Ameriprise Certificate 10-Q 2011 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2011

or

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

For the Transition Period from                               to                              

Commission File No. 811-00002

AMERIPRISE CERTIFICATE COMPANY

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

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 August 12, 2011
Common Shares (par value $10 per share)	150,000 shares

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

AMERIPRISE CERTIFICATE COMPANY

FORM 10-Q

INDEX

Part I.	Financial Information:
	Item 1.	Financial Statements
		Consolidated Statements of Operations — Three months and six months ended June 30, 2011 and 2010	3
		Consolidated Balance Sheets — June 30, 2011 and December 31, 2010	4
		Consolidated Statements of Cash Flows — Six months ended June 30, 2011 and 2010	5
		Consolidated Statements of Shareholder’s Equity — Six months ended June 30, 2011 and 2010	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Narrative Analysis	23
	Item 4.	Controls and Procedures	26
Part II.	Other Information:
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 6.	Exhibits	27
	Signatures		28
	Exhibit Index		E-1

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AMERIPRISE CERTIFICATE COMPANY

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands)

	Three Months Ended June 30,					Six Months Ended June 30,
	2011			2010		2011			2010
Investment income	$	30,590		$	39,677	$	61,610		$	84,132
Investment expenses	6,759			7,538		13,712			16,058
Net investment income before provision for certificate reserves and income taxes	23,831			32,139		47,898			68,074
Net provision for certificate reserves	7,793			13,733		16,457			30,729
Net investment income before income taxes	16,038			18,406		31,441			37,345
Income tax expense	6,158			6,832		11,903			13,753
Net investment income	9,880			11,574		19,538			23,592
Net realized gain (loss) on investments	(236		)	1,310		1,212			5,121
Income tax expense (benefit)	(83		)	458		424			1,792
Net realized gain (loss) on investments, after-tax	(153		)	852		788			3,329
Net income	$	9,727		$	12,426	$	20,326		$	26,921
Supplemental Disclosures:
Net realized gain (loss) on investments:
Net realized gain on investments before impairment losses on securities	$	869		$	1,310	$	2,406		$	7,691
Total other-than-temporary impairment losses on securities	(5,492		)	—		(5,492		)	(4,662		)
Portion of loss recognized in other comprehensive income	4,387			—		4,298			2,092
Net impairment losses recognized in net realized gain (loss) on investments	(1,105		)	—		(1,194		)	(2,570		)
Total net realized gain (loss) on investments	$	(236	)	$	1,310	$	1,212		$	5,121

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30, 2011			December 31, 2010
	(unaudited)
Assets
Qualified Assets
Cash equivalents	$	100,298		$	182,192
Investments in unaffiliated issuers	2,896,584			3,085,562
Receivables	15,675			20,967
Equity derivatives, purchased	71,081			89,014
Total qualified assets	3,083,638			3,377,735
Deferred taxes, net	44,996			45,367
Total assets	$	3,128,634		$	3,423,102
Liabilities and Shareholder’s Equity
Liabilities
Certificate reserves	$	2,885,829		$	3,159,831
Current taxes payable to parent	8,146			7,667
Payable for investment securities purchased	11,016			—
Equity derivatives, written	61,005			75,201
Accounts payable, accrued liabilities and other liabilities	18,492			17,909
Total liabilities	2,984,488			3,260,608
Shareholder’s Equity
Common shares ($10 par value, 150,000 shares authorized and issued)	1,500			1,500
Additional paid-in capital	165,324			181,998
Retained earnings	15			15
Accumulated other comprehensive loss, net of tax	(22,693		)	(21,019		)
Total shareholder’s equity	144,146			162,494
Total liabilities and shareholder’s equity	$	3,128,634		$	3,423,102

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended June 30,
	2011			2010
Cash Flows from Operating Activities
Net income	$	20,326		$	26,921
Adjustments to reconcile net income to net cash provided by operating activities:
Interest added to certificate loans	(66		)	(93		)
Amortization of premiums, accretion of discounts, net	(876		)	(1,700		)
Deferred income taxes	1,354			16,326
Net realized (gain) loss on investments	(271		)	698
Provision for loan loss	(941		)	(5,819		)
Changes in operating assets and liabilities:
Dividends and interest receivable	4,930			5,211
Certificate reserves, net	(4,766		)	(16,401		)
Due to (from) parent for income taxes, net	479			(23,220		)
Derivatives, net	3,737			14,754
Derivatives collateral, net	(946		)	(12,455		)
Other, net	1,505			4,332
Net cash provided by operating activities	24,465			8,554
Cash Flows from Investing Activities
Available-for-Sale securities:
Sales	36,903			44,986
Maturities, redemptions and calls	715,873			941,753
Purchases	(579,014		)	(402,270		)
Syndicated loans and commercial mortgage loans:
Sales	133			21,255
Maturities and redemptions	34,828			39,396
Purchases and fundings	(8,950		)	(146		)
Certificate loans:
Payments	197			388
Fundings	(93		)	(328		)
Net cash provided by investing activities	199,877			645,034
Cash Flows from Financing Activities
Payments from certificate owners	410,406			479,336
Certificate maturities and cash surrenders	(679,642		)	(1,089,730		)
Dividend/return of capital to parent	(37,000		)	(110,000		)
Net cash used in financing activities	(306,236		)	(720,394		)
Net decrease in cash equivalents	(81,894		)	(66,806		)
Cash equivalents at beginning of period	182,192			309,183
Cash equivalents at end of period	$	100,298		$	242,377
Supplemental disclosures including non-cash transactions:
Cash paid for income taxes	$	10,196		$	21,866
Certificate maturities and surrenders through loan reductions	332			878

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (UNAUDITED)

Six Months Ended June 30, 2011 and 2010

(in thousands, except share data)

							Retained Earnings
							Appropriated for Additional					Accumulated
	Number of			Additional			Interest on					Other Comprehensive
	Outstanding	Common		Paid-In			Advance					Loss,
	Shares	Shares		Capital			Payments		Unappropriated			Net of Tax			Total
Balance at January 1, 2010	150,000	$	1,500	$	297,964		$	15	$	(6,373	)	$	(47,908	)	$	245,198
Comprehensive income:
Net income	—	—		—			—		26,921			—			26,921
Other comprehensive income, net of tax:
Change in net unrealized securities losses	—	—		—			—		—			23,584			23,584
Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities	—	—		—			—		—			602			602
Total comprehensive income															51,107
Dividend/return of capital to parent	—	—		(89,452		)	—		(20,548		)	—			(110,000		)
Balance at June 30, 2010	150,000	$	1,500	$	208,512		$	15	$	—		$	(23,722	)	$	186,305
Balance at January 1, 2011	150,000	$	1,500	$	181,998		$	15	$	—		$	(21,019	)	$	162,494
Comprehensive income:
Net income	—	—		—			—		20,326			—			20,326
Other comprehensive income, net of tax:
Change in net unrealized securities losses	—	—		—			—		—			(3,837		)	(3,837		)
Change in noncredit related impairments on securities and net unrealized securities losses on previously impaired securities	—	—		—			—		—			2,163			2,163
Total comprehensive income															18,652
Dividend/return of capital to parent	—	—		(16,674		)	—		(20,326		)	—			(37,000		)
Balance at June 30, 2011	150,000	$	1,500	$	165,324		$	15	$	—		$	(22,693	)	$	144,146

See Notes to Consolidated Financial Statements.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  Basis of Presentation

Ameriprise Certificate Company (“ACC” or the “Company”), is a wholly owned subsidiary of Ameriprise Financial, Inc. (“Ameriprise Financial”). The accompanying Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. 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 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 Financial Statements and Notes should be read in conjunction with the Financial Statements and Notes in the Annual Report on Form 10-K of ACC for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2011.

In the second quarter of 2011, ACC made an adjustment for revisions to certain accretion calculations in its valuation of mortgage backed and asset backed securities which resulted in a $3.0 million pretax benefit ($1.9 million after-tax). Management has determined that the effect of this error is immaterial to all current and prior periods presented.

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

2.  Recent Accounting Pronouncements

Adoption of New Accounting Standards

Fair Value

In January 2010, the Financial Accounting Standards Board (“FASB”) updated the accounting standards related to disclosures on fair value measurements. The standard expands the current disclosure requirements to include additional detail about significant transfers between Levels 1 and 2 within the fair value hierarchy and presents activity in the rollforward of Level 3 activity on a gross basis. The standard also clarifies existing disclosure requirements related to the level of disaggregation to be used for assets and liabilities as well as disclosures on the inputs and valuation techniques used to measure fair value. The standard was effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure requirements related to the Level 3 rollforward, which are effective for interim and annual periods beginning after December 15, 2010. ACC adopted the standard in the first quarter of 2010, except for the additional disclosures related to the Level 3 rollforward, which ACC adopted in the first quarter of 2011. The adoption did not have any effect on ACC’s consolidated results of operations and financial condition. See Note 5 for the required disclosures.

Future Adoption of New Accounting Standards

Comprehensive Income

In June 2011, the FASB updated the accounting standards related to the presentation of comprehensive income. The standard requires entities to present all nonowner changes in stockholder’s equity either in a single continuous statement of comprehensive income or in two separate but consecutive statements. For both options, an entity is required to present reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The standard is effective for interim and annual periods beginning after December 15, 2011. The standard is to be applied retrospectively. The adoption of the standard will not impact ACC’s consolidated results of operations and financial condition.

Fair Value

In May 2011, the FASB updated the accounting standards related to fair value measurement and disclosure requirements. The standard requires entities, for assets and liabilities measured at fair value in the statement of financial position which are Level 3 fair value measurements, to disclose quantitative information about unobservable inputs and assumptions used in the measurements, a description of the valuation processes in place, and a qualitative discussion about the sensitivity of the measurements to changes in unobservable inputs and interrelationships between those inputs if a change in those inputs would result in a significantly different fair value measurement. In addition, the standard requires disclosure of fair value by level within the fair value hierarchy for each class of assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed. The standard is effective for interim and annual periods beginning on or after December 15, 2011. The adoption of the standard is not expected to have a material impact on ACC’s consolidated results of operations and financial condition.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Receivables

In April 2011, the FASB updated the accounting standards for troubled debt restructurings. The new standard includes indicators that a lender should consider in determining whether a borrower is experiencing financial difficulties and provides clarification for determining whether the lender has granted a concession to the borrower. The standard sets the effective dates for troubled debt restructuring disclosures required by recent guidance on credit quality disclosures. The standard is effective for interim and annual periods beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. For purposes of measuring impairments of receivables that are considered impaired as a result of applying the new guidance, the standard should be applied prospectively for the interim or annual period beginning on or after June 15, 2011. The adoption of the standard is not expected to have a material impact on ACC’s consolidated results of operations and financial condition.

3.  Investments

Investments in unaffiliated issuers were as follows:

	June 30, 2011		December 31, 2010
	(in thousands)
Available-for-Sale:
Fixed maturities, at fair value (amortized cost: 2011, $2,748,621; 2010, $2,909,769)	$	2,711,746	$	2,875,693
Common stocks, at fair value (cost: 2011, $1,462; 2010, $1,376)	2,641		2,413
Syndicated loans and commercial mortgage loans, at cost, net of allowance for loan losses (fair value: 2011, $180,459; 2010, $206,882)	174,494		199,040
Certificate loans — secured by certificate reserves, at cost, which approximates fair value	2,929		3,299
Real estate owned, at fair value less costs to sell	4,774		5,117
Total	$	2,896,584	$	3,085,562

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

	June 30, 2011
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI (1)
			(in thousands)
Residential mortgage backed securities	$	1,546,667	$	25,255	$	(91,272	)	$	1,480,650	$	(35,034	)
Corporate debt securities	421,803		9,127		(154		)	430,776		2
Commercial mortgage backed securities	469,587		8,138		(818		)	476,907		—
Asset backed securities	307,657		14,685		(1,993		)	320,349		(877		)
U.S. government and agencies obligations	2,907		157		—			3,064		—
Common stocks	1,462		1,235		(56		)	2,641		—
Total	$	2,750,083	$	58,597	$	(94,293	)	$	2,714,387	$	(35,909	)

	December 31, 2010
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI (1)
			(in thousands)
Residential mortgage backed securities	$	1,472,410	$	30,242	$	(95,638	)	$	1,407,014	$	(38,323	)
Corporate debt securities	583,341		8,923		(1,285		)	590,979		2
Commercial mortgage backed securities	499,243		10,121		(1,773		)	507,591		—
Asset backed securities	326,344		17,117		(1,939		)	341,522		(915		)
U.S. government and agencies obligations	28,431		156		—			28,587		—
Common stocks	1,376		1,056		(19		)	2,413		—
Total	$	2,911,145	$	67,615	$	(100,654	)	$	2,878,106	$	(39,236	)

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

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

At June 30, 2011 and December 31, 2010, fixed maturity securities comprised approximately 90% and 88%, 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, ACC may utilize ratings from other NRSROs or rate the securities internally. At June 30, 2011 and December 31, 2010, approximately $5.6 million and $10.0 million, respectively, of securities were internally rated by Columbia Management Investment Advisers, LLC using criteria similar to those used by NRSROs. A summary of fixed maturity securities by rating was as follows:

	June 30, 2011						December 31, 2010
Ratings	Amortized Cost		Fair Value		Percent of Total Fair Value		Amortized Cost		Fair Value		Percent of Total Fair Value
	(in thousands, except percentages)
AAA	$	1,636,004	$	1,672,317	62	%	$	1,799,754	$	1,847,326	64	%
AA	156,884		159,651		6		96,952		97,590		3
A	232,376		232,937		9		180,916		180,343		6
BBB	415,750		417,377		15		503,115		500,529		18
Below investment grade	307,607		229,464		8		329,032		249,905		9
Total fixed maturities	$	2,748,621	$	2,711,746	100	%	$	2,909,769	$	2,875,693	100	%

At June 30, 2011 and December 31, 2010, approximately 33% and 31%, respectively, of the securities rated AAA were GNMA, FNMA and FHLMC mortgage backed securities.

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

	June 30, 2011
	Less than 12 months						12 months or more						Total
Description of	Number	Fair		Unrealized			Number	Fair		Unrealized			Number	Fair		Unrealized
Securities	of Securities	Value		Losses			of Securities	Value		Losses			of Securities	Value		Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	35	$	408,472	$	(5,640	)	70	$	262,298	$	(85,632	)	105	$	670,770	$	(91,272	)
Corporate debt securities	4	6,251		(57		)	1	1,933		(97		)	5	8,184		(154		)
Commercial mortgage backed securities	15	93,963		(818		)	—	—		—			15	93,963		(818		)
Asset backed securities	14	67,237		(1,258		)	7	14,207		(735		)	21	81,444		(1,993		)
Common stocks	1	838		(56		)	—	—		—			1	838		(56		)
Total	69	$	576,761	$	(7,829	)	78	$	278,438	$	(86,464	)	147	$	855,199	$	(94,293	)

	December 31, 2010
	Less than 12 months						12 months or more						Total
Description of	Number	Fair		Unrealized			Number	Fair		Unrealized			Number	Fair		Unrealized
Securities	of Securities	Value		Losses			of Securities	Value		Losses			of Securities	Value		Losses
	(in thousands, except number of securities)
Residential mortgage backed securities	20	$	227,367	$	(1,860	)	73	$	282,836	$	(93,778	)	93	$	510,203	$	(95,638	)
Corporate debt securities	7	64,667		(1,230		)	2	3,471		(55		)	9	68,138		(1,285		)
Commercial mortgage backed securities	16	150,294		(1,773		)	—	—		—			16	150,294		(1,773		)
Asset backed securities	11	70,519		(1,402		)	5	9,245		(537		)	16	79,764		(1,939		)
Common stocks	2	947		(19		)	—	—		—			2	947		(19		)
Total	56	$	513,794	$	(6,284	)	80	$	295,552	$	(94,370	)	136	$	809,346	$	(100,654	)

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(in thousands)
Beginning balance of credit losses on securities held for which a portion of other-than-temporary impairment was recognized in other comprehensive income	$	59,944	$	59,800	$	59,855	$	57,446
Additional amount related to credit losses for which an other-than-temporary impairment was not previously recognized	639		—		639		556
Additional increases to the amount related to credit losses for which an other-than-temporary impairment was previously recognized	466		—		555		1,798
Ending balance of credit losses on securities held as of June 30 for which a portion of other-than-temporary impairment was recognized in other comprehensive income	$	61,049	$	59,800	$	61,049	$	59,800

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

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

							Accumulated Other
	Net						Comprehensive
	Unrealized						Loss Related to Net
	Investment			Deferred			Unrealized Investment
	Gains (Losses)			Income Tax			Gains (Losses)
	(in thousands)
Balance at January 1, 2010	$	(73,860	)	$	25,952		$	(47,908	)
Net unrealized securities gains arising during the period (2)	38,110			(13,390		)	24,720
Reclassification of gains included in net income	(822		)	288			(534		)
Balance at June 30, 2010	$	(36,572	)	$	12,850		$	(23,722	)(1)
Balance at January 1, 2011	$	(33,039	)	$	12,020		$	(21,019	)
Net unrealized securities gains arising during the period (2)	(1,887		)	713			(1,174		)
Reclassification of gains included in net income	(770		)	270			(500		)
Balance at June 30, 2011	$	(35,696	)	$	13,003		$	(22,693	)(1)

(1)	Includes $(23.3) million and $(31.0) million of noncredit related impairments on securities and net unrealized securities losses on previously impaired securities at June 30, 2011 and 2010, respectively.
(2)	Includes other-than-temporary impairment losses on Available-for-Sale securities related to factors other than credit that were recognized in other comprehensive income during the period.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2011			2010		2011			2010
	(in thousands)					(in thousands)
Gross realized gains from sales	$	1,427		$	806	$	1,976		$	3,521
Gross realized losses from sales	—			—		(12		)	(129		)
Other-than-temporary impairments	(1,105		)	—		(1,194		)	(2,570		)

The other-than-temporary impairments for the three months and six months ended June 30, 2011 and 2010 primarily related to credit losses on non-agency residential mortgage backed securities.

Available-for-Sale securities by contractual maturity as of June 30, 2011 were as follows:

	Amortized Cost		Fair Value
	(in thousands)
Due within one year	$	79,733	$	80,792
Due after one year through five years	344,449		352,479
Due after five years through 10 years	313		338
Due after 10 years	215		231
	424,710		433,840
Residential mortgage backed securities	1,546,667		1,480,650
Commercial mortgage backed securities	469,587		476,907
Asset backed securities	307,657		320,349
Common stocks	1,462		2,641
Total	$	2,750,083	$	2,714,387

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

4.  Financing Receivables

ACC’s financing receivables include commercial mortgage loans, syndicated loans and certificate loans. ACC does not hold any loans acquired with deteriorated credit quality.

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

	June 30, 2011
	Commercial
	Mortgage Loans		Syndicated Loans			Total
	(in thousands)
Beginning balance	$	2,576	$	5,281		$	7,857
Charge-offs	—		(177		)	(177		)
Provisions	—		(941		)	(941		)
Ending balance	$	2,576	$	4,163		$	6,739
Ending balance: Individually evaluated for impairment	$	1,000	$	669		$	1,669
Ending balance: Collectively evaluated for impairment	1,576		3,494			5,070

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

	June 30, 2010
	Commercial
	Mortgage Loans		Syndicated Loans			Total
	(in thousands)
Beginning balance	$	2,576	$	14,104		$	16,680
Charge-offs	—		(1,381		)	(1,381		)
Provisions	500		(6,319		)	(5,819		)
Ending balance	$	3,076	$	6,404		$	9,480
Ending balance: Individually evaluated for impairment	$	500	$	669		$	1,169
Ending balance: Collectively evaluated for impairment	2,576		5,735			8,311

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

	June 30, 2011
	Commercial
	Mortgage Loans		Syndicated Loans		Total
	(in thousands)
Ending balance: Individually evaluated for impairment	$	3,715	$	1,106	$	4,821
Ending balance: Collectively evaluated for impairment	99,630		76,782		176,412
Ending balance	$	103,345	$	77,888	$	181,233

	December 31, 2010
	Commercial
	Mortgage Loans		Syndicated Loans		Total
	(in thousands)
Ending balance: Individually evaluated for impairment	$	—	$	1,106	$	1,106
Ending balance: Collectively evaluated for impairment	109,641		96,150		205,791
Ending balance	$	109,641	$	97,256	$	206,897

As of both June 30, 2011 and December 31, 2010, ACC had no recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to ACC’s total loan balance. During the three months and six months ended June 30, 2010, ACC sold $19.0 million and $21.0 million, respectively, of syndicated loans. During the three months and six months ended June 30, 2011, ACC sold $0.1 million of syndicated loans. There were no significant purchases of financing receivables during the three months and six months ended June 30, 2011 or 2010.

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $2.8 million and $1.9 million as of June 30, 2011 and December 31, 2010, respectively. All other loans were considered to be performing.

Commercial Mortgage Loans

ACC reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management had assigned its highest risk rating were 3.6% and nil of commercial mortgage loans as of June 30, 2011 and December 31, 2010, respectively. Loans with the highest risk rating represent distressed loans which ACC identifies as impaired or expects to become delinquent or enter into foreclosure in the next six months. In addition, ACC reviews the concentrations of credit risk by region and property type.

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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
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
	(in thousands)
East North Central	$	1,727	$	1,737	2	%	2	%
Middle Atlantic	3,292		3,365		3		3
Mountain	12,155		14,762		12		13
New England	11,178		8,843		10		8
Pacific	13,206		11,447		13		10
South Atlantic	31,090		34,591		30		32
West North Central	20,440		19,616		20		18
West South Central	10,257		15,280		10		14
	103,345		109,641		100	%	100	%
Less: allowance for loan losses	2,576		2,576
Total	$	100,769	$	107,065

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

	Loans				Percentage
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
	(in thousands)
Apartments	$	26,050	$	25,258	25	%	23	%
Industrial	20,619		18,990		20		17
Office	15,707		21,879		15		20
Retail	21,387		23,211		21		21
Other	19,582		20,303		19		19
	103,345		109,641		100	%	100	%
Less: allowance for loan losses	2,576		2,576
Total	$	100,769	$	107,065

Syndicated Loans

ACC’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. The total nonperforming syndicated loans as of June 30, 2011 and December 31, 2010 were $1.1 million and $1.9 million, respectively, which represent 1% and 2% of total syndicated loans, respectively.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

5.  Fair Values of Assets and Liabilities

U.S. 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.

Determination of Fair Value

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

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

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of 90 days or less. ACC’s cash equivalents are classified as Level 2 and are 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.

Investments in Unaffiliated Issuers (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 nationally-recognized pricing services, broker quotes, or other model-based valuation techniques. Level 1 securities primarily include U.S. Treasuries and common stocks. Level 2 securities include agency mortgage backed securities, commercial mortgage backed securities, asset backed securities, municipal and corporate bonds, U.S. agency securities and common stock. The fair value of these Level 2 securities is based on a market approach with prices obtained from nationally-recognized pricing services. Observable inputs used to value these securities can include: reported trades, benchmark yields, issuer spreads and broker/dealer quotes. Level 3 securities primarily include asset backed securities, commercial mortgage backed securities, corporate bonds, non-agency residential mortgage backed securities and common stocks. The fair value of these Level 3 securities is typically based on a single broker quote, except for the valuation of non-agency residential mortgage backed securities. ACC uses prices from nationally-recognized pricing services to determine the fair value of non-agency residential mortgage backed securities; however, ACC classifies these securities at Level 3 because ACC believes the market for these securities is inactive and their valuation includes significant unobservable inputs.

Derivatives (Equity Derivatives, Purchased and Written)

The fair values of derivatives that are traded in less active over-the-counter markets are generally measured using pricing models with market observable inputs such as interest rates and equity index levels. These measurements are classified as Level 2 within the fair value hierarchy.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

Certificate Reserves

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

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

	June 30, 2011
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	100,298	$	—	$	100,298
Available-for-Sale securities:
Residential mortgage backed securities	—		474,239		1,006,411		1,480,650
Corporate debt securities	—		427,260		3,516		430,776
Commercial mortgage backed securities	—		476,907		—		476,907
Asset backed securities	—		221,368		98,981		320,349
U.S. government and agencies obligations	415		2,649		—		3,064
Common stocks	629		1,714		298		2,641
Total Available-for-Sale securities	1,044		1,604,137		1,109,206		2,714,387
Equity derivatives, purchased	—		71,077		4		71,081
Total assets at fair value	$	1,044	$	1,775,512	$	1,109,210	$	2,885,766
Liabilities
Certificate reserves	$	—	$	9,684	$	—	$	9,684
Equity derivatives, written	—		61,005		—		61,005
Total liabilities at fair value	$	—	$	70,689	$	—	$	70,689

	December 31, 2010
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash equivalents	$	—	$	182,192	$	—	$	182,192
Available-for-Sale securities:
Residential mortgage backed securities	—		504,155		902,859		1,407,014
Corporate debt securities	—		583,443		7,536		590,979
Commercial mortgage backed securities	—		497,402		10,189		507,591
Asset backed securities	—		239,850		101,672		341,522
U.S. government and agencies obligations	414		28,173		—		28,587
Common stocks	570		1,499		344		2,413
Total Available-for-Sale securities	984		1,854,522		1,022,600		2,878,106
Equity derivatives, purchased	—		89,008		6		89,014
Total assets at fair value	$	984	$	2,125,722	$	1,022,606	$	3,149,312
Liabilities
Certificate reserves	$	—	$	13,692	$	—	$	13,692
Equity derivatives, written	—		75,201		—		75,201
Total liabilities at fair value	$	—	$	88,893	$	—	$	88,893

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage			Asset
	Backed			Debt			Backed			Backed			Common
	Securities			Securities			Securities			Securities			Stocks			Derivatives			Total
	(in thousands)
Balance, April 1, 2011	$	895,803		$	3,871		$	12,500		$	108,091		$	367		$	6		$	1,020,638
Total gains (losses) included in:
Net income	787		(1)	—			(1		)(2)	1,916		(2)	—			(2		)(2)	2,700
Other comprehensive income	(9,227		)	(19		)	212			(2,113		)	12			—			(11,135		)
Purchases	217,060			—			11,012			—			—			—			228,072
Sales	—			—			—			—			—			—			—
Settlements	(78,384		)	(336		)	—			(8,913		)	—			—			(87,633		)
Transfers into (out of) Level 3	(19,628		)(3)	—			(23,723		)(3)	—			(81		)(4)	—			(43,432		)
Balance, June 30, 2011	$	1,006,411		$	3,516		$	—		$	98,981		$	298		$	4		$	1,109,210
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2011	$	760	(5)	$	—		$	—		$	1,916	(2)	$	—		$	(2	)(2)	$	2,674

(1)    Represents a $(1,105) loss included in net realized gain (loss) on investments and a $1,892 gain included in investment income in the Consolidated Statements of Operations.

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

(3)    Represents securities that were transferred to Level 2 as the fair value is now obtained from a nationally-recognized pricing service with observable inputs. Previously, the fair value of the securities was based on broker quotes.

(4)    Represents a security with a fair value of $85 that was transferred to Level 2 as the fair value is now obtained from a nationally- recognized pricing service with observable inputs and a security with a fair value of $4 that was transferred to Level 3 as the fair value of the security is now based on a single broker quote.

(5)    Represents a $(1,105) loss included in net realized gain (loss) on investments and a $1,865 gain included in investment income in the Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage		Asset
	Backed			Debt			Backed		Backed			Common
	Securities			Securities			Securities		Securities			Stocks		Derivatives			Total
	(in thousands)
Balance, April 1, 2010	$	703,391		$	8,688		$	—	$	127,019		$	—	$	—		$	839,098
Total gains (losses) included in:	1,136		(1)	—			—		1,721		(1)	—		4		(1)	2,861
Net income
Other comprehensive income	18,948			(25		)	—		574			—		—			19,497
Purchases, sales, issues and settlements, net	88,892			(681		)	—		(14,845		)	—		—			73,366
Transfers into (out of) Level 3	—			—			—		—			—		—			—
Balance, June 30, 2010	$	812,367		$	7,982		$	—	$	114,469		$	—	$	4		$	934,822
Change in unrealized gains included in net income related to Level 3 assets held at June 30, 2010	$	1,098	(1)	$	—		$	—	$	1,721	(1)	$	—	$	4	(1)	$	2,823

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

17

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage			Asset
	Backed			Debt			Backed			Backed			Common
	Securities			Securities			Securities			Securities			Stocks			Derivatives			Total
	(in thousands)
Balance, January 1, 2011	$	902,859		$	7,536		$	10,189		$	101,672		$	344		$	6		$	1,022,606
Total gains (losses) included in:
Net income	1,049		(1)	—			(1		)(2)	2,822		(2)	—			(2		)(2)	3,868
Other comprehensive income	(1,006		)	(86		)	204			(1,882		)	35			—			(2,735		)
Purchases	286,764			—			23,520			14,999			—			—			325,283
Sales	—			—			—			—			—			—			—
Settlements	(163,627		)	(3,934		)	—			(18,630		)	—			—			(186,191		)
Transfers into (out of) Level 3	(19,628		)(3)	—			(33,912		)(3)	—			(81		)(4)	—			(53,621		)
Balance, June 30, 2011	$	1,006,411		$	3,516		$	—		$	98,981		$	298		$	4		$	1,109,210
Change in unrealized gains (losses) included in net income related to Level 3 assets held at June 30, 2011	$	1,003	(5)	$	—		$	—		$	2,822	(2)	$	—		$	(2	)(2)	$	3,823

(1)    Represents a $(1,194) loss included in net realized gain on investments and a $2,243 gain included in investment income in the Consolidated Statements of Operations.

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

(3)    Represents securities that were transferred to Level 2 as the fair value is now obtained from a nationally-recognized pricing service with observable inputs. Previously, the fair value of the securities was based on broker quotes.

(4)    Represents a security with a fair value of $85 that was transferred to Level 2 as the fair value is now obtained from a nationally-recognized pricing service with observable inputs and a security with a fair value of $4 that was transferred to Level 3 as the fair value of the security is now based on a single broker quote.

(5)    Represents a $(1,194) loss included in net realized gain on investments and a $2,197 gain included in investment income in the Consolidated Statements of Operations.

18

AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

	Available-for-Sale Securities
	Residential						Commercial
	Mortgage			Corporate			Mortgage		Asset
	Backed			Debt			Backed		Backed			Common
	Securities			Securities			Securities		Securities			Stocks		Derivatives			Total
	(in thousands)
Balance, January 1, 2010	$	745,633		$	12,104		$	—	$	130,584		$	—	$	—		$	888,321
Total gains (losses) included in:
Net income	288		(1)	—			—		2,608		(2)	—		4		(3)	2,900
Other comprehensive income	32,539			(42		)	—		6,608			—		—			39,105
Purchases, sales, issues and settlements, net	33,907			(4,080		)	—		(25,331		)	—		—			4,496
Transfers into (out of) Level 3	—			—			—		—			—		—			—
Balance, June 30, 2010	$	812,367		$	7,982		$	—	$	114,469		$	—	$	4		$	934,822
Change in unrealized gains included in net income related to Level 3 assets held at June 30, 2010	$	205	(4)	$	—		$	—	$	2,608	(2)	$	—	$	4	(3)	$	2,817

(1)    Represents a $(2,066) loss included in net realized gain (loss) on investments and a $2,354 gain included in investment income in the Consolidated Statements of Operations.

(2)    Represents a $(289) loss included in net realized gain (loss) on investments and a $2,897 gain included in investment income in the Statements of Operations.

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

(4)    Represents a $(2,066) loss included in net realized gain (loss) on investments and a $2,271 gain in investment income in the Statements of Operations.

ACC recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred.

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

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

	June 30, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Financial Assets	$	73,725	$	74,471	$	91,975	$	93,518
Syndicated loans
Commercial mortgage loans	100,769		105,988		107,065		113,364
Certificate loans	2,929		2,929		3,299		3,299
Financial Liabilities
Certificate reserves	$	2,876,145	$	2,860,127	$	3,146,139	$	3,128,694

The fair value of syndicated loans is obtained from a nationally-recognized pricing service.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

The fair value of investment certificate reserves is determined by discounting cash flows using discount rates that reflect current pricing for assets with similar terms and characteristics, with adjustments for early withdrawal behavior, penalty fees, expense margin and ACC’s nonperformance risk specific to these liabilities.

6.  Derivatives and Hedging Activities

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

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

		Asset					Liability
Derivatives not designated as hedging instruments	Balance Sheet Location	June 30, 2011		December 31, 2010		Balance Sheet Location	June 30, 2011		December 31, 2010
		(in thousands)					(in thousands)
Equity
Stock market certificates	Equity derivatives, purchased	$	70,605	$	88,590	Equity derivatives, written	$	61,005	$	75,201
Equity warrants	Equity derivatives, purchased	476		424		N/A	—		—
Stock market certificates embedded derivatives	N/A	—		—		Certificate reserves	9,684		13,692
Total		$	71,081	$	89,014		$	70,689	$	88,893

N/A  Not applicable.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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

		Amount of Gain (Loss) on
		Derivatives Recognized in Income
Derivatives Not Designated as	Location of Gain (Loss) on	Three Months Ended			Six Months Ended
Hedging Instruments	Derivatives Recognized in Income	June 30, 2011			June 30, 2011
		(in thousands)
Equity
Stock market certificates	Net provision for certificate reserves	$	380		$	2,953
Equity warrants	Investment income	(16		)	52
Stock market certificates embedded derivatives	Net provision for certificate reserves	(188		)	(2,561		)
Total		$	176		$	444
		Amount of Gain (Loss) on
		Derivatives Recognized in Income
Derivatives Not Designated as	Location of Gain (Loss) on	Three Months Ended			Six Months Ended
Hedging Instruments	Derivatives Recognized in Income	June 30, 2010			June 30, 2010
		(in thousands)
Equity
Stock market certificates	Net provision for certificate reserves	$	(5,012	)	$	(2,042	)
Equity warrants	Investment income	393			393
Stock market certificates embedded derivatives	Net provision for certificate reserves	4,841			1,814
Total		$	222		$	165

Ameriprise Stock Market Certificates (“SMC”) offer a return based upon the relative change in a major stock market index between the beginning and end of the SMC’s term. The SMC product contains an embedded derivative. The equity based return of the certificate must be separated from the host contract and accounted for as a derivative instrument. As a result of fluctuations in equity markets, and the corresponding changes in value of the embedded derivative, the amount of expenses incurred by ACC related to the SMC product will positively or negatively impact reported earnings. As a means of hedging its obligations under the provisions for these certificates, ACC purchases and writes call options on the S&P 500 Index. ACC views this strategy as a prudent management of equity market sensitivity, such that earnings are not exposed to undue risk presented by changes in equity market levels. The gross notional amount of these derivative contracts was $1.3 billion and $1.4 billion at June 30, 2011 and December 31, 2010, respectively. ACC also purchases futures on the S&P 500 Index to economically hedge its obligations. The futures are marked-to-market daily and exchange traded, exposing ACC to no counterparty risk. The gross notional amount of these derivative contracts was $0.3 million at both June 30, 2011 and December 31, 2010.

Equity warrants were received as part of a syndicated loan restructure and do not constitute a hedge of underlying assets or liabilities.

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. As of June 30, 2011 and December 31, 2010, ACC held $3.6 million and $4.6 million, respectively, in cash and recorded a corresponding liability in other liabilities for collateral ACC is obligated to return to counterparties. As of June 30, 2011 and December 31, 2010, ACC’s maximum credit exposure related to derivative assets after considering netting arrangements with counterparties and collateral arrangements was approximately $6.0 million and $8.9 million, respectively.

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AMERIPRISE CERTIFICATE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

7.  Contingencies

ACC is not aware that it is a party to any pending legal, arbitration, or regulatory proceeding that is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity. Notwithstanding the foregoing, it is possible that the outcome of any current or future legal, arbitration or regulatory proceeding could have a material adverse effect on the consolidated results of operations in any particular reporting period as the proceedings are resolved.

8.  Income Taxes

The effective tax rate was 38.5% and 37.8% for the three months and six months ended June 30, 2011, respectively, compared to 37.0% and 36.6% for the three months and six months ended June 30, 2010, respectively.

ACC is required to establish a valuation allowance for any portion of the deferred income tax assets that management believes will not be realized.  Included in deferred income tax assets are a significant deferred tax asset relating to capital losses that have been recognized for financial statement purposes but not yet for tax return purposes and future deductible capital losses realized for tax return purposes.  Under current U.S. federal income tax law, capital losses generally must be used against capital gain income within five years of the year in which the capital losses are recognized for tax purposes.  Significant judgment is required in determining if a valuation allowance should be established, and the amount of such allowance if required.  Factors used in making this determination include estimates relating to the performance of the business including the ability to generate capital gains.  Consideration is given to, among other things in making this determination, (i) future taxable income exclusive of reversing temporary differences and carryforwards, (ii) future reversals of existing taxable temporary differences, (iii) taxable income in prior carryback years, and (iv) tax planning strategies.  Based on analysis of ACC’s tax position, management believes it is more likely than not that the results of future operations and implementation of tax planning strategies will generate sufficient taxable income to enable the Company to utilize all of its deferred tax assets.  Accordingly, no valuation allowance for deferred tax assets has been established as of June 30, 2011 and December 31, 2010.

As of June 30, 2011 and December 31, 2010, ACC had $2 million and nil, respectively, of gross unrecognized tax benefits. If recognized, it is unlikely that there would be any effect on the effective tax rate, net of federal tax benefits, of the unrecognized tax benefits as of June 30, 2011 and December 31, 2010.

ACC recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. ACC recognized $1 million in interest and penalties for the three months and six months ended June 30, 2011 and $0.2 million in interest and penalties for the three months and six months ended June 30, 2010. ACC had $1 million and nil accrued for the payment of interest and penalties at June 30, 2011 and December 31, 2010, respectively.

It is reasonably possible that the total amounts of unrecognized tax benefits will change in the next 12 months. Based on the current audit position of ACC, it is estimated that the total amount of gross unrecognized tax benefits may decrease by $2 million in the next 12 months.

ACC files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, ACC is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 1997. The Internal Revenue Service (“IRS”), completed its field examination of ACC’s U.S. income tax returns for 2005 through 2007 during the third and fourth quarters of 2010. The IRS had previously completed its field examination of the 1997 through 2004 tax returns in recent years as part of the overall examination of the American Express Company consolidated returns. However, for federal income tax purposes these years continue to remain open as a consequence of certain issues under appeal.  In the fourth quarter of 2010, the IRS commenced an examination of ACC’s U.S. income tax returns for 2008 and 2009. ACC’s or its subsidiary’s state income tax returns are currently under examination by various jurisdictions for years ranging from 1998 through 2008.

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ITEM 2.  MANAGEMENT’S NARRATIVE ANALYSIS

The following information should be read in conjunction with Ameriprise Certificate Company’s (“ACC”) Financial Statements and related notes presented in Part I, Item 1. This discussion may contain forward-looking statements that reflect ACC’s plans, estimates and beliefs. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed under “Forward-Looking Statements.” ACC believes it is useful to read its management’s narrative analysis in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on February 23, 2011 (“2010 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.

ACC’s future profitability is dependent upon changes in the economic, credit and equity environments, as well as the competitive environment. Ameriprise Financial and unaffiliated third parties offer certain competing products which have demonstrated strong appeal to investors.

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 2010 10-K.

Recent Accounting Pronouncements

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

Results of Operations for the Six Months Ended June 30, 2011 and 2010

Net income for the six months ended June 30, 2011 was $20.3 million compared to $26.9 million for the six months ended June 30, 2010, a decrease of $6.6 million, primarily due to a decrease in investment income as a result of lower investment balances and lower average yields partially offset by decreases in investment expenses and the provision for certificate reserves. Results for the six months ended June 30, 2011 included a $1.9 million after-tax adjustment for revisions to certain accretion calculations in ACC’s valuation of mortgage backed and asset backed securities.

Investment income decreased $22.5 million, or 27%, to $61.6 million for the six months ended June 30, 2011 compared to $84.1 million for the prior year period. This decrease is primarily the result of lower investment balances due to net outflows of certificates driven by lower interest crediting rates, as well as lower average yields on invested assets. Investment income for the six months ended June 30, 2011 included a $3.0 million adjustment for revisions to certain accretion calculations in ACC’s valuation of mortgage backed and asset backed securities.

Investment expenses decreased $2.3 million, or 15%, to $13.7 million for the six months ended June 30, 2011 compared to $16.1 million for the prior year period. This decrease is due to lower distribution fees and investment advisory and services fees as a result of lower certificate reserve balances in the first half of 2011 compared to the prior year period.

The net provision for certificate reserves decreased $14.2 million, or 46%, to $16.5 million for the six months ended June 30, 2011 compared to $30.7 million for the prior year period. This decrease is a result of lower certificate balances primarily driven by client outflows and lower interest crediting rates compared to the prior year period.

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Net realized gain on investments was $1.2 million for the six months ended June 30, 2011 compared to $5.1 million for the prior year period. Included in net realized investment gains for the six months ended June 30, 2011 was a $1.1 million decrease in the syndicated loans reserve compared to a $7.7 million decrease in the syndicated loans reserve for the prior year period. The decrease in the reserve for both periods was primarily due to improvement of underlying credit. For the six months ended June 30, 2011, net realized gain on investments also included net gains on corporate securities due to calls and tenders offset by other-than-temporary impairments on mortgage backed securities and a change in the valuation of real estate owned. For the six months ended June 30, 2010, net realized gain on investments also included net gains on corporate securities due to sales, calls, and tenders partially offset by an increase in the commercial mortgage loan reserve and other-than-temporary impairment losses on non-agency residential mortgage backed securities.

The effective tax rate was 37.8% for the six months ended June 30, 2011 compared to 36.6% for the six months ended June 30, 2010.

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 price or observable inputs in its fair value measurements to the extent available. Broker quotes are obtained when quotes from pricing services are not available. ACC validates prices obtained from third parties through a variety of means such as: price variance analysis, subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of vendors.

Non-agency Residential Mortgage Backed and Asset Backed Securities Backed by Subprime, Alt-A or Prime Collateral

Subprime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. Alt-A mortgage lending is the origination of residential mortgage loans to customers who have credit ratings above subprime but may not conform to government-sponsored standards. Prime mortgage lending is the origination of residential mortgage loans to customers with good credit profiles. ACC has exposure to these types of loans predominantly through mortgage backed and asset backed securities. The slowdown in the U.S. housing market, combined with relaxed underwriting standards by some originators, has led to higher delinquency and loss rates for some of these investments. Market conditions have increased the likelihood of other-than-temporary impairments for certain non-agency residential mortgage backed securities. As a part of ACC’s risk management process, an internal rating system is used in conjunction with market data as the basis for analysis to assess the likelihood that ACC will not receive all contractual principal and interest payments for these investments. For the investments that are more at risk for impairment, ACC performs its own assessment of projected cash flows incorporating assumptions about default rates, prepayment speeds, loss severity, and geographic concentrations to determine if an other-than-temporary impairment should be recognized.

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The following table presents as of June 30, 2011, ACC’s non-agency residential mortgage backed and asset backed securities backed by subprime, Alt-A or prime mortgage loans by credit rating and vintage year (in thousands):

	AAA				AA				A				BBB				BB & Below				Total
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value		Cost		Value		Cost		Value
Subprime
2003 & prior	$	6,002	$	5,946	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	6,002	$	5,946
2004	7,681		7,500		—		—		5,672		5,283		—		—		7,879		7,002		21,232		19,785
2005	4,311		4,413		20,119		20,928		3,748		3,615		—		—		4,126		4,055		32,304		33,011
2006	—		—		—		—		—		—		3,190		3,254		1,886		1,873		5,076		5,127
2007	—		—		—		—		2,484		2,501		—		—		—		—		2,484		2,501
Re-Remic(1)	—		—		—		—		3,705		3,713		5,617		5,714		—		—		9,322		9,427
Total Subprime	$	17,994	$	17,859	$	20,119	$	20,928	$	15,609	$	15,112	$	8,807	$	8,968	$	13,891	$	12,930	$	76,420	$	75,797
Alt-A
2003 & prior	$	1,518	$	1,525	$	1,375	$	1,372	$	—	$	—	$	839	$	804	$	—	$	—	$	3,732	$	3,701
2004	—		—		4,851		4,401		172		137		15,593		11,183		11,495		8,763		32,111		24,484
2005	—		—		—		—		—		—		—		—		84,791		59,345		84,791		59,345
2006	—		—		—		—		—		—		—		—		27,815		22,688		27,815		22,688
2007	—		—		—		—		—		—		—		—		41,119		25,283		41,119		25,283
2008	—		—		—		—		—		—		—		—		—		—		—		—
2009	—		—		—		—		—		—		—		—		—		—		—		—
2010	51,507		51,318		—		—		—		—		—		—		—		—		51,507		51,318
Re-Remic(1)	125,976		125,257		—		—		3,954		4,016		—		—		—		—		129,930		129,273
Total Alt-A	$	179,001	$	178,100	$	6,226	$	5,773	$	4,126	$	4,153	$	16,432	$	11,987	$	165,220	$	116,079	$	371,005	$	316,092
Prime
2003 & prior	$	32,530	$	33,136	$	29,626	$	29,341	$	36,218	$	35,654	$	5,543	$	5,348	$	—	$	—	$	103,917	$	103,479
2004	13,593		13,138		20,301		20,028		8,561		8,279		32,544		30,327		39,781		22,208		114,780		93,980
2005	3,057		2,913		11,462		10,789		—		—		15,265		14,651		70,924		60,808		100,708		89,161
2006	—		—		—		—		—		—		—		—		3,196		2,758		3,196		2,758
2007	20,909		20,497		—		—		—		—		—		—		—		—		20,909		20,497
Re-Remic(1)	285,208		292,089		38,608		38,825		49,371		49,530		—		—		—		—		373,187		380,444
Total Prime	$	355,297	$	361,773	$	99,997	$	98,983	$	94,150	$	93,463	$	53,352	$	50,326	$	113,901	$	85,774	$	716,697	$	690,319
Grand Total	$	552,292	$	557,732	$	126,342	$	125,684	$	113,885	$	112,728	$	78,591	$	71,281	$	293,012	$	214,783	$	1,164,122	$	1,082,208

(1)   Re-Remics of mortgage backed securities are prior vintages with cash flows structured into senior and subordinated bonds. Credit enhancement has been increased through the Re-Remic process on the securities ACC owns.

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Forward-Looking Statements

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

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

ACC’s management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of ACC’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, ACC’s Chief Executive Officer and Chief Financial Officer have concluded that ACC’s disclosure controls and procedures were effective at a reasonable level of assurance as of June 30, 2011.

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 7 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 2010 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:  August 12, 2011	/s/ William F. Truscott
	William F. Truscott
	Chief Executive Officer
Date:  August 12, 2011	/s/ Ross P. Palacios
	Ross P. Palacios
	Chief Financial Officer

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EXHIBIT INDEX

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

Exhibit	Description
3(a)	Amended and Restated Certificate of Incorporation of American Express Certificate Company, dated Aug. 1, 2005, filed electronically on or about March 10, 2006 as Exhibit 3(a) to Registrant’s Form 10-K is incorporated by reference.
3(b)	By-Laws of Ameriprise Certificate Company, filed electronically on or about November 5, 2010 as Exhibit 3(b) to Registrant’s Form 10-Q, are incorporated herein by reference.
* 31.1	Certification of William F. Truscott pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
* 31.2	Certification of Ross P. Palacios pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
* 32.1	Certification of William F. Truscott and Ross P. Palacios pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* 101	The following materials from Ameriprise Certificate Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, formatted in XBRL: (i) Consolidated Statements of Operations for the three months and six months ended June 30, 2011 and 2010; (ii) Consolidated Balance Sheets at June 30, 2011 and December 31, 2010; (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; (iv) Consolidated Statements of Shareholder’s Equity for the six months ended June 30, 2011 and 2010; and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text.

* Filed electronically herewithin.

E-1