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 March 31, 2016, 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 non-accelerated 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 May 4, 2016, the number of shares outstanding of the Registrant’s common stock was 483,745,676 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 Months Ended March 31, 2016 and 2015	3
	Condensed Consolidated Balance Sheet (unaudited) at March 31, 2016 and December 31, 2015	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three Months Ended March 31, 2016 and 2015	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2016 and 2015	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	93
Item 4.	Controls and Procedures	94
Part II — Other Information		95
Item 1.	Legal Proceedings	95
Item 1A.	Risk Factors	95
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	95
Item 3.	Defaults Upon Senior Securities	95
Item 4.	Mine Safety Disclosures	95
Item 5.	Other Information	95
Item 6.	Exhibits	95
Signatures		96
Index of Exhibits		97



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 March 31,
($ in millions)	2016			2015
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,235		$	1,074
Interest on loans held-for-sale	—			24
Interest and dividends on investment securities	102			88
Interest on cash and cash equivalents	3			2
Operating leases	769			896
Total financing revenue and other interest income	2,109			2,084
Interest expense
Interest on deposits	193			172
Interest on short-term borrowings	13			11
Interest on long-term debt	442			429
Total interest expense	648			612
Depreciation expense on operating lease assets	510			622
Net financing revenue	951			850
Other revenue
Servicing fees	13			10
Insurance premiums and service revenue earned	230			233
Gain on mortgage and automotive loans, net	1			46
Loss on extinguishment of debt	(4		)	(198		)
Other gain on investments, net	54			55
Other income, net of losses	82			97
Total other revenue	376			243
Total net revenue	1,327			1,093
Provision for loan losses	220			116
Noninterest expense
Compensation and benefits expense	252			255
Insurance losses and loss adjustment expenses	73			56
Other operating expenses	385			384
Total noninterest expense	710			695
Income from continuing operations before income tax expense	397			282
Income tax expense from continuing operations	150			103
Net income from continuing operations	247			179
Income from discontinued operations, net of tax	3			397
Net income	250			576
Other comprehensive income, net of tax	146			31
Comprehensive income	$	396		$	607

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 March 31,
(in dollars) (a)	2016		2015
Basic earnings per common share
Net income from continuing operations	$	0.48	$	0.23
Income from discontinued operations, net of tax	0.01		0.82
Net income	$	0.49	$	1.06
Diluted earnings per common share
Net income from continuing operations	$	0.48	$	0.23
Income from discontinued operations, net of tax	0.01		0.82
Net income	$	0.49	$	1.06


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

Refer to Note 17 for additional earnings per share information. 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)	March 31, 2016			December 31, 2015
Assets
Cash and cash equivalents
Noninterest-bearing	$	1,906		$	2,148
Interest-bearing	3,095			4,232
Total cash and cash equivalents	5,001			6,380
Available-for-sale securities (refer to Note 5 for discussion of investment securities pledged as collateral)	18,180			17,157
Held-to-maturity securities	118			—
Loans held-for-sale, net	39			105
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	110,876			111,600
Allowance for loan losses	(1,077		)	(1,054		)
Total finance receivables and loans, net	109,799			110,546
Investment in operating leases, net	14,958			16,271
Premiums receivable and other insurance assets	1,828			1,801
Other assets	6,582			6,321
Total assets	$	156,505		$	158,581
Liabilities
Deposit liabilities
Noninterest-bearing	$	92		$	89
Interest-bearing	70,173			66,389
Total deposit liabilities	70,265			66,478
Short-term borrowings	5,365			8,101
Long-term debt	62,044			66,234
Interest payable	374			350
Unearned insurance premiums and service revenue	2,449			2,434
Accrued expenses and other liabilities	2,185			1,545
Total liabilities	142,682			145,142
Contingencies (refer to Note 25)
Equity
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 485,130,865 and 482,790,696; and outstanding 483,475,209 and 481,980,111)	21,117			21,100
Preferred stock	696			696
Accumulated deficit	(7,875		)	(8,110		)
Accumulated other comprehensive loss	(85		)	(231		)
Treasury stock, at cost (1,655,656 and 810,585 shares)	(30		)	(16		)
Total equity	13,823			13,439
Total liabilities and equity	$	156,505		$	158,581

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)	March 31, 2016			December 31, 2015
Assets
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	$	27,626		$	27,929
Allowance for loan losses	(210		)	(196		)
Total finance receivables and loans, net	27,416			27,733
Investment in operating leases, net	4,060			4,791
Other assets	1,563			1,624
Total assets	$	33,039		$	34,148
Liabilities
Long-term debt	$	18,868		$	20,267
Accrued expenses and other liabilities	21			22
Total liabilities	$	18,889		$	20,289

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, 2015	$	21,038	$	1,255	$	(6,828	)	$	(66	)	$	—		$	15,399
Net income					576									576
Preferred stock dividends					(67		)							(67		)
Share-based compensation	10													10
Other comprehensive income								31						31
Share repurchases related to employee stock-based compensation awards											(15		)	(15		)
Balance at March 31, 2015	$	21,048	$	1,255	$	(6,319	)	$	(35	)	$	(15	)	$	15,934
Balance at January 1, 2016	$	21,100	$	696	$	(8,110	)	$	(231	)	$	(16	)	$	13,439
Net income					250									250
Preferred stock dividends					(15		)							(15		)
Share-based compensation	17													17
Other comprehensive income								146						146
Share repurchases related to employee stock-based compensation awards											(14		)	(14		)
Balance at March 31, 2016	$	21,117	$	696	$	(7,875	)	$	(85	)	$	(30	)	$	13,823

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



Three months ended March 31, ($ in millions)	2016			2015
Operating activities
Net income	$	250		$	576
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	653			759
Provision for loan losses	220			116
Gain on mortgage and automotive loans, net	(1		)	(46		)
Other gain on investments, net	(54		)	(55		)
Loss on extinguishment of debt	4			198
Originations and purchases of loans held-for-sale	(44		)	(1,241		)
Proceeds from sales and repayments of loans originated as held-for-sale	104			125
Gain on sale of subsidiaries, net	—			(452		)
Net change in
Deferred income taxes	147			165
Interest payable	24			(37		)
Other assets	46			396
Other liabilities	(122		)	(92		)
Other, net	(39		)	(165		)
Net cash provided by operating activities	1,188			247
Investing activities
Net change in federal funds sold and securities purchased under resale agreements	—			(50		)
Purchases of available-for-sale securities	(4,870		)	(4,023		)
Proceeds from sales of available-for-sale securities	4,175			1,523
Proceeds from maturities and repayment of available-for-sale securities	409			914
Purchases of held-to-maturity securities	(118		)	—
Net increase in finance receivables and loans	(2,086		)	(45		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	2,594			1,577
Purchases of operating lease assets	(701		)	(1,447		)
Disposals of operating lease assets	1,535			1,337
Proceeds from sale of business unit, net (a)	—			1,049
Net change in restricted cash	48			(121		)
Net change in nonmarketable equity investments	(315		)	58
Other, net	(20		)	33
Net cash provided by investing activities	651			805

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



Three months ended March 31, ($ in millions)	2016			2015
Financing activities
Net change in short-term borrowings	(2,739		)	(618		)
Net increase in deposits	3,780			2,647
Proceeds from issuance of long-term debt	4,244			8,825
Repayments of long-term debt	(8,490		)	(9,778		)
Dividends paid on preferred stock	(15		)	(67		)
Net cash (used in) provided by financing activities	(3,220		)	1,009
Effect of exchange-rate changes on cash and cash equivalents	2			(1		)
Net (decrease) increase in cash and cash equivalents	(1,379		)	2,060
Cash and cash equivalents at beginning of year	6,380			5,576
Cash and cash equivalents at March 31,	$	5,001		$	7,636
Supplemental disclosures
Cash paid for
Interest	$	626		$	641
Income taxes	—			95
Noncash items
Finance receivables and loans transferred to loans held-for-sale	2,599			69
Other disclosures
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale	9			43


(a)	Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows.

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, Parent, we, our, or us) is a leading, independent, diversified financial services firm. Founded in 1919, we are a leading financial services company with over 95 years of experience providing a broad array of financial products and services. 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 March 31, 2016, and for the three months ended March 31, 2016, and 2015, 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, 2015, as filed on February 24, 2016, with the U.S. Securities and Exchange Commission (SEC), as amended by the Current Report on Form 8-K filed with the SEC on May 5, 2016.

Change in Reportable Segments

As a result of a change in how management views and operates our business, during the first quarter of 2016, we made changes in the composition of our operating segments. Financial information related to our Corporate Finance business is now presented as a separate reportable segment. Previously, all such activity was included in Corporate and Other. Additionally, only the activity of our ongoing bulk acquisitions of mortgage loans and other originations and refinancing is now presented in Mortgage Finance operations. The activity related to the management of our legacy mortgage portfolio is now included in Corporate and Other. Our other operating segments, Automotive Finance operations and Insurance operations, remained unchanged. Amounts for 2015 have been adjusted to conform to the current management view. In connection with the change in operating segments, we have defined additional classes of finance receivables and loans: Mortgage Finance and Mortgage — Legacy. Mortgage Finance includes consumer mortgage loans from our ongoing mortgage operations and Mortgage — Legacy includes consumer mortgage loans originated prior to 2009.

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 2015 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.

Investments

Our portfolio of investments includes various debt and marketable equity securities and nonmarketable equity investments. Debt and marketable equity securities are classified based on management’s intent to sell or hold the security. We classify debt securities as held-to-maturity only when we have both the intent and ability to hold the securities to maturity. We classify debt and marketable equity securities as trading when the securities are acquired for the purpose of selling or holding them for a short period of time. Securities not classified as either held-to-maturity or trading are classified as available-for-sale.

Our debt and marketable equity securities include government securities, corporate bonds, asset-backed securities (ABS), mortgage-backed securities (MBS), equity securities and other investments. Our portfolio includes securities classified as available-for-sale and held-to-maturity. Our available-for-sale securities are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss and are subject to impairment. Our held-to-maturity securities are carried at amortized cost and are subject to impairment.

We amortize premiums and discounts on debt securities as an adjustment to investment yield generally over the stated maturity of the security. For ABS and MBS where prepayments can be reasonably estimated, amortization is adjusted for expected prepayments.

Additionally, we assess our debt and marketable equity securities for potential other-than-temporary impairment. We employ a methodology that considers available evidence in evaluating potential other-than-temporary impairment of our debt and marketable equity securities classified as available-for-sale and held-to-maturity. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value. We also evaluate the financial health of and business outlook for the issuer, the

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

performance of the underlying assets for interests in securitized assets, and, for securities classified as available-for-sale, our intent and ability to hold the investment through recovery of its amortized cost basis.

Once a decline in fair value of a debt security is determined to be other-than-temporary, an impairment charge for the credit component is recorded to other gain (loss) on investments, net, in our Consolidated Statement of Income, and a new cost basis in the investment is established. Noncredit component losses of a debt security are recorded in other comprehensive income (loss) when we do not intend to sell the security and it is not more likely than not that we will have to sell the security prior to the security's anticipated recovery. Unrealized losses that we have determined to be other-than-temporary on equity securities are recorded to other gain (loss) on investments, net in our Consolidated Statement of Income. Subsequent increases and decreases to the fair value of available-for-sale debt and equity securities are included in other comprehensive income (loss), so long as they are not attributable to another other-than-temporary impairment.

Realized gains and losses on investment securities are reported in other gain (loss) on investments, net, and are determined using the specific identification method. For information on our debt and marketable equity securities, refer to Note 5.

In addition to our investments in debt and marketable equity securities, we hold equity positions in other entities. These positions include Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock held to meet regulatory requirements, other equity investments that are not publicly traded and do not have a readily determinable fair value, equity investments in low income housing tax credits, and Community Reinvestment Act (CRA) equity investments. Our investments in FHLB and FRB stock and other equity investments are accounted for using the cost method of accounting. Our low income housing tax credit investments are accounted for using the proportionate amortization method of accounting for qualified affordable housing investments. Our CRA investments are accounted for using the equity method of accounting. Our FHLB and FRB stock and other equity investments carried at cost are included in nonmarketable equity investments in other assets. Our investments in low income housing tax credits and CRA are also included in other assets. As conditions warrant, we review our investments carried at cost for impairment and will adjust the carrying value of the investment if it is deemed to be impaired. No impairment was recognized in 2016 or 2015. For more information on our nonmarketable equity investments, refer to Note 21.

Refer to Note 1 to the Consolidated Financial Statements in our 2015 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

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

As of January 1, 2016, we adopted 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 in this guidance did not impact our historical VIE and consolidation conclusions. No adjustments to our consolidated financial statements were required as a result of the adoption of this guidance.

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 beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the guidance until January 1, 2018, and permitted early adoption as of the original effective date in ASU 2014-09. The FASB created a transition resource group to work with stakeholders and clarify the new guidance as necessary. The FASB has issued and is anticipating issuing additional ASUs to provide clarifying guidance and implementation support for ASU 2014-09. Management will consider these additional ASUs when assessing the overall impact of 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 in the process of completing a scoping assessment in order to determine the impact of the adoption of this guidance.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)

In January 2016, the FASB issued ASU 2016-01. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operation. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Changes in fair value for available-for-sale equity securities will no longer be recognized through other comprehensive income. Reporting entities may continue to elect to measure equity investments which do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive income and not as a component of net income. The amendments are effective on January 1, 2018, with early adoption permitted solely for the provisions pertaining to instrument-specific credit risk for liabilities measured at fair value. The amendments must be applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Management is currently evaluating the impact of the amendments. However, we do expect additional volatility in our consolidated results of operations as a result of the requirement to measure equity investments at fair value with changes in the fair value recognized in net income upon adoption.

Leases (ASU 2016-02)

In February 2016, the FASB issued ASU 2016-02. The amendments in this update primarily replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for both operating leases and sales type and direct financing leases (both of which were previously referred to as capital leases) are largely unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a right-to-use asset and lease liability equal to the present value of the lease payments. The right-to-use asset and lease liability should be derecognized in a manner which effectively yields a straight line lease expense over the lease term. In addition to the changes to lessee operating lease accounting, the amendments require additional disclosures for all lease types for both lessees and lessors. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied on a modified retrospective basis with a cumulative adjustment to the beginning of the earliest fiscal year presented in the financial statements in the period of adoption. Management is currently evaluating the impact of these amendments. Preliminarily, we expect to record a gross up in our consolidated statement of financial position upon adoption reflecting our right-to-use asset and lease liability for our operating leases where we are the lessee (for example, our facility leases). We are currently evaluating the impact of the gross up for our operating leases where we are the lessee. We do not believe the amendments will have a material impact to leases where we are the lessor.

Stock Compensation — Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)

In March 2016, the FASB issued ASU 2016-09. The amendments in this update include changes to several aspects of share-based payment accounting. The amendments allow for an entity wide accounting policy election to either account for forfeitures as they occur or estimate the number of awards that are expected to vest. The amendments modify the tax withholding requirements to allow entities to withhold an amount up to the employee’s maximum individual statutory tax rates without resulting in a liability classification of the award as opposed to limiting the withholding to the minimum statutory tax rates. The amendments require that all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized in income tax expense or benefit in the income statement in the period in which they occur. The amendments also address the classification and presentation of certain items on the cash flow statement. The amendments are effective on January 1, 2017, with early adoption permitted. The transition method varies depending on the specific amendment. Management is currently evaluating the impact of these amendments.

2. Discontinued Operations

Prior to the adoption of ASU 2014-08, which was 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 entered into an agreement with General Motors Financial Company Inc. (GMF) to sell our 40% interest in a motor vehicle finance joint venture in China. 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 March 31,
($ in millions)	2016		2015
Select Automotive Finance operations
Pretax income including direct costs to transact a sale (a)	$	1	$	458
Tax expense (b)	—		65
Other operations
Pretax income	$	3	$	2
Tax expense (benefit)	1		(2		)


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


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

3. Other Income, Net of Losses

Details of other income, net of losses, were as follows.



	Three months ended March 31,
($ in millions)	2016		2015
Remarketing fees	$	28	$	28
Late charges and other administrative fees	25		22
Income from equity-method investments	6		33
Other, net	23		14
Total other income, net of losses	$	82	$	97

4. Other Operating Expenses

Details of other operating expenses were as follows.



	Three months ended March 31,
($ in millions)	2016		2015
Insurance commissions	$	94	$	93
Technology and communications	66		69
Lease and loan administration	32		29
Advertising and marketing	27		31
Professional services	24		20
Vehicle remarketing and repossession	24		18
Premises and equipment depreciation	21		20
Regulatory and licensing fees	21		21
Occupancy	13		12
Non-income taxes	9		8
Other	54		63
Total other operating expenses	$	385	$	384

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 investment securities were as follows.



	March 31, 2016									December 31, 2015
	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	$	345	$	11	$	—		$	356	$	1,760	$	—	$	(19	)	$	1,741
U.S. States and political subdivisions	721		23		(1		)	743		693		24		(1		)	716
Foreign government	181		10		—			191		169		8		—			177
Mortgage-backed residential (a)	12,241		129		(57		)	12,313		10,459		52		(145		)	10,366
Mortgage-backed commercial	515		—		(15		)	500		486		—		(5		)	481
Asset-backed	1,792		—		(11		)	1,781		1,762		1		(8		)	1,755
Corporate debt	1,561		26		(7		)	1,580		1,213		8		(17		)	1,204
Total debt securities (b) (c)	17,356		199		(91		)	17,464		16,542		93		(195		)	16,440
Equity securities	790		12		(86		)	716		808		3		(94		)	717
Total available-for-sale securities	$	18,146	$	211	$	(177	)	$	18,180	$	17,350	$	96	$	(289	)	$	17,157
Total held-to-maturity securities (d)	$	118	$	—	$	—		$	118	$	—	$	—	$	—		$	—


(a)	Residential mortgage-backed securities include agency-backed bonds totaling $9,585 million and $7,544 million at March 31, 2016, and December 31, 2015, 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 $14 million at March 31, 2016, and December 31, 2015.

(c)

Investment securities with a fair value of $764 million and $2,506 million at March 31, 2016, and December 31, 2015, were pledged to secure advances from the FHLB, 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 $764 million and $745 million of the underlying investment securities at March 31, 2016, and December 31, 2015, respectively.


(d)	Held-to-maturity securities consist of agency-backed residential mortgage-backed debt securities for liquidity purposes.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The maturity distribution of investment securities outstanding is summarized in the following tables. Call or prepayment options 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
($ in millions)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
March 31, 2016
Fair value of available-for-sale debt securities (a)
U.S. Treasury and federal agencies	$	356	2.1	%	$	8	4.8	%	$	91	1.6	%	$	257	2.2	%	$	—	—	%
U.S. States and political subdivisions	743		3.1		150		1.9		44		1.7		106		3.1		443		3.6
Foreign government	191		2.6		10		1.5		74		2.9		107		2.5		—		—
Mortgage-backed residential	12,313		3.0		—		—		1		4.5		31		2.5		12,281		3.0
Mortgage-backed commercial	500		2.3		—		—		—		—		3		2.7		497		2.3
Asset-backed	1,781		2.5		—		—		1,061		2.3		479		2.9		241		2.4
Corporate debt	1,580		2.9		61		2.9		904		2.6		581		3.3		34		5.3
Total available-for-sale debt securities	$	17,464	2.9		$	229	2.2		$	2,175	2.4		$	1,564	2.9		$	13,496	3.0
Amortized cost of available-for-sale debt securities	$	17,356			$	228			$	2,167			$	1,539			$	13,422
Amortized cost of held-to-maturity securities	$	118	3.2	%	$	—	—	%	$	—	—	%	$	—	—	%	$	118	3.2	%
December 31, 2015
Fair value of available-for-sale debt securities (a)
U.S. Treasury and federal agencies	$	1,741	1.8	%	$	6	5.1	%	$	510	1.2	%	$	1,225	2.1	%	$	—	—	%
U.S. States and political subdivisions	716		3.2		86		1.3		37		2.2		141		2.8		452		3.7
Foreign government	177		2.6		9		1.9		77		2.8		91		2.6		—		—
Mortgage-backed residential	10,366		2.9		—		—		33		2.1		36		2.5		10,297		2.9
Mortgage-backed commercial	481		2.0		—		—		—		—		3		2.7		478		2.0
Asset-backed	1,755		2.3		6		1.4		1,027		2.1		518		2.6		204		2.2
Corporate debt	1,204		2.9		50		3.0		713		2.5		410		3.4		31		5.4
Total available-for-sale debt securities	$	16,440	2.7		$	157	2.0		$	2,397	2.1		$	2,424	2.5		$	11,462	2.9
Amortized cost of available-for-sale debt securities	$	16,542			$	156			$	2,404			$	2,436			$	11,546


(a)	Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the contractual coupon and amortized cost, and excludes expected capital gains and losses.

The balances of cash equivalents were $1.4 billion and $1.0 billion at March 31, 2016, and December 31, 2015, 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 investment securities.



	Three months ended March 31,
($ in millions)	2016		2015
Taxable interest	$	94	$	80
Taxable dividends	4		5
Interest and dividends exempt from U.S. federal income tax	4		3
Interest and dividends on investment securities	$	102	$	88

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 March 31,
($ in millions)	2016		2015
Gross realized gains	$	54	$	60
Gross realized losses (a)	—		(3		)
Other-than-temporary impairment	—		(2		)
Other gain on investments, net	$	54	$	55


(a)	Certain available-for-sale securities were sold at a loss in 2015 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 assessment of whether such losses were deemed to be other than temporary, we believe that the unrealized losses are not indicative of an other-than-temporary impairment of these securities. As of March 31, 2016, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, and we expect to recover the entire amortized cost basis of the securities. As of March 31, 2016, 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 March 31, 2016. Refer to Note 1 for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.



	March 31, 2016										December 31, 2015
	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	$	—	$	—		$	—	$	—		$	1,553	$	(17	)	$	173	$	(2	)
U.S. States and political subdivisions	248		(1		)	—		—			179		(1		)	—		—
Foreign government	—		—			—		—			2		—			—		—
Mortgage-backed	1,336		(16		)	2,448		(56		)	4,096		(43		)	2,453		(107		)
Asset-backed	1,339		(10		)	118		(1		)	1,402		(8		)	64		—
Corporate debt	291		(6		)	14		(1		)	745		(16		)	12		(1		)
Total temporarily impaired debt securities	3,214		(33		)	2,580		(58		)	7,977		(85		)	2,702		(110		)
Temporarily impaired equity securities	336		(39		)	148		(47		)	534		(54		)	96		(40		)
Total temporarily impaired available-for-sale securities	$	3,550	$	(72	)	$	2,728	$	(105	)	$	8,511	$	(139	)	$	2,798	$	(150	)

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

6. Finance Receivables and Loans, Net

The composition of finance receivables and loans reported at gross carrying value was as follows.



($ in millions)	March 31, 2016		December 31, 2015
Consumer automotive (a)	$	63,013	$	64,292
Consumer mortgage
Mortgage Finance (b)	7,443		6,413
Mortgage — Legacy (c)	3,232		3,360
Total consumer mortgage	10,675		9,773
Total consumer	73,688		74,065
Commercial
Commercial and industrial
Automotive	30,829		31,469
Other	2,863		2,640
Commercial real estate — Automotive	3,496		3,426
Total commercial	37,188		37,535
Total finance receivables and loans (d)	$	110,876	$	111,600


(a)	Includes $87 million and $66 million of fair value adjustment for loans in hedge accounting relationships at March 31, 2016, and December 31, 2015, respectively. Refer to Note 19 for additional information.


(b)	Includes loans originated as interest-only mortgage loans of $41 million and $44 million at March 31, 2016, and December 31, 2015, respectively, 6% of which are expected to start principal amortization in 2016, 3% in 2017, none in 2018, 40% in 2019, and 36% thereafter.


(c)	Includes loans originated as interest-only mortgage loans of $889 million and $941 million at March 31, 2016, and December 31, 2015, respectively, 26% of which are expected to start principal amortization in 2016, 22% in 2017, 2% in 2018, none in 2019, and 1% thereafter.


(d)	Totals include a net increase of $198 million and $110 million at March 31, 2016, and December 31, 2015, respectively, 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 March 31, 2016 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at January 1, 2016	$	834		$	114		$	106	$	1,054
Charge-offs	(253		)	(10		)	—		(263		)
Recoveries	80			4			—		84
Net charge-offs	(173		)	(6		)	—		(179		)
Provision for loan losses	207			7			6		220
Other (a)	(18		)	—			—		(18		)
Allowance at March 31, 2016	$	850		$	115		$	112	$	1,077
Allowance for loan losses at March 31, 2016
Individually evaluated for impairment	$	25		$	43		$	18	$	86
Collectively evaluated for impairment	825			72			94		991
Loans acquired with deteriorated credit quality	—			—			—		—
Finance receivables and loans at gross carrying value
Ending balance	$	63,013		$	10,675		$	37,188	$	110,876
Individually evaluated for impairment	337			261			90		688
Collectively evaluated for impairment	62,676			10,414			37,098		110,188
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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, 2015 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2015	$	685		$	152		$	140		$	977
Charge-offs	(193		)	(22		)	—			(215		)
Recoveries	61			3			1			65
Net charge-offs	(132		)	(19		)	1			(150		)
Provision for loan losses	158			(5		)	(37		)	116
Other (a)	—			(9		)	(1		)	(10		)
Allowance at March 31, 2015	$	711		$	119		$	103		$	933
Allowance for loan losses at March 31, 2015
Individually evaluated for impairment	$	21		$	54		$	15		$	90
Collectively evaluated for impairment	690			65			88			843
Loans acquired with deteriorated credit quality	—			—			—			—
Finance receivables and loans at gross carrying value
Ending balance	$	57,447		$	7,652		$	34,757		$	99,856
Individually evaluated for impairment	278			253			65			596
Collectively evaluated for impairment	57,169			7,399			34,692			99,260
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.

The following table presents the gross carrying value of significant sales of finance receivables and loans and transfers of finance receivables and loans from held-for-investment to held-for-sale.



	Three months ended March 31,
($ in millions)	2016		2015
Consumer automotive	$	2,599	$	—
Consumer mortgage	2		69
Commercial	—		—
Total sales and transfers	$	2,601	$	69

The following table presents information about significant purchases of finance receivables and loans.



	Three months ended March 31,
($ in millions)	2016		2015
Consumer automotive	$	—	$	—
Consumer mortgage	1,370		654
Total purchases of finance receivables and loans	$	1,370	$	654

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents an analysis of our past due finance receivables and loans recorded at gross carrying value.



($ in millions)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total finance receivables and loans
March 31, 2016
Consumer automotive	$	1,227	$	247	$	215	$	1,689	$	61,324	$	63,013
Consumer mortgage
Mortgage Finance	65		3		8		76		7,367		7,443
Mortgage — Legacy	46		16		70		132		3,100		3,232
Total consumer mortgage	111		19		78		208		10,467		10,675
Total consumer	1,338		266		293		1,897		71,791		73,688
Commercial
Commercial and industrial
Automotive	—		—		—		—		30,829		30,829
Other	—		—		—		—		2,863		2,863
Commercial real estate — Automotive	—		—		—		—		3,496		3,496
Total commercial	—		—		—		—		37,188		37,188
Total consumer and commercial	$	1,338	$	266	$	293	$	1,897	$	108,979	$	110,876
December 31, 2015
Consumer automotive	$	1,618	$	369	$	222	$	2,209	$	62,083	$	64,292
Consumer mortgage
Mortgage Finance	44		5		10		59		6,354		6,413
Mortgage — Legacy	53		20		73		146		3,214		3,360
Total consumer mortgage	97		25		83		205		9,568		9,773
Total consumer	1,715		394