Edgar Filing: AMERIPRISE FINANCIAL INC

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended March 31, 2018


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				3
Consolidated Statements of Comprehensive Income — Three months ended March 31, 2018 and 2017				4
Consolidated Balance Sheets — March 31, 2018 and December 31, 2017				5
Consolidated Statements of Equity — Three months ended March 31, 2018 and 2017				6
Consolidated Statements of Cash Flows — Three months ended March 31, 2018 and 2017				7
Notes to Consolidated Financial Statements				9
1. Basis of Presentation				9
2. Recent Accounting Pronouncements				10
3. Revenue from Contracts with Customers				12
4. Variable Interest Entities				15
5. Investments				20
6. Financing Receivables				23
7. Deferred Acquisition Costs and Deferred Sales Inducement Costs				26
8. Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities				26
9. Variable Annuity and Insurance Guarantees				27
10. Debt				28
11. Fair Values of Assets and Liabilities				29
12. Offsetting Assets and Liabilities				38
13. Derivatives and Hedging Activities				40
14. Shareholders’ Equity				44
15. Regulatory Requirements				45
16. Income Taxes				46
17. Contingencies				46
18. Earnings per Share				47
19. Segment Information				48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				50
Item 3. Quantitative and Qualitative Disclosures About Market Risk				71
Item 4. Controls and Procedures				71

Part II. Other Information				72
Item 1. Legal Proceedings				72
Item 1A. Risk Factors				72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				72
Item 6. Exhibits				73
Signatures				74

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.

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.

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.

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.

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.

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)
		(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.

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.

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.

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.

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

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.

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

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.

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.

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.

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

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.

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		$	391

AMERIPRISE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)

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



Description of Securities	March 31, 2018
Description of Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI ⁽¹⁾
	(in millions)
Corporate debt securities	$	13,676	$	858	$	(100	)	$	14,434	$	—
Residential mortgage backed securities	6,031		41		(80		)	5,992		—
Commercial mortgage backed securities	4,395		25		(100		)	4,320		—
Asset backed securities	1,502		30		(9		)	1,523		—
State and municipal obligations	2,192		217		(14		)	2,395		—
U.S. government and agencies obligations	1,372		1		—			1,373		—
Foreign government bonds and obligations	273		14		(5		)	282		—
Total	$	29,441	$	1,186	$	(308	)	$	30,319	$	—



Description of Securities	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Noncredit OTTI ⁽¹⁾
	(in millions)
Corporate debt securities	$	13,976	$	1,131	$	(32	)	$	15,075	$	—
Residential mortgage backed securities	6,585		63		(37		)	6,611		—
Commercial mortgage backed securities	4,362		48		(36		)	4,374		—
Asset backed securities	1,549		36		(5		)	1,580		1
State and municipal obligations	2,215		259		(11		)	2,463		—
U.S. government and agencies obligations	502		1		—			503		—
Foreign government bonds and obligations	298		20		(4		)	314		—
Common stocks	5		3		(1		)	7		—
Total	$	29,492	$	1,561	$	(126	)	$	30,927	$	1


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

As of March 31, 2018 and December 31, 2017, investment securities with a fair value of $1.6 billion and $1.7 billion, respectively, were pledged to meet contractual obligations under derivative contracts and short-term borrowings, of which $724 million and $803 million, respectively, may be sold, pledged or rehypothecated by the counterparty.

As of both March 31, 2018 and December 31, 2017, fixed maturity securities comprised approximately 86% of Ameriprise Financial 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”). The Company 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, the Company may utilize ratings from other NRSROs or rate the securities internally. As of March 31, 2018 and December 31, 2017, the Company’s internal analysts rated $936 million and $979 million, respectively, of securities using criteria similar to those used by NRSROs.

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