Quarterly Report (10-q)

Date : 05/02/2018 @ 6:01PM
Source : Edgar (US Regulatory)
Stock : Ameriprise Financial, Inc. (AMP)
Quote : 142.23  -0.39 (-0.27%) @ 4:02PM

Quarterly Report (10-q)

 
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 March 31, 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. 1-32525 
AMERIPRISE FINANCIAL, INC.
(Exact name of registrant as specified in its charter) 
Delaware
 
13-3180631
(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, smaller reporting company, or an emerging growth company. See the 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   x
Accelerated Filer   o
Non-Accelerated Filer   o
(Do not check if a smaller reporting company)
Smaller reporting company   o
Emerging growth company   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 April 20, 2018
Common Stock (par value $.01 per share)
 
144,612,802 shares
 



AMERIPRISE FINANCIAL, INC. 

FORM 10-Q
INDEX 
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
 
Consolidated Statements of Operations — Three months ended March 31, 2018 and 2017
Consolidated Statements of Comprehensive Income — Three months ended March 31, 2018 and 2017
Consolidated Balance Sheets — March 31, 2018 and December 31, 2017
Consolidated Statements of Equity — Three months ended March 31, 2018 and 2017
Consolidated Statements of Cash Flows — Three months ended March 31, 2018 and 2017
Notes to Consolidated Financial Statements
1. Basis of Presentation
2. Recent Accounting Pronouncements
3. Revenue from Contracts with Customers
4. Variable Interest Entities
5. Investments
6. Financing Receivables
7. Deferred Acquisition Costs and Deferred Sales Inducement Costs
8. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities
9. Variable Annuity and Insurance Guarantees
10. Debt
11. Fair Values of Assets and Liabilities
12. Offsetting Assets and Liabilities
13. Derivatives and Hedging Activities
14. Shareholders’ Equity
15. Regulatory Requirements
16. Income Taxes
17. Contingencies
18. Earnings per Share
19. Segment Information
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Item 4.  Controls and Procedures
 
 
Part II.  Other Information
Item 1.  Legal Proceedings
Item 1A.  Risk Factors
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.  Exhibits
Signatures

2


AMERIPRISE FINANCIAL, INC. 

PART I. FINANCIAL INFORMATION 
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
Three Months Ended March 31,
2018
 
2017 (1)
(in millions, except per share amounts) 
Revenues
 
 
 
Management and financial advice fees
$
1,669

 
$
1,487

Distribution fees
468

 
441

Net investment income
396

 
391

Premiums
343

 
339

Other revenues
308

 
278

Total revenues
3,184

 
2,936

Banking and deposit interest expense
16

 
10

Total net revenues
3,168

 
2,926

Expenses
 
 
 
Distribution expenses
905

 
823

Interest credited to fixed accounts
141

 
162

Benefits, claims, losses and settlement expenses
494

 
567

Amortization of deferred acquisition costs
92

 
72

Interest and debt expense
51

 
50

General and administrative expense
789

 
777

Total expenses
2,472

 
2,451

Pretax income
696

 
475

Income tax provision
102

 
72

Net income
$
594

 
$
403

 
 
 
 
Earnings per share
 
 
 
Basic
$
3.97

 
$
2.56

Diluted
$
3.91

 
$
2.52

 
 
 
 
Cash dividends declared per common share
$
0.83

 
$
0.75

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

 
$
(1
)
Portion of loss recognized in other comprehensive income (before taxes)

 

Net impairment losses recognized in net investment income
$

 
$
(1
)
(1) Certain prior period amounts have been restated. See Note 1 for more information.
See Notes to Consolidated Financial Statements.

3


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended March 31,
2018
 
2017
(in millions) 
Net income
$
594

 
$
403

Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustment
29

 
7

Net unrealized gains (losses) on securities
(262
)
 
7

Net unrealized gains (losses) on derivatives

 
1

Defined benefit plans

 
5

Other

 
(1
)
Total other comprehensive income (loss), net of tax
(233
)
 
19

Total comprehensive income
$
361

 
$
422

See Notes to Consolidated Financial Statements.
 
 
 


4


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
March 31,
2018
 
December 31, 2017 (1)
(in millions, except share amounts)
Assets
 
 
 
Cash and cash equivalents
$
2,102

 
$
2,484

Cash of consolidated investment entities
99

 
136

Investments
35,320

 
35,925

Investments of consolidated investment entities, at fair value
2,111

 
2,131

Separate account assets
85,847

 
87,368

Receivables
5,860

 
5,762

Receivables of consolidated investment entities, at fair value
20

 
25

Deferred acquisition costs
2,718

 
2,676

Restricted and segregated cash and investments
2,818

 
3,147

Other assets
7,867

 
7,826

Total assets
$
144,762

 
$
147,480

 
 
 
 
Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Policyholder account balances, future policy benefits and claims
$
29,364

 
$
29,904

Separate account liabilities
85,847

 
87,368

Customer deposits
10,240

 
10,303

Short-term borrowings
201

 
200

Long-term debt
2,881

 
2,891

Debt of consolidated investment entities, at fair value
2,174

 
2,206

Accounts payable and accrued expenses
1,609

 
1,975

Other liabilities
6,570

 
6,575

Other liabilities of consolidated investment entities, at fair value
36

 
63

Total liabilities
138,922

 
141,485

Equity:
 
 
 
Ameriprise Financial, Inc.:
 
 
 
Common shares ($.01 par value; shares authorized, 1,250,000,000; shares issued, 328,114,954 and 327,506,935 respectively)
3

 
3

Additional paid-in capital
8,116

 
8,085

Retained earnings
11,796

 
11,326

Treasury shares, at cost (183,096,597 and 180,872,271 shares, respectively)
(14,070
)
 
(13,648
)
Accumulated other comprehensive income (loss), net of tax
(5
)
 
229

Total equity
5,840

 
5,995

Total liabilities and equity
$
144,762

 
$
147,480

(1) Certain prior period amounts have been restated. See Note 1 for more information.
See Notes to Consolidated Financial Statements.

5


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
 
Number of Outstanding Shares
Common Shares
Additional Paid-In Capital
Retained Earnings
Treasury
Shares
Accumulated Other 
Comprehensive  Income
Total
(in millions, except per share data)
Balances at January 1, 2017, previously reported
154,759,904
 
$
3
 
$
7,765
 
$
10,351
 
$
(12,027
)
$
200
 
$
6,292

Cumulative effect of change in accounting policies
 
 
 
(3
)
 
 
(3
)
Balances at January 1, 2017, restated
154,759,904
 
3
 
7,765
 
10,348
 
(12,027
)
200
 
6,289

Comprehensive income:
 
 
 
 
 
 
 
Net income
 
 
 
403
 
 
 
403

Other comprehensive income, net of tax
 
 
 
 
 
19
 
19

Total comprehensive income
 
 
 
 
 
 
422

Dividends to shareholders
 
 
 
(121
)
 
 
(121
)
Repurchase of common shares
(4,118,826
)
 
 
 
(509
)
 
(509
)
Share-based compensation plans
2,347,526
 
 
92
 
 
51
 
 
143

Balances at March 31, 2017
152,988,604
 
$
3
 
$
7,857
 
$
10,630
 
$
(12,485
)
$
219
 
$
6,224

 
 
 
 
 
 
 
 
Balances at January 1, 2018 (1)
146,634,664
 
$
3
 
$
8,085
 
$
11,326
 
$
(13,648
)
$
229
 
$
5,995

Cumulative effect of change in accounting policies
 
 
 
1
 
 
(1
)

Comprehensive income:
 
 
 
 
 
 
 
Net income
 
 
 
594
 
 
 
594

Other comprehensive loss, net of tax
 
 
 
 
 
(233
)
(233
)
Total comprehensive income
 
 
 
 
 
 
361

Dividends to shareholders
 
 
 
(125
)
 
 
(125
)
Repurchase of common shares
(3,003,729
)
 
 
 
(482
)
 
(482
)
Share-based compensation plans
1,387,422
 
 
31
 
 
60
 
 
91

Balances at March 31, 2018
145,018,357
 
$
3
 
$
8,116
 
$
11,796
 
$
(14,070
)
$
(5
)
$
5,840

(1) Prior period retained earnings have been restated. See Note 1 for more information.
See Notes to Consolidated Financial Statements.

6


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
Three Months Ended March 31,
2018
 
2017
(in millions)
Cash Flows from Operating Activities
 
 
 
Net income
$
594

 
$
403

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation, amortization and accretion, net
56

 
63

Deferred income tax expense (benefit)
104

 
38

Share-based compensation
32

 
31

Net realized investment (gains) losses
(6
)
 
(19
)
Net trading (gains) losses
(3
)
 
(1
)
Loss from equity method investments
12

 
12

Other-than-temporary impairments and provision for loan losses

 
1

Net (gains) losses of consolidated investment entities
1

 
3

Changes in operating assets and liabilities:
 
 
 
Restricted and segregated investments
75

 
25

Deferred acquisition costs
13

 
5

Other investments, net
(21
)
 
(98
)
Policyholder account balances, future policy benefits and claims, net
(325
)
 
(434
)
Derivatives, net of collateral
29

 
304

Receivables
(78
)
 
(59
)
Brokerage deposits
(207
)
 
77

Accounts payable and accrued expenses
(373
)
 
(259
)
Other operating assets and liabilities of consolidated investment entities, net
3

 

Other, net
(114
)
 
(86
)
Net cash provided by (used in) operating activities
(208
)
 
6

 
 
 
 
Cash Flows from Investing Activities
 
 
 
Available-for-Sale securities:
 
 
 
Proceeds from sales
361

 
46

Maturities, sinking fund payments and calls
1,195

 
1,274

Purchases
(1,456
)
 
(1,135
)
Proceeds from sales, maturities and repayments of mortgage loans
75

 
117

Funding of mortgage loans
(40
)
 
(112
)
Proceeds from sales and collections of other investments
29

 
90

Purchase of other investments
(57
)
 
(54
)
Purchase of investments by consolidated investment entities
(116
)
 
(285
)
Proceeds from sales, maturities and repayments of investments by consolidated investment entities
130

 
296

Purchase of land, buildings, equipment and software
(33
)
 
(33
)
Other, net
(1
)
 
7

Net cash provided by (used in) investing activities
$
87

 
$
211

 
 
 
 
See Notes to Consolidated Financial Statements.

7


AMERIPRISE FINANCIAL, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)

 
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
 
Cash Flows from Financing Activities
 
 
 
 
Investment certificates:
 
 
 
 
Proceeds from additions
$
1,336

 
$
1,284

 
Maturities, withdrawals and cash surrenders
(1,192
)
 
(1,083
)
 
Policyholder account balances:
 
 
 
 
Deposits and other additions
444

 
502

 
Net transfers from (to) separate accounts
(28
)
 
(23
)
 
Surrenders and other benefits
(501
)
 
(507
)
 
Cash paid for purchased options with deferred premiums
(45
)
 
(58
)
 
Cash received from purchased options with deferred premiums
24

 

 
Repayments of long-term debt
(3
)
 
(2
)
 
Dividends paid to shareholders
(122
)
 
(117
)
 
Repurchase of common shares
(425
)
 
(436
)
 
Exercise of stock options
2

 
6

 
Repayments of debt by consolidated investment entities
(52
)
 

 
Other, net
(2
)
 

 
Net cash provided by (used in) financing activities
(564
)
 
(434
)
 
Effect of exchange rate changes on cash
12

 
5

 
Net increase (decrease) in cash, cash equivalents and restricted cash
(673
)
 
(212
)
 
Cash, cash equivalents and restricted cash at beginning of period
5,144

 
5,392

 
Cash, cash equivalents and restricted cash at end of period
$
4,471

 
$
5,180

 
 
 
 
 
 
Supplemental Disclosures:
 
 
 
 
Interest paid excluding consolidated investment entities
$
44

 
$
40

 
Interest paid by consolidated investment entities
21

 
20

 
Income taxes paid, net
118

 
137

 
Non-cash investing activity:
 
 
 
 
Partnership commitments not yet remitted

 
9

 
 
 
 
 
 
 
March 31,
2018
 
December 31,
2017
 
(in millions)
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
 
Cash and cash equivalents
$
2,102

 
$
2,484

 
Cash of consolidated investment entities
99

 
136

 
Restricted and segregated cash and investments
2,818

 
3,147

 
Less: Restricted and segregated investments
(548
)
 
(623
)
 
Total cash, cash equivalents and restricted cash per consolidated statements of cash flows
$
4,471

 
$
5,144

 
See Notes to Consolidated Financial Statements.

8


AMERIPRISE FINANCIAL, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
1. Basis of Presentation
Ameriprise Financial, Inc. is a holding company, which primarily conducts business through its subsidiaries to provide financial planning, products and services that are designed to be utilized as solutions for clients’ cash and liquidity, asset accumulation, income, protection and estate and wealth transfer needs. The foreign operations of Ameriprise Financial, Inc. are conducted primarily through Threadneedle Asset Management Holdings Sàrl and Ameriprise Asset Management Holdings GmbH (collectively, “Threadneedle”).
The accompanying Consolidated Financial Statements include the accounts of Ameriprise Financial, Inc., companies in which it directly or indirectly has a controlling financial interest and variable interest entities (“VIEs”) in which it is the primary beneficiary (collectively, the “Company”). All intercompany transactions and balances have been eliminated in consolidation.
The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for fair statement of the consolidated results of operations and financial position for the interim periods have been made. Except for the out-of-period correction described below and the prior period adjustments for the retrospective adoption of the new revenue recognition accounting standard, all adjustments made were of a normal recurring nature.
In the first quarter of 2017, the Company recorded a $20 million decrease to income tax provision related to an out-of-period correction for a reversal of a tax reserve.
The accompanying Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2017 , filed with the Securities and Exchange Commission (“SEC”) on February 23, 2018 (“ 2017 10-K”).
The Company evaluated events or transactions that may have occurred after the balance sheet date for potential recognition or disclosure through the date the financial statements were issued. No subsequent events or transactions were identified.
On January 1, 2018, the Company retrospectively adopted the new accounting standard for revenue recognition. See Note 2 and Note 3 for further information on the new accounting standard and the Company’s revenue from contracts with customers. The following table presents the impact to the consolidated statements of operations for the prior period presented:
 
Three Months Ended March 31, 2017
Previously Reported
 
Effect of Change
 
As Adjusted
(in millions)
Revenues
 
 
 
 
 
Management and financial advice fees
$
1,482

 
$
5

 
$
1,487

Distribution fees
443

 
(2
)
 
441

Net investment income
391

 

 
391

Premiums
339

 

 
339

Other revenues
256

 
22

 
278

Total revenues
2,911

 
25

 
2,936

Banking and deposit interest expense
10

 

 
10

Total net revenues
2,901

 
25

 
2,926

 
 
 
 
 
 
Expenses
 
 
 
 
 
Distribution expenses
823

 

 
823

Interest credited to fixed accounts
162

 

 
162

Benefits, claims, losses and settlement expenses
567

 

 
567

Amortization of deferred acquisition costs
72

 

 
72

Interest and debt expense
50

 

 
50

General and administrative expense
752

 
25

 
777

Total expenses
2,426

 
25

 
2,451

Pretax income
475

 

 
475

Income tax provision
72

 

 
72

Net income
$
403

 
$

 
$
403

The impact to the consolidated balance sheet as of December 31, 2017 was a $10 million increase to total assets, a $13 million increase to total liabilities and a $3 million decrease to retained earnings.

9


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


2.   Recent Accounting Pronouncements
Adoption of New Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) updated the accounting standards for revenue from contracts with customers. The update provides a five-step revenue recognition model for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other standards). The standard also updates the accounting for certain costs associated with obtaining and fulfilling a customer contract and requires disclosure of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted for interim and annual periods beginning after December 15, 2016. The standard may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company adopted the revenue recognition guidance on a retrospective basis on January 1, 2018. The update does not apply to revenue associated with the manufacturing of insurance and annuity products or financial instruments as these revenues are in the scope of other standards. Therefore, the update did not have an impact on these revenues. The Company’s implementation efforts included the identification of revenue within the guidance and the review of the customer contracts to determine the Company’s performance obligation and the associated timing of each performance obligation. The Company determined that certain payments received primarily related to franchise advisor fees should be presented as revenue rather than a reduction of expense. The adoption of the standard did not have other material impacts on the Company’s consolidated results of operations and financial condition. The impact of the change was an increase to both revenues and expenses of $25 million for the three months ended March 31, 2017. See Note 3 for new disclosures on revenue from contracts with customers.
Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB updated the accounting standards on the recognition and measurement of financial instruments. The update requires entities to carry marketable equity securities, excluding investments in securities that qualify for the equity method of accounting, at fair value with changes in fair value reflected in net income each reporting period. The update affects other aspects of accounting for equity instruments, as well as the accounting for financial liabilities utilizing the fair value option. The update eliminates the requirement to disclose the methods and assumptions used to estimate the fair value of financial assets or liabilities held at cost on the balance sheet and requires entities to use the exit price notion when measuring the fair value of these financial instruments. The standard is effective for interim and annual periods beginning after December 15, 2017. The Company adopted the standard on January 1, 2018 using a modified retrospective approach. The adoption of the standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
Future Adoption of New Accounting Standards
Income Statement – Reporting Comprehensive Income
In February 2018, the FASB updated the accounting standards related to the presentation of tax effects stranded in other comprehensive income (“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. The Company is currently evaluating whether it will elect to reclassify the stranded tax effects and the potential impact to the consolidated 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. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

10


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Receivables – Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB updated the accounting standards to shorten the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, premiums are generally amortized over the contractual life of the security. The amendments require the premium to be amortized to the earliest call date. The update applies to securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. The standard is effective for interim and annual periods beginning after December 15, 2018, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment
In January 2017, the FASB updated the accounting standards to simplify the accounting for goodwill impairment. The update removes the hypothetical purchase price allocation (Step 2) of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value. The standard is effective for interim and annual periods beginning after December 15, 2019, and should be applied prospectively with early adoption permitted for any impairment tests performed after January 1, 2017. The update is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.
Financial Instruments – Measurement of Credit Losses
In June 2016, the FASB updated the accounting standards related to accounting for credit losses on certain types of financial instruments. The update replaces the current incurred loss model for estimating credit losses with a new model that requires an entity to estimate the credit losses expected over the life of the asset. Generally, the initial estimate of the expected credit losses and subsequent changes in the estimate will be reported in current period earnings and recorded through an allowance for credit losses on the balance sheet. The current credit loss model for Available-for-Sale debt securities does not change; however, the credit loss calculation and subsequent recoveries are required to be recorded through an allowance. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption will be permitted for interim and annual periods beginning after December 15, 2018. A modified retrospective cumulative adjustment to retained earnings should be recorded as of the first reporting period in which the guidance is effective for loans, receivables, and other financial instruments subject to the new expected credit loss model. Prospective adoption is required for establishing an allowance related to Available-for-Sale debt securities, certain beneficial interests, and financial assets purchased with a more-than-insignificant amount of credit deterioration since origination. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.
Leases – Recognition of Lease Assets and Liabilities on Balance Sheet
In February 2016, the FASB updated the accounting standards for leases. The update was issued to increase transparency and comparability for the accounting of lease transactions. The standard will require most lease transactions for lessees to be recorded on the balance sheet as lease assets and lease liabilities and both quantitative and qualitative disclosures about leasing arrangements. The Company discloses information related to operating lease arrangements within Note 23 of the 2017 10-K. The standard is effective for interim and annual periods beginning after December 15, 2018 with early adoption permitted. The update should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the standard on its consolidated results of operations and financial condition.

11


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


3. Revenue from Contracts with Customers
On January 1, 2018, the Company adopted the new accounting standard for revenue from contracts with customers on a retrospective basis. See Note 2 for additional information on the adoption of the new accounting standard.
The following tables present revenue disaggregated by segment on an adjusted operating basis with a reconciliation of segment revenues to those reported on the Consolidated Statements of Operations:
 
Three Months Ended March 31, 2018
Advice & Wealth Management
 
Asset Management
 
Annuities
 
Protection
 
Corporate & Other
 
Total Segments
 
Non-operating Revenue
 
Total
(in millions)
Management and financial advice fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
$

 
$
480

 
$

 
$

 
$

 
$
480

 
$

 
$
480

Institutional

 
111

 

 

 

 
111

 

 
111

Advisory fees
691

 

 

 

 

 
691

 

 
691

Financial planning fees
68

 

 

 

 

 
68

 

 
68

Transaction and other fees
89

 
48

 
14

 
2

 

 
153

 

 
153

Total management and financial advice fees
848

 
639

 
14

 
2

 

 
1,503

 

 
1,503

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
190

 
69

 

 

 

 
259

 

 
259

Insurance and annuity
222

 
45

 
84

 
8

 

 
359

 

 
359

Other products
145

 

 

 

 

 
145

 

 
145

Total distribution fees
557

 
114

 
84

 
8

 

 
763

 

 
763

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other revenues
41

 
1

 

 

 

 
42

 

 
42

Total revenue from contracts with customers
1,446

 
754

 
98

 
10

 

 
2,308

 

 
2,308

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Revenue from other sources (1)
71

 
24

 
515

 
509

 
58

 
1,177

 
61

 
1,238

Total segment gross revenues
1,517

 
778

 
613

 
519

 
58

 
3,485

 
61

 
3,546

Less: Banking and deposit interest expense
16

 

 

 

 
1

 
17

 

 
17

Total segment net revenues
1,501

 
778

 
613

 
519

 
57

 
3,468

 
61

 
3,529

Less: intersegment revenues
240

 
12

 
90

 
16

 
(1
)
 
357

 
4

 
361

Total net revenues
$
1,261

 
$
766

 
$
523

 
$
503

 
$
58

 
$
3,111

 
$
57

 
$
3,168


12


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


 
Three Months Ended March 31, 2017
Advice & Wealth Management
 
Asset Management
 
Annuities
 
Protection
 
Corporate & Other
 
Total Segments
 
Non-operating Revenue
 
Total
(in millions)
Management and financial advice fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail
$

 
$
440

 
$

 
$

 
$

 
$
440

 
$

 
$
440

Institutional

 
101

 

 

 

 
101

 

 
101

Advisory fees
570

 

 

 

 

 
570

 

 
570

Financial planning fees
64

 

 

 

 

 
64

 

 
64

Transaction and other fees
89

 
51

 
13

 
2

 

 
155

 

 
155

Total management and financial advice fees
723

 
592

 
13

 
2

 

 
1,330

 

 
1,330

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution fees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
208

 
80

 

 

 

 
288

 

 
288

Insurance and annuity
199

 
41

 
78

 
8

 

 
326

 

 
326

Other products
109

 

 

 

 

 
109

 

 
109

Total distribution fees
516

 
121

 
78

 
8

 

 
723

 

 
723

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other revenues
37

 
1

 

 

 

 
38

 

 
38

Total revenue from contracts with customers
1,276

 
714

 
91

 
10

 

 
2,091

 

 
2,091

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from other sources (1)
55

 
11

 
517

 
511

 
57

 
1,151

 
45

 
1,196

Total segment gross revenues
1,331

 
725

 
608

 
521

 
57

 
3,242

 
45

 
3,287

Less: Banking and deposit interest expense
10

 

 

 

 

 
10

 

 
10

Total segment net revenues
1,321

 
725

 
608

 
521

 
57

 
3,232

 
45

 
3,277

Less: intersegment revenues
237

 
11

 
84

 
15

 

 
347

 
4

 
351

Total net revenues
$
1,084

 
$
714

 
$
524

 
$
506

 
$
57

 
$
2,885

 
$
41

 
$
2,926

(1) Revenues not included in the scope of the revenue from contracts with customers standard. The amounts primarily consist of revenue associated with the manufacturing of insurance and annuity products or financial instruments.
The following discussion describes the nature, timing, and uncertainty of revenues and cash flows arising from the Company’s contracts with customers on a consolidated basis.
Management and Financial Advice Fees
Asset Management Fees
The Company earns revenue for performing asset management services for retail and institutional clients. The revenue is earned based on a fixed or tiered rate applied, as a percentage, to assets under management. Assets under management vary with market fluctuations and client behavior. The asset management performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Asset management fees are accrued, invoiced and collected on a monthly or quarterly basis.
The Company’s asset management contracts for Open Ended Investment Companies (“OEICs”) in the UK and Société d'Investissement à Capital Variable (“SICAVs”) in Europe include performance obligations for asset management and fund distribution services. The amounts received for these services are reported as management and financial advice fees. The revenue recognition pattern is the same for both performance obligations as the fund distribution services revenue is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment) and not recognized until assets under management are known.

13


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The Company may also earn performance-based management fees on institutional accounts, hedge funds, collateralized loan obligations (“CLOs”), OEICs, SICAVs and property funds based on a percentage of account returns in excess of either a benchmark index or a contractually specified level. This revenue is variable and impacted primarily by the performance of the assets being managed compared to the benchmark index or contractually specified level. The revenue is not recognized until it is probable that a significant reversal will not occur. Performance-based management fees are invoiced on a quarterly or annual basis.
Advisory Fees
The Company earns revenue for performing investment advisory services for certain brokerage customer’s discretionary and non-discretionary managed accounts. The revenue is earned based on a contractual fixed rate applied, as a percentage, to the market value of assets held in the account. The investment advisory performance obligation is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Advisory fees are accrued daily and invoiced or charged on a monthly or quarterly basis.
Financial Planning Fees
The Company earns revenue for providing financial plans to its clients. The revenue earned for each financial plan is either a fixed fee (received monthly, quarterly or annually) or a variable fee (received monthly or quarterly) based on a contractual fixed rate applied, as a percentage, to assets held in a client’s investment advisory account. The financial planning fee is based on the complexity of a client’s financial and life situation and his or her advisor’s experience. The performance obligation is satisfied at the time the financial plan is delivered to the customer. The Company records a contract liability for the unearned revenue when cash is received before the plan is delivered. The financial plan contracts with clients are annual contracts. Amounts recorded as a contract liability are recognized as revenue when the financial plan is delivered, which occurs within the annual period.
For fixed fee arrangements, revenue is recognized when the financial plan is delivered. The Company accrues revenue for any amounts that have not been received at the time the financial plan is delivered.
For variable fee arrangements, revenue is recognized for cash that has been received when the financial plan is delivered. The amount received after the plan is delivered is variably constrained due to factors outside the Company’s control including market volatility and client behavior. The revenue is recognized when it is probable that a significant reversal will not occur that is generally each month or quarter end as the advisory account balance uncertainty is resolved.
Contract liabilities for financial planning fees, which are included in other liabilities in the Consolidated Balance Sheets, were $133 million and $134 million as of March 31, 2018 and December 31, 2017 , respectively.
The Company pays sales commissions to advisors when a new financial planning contract is obtained or when an existing contract is renewed. The sales commissions paid to the advisors prior to financial plan delivery are considered costs to obtain a contract with a customer and are initially capitalized. When the performance obligation to deliver the financial plan is satisfied, the commission is recognized as distribution expense. Capitalized costs to obtain these contracts are reported in other assets in the Consolidated Balance Sheets, and were $107 million and $109 million as of March 31, 2018 and December 31, 2017 , respectively.
Transaction and Other Fees
The Company earns revenue for providing customer support, shareholder and administrative services (including transfer agent services) for affiliated mutual funds and networking, sub-accounting and administrative services for unaffiliated mutual funds. The Company also receives revenue for providing custodial services and account maintenance services on brokerage and retirement accounts that are not included in an advisory relationship. Transfer agent and administrative revenue is earned based on either a fixed rate applied, as a percentage, to assets under management or an annual fixed fee for each fund position. Networking and sub-accounting revenue is earned based on either an annual fixed fee for each account or an annual fixed fee for each fund position. Custodial and account maintenance revenue is generally earned based on a quarterly or annual fixed fee for each account. Each of the customer support and administrative services performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. Transaction and other fees (other than custodial service fees) are invoiced or charged to brokerage accounts on a monthly or quarterly basis. Custodial service fees are invoiced or charged to brokerage accounts on an annual basis. Contract liabilities for custodial service fees, which are included in other liabilities in the Consolidated Balance Sheets, were $48 million and nil as of March 31, 2018 and December 2017, respectively.
The Company earns revenue for providing trade execution services to franchise advisors. The trade execution performance obligation is satisfied at the time of each trade and the revenue is primarily earned based on a fixed fee per trade. These fees are invoiced and collected on a semi-monthly basis.
Distribution Fees
Mutual Funds and Insurance and Annuity Products
The Company earns revenue for selling affiliated and unaffiliated mutual funds, fixed and variable annuities and insurance products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the

14


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


investment or holds the contract and is generally earned based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment, insurance policy or annuity contract). The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue for providing unaffiliated partners an opportunity to educate the Company’s advisors or to support availability and distribution of their products on the Company’s platforms. These payments allow the outside parties to train and support the advisors, explain the features of their products and distribute marketing and educational materials, and support trading and operational systems necessary to enable the Company’s client servicing and production distribution efforts. The Company earns revenue for placing and maintaining unaffiliated fund partners and insurance companies’ products on the Company’s sales platform (subject to the Company’s due diligence standards). The revenue is primarily earned based on a fixed fee or a fixed rate applied, as a percentage, to the market value of assets invested. These performance obligations are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. These fees are invoiced and collected on monthly basis.
Other Products
The Company earns revenue for selling unaffiliated alternative products. The performance obligation is satisfied at the time of each individual sale. A portion of the revenue is based on a fixed rate applied, as a percentage, to amounts invested at the time of sale. The remaining revenue is recognized over the time the client owns the investment and is earned generally based on a fixed rate applied, as a percentage, to the market value of the investment. The ongoing revenue is not recognized at the time of sale because it is variably constrained due to factors outside the Company’s control including market volatility and client behavior (such as how long clients hold their investment). The revenue will not be recognized until it is probable that a significant reversal will not occur.
The Company earns revenue from brokerage clients for the execution of requested trades. The performance obligation is satisfied at the time of trade execution and amounts are received on the settlement date. The revenue varies for each trade based on various factors that include the type of investment, dollar amount of the trade and how the trade is executed (online or broker assisted).
The Company earns revenue for placing clients’ deposits in its brokerage sweep program with third-party banks. The amount received from the third-party banks is impacted by short-term interest rates. The performance obligation with the financial institutions that participate in the sweep program is considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, to the deposits placed.
Other Revenues
The Company earns revenue from fees charged to franchise advisors for providing various services the advisors need to manage and grow their practices. The primary services include: licensing of intellectual property and software, compliance supervision, insurance coverage, technology services and support, consulting and other services. The services are either provided by the Company or third- party providers. The Company controls the services provided by third parties as it has the right to direct the third parties to perform the services, is primarily responsible for performing the services and sets the prices the advisors are charged. The Company recognizes revenue for the gross amount of the fees received from the advisors. The fees are primarily collected monthly as a reduction of commission payments.
Intellectual property and software licenses, along with compliance supervision, insurance coverage, and technology services and support are primarily earned based on a monthly fixed fee. These services are considered a series of distinct services that are substantially the same and are satisfied each day over the contract term. The consulting and other services performance obligations are satisfied as the services are delivered and revenue is earned based upon the level of service requested. Prior to the implementation of the revenue recognition standard, fees received from the advisors for software licenses, compliance supervision, technology services and support, consulting, and other services were recorded as a reduction to the Company’s expenses to provide the services and totaled $26 million and $24 million for the three months ended March 31, 2018 and 2017 , respectively.
Receivables
Receivables for revenue from contracts with customers are recognized when the performance obligation is satisfied and the Company has an unconditional right to the revenue. Receivables related to revenues from contracts with customers were $638 million and $657 million as of March 31, 2018 and December 31, 2017 , respectively.
4.  Variable Interest Entities
The Company provides asset management services to investment entities which are considered to be VIEs, such as CLOs, hedge funds, property funds, certain non-U.S. series funds (OEICs and SICAVs) and private equity funds (collectively, “investment entities”), which are sponsored by the Company. In addition, the Company invests in structured investments other than CLOs and certain affordable housing partnerships which are considered VIEs. The Company consolidates certain investment entities (collectively, “consolidated investment entities”) if the Company is deemed to be the primary beneficiary. The Company has no obligation to provide financial or other support to the non-consolidated VIEs beyond its investment nor has the Company provided any support to these entities.

15


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


CLOs
CLOs are asset backed financing entities collateralized by a pool of assets, primarily syndicated loans and, to a lesser extent, high-yield bonds. Multiple tranches of debt securities are issued by a CLO, offering investors various maturity and credit risk characteristics. The debt securities issued by the CLOs are non-recourse to the Company. The CLO’s debt holders have recourse only to the assets of the CLO. The assets of the CLOs cannot be used by the Company. Scheduled debt payments are based on the performance of the CLO’s collateral pool. The Company earns management fees from the CLOs based on the CLO’s collateral pool and, in certain instances, may also receive incentive fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company has invested in a portion of the unrated, junior subordinated notes of certain CLOs.
The Company’s maximum exposure to loss with respect to non-consolidated CLOs is limited to its amortized cost, which was $6 million  as of both March 31, 2018 and December 31, 2017 . The Company classifies these investments as Available-for-Sale securities. See Note 5 for additional information on these investments.
Property Funds
The Company provides investment advice and related services to property funds some of which are considered VIEs. For investment management services, the Company generally earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not have a significant economic interest and is not required to consolidate any of the property funds. The carrying value of the Company’s investment in property funds is reflected in other investments and was $25 million and $24 million as of March 31, 2018 and December 31, 2017 , respectively.
Hedge Funds and Private Equity Funds
The Company has determined that consolidation is not required for hedge funds and private equity funds which are sponsored by the Company and considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services and the Company does not have a significant economic interest in any fund. The Company’s maximum exposure to loss with respect to its investment in these entities is limited to its carrying value. The carrying value of the Company’s investment in these entities is reflected in other investments and was $7 million as of both March 31, 2018 and December 31, 2017 .
Non-U.S. Series Funds
The Company manages non-U.S. series funds, which are considered VIEs. For investment management services, the Company earns management fees based on the market value of assets under management, and in certain instances may also receive performance-based fees. The fee arrangement is at market and commensurate with the level of effort required to provide those services. The Company does not consolidate these funds and its maximum exposure to loss is limited to its carrying value. The carrying value of the Company’s investment in these funds is reflected in other investments and was $29 million  and $25 million as of March 31, 2018 and December 31, 2017 , respectively.
Affordable Housing Partnerships and Other Real Estate Partnerships
The Company is a limited partner in affordable housing partnerships that qualify for government-sponsored low income housing tax credit programs and partnerships that invest in multi-family residential properties that were originally developed with an affordable housing component. The Company has determined it is not the primary beneficiary and therefore does not consolidate these partnerships.
A majority of the limited partnerships are VIEs. The Company’s maximum exposure to loss as a result of its investment in the VIEs is limited to the carrying value. The carrying value is reflected in other investments and was $397 million and $408 million as of March 31, 2018 and December 31, 2017 , respectively. The Company had an $80 million and a $97 million liability recorded as of March 31, 2018 and December 31, 2017 , respectively, related to original purchase commitments not yet remitted to the VIEs. The Company has not provided any additional support and is not contractually obligated to provide additional support to the VIEs beyond the above mentioned funding commitments.
Structured Investments
The Company invests in structured investments which are considered VIEs for which it is not the sponsor. These structured investments typically invest in fixed income instruments and are managed by third parties and include asset backed securities, commercial mortgage backed securities and residential mortgage backed securities. The Company classifies these investments as Available-for-Sale securities. The Company has determined that it is not the primary beneficiary of these structures due to the size of the Company’s investment in the entities and position in the capital structure of these entities. The Company’s maximum exposure to loss as a result of its investment in these structured investments is limited to its carrying value. See Note 5 for additional information on these structured investments.

16


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Fair Value of Assets and Liabilities
The Company categorizes its fair value measurements according to a three-level hierarchy. See Note 11 for the definition of the three levels of the fair value hierarchy.
The following tables present the balances of assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
March 31, 2018
Level 1
 
Level 2
 
Level 3
 
Total
(in millions)
Assets
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Corporate debt securities
$

 
$
24

 
$

 
$
24

Common stocks
25

 
5

 
11

 
41

Other investments
4

 

 

 
4

Syndicated loans

 
1,842

 
200

 
2,042

Total investments
29

 
1,871

 
211

 
2,111

Receivables

 
20

 

 
20

Total assets at fair value
$
29

 
$
1,891

 
$
211

 
$
2,131

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Debt (1)
$

 
$
2,174

 
$

 
$
2,174

Other liabilities

 
36

 

 
36

Total liabilities at fair value
$

 
$
2,210

 
$

 
$
2,210

 
December 31, 2017
Level 1
 
Level 2
 
Level 3
 
Total
(in millions)
Assets
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
Corporate debt securities
$

 
$
27

 
$

 
$
27

Common stocks
18

 
8

 
4

 
30

Other investments
5

 

 

 
5

Syndicated loans

 
1,889

 
180

 
2,069

Total investments
23

 
1,924

 
184

 
2,131

Receivables

 
25

 

 
25

Total assets at fair value
$
23

 
$
1,949

 
$
184

 
$
2,156

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Debt (1)
$

 
$
2,206

 
$

 
$
2,206

Other liabilities

 
63

 

 
63

Total liabilities at fair value
$

 
$
2,269

 
$

 
$
2,269

(1)  
The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.1 billion and $2.2 billion as of March 31, 2018 and December 31, 2017 , respectively.

17


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


The following tables provide a summary of changes in Level 3 assets and liabilities held by consolidated investment entities measured at fair value on a recurring basis:
 
Common Stocks
 
Syndicated Loans
 
(in millions)
Balance, January 1, 2018
$
4

 
$
180

 
Total gains (losses) included in:
 
 
 
 
Net income
4

(1)  
2

(1)  
Purchases

 
18

 
Sales

 
(1
)
 
Settlements

 
(11
)
 
Transfers into Level 3
4

 
61

 
Transfers out of Level 3
(1
)
 
(49
)
 
Balance, March 31, 2018
$
11

 
$
200

 
Changes in unrealized gains (losses) included in income relating to assets held at
March 31, 2018
$
4

(1)  
$
2

(1)  
 
Corporate Debt Securities
 
Common Stocks
 
Syndicated Loans
 
(in millions)
Balance at January 1, 2017
$

 
$
5

 
$
254

 
Total gains (losses) included in:
 
 
 
 
 
 
Net income

 

 
3

(1)  
Purchases

 

 
55

 
Sales

 

 
(8
)
 
Settlements

 

 
(23
)
 
Transfers into Level 3
2

 
1

 
72

 
Transfers out of Level 3

 
(2
)
 
(130
)
 
Balance, March 31, 2017
$
2

 
$
4

 
$
223

 
Changes in unrealized gains (losses) included in income relating to assets held at March 31, 2017
$

 
$

 
$
2

(1)  
(1)  Included in net investment income in the Consolidated Statements of Operations.
Securities and loans transferred from Level 3 primarily represent assets with fair values that are now obtained from a third-party pricing service with observable inputs or priced in active markets. Securities and loans transferred to Level 3 represent assets with fair values that are now based on a single non-binding broker quote. The Company recognizes transfers between levels of the fair value hierarchy as of the beginning of the quarter in which each transfer occurred. For assets and liabilities held at the end of the reporting periods that are measured at fair value on a recurring basis, there were no transfers between Level 1 and Level 2.
All Level 3 measurements as of March 31, 2018 and December 31, 2017 were obtained from non-binding broker quotes where unobservable inputs utilized in the fair value calculation are not reasonably available to the Company.
Determination of Fair Value
Assets
Investments
The fair value of syndicated loans obtained from third-party pricing services using a market approach with observable inputs is classified as Level 2. The fair value of syndicated loans obtained from third-party pricing services with a single non-binding broker quote as the underlying valuation source is classified as Level 3. The underlying inputs used in non-binding broker quotes are not readily available to the Company.
In consideration of the above, management is responsible for the fair values recorded on the financial statements. Prices received from third-party pricing services are subjected to exception reporting that identifies loans with significant daily price movements as well as no movements. The Company reviews the exception reporting and resolves the exceptions through reaffirmation of the price or recording an appropriate fair value estimate. The Company also performs subsequent transaction testing. The Company performs

18


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


annual due diligence of the third-party pricing services. The Company’s due diligence procedures include assessing the vendor’s valuation qualifications, control environment, analysis of asset-class specific valuation methodologies and understanding of sources of market observable assumptions and unobservable assumptions, if any, employed in the valuation methodology. The Company also considers the results of its exception reporting controls and any resulting price challenges that arise.
See Note 11 for a description of the Company’s determination of the fair value of corporate debt securities, common stocks and other investments.
Receivables
For receivables of the consolidated CLOs, the carrying value approximates fair value as the nature of these assets has historically been short term and the receivables have been collectible. The fair value of these receivables is classified as Level 2.
Liabilities
Debt
The fair value of the CLOs’ assets, typically syndicated bank loans, is more observable than the fair value of the CLOs’ debt tranches for which market activity is limited and less transparent. As a result, the fair value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The fair value of the CLOs’ debt is classified as Level 2.
Other Liabilities
Other liabilities consist primarily of securities purchased but not yet settled held by consolidated CLOs. The carrying value approximates fair value as the nature of these liabilities has historically been short term. The fair value of these liabilities is classified as Level 2.
Fair Value Option
The Company has elected the fair value option for the financial assets and liabilities of the consolidated CLOs. Management believes that the use of the fair value option better matches the changes in fair value of assets and liabilities related to the CLOs.
The following table presents the fair value and unpaid principal balance of loans and debt for which the fair value option has been elected:
 
March 31,
2018
 
December 31,
2017
(in millions)
Syndicated loans
 
 
 
Unpaid principal balance
$
2,097

 
$
2,140

Excess unpaid principal over fair value
(55
)
 
(71
)
Fair value
$
2,042

 
$
2,069

Fair value of loans more than 90 days past due
$
21

 
$
24

Fair value of loans in nonaccrual status
21

 
24

Difference between fair value and unpaid principal of loans more than 90 days past due, loans in nonaccrual status or both
36

 
35

 
 
 
 
Debt
 
 
 
Unpaid principal balance
$
2,290

 
$
2,340

Excess unpaid principal over fair value
(116
)
 
(134
)
Carrying value (1)
$
2,174

 
$
2,206

(1) The carrying value of the CLOs’ debt is set equal to the fair value of the CLOs’ assets. The estimated fair value of the CLOs’ debt was $2.1 billion and $2.2 billion as of March 31, 2018 and December 31, 2017 , respectively.
Interest income from syndicated loans, bonds and structured investments is recorded based on contractual rates in net investment income. Gains and losses related to changes in the fair value of investments and gains and losses on sales of investments are also recorded in net investment income. Interest expense on debt is recorded in interest and debt expense with gains and losses related to changes in the fair value of debt recorded in net investment income.
Total net gains (losses) recognized in net investment income related to changes in the fair value of financial assets and liabilities for which the fair value option was elected were $(1) million and $(3) million for the three months ended March 31, 2018 and 2017 , respectively.

19


AMERIPRISE FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)


Debt of the consolidated investment entities and the stated interest rates were as follows:
 
Carrying Value
 
Weighted Average Interest Rate
March 31,
2018
 
December 31,
2017
March 31,
2018
 
December 31,
2017
(in millions)
 
Debt of consolidated CLOs due 2025-2026
$
2,174

 
$
2,206

 
3.1
%
 
2.8
%
The debt of the consolidated CLOs has both fixed and floating interest rates, which range from 0% to 7.8% . The interest rates on the debt of CLOs are weighted average rates based on the outstanding principal and contractual interest rates.
5.   Investments
The following is a summary of Ameriprise Financial investments:
 
March 31,
2018
 
December 31,
2017
(in millions)
Available-for-Sale securities, at fair value
$
30,319

 
$
30,927

Mortgage loans, net
2,721

 
2,756

Policy and certificate loans
844

 
845

Other investments
1,436

 
1,397

Total
$
35,320

 
$
35,925

Other investments primarily reflect the Company’s interests in affordable housing partnerships, trading securities, seed money investments, syndicated loans and held-to-maturity certificates of deposit with original or remaining maturities at the time of purchase of more than 90 days but less than 12 months. As of January 1, 2018, marketable equity securities were reclassified from Available-for-Sale securities to other investments due to the adoption of a new accounting standard on the recognition and measurement of financial instruments. The carrying value of held-to-maturity certificates of deposit was $230 million and $205 million as of March 31, 2018 and December 31, 2017 , respectively, which approximates fair value due to the short time between the purchase of the instrument and its expected realization.
The following is a summary of net investment income:
 
Three Months Ended March 31,
2018
 
2017
(in millions)
Investment income on fixed maturities
$
329

 
$
337

Net realized gains (losses)
6

 
17

Affordable housing partnerships
(11
)
 
(12
)
Other
46

 
24

Consolidated investment entities
26

 
25

Total
$
396

 
$