Edgar Filing: Ally Financial Inc.

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

10-Q

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, 2015, 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark 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 October 28, 2015, the number of shares outstanding of the Registrant’s common stock was 481,752,179 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 and Nine Months Ended September 30, 2015 and 2014	3
	Condensed Consolidated Balance Sheet (unaudited) at September 30, 2015 and December 31, 2014	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three and Nine Months Ended September 30, 2015 and 2014	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 2015 and 2014	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	100
Item 4.	Controls and Procedures	101
Part II — Other Information		102
Item 1.	Legal Proceedings	102
Item 1A.	Risk Factors	102
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102
Item 3.	Defaults Upon Senior Securities	102
Item 4.	Mine Safety Disclosures	102
Item 5.	Other Information	102
Item 6.	Exhibits	102
Signatures		103
Index of Exhibits		104



Table of Contents		PART 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)	2015			2014			2015			2014
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,166		$	1,114		$	3,358		$	3,345
Interest on loans held-for-sale	2			—			40			1
Interest and dividends on available-for-sale investment securities	102			94			283			282
Interest on cash and cash equivalents	2			2			6			6
Operating leases	830			899			2,586			2,653
Total financing revenue and other interest income	2,102			2,109			6,273			6,287
Interest expense
Interest on deposits	181			166			530			495
Interest on short-term borrowings	13			12			36			40
Interest on long-term debt	410			493			1,258			1,576
Total interest expense	604			671			1,824			2,111
Depreciation expense on operating lease assets	528			549			1,713			1,600
Net financing revenue	970			889			2,736			2,576
Other revenue
Servicing fees	12			6			32			22
Insurance premiums and service revenue earned	236			246			706			736
(Loss) gain on mortgage and automotive loans, net	(2		)	—			45			6
Loss on extinguishment of debt	—			—			(354		)	(46		)
Other gain on investments, net	6			45			106			129
Other income, net of losses	80			78			251			214
Total other revenue	332			375			786			1,061
Total net revenue	1,302			1,264			3,522			3,637
Provision for loan losses	211			102			467			302
Noninterest expense
Compensation and benefits expense	235			241			726			710
Insurance losses and loss adjustment expenses	61			97			239			353
Other operating expenses	378			404			1,128			1,213
Total noninterest expense	674			742			2,093			2,276
Income from continuing operations before income tax expense	417			420			962			1,059
Income tax expense from continuing operations	144			127			341			285
Net income from continuing operations	273			293			621			774
(Loss) income from discontinued operations, net of tax	(5		)	130			405			199
Net income	268			423			1,026			973
Other comprehensive income (loss), net of tax	61			(55		)	(56		)	126
Comprehensive income	$	329		$	368		$	970		$	1,099

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 dollars) (a)	2015			2014		2015			2014
Basic earnings per common share
Net income (loss) from continuing operations	$	0.49		$	0.47	$	(1.52	)	$	1.19
(Loss) income from discontinued operations, net of tax	(0.01		)	0.27		0.84			0.41
Net income (loss)	$	0.48		$	0.74	$	(0.68	)	$	1.60
Diluted earnings per common share
Net income (loss) from continuing operations	$	0.49		$	0.47	$	(1.52	)	$	1.19
(Loss) income from discontinued operations, net of tax	(0.01		)	0.27		0.84			0.41
Net income (loss)	$	0.47		$	0.74	$	(0.68	)	$	1.60


(a)	Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.

Refer to Note 18 for additional earnings per share information, including the impact of preferred stock dividends recognized in connection with the partial redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. 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, except share data)	September 30, 2015			December 31, 2014
Assets
Cash and cash equivalents
Noninterest-bearing	$	1,666		$	1,348
Interest-bearing	3,561			4,228
Total cash and cash equivalents	5,227			5,576
Investment securities (Refer to Note 5 for discussion of investment securities pledged as collateral)	18,758			16,137
Loans held-for-sale, net	37			2,003
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	107,991			99,948
Allowance for loan losses	(1,018		)	(977		)
Total finance receivables and loans, net	106,973			98,971
Investment in operating leases, net	17,292			19,510
Premiums receivable and other insurance assets	1,794			1,695
Other assets	6,024			7,302
Assets of operations held-for-sale	—			634
Total assets	$	156,105		$	151,828
Liabilities
Deposit liabilities
Noninterest-bearing	$	91		$	64
Interest-bearing	63,950			58,158
Total deposit liabilities	64,041			58,222
Short-term borrowings	5,378			7,062
Long-term debt	67,461			66,558
Interest payable	437			477
Unearned insurance premiums and service revenue	2,438			2,375
Accrued expenses and other liabilities	1,751			1,735
Total liabilities	141,506			136,429
Contingencies (refer to Note 26)
Equity
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 482,552,750 and 480,136,039; and outstanding 481,750,247 and 480,094,891)	21,082			21,038
Preferred stock	813			1,255
Accumulated deficit	(7,158		)	(6,828		)
Accumulated other comprehensive loss	(122		)	(66		)
Treasury stock, at cost (802,503 shares)	(16		)	—
Total equity	14,599			15,399
Total liabilities and equity	$	156,105		$	151,828

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, 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, 2015			December 31, 2014
Assets
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	$	27,165		$	30,081
Allowance for loan losses	(191		)	(179		)
Total finance receivables and loans, net	26,974			29,902
Investment in operating leases, net	5,916			5,595
Other assets	1,410			2,010
Total assets	$	34,300		$	37,507
Liabilities
Long-term debt	$	21,946		$	24,343
Accrued expenses and other liabilities	27			173
Total liabilities	$	21,973		$	24,516

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		Preferred stock			Accumulated deficit				Accumulated other comprehensive (loss) income			Treasury stock			Total equity
Balance at January 1, 2014	$	20,939	$	1,255		$	(7,710	)		$	(276	)	$	—		$	14,208
Net income						973										973
Preferred stock dividends						(200		)								(200		)
Share-based compensation	83															83
Other comprehensive income										126						126
Balance at September 30, 2014	$	21,022	$	1,255		$	(6,937	)		$	(150	)	$	—		$	15,190
Balance at January 1, 2015	$	21,038	$	1,255		$	(6,828	)		$	(66	)	$	—		$	15,399
Net income						1,026										1,026
Preferred stock dividends						(1,356		)	(a)							(1,356		)
Series A preferred stock repurchase			(325		)											(325		)
Series G preferred stock redemption			(117		)											(117		)
Share-based compensation	44															44
Other comprehensive loss										(56		)				(56		)
Share repurchases related to employee stock-based compensation awards													(16		)	(16		)
Balance at September 30, 2015	$	21,082	$	813		$	(7,158	)		$	(122	)	$	(16	)	$	14,599

(a)

Preferred stock dividends include $1,193 million recognized in connection with the partial redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional return to preferred shareholders calculated as the excess consideration paid over the carrying amount derecognized. Refer to Note 16 for additional preferred stock information.

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)	2015			2014
Operating activities
Net income	$	1,026		$	973
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	2,130			2,133
Provision for loan losses	467			302
Gain on mortgage and automotive loans, net	(45		)	(6		)
Other gain on investments, net	(106		)	(129		)
Loss on extinguishment of debt	354			46
Originations and purchases of loans held-for-sale	(1,594		)	—
Proceeds from sales and repayments of loans originated as held-for-sale	1,580			59
Impairment and settlement related to Residential Capital, LLC	—			(150		)
(Gain) loss on sale of subsidiaries, net	(452		)	7
Net change in
Deferred income taxes	406			174
Interest payable	(40		)	(346		)
Other assets	528			42
Other liabilities	(212		)	(529		)
Other, net	(88		)	(118		)
Net cash provided by operating activities	3,954			2,458
Investing activities
Purchases of available-for-sale securities	(10,011		)	(4,117		)
Proceeds from sales of available-for-sale securities	4,408			2,974
Proceeds from maturities and repayment of available-for-sale securities	3,141			1,877
Net increase in finance receivables and loans	(9,175		)	(1,267		)
Proceeds from sales of finance receivables and loans	2,665			1,557
Purchases of operating lease assets	(3,423		)	(7,770		)
Disposals of operating lease assets	3,855			4,505
Proceeds from sale of business units, net (a)	1,049			47
Net change in restricted cash	489			2,128
Other, net	(17		)	71
Net cash (used in) provided by investing activities	(7,019		)	5

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



Nine months ended September 30, ($ in millions)	2015			2014
Financing activities
Net change in short-term borrowings	(1,692		)	(3,298		)
Net increase in deposits	5,819			3,501
Proceeds from issuance of long-term debt	23,844			18,942
Repayments of long-term debt	(23,454		)	(21,239		)
Repurchase and redemption of preferred stock	(442		)	—
Dividends paid on preferred stock	(1,356		)	(200		)
Net cash provided by (used in) financing activities	2,719			(2,294		)
Effect of exchange-rate changes on cash and cash equivalents	(3		)	(1		)
Net (decrease) increase in cash and cash equivalents	(349		)	168
Cash and cash equivalents at beginning of year	5,576			5,531
Cash and cash equivalents at September 30,	$	5,227		$	5,699
Supplemental disclosures
Cash paid for
Interest	$	1,825		$	2,380
Income taxes	95			13
Noncash items
Finance receivables and loans transferred to loans held-for-sale	777			1,602
Other disclosures
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale	61			29


(a)	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. (referred to herein as Ally, we, our, or us) is a leading, independent, diversified financial services firm. Founded in 1919, we are a leading financial services company with more than 95 years of experience providing a broad array of financial products and services, primarily to automotive dealers and retail customers. We operate as a financial holding company (FHC) and a bank holding company (BHC). Our banking subsidiary, Ally Bank, is an indirect, wholly-owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (internet, telephone, mobile, and mail) 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 and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. 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, 2015, and for the three months and nine months ended September 30, 2015, and 2014, 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, 2014, as filed on February 27, 2015, with the U.S. Securities and Exchange Commission (SEC).

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. This method differs from that described in Note 1 to the Consolidated Financial Statements in our 2014 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.

Refer to Note 1 to the Consolidated Financial Statements in our 2014 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

Receivables — Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (ASU 2014-04)

As of January 1, 2015, we adopted ASU (Accounting Standards Update) 2014-04. The amendments in this ASU clarify the timing for which an entity should reclassify a loan that has been foreclosed or where an in substance repossession has occurred to real estate owned. The guidance requires a reclassification to occur when the entity obtains legal title upon completion of foreclosure or the borrower conveys all interest in the residential real estate property to the entity to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. In addition, the ASU clarifies that redemption rights of the borrower should be ignored for purposes of determining whether legal title has transferred. We adopted the guidance utilizing a modified retrospective approach. The adoption of this guidance did not have a material effect on our consolidated financial condition or results of operations.

Presentation of Financial Statements and Property, Plant, and Equipment — Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity (ASU 2014-08)

As of January 1, 2015, we adopted ASU 2014-08. The amendments in this ASU modify the requirements for the reporting of discontinued operations. In order to qualify as a discontinued operation, the disposal of a component of an entity, a group of components, or a business of an entity must represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The ASU further indicates that the timing for recording a discontinued operation is when one of the following occurs: the component, group of components, or business meets the criteria to be classified as held-for-sale; the component, group of components, or business is disposed of by sale; or the component, group of components, or business is disposed of other than by sale (for example abandonment or spinoff). In addition, the ASU also requires additional disclosure items about an entity’s discontinued operations. The amendments were applied prospectively solely to newly identified disposals that qualify as discontinued operations after the effective date. Items previously reported as discontinued operations maintain their classification based on the prior guidance. The adoption of this guidance did not have a material effect on 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

Transfers and Servicing — Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures (ASU 2014-11)

As of January 1, 2015, we adopted ASU 2014-11. The amendments in this ASU change the accounting for repurchase-to-maturity transactions and repurchase financing transactions such that both will be reported as secured borrowings. In addition to the changes to how these transactions are reported, the ASU also includes new disclosure requirements. The amendments were applied to all transactions that fall under the guidance as of the date of adoption with a cumulative effect adjustment recorded on the date of initial adoption. The adoption of this guidance did not have a material effect on our consolidated financial condition or results of operations.

Recently Issued Accounting Standards

Revenue from Contracts with Customers (ASU 2014-09) and Revenue from Contracts with Customers — Deferral of the Effective Date (ASU 2015-14)

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial Reporting Standards (IFRS). The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the main principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. As originally issued, the amendments in ASU 2014-09 were to be effective for us beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the guidance for us until January 1, 2018, and permitted early adoption as of the original effective date in ASU 2014-09. The amendments to the revenue recognition principles can be applied on adoption either through a full retrospective application or on a modified basis with a cumulative effect adjustment on the date of initial adoption with certain practical expedients. Management is assessing the impact of the adoption of this guidance.

Consolidation — Amendments to the Consolidation Analysis (ASU 2015-02)

In February 2015, the FASB issued ASU 2015-02. The amendments in this update modify the requirements of consolidation with respect to entities that are or are similar in nature to limited partnerships or are variable interest entities (VIEs). For entities that are or are similar to limited partnerships, the guidance clarifies the evaluation of kick-out rights, removes the presumption that the general partner will consolidate and generally states that such entities will be presumed to be VIEs unless proven otherwise. For VIEs, the guidance modifies the analysis related to the evaluation of servicing fees, excludes servicing fees that are deemed commensurate with the level of service required from the determination of the primary beneficiary and clarifies certain considerations related to the consolidation analysis when performing a related party assessment. The amendments are effective for us on January 1, 2016, with early adoption permitted. The amendments can be applied either through a full retrospective application or on a modified retrospective basis with a cumulative effect adjustment on the date of initial adoption. Based on our preliminary assessment within our ongoing implementation efforts, we are not anticipating a material impact to our consolidated financial condition or results of operations upon adoption.

Imputation of Interest — Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03) and Imputation of Interest — Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15)

In April 2015, the FASB issued ASU 2015-03. The amendments in this update require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Currently debt issuance costs are presented as a deferred charge and are therefore presented as an asset. The recognition and measurement requirements will not change as a result of this guidance. Additionally, in August 2015, the FASB issued ASU 2015-15 which codified comments made by the SEC that costs associated with revolving lines of credit may continue to be presented as an asset subsequent to the adoption of the guidance in ASU 2015-03. The amendments in ASU 2015-03 are effective for us on January 1, 2016, with early adoption permitted. The amendments must be applied with retrospective application, with each balance sheet period presented showing the impacts of applying the guidance. The guidance is not expected to 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

2. Discontinued and Held-for-sale Operations

Discontinued Operations

Prior to the adoption of ASU 2014-08, which is to be prospectively applied only to newly identified disposals that qualify as discontinued operations beginning after January 1, 2015, we have classified 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 or disposal transactions. For all periods presented, 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 Automotive Finance Operations

During the fourth quarter of 2012, we committed to sell our automotive finance operations in Europe and Latin America to General Motors Financial Company, Inc. (GMF). On the same date, we entered into an agreement with GMF to sell our 40% interest in a motor vehicle finance joint venture in China. During the second quarter of 2013, we completed the sale of our operations in Europe and the majority of Latin America. The transaction included European operations in Germany, the United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium, France and the Netherlands, and Latin America operations in Mexico, Chile, and Colombia. During the fourth quarter of 2013, we completed the sale of our Latin American operations in Brazil.

On January 2, 2015, the sale of our interest in the motor vehicle finance joint venture in China was completed and an after-tax gain of approximately $400 million was recorded. The tax expense included in this gain was reduced by the release of the valuation allowance on our capital loss carryforward deferred tax asset that was utilized to offset capital gains stemming from this sale.

Other Operations

Other operations relate to previous discontinued operations for which we continue to have minimal residual costs.

Select Financial Information

Select financial information of discontinued operations is summarized below. The pretax income or loss, including direct costs to transact a sale, 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 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)	2015			2014			2015			2014
Select Automotive Finance operations
Total net revenue	$	—		$	29		$	—		$	95
Pretax (loss) income including direct costs to transact a sale (a)	(1		)	46			452			101
Tax expense (b)	3			—			68			4
Other operations
Pretax (loss) income	$	(1	)	$	5		$	19		$	25
Tax benefit	—			(79		)	(2		)	(77		)


(a)	Includes certain treasury and other corporate activity recognized by Corporate and Other.


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

Held-for-sale Operations

Assets of operations held-for-sale consisted of $634 million in other assets at December 31, 2014 related to the joint venture in China that was sold to GMF on January 2, 2015. No held-for-sale operations remain at September 30, 2015.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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)	2015		2014		2015		2014
Remarketing fees	$	25	$	28	$	78	$	85
Late charges and other administrative fees	23		23		66		66
Income from equity-method investments	11		5		48		13
Other, net	21		22		59		50
Total other income, net of losses	$	80	$	78	$	251	$	214

4. Other Operating Expenses

Details of other operating expenses were as follows.



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2015		2014		2015		2014
Insurance commissions	$	95	$	95	$	283	$	279
Technology and communications	65		77		198		255
Lease and loan administration	31		32		92		92
Advertising and marketing	26		27		80		81
Professional services	23		20		68		73
Premises and equipment depreciation	20		23		62		61
Regulatory and licensing fees	18		23		59		69
Vehicle remarketing and repossession	20		22		56		61
Occupancy	13		12		38		34
Non-income taxes	11		12		26		32
Other	56		61		166		176
Total other operating expenses	$	378	$	404	$	1,128	$	1,213

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

5. Investment Securities

Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.



	September 30, 2015									December 31, 2014
	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	$	1,805	$	5	$	(1	)	$	1,809	$	1,195	$	1	$	(18	)	$	1,178
U.S. States and political subdivisions	635		17		(1		)	651		389		17		—			406
Foreign government	176		8		—			184		224		8		—			232
Mortgage-backed residential (a)	11,560		130		(76		)	11,614		10,431		119		(125		)	10,425
Mortgage-backed commercial	519		—		(2		)	517		254		—		(1		)	253
Asset-backed	1,947		6		(2		)	1,951		1,989		5		(3		)	1,991
Corporate debt	1,043		13		(9		)	1,047		734		14		(2		)	746
Total debt securities (b) (c)	17,685		179		(91		)	17,773		15,216		164		(149		)	15,231
Equity securities	1,097		1		(113		)	985		891		49		(34		)	906
Total available-for-sale securities	$	18,782	$	180	$	(204	)	$	18,758	$	16,107	$	213	$	(183	)	$	16,137


(a)	Residential mortgage-backed securities include agency-backed bonds totaling $8,536 million and $7,557 million at September 30, 2015, and December 31, 2014, respectively.


(b)	Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. Amounts deposited totaled $15 million at both September 30, 2015, and December 31, 2014.


(c)	Investment securities with a fair value of $1,702 million and $801 million at September 30, 2015, and December 31, 2014, were pledged to secure short-term borrowings or repurchase agreements and for other purposes as required by contractual obligation or law. Under these agreements, Ally has granted the counterparty the right to sell or pledge the underlying investment securities.

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 contractual 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, 2015
Fair value of available-for-sale debt securities
U.S. Treasury and federal agencies	$	1,809	1.6	%	$	7	5.0	%	$	905	1.2	%	$	897	2.1	%	$	—	—	%
U.S. States and political subdivisions	651		3.3		53		2.2		48		2.2		130		2.9		420		3.7
Foreign government	184		2.6		9		1.4		82		2.7		93		2.7		—		—
Mortgage-backed residential	11,614		2.8		—		—		38		2.1		40		2.5		11,536		2.8
Mortgage-backed commercial	517		1.9		—		—		—		—		3		2.7		514		1.9
Asset-backed	1,951		2.1		4		1.4		1,189		2.0		553		2.4		205		2.2
Corporate debt	1,047		2.9		48		3.1		601		2.5		368		3.3		30		5.5
Total available-for-sale debt securities	$	17,773	2.6		$	121	2.6		$	2,863	1.9		$	2,084	2.5		$	12,705	2.8
Amortized cost of available-for-sale debt securities	$	17,685			$	120			$	2,854			$	2,067			$	12,644
December 31, 2014
Fair value of available-for-sale debt securities
U.S. Treasury and federal agencies	$	1,178	1.5	%	$	7	3.0	%	$	677	1.2	%	$	494	1.9	%	$	—	—	%
U.S. States and political subdivisions	406		3.7		34		1.9		12		2.1		106		3.0		254		4.3
Foreign government	232		2.7		—		—		128		2.5		104		2.9		—		—
Mortgage-backed residential	10,425		2.6		34		3.1		58		2.1		—		—		10,333		2.6
Mortgage-backed commercial	253		1.5		—		—		30		1.8		—		—		223		1.4
Asset-backed	1,991		1.9		—		—		1,311		1.9		463		2.0		217		2.2
Corporate debt	746		3.2		33		3.1		460		2.7		216		3.8		37		5.6
Total available-for-sale debt securities	$	15,231	2.5		$	108	2.7		$	2,676	1.9		$	1,383	2.4		$	11,064	2.6
Amortized cost of available-for-sale debt securities	$	15,216			$	108			$	2,674			$	1,374			$	11,060


(a)	Actual maturities may differ from contractual maturities due to call or prepayment options.

The balances of cash equivalents were $1.3 billion and $2.0 billion at September 30, 2015, and December 31, 2014, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.

The following table presents interest and dividends on available-for-sale securities.



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2015		2014		2015		2014
Taxable interest	$	90	$	87	$	252	$	256
Taxable dividends	7		6		18		18
Interest and dividends exempt from U.S. federal income tax	5		1		13		8
Interest and dividends on available-for-sale securities	$	102	$	94	$	283	$	282

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents gross gains and losses realized upon the sales of available-for-sale securities and other-than-temporary impairment.



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2015			2014			2015			2014
Gross realized gains	$	28		$	48		$	134		$	150
Gross realized losses	(11		)	(3		)	(14		)	(11		)
Other-than-temporary impairment	(11		)	—			(14		)	(10		)
Other gain on investments, net	$	6		$	45		$	106		$	129

Certain available-for-sale securities were sold at a loss in 2015 and 2014 as a result of market conditions within these respective periods (e.g., a downgrade in the rating of a debt security), in accordance with our risk management policies and practices. The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology 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 September 30, 2015, 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 September 30, 2015, we had the ability and intent to hold equity 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 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 September 30, 2015. Refer to Note 1 to the Consolidated Financial Statements in our 2014 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.



	September 30, 2015										December 31, 2014
	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	$	220	$	—		$	373	$	(1	)	$	297	$	(3	)	$	859	$	(15	)
U.S. States and political subdivisions	173		(1		)	—		—			50		—			—		—
Foreign government	9		—			—		—			—		—			—		—
Mortgage-backed	1,731		(11		)	2,517		(67		)	1,172		(10		)	3,098		(116		)
Asset-backed	696		(2		)	24		—			819		(3		)	8		—
Corporate debt	449		(8		)	10		(1		)	132		(2		)	11		—
Total temporarily impaired debt securities	3,278		(22		)	2,924		(69		)	2,470		(18		)	3,976		(131		)
Temporarily impaired equity securities	793		(84		)	68		(29		)	231		(24		)	40		(10		)
Total temporarily impaired available-for-sale securities	$	4,071	$	(106	)	$	2,992	$	(98	)	$	2,701	$	(42	)	$	4,016	$	(141	)

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

6. Loans Held-for-Sale, Net

Loans held-for-sale represent loans that we intend to sell. In situations where we have not identified the specific loans to be sold, we may classify a percentage of the entire loan balance as held-for-investment and a percentage as held-for-sale based on an allocation methodology of loans with similar characteristics. In addition, we may also designate a portion of our originations as held-for-sale based on a similar allocation methodology.

The composition of loans held-for-sale, net, was as follows.



($ in millions)	September 30, 2015		December 31, 2014
Consumer automotive	$	—	$	1,515
Consumer mortgage	—		452
Commercial and industrial — Other	37		36
Total loans held-for-sale, net	$	37	$	2,003

7. Finance Receivables and Loans, Net

The composition of finance receivables and loans, net, reported at carrying value before allowance for loan losses was as follows.



($ in millions)	September 30, 2015		December 31, 2014
Consumer automotive (a)	$	63,610	$	56,570
Consumer mortgage (b)(c)	9,770		7,474
Commercial
Commercial and industrial
Automotive	29,020		30,871
Other	2,289		1,882
Commercial real estate — Automotive	3,302		3,151
Total commercial	34,611		35,904
Total finance receivables and loans (d)	$	107,991	$	99,948


(a)	Includes $107 million and $35 million of fair value adjustment for loans in hedge accounting relationships at September 30, 2015, and December 31, 2014, respectively. Refer to Note 20 for additional information.


(b)	Includes loans originated as interest-only mortgage loans of $1.0 billion and $1.2 billion at September 30, 2015, and December 31, 2014, respectively, 8% of which are expected to start principal amortization in the remainder of 2015, 33% in 2016, 21% in 2017, 2% in 2018, and 4% thereafter.


(c)	Includes consumer mortgages at a fair value of $1 million at both September 30, 2015, and December 31, 2014, as a result of fair value option election.


(d)	Totals include a net increase of $43 million at September 30, 2015, compared to a net reduction of $266 million at December 31, 2014, for unearned income, unamortized premiums and discounts, and deferred fees and costs.

The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.



Three months ended September 30, 2015 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at July 1, 2015	$	767		$	119		$	88		$	974
Charge-offs	(220		)	(10		)	(1		)	(231		)
Recoveries	64			4			2			70
Net charge-offs	(156		)	(6		)	1			(161		)
Provision for loan losses	200			6			5			211
Other (a)	(7		)	—			1			(6		)
Allowance at September 30, 2015	$	804		$	119		$	95		$	1,018


(a)	Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended September 30, 2014 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at July 1, 2014	$	729		$	302		$	140		$	1,171
Charge-offs	(188		)	(13		)	—			(201		)
Recoveries	51			1			—			52
Net charge-offs	(137		)	(12		)	—			(149		)
Provision for loan losses	112			(7		)	(3		)	102
Other (a)	(11		)	—			—			(11		)
Allowance at September 30, 2014	$	693		$	283		$	137		$	1,113


(a)	Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.



Nine months ended September 30, 2015 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2015	$	685		$	152		$	140		$	977
Charge-offs	(579		)	(41		)	(1		)	(621		)
Recoveries	195			12			3			210
Net charge-offs	(384		)	(29		)	2			(411		)
Provision for loan losses	510			4			(47		)	467
Other (a)	(7		)	(8		)	—			(15		)
Allowance at September 30, 2015	$	804		$	119		$	95		$	1,018
Allowance for loan losses at September 30, 2015
Individually evaluated for impairment	$	22		$	48		$	19		$	89
Collectively evaluated for impairment	782			71			76			929
Loans acquired with deteriorated credit quality	—			—			—			—
Finance receivables and loans at historical cost at September 30, 2015
Ending balance	$	63,610		$	9,769		$	34,611		$	107,990
Individually evaluated for impairment	285			268			75			628
Collectively evaluated for impairment	63,325			9,501			34,536			107,362
Loans acquired with deteriorated credit quality	—			—			—			—


(a)	Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.



Nine months ended September 30, 2014 ($ in millions)	Consumer automotive		Consumer mortgage		Commercial	Total
Allowance at January 1, 2014	$	673	$	389	$