tax(1,315)(5,165)Total shareholder's equity344,198325,792Total liabilities and shareholder's equity$6,591,155$6,344,228See Notes to Consolidated Financial Statements.











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AMERIPRISE CERTIFICATE COMPANY





CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)


Number of Outstanding SharesCommon SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss), Net of TaxTotalAppropriated forPre-Declared Additional Credits and InterestAppropriated for Additional Interest on Advance PaymentsUnappropriated(in thousands, except share data)Balance at January 1, 2016150,000$1,500$214,517$8$15$53,590$(18,808)$250,822Comprehensive income:Net income—————6,409—6,409Other comprehensive income, net of tax——————7,6717,671Total comprehensive income14,080Transfer from appropriated to unappropriated———(7)—7——Receipt of capital from parent——12,000————12,000Balance at March 31, 2016150,000$1,500$226,517$1$15$60,006$(11,137)$276,902Balance at January 1, 2017150,000$1,500$247,517$—$15$81,925$(5,165)$325,792Comprehensive income:Net income—————9,556—9,556Other comprehensive income, net of tax——————3,8503,850Total comprehensive income13,406Receipt of capital from parent——5,000————5,000Balance at March 31, 2017150,000$1,500$252,517$—$15$91,481$(1,315)$344,198See Notes to Consolidated Financial Statements.











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AMERIPRISE CERTIFICATE COMPANY





CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Three Months Ended March 31,20172016(in thousands)Cash Flows from Operating ActivitiesNet income$9,556$6,409Adjustments to reconcile net income to net cash provided by operating activities:Amortization of premiums, accretion of discounts, net5,7766,378Deferred income tax benefit(19)(35)Net realized loss (gain) on Available-for-Sale securities(1,895)1,132Other net realized gain(3)—Other-than-temporary impairments and provision for loan loss19370Changes in operating assets and liabilities:Dividends and interest receivable(3,877)(5,004)Certificate reserves, net587841Deferred taxes, net(2,072)(4,131)Taxes payable to/receivable from parent, net11,1979,105Derivatives, net of collateral(546)(164)Other liabilities5,7641,428Other receivables(11,179)(91)Other, net69237Net cash provided by operating activities13,55116,175Cash Flows from Investing ActivitiesAvailable-for-Sale securities:Sales1517,036Maturities, redemptions and calls441,253314,522Purchases(570,706)(702,990)Syndicated loans, commercial mortgage loans and real estate owned:Sales, maturities and repayments14,8265,674Purchases and fundings(16,449)(7,625)Certificate loans, net1454Net cash used in investing activities(130,911)(383,329)Cash Flows from Financing ActivitiesPayments from certificate holders and other additions1,284,0031,159,077Certificate maturities and cash surrenders(1,082,511)(806,862)Capital contribution from parent5,00012,000Net cash provided by financing activities206,492364,215Net increase (decrease) in cash and cash equivalents89,132(2,939)Cash and cash equivalents at beginning of period134,189137,557Cash and cash equivalents at end of period$223,321$134,618Supplemental disclosures including non-cash transactions:Cash paid (received) for income taxes$(3,492)$132Cash paid for interest11,1097,300See Notes to Consolidated Financial Statements.





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AMERIPRISE CERTIFICATE COMPANY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





1.  Basis of Presentation


Ameriprise Certificate Company (“ACC”), is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial” or the “Parent”). ACC is registered as an investment company under the Investment Company Act of 1940. The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). ACC uses the consolidation method of accounting for its wholly owned subsidiary, Investors Syndicate Development Corp. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods have been made. All adjustments made were of a normal recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the year ended December 31, 2016 , filed with the Securities and Exchange Commission (“SEC”) on February 23, 2017 (“ 2016 10-K”).


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





2.  Recent Accounting Pronouncements


Adoption of New Accounting Standards


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


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


Future Adoption of New Accounting Standards


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


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


Financial Instruments - Measurement of Credit Losses


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


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





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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)





provisions. Generally, the update should be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity at the beginning of the period of adoption. The update is not expected to have a material impact on ACC’s consolidated statement of financial condition. During periods in which the market value of equity securities materially changes, ACC may experience volatility in investment income recognized in its consolidated results of operations.


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 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’s revenues consist of investment income including yield on investments and realized investment gains (losses), which are not in scope of the updated standard. Therefore, ACC does not expect the standard to impact its consolidated results of operations or financial condition.





3.  Investments


Investments in unaffiliated issuers were as follows:


March 31, 2017December 31, 2016(in thousands)Available-for-Sale securities:Fixed maturities, at fair value (amortized cost: 2017, $6,090,174; 2016, $5,966,057)$6,084,960$5,953,701Common stocks, at fair value (cost: 2017, $2,238; 2016, $2,448)5,3656,609Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2017, $3,283; 2016, $3,283; fair value: 2017, $184,634; 2016, $176,211)182,939173,815Certificate loans — secured by certificate reserves, at cost, which approximates fair value535549Total$6,273,799$6,134,674


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


Description of SecuritiesMarch 31, 2017Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueNoncredit OTTI(1)(in thousands)Residential mortgage backed securities$3,231,042$14,357$(19,225)$3,226,174$1,650Corporate debt securities1,591,5763,316(2,942)1,591,9503Commercial mortgage backed securities512,8511,712(2,089)512,474—Asset backed securities686,9732,698(3,393)686,278—State and municipal obligations67,355359(51)67,663—U.S. government and agencies obligations37744—421—Common stocks2,2383,335(208)5,3652,954Total$6,092,412$25,821$(27,908)$6,090,325$4,607





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AMERIPRISE CERTIFICATE COMPANY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)





Description of SecuritiesDecember 31, 2016Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueNoncredit OTTI(1)(in thousands)Residential mortgage backed securities$3,192,055$13,075$(21,731)$3,183,399$209Corporate debt securities1,595,9073,358(4,188)1,595,0773Commercial mortgage backed securities500,1701,348(1,646)499,872—Asset backed securities629,2771,357(4,211)626,423—State and municipal obligations48,272345(107)48,510—U.S. government and agencies obligations37644—420—Common stocks2,4484,384(223)6,6092,668Total$5,968,505$23,911$(32,106)$5,960,310$2,880


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


As of March 31, 2017 and December 31, 2016 , investment securities with a fair value of $80 thousand and $75 thousand , respectively, were pledged to meet contractual obligations under derivative contracts.


As of March 31, 2017 and December 31, 2016 , fixed maturity securities comprised approximately 94% and 95% , respectively, of ACC’s total investments. Rating agency designations are based on the availability of ratings from Nationally Recognized Statistical Rating Organizations (“NRSROs”), including Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services (“S&P”), and Fitch Ratings Ltd. (“Fitch”). ACC uses the median of available ratings from Moody’s, S&P and Fitch, or if fewer than three ratings are available, the lower rating is used. When ratings from Moody’s, S&P and Fitch are unavailable, as is the case for many private placement securities, ACC may utilize ratings from other NRSROs or rate the securities internally. As of March 31, 2017 and December 31, 2016 , approximately $152.7 million and $148.4 million , respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC (“CMIA”), an affiliate of ACC, using criteria similar to those used by NRSROs.


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


RatingsMarch 31, 2017December 31, 2016Amortized CostFair ValuePercent ofTotal Fair ValueAmortized CostFair ValuePercent ofTotal Fair Value(in thousands, except percentages)AAA$3,285,911$3,283,47354%$3,084,275$3,080,09652%AA340,756339,9776278,147277,0105A679,437676,87811705,520702,03112BBB1,655,6381,655,846271,755,9861,754,22329Below investment grade128,432128,7862142,129140,3412Total fixed maturities$6,090,174$6,084,960100%$5,966,057$5,953,701100%


As of March 31, 2017 and December 31, 2016 , approximately 53% and 57% , respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.





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 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 SecuritiesMarch 31, 2017Less than 12 months12 months or moreTotalNumber of SecuritiesFair ValueUnrealized LossesNumber of SecuritiesFair ValueUnrealized LossesNumber of SecuritiesFair ValueUnrealized Losses(in thousands, except number of securities)Residential mortgage backed securities70$1,098,951$(5,995)123$825,107$(13,230)193$1,924,058$(19,225)Corporate debt securities52570,997(2,851)433,410(91)56604,407(2,942)Commercial mortgage backed securities27198,272(1,928)418,882(161)31217,154(2,089)Asset backed securities26230,954(1,774)1085,865(1,619)36316,819(3,393)State and municipal obligations611,054(51)———611,054(51)Common stocks———3619(208)3619(208)Total181$2,110,228$(12,599)144$963,883$(15,309)325$3,074,111$(27,908)


Description of SecuritiesDecember 31, 2016Less than 12 months12 months or moreTotalNumber of SecuritiesFair ValueUnrealized LossesNumber of SecuritiesFair ValueUnrealized LossesNumber of SecuritiesFair ValueUnrealized Losses(in thousands, except number of securities)Residential mortgage backed securities74$1,116,318$(6,009)131$847,998$(15,722)205$1,964,316$(21,731)Corporate debt securities59676,198(3,945)757,535(243)66733,733(4,188)Commercial mortgage backed securities24205,284(1,365)432,547(281)28237,831(1,646)Asset backed securities28273,193(2,312)16174,793(1,899)44447,986(4,211)State and municipal obligations817,308(107)———817,308(107)Common stocks———3605(223)3605(223)Total193$2,288,301$(13,738)161$1,113,478$(18,368)354$3,401,779$(32,106)


As part of ACC’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is attributable to 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 March 31,20172016(in thousands)Beginning balance$46,522$51,966Reductions for securities sold during the period (realized)—(5,550)Credit losses for which an other-than-temporary impairment was previously recognized19370Ending balance$46,715$46,486


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.





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 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 TaxAccumulated OtherComprehensive Income (Loss) Related to Net Unrealized Investment Gains (Losses)(in thousands)Balance at January 1, 2016$(29,858)$11,050$(18,808)Net unrealized securities gains arising during the period(1)10,977(4,087)6,890Reclassification of losses included in net income1,202(421)781Balance at March 31, 2016$(17,679)$6,542$(11,137)(2)Balance at January 1, 2017$(8,195)$3,030$(5,165)Net unrealized securities gains arising during the period(1)7,810(2,854)4,956Reclassification of gains included in net income(1,702)596(1,106)Balance at March 31, 2017$(2,087)$772$(1,315)(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 $3.0 million and $(1.3) million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities as of March 31, 2017 and 2016 , respectively.


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


Three Months Ended March 31,20172016(in thousands)Gross realized gains$1,895$25Gross realized losses—(1,157)Other-than-temporary impairments(193)(70)Total$1,702$(1,202)


Other-than-temporary impairments for the three months ended  March 31, 2017 and 2016 are related to credit losses on non-agency residential mortgage backed securities.


Available-for-Sale securities by contractual maturity as of March 31, 2017 were as follows:


Amortized CostFair Value(in thousands)Due within one year$653,507$653,840Due after one year through five years1,000,6031,000,961Due after five years through 10 years4,9874,977Due after 10 years2112561,659,3081,660,034Residential mortgage backed securities3,231,0423,226,174Commercial mortgage backed securities512,851512,474Asset backed securities686,973686,278Common stocks2,2385,365Total$6,092,412$6,090,325


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.





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 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 three months ended and the ending balance of the allowance for loan losses by impairment method:


March 31,20172016(in thousands)Beginning balance$3,283$3,964Provisions——Ending balance$3,283$3,964Individually evaluated for impairment$—$—Collectively evaluated for impairment3,2833,964


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


March 31, 2017December 31, 2016(in thousands)Individually evaluated for impairment$—$1,550Collectively evaluated for impairment186,222175,548Total$186,222$177,098


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


ACC purchased $15.8 million and $1.3 million of syndicated loans during the three months ended  March 31, 2017 and 2016 , respectively. ACC sold $66 thousand and nil of syndicated loans during the three months ended  March 31, 2017 and  March 31, 2016 , respectively.


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 nil as of both March 31, 2017 and December 31, 2016 . All loans were considered to be performing.


Commercial Mortgage Loans


ACC reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were nil and 1.8% of total commercial mortgage loans as of March 31, 2017 and December 31, 2016 , respectively. Loans with the highest risk rating represent distressed loans which ACC has identified as impaired or expects to become delinquent or enter into foreclosure within the next six months. In addition, ACC reviews the concentrations of credit risk by region and property type.





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


LoansPercentageMarch 31, 2017December 31, 2016March 31, 2017December 31, 2016(in thousands)East North Central$2,970$3,0433%4%East South Central5,3565,50966Middle Atlantic10,63510,8811112Mountain8,5665,85097New England7,3787,42489Pacific21,04716,5112219South Atlantic23,71523,8462627West North Central7,1197,25388West South Central6,9717,1747893,75787,491100%100%Less: allowance for loan losses2,3412,341Total$91,416$85,150


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


LoansPercentageMarch 31, 2017December 31, 2016March 31, 2017December 31, 2016(in thousands)Apartments$16,345$16,52717%19%Industrial24,19716,6372619Mixed use4,8724,96856Office6,4626,55177Retail30,96131,5003336Hotel90194111Other10,01910,367111293,75787,491100%100%Less: allowance for loan losses2,3412,341Total$91,416$85,150


Syndicated Loans


The recorded investment in syndicated loans as of March 31, 2017 and December 31, 2016 was $92.5 million and $89.6 million , respectively. ACC’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans as of both March 31, 2017 and December 31, 2016 were nil .


Troubled Debt Restructurings


There were no loans restructured by ACC during the three months ended March 31, 2017 and 2016. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.





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 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:


March 31, 2017Level 1Level 2Level 3Total(in thousands)AssetsCash equivalents$—$214,794$—$214,794Available-for-Sale securities:Residential mortgage backed securities—3,067,452158,7223,226,174Corporate debt securities—1,433,427158,5231,591,950Commercial mortgage backed securities—512,474—512,474Asset backed securities—686,278—686,278State and municipal obligations—67,663—67,663U.S. government and agencies obligations421——421Common stocks1,0804723,8135,365Total Available-for-Sale securities1,5015,767,766321,0586,090,325Equity derivative contracts—46,626—46,626Total assets at fair value$1,501$6,029,186$321,058$6,351,745LiabilitiesStock market certificate embedded derivatives$—$8,513$—$8,513Equity derivative contracts439,756—39,760Total liabilities at fair value$4$48,269$—$48,273





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December 31, 2016Level 1Level 2Level 3Total(in thousands)AssetsCash equivalents$—$111,385$—$111,385Available-for-Sale securities:Residential mortgage backed securities—3,030,216153,1833,183,399Corporate debt securities—1,440,921154,1561,595,077Commercial mortgage backed securities—499,872—499,872Asset backed securities—595,63530,788626,423State and municipal obligations—48,510—48,510U.S. government and agencies obligations420——420Common stocks2,4163,4767176,609Total Available-for-Sale securities2,8365,618,630338,8445,960,310Equity derivative contracts—45,098—45,098Total assets at fair value$2,836$5,775,113$338,844$6,116,793LiabilitiesStock market certificate embedded derivatives$—$8,183$—$8,183Equity derivative contracts638,313—38,319Total liabilities at fair value$6$46,496$—$46,502


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


Available-for-Sale SecuritiesResidential Mortgage Backed SecuritiesCorporate Debt SecuritiesAsset Backed SecuritiesCommon StocksTotal(in thousands)Balance, January 1, 2017$153,183$154,156$30,788$717$338,844Total gains (losses) included in:Net income16(101)—65(20)(1)Other comprehensive income(2)(199)—21817Purchases65,13812,167——77,305Sales———(151)(151)Settlements(9,784)(7,500)——(17,284)Transfers into Level 3———3,4073,407Transfers out of Level 3(49,829)—(30,788)(443)(81,060)Balance, March 31, 2017$158,722$158,523$—$3,813$321,058Changes in unrealized gains (losses) relating to assets held as of March 31, 2017$16$(101)$—$—$(85)(2)





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Available-for-Sale SecuritiesResidential MortgageBacked SecuritiesCorporate Debt SecuritiesAsset Backed SecuritiesCommon StocksTotal(in thousands)Balance, January 1, 2016$196,334$190,304$29,515$229$416,382Total gains (losses) included in:Net income166(1,342)14—(1,162)(3)Other comprehensive income(3,052)1,7281—(1,323)Purchases——789—789Settlements(13,839)(23,000)——(36,839)Transfers out of Level 3(24,599)—(9,999)(155)(34,753)Balance, March 31, 2016$155,010$167,690$20,320$74$343,094Changes in unrealized gains (losses) relating to assets held as of March 31, 2016$166$(195)$14$—$(15)(2)


(1) Represents an $85 thousand loss included in investment income and a $65 thousand gain included in net realized gain (loss) on investments in the Consolidated Statements of Operations.


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


(3) Represents a $1.1 million loss included in realized gain (loss) on investments and a $26 thousand loss included in investment income in the Consolidated Statements of Operations.


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


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


March 31, 2017Fair ValueValuation TechniqueUnobservable InputRangeWeighted Average(in thousands)Corporate debt securities(private placements)$158,520Discounted cash flowYield/spread to U.S. Treasuries0.9% - 2.0%1.0%


December 31, 2016Fair ValueValuation TechniqueUnobservable InputRangeWeighted Average(in thousands)Corporate debt securities(private placements)$154,153Discounted cash flowYield/spread to U.S. Treasuries0.9% - 1.7%1.1%


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


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.





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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, asset backed securities and common stocks. The fair value of corporate bonds, non-agency residential mortgage backed securities and certain asset backed securities classified as Level 3 is typically based on a single non-binding broker quote. The underlying inputs used for some of the non-binding broker quotes are not readily available to ACC. ACC’s privately placed corporate bonds are typically based on a single non-binding broker quote. In addition to the general pricing controls, ACC reviews the broker prices to ensure that the broker quotes are reasonable and, when available, compares prices of privately issued securities to public issues from the same issuer to ensure that the implicit illiquidity premium applied to the privately placed investment is reasonable considering investment characteristics, maturity, and average life of the investment.


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


Derivatives


The variation margin on futures contracts is classified as Level 1. The fair value of derivatives that are traded in less active over-the-counter (“OTC”) markets is generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy and include options. The counterparties’ nonperformance risk associated with uncollateralized derivative assets was immaterial as of March 31, 2017 and December 31, 2016 . See Note 6 and Note 7 for further information on the credit risk of derivative instruments and related collateral.


Stock Market Certificate Embedded Derivatives


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


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


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.


Financial AssetsMarch 31, 2017CarryingValueFair ValueLevel 1Level 2Level 3Total(in thousands)Syndicated loans$91,523$—$85,511$6,647$92,158Commercial mortgage loans91,416——92,47692,476Certificate loans535—535—535Financial LiabilitiesCertificate reserves$6,128,617$—$—$6,113,697$6,113,697





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Financial AssetsDecember 31, 2016CarryingValueFair ValueLevel 1Level 2Level 3Total(in thousands)Syndicated loans$88,665$—$85,368$4,516$89,884Commercial mortgage loans85,150——86,32786,327Certificate loans549—549—549Financial LiabilitiesCertificate reserves$5,926,868$—$—$5,913,672$5,913,672


Syndicated Loans


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


Commercial Mortgage Loans


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


Certificate Loans


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


Certificate Reserves


The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for contracts with similar terms and characteristics, with adjustments for 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:


March 31, 2017Gross Amounts of Recognized AssetsGross Amounts Offset in the Consolidated Balance SheetsAmounts of Assets Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance SheetsNet AmountFinancial Instruments(1)Cash Collateral(in thousands)Derivatives:OTC$46,626$—$46,626$(39,756)$(6,544)$326Total$46,626$—$46,626$(39,756)$(6,544)$326





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December 31, 2016Gross Amounts of Recognized AssetsGross Amounts Offset in the Consolidated Balance SheetsAmounts of Assets Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance SheetsNet AmountFinancial Instruments(1)Cash Collateral(in thousands)Derivatives:OTC$45,098$—$45,098$(38,313)$(6,785)$—Total$45,098$—$45,098$(38,313)$(6,785)$—


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


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


March 31, 2017Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Consolidated Balance SheetsAmounts of Liabilities Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance SheetsNet AmountFinancial Instruments(1)Cash Collateral(in thousands)Derivatives:OTC$39,756$—$39,756$(39,756)$—$—Exchange-traded4—4——4Total$39,760$—$39,760$(39,756)$—$4


December 31, 2016Gross Amounts of Recognized LiabilitiesGross Amounts Offset in the Consolidated Balance SheetsAmounts of Liabilities Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance SheetsNet AmountFinancial Instruments(1)Cash Collateral(in thousands)Derivatives:OTC$38,313$—$38,313$(38,313)$—$—Exchange-traded6—6——6Total$38,319$—$38,319$(38,313)$—$6


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


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.





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


March 31, 2017December 31, 2016NotionalGross Fair ValueNotionalGross Fair ValueAssetsLiabilitiesAssetsLiabilities(in thousands)Derivatives not designated as hedging instrumentsEquity contracts(1)$900,020$46,626$39,760$911,871$45,098$38,319Embedded derivativesStock market certificates(2)N/A—8,513N/A—8,183Total derivatives$900,020$46,626$48,273$911,871$45,098$46,502


N/A Not applicable


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


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


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


The following tables present a summary of the impact of derivatives not designated as hedging instruments, including embedded derivatives, on the Consolidated Statements of Operations:


Derivatives not designated as hedging instrumentsLocation of Gain (Loss) on Derivatives Recognized in IncomeAmount of Gain (Loss) on Derivatives Recognized in IncomeThree Months Ended March 31,20172016Equity contractsStock market certificatesNet provision for certificate reserves$1,326$(534)Stock market certificates embedded derivativesNet provision for certificate reserves(1,264)490Total$62$(44)


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


Ameriprise Step-Up Rate Certificates (“SRC”) offer the ability to step up to a higher crediting rate based upon the then-current rate for a new SRC with the same term. 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 March 31, 2017 and December 31, 2016 .


Credit Risk


Credit risk associated with ACC’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, ACC has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting 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





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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 loss:


Accumulated Other Comprehensive Loss ReclassificationLocation of (Gain) Loss Recognized in IncomeThree Months Ended March 31,20172016Unrealized net losses (gains) on Available-for-Sale securitiesNet realized gain (loss) on investments$(1,702)$1,202Tax expense (benefit)Income tax expense (benefit)596(421)Net of tax$(1,106)$781


ACC received cash contributions of $5 million and $12 million from Ameriprise Financial during the three months ended  March 31, 2017 and 2016 , respectively, to maintain compliance with minimum capital requirements. These contributions were received outside of the Capital Support Agreement between Ameriprise Financial and ACC. See additional discussion on the Capital Support Agreement in ACC’s 2016 10-K.





10.  Income Taxes


The effective tax rate was 37.9% and 36.9%  for the three months ended  March 31, 2017 and 2016 , 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. Consideration is given to, among other things in making this determination, i) future taxable income exclusive of reversing temporary differences and carryforwards, ii) future reversals of existing taxable temporary differences, iii) taxable income in prior carryback years, and iv) tax planning strategies. Based on analysis of ACC’s tax positions, management believes it is more likely than not that ACC’s results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable ACC to utilize all of the deferred tax assets. Accordingly, no valuation allowance for deferred tax assets has been established as of both March 31, 2017 and December 31, 2016 .


As of March 31, 2017 and December 31, 2016 , ACC had $2.7 million and $2.5 million, respectively, of gross unrecognized tax benefits. If recognized, approximately $1.7 million and $1.6 million, net of federal tax benefits, of the unrecognized tax benefits as of March 31, 2017 and December 31, 2016 , respectively, would affect the effective tax rate.


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


ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized a net increase of $16 thousand and a net decrease of $1.3 million in interest and penalties for the three months ended  March 31, 2017 and 2016 , respectively. As of March 31, 2017 and December 31, 2016 , ACC had a payable of $266 thousand and $250 thousand, respectively, related to accrued interest and penalties.


ACC files  income  tax returns, as part of its inclusion in the consolidated federal income tax returns  of  Ameriprise  Financial,  in the U.S. federal jurisdiction,  and various states jurisdictions. The Internal Revenue Service (“IRS”) has completed its field examination of the 2006  through  2011  tax returns  and those years are  effectively settled. The IRS is  currently auditing  Ameriprise  Financial’s U.S.  income tax returns  for 2012 through 2015. Ameriprise Financial’s or its subsidiaries’,  including ACC’s,  state income tax returns are currently under examination by various jurisdictions for years ranging from  2008 through  2015.





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ITEM 2.  MANAGEMENT’S NARRATIVE ANALYSIS


The following information should be read in conjunction with Ameriprise Certificate Company’s (“ACC”) Financial Statements and related notes presented in Part I, Item 1. This discussion may contain forward-looking statements that reflect ACC’s plans, estimates and beliefs. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.” ACC believes it is useful to read its management’s narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2016 , filed with the Securities and Exchange Commission (“SEC”) on February 23, 2017 (“ 2016 10-K”), as well as its current reports on Form 8-K and other publicly available information.


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


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





Critical Accounting Policies


ACC’s critical accounting policies are discussed in detail in “Management's Narrative Analysis — Critical Accounting Policies” in its 2016 10-K.





Recent Accounting Pronouncements


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





Results of Operations for the Three Months Ended  March 31, 2017 and 2016


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


Net income increased  $3.2 million , or 50% , to $9.6 million for the three months ended  March 31, 2017 compared to $6.4 million for the prior year period primarily due to higher investment income and net realized gains on investments in the current year period compared to net realized losses in the prior year period, partially offset by higher net provision for certificate reserves, investment expenses, and income tax expense.


Investment income increased  $5.4 million , or 20% , to $33.0 million for the three months ended  March 31, 2017 compared to $27.6 million for the prior year period reflecting higher average investment balances from certificate net inflows, partially offset by a decrease in the invested assets rate.


Investment expenses increased  $1.4 million , or 18% , to $9.2 million for the three months ended  March 31, 2017 compared to $7.8 million for the prior year period primarily due to higher investment advisory, distribution, and transfer agent fees.


Net provision for certificate reserves increased  $1.7 million , or 20% , to $10.2 million for the three months ended  March 31, 2017 compared to $8.5 million for the prior year period due to higher average certificate balances from certificate net inflows.


Net realized gain on investments before income taxes was $1.7 million for the three months ended  March 31, 2017 compared to net realized loss on investments of $1.2 million for the prior year period. Net realized gain on investments for the three months ended  March 31, 2017 included net realized gains from sales, tenders and calls of Available-for-Sale securities of $1.9 million, partially offset by other-than-temporary impairments of $0.2 million. Net realized loss on investments for the three months ended  March 31, 2016 included net realized losses from sales, tenders and calls of Available-for-Sale securities of $1.1 million and other-than-temporary impairments of $0.1 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 37.9% for the three months ended  March 31, 2017 compared to 36.9% for the prior year period.





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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 March 31, 2017 .


Changes in Internal Control over Financial Reporting


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





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PART II.  OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS


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





ITEM 1A.  RISK FACTORS


There have been no material changes in the risk factors provided in Part I, Item 1A of ACC’s 2016 10-K.





ITEM 6.  EXHIBITS


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





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SIGNATURES


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








AMERIPRISE CERTIFICATE COMPANY(Registrant)Date:May 3, 2017By/s/ Abu M. ArifAbu M. ArifChief Executive OfficerDate:May 3, 2017By/s/ Janet C. LangnerJanet C. LangnerChief Financial Officer











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EXHIBIT INDEX


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





|        |            
|------- | -----------
|Exhibit | Description




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

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

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

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

|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|32* | Certification ofAbu M. ArifandJanet C. Langnerpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

____________________________________________________


* Filed electronically herewithin.








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