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 2012.09.30 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 September 30, 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 November 2, 2012, the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.

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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 and Nine Months Ended September 30, 2012 and 2011	3
	Condensed Consolidated Balance Sheet (unaudited) at September 30, 2012 and December 31, 2011	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Nine Months Ended September 30, 2012 and 2011	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 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	81
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	139
Item 4.	Controls and Procedures	140
Part II — Other Information		141
Item 1.	Legal Proceedings	141
Item 1A.	Risk Factors	141
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	142
Item 3.	Defaults Upon Senior Securities	142
Item 4.	Mine Safety Disclosures	142
Item 5.	Other Information	142
Item 6.	Exhibits	142
Signatures		143
Index of Exhibits		144

Table of ContentsPART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2012			2011			2012			2011
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,651		$	1,680		$	5,020		$	4,976
Interest on loans held-for-sale	22			86			131			256
Interest on trading assets	—			4			13			10
Interest and dividends on available-for-sale investment securities	73			102			243			311
Interest-bearing cash	22			14			54			41
Operating leases	639			530			1,758			1,783
Total financing revenue and other interest income	2,407			2,416			7,219			7,377
Interest expense
Interest on deposits	185			179			555			516
Interest on short-term borrowings	46			61			181			240
Interest on long-term debt	1,041			1,293			3,286			4,030
Total interest expense	1,272			1,533			4,022			4,786
Depreciation expense on operating lease assets	358			276			969			722
Net financing revenue	777			607			2,228			1,869
Other revenue
Servicing fees	91			335			617			1,033
Servicing asset valuation and hedge activities, net	134			(471		)	70			(663		)
Total servicing income, net	225			(136		)	687			370
Insurance premiums and service revenue earned	364			390			1,098			1,188
Gain on mortgage and automotive loans, net	141			95			401			301
Loss on extinguishment of debt	—			—			—			(64		)
Other (loss) gain on investments, net	(19		)	75			137			251
Other income, net of losses	225			130			728			573
Total other revenue	936			554			3,051			2,619
Total net revenue	1,713			1,161			5,279			4,488
Provision for loan losses	116			50			285			213
Noninterest expense
Compensation and benefits expense	344			293			1,208			1,132
Insurance losses and loss adjustment expenses	151			170			518			567
Other operating expenses	619			754			3,268			2,392
Total noninterest expense	1,114			1,217			4,994			4,091
Income (loss) from continuing operations before income tax expense	483			(106		)	—			184
Income tax expense from continuing operations	93			93			172			106
Net income (loss) from continuing operations	390			(199		)	(172		)	78
Loss from discontinued operations, net of tax	(6		)	(11		)	(32		)	(29		)
Net income (loss)	384			(210		)	(204		)	49
Other comprehensive income (loss), net of tax	218			(281		)	199			(217		)
Comprehensive income (loss)	$	602		$	(491	)	$	(5	)	$	(168	)

Statement continues on the next page.

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

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Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended September 30,						Nine months ended September 30,
($ in millions except per share data)	2012			2011			2012			2011
Net income (loss) attributable to common shareholders
Net income (loss) from continuing operations	$	390		$	(199	)	$	(172	)	$	78
Preferred stock dividends — U.S. Department of Treasury	(134		)	(133		)	(401		)	(400		)
Preferred stock dividends	(67		)	(66		)	(200		)	(194		)
Impact of preferred stock amendment (a)	—			—			—			32
Net income (loss) from continuing operations attributable to common shareholders (b)	189			(398		)	(773		)	(484		)
Loss from discontinued operations, net of tax	(6		)	(11		)	(32		)	(29		)
Net income (loss) attributable to common shareholders	$	183		$	(409	)	$	(805	)	$	(513	)
Basic weighted-average common shares outstanding	1,330,970			1,330,970			1,330,970			1,330,970
Diluted weighted-average common shares outstanding (b)	1,330,970			1,330,970			1,330,970			1,330,970
Basic earnings per common share
Net income (loss) from continuing operations	$	142		$	(299	)	$	(581	)	$	(364	)
Loss from discontinued operations, net of tax	(5		)	(8		)	(24		)	(22		)
Net income (loss)	$	137		$	(307	)	$	(605	)	$	(386	)
Diluted earnings per common share (b)
Net income (loss) from continuing operations	$	142		$	(299	)	$	(581	)	$	(364	)
Loss from discontinued operations, net of tax	(5		)	(8		)	(24		)	(22		)
Net income (loss)	$	137		$	(307	)	$	(605	)	$	(386	)


(a)	Refer to Note 20 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for further detail.

(b)

Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss attributable to common shareholders for the nine months ended September 30, 2012, and the three months and nine months ended September 30, 2011, respectively, 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.

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Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q



($ in millions)	September 30, 2012			December 31, 2011
Assets
Cash and cash equivalents
Noninterest-bearing	$	1,305		$	2,475
Interest-bearing	15,852			10,560
Total cash and cash equivalents	17,157			13,035
Trading assets	—			622
Investment securities	13,770			15,135
Loans held-for-sale, net ($1,927 and $3,919 fair value-elected)	1,937			8,557
Finance receivables and loans, net
Finance receivables and loans, net ($— and $835 fair value-elected)	121,259			114,755
Allowance for loan losses	(1,423		)	(1,503		)
Total finance receivables and loans, net	119,836			113,252
Investment in operating leases, net	12,708			9,275
Mortgage servicing rights	902			2,519
Premiums receivable and other insurance assets	1,861			1,853
Other assets	13,936			18,741
Assets of operations held-for-sale	375			1,070
Total assets	$	182,482		$	184,059
Liabilities
Deposit liabilities
Noninterest-bearing	$	2,487		$	2,029
Interest-bearing	47,385			43,021
Total deposit liabilities	49,872			45,050
Short-term borrowings	5,877			7,680
Long-term debt ($— and $830 fair value-elected)	93,028			92,794
Interest payable	1,590			1,587
Unearned insurance premiums and service revenue	2,693			2,576
Reserves for insurance losses and loss adjustment expenses	441			580
Accrued expenses and other liabilities ($— and $29 fair value-elected)	9,962			14,084
Liabilities of operations held-for-sale	254			337
Total liabilities	163,717			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	(8,129		)	(7,324		)
Accumulated other comprehensive income	286			87
Total equity	18,765			19,371
Total liabilities and equity	$	182,482		$	184,059

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

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Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q

The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, 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)	September 30, 2012			December 31, 2011
Assets
Loans held-for-sale, net	$	—		$	9
Finance receivables and loans, net
Finance receivables and loans, net ($— and $835 fair value-elected)	40,822			40,935
Allowance for loan losses	(192		)	(210		)
Total finance receivables and loans, net	40,630			40,725
Investment in operating leases, net	5,835			4,389
Other assets	2,063			3,029
Total assets	$	48,528		$	48,152

Liabilities
Short-term borrowings	$	1,483		$	795
Long-term debt ($— and $830 fair value-elected)	34,665			33,143
Interest payable	7			14
Accrued expenses and other liabilities	119			405
Total liabilities	$	36,274		$	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								49						49
Preferred stock dividends — U.S. Department of Treasury								(400		)				(400		)
Preferred stock dividends								(194		)				(194		)
Series A preferred stock amendment (a)					(32		)	32						—
Other comprehensive loss, net of tax											(217		)	(217		)
Other (b)								5						5
Balance at September 30, 2011	$	19,668	$	5,685	$	1,255		$	(6,918	)	$	42		$	19,732
Balance at January 1, 2012	$	19,668	$	5,685	$	1,255		$	(7,324	)	$	87		$	19,371
Net loss								(204		)				(204		)
Preferred stock dividends — U.S. Department of Treasury								(401		)				(401		)
Preferred stock dividends								(200		)				(200		)
Other comprehensive income, net of tax											199			199
Balance at September 30, 2012	$	19,668	$	5,685	$	1,255		$	(8,129	)	$	286		$	18,765


(a)	Refer to Note 20 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for further detail.


(b)	Represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009 through June 30, 2009.

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

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Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Nine months ended September 30, ($ in millions)	2012			2011
Operating activities
Net (loss) income	$	(204	)	$	49
Reconciliation of net (loss) income to net cash provided by operating activities
Depreciation and amortization	1,758			2,100
Other impairment	31			8
Changes in fair value of mortgage servicing rights	654			1,327
Provision for loan losses	285			211
Gain on sale of loans, net	(396		)	(299		)
Net gain on investment securities	(144		)	(275		)
Loss on extinguishment of debt	—			64
Originations and purchases of loans held-for-sale	(23,670		)	(42,467		)
Proceeds from sales and repayments of loans held-for-sale	25,295			44,417
Impairment and accruals related to Residential Capital, LLC deconsolidation	1,192			—
Net change in
Trading securities	595			(339		)
Deferred income taxes	(199		)	(99		)
Interest payable	168			(99		)
Other assets	475			(324		)
Other liabilities	(761		)	1,374
Other, net	(234		)	133
Net cash provided by operating activities	4,845			5,781
Investing activities
Purchases of available-for-sale securities	(9,592		)	(15,020		)
Proceeds from sales of available-for-sale securities	6,774			12,093
Proceeds from maturities of available-for-sale securities	4,940			3,725
Net increase in finance receivables and loans	(7,925		)	(10,705		)
Proceeds from sales of finance receivables and loans	2,329			2,868
Purchases of operating lease assets	(5,612		)	(5,332		)
Disposals of operating lease assets	1,303			4,862
Proceeds from sale of business units, net (a)	516			50
Net cash effect from deconsolidation of Residential Capital, LLC	(539		)	—
Other, net	75			633
Net cash used in investing activities	(7,731		)	(6,826		)

Statement continues on the next page.

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

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Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Nine months ended September 30, ($ in millions)	2012			2011
Financing activities
Net change in short-term borrowings	(1,673		)	(1,263		)
Net increase in bank deposits	4,673			4,454
Proceeds from issuance of long-term debt	27,520			36,900
Repayments of long-term debt	(22,908		)	(34,576		)
Dividends paid	(601		)	(619		)
Other, net	(26		)	962
Net cash provided by financing activities	6,985			5,858
Effect of exchange-rate changes on cash and cash equivalents	(1		)	(45		)
Net increase in cash and cash equivalents	4,098			4,768
Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)	24			(36		)
Cash and cash equivalents at beginning of year	13,035			11,670
Cash and cash equivalents at September 30,	$	17,157		$	16,402
Supplemental disclosures
Cash paid for
Interest	$	3,705		$	4,303
Income taxes	291			454
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	116			179


(a)	The amounts are net of cash and cash equivalents of $147 million at September 30, 2012, and $88 million at September 30, 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 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 September 30, 2012, and for the three months and nine months ended September 30, 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), as amended by the Current Report on Form 8-K filed with the SEC on August 3, 2012.

Residential Capital, LLC

On May 14, 2012 (the Petition Date), Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors and their direct and indirect subsidiaries) (collectively, AFI) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan).

In connection with the Plan, the Debtors expect to sell certain of their assets, consisting of the Debtors' mortgage origination and servicing business and certain other mortgage-related assets, under section 363 of the Bankruptcy Code. The Bankruptcy Court entered an order on June 28, 2012, approving Nationstar Mortgage LLC as stalking horse bidder for the Debtors' mortgage origination and servicing platform (the Platform), and Berkshire Hathaway Inc. as stalking horse bidder for the Debtors' held-for-sale loan portfolio (the Loan Portfolio). The bid provided by Berkshire Hathaway Inc. supplanted the stalking horse bid provided by AFI that is described below. On October 19, 2012, the Debtors collected bids from qualified bidders for the Platform and the Loan Portfolio. On October 24, 2012, following a competitive auction for the Platform, the Debtors determined that the bid submitted by Ocwen Loan Servicing LLC was the highest and best bid for the Platform. On October 25, 2012, following a competitive auction for the Loan Portfolio, the Debtors determined that the bid submitted by Berkshire Hathaway Inc. was the highest and best bid for the Loan Portfolio. The hearing for the Bankruptcy Court to approve the sales of the Platform and the Loan Portfolio is currently set for November 19, 2012. The Debtors' remaining assets are expected to be sold, wound down, or otherwise liquidated over time.

The Plan, a draft of which has been submitted to the Bankruptcy Court, is subject to negotiation with certain of the Debtors' creditors (as directed by the Bankruptcy Court) and Bankruptcy Court approval. The Debtors' exclusive period under the Bankruptcy Code to file the Plan, which may be extended by the Bankruptcy Court, ends on December 20, 2012. The Plan is based on a settlement (the Settlement) between AFI and the Debtors under which, in exchange for the releases described below, AFI, among other things: (a) agreed to serve as the stalking horse bidder for the Debtors' held-for-sale loan portfolio, with a purchase price of approximately $1.6 billion (which, as noted above, was supplanted by Berkshire Hathaway Inc. pursuant to an order entered by the Bankruptcy Court on June 28, 2012); (b) will make a cash contribution to the Debtors' estates of $750 million that will enable certain recoveries to creditors of the Debtors' estates under the Plan; (c) provided the Debtors with a $220 million post-petition debtor-in-possession financing facility; (d) consented to the Debtors' use of cash collateral pledged to Ally-funded, pre-petition senior secured credit facilities; (e) agreed to enter into and perform a shared services agreement with the Debtors to enable the Debtors to continue to operate their businesses during their bankruptcy cases; (f) agreed to enter into and perform a transition services agreement with the purchaser of the Debtors' mortgage origination and servicing business to facilitate the sale of such assets; (g) continues to provide the Debtors with consumer lending origination support during their bankruptcy cases, including to allow implementation of the aforementioned asset sales; (h) provides the support necessary for the Debtors to satisfy certain regulatory obligations; and (i) agreed to provide indemnification of ResCap's current directors and officers.

The Settlement, which is subject to Bankruptcy Court approval, provides for the release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of action against AFI held by third parties. The Debtors have failed to satisfy certain milestone requirements in the Plan support agreement with AFI (the Plan Support Agreement), including the Bankruptcy Court's entry of the Confirmation Order on or before October 31, 2012, which relieves AFI of its obligations to perform under the Plan Support Agreement. Notwithstanding this, to date, AFI has continued to comply with the Plan Support Agreement. Pursuant to the terms of the Settlement, the failure to meet the October 31 milestone results in the Settlement's automatic termination. However, AFI and the Debtors have agreed to temporarily waive the automatic termination, but, each of AFI and the Debtors have preserved

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

the right to rescind such waiver at any point in the future. The waiver will terminate on December 31, 2012 unless AFI and the Debtors otherwise agree in writing.

As of the Petition Date, ResCap had support for the Plan from the ad hoc steering committee representing ResCap's junior secured notes (Ad Hoc Committee) and, certain other noteholders together holding $791 million out of a total of approximately $2.1 billion of these notes. The Debtors have failed to satisfy certain milestone requirements in the Plan support agreement with the Ad Hoc Committee (Ad Hoc Committee PSA); and, on September 24, 2012, the official committee of unsecured creditors (the Committee) appointed in the Debtors' bankruptcy cases filed a motion seeking standing to challenge the validity of the liens on certain assets securing the junior secured notes, which are the liens that secure certain of AFI's loans to ResCap. On or about September 25, 2012, the junior secured noteholders terminated the Ad Hoc Committee PSA.

Additionally, institutional investors in residential mortgage-backed securities issued by ResCap's affiliates and holding more than 25 percent of at least one class in each of 290 securitizations agreed to support the Plan as of the Petition Date. To date, institutional investors holding more than 25 percent of at least one class in each of 336 securitizations have agreed to support the Plan. These 336 securitizations have an aggregate original principal balance of approximately $189 billion (out of a total of 392 outstanding securitizations with an original principal balance of $221 billion). The settlements reached are subject to Bankruptcy Court approval. AFI anticipates the hearing for approval of the settlements to occur in early 2013. The Committee and certain other parties are presently engaged in discovery with respect to the settlements, including AFI's role, and are expected to contest the settlements at the hearing for the settlements' approval.

On June 4, 2012, Berkshire Hathaway Inc. filed a motion in the Bankruptcy Court for the appointment of an independent examiner to investigate, among other things, certain of the Debtors' transactions with AFI occurring prior to the Petition Date, any claims the Debtors may hold against AFI's officers and directors, and any claims the Debtors propose to release under the Plan, including under the Settlement. On June 18, 2012, the Bankruptcy Court approved the appointment of an examiner and, subsequently, the United States Trustee for the Southern District of New York appointed former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner. On July 27, 2012, the Bankruptcy Court entered an order approving the scope of the examiner's investigation. The investigation will include, among other things: (a) all material pre-petition transactions between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements, the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally Bank; (c) all state and federal law claims or causes of action the Debtors propose to release as part of the Plan; and (d) the release of all existing or potential ResCap-related causes of action against AFI held by third parties. As of September 30, 2012, the examiner's preliminary estimate regarding the time necessary for the examiner to complete his investigation and related report was at least six months from approximately August 6, 2012. Counsel to the examiner recently informed parties in interest that it would be requesting from the Bankruptcy Court an extended target date for issuance of the examiner’s report based upon completion of document production and witness interviews, rather than an approximation date. The examiner’s request may result in a delay for issuing the examiner’s report. The Bankruptcy Court is scheduled to hold a conference on November 5, 2012 to address the examiner’s request.

As a result of the bankruptcy filing, effective May 14, 2012, we have deconsolidated ResCap from our financial statements and ResCap is prospectively accounted for using the cost method. Furthermore, circumstances indicated to us that as of May 14, 2012, our investment in ResCap would not be recoverable, and accordingly we recorded a full impairment of such investment. ResCap's results of operations have been removed from our Condensed Consolidated Financial Statements since May 14, 2012. As of September 30, 2012, ResCap does not meet the requirements of a discontinued operation; and as such, ResCap's results of operations continue to be included in our Condensed Consolidated Statement of Comprehensive Income for periods prior to May 14, 2012. Our Condensed Consolidated Statements of Comprehensive Income include the following for ResCap's results of operations (amounts presented are before the elimination of balances and transactions with Ally).



($ in millions)	Three months ended September 30, 2012		Three months ended September 30, 2011			Nine months ended September 30, 2012		Nine months ended September 30, 2011
Total net (loss) revenue	$	—	$	(164	)	$	476	$	412
Provision for loan losses	—		1			—		8
Total noninterest expense	—		273			437		905
(Loss) income from continuing operations before income tax expense	—		(438		)	39		(501		)
Income tax expense from continuing operations	—		4			7		13
Net (loss) income from continuing operations	$	—	$	(442	)	$	32	$	(514	)

Based on our assessment of the effect of the deconsolidation of ResCap, obligations under the Plan, and other impacts related to the Chapter 11 filing, we recorded a charge of $1.2 billion during the nine months ended September 30, 2012, within our other operating expenses. This charge primarily consists of the impairment of Ally's $442 million equity investment in ResCap and the $750 million cash contribution to be made by us to the Debtors' estate described above. As of September 30, 2012, we have $1.2 billion of financing due from

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

ResCap, which is classified as Finance Receivables and Loans, net on our Condensed Consolidated Balance Sheet. We maintain no allowance or impairment against these receivables because management considers them to be fully collectible. At September 30, 2012, our hedging arrangements with ResCap were fully collateralized. Additionally, under a shared services agreement (SSA), each entity agreed to provide services to the other for a period of one year. The SSA will automatically renew each year unless either entity provides written notice of nonrenewal to the other party at least three months prior to the expiration. The SSA fees received by Ally and the expenses paid to the ResCap will be reflected within the Condensed Consolidated Statement of Comprehensive Income as a reduction or increase of noninterest expense. Because of the uncertain nature of the bankruptcy proceedings, we cannot predict the ultimate financial impact to Ally. Refer to Note 25 to the Condensed Consolidated Financial Statements for additional information regarding these bankruptcy proceedings.

International Businesses

In the second quarter of 2012, we began exploring strategic alternatives for our international operations. These international operations include automotive finance, insurance, and banking and deposit operations outside of the United States. Since then, we have conducted multiple processes for various parts of our international operations, and have received interest from a number of potential purchasers. As part of this initiative, on October 18, 2012 we announced that we reached an agreement to sell our Mexican insurance business, ABA Seguros, to the ACE Group. Further, on October 23, 2012, we announced that we reached an agreement to sell our Canadian auto finance operation, Ally Credit Canada Limited, and ResMor Trust to Royal Bank of Canada. Refer to Note 26 for further information. We expect to continue to explore strategic alternatives for our remaining international operations. However, we can provide no assurances that we will enter into strategic transactions with respect to all or any portion of the balance of our international operations.

Ally Bank Mortgage Servicing Rights Portfolio and Business Lending Operations

On October 26, 2012, Ally Bank announced that it has begun to explore strategic alternatives for its agency mortgage servicing rights (MSR) portfolio and its business lending operations. Ally Bank expects to continue originating a modest level of high-quality residential jumbo mortgages for its own portfolio through correspondents and wholesale brokers.

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 International Financial Reporting Standards (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 operations.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 operations.

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 have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the Condensed Consolidated Statement of Comprehensive Income. The Notes to the Condensed Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.

Select Mortgage Operations

During the second quarter of 2012, we sold the Canadian mortgage operations of ResMor Trust.

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. 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. 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 September 30,						Nine months ended September 30,
($ in millions)	2012			2011			2012			2011
Select Mortgage operations
Total net (loss) revenue	$	—		$	(8	)	$	8		$	(5	)
Pretax loss including direct costs to transact a sale	—			(14		)	(10		)	(25		)
Tax benefit	(7		)	(4		)	(7		)	(7		)
Select Global Automotive Services — Insurance operations
Total net revenue	$	38		$	35		$	110		$	201
Pretax (loss) income including direct costs to transact a sale	(12		)	3			(36		)	21
Tax expense	—			1			3			3
Select Global Automotive Services — International operations
Total net revenue	$	1		$	7		$	9		$	50
Pretax (loss) income including direct costs to transact a sale (a)	(4		)	(5		)	11			(30		)
Tax (benefit) expense	(3		)	(2		)	1			(1		)


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

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.



September 30, 2012 ($ in millions)	Select Global Automotive Services –Insurance operations (a)			Select Global Automotive Services – International operations (b)			Total held-for-sale operations
Assets
Cash and cash equivalents
Noninterest-bearing	$	4		$	28		$	32
Interest-bearing	87			8			95
Total cash and cash equivalents	91			36			127
Investment securities	182			—			182
Finance receivables and loans, net	—			2			2
Investment in operating leases, net	—			25			25
Premiums receivable and other insurance assets	79			—			79
Other assets	20			11			31
Impairment on assets of held-for-sale operations	(51		)	(20		)	(71		)
Total assets	$	321		$	54		$	375
Liabilities
Unearned insurance premiums and service revenue	$	137		$	—		$	137
Reserves for insurance losses and loss adjustment expenses	14			—			14
Accrued expenses and other liabilities	97			6			103
Total liabilities	$	248		$	6		$	254


(a)	Includes our U.K.-based operations that provide vehicle service contracts and insurance products.


(b)	Includes our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



December 31, 2011 ($ in millions)	Select Mortgage 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 22 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
September 30, 2012
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government	$	182	$	—	$	—	$	182
Total assets	$	182	$	—	$	—	$	182
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 September 30,						Nine months ended September 30,
($ in millions)	2012			2011			2012			2011
Mortgage processing fees and other mortgage income	$	105		$	53		$	342		$	141
Late charges and other administrative fees	33			30			96			86
Income from equity-method investments	22			21			69			63
Remarketing fees	16			24			54			92
Securitization income	10			18			33			169
Fair value adjustment on derivatives (a)	(3		)	(55		)	(35		)	(134		)
Change due to fair value option elections (b)	—			(44		)	(19		)	(83		)
Other, net	42			83			188			239
Total other income, net of losses	$	225		$	130		$	728		$	573


(a)	Refer to Note 20 for a description of derivative instruments and hedging activities.


(b)	Refer to Note 22 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 September 30,				Nine months ended September 30,
($ in millions)	2012		2011		2012			2011
Insurance commissions	$	106	$	116	$	325		$	350
Lease and loan administration	94		47		204			136
Technology and communications	86		127		321			361
Professional services	69		83		278			226
Advertising and marketing	38		46		114			141
Regulatory and licensing fees	33		32		101			102
Mortgage representation and warranty obligation, net	30		70		67			280
Premises and equipment depreciation	24		24		73			73
Vehicle remarketing and repossession	20		32		65			104
State and local non-income taxes	23		29		52			95
Occupancy	17		25		62			69
Impairment and accruals related to ResCap deconsolidation	—		—		1,192		(a)	—
Other	79		123		414			455
Total other operating expenses	$	619	$	754	$	3,268		$	2,392


(a)	This charge consists of the $442 million total impairment of our investment in ResCap and a $750 million cash contribution to be made by us to the Debtors' estate. Refer to Note 1 for more information regarding the Debtors' bankruptcy, deconsolidation, and this charge.

5. Trading Assets

The composition of trading assets was as follows.



($ in millions)	September 30, 2012		December 31, 2011
Mortgage-backed residential trading securities	$	—	$	608
Trading derivatives	—		14
Total trading assets	$	—	$	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.



	September 30, 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	$	1,354	$	4	$	—		$	1,358	$	1,535	$	13	$	(2	)	$	1,546
U.S. states and political subdivisions	—		—		—			—		1		—		—			1
Foreign government	803		17		—			820		765		20		(1		)	784
Mortgage-backed residential (a)	6,269		114		(9		)	6,374		7,266		87		(41		)	7,312
Asset-backed	2,365		47		(1		)	2,411		2,600		28		(13		)	2,615
Corporate debt	1,349		59		(4		)	1,404		1,486		23		(18		)	1,491
Other	333		—		—			333		326		1		—			327
Total debt securities	12,473		241		(14		)	12,700		13,979		172		(75		)	14,076
Equity securities	1,114		28		(72		)	1,070		1,188		25		(154		)	1,059
Total available-for-sale securities (b)	$	13,587	$	269	$	(86	)	$	13,770	$	15,167	$	197	$	(229	)	$	15,135


(a)	Residential mortgage-backed securities include agency-backed bonds totaling $4,580 million and $6,114 million at September 30, 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 $15 million and $16 million at September 30, 2012, and December 31, 2011, respectively.

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
September 30, 2012
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies	$	1,358	0.5	%	$	428	—	%	$	731	0.7	%	$	199	1.1	%	$	—	—	%
Foreign government	820		3.6		134		3.9		433		3.8		249		3.1		4		6.3
Mortgage-backed residential	6,374		2.7		—		—		4		5.3		182		2.3		6,188		2.7
Asset-backed	2,411		2.2		5		3.9		1,583		2.1		486		2.0		337		3.2
Corporate debt	1,404		5.2		18		3.9		637		4.2		621		6.2		128		5.7
Other	333		1.4		332		1.4		—		—		1		4.4		—		—
Total available-for-sale debt securities	$	12,700	2.6		$	917	1.2		$	3,388	2.3		$	1,738	3.3		$	6,657	2.7
Amortized cost of available-for-sale debt securities	$	12,473			$	916			$	3,339			$	1,682			$	6,536
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	%	$	—	—	%
U.S. 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