0000820027-18-000079.txt : 20181105 0000820027-18-000079.hdr.sgml : 20181105 20181105152813 ACCESSION NUMBER: 0000820027-18-000079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181105 DATE AS OF CHANGE: 20181105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIPRISE CERTIFICATE CO CENTRAL INDEX KEY: 0000052428 IRS NUMBER: 416009975 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 811-00002 FILM NUMBER: 181159778 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6123723131 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN EXPRESS CERTIFICATE CO DATE OF NAME CHANGE: 20000512 FORMER COMPANY: FORMER CONFORMED NAME: IDS CERTIFICATE CO /MN/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS SYNDICATE OF AMERICA INC DATE OF NAME CHANGE: 19860303 10-Q 1 acc093018.htm 10-Q Document
 
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, 2018
OR
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes 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 Filer o
Smaller reporting company o
Non-Accelerated Filer x
Emerging growth company o
Accelerated Filer o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 5, 2018
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, 2018 and 2017
Consolidated Statements of Comprehensive Income — Three months and nine months ended September 30, 2018 and 2017
Consolidated Balance Sheets — September 30, 2018 and December 31, 2017
Consolidated Statements of Shareholder's Equity — Nine months ended September 30, 2018 and 2017
Consolidated Statements of Cash Flows — Nine months ended September 30, 2018 and 2017
Notes to Consolidated Financial Statements
1. Basis of Presentation
2. Recent Accounting Pronouncements
3. Investments
4. Commercial Mortgage, Syndicated and Certificate Loans
5. Fair Values of Assets and Liabilities
6. Offsetting Assets and Liabilities
7. Derivatives and Hedging Activities
8. Contingencies
9. Shareholder’s Equity
10. Income Taxes
Item 2.  Management’s Narrative Analysis
Item 4.  Controls and Procedures
 
 
Part II.  Other Information
Item 1.  Legal Proceedings
Item 1A.  Risk Factors
Item 6.  Exhibits
Signatures


2


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,
2018
 
2017
2018
 
2017
(in thousands)
Investment income
$
49,215


$
37,890


$
132,596


$
106,014

Investment expenses
11,080

 
9,489

 
31,425

 
27,913

Net investment income before provision for certificate reserves and income taxes
38,135

 
28,401

 
101,171

 
78,101

Net provision for certificate reserves
23,247

 
11,701

 
56,602

 
32,403

Net investment income before income taxes
14,888


16,700


44,569


45,698

Income tax expense
3,937

 
5,479

 
11,499

 
16,225

Net investment income, after-tax
10,951

 
11,221

 
33,070

 
29,473

 
 
 
 
 
 
 
 
Net realized gain (loss) on investments before income taxes
(104
)

(43
)

496


8,854

Income tax expense (benefit)
(22
)
 
(15
)
 
104

 
3,099

Net realized gain (loss) on investments, after-tax
(82
)
 
(28
)
 
392

 
5,755

Net income
$
10,869


$
11,193


$
33,462


$
35,228

 
 
 
 
 
 
 
 
Supplemental Disclosures:
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on securities
$

 
$

 
$

 
$

Portion of loss recognized in other comprehensive income (loss) (before taxes)

 

 

 
(193
)
Net impairment losses recognized in net realized gain (loss) on investments
$

 
$

 
$

 
$
(193
)
 See Notes to Consolidated Financial Statements.

3


AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2018
 
2017
2018
 
2017
(in thousands)
Net income
$
10,869

 
$
11,193

 
$
33,462

 
$
35,228

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net unrealized gains (losses) on securities:
 
 
 
 
 
 
 
Net unrealized securities gains (losses) arising during the period
(4,872
)
 
587

 
(28,283
)
 
16,110

Reclassification of net securities (gains) losses included in net income
73

 
37

 
(231
)
 
(5,742
)
Total other comprehensive income (loss), net of tax
(4,799
)

624


(28,514
)

10,368

Total comprehensive income (loss)
$
6,070


$
11,817


$
4,948


$
45,596

See Notes to Consolidated Financial Statements.

4


AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
September 30,
2018
 
December 31,
2017
(in thousands, except share data)
Assets
 
 
 
Qualified Assets
 
 
 
Cash and cash equivalents
$
352,867

 
$
68,471

Investments in unaffiliated issuers
7,381,585

 
6,755,381

Receivables
32,275

 
29,037

Derivative assets
48,605

 
54,346

Total qualified assets
7,815,332

 
6,907,235

Deferred taxes, net
2,325

 
736

Taxes receivable from parent
2,411

 
3,874

Total assets
$
7,820,068


$
6,911,845

 
 
 
 
Liabilities and Shareholder's Equity
 
 
 
Liabilities
 
 
 
Certificate reserves
$
7,347,378

 
$
6,400,324

Taxes payable to parent
4,387

 
5,402

Derivative liabilities
38,561

 
46,756

Payable for investment securities purchased
10,735

 
56,778

Due to related party and other liabilities
39,723

 
43,249

Total liabilities
7,440,784


6,552,509

 
 
 
 
Shareholder's Equity
 
 
 
Common shares ($10 par value, 150,000 shares authorized and issued)
1,500

 
1,500

Additional paid-in capital
267,517

 
252,517

Total retained earnings
144,406

 
110,946

Accumulated other comprehensive income (loss), net of tax
(34,139
)
 
(5,627
)
Total shareholder's equity
379,284


359,336

Total liabilities and shareholder's equity
$
7,820,068

 
$
6,911,845

See Notes to Consolidated Financial Statements.
 
 
 

5


AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)
 
Number of Outstanding Shares
Common Shares
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss), Net of Tax
Total
Appropriated for Pre-Declared Additional Credits and Interest
Appropriated for Additional Interest on Advance Payments
Unappropriated
(in thousands, except share data)
Balance at January 1, 2017
150,000

 
$
1,500

 
$
247,517

 
$

 
$
15

 
$
81,925

 
$
(5,165
)
 
$
325,792

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
35,228

 

 
35,228

Other comprehensive income (loss), net of tax

 

 

 

 

 

 
10,368

 
10,368

Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45,596

Dividend to parent

 

 

 

 

 
(5,000
)
 

 
(5,000
)
Receipt of capital from parent

 

 
5,000

 

 

 

 

 
5,000

Balance at September 30, 2017
150,000

 
$
1,500

 
$
252,517

 
$

 
$
15

 
$
112,153

 
$
5,203

 
$
371,388

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
150,000

 
$
1,500

 
$
252,517

 
$
23

 
$
15

 
$
110,908

 
$
(5,627
)
 
$
359,336

Cumulative effect of change in accounting policies

 

 

 

 

 
(2
)
 
2

 

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
33,462

 

 
33,462

Other comprehensive income (loss), net of tax

 

 

 

 

 

 
(28,514
)
 
(28,514
)
Total comprehensive income (loss)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
4,948

Transfer to appropriated from unappropriated

 

 

 
642

 

 
(642
)
 

 

Receipt of capital from parent

 

 
15,000

 

 

 

 

 
15,000

Balance at September 30, 2018
150,000

 
$
1,500

 
$
267,517

 
$
665

 
$
15

 
$
143,726

 
$
(34,139
)
 
$
379,284

See Notes to Consolidated Financial Statements.



6


AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended September 30,
2018
 
2017
(in thousands)
Cash Flows from Operating Activities
 
 
 
Net income
$
33,462

 
$
35,228

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization of premiums, accretion of discounts, net
(6,634
)
 
16,714

Deferred income tax expense (benefit)
(189
)
 
(50
)
Net realized (gain) loss on Available-for-Sale securities
(292
)
 
(9,026
)
Other net realized (gain) loss
(204
)
 
(21
)
Other-than-temporary impairments and provision for loan loss

 
193

Changes in operating assets and liabilities:
 
 
 
Dividends and interest receivable
(2,326
)
 
(4,418
)
Certificate reserves, net
3,353

 
1,258

Deferred taxes, net
7,580

 
(5,583
)
Taxes payable to/receivable from parent, net
448

 
2,678

Derivatives, net of collateral
926

 
(809
)
Other liabilities
(7,450
)
 
(2,782
)
Other receivables
(85
)
 
(25
)
Other, net
(242
)
 
277

Net cash provided by (used in) operating activities
28,347

 
33,634

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Available-for-Sale securities:
 
 
 
Sales
360,976

 
90,498

Maturities, redemptions and calls
2,805,371

 
1,495,221

Purchases
(3,827,319
)
 
(1,987,024
)
Syndicated loans, commercial mortgage loans and real estate owned:
 
 
 
Sales, maturities and repayments
38,630

 
32,423

Purchases and fundings
(80,533
)
 
(45,447
)
Equity securities:
 
 
 
Sales
35

 

Certificate loans, net
188

 
72

Net cash provided by (used in) investing activities
(702,652
)
 
(414,257
)
 
 
 
 
Cash Flows from Financing Activities
 
 
 
Payments from certificate holders and other additions
4,440,456

 
3,594,855

Certificate maturities and cash surrenders
(3,496,755
)
 
(3,158,088
)
Capital contribution from parent
15,000

 
5,000

Dividend to parent

 
(5,000
)
Net cash provided by (used in) financing activities
958,701

 
436,767

 
 
 
 
Net increase (decrease) in cash and cash equivalents
284,396

 
56,144

Cash and cash equivalents at beginning of period
68,471

 
134,189

Cash and cash equivalents at end of period
$
352,867

 
$
190,333

 
 
 
 
Supplemental disclosures including non-cash transactions:
 
 
 
Cash paid (received) for income taxes
$
13,236

 
$
13,359

Cash paid for interest
56,399

 
34,815

See Notes to Consolidated Financial Statements.

7


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, 2017, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2018 (“2017 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
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the Financial Accounting Standards Board (“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 these financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. ACC adopted the standard on January 1, 2018 using a modified retrospective approach. The adoption of the standard did not have a material impact on ACC’s consolidated results of operations or financial condition.
Future Adoption of New Accounting Standards
Fair Value Measurement Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB updated the accounting standards related to disclosures for fair value measurements. The update eliminates the following disclosures: 1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) the policy of timing of transfers between levels of the fair value hierarchy, and 3) the valuation processes for Level 3 fair value measurements. The new disclosures include changes in unrealized gains and losses for the period included in other comprehensive income (“OCI”) for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated. The new disclosures are required on a prospective basis; all other provisions should be applied retrospectively. The update is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for the entire standard or only the provisions that eliminate or modify disclosure requirements. ACC is currently evaluating the impact of the standard on its disclosures. The update does not have an impact on ACC’s consolidated results of operations or financial condition.
Income Statement – Reporting Comprehensive Income – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB updated the accounting standards related to the presentation of tax effects stranded in OCI. The update allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for tax effects stranded in AOCI resulting from the legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The update is optional and entities may elect not to reclassify the stranded tax effects. The update is effective for fiscal years beginning after December 15, 2018. Entities may elect to record the impacts either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. Early adoption is permitted in any period. ACC does not plan to reclassify the stranded tax effects in OCI. As such, the update will not have an impact on ACC’s consolidated results of operations and financial condition.
Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB updated the accounting standards to amend the hedge accounting recognition and presentation requirements. The objectives of the update are to better align the financial reporting of hedging relationships to the economic results of an entity’s risk management activities and simplify the application of the hedge accounting guidance. The update also adds new disclosures and amends existing disclosure requirements. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis. Early adoption is permitted. ACC is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

8


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

Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. 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.
3.  Investments
Investments in unaffiliated issuers were as follows:
 
September 30,
2018
 
December 31,
2017
(in thousands)
Available-for-Sale securities:
 
Fixed maturities, at fair value (amortized cost: 2018, $7,174,621; 2017, $6,556,338)
$
7,127,551

 
$
6,546,761

Common stocks, at fair value(1) (cost: 2017, $1,002)

 
1,000

Commercial mortgage loans and syndicated loans, at cost (less allowance for loan losses: 2018, $3,120; 2017, $3,283; fair value: 2018, $251,340; 2017, $207,681)
252,829

 
207,187

Equity securities, at fair value(1) (cost: 2018, $875)
960

 

Certificate loans — secured by certificate reserves, at cost, which approximates fair value
245

 
433

Total
$
7,381,585

 
$
6,755,381

(1) As of January 1, 2018, common stocks were reclassified from Available-for-Sale securities to Equity securities due to the adoption of a new accounting standard on recognition and measurement of financial instruments. See Note 2 for more information.
Available-for-Sale securities distributed by type were as follows:
Description of Securities
September 30, 2018
Amortized 
Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Noncredit OTTI (1)
 
(in thousands)
Residential mortgage backed securities
$
2,933,704

 
$
7,008

 
$
(32,797
)
 
$
2,907,915

 
$

Corporate debt securities
1,034,942

 
193

 
(9,279
)
 
1,025,856

 
3

Commercial mortgage backed securities
950,214

 
605

 
(8,367
)
 
942,452

 

Asset backed securities
698,608

 
3,146

 
(6,599
)
 
695,155

 

State and municipal obligations
66,651

 
17

 
(784
)
 
65,884

 

U.S. government and agency obligations
1,490,502

 
35

 
(248
)
 
1,490,289

 

Total
$
7,174,621

 
$
11,004

 
$
(58,074
)
 
$
7,127,551

 
$
3


9


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

Description of Securities
December 31, 2017
Amortized 
Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Noncredit OTTI (1)
 
(in thousands)
Residential mortgage backed securities
$
3,259,976

 
$
9,020

 
$
(12,669
)
 
$
3,256,327

 
$

Corporate debt securities
1,184,360

 
763

 
(4,833
)
 
1,180,290

 
3

Commercial mortgage backed securities
798,047

 
1,292

 
(3,876
)
 
795,463

 

Asset backed securities
758,477

 
3,452

 
(2,426
)
 
759,503

 

State and municipal obligations
58,380

 
166

 
(489
)
 
58,057

 

U.S. government and agency obligations
497,098

 
43

 
(20
)
 
497,121

 

Common stocks
1,002

 
168

 
(170
)
 
1,000

 

Total
$
6,557,340

 
$
14,904

 
$
(24,483
)
 
$
6,547,761

 
$
3

(1) Represents the amount of other-than-temporary impairment (“OTTI”) losses in AOCI. Amount includes unrealized gains and losses on impaired securities subsequent to the initial impairment measurement date. These amounts are included in gross unrealized gains and losses as of the end of the period.
As of September 30, 2018 and December 31, 2017, investment securities with a fair value of $41 thousand and $31 thousand, respectively, were pledged to meet contractual obligations under derivative contracts.
As of September 30, 2018 and December 31, 2017, fixed maturity securities comprised approximately 92% and 96%, 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 September 30, 2018 and December 31, 2017, approximately $36.1 million and $61.5 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, 2018
 
December 31, 2017
Amortized
Cost
Fair Value
Percent of Total Fair Value
Amortized
Cost
Fair Value
Percent of Total Fair Value
 
(in thousands, except percentages)
AAA
$
5,579,742

 
$
5,542,705

 
78
%
 
$
4,526,696

 
$
4,519,506

 
69
%
AA
265,650

 
264,822

 
4

 
367,747

 
368,377

 
5

A
534,126

 
529,026

 
7

 
595,445

 
593,421

 
9

BBB
758,288

 
754,385

 
10

 
1,029,953

 
1,029,082

 
16

Below investment grade
36,815

 
36,613

 
1

 
36,497

 
36,375

 
1

Total fixed maturities
$
7,174,621

 
$
7,127,551

 
100
%
 
$
6,556,338

 
$
6,546,761

 
100
%
As of September 30, 2018 and December 31, 2017, approximately 31% and 37%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.

10


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

The following tables provide information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position:
Description of Securities
September 30, 2018
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
102

 
$
1,425,735

 
$
(17,711
)
 
94

 
$
750,810

 
$
(15,086
)
 
196

 
$
2,176,545

 
$
(32,797
)
Corporate debt securities
61

 
702,998

 
(4,979
)
 
21

 
269,219

 
(4,300
)
 
82

 
972,217

 
(9,279
)
Commercial mortgage backed securities
16

 
255,329

 
(3,460
)
 
20

 
151,940

 
(4,907
)
 
36

 
407,269

 
(8,367
)
Asset backed securities
27

 
386,202

 
(3,626
)
 
15

 
148,613

 
(2,973
)
 
42

 
534,815

 
(6,599
)
State and municipal obligations
12

 
41,168

 
(258
)
 
7

 
14,364

 
(526
)
 
19

 
55,532

 
(784
)
U.S. government and agency obligations
24

 
1,415,908

 
(248
)
 

 

 

 
24

 
1,415,908

 
(248
)
Total
242

 
$
4,227,340

 
$
(30,282
)
 
157

 
$
1,334,946

 
$
(27,792
)
 
399

 
$
5,562,286

 
$
(58,074
)
Description of Securities
December 31, 2017
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
67

 
$
1,078,412

 
$
(5,833
)
 
89

 
$
664,954

 
$
(6,836
)
 
156

 
$
1,743,366

 
$
(12,669
)
Corporate debt securities
55

 
715,852

 
(2,161
)
 
23

 
257,891

 
(2,672
)
 
78

 
973,743

 
(4,833
)
Commercial mortgage backed securities
12

 
183,428

 
(1,721
)
 
18

 
119,790

 
(2,155
)
 
30

 
303,218

 
(3,876
)
Asset backed securities
23

 
297,823

 
(1,466
)
 
18

 
110,842

 
(960
)
 
41

 
408,665

 
(2,426
)
State and municipal obligations
8

 
17,906

 
(430
)
 
4

 
5,891

 
(59
)
 
12

 
23,797

 
(489
)
U.S. government and agency obligations
1

 
49,900

 
(20
)
 

 

 

 
1

 
49,900

 
(20
)
Common stocks
1

 
56

 
(4
)
 
3

 
661

 
(166
)
 
4

 
717

 
(170
)
Total
167

 
$
2,343,377

 
$
(11,635
)
 
155

 
$
1,160,029

 
$
(12,848
)
 
322

 
$
3,503,406

 
$
(24,483
)
As part of ACC’s ongoing monitoring process, management determined that the change in gross unrealized losses on its Available-for-Sale securities is primarily attributable to an increase in interest rates as well as slightly wider 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 OCI:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
2018
 
2017
 
2018
 
2017
(in thousands)
Beginning balance
$

 
$

 
$

 
$
46,522

Reductions for securities sold during the period (realized)

 

 

 
(46,715
)
Credit losses for which an other-than-temporary impairment was previously recognized

 

 

 
193

Ending balance
$

 
$

 
$

 
$

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)

11


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

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 AOCI:
 
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, 2017
$
(8,195
)
 
$
3,030

 
$
(5,165
)
 
Net unrealized securities gains (losses) arising during the period (1)
25,282

 
(9,172
)
 
16,110

 
Reclassification of (gains) losses included in net income
(8,833
)
 
3,091

 
(5,742
)
 
Balance at September 30, 2017
$
8,254

 
$
(3,051
)
 
$
5,203

(2) 
 
 
 
 
 
 
 
Balance at January 1, 2018
$
(9,579
)
 
$
3,952

 
$
(5,627
)
 
Cumulative effect of change in accounting policies
3

 
(1
)
 
2

 
Net unrealized securities gains (losses) arising during the period (1)
(37,202
)
 
8,919

 
(28,283
)
 
Reclassification of (gains) losses included in net income
(292
)
 
61

 
(231
)
 
Balance at September 30, 2018
$
(47,070
)
 
$
12,931

 
$
(34,139
)
(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 $2 thousand and $1.9 million of noncredit related impairments on securities and net unrealized securities gains (losses) on previously impaired securities as of September 30, 2018 and 2017, 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,
2018
 
2017
 
2018
 
2017
(in thousands)
Gross realized gains
$

 
$

 
$
910

 
$
11,107

Gross realized losses
(93
)
 
(58
)
 
(618
)
 
(2,081
)
Other-than-temporary impairments

 

 

 
(193
)
Total
$
(93
)
 
$
(58
)
 
$
292

 
$
8,833

Other-than-temporary impairments for the nine months ended September 30, 2017 are related to credit losses on non-agency residential mortgage backed securities.
Available-for-Sale securities by contractual maturity as of September 30, 2018 were as follows:
 
Amortized Cost
 
Fair Value
(in thousands)
Due within one year
$
1,808,449

 
$
1,806,278

Due after one year through five years
783,436

 
775,513

Due after five years through 10 years

 

Due after 10 years
210

 
238

 
2,592,095

 
2,582,029

Residential mortgage backed securities
2,933,704

 
2,907,915

Commercial mortgage backed securities
950,214

 
942,452

Asset backed securities
698,608

 
695,155

Total
$
7,174,621

 
$
7,127,551

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

12


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,
2018
 
2017
(in thousands)
Beginning balance
$
3,283

 
$
3,283

Charge-offs
(163
)
 

Provisions

 

Ending balance
$
3,120

 
$
3,283

 
 
 
 
Individually evaluated for impairment
$

 
$

Collectively evaluated for impairment
3,120

 
3,283

The recorded investment in commercial mortgage loans and syndicated loans by impairment method was as follows:
 
September 30,
2018
 
December 31,
2017
(in thousands)
Individually evaluated for impairment
$
2,812

 
$

Collectively evaluated for impairment
253,137

 
210,470

Total
$
255,949

 
$
210,470

As of September 30, 2018 and December 31, 2017, ACC’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $2.8 million and nil, 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, 2018, ACC purchased $14.1 million and $71.5 million, respectively, of syndicated loans. During the three months and nine months ended September 30, 2017, ACC purchased $4.3 million and $33.0 million, respectively, of syndicated loans. During the three months and nine months ended September 30, 2018, ACC sold $0.2 million and $6.6 million, respectively, of syndicated loans. During the three months and nine months ended September 30, 2017, ACC sold $2.3 million and $3.5 million, respectively, of syndicated loans.
ACC has not acquired any loans with deteriorated credit quality as of the acquisition date.
Credit Quality Information
Nonperforming loans, which are generally loans 90 days or more past due, were nil as of both September 30, 2018 and December 31, 2017. 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 as of both September 30, 2018 and December 31, 2017. 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.

13


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,
2018
 
December 31,
2017
 
September 30,
2018
 
December 31,
2017
(in thousands)
 
 
 
 
East North Central
$
5,740

 
$
6,029

 
5
%
 
5
%
East South Central
4,415

 
4,891

 
4

 
4

Middle Atlantic
14,596

 
11,887

 
13

 
11

Mountain
9,973

 
10,452

 
9

 
10

New England
7,442

 
7,586

 
7

 
7

Pacific
33,148

 
32,386

 
30

 
29

South Atlantic
21,839

 
23,694

 
20

 
22

West North Central
6,278

 
6,706

 
6

 
6

West South Central
6,636

 
6,354

 
6

 
6

 
110,067

 
109,985

 
100
%
 
100
%
Less: allowance for loan losses
2,341

 
2,341

 
 
Total
$
107,726

 
$
107,644

Concentrations of credit risk of commercial mortgage loans by property type were as follows:
 
Loans
 
Percentage
September 30,
2018
 
December 31,
2017
 
September 30,
2018
 
December 31,
2017
(in thousands)
 
 
 
 
Apartments
$
27,186

 
$
23,840

 
25
%
 
21
%
Industrial
25,672

 
25,025

 
23

 
23

Mixed use
7,762

 
4,580

 
7

 
4

Office
11,553

 
11,872

 
10

 
11

Retail
35,428

 
34,934

 
32

 
32

Hotel
650

 
777

 
1

 
1

Other
1,816

 
8,957

 
2

 
8

 
110,067

 
109,985

 
100
%
 
100
%
Less: allowance for loan losses
2,341

 
2,341

 
 
Total
$
107,726

 
$
107,644

Syndicated Loans
The recorded investment in syndicated loans as of September 30, 2018 and December 31, 2017 was $145.9 million and $100.5 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.
Troubled Debt Restructurings
There were no loans restructured by ACC during the three months and nine months ended September 30, 2018 and 2017. There are no material commitments to lend additional funds to borrowers whose loans have been restructured.
5.  Fair Values of Assets and Liabilities
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability is not exchanged subject to a forced liquidation or distressed sale.
Valuation Hierarchy
ACC categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by ACC’s valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1
Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.

14


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

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, 2018
Level 1
 
Level 2
 
Level 3
 
Total
(in thousands)
Assets
 

 
 
 
 
 
 
Cash equivalents
$

 
$
328,873

 
$

 
$
328,873

Available-for-Sale securities:
 

 
 

 
 

 
 

Residential mortgage backed securities

 
2,863,465

 
44,450

 
2,907,915

Corporate debt securities

 
984,068

 
41,788

 
1,025,856

Commercial mortgage backed securities

 
942,452

 

 
942,452

Asset backed securities

 
695,155

 

 
695,155

State and municipal obligations

 
65,884

 

 
65,884

U.S. government and agency obligations
1,490,289

 

 

 
1,490,289

Total Available-for-Sale securities
1,490,289

 
5,551,024

 
86,238

 
7,127,551

Equity securities
497

 
463

 

 
960

Equity derivative contracts

 
48,605

 

 
48,605

Total assets at fair value
$
1,490,786

 
$
5,928,965

 
$
86,238

 
$
7,505,989

 
 
 
 
 
 
 
 
Liabilities
 

 
 
 
 
 
 
Stock market certificate embedded derivatives
$

 
$
12,230

 
$

 
$
12,230

Equity derivative contracts

 
38,561

 

 
38,561

Total liabilities at fair value
$

 
$
50,791

 
$

 
$
50,791

 
December 31, 2017
Level 1
 
Level 2
 
Level 3
 
Total
(in thousands)
Assets
 

 
 
 
 
 
 
Cash equivalents
$

 
$
51,296

 
$

 
$
51,296

Available-for-Sale securities:
 
 
 
 
 
 
 

Residential mortgage backed securities

 
3,187,617

 
68,710

 
3,256,327

Corporate debt securities

 
1,112,949

 
67,341

 
1,180,290

Commercial mortgage backed securities

 
795,463

 

 
795,463

Asset backed securities

 
759,503

 

 
759,503

State and municipal obligations

 
58,057

 

 
58,057

U.S. government and agency obligations
497,121

 

 

 
497,121

Common stocks
545

 
427

 
28

 
1,000

Total Available-for-Sale securities
497,666

 
5,914,016

 
136,079

 
6,547,761

Equity derivative contracts

 
54,346

 

 
54,346

Total assets at fair value
$
497,666

 
$
6,019,658

 
$
136,079

 
$
6,653,403

 
 
 
 
 
 
 
 
Liabilities
 

 
 
 
 
 
 
Stock market certificate embedded derivatives
$

 
$
9,734

 
$

 
$
9,734

Equity derivative contracts
3

 
46,753

 

 
46,756

Total liabilities at fair value
$
3

 
$
56,487

 
$

 
$
56,490


15


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

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:
 
Available-for-Sale Securities
 
Residential Mortgage Backed Securities
Corporate Debt Securities
Commercial Mortgage Backed Securities
Asset Backed Securities
Total
(in thousands)
 
Balance, July 1, 2018
$
51,065

 
$
41,760

 
$
40,000

 
$
12,333

 
$
145,158

 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
Net income
22

 
(15
)
 

 

 
7

(1) 
Other comprehensive income (loss)
42

 
43

 

 

 
85

 
Purchases
20,000

 

 

 

 
20,000

 
Settlements
(4,015
)
 

 

 

 
(4,015
)
 
Transfers out of Level 3
(22,664
)
 

 
(40,000
)
 
(12,333
)
 
(74,997
)
 
Balance, September 30, 2018
$
44,450

 
$
41,788

 
$

 
$

 
$
86,238

 
Changes in unrealized gains (losses) relating to assets held at September 30, 2018
$
22

 
$
(15
)
 
$

 
$

 
$
7

(1) 
 
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, 2017
$
82,214

 
$
143,322

 
$

 
$
3,049

 
$
268

 
$
228,853

 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
5

 
(124
)
 

 
1

 

 
(118
)
(1) 
Other comprehensive income (loss)
(57
)
 
29

 

 
(9
)
 
35

 
(2
)
 
Purchases

 
1,313

 
30,000

 

 

 
31,313

 
Settlements
(7,682
)
 
(23,000
)
 

 

 

 
(30,682
)
 
Transfers into Level 3
20,182

 

 

 
13,195

 

 
33,377

 
Transfers out of Level 3
(18,456
)
 

 

 
(3,049
)
 
(161
)
 
(21,666
)
 
Balance, September 30, 2017
$
76,206

 
$
121,540

 
$
30,000

 
$
13,187

 
$
142

 
$
241,075

 
Changes in unrealized gains (losses) relating to assets held at September 30, 2017
$
5

 
$
(124
)
 
$

 
$
1

 
$

 
$
(118
)
(1) 
 
Available-for-Sale Securities
 
Equity Securities
Residential Mortgage Backed Securities
Corporate Debt Securities
Commercial Mortgage Backed Securities
Asset Backed Securities
Total
(in thousands)
Balance, January 1, 2018
$
68,710

 
$
67,341

 
$

 
$

 
$
136,051

 
$
28

Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
 
 
Net income
(3
)
 
(214
)
 

 

 
(217
)
(1) 

Other comprehensive income (loss)
(444
)
 
(339
)
 

 

 
(783
)
 

Purchases
20,000

 

 
40,000

 
12,333

 
72,333

 

Settlements
(18,879
)
 
(25,000
)
 

 

 
(43,879
)
 

Transfers out of Level 3
(24,934
)
 

 
(40,000
)
 
(12,333
)
 
(77,267
)
 
(28
)
Balance, September 30, 2018
$
44,450

 
$
41,788

 
$

 
$

 
$
86,238

 
$

Changes in unrealized gains (losses) relating to assets held at September 30, 2018
$
55

 
$
(46
)
 
$

 
$

 
$
9

(1) 
$


16


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

 
Available-for-Sale Securities
 
Residential Mortgage Backed Securities
Corporate Debt Securities