GJM 2012.3.31 10Q
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012, or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to                         
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware
 
38-0572512
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
200 Renaissance Center
P.O. Box 200, Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
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, and (2) has been subject to such filing for the past 90 days.
Yes þ                    No ¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, 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 a shorter period that the registrant was required to submit and post such files).
Yes þ                    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
  
Accelerated filer o
  
Non-accelerated filer þ
 
Smaller reporting company o
 
  
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                    No þ
At April 27, 2012, the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.


Table of Contents
INDEX
Ally Financial Inc. Ÿ Form 10-Q

 
 
Page
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


Table of Contents
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q

4
 
 
Three months ended March 31,
($ in millions)
 
2012
 
2011
Financing revenue and other interest income
 
 
 
 
Interest and fees on finance receivables and loans
 
$
1,678

 
$
1,621

Interest on loans held-for-sale
 
73

 
84

Interest on trading assets
 
11

 
3

Interest and dividends on available-for-sale investment securities
 
84

 
103

Interest-bearing cash
 
14

 
12

Operating leases
 
540

 
655

Total financing revenue and other interest income
 
2,400

 
2,478

Interest expense
 
 
 
 
Interest on deposits
 
186

 
166

Interest on short-term borrowings
 
75

 
92

Interest on long-term debt
 
1,177

 
1,406

Total interest expense
 
1,438

 
1,664

Depreciation expense on operating lease assets
 
293

 
270

Net financing revenue
 
669

 
544

Other revenue
 
 
 
 
Servicing fees
 
310

 
357

Servicing asset valuation and hedge activities, net
 
9

 
(87
)
Total servicing income, net
 
319

 
270

Insurance premiums and service revenue earned
 
375

 
399

Gain on mortgage and automotive loans, net
 
126

 
90

Loss on extinguishment of debt
 

 
(39
)
Other gain on investments, net
 
90

 
84

Other income, net of losses
 
277

 
204

Total other revenue
 
1,187

 
1,008

Total net revenue
 
1,856

 
1,552

Provision for loan losses
 
140

 
113

Noninterest expense
 
 
 
 
Compensation and benefits expense
 
475

 
424

Insurance losses and loss adjustment expenses
 
159

 
170

Other operating expenses
 
716

 
746

Total noninterest expense
 
1,350

 
1,340

Income from continuing operations before income tax expense (benefit)
 
366

 
99

Income tax expense (benefit) from continuing operations
 
64

 
(70
)
Net income from continuing operations
 
302

 
169

Income (loss) from discontinued operations, net of tax
 
8

 
(23
)
Net income
 
310

 
146

Other comprehensive income (loss), net of tax
 
187

 
(25
)
Comprehensive income
 
$
497

 
$
121

Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

3

Table of Contents
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q

 
 
Three months ended March 31,
($ in millions except per share data)
 
2012
 
2011
Net income (loss) attributable to common shareholders
 
 
 
 
Net income from continuing operations
 
$
302

 
$
169

Preferred stock dividends — U.S. Department of Treasury
 
(134
)
 
(134
)
Preferred stock dividends
 
(67
)
 
(69
)
Impact of preferred stock amendment
 

 
32

Net income (loss) from continuing operations attributable to common shareholders (a)
 
101

 
(2
)
Income (loss) from discontinued operations, net of tax
 
8

 
(23
)
Net income (loss) attributable to common shareholders
 
$
109

 
$
(25
)
Basic weighted-average common shares outstanding
 
1,330,970

 
1,330,970

Diluted weighted-average common shares outstanding (a)
 
1,330,970

 
1,330,970

Basic earnings per common share
 
 
 
 
Net income (loss) from continuing operations
 
$
76

 
$
(2
)
Income (loss) from discontinued operations, net of tax
 
6

 
(17
)
Net income (loss)
 
$
82

 
$
(19
)
Diluted earnings per common share (a)
 
 
 
 
Net income (loss) from continuing operations
 
$
76

 
$
(2
)
Income (loss) from discontinued operations, net of tax
 
6

 
(17
)
Net income (loss)
 
$
82

 
$
(19
)
(a)
Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net income (loss) attributable to common shareholders for the three months ended March 31, 2012 and 2011, income (loss) attributable to common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

4

Table of Contents
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q


($ in millions)
 
March 31, 2012
 
December 31, 2011
Assets
 
 
 
 
Cash and cash equivalents
 
 
 
 
Noninterest-bearing
 
$
2,279

 
$
2,475

Interest-bearing
 
10,800

 
10,560

Total cash and cash equivalents
 
13,079

 
13,035

Trading assets
 
895

 
622

Investment securities
 
14,942

 
15,135

Loans held-for-sale, net ($1,823 and $3,919 fair value-elected)
 
6,670

 
8,557

Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net ($832 and $835 fair value-elected)
 
119,818

 
114,755

Allowance for loan losses
 
(1,546
)
 
(1,503
)
Total finance receivables and loans, net
 
118,272

 
113,252

Investment in operating leases, net
 
10,048

 
9,275

Mortgage servicing rights
 
2,595

 
2,519

Premiums receivable and other insurance assets
 
1,876

 
1,853

Other assets
 
16,965

 
18,741

Assets of operations held-for-sale
 
1,008

 
1,070

Total assets
 
$
186,350

 
$
184,059

Liabilities
 
 
 
 
Deposit liabilities
 
 
 
 
Noninterest-bearing
 
$
2,314

 
$
2,029

Interest-bearing
 
44,892

 
43,021

Total deposit liabilities
 
47,206

 
45,050

Short-term borrowings
 
7,203

 
7,680

Long-term debt ($828 and $830 fair value-elected)
 
93,990

 
92,794

Interest payable
 
1,675

 
1,587

Unearned insurance premiums and service revenue
 
2,632

 
2,576

Reserves for insurance losses and loss adjustment expenses
 
565

 
580

Accrued expenses and other liabilities ($30 and $29 fair value-elected)
 
13,089

 
14,084

Liabilities of operations held-for-sale
 
323

 
337

Total liabilities
 
166,683

 
164,688

Equity
 
 
 
 
Common stock and paid-in capital
 
19,668

 
19,668

Mandatorily convertible preferred stock held by U.S. Department of Treasury
 
5,685

 
5,685

Preferred stock
 
1,255

 
1,255

Accumulated deficit
 
(7,215
)
 
(7,324
)
Accumulated other comprehensive income
 
274

 
87

Total equity
 
19,667

 
19,371

Total liabilities and equity
 
$
186,350

 
$
184,059

The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

5

Table of Contents
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q


The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
($ in millions)
 
March 31, 2012
 
December 31, 2011
Assets
 
 
 
 
Loans held-for-sale, net
 
$
8

 
$
9

Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net ($832 and $835 fair value-elected)
 
41,281

 
40,935

Allowance for loan losses
 
(205
)
 
(210
)
Total finance receivables and loans, net
 
41,076

 
40,725

Investment in operating leases, net
 
4,758

 
4,389

Other assets
 
3,403

 
3,029

Total assets
 
$
49,245

 
$
48,152

 
 
 
 
 
Liabilities
 
 
 
 
Short-term borrowings
 
$
814

 
$
795

Long-term debt ($828 and $830 fair value-elected)
 
34,924

 
33,143

Interest payable
 
13

 
14

Accrued expenses and other liabilities
 
119

 
405

Total liabilities
 
$
35,870

 
$
34,357

The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

6

Table of Contents
Condensed Consolidated Statement of Changes in Equity (unaudited)
Ally Financial Inc. • Form 10-Q

($ in millions)
 
Common stock and
paid-in capital
 
Mandatorily convertible preferred
stock held by U.S.
Department of Treasury
 
Preferred
stock
 
Accumulated deficit
 
Accumulated other
comprehensive income
 
Total
equity
Balance at January 1, 2011
 
$
19,668

 
$
5,685

 
$
1,287

 
$
(6,410
)
 
$
259

 
$
20,489

Net income
 
 
 
 
 
 
 
146

 
 
 
146

Preferred stock dividends — U.S. Department of Treasury
 
 
 
 
 
 
 
(134
)
 
 
 
(134
)
Preferred stock dividends
 
 
 
 
 
 
 
(69
)
 
 
 
(69
)
Series A preferred stock amendment (a)
 
 
 
 
 
(32
)
 
32

 
 
 

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
(25
)
 
(25
)
Balance at March 31, 2011
 
$
19,668

 
$
5,685

 
$
1,255

 
$
(6,435
)
 
$
234

 
$
20,407

Balance at January 1, 2012
 
$
19,668

 
$
5,685

 
$
1,255

 
$
(7,324
)
 
$
87

 
$
19,371

Net income
 
 
 
 
 
 
 
310

 
 
 
310

Preferred stock dividends — U.S. Department of Treasury
 
 
 
 
 
 
 
(134
)
 
 
 
(134
)
Preferred stock dividends
 
 
 
 
 
 
 
(67
)
 
 
 
(67
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
187

 
187

Balance at March 31, 2012
 
$
19,668

 
$
5,685

 
$
1,255

 
$
(7,215
)
 
$
274

 
$
19,667

(a)
Refer to Note 20 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for further detail.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

7

Table of Contents
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q

Three months ended March 31, ($ in millions)
 
2012
 
2011
Operating activities
 
 
 
 
Net income
 
$
310

 
$
146

Reconciliation of net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
568

 
717

Other impairment
 
(6
)
 
16

Changes in fair value of mortgage servicing rights
 
(1
)
 
(117
)
Provision for loan losses
 
140

 
113

Gain on sale of loans, net
 
(131
)
 
(94
)
Net gain on investment securities
 
(96
)
 
(85
)
Loss on extinguishment of debt
 

 
39

Originations and purchases of loans held-for-sale
 
(9,626
)
 
(12,635
)
Proceeds from sales and repayments of loans held-for-sale
 
11,111

 
15,835

Net change in
 
 
 
 
Trading securities
 
(268
)
 
77

Deferred income taxes
 
(31
)
 
69

Interest payable
 
86

 
16

Other assets
 
755

 
(120
)
Other liabilities
 
(865
)
 
(321
)
Other, net
 
196

 
(614
)
Net cash provided by operating activities
 
2,142

 
3,042

Investing activities
 
 
 
 
Purchases of available-for-sale securities
 
(3,172
)
 
(5,529
)
Proceeds from sales of available-for-sale securities
 
2,940

 
4,475

Proceeds from maturities of available-for-sale securities
 
1,222

 
1,103

Net increase in finance receivables and loans
 
(4,409
)
 
(4,249
)
Purchases of operating lease assets
 
(1,468
)
 
(1,933
)
Disposals of operating lease assets
 
465

 
1,882

Proceeds from sale of business units, net (a)
 
29

 
46

Other, net 
 
323

 
591

Net cash used in investing activities
 
(4,070
)
 
(3,614
)
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

8

Table of Contents
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q

Three months ended March 31, ($ in millions)
 
2012
 
2011
Financing activities
 
 
 
 
Net change in short-term borrowings
 
(546
)
 
87

Net increase in bank deposits
 
1,737

 
1,670

Proceeds from issuance of long-term debt
 
10,749

 
13,804

Repayments of long-term debt
 
(10,024
)
 
(13,211
)
Dividends paid
 
(200
)
 
(228
)
Other, net
 
352

 
83

Net cash provided by financing activities
 
2,068

 
2,205

Effect of exchange-rate changes on cash and cash equivalents
 
(141
)
 
(266
)
Net (decrease) increase in cash and cash equivalents
 
(1
)
 
1,367

Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)
 
45

 
(91
)
Cash and cash equivalents at beginning of year
 
13,035

 
11,670

Cash and cash equivalents at March 31,
 
$
13,079

 
$
12,946

Supplemental disclosures
 
 
 
 
Cash paid for
 
 
 
 
Interest
 
$
1,218

 
$
1,465

Income taxes
 
178

 
305

Noncash items
 
 
 
 
Transfer of mortgage servicing rights into trading securities through certification
 

 
266

Other disclosures
 
 
 
 
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale
 
63

 
58

(a)
The amounts are net of cash and cash equivalents of $64 million at March 31, 2012, and $7 million at March 31, 2011, of business units at the time of disposition.
(b)
Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows. The cash balance of these operations is reported as assets of operations held-for-sale on the Condensed Consolidated Balance Sheet.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

9

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



1.    Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is a leading, independent, globally diversified, financial services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad array of financial products and services to automotive dealers and their customers. We are also one of the largest residential mortgage companies in the United States. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (online and telephonic) banking market.
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes.
The Condensed Consolidated Financial Statements at March 31, 2012, and for the three months ended March 31, 2012, and 2011, are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related notes) included in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 28, 2012, with the U.S. Securities and Exchange Commission (SEC).
Residential Capital, LLC
Residential Capital, LLC (ResCap), one of our mortgage subsidiaries continues to be negatively impacted by the events and conditions in the mortgage banking industry and the broader economy that began in 2007. Market deterioration has led to fewer sources of, and significantly reduced levels of, liquidity available to finance ResCap's operations. ResCap is highly leveraged relative to its cash flow and has recognized credit and valuation losses and other charges resulting in a significant deterioration in capital. In the future, ResCap may also continue to be negatively impacted by exposure to representation and warranty obligations, adverse outcomes with respect to current or future litigation, fines, penalties, or settlements related to our mortgage-related activities, and additional expenses to address regulatory requirements. ResCap is required to maintain consolidated tangible net worth, as defined, of $250 million at the end of each month, under the terms of certain of its credit facilities. For this purpose, consolidated tangible net worth is defined as ResCap's consolidated equity excluding intangible assets. ResCap's consolidated tangible net worth was $399 million at March 31, 2012, and ResCap remained in compliance with all of its consolidated tangible net worth covenants. During the fourth quarter of 2011, ResCap's consolidated tangible net worth was temporarily reduced to below $250 million. This was, however, immediately remediated by Ally through a capital contribution, which was provided through forgiveness of intercompany debt during January 2012. Notwithstanding the immediate cure, the temporary reduction in tangible net worth resulted in a covenant breach in certain of ResCap's credit facilities as of December 31, 2011. ResCap obtained waivers from all applicable lenders with respect to this covenant breach and an acknowledgment letter from a Government-sponsored Enterprise indicating they would take no immediate action as a result of the breach. In the future, Ally may choose not to remediate any further breaches of covenants.
ResCap did not make a semi-annual interest payment that was due on April 17, 2012, related to $473 million of unsecured debt principal, which matures in 2013. The interest due was $20 million. The indenture provides that a failure to pay interest on an interest payment date does not become an event of default unless such failure continues for a period of 30 days. ResCap has significant additional near-term interest and principal payments on its outstanding debt securities and credit facilities.
Ally or ResCap may take additional actions with respect to ResCap as each party deems appropriate. These actions may include, among others, Ally providing or declining to provide additional liquidity and capital support for ResCap; Ally purchasing assets from ResCap; asset sales by ResCap to third parties, or other business reorganization or similar action by ResCap with respect to all or part of ResCap and/or its affiliates. This may include a reorganization under bankruptcy laws, which ResCap is actively considering.
ResCap remains heavily dependent on Ally and its affiliates for funding and capital support, and there can be no assurance that Ally or its affiliates will continue such actions or that Ally will choose to execute any further strategic transactions with respect to ResCap or that any transactions undertaken will be successful. Consequently, there remains substantial doubt about ResCap's ability to continue as a going concern. Should Ally no longer continue to support the capital or liquidity needs of ResCap or should ResCap be unable to successfully execute other initiatives, it would have a material adverse effect on ResCap's business, results of operations, and financial position.
Ally has extensive financing and hedging arrangements with ResCap that could be at risk of nonpayment if ResCap were to file for bankruptcy. At December 31, 2011, Ally had funding arrangements with ResCap that included $1.0 billion of senior secured credit facilities (the Senior Secured Facilities) and a $1.6 billion line of credit (Line of Credit) consisting of a $1.1 billion secured facility and a $500 million unsecured facility. The Senior Secured Facilities and Line of Credit had a maturity date of April 13, 2012. Ally extended the maturity date of the Senior Secured Facilities and the $1.1 billion secured facility under the Line of Credit to May 14, 2012. The $500 million unsecured facility under the Line of Credit was not extended. At March 31, 2012, the $1.0 billion in Senior Secured Facilities were fully drawn, and $410 million of the remaining $1.1 billion Line of Credit was drawn. At March 31, 2012, the hedging arrangements were fully collateralized.

10

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Amounts outstanding under the secured financing and hedging arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap's repayments of its secured financing facilities to us could be slower. In addition, we could be an unsecured creditor of ResCap to the extent that the proceeds from the sale of our collateral are insufficient to repay ResCap's obligations to us. It is possible that other ResCap creditors would seek to recharacterize our loans to ResCap as equity contributions or to seek equitable subordination of our claims so that the claims of other creditors would have priority over our claims. In addition, should ResCap file for bankruptcy, our $399 million investment related to ResCap's equity position as of March 31, 2012, would likely be reduced to zero. If a ResCap bankruptcy were to occur, we could incur significant charges, substantial litigation could result, and repayment of our credit exposure to ResCap could be at risk. We currently estimate a range of reasonably possible losses arising at the time of a ResCap bankruptcy filing, including our investment in ResCap, to be between $400 million and $1.25 billion. This estimated range is based on significant judgment and numerous assumptions that are subject to change, and which could be material.
Significant Accounting Policies
Income Taxes
In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. We exclude and record discretely the tax effect of unusual or infrequently occurring items, including, for example, changes in judgment about valuation allowances and effects of changes in tax law or rates. The provision for income taxes in tax jurisdictions with a projected full year or year-to-date loss for which a tax benefit cannot be realized are estimated using tax rates specific to that jurisdiction.
Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Financial Services - Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)
As of January 1, 2012, we adopted Accounting Standards Update (ASU) 2010-26, which amends ASC 944, Financial Services - Insurance. The amendments in this ASU specify which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. All other acquisition-related costs should be expensed as incurred. If the initial application of the amendments in this ASU results in the capitalization of acquisition costs that had not been previously capitalized, an entity may elect not to capitalize those types of costs. Both retrospective application and early adoption was permitted. We elected prospective application and did not early adopt the ASU. The adoption did not have a material impact to our consolidated financial condition or results of operations.
Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)
As of January 1, 2012, we adopted ASU 2011-04, which amends ASC 820, Fair Value Measurements. The amendments in this ASU clarify how to measure fair value and it contains new disclosure requirements to provide more transparency into Level 3 fair value measurements. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The ASU must be applied prospectively. The adoption did not have a material impact to our consolidated financial condition or results of operations.
Intangibles-Goodwill and Other - Testing Goodwill for Impairment (ASU 2011-08)
As of January 1, 2012, we adopted ASU 2011-08, which amends ASC 350, Intangibles-Goodwill and Other. This ASU permits the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not more than the carrying amount, the two-step impairment test would not be required. Otherwise, further evaluation under the existing two-step framework would be required. The adoption did not have a material impact to our consolidated financial condition or results of operation.
Recently Issued Accounting Standards
Balance Sheet - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)
In December 2011, the Financial Accounting Standards Board issued ASU 2011-11, which amends ASC 210, Balance Sheet. This ASU contains new disclosure requirements regarding the nature of an entity's rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The new disclosures will give financial statement users information about both gross and net exposures. ASU 2011-11 is effective for us on January 1, 2013, and retrospective application is required. Since the guidance relates only to disclosures, adoption is not expected to have a material effect on our consolidated financial condition or results of operation.

11

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


2.     Discontinued and Held-for-sale Operations
We classify operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all of the operating results for these discontinued operations were removed from continuing operations and were presented separately as discontinued operations, net of tax, in the Condensed Consolidated Statement of Comprehensive Income. The Notes to the Condensed Consolidated Financial Statements were adjusted to exclude discontinued operations unless otherwise noted.
Select Mortgage — Legacy Portfolio and Other Operations
During the fourth quarter of 2011, we committed to sell the Canadian mortgage operations of ResMor Trust. We expect to complete the sale during 2012.
Select Global Automotive Services — Insurance Operations
During the fourth quarter of 2011, we committed to sell our U.K.-based operations that provide vehicle service contracts and insurance products in Europe and Latin America. We expect to complete the sale during 2012. During the second quarter of 2011, we completed the sale of our U.K. consumer property and casualty insurance business.
Select Global Automotive Services — International Automotive Finance Operations
During the fourth quarter of 2011, we committed to sell our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain. We continue to negotiate with a potential buyer and expect to complete the sale during 2012. During the first quarter of 2012, we completed the sale of our Venezuela operations.
Select Financial Information
Select financial information of discontinued operations is summarized below. The pretax income or loss, including direct costs to transact, includes any impairment recognized to present the operations at the lower-of-cost or fair value. Fair value was based on the estimated sales price, which could differ from the ultimate sales price due to the fluidity of ongoing negotiations, price volatility, changing interest rates, changing foreign-currency rates, and future economic conditions.
 
 
Three months  ended
March 31,
($ in millions)
 
2012
 
2011
Select Mortgage — Legacy and Other operations
 
 
 
 
Total net revenue (loss)
 
$
5

 
$
(2
)
Pretax loss including direct costs to transact a sale
 

 
(8
)
Tax benefit
 

 
(2
)
Select Global Automotive Services — Insurance operations
 
 
 
 
Total net revenue
 
$
38

 
$
91

Pretax income including direct costs to transact a sale 
 
8

 
9

Tax expense
 
2

 
2

Select Global Automotive Services — International operations
 
 
 
 
Total net revenue
 
$
6

 
$
28

Pretax income (loss) including direct costs to transact a sale (a)
 
2

 
(21
)
Tax expense
 

 
3

(a)
Includes certain income tax activity recognized by Corporate and Other.

12

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Held-for-sale Operations
The assets and liabilities of operations held-for-sale are summarized below.
March 31, 2012 ($ in millions)
 
Select
Mortgage –
Legacy and 
Other operations (a)
 
Select
Global Automotive Services –Insurance
operations (b)
 
Select
Global Automotive Services – International
operations (c)
 
Total
held-for-sale
operations
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
Noninterest-bearing
 
$

 
$
3

 
$
27

 
$
30

Interest-bearing
 

 
70

 
5

 
75

Total cash and cash equivalents
 

 
73

 
32

 
105

Investment securities
 

 
193

 

 
193

Loans held-for-sale, net
 
202

 

 

 
202

Finance receivables and loans, net
 
 
 
 
 
 
 
 
Finance receivables and loans, net
 
237

 

 
4

 
241

Allowance for loan losses
 

 

 

 

Total finance receivables and loans, net
 
237

 

 
4

 
241

Investment in operating leases, net
 

 

 
64

 
64

Premiums receivable and other insurance assets
 

 
74

 

 
74

Other assets
 
124

 
19

 
20

 
163

Impairment on assets of held-for-sale operations
 

 

 
(34
)
 
(34
)
Total assets
 
$
563

 
$
359

 
$
86

 
$
1,008

Liabilities
 
 
 
 
 
 
 
 
Unearned insurance premiums and service revenue
 
$

 
$
136

 
$

 
$
136

Reserves for insurance losses and loss adjustment expenses
 

 
17

 

 
17

Accrued expenses and other liabilities
 
69

 
93

 
8

 
170

Total liabilities
 
$
69

 
$
246

 
$
8

 
$
323

(a)
Includes the Canadian mortgage operations of ResMor Trust.
(b)
Includes our U.K.-based operations that provide vehicle service contracts and insurance products.
(c)
Includes our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain.

13

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


December 31, 2011 ($ in millions)
 
Select
Mortgage –
Legacy and 
Other operations (a)
 
Select
Global Automotive Services –Insurance
operations (b)
 
Select
Global Automotive Services – International
operations (c)
 
Total
held-for-sale
operations
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
Noninterest-bearing
 
$

 
$
4

 
$
55

 
$
59

Interest-bearing
 

 
54

 
38

 
92

Total cash and cash equivalents
 

 
58

 
93

 
151

Investment securities
 

 
186

 

 
186

Loans held-for-sale, net
 
260

 

 

 
260

Finance receivables and loans, net
 
 
 
 
 
 
 
 
Finance receivables and loans, net
 
285

 

 
11

 
296

Allowance for loan losses
 

 

 
(1
)
 
(1
)
Total finance receivables and loans, net
 
285

 

 
10

 
295

Investment in operating leases, net
 

 

 
91

 
91

Premiums receivable and other insurance assets
 

 
77

 

 
77

Other assets
 
140

 
14

 
30

 
184

Impairment on assets of held-for-sale operations
 

 

 
(174
)
 
(174
)
Total assets
 
$
685

 
$
335

 
$
50

 
$
1,070

Liabilities
 
 
 
 
 
 
 
 
Unearned insurance premiums and service revenue
 
$

 
$
130

 
$

 
$
130

Reserves for insurance losses and loss adjustment expenses
 

 
17

 

 
17

Accrued expenses and other liabilities
 
80

 
82

 
28

 
190

Total liabilities
 
$
80

 
$
229

 
$
28

 
$
337

(a)
Includes the Canadian mortgage operations of ResMor Trust.
(b)
Includes our U.K.-based operations that provide vehicle service contracts and insurance products.
(c)
Includes the operations of Venezuela and our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain.

14

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Recurring Fair Value
The following tables display the assets and liabilities of our held-for-sale operations measured at fair value on a recurring basis. Refer to Note 21 for descriptions of valuation methodologies used to measure material assets at fair value and details of the valuation models, key inputs to these models, and significant assumptions used.
 
 
Recurring fair value measurements
($ in millions)
 
Level 1  
 
Level 2  
 
Level 3  
 
Total  
March 31, 2012
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Investment securities
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
Foreign government
 
$
192

 
$

 
$

 
$
192

Corporate debt
 
1

 

 

 
1

Other assets
 
 
 
 
 
 
 
 
Interest retained in financial asset sales
 

 

 
58

 
58

Total assets
 
$
193

 
$

 
$
58

 
$
251

December 31, 2011
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Investment securities
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
Foreign government
 
$
171

 
$
15

 
$

 
$
186

Other assets
 
 
 
 
 
 
 
 
Interest retained in financial asset sales
 

 

 
66

 
66

Total assets
 
$
171

 
$
15

 
$
66

 
$
252

3.     Other Income, Net of Losses
Details of other income, net of losses, were as follows.
 
 
Three months ended
March 31,
($ in millions)
 
2012
 
2011
Mortgage processing fees and other mortgage income
 
$
124

 
$
44

Late charges and other administrative fees
 
31

 
33

Income from equity-method investments
 
29

 
22

Remarketing fees
 
20

 
37

Fair value adjustment on derivatives (a)
 
11

 
(14
)
Securitization income
 
1

 
28

Change due to fair value option elections (b)
 
(14
)
 
(17
)
Other, net
 
75

 
71

Total other income, net of losses
 
$
277

 
$
204

(a)
Refer to Note 19 for a description of derivative instruments and hedging activities.
(b)
Refer to Note 21 for a description of fair value option elections.


15

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


4.     Other Operating Expenses
Details of other operating expenses were as follows.
 
 
Three months  ended
March 31,
($ in millions)
 
2012
 
2011
Technology and communications
 
$
126

 
$
119

Professional services
 
116

 
66

Insurance commissions
 
112

 
118

Lease and loan administration
 
46

 
44

Advertising and marketing
 
39

 
54

Regulatory and licensing fees
 
36

 
37

Premises and equipment depreciation
 
25

 
26

Vehicle remarketing and repossession
 
25

 
36

Occupancy
 
24

 
22

State and local non-income taxes
 
24

 
31

Mortgage representation and warranty obligation, net
 
19

 
26

Other
 
124

 
167

Total other operating expenses
 
$
716

 
$
746

5.     Trading Assets
The composition of trading assets was as follows.
($ in millions)
 
March 31, 2012
 
December 31, 2011
Mortgage-backed residential trading securities
 
$
883

 
$
608

Trading derivatives
 
12

 
14

Total trading assets
 
$
895

 
$
622


16

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


6.     Investment Securities
Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, interests in securitization trusts, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.
 
 
March 31, 2012
 
December 31, 2011
 
 
Amortized cost
 
Gross unrealized
 
Fair
value
 
Amortized cost
 
Gross unrealized
 
Fair
value
($ in millions)
 
gains  
 
losses  
 
gains  
 
losses  
 
Available-for-sale securities
 

 

 

 

 

 

 

 

Debt securities
 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies
 
$
1,438

 
$
7

 
$
(1
)
 
$
1,444

 
$
1,535

 
$
13

 
$
(2
)
 
$
1,546

States and political subdivisions
 
1

 

 

 
1

 
1

 

 

 
1

Foreign government
 
851

 
14

 
(1
)
 
864

 
765

 
20

 
(1
)
 
784

Mortgage-backed residential (a)
 
6,773

 
71

 
(25
)
 
6,819

 
7,266

 
87

 
(41
)
 
7,312

Asset-backed
 
2,679

 
33

 
(5
)
 
2,707

 
2,600

 
28

 
(13
)
 
2,615

Corporate debt
 
1,514

 
45

 
(8
)
 
1,551

 
1,486

 
23

 
(18
)
 
1,491

Other
 
582

 

 

 
582

 
326

 
1

 

 
327

Total debt securities 
 
13,838

 
170

 
(40
)
 
13,968

 
13,979

 
172

 
(75
)
 
14,076

Equity securities
 
1,046

 
24

 
(96
)
 
974

 
1,188

 
25

 
(154
)
 
1,059

Total available-for-sale securities (b)
 
$
14,884

 
$
194

 
$
(136
)
 
$
14,942

 
$
15,167

 
$
197

 
$
(229
)
 
$
15,135

(a)
Residential mortgage-backed securities include agency-backed bonds totaling $5,234 million and $6,114 million at March 31, 2012, and December 31, 2011, respectively.
(b)
Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $16 million at both March 31, 2012, and December 31, 2011.

17

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause actual maturities to differ from scheduled maturities.
 
 
Total
 
Due in
one year
or less
 
Due after
one year
through
five years
 
Due after
five years
through
ten years
 
Due after
ten years (a)
($ in millions)
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of available-for-sale debt securities (b)
 

 

 

 

 

 

 

 

 

 

U.S. Treasury and federal agencies
 
$
1,444

 
0.8
%
 
$
241

 
%
 
$
1,201

 
1.0
%
 
$
2

 
2.2
%
 
$

 
%
States and political subdivisions
 
1

 
5.4

 

 

 

 

 

 

 
1

 
5.4

Foreign government
 
864

 
3.8

 
65

 
7.4

 
555

 
4.0

 
244

 
2.5

 

 

Mortgage-backed residential
 
6,819

 
2.4

 

 

 
6

 
6.2

 
237

 
1.9

 
6,576

 
2.4

Asset-backed
 
2,707

 
2.1

 

 

 
1,611

 
1.9

 
522

 
2.0

 
574

 
3.0

Corporate debt
 
1,551

 
4.9

 
13

 
5.8

 
727

 
4.3

 
686

 
5.4

 
124

 
5.2

Other
 
582

 
1.4

 
571

 
1.4

 

 

 
11

 
4.1

 

 

Total available-for-sale debt securities
 
$
13,968

 
2.5

 
$
890

 
1.5

 
$
4,100

 
2.3

 
$
1,702

 
3.4

 
$
7,275

 
2.5

Amortized cost of available-for-sale debt securities
 
$
13,838

 
 
 
$
890

 
 
 
$
4,058

 
 
 
$
1,673

 
 
 
$
7,217

 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of available-for-sale debt securities (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,546

 
0.9
%
 
$
231

 
%
 
$
1,202

 
0.9
%
 
$
113

 
2.2
%
 
$

 
%
States and political subdivisions
 
1

 
5.4

 

 

 

 

 

 

 
1

 
5.4

Foreign government
 
784

 
4.4

 
77

 
7.7

 
506

 
4.3

 
201

 
3.3

 

 

Mortgage-backed residential
 
7,312

 
2.5

 
3

 
4.8

 
2

 
6.3

 
189

 
2.6

 
7,118

 
2.5

Asset-backed
 
2,615

 
2.1

 

 

 
1,599

 
1.9

 
574

 
1.9

 
442

 
3.2

Corporate debt
 
1,491

 
4.9

 
19

 
4.9

 
741

 
4.4

 
606

 
5.6

 
125

 
4.7

Other
 
327

 
1.4

 
316

 
1.3

 

 

 
11

 
4.6

 

 

Total available-for-sale debt securities
 
$
14,076

 
2.6

 
$
646

 
1.7

 
$
4,050

 
2.4

 
$
1,694

 
3.5

 
$
7,686

 
2.6

Amortized cost of available-for-sale debt securities
 
$
13,979

 
 
 
$
644

 
 
 
$
4,026

 
 
 
$
1,678

 
 
 
$
7,631

 
 
(a)
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b)
Yields on tax-exempt obligations are computed on a tax-equivalent basis.
The balances of cash equivalents were $5.2 billion and $5.6 billion at March 31, 2012, and December 31, 2011, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents gross gains and losses realized upon the sales of available-for-sale securities. During the three months ended March 31, 2012, we did not recognize any other-than-temporary impairment on available-for-sale securities.
 
 
Three months  ended
March 31,
($ in millions)
 
2012
 
2011
Gross realized gains
 
$
98

 
$
94

Gross realized losses
 
(8
)
 
(10
)
Net realized gains
 
$
90

 
$
84


18

Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following table presents interest and dividends on available-for-sale securities.
 
 
Three months  ended
March 31,
($ in millions)
 
2012
 
2011
Taxable interest
 
$
79

 
$
98

Taxable dividends
 
5

 
5

Interest and dividends on available-for-sale securities
 
$
84

 
$
103

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of March 31, 2012, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As of March 31, 2012, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at March 31, 2012. Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.
 
 
March 31, 2012
 
December 31, 2011
 
 
Less than
12 months
 
12 months
or longer
 
Less than
12 months
 
12 months
or longer
($ in millions)
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
477

 
$

 
$

 
$

 
$
179

 
$
(2
)
 
$

 
$

Foreign government
 
231

 
(1
)
 

 

 
197

 
(1
)
 

 

Mortgage-backed residential
 
2,499

 
(23
)
 
72

 
(3
)
 
2,302

 
(39
)
 
45

 
(2
)
Asset-backed
 
624

 
(5
)
 
8

 

 
994

 
(13
)
 
1

 

Corporate debt
 
241

 
(7
)
 
14

 
(1
)
 
444

 
(16
)
 
30

 
(2
)
Total temporarily impaired debt securities
 
4,072

 
(36
)
 
94

 
(4
)
 
4,116

 
(71
)
 
76

 
(4
)
Temporarily impaired equity securities
 
450

 
(65
)
 
91

 
(31
)
 
770

 
(148
)
 
18

 
(6
)
Total temporarily impaired available-for-sale securities
 
$
4,522

 
$
(101
)
 
$
185

 
$
(35
)
 
$
4,886

 
$
(219
)
 
$
94

 
$
(10
)
7.     Loans Held-for-Sale, Net
The composition of loans held-for-sale, net, was as follows.
 
 
March 31, 2012
 
December 31, 2011
($ in millions)
 
Domestic
 
Foreign
 
Total
 
Domestic
 
Foreign
 
Total
Consumer automobile
 
$
623

 
$

 
$
623

 
$
425

 
$

 
$
425

Consumer mortgage
 

 

 
 
 

 

 
 
1st Mortgage
 
5,299

 
35

 
5,334

 
7,360

 
12

 
7,372

Home equity
 
713

 

 
713

 
740

 

 
740

Total consumer mortgage (a)
 
6,012

 
35

 
6,047

 </