Edgar Filing: Ally Financial Inc.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ

Smaller reporting company o

(Do not check if a smaller reporting company)

GJM 2012.3.31 10Q

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):

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
Part I — Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2012 and 2011	3
	Condensed Consolidated Balance Sheet (unaudited) at March 31, 2012 and December 31, 2011	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three Months Ended March 31, 2012 and 2011	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2012 and 2011	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	74
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	127
Item 4.	Controls and Procedures	128
Part II — Other Information		129
Item 1.	Legal Proceedings	129
Item 1A.	Risk Factors	129
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	129
Item 3.	Defaults Upon Senior Securities	129
Item 4.	Mine Safety Disclosures	129
Item 5.	Other Information	129
Item 6.	Exhibits	129
Signatures		130
Index of Exhibits		131

Table of Contents

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	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.

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.

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.

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.

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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.

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.

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.

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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.

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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.

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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.

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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.

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.

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.

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

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)	Amortized cost		gains		losses			Fair value		Amortized cost		gains		losses			Fair value
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.

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

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