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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
38-0572512
(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)
Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):
Title of each class
10.30% Deferred Interest Debentures due June 15, 2015
7.30% Public Income Notes (PINES) due March 9, 2031
7.35% Notes due August 8, 2032
7.25% Notes due February 7, 2033
7.375% Notes due December 16, 2044
Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A
8.125% Fixed Rate/Floating Rate Trust Preferred Securities,
Series 2 of GMAC Capital Trust I
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§ 229.405 of this chapter) is not contained
herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
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):
No
No
No
No
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
Aggregate market value of voting and nonvoting common equity held by nonaffiliates: Ally Financial Inc. common equity is not registered
with the Securities and Exchange Commission and there is no ascertainable market value for such common equity.
At February 28, 2013, the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.
Documents incorporated by reference. None.
No
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INDEX
Ally Financial Inc. Form 10-K
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Management's Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedule
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Signatures
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Part I
Ally Financial Inc. • Form 10-K
Item 1. Business
General
Ally Financial Inc. (formerly GMAC Inc.) is a leading, independent, financial services firm with $182.3 billion in assets. Founded in
1919, we are a leading automotive financial services company with over 90 years of experience providing a broad array of financial products
and services to automotive dealers and their customers. We became a bank holding company on December 24, 2008, under the Bank Holding
Company Act of 1956, as amended (the BHC Act). 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, with $46.9 billion of
deposits at December 31, 2012. The terms “Ally,” “the Company,” “we,” “our,” and “us” refer to Ally Financial Inc. and its subsidiaries as a
consolidated entity, except where it is clear that the terms means only Ally Financial Inc.
Our Business
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, and Mortgage are our primary lines of
business. Our Dealer Financial Services business is centered on our strong and longstanding relationships with automotive dealers and
supports manufacturers with which we have marketing relationships and their marketing programs. Our Dealer Financial Services business
serves the financial needs of almost 15,000 dealers with a wide range of financial services and insurance products. We believe our dealer-
focused business model makes us the preferred automotive finance company for thousands of our automotive dealer customers. We have
developed particularly strong relationships with thousands of dealers resulting from our longstanding relationship with General Motors
Company (GM) and our relationship with Chrysler Group LLC (Chrysler), providing us with an extensive understanding of the operating
needs of these dealers relative to other automotive finance companies. In addition, we have established specialized incentive programs that
are designed to encourage dealers to direct more of their business to us.
Ally Bank, our direct banking platform, provides us with a stable and diversified low-cost funding source. Our focus is on building a
stable deposit base driven by our compelling brand and strong value proposition. Ally Bank raises deposits directly from customers through
the direct banking channel via the internet, over the telephone, and through mobile applications. Ally Bank offers a full spectrum of deposit
product offerings including certificates of deposit, savings accounts, money market accounts, IRA (individual retirement account) deposit
products, as well as an online checking product. We continue to expand the product offerings in our banking platform in order to meet
customer needs. Ally Bank's assets and operating results are divided between our Automotive Finance operations and Mortgage operations
based on its underlying business activities.
Our strategy is to extend our leading position in automotive finance in the United States by continuing to provide automotive dealers and
their retail customers with premium service, a comprehensive product suite, consistent funding and competitive pricing, reflecting our
commitment to the automotive industry. We are focused on expanding profitable dealer relationships, prudent earning asset growth, and
higher risk-adjusted returns. Our growth strategy continues to focus on diversifying the franchise by expanding into different products as well
as broadening our network of dealer relationships. During 2012, we continued to focus on the used vehicle market, which resulted in strong
growth in used vehicle financing volume. We also seek to broaden and deepen the Ally Bank franchise, prudently growing stable, quality
deposits while extending our foundation of products and providing a high level of customer service.
Strategic Actions
Subsidiaries' Bankruptcy Filings
On May 14, 2012, Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the
Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York. In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the
Debtors) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan, which is subject to
bankruptcy court approval and certain other conditions. As a result of the bankruptcy filing, effective May 14, 2012 the Debtors were
deconsolidated from our financial statements. For further details with respect to the bankruptcy and the deconsolidation, refer to Item 1A.
Risk Factors and Note 1 to the Consolidated Financial Statements.
Sale of International Businesses
During 2012, we committed to sell substantially all of our remaining international businesses, which included automotive finance,
insurance, and banking and deposit operations. On February 1, 2013, we completed the sale of our Canadian automotive finance operation to
Royal Bank of Canada, and we expect the sales of our remaining international operations in Europe and Latin America, as well as our share in
a joint venture in China, to close in stages throughout 2013. As a result of the sales, for all periods presented, the operating results for these
operations have been removed from continuing operations. Refer to Note 2 and Note 31 to the Consolidated Financial Statements for more
details.
Dealer Financial Services
Dealer Financial Services includes our Automotive Finance operations and Insurance operations. Our primary customers are automotive
dealers, which are independently owned businesses. As part of the process of selling a vehicle, automotive dealers typically originate loans
and leases to their retail customers. Dealers then select Ally or another automotive finance provider to which they sell loans and leases.
References to consumer automobile loans in this document include installment sales financing unless the context suggests otherwise.
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Our Dealer Financial Services operations offer a wide range of financial services and insurance products to almost 15,000 automotive
dealerships and approximately 4 million of their retail customers. We have deep dealer relationships that have been built over our greater-than
90-year history. Our dealer-focused business model encourages dealers to use our broad range of products through incentive programs like
our Ally Dealer Rewards program, which rewards individual dealers based on the depth and breadth of our relationship. During 2012, 73% of
our U.S. automotive dealer customers received benefits under the Ally Dealer Rewards program, which was initiated in 2009. Our automotive
finance services include providing retail installment sales contracts, loans, and leases, offering term loans to dealers, financing dealer
floorplans and other lines of credit to dealers, fleet leasing, and vehicle remarketing services. We also offer retail vehicle service contracts and
commercial insurance primarily covering dealers' wholesale vehicle inventories. We are a leading provider of vehicle service contracts and
maintenance coverage.
Dealer Financial Services is supported by approximately 4,400 employees in the United States. A significant portion of our Dealer
Financial Services business is conducted with or through GM- and Chrysler-franchised dealers and their customers.
Automotive Finance
Our Automotive Finance operations consist of automotive finance business generated primarily in the United States. At December 31,
2012, our Automotive Finance operations had $128.4 billion of assets and generated $3.1 billion of total net revenue in 2012. According to
Experian Automotive, we were the largest independent provider of new retail automotive loans to franchised dealers in the United States
during 2012. We have approximately 1,600 automotive finance and 600 insurance employees across the United States focused on serving the
needs of our dealer customers with finance and insurance products, expanding the number of overall dealer and automotive manufacturer
relationships, and supporting our dealer lending and underwriting functions. In addition, we have over 1,600 employees that support our
servicing operations. We manage commercial account servicing for approximately 5,000 dealers that utilize our floorplan inventory lending or
other commercial loans. We provide consumer asset servicing for a $75.3 billion portfolio at December 31, 2012. The extensive infrastructure
and experience of our servicing operations are important to our ability to minimize our loan losses and enable us to deliver favorable customer
experience to both our dealers and their retail customers.
Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers
who originate loans and leases to their retail customers who are acquiring new and used automobiles. Ally and other automotive finance
providers purchase these loans and leases from automotive dealers. Automotive dealers are independently owned businesses and are our
primary customers. Our growth strategy continues to focus on diversifying the franchise by expanding into different products as well as
broadening our network of dealer relationships. During 2012, we continued to focus on the used vehicle segment primarily through franchised
dealers, which resulted in strong growth in used vehicle financing volume. The fragmented used vehicle financing market provides an
attractive opportunity that we believe will further expand and support our dealer relationships and increase our volume of retail loan
originations.
Automotive dealers desire a full range of financial products, including new and used vehicle inventory financing, inventory insurance,
working capital and capital improvement loans, and vehicle remarketing services to conduct their respective businesses as well as service
contracts and guaranteed asset protection (GAP) products to offer their customers. We have consistently provided this full suite of products to
dealers.
For consumers, we provide retail automotive financing for new and used vehicles and leasing for new vehicles. In the United States,
retail financing for the purchase of vehicles takes the form of installment sales financing. During 2012, we originated a total of 1.5 million
automotive loans and leases totaling approximately $38.7 billion.
Our consumer automotive financing operations generate revenue through finance charges or lease payments and fees paid by customers
on the retail contracts and leases. We also recognize a gain or loss on the remarketing of the vehicles financed through lease contracts at the
end of the lease. When the lease contract is originated, we estimate the residual value of the leased vehicle at lease termination. Periodically
we revise the projected value of the leased vehicle at lease termination. Our actual sales proceeds from remarketing the vehicle may be higher
or lower than the estimated residual value.
Automotive manufacturers may elect as a marketing incentive to sponsor special financing programs for retail sales of their respective
vehicles. The manufacturer can lower the financing rate paid by the customer on either a retail contract or a lease by paying us the present
value of the difference between the customer rate and our standard market rates at contract inception. These marketing incentives are referred
to as rate support or subvention. GM may also from time to time offer lease pull-ahead programs, which encourage consumers to terminate
existing leases early if they acquire a new GM vehicle. As part of these programs, we waive all or a portion of the customer's remaining
payment obligation. In most cases, GM compensates us for a portion of the foregone revenue from those waived payments after consideration
of the extent that our remarketing sale proceeds are higher than otherwise would be realized if the vehicle had been remarketed at lease
contract maturity. Manufacturers may also elect to lower a customer's lease payments through residual support incentive programs. In these
instances, we agree to increase the projected value of the vehicle at the time the lease contract was signed in exchange for a payment from the
manufacturer.
Our commercial automotive financing operations primarily fund dealer inventory purchases of new and used vehicles, commonly
referred to as wholesale or floorplan financing. This represents the largest portion of our commercial automotive financing business. We also
extend lines of credit to individual dealers. In general, each wholesale credit line is secured by all the vehicles financed and, in some
instances, by other assets owned by the dealer or by a personal guarantee. The amount we advance to dealers is equal to 100% of the
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wholesale invoice price of new vehicles. Interest on wholesale automotive financing is generally payable monthly and is usually indexed to a
floating rate benchmark. The rate for a particular dealer is based on the dealer's creditworthiness and eligibility for various incentive
programs, among other factors. During 2012, we financed an average of $27.2 billion of dealer vehicle inventory through wholesale or
floorplan financings. We provide comprehensive automotive remarketing services, including the use of SmartAuction, our online auction
platform, which efficiently supports dealer-to-dealer and other commercial wholesale car transactions. In 2012, we and others including
dealers, fleet rental companies, financial institutions, and GM, utilized SmartAuction to sell 221,000 vehicles to dealers and other commercial
customers. SmartAuction served as the remarketing channel for 35% of Ally's off-lease vehicles.
Manufacturer Agreements
We are currently party to an agreement with GM pursuant to which GM initially agreed to offer all vehicle financing incentives to
customers through Ally. However, the agreement, which was originally entered into in November 2006, provides for annual reductions in the
percentage of retail financing subvention programs that GM is required to provide through Ally, and currently applies to a limited percentage.
The agreement expires on December 31, 2013.
We are also party to an agreement to make available automotive financing products and services to Chrysler dealers and customers. We
provide dealer financing and services and retail financing to qualified Chrysler dealers and customers as we deem appropriate according to
our credit policies and in our sole discretion, and Chrysler is obligated to use Ally for a designated minimum threshold percentage of Chrysler
retail financing subvention programs. On April 25, 2012, Chrysler provided us with notification of nonrenewal related to this agreement and
as a result, the agreement will expire on April 30, 2013.
The agreements with GM and Chrysler described above do not provide us with any benefits relating to standard rate financing or lease
products. As a result, since the inception of these agreements, we have successfully competed at the dealer-level for standard consumer retail
financing and leasing originations for GM and Chrysler automobiles based on our strong dealer relationships, competitive pricing, full suite of
products, and comprehensive service. We have further diversified our customer base by establishing agreements to become the preferred
financing provider for vehicles manufactured by Thor Industries, Maserati, The Vehicle Production Group LLC, Forest River, and Mitsubishi
Motors.
Insurance
Our Insurance operations offer both consumer finance protection and insurance products sold primarily through the automotive dealer
channel, and commercial insurance products sold directly to dealers. As part of our focus on offering dealers a broad range of consumer
finance and insurance products, we provide vehicle service contracts, maintenance coverage, and GAP products. We also underwrite selected
commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventory in the United States. Our Insurance operations
had $8.4 billion of assets at December 31, 2012, and generated $1.2 billion of total net revenue in 2012.
Our vehicle service contracts for retail customers offer owners and lessees mechanical repair protection and roadside assistance for new
and used vehicles beyond the manufacturer's new vehicle warranty. These vehicle service contracts are marketed to the public through
automotive dealerships and on a direct response basis. The vehicle service contracts cover virtually all vehicle makes and models. We also
offer GAP products, which allow the recovery of a specified economic loss beyond the covered vehicle's value in the event the vehicle is
damaged and declared a total loss.
Wholesale vehicle inventory insurance for dealers provides physical damage protection for dealers' floorplan vehicles. Dealers are
generally required to maintain this insurance by their floorplan finance provider. We sell these insurance products to approximately 4,000
dealers. Among U.S. GM franchised dealers to whom we provide wholesale financing, our wholesale insurance product penetration rate is
approximately 80%. Dealers who receive wholesale financing from Ally are eligible for wholesale insurance incentives, such as automatic
eligibility in our preferred insurance programs and increased financial benefits.
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these
investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an
Investment Committee, which develops investment guidelines and strategies. The guidelines established by this committee reflect our risk
tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
Mortgage
Our ongoing Mortgage operations are conducted through Ally Bank. We intend to continue to originate a modest level of jumbo and
conventional conforming residential mortgages for our own portfolio through a select group of correspondent lenders. Our Mortgage
operations also consist of noncore business activities including portfolios in runoff. Additionally, on October 26, 2012, we announced that
Ally Bank had begun to explore strategic alternatives for its agency mortgage servicing rights portfolio and its business lending operations.
On February 28, 2013, we sold our business lending operations to Walter Investment Management Corp. Our Mortgage operations had $14.7
billion of assets at December 31, 2012, and generated $1.8 billion of total net revenue in 2012.
During 2012, we originated or purchased residential mortgage loans totaling $32.5 billion in the United States. Conforming and
government-insured residential mortgage loans comprised 93.2% of our 2012 originations, which, in the ordinary course of business, are sold
to the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), or Government
National Mortgage Association (Ginnie Mae) (collectively, the Government-sponsored Enterprises, or GSEs). Since the onset of the housing
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crisis, we have reduced our overall mortgage assets from $135.1 billion in 2006 to $14.7 billion at December 31, 2012, primarily through the
run-off and divestiture of noncore businesses and assets, and the deconsolidation of ResCap.
Corporate and Other
Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate
investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of
the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also
includes our Commercial Finance Group, certain equity investments, reclassifications and eliminations between the reportable operating
segments, and overhead that was previously allocated to operations that have since been sold or classified as discontinued operations. Our
Commercial Finance Group provides senior secured commercial-lending products to primarily U.S.-based middle market companies.
Ally Bank
Ally Bank raises deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels. Ally
Bank has established a strong and growing retail banking franchise that is based on a promise of being straightforward, easy to use, and
offering high-quality customer service. Ally Bank's products and services are designed to develop long-term customer relationships and
capitalize on the shift in consumer preference away from branch banking in favor of direct banking.
Ally Bank provides us with a stable and diversified low-cost funding source. At December 31, 2012, we had $46.9 billion of deposits
including $35.0 billion of retail deposits sourced by Ally Bank. The focus on retail deposits and growth in our deposit base from $19.2 billion
at the end of 2008 to $46.9 billion at the end of 2012, combined with improving capital markets and a lower interest rate environment have
contributed to a reduction in our cost of funds of approximately 95 basis points since the first quarter of 2011. We expect to continue to lower
our cost of funds and diversify our overall funding as our deposit base grows.
We believe Ally Bank is well-positioned to continue to benefit from the consumer driven-shift from branch banking to direct banking.
According to a 2012 American Bankers Association survey, the percentage of customers who prefer to do their banking via direct channels
(internet, mail, phone, and mobile) increased from 21% to 62% between 2007 and 2012, while those who prefer branch banking declined
from 39% to 18% over the same period. Ally Bank has received a positive response to innovative savings and other deposit products. Ally
Bank's products include savings and money market accounts, certificates of deposit, interest-bearing checking accounts, and individual
retirement accounts. Ally Bank's competitive direct banking features include online and mobile banking, electronic bill pay, remote deposit,
electronic funds transfer, and no-fee debit cards.
Industry and Competition
The markets for automotive and mortgage financing, banking, and insurance are highly competitive. The market for automotive
financing has grown more competitive as more consumers are financing their vehicle purchases and as more competitors continue to enter this
market as a result of how well automotive finance assets generally performed relative to other asset classes through the economic cycle during
the past several years. More recently, competition for automotive financing has further intensified as a growing number of banks have become
increasingly interested in automotive-finance assets. In addition, Ally Bank faces significant competition from commercial banks, savings
institutions, and other financial institutions. Our insurance business also faces significant competition from automotive manufacturers,
insurance carriers, third-party administrators, brokers, and other insurance-related companies. Many of our competitors have substantial
positions nationally or in the markets in which they operate. Some of our competitors have lower cost structures, substantially lower costs of
capital, and are much less reliant on securitization activities, unsecured debt, and other public markets. We face significant competition in
most areas, including product offerings, rates, pricing and fees, and customer service. Further, there has been significant consolidation among
companies in the financial services industry, which is expected to continue.
The markets for automotive securitizations and whole-loan sales are also competitive, and other issuers and originators could increase
the amount of their issuances and sales. In addition, lenders and other investors within those markets often establish limits on their credit
exposure to particular issuers, originators, and asset classes, or they may require higher returns to increase the amount of their exposure.
Increased issuance by other participants in the market or decisions by investors to limit their credit exposure to (or to require a higher yield
for) us or to automotive securitizations or whole-loan sales could negatively affect our ability and that of our subsidiaries to price our
securitizations and whole-loan sales at attractive rates. The result would be lower proceeds from these activities and lower profits for our
subsidiaries and us.
Certain Regulatory Matters
We are subject to various regulatory, financial, and other requirements of the jurisdictions in which our businesses operate. In light of
recent conditions in the global financial markets, regulators have increased their focus on the regulation of the financial services industry. As a
result, proposals for legislation or regulations that could increase the scope and nature of regulation of the financial services industry are
possible. The following is a description of some of the laws and regulations that currently affect our business.
Bank Holding Company Status
Ally Financial Inc. (Ally) and IB Finance Holding Company, LLC (IB Finance) are currently both bank holding companies under the
BHC Act. IB Finance is the direct holding company for Ally's FDIC-insured depository institution, Ally Bank. As a bank holding company,
Ally is subject to supervision, examination and regulation by the Board of Governors of the Federal Reserve System (FRB). Ally must also
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comply with regulatory risk-based capital and leverage requirements, as well as various safety and soundness standards imposed by the FRB,
and is subject to certain statutory restrictions concerning the types of assets or securities it may own and the activities in which it may engage.
Ally Bank, our banking subsidiary, is currently not a member of the Federal Reserve System and is subject to supervision, examination and
regulation by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (UDFI). This regulatory
oversight focuses on the protection of depositors, the FDIC's Deposit Insurance Fund, and the banking system as a whole, not security
holders, and in some instances may be contrary to their interests.
•
Permitted Activities — As a bank holding company, subject to certain exceptions, Ally may not, directly or indirectly, acquire more
than 5% of any class of voting shares of any nonaffiliated bank or bank holding company, or, directly or indirectly, acquire control
of any other company (including by acquisition of 25% or more of a class of voting shares), without first obtaining FRB approval.
Furthermore, Ally's activities must be generally limited to banking or managing or controlling banks, or to other activities deemed
closely related to banking or otherwise permissible under the BHC Act. As a result, most of our insurance activities and our
SmartAuction vehicle remarketing services for third parties are deemed impermissible under the BHC Act. In addition, Ally
generally may not hold more than 5% of any class of voting shares of any company unless that company's activities conform with
these requirements. Upon our bank holding company approval on December 24, 2008, we were permitted an initial two-year grace
period to bring our activities and investments into conformity with these restrictions. This grace period expired in December 2010.
The FRB then granted two one-year extensions that expired in December 2012, and recently granted a third one-year extension that
expires in December 2013. We will not be permitted to apply to the FRB for any further extensions. Ally's existing activities and
investments deemed impermissible under the BHC Act will need to be terminated or disposed of by December 2013. While some of
these activities may be continued if Ally is able to convert to a financial holding company under the BHC Act, Ally may be unable
to satisfy the requirements to enable it to convert to a financial holding company prior to that time. For further information, refer to
Item 1A. Risk Factors.
• Gramm-Leach-Bliley Act — The enactment of the Gramm-Leach-Bliley Act of 1999 (GLB Act) eliminated large parts of a
regulatory framework that had its origins in the Depression era of the 1930s. Effective with its enactment, new opportunities
became available for banks, other depository institutions, insurance companies, and securities firms to enter into combinations that
permit a single financial services organization to offer customers a more comprehensive array of financial products and services. To
further this goal, the GLB Act amended the BHC Act by providing a new regulatory framework applicable to “financial holding
companies,” which are bank holding companies that meet certain qualifications and elect financial holding company status. The
FRB supervises, examines, and regulates financial holding companies, as it does all bank holding companies. However, insurance
and securities activities conducted by a financial holding company or its nonbank subsidiaries are regulated primarily by functional
regulators. As a bank holding company, we would be eligible to elect financial holding company status upon satisfaction of certain
regulatory requirements applicable to us and to Ally Bank (and any depository institution subsidiary that we may acquire in the
future). We do not currently satisfy these requirements, however, we expect to apply for financial holding company status once we
do. As a financial holding company, Ally would then be permitted to engage in a broader range of financial and related activities
than those that are permissible for bank holding companies, in particular, securities, insurance, and merchant banking activities.
• Dodd-Frank Wall Street Reform and Consumer Protection Act — On July 21, 2010, the President of the United States signed into
law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act represents a
significant overhaul of many aspects of the regulation of the financial services industry, addressing, among other things, systemic
risk, capital adequacy, deposit insurance assessments, consumer financial protection, derivatives, lending limits, and mortgage-
lending practices. When fully implemented, the Dodd-Frank Act will have material implications for Ally and the entire financial
services industry. Among other things, it will or potentially could:
•
•
•
•
•
•
•
result in Ally being subject to enhanced oversight and scrutiny as a result of being a bank holding company with
$50 billion or more in total consolidated assets;
increase the levels of capital and liquidity with which Ally must operate and affect how it plans capital and liquidity
levels;
subject Ally to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance
fees paid by Ally Bank to the FDIC;
impact a number of Ally's business and risk management strategies;
restrict the revenue that Ally generates from certain businesses;
require Ally to provide to the FRB and FDIC an annual plan for its rapid and orderly resolution in the event of material
financial distress; and
subject Ally to regulation by the Consumer Financial Protection Bureau (CFPB), which has very broad rule-making,
examination, and enforcement authorities.
Many provisions of the Dodd-Frank Act will only become effective at a later date or after a rulemaking process is completed.
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In addition, under the Dodd-Frank Act, financial holding companies, including bank holding companies such as Ally, can be
subjected to a new orderly liquidation authority. The orderly liquidation authority became effective in July 2010, with implementing
regulations adopted thereafter in stages, with some rulemakings still to come. Under the orderly liquidation authority, the FDIC
would be appointed as receiver upon an insolvency of Ally, giving the FDIC considerable rights and powers that it must exercise
with the goal of liquidating and winding up Ally, including the ability to assign assets and liabilities without the need for creditor
consent or prior court review and the ability of the FDIC to differentiate and determine priority among creditors.
In December 2011, the FRB proposed rules to implement some provisions of the systemic risk regime. If adopted as proposed,
among other provisions, the rules would require Ally to maintain a sufficient quantity of highly liquid assets to survive a projected
30-day liquidity stress event and implement various liquidity-related corporate governance measures; limit Ally's aggregate
exposure to any unaffiliated counterparty to 25% of Ally's capital and surplus; and potentially subject Ally to an early remediation
regime that could limit the ability of Ally to pay dividends or expand its business if the FRB identified Ally as suffering from
financial or managerial weaknesses.
The CFPB has proposed various rules to implement consumer financial protection provisions of the Dodd-Frank Act and
related requirements. Many of these proposed rules, when finalized, will impose new requirements on Ally and its business
operations. In addition, as an insured depository institution with total assets of more than $10 billion, Ally Bank may be required in
the future to submit periodic reports to the CFPB, and is subject to examination by the CFPB.
• Capital Adequacy Requirements — Ally and Ally Bank are subject to various guidelines as established under FRB and
FDIC regulations. Refer to Note 21 to the Consolidated Financial Statements for additional information. See also “Basel Capital
Accord” below.
• Capital Planning and Stress Tests — In December 2011, U.S. banking regulators imposed capital planning and stress test
requirements on bank holding companies with $50 billion or more of consolidated assets. The capital planning regime requires Ally
to submit a proposed capital plan to the FRB every January, which the FRB must take action on by the following March. The
proposed capital plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any
issuance of a debt or equity capital instrument, any capital distribution, and any similar action that the FRB determines could have
an impact on Ally's consolidated capital. The proposed action plan must also include a discussion of how Ally will maintain capital
above the minimum regulatory capital ratios and above a Tier 1 common equity-to-total risk-weighted assets ratio of 5 percent, and
serve as a source of strength to Ally Bank. The FRB's capital plan rule requires that Ally receive no objection from the FRB before
making a capital distribution. If the FRB objects to the capital plan, or if certain material events occur after approval of a plan, Ally
must submit a revised capital plan within 30 days. In addition, even with an approved capital plan, Ally must seek the approval of
the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after
making the proposed capital distribution. Ally submitted its initial capital plan in January 2012, and then submitted a revised capital
plan in June 2012. In connection with its reviews, the FRB provided notice of non-objection to Ally's planned preferred dividends
and interest on the trust preferred securities and subordinated debt.
In October 2012, U.S. banking regulators issued final rules on stress testing. The FRB final rule requires Ally to conduct semi-
annual (annual and mid-cycle) stress tests under baseline, adverse, and severely adverse economic scenarios over a planning
horizon that spans nine quarters. The FDIC final rule requires Ally Bank to conduct an annual stress test under baseline, adverse,
and severely adverse economic scenarios over a planning horizon that spans nine quarters. Under these rules, Ally and Ally Bank
are required to submit the results of these stress tests to regulators and publicly disclose the results of the stress tests under the
severely adverse economic scenario. Per the rule, the regulators will also publish, by March 31 of each calendar year, a summary of
the supervisory stress test results of each company.
Stress tests are intended to provide supervisors with forward-looking information to help identify downside risk and the
potential effect of adverse conditions on capital adequacy. Stress tests required under the FRB's stress test final rule are integrated
into the capital planning process under the FRB's capital plans rule. On January 7, 2013, Ally and Ally Bank submitted the required
2013 capital plan and stress tests as required by these regulations.
•
Limitations on Bank Holding Company Dividends and Capital Distributions — Utah law (and, in certain instances, federal law)
places restrictions and limitations on dividends or other distributions payable by our banking subsidiary, Ally Bank, to Ally. With
respect to dividends payable by Ally to its shareholders, FRB regulations require bank holding companies with $50 billion or more
in total consolidated assets, such as Ally, to submit annual capital plans for FRB non-objection. In the absence of a non-objection
regarding the capital plan, the new regulation prohibits bank holding companies from paying dividends or making certain other
capital distributions without specific FRB non-objection for such action. Even if a bank holding company receives a non-objection
to its capital plan, it may not pay a dividend or make certain other capital distributions without FRB approval under certain
circumstances (e.g., after giving effect to the dividend or distribution, the bank holding company would not meet a minimum
regulatory capital ratio or a Tier 1 common ratio of at least 5%). In addition, FRB supervisory guidance requires bank holding
companies such as Ally to consult with the FRB prior to increasing dividends, implementing common stock repurchase programs or
redeeming or repurchasing capital instruments. Such guidance provides for a supervisory capital assessment program that outlines
FRB expectations concerning the processes that bank holding companies have in place to ensure they hold adequate capital under
adverse conditions to maintain ready access to funding. The federal bank regulatory agencies are also authorized to prohibit a
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banking subsidiary or bank holding company from engaging in unsafe or unsound banking practices and, depending upon the
circumstances, could find that paying a dividend or making a capital distribution would constitute an unsafe or unsound banking
practice.
•
Transactions with Affiliates — Certain transactions between Ally Bank and any of its nonbank “affiliates,” including but not
limited to Ally, are subject to federal statutory and regulatory restrictions. Pursuant to these restrictions, unless otherwise exempted,
“covered transactions” including Ally Bank's extensions of credit to and asset purchases from its nonbank affiliates, generally
(1) are limited to 10% of Ally Bank's capital stock and surplus with respect to transactions with any individual affiliate, with an
aggregate limit of 20% of Ally Bank's capital stock and surplus for all affiliates and all such transactions; (2) in the case of certain
credit transactions, are subject to stringent collateralization requirements; (3) in the case of asset purchases by Ally Bank, may not
involve the purchase of any asset deemed to be a “low quality asset” under federal banking guidelines; and (4) must be conducted in
accordance with safe-and-sound banking practices (collectively, the Affiliate Transaction Restrictions). In addition, transactions
between Ally Bank and a nonbank affiliate generally must be on market terms and conditions.
Under the Dodd-Frank Act, among other changes to the Affiliate Transaction Restrictions, credit exposures resulting from
derivatives transactions, securities lending and borrowing transactions, and acceptance of affiliate-issued debt obligations (other
than securities) as collateral for a loan or extension of credit will be treated as "covered transactions." The Dodd-Frank Act also
expands the scope of covered transactions required to be collateralized, requires that collateral be maintained at all times for
covered transactions required to be collateralized, and places limits on acceptable collateral.
Furthermore, there is an “attribution rule” that provides that a transaction between Ally Bank and a third party must be treated
as a transaction between Ally Bank and a nonbank affiliate to the extent that the proceeds of the transaction are used for the benefit
of or transferred to a nonbank affiliate of Ally Bank. For example, because Ally controls Ally Bank, Ally is an affiliate of Ally Bank
for purposes of the Affiliate Transaction Restrictions. Thus, retail financing transactions by Ally Bank involving vehicles for which
Ally provided floorplan financing are subject to the Affiliate Transaction Restrictions because the proceeds of the retail financings
are deemed to benefit, and are ultimately transferred to, Ally.
Historically, the FRB was authorized to exempt, in its discretion, transactions or relationships from the requirements of these
rules if it found such exemptions to be in the public interest and consistent with the purposes of the rules. As a result of the Dodd-
Frank Act, exemptions now may be granted by the FDIC if the FDIC and FRB jointly find that the exemption is in the public
interest and consistent with the purposes of the rules, and the FDIC finds that the exemption does not present an unacceptable risk
to the Deposit Insurance Fund. The FRB granted several such exemptions to Ally Bank in the past. However, the existing
exemptions are subject to various conditions and, particularly in light of the statutory changes made by the Dodd-Frank Act, any
requests for future exemptions might not be granted. Moreover, these limited exemptions generally do not encompass consumer
leasing or used vehicle financing. Since there is no assurance that Ally Bank will be able to obtain future exemptions or waivers
with respect to these restrictions, the ability to grow Ally Bank's business will be affected by the Affiliate Transaction Restrictions
and the conditions set forth in the existing exemption letters.
•
Source of Strength — Pursuant to the Federal Deposit Insurance Act, FRB policy and regulations and the Parent Company
Agreement and the Capital and Liquidity Maintenance Agreement described in Note 21 to the Consolidated Financial Statements,
Ally is required to act as a source of financial and managerial strength to Ally Bank and is required to commit necessary capital and
liquidity to support Ally Bank. This support may be required at inopportune times for Ally.
• Enforcement Authority — The FDIC and FRB have broad authority to issue orders to banks and bank holding companies to cease
and desist from unsafe or unsound banking practices and from violations of laws, rules, regulations, or conditions imposed in
writing by the banking agencies. The FDIC and FRB also are empowered to require affirmative actions to correct any violation or
practice; issue administrative orders that can be judicially enforced; direct increases in capital; limit dividends and distributions;
restrict growth; assess civil money penalties against institutions or individuals who violate any laws, regulations, orders, or written
agreements with the banking agencies; order termination of certain activities of bank holding companies or their subsidiaries;
remove officers and directors; order divestiture of ownership or control of a nonbanking subsidiary by a bank holding company (in
the case of the FRB); terminate deposit insurance (in the case of the FDIC); and/or place a bank into receivership (in the case of the
FDIC).
Basel Capital Accord
The minimum risk-based capital requirements adopted by the federal banking agencies follow the Capital Accord (Capital Accord or
Basel I) of the Bank for International Settlements' Basel Committee on Banking Supervision (Basel Committee). The Capital Accord was
published in 1988 and generally applies to depository institutions and their holding companies in the United States. In 2004, the Basel
Committee published a revision to the Capital Accord (Basel II). The goal of the Basel II capital rules is to provide more risk-sensitive
regulatory capital calculations and promote enhanced risk management practices among large, internationally active banking organizations.
U.S. banking regulators published final Basel II rules in December 2007. Ally is currently required to comply with the Basel II rules as
implemented by the U.S. banking regulators. Prior to full implementation of the Basel II rules, Ally is required to complete a qualification
period of four consecutive quarters during which it needs to demonstrate that it meets the requirements of the rules to the satisfaction of its
primary U.S. banking regulator. Pursuant to an extension that was granted to Ally, this qualification period, or parallel run, is required to begin
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no later than October 1, 2013. During this period, capital is calculated using both Basel I and Basel II methodologies. Upon completion of this
parallel run and with the approval of the primary U.S. banking regulator, Ally will begin to use Basel II to calculate regulatory capital. Basel
II contemplated a three-year transition period during which a bank holding company or bank could gradually lower its capital level below the
levels required by Basel I. However, under a final capital rule that implements a provision of the Dodd-Frank Act, Ally and Ally Bank must
continue to calculate their risk-based capital requirements under Basel I, and the capital requirements that each computes under Basel I will
serve as a floor for its risk-based capital requirement computed under Basel II.
In addition to Basel II, in December 2010, the Basel Committee adopted new capital, leverage, and liquidity guidelines under the Capital
Accord (Basel III) that when implemented in the United States may have the effect of raising capital requirements beyond those required by
current law and the Dodd-Frank Act. Basel III calls for an increase of the minimum Tier 1 common equity ratio to 4.5%, net of regulatory
deductions, and introduces a capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets raising the target
minimum common equity ratio to 7.0%. Basel III increases the minimum Tier 1 capital ratio to 8.5% inclusive of the capital conservation
buffer, increases the minimum total capital ratio to 10.5% inclusive of the capital buffer, and introduces a countercyclical capital buffer of up
to 2.5% of common equity or other fully loss absorbing capital for periods of excess credit growth. Basel III also introduces a nonrisk
adjusted Tier 1 leverage ratio of 3%, based on a measure of the total exposure rather than total assets, and new liquidity standards. The
Basel III capital, leverage, and liquidity standards will be phased in over a multiyear period. The Basel III rules also call for a 15% cap on the
amount of Tier 1 capital that can be met, in the aggregate, through significant investments in the common shares of unconsolidated financial
subsidiaries, mortgage servicing rights (MSRs), and deferred tax assets through timing differences. In addition, under Basel III rules, after a
ten-year phase-out period beginning in January 2013, trust preferred and other "hybrid" securities will no longer qualify as Tier 1 capital.
However, under the Dodd-Frank Act, subject to certain exceptions (e.g., for debt or equity issued to the U.S. government under the
Emergency Economic Stabilization Act), trust preferred and other "hybrid" securities are phased out from Tier 1 capital over a three-year
period starting January 2013.
In June 2012, the U.S. banking regulators proposed rules to implement many aspects of Basel III (the U.S. Basel III proposals). The U.S.
Basel III proposals contain new capital standards that raise the quality of capital and strengthen counterparty credit risk capital requirements
and introduce a leverage ratio as a supplemental measure to the risk-based ratio. The proposals include a new capital conservation buffer,
which imposes a common equity requirement above the new minimum that can be depleted under stress, and could result in restrictions on
capital distributions and discretionary bonuses under certain circumstances. The U.S. Basel III proposals also provide for a potential
countercyclical buffer that regulators can activate during periods of excessive credit growth in their jurisdiction. Furthermore, the U.S. Basel
III proposals would replace the current Basel I-based "capital floor" (discussed above) with a standardized approach that, among other things,
modifies the existing risk weights for certain types of asset classes. If adopted, this standardized approach would serve as the new minimum
"capital floor" for Ally. The U.S. Basel III proposals contemplate that the new capital requirements would be phased in over several years,
beginning in 2013. In November 2012, the U.S. banking regulators announced that the U.S. Basel III proposals would not become effective
on January 1, 2013. The announcement did not specify new implementation or phase in dates for the U.S. Basel III proposals.
We continue to monitor developments with respect to Basel III and, pending the adoption of final capital rules and subsequent regulatory
interpretation by the U.S. regulators, there remains a degree of uncertainty on the full impact of Basel III.
Troubled Asset Relief Program
As part of the Automotive Industry Financing Program created under the Troubled Asset Relief Program (TARP) established by the
U.S. Department of Treasury (Treasury) under the Emergency Economic Stabilization Act of 2008 (the EESA), Ally has entered into
agreements pursuant to which Treasury has made investments in Ally. As a result of these investments, subject to certain exceptions, Ally and
its subsidiaries are generally prohibited from paying certain dividends or distributions on, or redeeming, repurchasing, or acquiring any
common stock without the consent of Treasury. Ally has further agreed that until Treasury ceases to hold Ally preferred stock, Ally will
comply with certain restrictions on executive perquisites and compensation. Ally must also take all necessary action to ensure that its
corporate governance and benefit plans with respect to its senior executive officers comply with Section 111(b) of the EESA as implemented
by any guidance or regulation under the EESA, as amended by the American Recovery and Reinvestment Act of 2009, as implemented by the
Interim Final Rule issued by Treasury on June 15, 2009. For further details regarding these restrictions on compensation as a result of TARP
investments, refer to the Compensation Discussion and Analysis in Item 11.
Depository Institutions
Ally Bank's deposits are insured by the FDIC, and Ally Bank is required to file periodic reports with the FDIC concerning its financial
condition. Total assets of Ally Bank were $94.8 billion and $85.3 billion at December 31, 2012 and 2011, respectively. As a commercial
nonmember bank chartered by the State of Utah, Ally Bank is subject to various regulatory capital adequacy requirements administered by
state and federal banking agencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), among other things,
identifies five capital categories for insured depository institutions ("well-capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized") and requires the respective federal regulatory agencies to implement
systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such
categories. Depending on the category in which an institution is classified, FDICIA imposes progressively more restrictive constraints on
operations, management, and capital distributions.
Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken,
could have a direct material effect on Ally Bank's results of operations and financial condition. FDICIA generally prohibits a depository
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Ally Financial Inc. • Form 10-K
institution from making any capital distribution, including payment of a cash dividend or paying any management fee to its holding company,
if the depository institution would become under-capitalized after such payment. Under-capitalized institutions are also subject to growth
limitations and are required by the appropriate federal banking agency to submit a capital restoration plan. If any depository institution
subsidiary of a holding company is required to submit a capital restoration plan, the holding company would be required to provide a limited
guarantee regarding compliance with the plan as a condition of approval of such plan. Failure to meet the capital guidelines could also subject
a banking institution to capital raising requirements.
At December 31, 2012, we were in compliance with our regulatory capital requirements. For an additional discussion of capital adequacy
requirements, refer to Note 21 to the Consolidated Financial Statements.
U.S. Mortgage Business
Our U.S. mortgage business is subject to extensive federal, state, and local laws, rules, and regulations in addition to judicial and
administrative decisions that impose requirements and restrictions on this business. As a Federal Housing Administration-approved lender,
certain of our U.S. mortgage subsidiaries are required to submit audited financial statements to the Department of Housing and Urban
Development on an annual basis. The U.S. mortgage business is also subject to examination by the Federal Housing Commissioner to assure
compliance with Federal Housing Administration regulations, policies, and procedures. The federal, state, and local laws, rules, and
regulations to which our U.S. mortgage business is subject, among other things, impose licensing obligations and financial requirements; limit
the interest rates, finance charges, and other fees that can be charged; regulate the use of credit reports and the reporting of credit information;
impose underwriting requirements; regulate marketing techniques and practices; require the safeguarding of nonpublic information about
customers; and regulate servicing practices, including the assessment, collection, foreclosure, claims handling, and investment and interest
payments on escrow accounts. In addition, proposals have been enacted in the U.S. Congress and are under consideration by various
regulatory authorities that would affect the manner in which the GSEs conduct their business and there is some possibility that Fannie Mae
and Freddie Mac will be subject to winding down.
Insurance Companies
Our Insurance operations are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions under
applicable state and foreign insurance law, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies. Under
various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus with approvals
required from the regulatory authorities for dividends in excess of certain statutory limitations. Our insurance operations are also subject to
applicable state laws generally governing insurance companies, as well as laws and regulations for products that are not regulated as
insurance, such as vehicle service contracts and guarantees asset protection waivers.
Investments in Ally
Because Ally Bank is an FDIC-insured bank and Ally and IB Finance are bank holding companies, acquisitions of our voting stock
above certain thresholds may be subject to regulatory approval or notice under federal or state law. Investors are responsible for ensuring that
they do not, directly or indirectly, acquire shares of our stock in excess of the amount that may be acquired without regulatory approval under
the Change in Bank Control Act, the BHC Act, and Utah state law.
International Banks, Finance Companies, and Other Non-U.S. Operations
Certain of our foreign subsidiaries, which we have classified as discontinued operations, operate in local markets as either banks or
regulated finance companies and are subject to regulatory restrictions. These regulatory restrictions, among other things, require that our
subsidiaries meet certain minimum capital requirements and may restrict dividend distributions and ownership of certain assets. Total assets
of the regulated international banks and finance companies were approximately $15.3 billion and $13.6 billion at December 31, 2012 and
2011, respectively. Many of our other operations are also heavily regulated in many jurisdictions outside the United States.
Other Regulations
Some of the other more significant regulations that we are subject to include:
•
Privacy — The GLB Act imposes additional obligations on us to safeguard the information we maintain on our customers, requires
us to provide notice of our privacy practices, and permits customers to “opt-out” of information sharing with unaffiliated parties.
The federal banking agencies and the Federal Trade Commission have issued regulations that establish obligations to safeguard
information. In addition, several states have enacted even more stringent privacy and safeguarding legislation. If a variety of
inconsistent state privacy rules or requirements are enacted, our compliance costs could increase substantially.
• Fair Credit Reporting Act — The Fair Credit Reporting Act regulates the use of credit reports and the reporting of information to
credit reporting agencies, and also provides a national legal standard for lenders to share information with affiliates and certain third
parties and to provide firm offers of credit to consumers. In late 2003, the Fair and Accurate Credit Transactions Act was enacted,
making this preemption of conflicting state and local law permanent. The Fair Credit Reporting Act was also amended to place
further restrictions on the use of information shared between affiliates, to provide new disclosures to consumers when risk-based
pricing is used in the credit decision, and to help protect consumers from identity theft. All of these provisions impose additional
regulatory and compliance costs on us and reduce the effectiveness of our marketing programs.
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•
•
Truth in Lending Act — The Truth in Lending Act (TILA), as amended, and Regulation Z, which implements TILA, requires
lenders to provide borrowers with uniform, understandable information concerning terms and conditions in certain credit
transactions. These rules apply to Ally and its subsidiaries in transactions in which they extend credit to consumers and require, in
the case of certain mortgage and automotive financing transactions, conspicuous disclosure of the finance charge and annual
percentage rate, if any. In addition, if an advertisement for credit states specific credit terms, Regulation Z requires that such
advertisement state only those terms that actually are or will be arranged or offered by the creditor. The Consumer Financial
Protection Bureau has recently issued substantial amendments to the mortgage requirements under TILA, and additional changes
are likely in the future. Failure to comply with TILA can result in liability for damages as well as criminal and civil penalties.
Sarbanes-Oxley Act — The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance and accounting
measures designed to promote honesty and transparency in corporate America. The principal provisions of the act include, among
other things, (1) the creation of an independent accounting oversight board; (2) auditor independence provisions that restrict non-
audit services that accountants may provide to their audit clients; (3) additional corporate governance and responsibility measures
including the requirement that the principal executive and financial officers certify financial statements; (4) the potential forfeiture
of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers
in the twelve-month period following initial publication of any financial statements that later require restatement; (5) an increase in
the oversight of and enhancement of certain requirements relating to audit committees and how they interact with the independent
auditors; (6) requirements that audit committee members must be independent and are barred from accepting consulting, advisory,
or other compensatory fees from the issuer; (7) requirements that companies disclose whether at least one member of the audit
committee is a “financial expert” (as defined by the SEC) and, if not, why the audit committee does not have a financial expert;
(8) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions, on
nonpreferential terms and in compliance with other bank regulatory requirements; (9) disclosure of a code of ethics;
(10) requirements that management assess the effectiveness of internal control over financial reporting and that the Independent
Registered Public Accounting firm attest to the assessment; and (11) a range of enhanced penalties for fraud and other violations.
• USA PATRIOT Act/Anti-Money-Laundering Requirements — In 2001, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) was signed into law. Title III of the
USA PATRIOT Act amends the Bank Secrecy Act and contains provisions designed to detect and prevent the use of the
U.S. financial system for money laundering and terrorist financing activities. The Bank Secrecy Act, as amended by the USA
PATRIOT Act, requires bank holding companies, banks, and certain other financial companies to undertake activities including
maintaining an anti-money-laundering program, verifying the identity of clients, monitoring for and reporting on suspicious
transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory
authorities and law enforcement agencies. We have implemented internal practices, procedures, and controls designed to comply
with these anti-money-laundering requirements.
• Community Reinvestment Act — Under the Community Reinvestment Act (CRA), a bank has a continuing and affirmative
obligation, consistent with the safe-and-sound operation of the institution, to help meet the credit needs of its entire community,
including low- and moderate-income persons and neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions. However, institutions are rated on their performance in meeting the needs of their communities.
Failure by Ally Bank to maintain a satisfactory or better rating under the CRA may adversely affect Ally's ability to make
acquisitions, engage in new activities, and become a financial holding company.
• Other — Our U.S. mortgage business has subsidiaries that are required to maintain regulatory capital requirements under
agreements with the GSEs and the Department of Housing and Urban Development.
Employees
We had approximately 10,600 and 14,800 employees at December 31, 2012 and 2011, respectively. Employees of operations held-for-
sale are included within our employee count at December 31, 2012, and 2011. Employees of operations that were deconsolidated during 2012
are included only within our employee count at December 31, 2011.
Additional Information
The results of operations for each of our reportable operating segments and the products and services offered are contained in the
individual business operations sections of Management's Discussion and Analysis of Financial Condition and Results of Operations. Financial
information related to reportable operating segments and geographic areas is provided in Note 26 to the Consolidated Financial Statements.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K (and amendments to these
reports) are available on our internet website, free of charge, as soon as reasonably practicable after the reports are electronically filed with or
furnished to the SEC. These reports are available at www.ally.com. Choose Investor Relations, Financial Information, and then SEC Filings
(under About Ally). These reports can also be found on the SEC website at www.sec.gov.
Item 1A. Risk Factors
Our businesses face many risks and uncertainties, any of which could result in a material adverse effect on our results of operations or
financial condition. We believe that the most significant of the risks and uncertainties that we face are described below. This Form 10-K is
qualified in its entirety by these risk factors.
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Risks Related to Regulation
Our business, financial condition, and results of operations could be adversely affected by regulations to which we are subject as a result
of our bank holding company status.
We are a bank holding company under the Bank Holding Company Act of 1956 (BHC Act). Many of the regulatory requirements to
which we are subject as a bank holding company were not applicable to us prior to December 2008 and have and will continue to require
significant expense and devotion of resources to fully implement necessary policies and procedures to ensure continued compliance.
Compliance with such laws and regulations involves substantial costs and may adversely affect our ability to operate profitably. Recent
events, particularly in the financial and real estate markets, have resulted in bank regulatory agencies placing increased focus and scrutiny on
participants in the financial services industry, including us. For a description of our regulatory requirements, see “Business—Certain
Regulatory Matters.”
Ally is subject to ongoing supervision, examination and regulation by the FRB, and Ally Bank by the FDIC and the Utah DFI, in each
case, through regular examinations and other means that allow the regulators to gauge management’s ability to identify, assess, and control
risk in all areas of operations in a safe-and-sound manner and to ensure compliance with laws and regulations.
Ally is currently required by its banking supervisors to make improvements in areas such as board and senior management oversight,
risk management, regulatory reporting, internal audit planning, capital adequacy process, stress testing, and Bank Secrecy Act / anti-money-
laundering compliance, and to continue to reduce problem assets. Separately, Ally Bank is currently required by its banking supervisors to
make improvements in areas such as compliance management and training, consumer protection monitoring, consumer complaint resolution,
internal audit program and residential mortgage loan pricing, and fee monitoring. These requirements are judicially enforceable, and if we are
unable to implement and maintain these required actions, plans, policies and procedures in a timely and effective manner and otherwise
comply with the requirements outlined above, we could become subject to formal supervisory actions which could subject us to significant
restrictions on our existing business or on our ability to develop any new business. Such forms of supervisory action could include, without
limitation, written agreements, cease and desist orders, and consent orders and may, among other things, result in restrictions on our ability to
pay dividends, requirements to increase capital, restrictions on our activities, the imposition of civil monetary penalties, and enforcement of
such action through injunctions or restraining orders. We could also be required to dispose of certain assets and liabilities within a prescribed
period. The terms of any such supervisory action could have a material adverse effect on our business, operating flexibility, financial
condition, and results of operations.
Our ability to engage in certain activities may be adversely affected by our status as a bank holding company.
As a bank holding company, Ally’s activities are generally limited to banking or to managing or controlling banks or to other activities
deemed closely related to banking or otherwise permissible under the BHC Act and related regulations. Likewise, subject to certain
exceptions, Ally is not permitted to acquire more than 5% of any class of voting shares of any nonaffiliated bank or bank holding company,
directly or indirectly, or to acquire control of any other company, directly or indirectly (including by acquisition of 25% or more of a class of
voting shares). Upon our bank holding company approval, we were permitted an initial two-year grace period to bring our activities and
investments into conformity with these restrictions. This grace period expired in December 2010. The FRB then granted two one-year
extensions that expired in December 2012, and recently granted a third and final one-year extension that expires in December 2013. We will
not be permitted to apply to the FRB for any further extensions. Certain of Ally’s existing activities and investments are deemed
impermissible under the BHC Act and must be terminated or disposed of by the expiration of this extension, the most significant of which
includes most of our insurance activities and our SmartAuction vehicle remarketing services for third parties. While these activities may be
continued if Ally is able to convert to a financial holding company under the BHC Act, Ally may be unable to satisfy the requirements to
enable it to convert to a financial holding company prior to that time, and activities, businesses, or investments that would be permissible for a
financial holding company will need to be terminated or disposed of. This could have a material adverse effect on our business, results of
operations, and financial position.
As a bank holding company, our ability to expand into new business activities would require us to obtain the prior approval of the
relevant banking supervisors. There can be no assurance that any required approval will be obtained or that we will be able to execute on any
such plans in a timely manner or at all. If we are unable to obtain approval to expand into new business activities, our business, results of
operations, and financial position may be materially adversely affected.
Our ability to execute our business strategy may be affected by regulatory considerations.
Our business strategy for Ally Bank, which is primarily focused on automotive lending and growth of our direct-channel deposit
business, is subject to regulatory oversight from a safety and soundness perspective. If our banking supervisors raise concerns regarding any
aspect of our business strategy for Ally Bank, we may be obliged to alter our strategy, which could include moving certain activities, such as
certain types of lending, outside of Ally Bank to one of our nonbanking affiliates. Alternative funding sources outside of Ally Bank, such as
asset securitization or financings in the capital markets, could be more expensive than funding through Ally Bank and could adversely affect
our business prospects, results of operations and financial condition.
We are subject to new capital planning and systemic risk regimes, which impose significant restrictions and requirements.
As a bank holding company with $50 billion or more of consolidated assets, Ally is required to conduct periodic stress tests and submit a
proposed capital action plan to the FRB every January, which the FRB must take action on by the following March. The proposed capital
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action plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or
equity capital instrument, any capital distribution, and any similar action that the FRB determines could have an impact on Ally’s consolidated
capital. The proposed capital action plan must also include a discussion of how Ally will maintain capital above the minimum regulatory
capital ratios and above a Tier 1 common equity-to-total risk-weighted assets ratio of 5 percent, and serve as a source of strength to Ally
Bank. The FRB's capital plan rule requires that Ally receive no objection from the FRB prior to making a capital distribution. Ally submitted
its capital plan in January 2013. Failure to obtain no objection to this plan could limit our ability to pay dividends, redeem or repurchase
securities, or take other capital actions in the future.
In addition, in December 2011, the FRB proposed rules to implement certain provisions of the systemic risk regime under the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). If adopted as proposed, among other provisions, the rules would
require Ally to maintain a sufficient quantity of highly liquid assets to survive a projected 30-day liquidity stress event and implement various
liquidity-related corporate governance measures; limit Ally’s aggregate exposure to any unaffiliated counterparty to 25% of Ally’s capital and
surplus; and potentially subject Ally to an early remediation regime that could limit the ability of Ally to pay dividends or expand its business
if the FRB identified Ally as suffering from financial or management weaknesses. The systemic risk provisions, when implemented, could
adversely affect our business prospects, results of operations, and financial condition.
Our ability to rely on deposits as a part of our funding strategy may be limited.
Ally Bank continues to be a key part of our funding strategy, and we have increased our reliance on deposits as an alternative source of
funding through Ally Bank. Ally Bank does not have a retail branch network, and it obtains its deposits through direct banking and brokered
deposits which, at December 31, 2012, included $9.4 billion of brokered certificates of deposit that may be more price sensitive than other
types of deposits and may become less available if alternative investments offer higher interest rates. At December 31, 2012, brokered
deposits represented 20% of Ally Bank total deposits. Our ability to maintain our current level of deposits or grow our deposit base could be
affected by regulatory restrictions including the possible imposition of prior approval requirements, restrictions on deposit growth, or
restrictions on our rates offered. In addition, perceptions of our financial strength, rates offered by third parties, and other competitive factors
beyond our control, including returns on alternative investments, will also impact our ability to grow our deposit base. Even if we are able to
grow the deposit base of Ally Bank, our regulators may impose restrictions on our ability to use Ally Bank deposits as a source of funding for
certain business activities potentially raising the cost of funding those activities without the use of Ally Bank deposits.
The regulatory environment in which we operate could have a material adverse effect on our business and earnings.
Our domestic operations are subject to various laws and judicial and administrative decisions imposing various requirements and
restrictions relating to supervision and regulation by state and federal authorities. Such regulation and supervision are primarily for the benefit
and protection of our customers, not for the benefit of investors in our securities, and could limit our discretion in operating our business.
Noncompliance with applicable statutes, regulations, rules, or policies could result in the suspension or revocation of any license or
registration at issue as well as the imposition of civil fines and criminal penalties.
Ally, Ally Bank, and many of our nonbank subsidiaries are heavily regulated by bank and other regulatory agencies at the federal and
state levels. This regulatory oversight is established to protect depositors, the FDIC’s Deposit Insurance Fund, and the banking system as a
whole, not security holders. Changes to statutes, regulations, rules, or policies including the interpretation or implementation of statutes,
regulations, rules, or policies could affect us in substantial and unpredictable ways including limiting the types of financial services and
products we may offer, limiting our ability to pursue acquisitions and increasing the ability of third parties to offer competing financial
services and products.
Our operations are also heavily regulated in many jurisdictions outside the United States. For example, certain of our foreign subsidiaries
operate either as a bank or a regulated finance company, and our insurance operations are subject to various requirements in the foreign
markets in which we operate. The varying requirements of these jurisdictions may be inconsistent with U.S. rules and may materially
adversely affect our business or limit necessary regulatory approvals, or if approvals are obtained, we may not be able to continue to comply
with the terms of the approvals or applicable regulations. In addition, in many countries, the regulations applicable to the financial services
industry are uncertain and evolving.
Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on
our operations in that market with regard to the affected product and on our reputation generally. No assurance can be given that applicable
laws or regulations will not be amended or construed differently, that new laws and regulations will not be adopted, or that we will not be
prohibited by local laws or regulators from raising interest rates above certain desired levels, any of which could materially adversely affect
our business, operating flexibility, financial condition, or results of operations.
Financial services legislative and regulatory reforms may have a significant impact on our business and results of operations.
The Dodd-Frank Act, which became law in July 2010, has and will continue to substantially change the legal and regulatory framework
under which we operate. Certain portions of the Dodd-Frank Act were effective immediately, and others have become effective since
enactment, while others are subject to further rulemaking and discretion of various regulatory bodies. The Dodd-Frank Act, when fully
implemented, will have material implications for Ally and the entire financial services industry. Among other things, it will or potentially
could:
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result in Ally being subject to enhanced oversight and scrutiny as a result of being a bank holding company with $50 billion or more
in consolidated assets;
affect the levels of capital and liquidity with which Ally must operate and how it plans capital and liquidity levels;
subject Ally to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance fees to the
FDIC;
impact a number of Ally’s business and risk management strategies;
restrict the revenue that Ally generates from certain businesses;
require Ally to provide to the Federal Reserve and FDIC an annual plan for its rapid and orderly resolution in the event of material
financial distress; and
subject Ally to a new Consumer Financial Protection Bureau (CFPB), which has very broad rule-making, examination, and
enforcement authorities.
In light of the further study and rulemaking required to fully implement the Dodd-Frank Act, as well as the discretion afforded to federal
regulators, the full impact of this legislation on Ally, its business strategies, and financial performance cannot be known at this time and may
not be known for a number of years. In addition, regulations may impact us differently in comparison to other more established financial
institutions. However, these impacts are expected to be substantial and some of them are likely to adversely affect Ally and its financial
performance. The extent to which Ally can adjust its strategies to offset such adverse impacts also is not knowable at this time.
Our business may be adversely affected upon our implementation of the revised capital requirements under the Basel III capital rules.
In December 2010, the Bank for International Settlements’ Basel Committee on Banking Supervision adopted new capital, leverage, and
liquidity guidelines under the Basel Accord (Basel III), which when implemented in the United States, may have the effect of raising capital
requirements beyond those required by current law and the Dodd-Frank Act. In June 2012, the U.S. banking regulators proposed rules to
implement many aspects of Basel III (the U.S. Basel III proposals). The U.S. Basel III proposals contain new capital standards that raise the
quality of capital and strengthen counterparty credit risk capital requirements and introduce a leverage ratio as a supplemental measure to the
risk-based ratio. The proposals include a new capital conservation buffer, which imposes a common equity requirement above the new
minimum that can be depleted under stress, and could result in restrictions on capital distributions and discretionary bonuses under certain
circumstances. The U.S. Basel III proposals also provide for a potential countercyclical buffer that regulators can activate during periods of
excessive credit growth in their jurisdiction. The U.S. Basel III proposals contemplate that the new capital requirements would be phased in
over several years, beginning in 2013. In November 2012, the U.S. banking regulators announced that the U.S. Basel III proposals would not
become effective on January 1, 2013. The announcement did not specify new implementation or phase-in dates for the U.S. Basel III
proposals.
The Basel III rules and the Dodd-Frank Act, when implemented, will over time impose limits on Ally’s ability to meet its regulatory
capital requirements through the use of mortgage servicing rights (MSRs), trust preferred securities, or other “hybrid” securities, if applicable.
At December 31, 2012, Ally had $857 million of MSRs and $2.5 billion of trust preferred securities, which were included as Tier 1 capital.
Ally currently has no other “hybrid” securities outstanding. Pending final U.S. implementation of rules for Basel III and subsequent
regulatory interpretation, there remains a degree of uncertainty on the full impact of Basel III.
If we or Ally Bank fail to satisfy regulatory capital requirements, we or Ally Bank may be subject to serious regulatory sanctions ranging
in severity from being precluded from making acquisitions or engaging in new activities to becoming subject to informal or formal
supervisory actions by the FRB and/or FDIC and, potentially, FDIC receivership of Ally Bank. If any of these were to occur, such actions
could prevent us from successfully executing our business plan and have a material adverse effect on our business, results of operations, and
financial position.
Our business, financial condition, and results of operations could be adversely affected by governmental fiscal and monetary policies.
The actions of the FRB and international central banking authorities directly impact our cost of funds for lending, capital raising, and
investment activities and may impact the value of financial instruments we hold. In addition, such changes in monetary policy may affect the
credit quality of our customers. Changes in domestic and international monetary policy are beyond our control and difficult to predict.
In addition, our business and earnings are significantly affected by the fiscal and monetary policies of the U.S. government and its
agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. The
FRB’s policies influence the new and used vehicle financing market, which significantly affects the earnings of our businesses. The FRB’s
policies also influence the yield on our interest earning assets and the cost of our interest-bearing liabilities. Changes in those policies are
beyond our control and difficult to predict and could adversely affect our revenues, profitability, and financial condition.
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Future consumer legislation could harm our competitive position.
In addition to the enactment of the Dodd-Frank Act, various legislative bodies have also recently been considering altering the existing
framework governing creditors’ rights, including legislation that would result in or allow loan modifications of various sorts. Such legislation
may change banking statutes and the operating environment in substantial and unpredictable ways. If enacted, such legislation could increase
or decrease the cost of doing business; limit or expand permissible activities; or affect the competitive balance among banks, savings
associations, credit unions, and other financial institutions. We cannot predict whether new legislation will be enacted, and if enacted, the
effect that it or any regulations would have on our activities, financial condition, or results of operations.
Ally and its subsidiaries are involved in investigations, and proceedings by government and self-regulatory agencies, which may lead to
material adverse consequences.
Ally and its subsidiaries, including Ally Bank, are and may become involved from time to time in reviews, investigations, and
proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRB,
FDIC, Utah DFI, CFPB, SEC, and the Federal Trade Commission regarding their respective operations. Such requests include subpoenas
from each of the SEC and the U.S. Department of Justice. We continue to respond to subpoenas and document requests from the SEC, seeking
information covering a wide range of mortgage-related matters, including, among other things, various aspects surrounding securitizations of
residential mortgages. The subpoenas received from the U.S. Department of Justice include a broad request for documentation and other
information in connection with its investigation of potential fraud and other potential legal violations related to mortgage backed securities, as
well as the origination and/or underwriting of mortgage loans. In addition, the CFPB has recently advised us that they are investigating certain
of our retail financing practices. These matters, or any other investigation or information-gathering request, may result in material adverse
consequences including without limitation, adverse judgments, settlements, fines, penalties, injunctions, or other actions.
Our business, financial position, and results of operations could be adversely affected by the impact of affiliate transaction restrictions
imposed in connection with certain financing transactions.
Certain transactions between Ally Bank and any of its nonbank “affiliates,” including but not limited to Ally Financial Inc. are subject to
federal statutory and regulatory restrictions. Pursuant to these restrictions, unless otherwise exempted, “covered transactions,” including Ally
Bank’s extensions of credit to and asset purchases from its nonbank affiliates, generally (1) are limited to 10% of Ally Bank’s capital stock
and surplus with respect to transactions with any individual affiliate, with an aggregate limit of 20% of Ally Bank’s capital stock and surplus
for all affiliates and all such transactions; (2) in the case of certain credit transactions, are subject to stringent collateralization requirements;
(3) in the case of asset purchases by Ally Bank, may not involve the purchase of any asset deemed to be a “low quality asset” under federal
banking guidelines; and (4) must be conducted in accordance with safe-and-sound banking practices (collectively, the Affiliate Transaction
Restrictions). Furthermore, there is an “attribution rule” that provides that a transaction between Ally Bank and a third party must be treated
as a transaction between Ally Bank and a nonbank affiliate to the extent that the proceeds of the transaction are used for the benefit of, or
transferred to, a nonbank affiliate of Ally Bank. Retail financing transactions by Ally Bank involving vehicles for which Ally provided
floorplan financing are subject to the Affiliate Transaction Restrictions because the proceeds of the retail financings are deemed to benefit,
and are ultimately transferred to, Ally.
Under the Dodd-Frank Act, among other changes to Sections 23A and 23B of the Federal Reserve Act, credit exposures resulting from
derivatives transactions, securities lending and borrowing transactions, and acceptance of affiliate-issued debt obligations (other than
securities) as collateral for a loan or extension of credit will be treated as "covered transactions." The Dodd-Frank Act also expands the scope
of covered transactions required to be collateralized and places limits on acceptable collateral.
Historically, the FRB was authorized to exempt, in its discretion, transactions or relationships with affiliates from the requirements of
these rules if it found such exemptions to be in the public interest and consistent with the purposes of the rules. As a result of the Dodd-Frank
Act, exemptions now may be granted by the FDIC if the FDIC and FRB jointly find that the exemption is in the public interest and consistent
with the purposes of the rules, and the FDIC finds that the exemption does not present an unacceptable risk to the Deposit Insurance Fund.
The FRB granted several such exemptions to Ally Bank in the past. However, the existing exemptions are subject to various conditions and,
particularly in light of the statutory changes made by the Dodd-Frank Act, any requests for future exemptions may not be granted. Moreover,
these limited exemptions generally do not encompass consumer leasing or used vehicle financing. Since there is no assurance that Ally Bank
will be able to obtain future exemptions or waivers with respect to these restrictions, the ability to grow Ally Bank’s business will be affected
by the Affiliate Transaction Restrictions.
Ally Financial Inc. may require distributions in the future from its subsidiaries.
We currently fund Ally Financial Inc.’s obligations, including dividend payments to our preferred shareholders, and payments of interest
and principal on our indebtedness, from cash generated by Ally Financial Inc. In the future, Ally Financial Inc. may not generate sufficient
funds at the parent company level to fund its obligations. As such, it may require dividends, distributions, or other payments from its
subsidiaries to fund its obligations. However, regulatory and other legal restrictions may limit the ability of Ally Financial Inc.’s subsidiaries
to transfer funds freely to Ally Financial Inc. In particular, many of Ally Financial Inc.’s subsidiaries are subject to laws, regulations, and rules
that authorize regulatory bodies to block or reduce the flow of funds to it or that prohibit such transfers entirely in certain circumstances.
These laws, regulations, and rules may hinder Ally Financial Inc.’s ability to access funds that it may need to make payments on its
obligations in the future. Furthermore, as a bank holding company, Ally Financial Inc. may become subject to a prohibition or to limitations
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Ally Financial Inc. • Form 10-K
on its ability to pay dividends. The bank regulators have the authority and, under certain circumstances, the duty to prohibit or to limit
payment of dividends by the banking organizations they supervise, including Ally Financial Inc. and its subsidiaries.
Current and future increases in FDIC insurance premiums, including the FDIC special assessment imposed on all FDIC-insured
institutions, could decrease our earnings.
Beginning in 2008 and continuing through 2012, higher levels of bank failures have dramatically increased resolution costs of the FDIC
and depleted the Deposit Insurance Fund (the DIF). In May 2009, the FDIC announced that it had voted to levy a special assessment on
insured institutions in order to facilitate the rebuilding of the DIF. In September 2009, the FDIC voted to adopt an increase in the risk-based
assessment rate effective beginning January 1, 2011, by three basis points. Further, the Dodd-Frank Act alters the calculation of an insured
institution’s deposit base for purposes of deposit insurance assessments and removes the upper limit for the reserve ratio designated by the
FDIC each year. On February 7, 2011, the FDIC approved a final rule implementing these changes, which took effect on April 1, 2011. The
FDIC will continue to assess the changes to the assessment rates at least annually. Future deposit premiums paid by Ally Bank depend on the
level of the DIF and the magnitude and cost of future bank failures. Any increases in deposit insurance assessments could decrease our
earnings.
Risks Related to Our Business
The profitability and financial condition of our operations are heavily dependent upon the performance, operations, and prospects of
GM and Chrysler.
GM and Chrysler dealers and their retail customers compose a significant portion of our customer base, and our Dealer Financial
Services operations are highly dependent on GM and Chrysler production and sales volume. In 2012, 63% of our U.S. new vehicle dealer
inventory financing and 59% of our U.S. new vehicle consumer automotive financing volume were for GM franchised dealers and customers,
and 28% of our U.S. new vehicle dealer inventory financing and 32% of our U.S. new vehicle consumer automotive financing volume were
for Chrysler dealers and customers.
We are currently party to agreements with each of GM and Chrysler that provide for certain exclusivity privileges related to subvention
programs offered by each of them. On April 25, 2012, Chrysler provided us with notification of nonrenewal for the existing agreement, and as
a result our agreement with Chrysler will expire in April 2013. Further, Chrysler has recently announced that it has entered into a ten-year
agreement with Santander Consumer USA Inc. (Santander), pursuant to which Santander will provide a full range of wholesale and retail
financing services to Chrysler dealers and consumers, beginning in May 2013. In addition, our agreement with GM will expire in December
2013. These agreements provided Ally with certain preferred provider benefits, including limiting the use of other financing providers by GM
and Chrysler in their incentive programs. We cannot predict the ultimate impact that the expiration of these agreements will have on our
operations. However, the expiration of these agreements will likely increase competitive pressure on Ally, as some competitors have or could
have exclusive agreements with GM and/or Chrysler.
On October 1, 2010, GM acquired AmeriCredit Corp. (which GM subsequently renamed General Motors Financial Company, Inc.
(GMF)), an independent automotive finance company that focuses on providing leasing and subprime financing options. Further, and as
previously announced, we have entered into an agreement with GMF pursuant to which GMF will purchase our automotive finance
operations in Europe and Latin America, as well as our interest in a joint venture in China. As GMF continues to grow, and as GM directs
additional business to GMF, it could reduce GM's reliance on our services over time, which could have a material adverse effect on our
profitability and financial condition. In addition, it is possible that GM or other automotive manufacturers could utilize other existing
companies to support their financing needs including offering products or terms that we would not or could not offer, which could have a
material adverse impact on our business and operations. Furthermore, other automotive manufacturers could expand or establish or acquire
captive finance companies to support their financing needs thus reducing their need for our services.
A significant adverse change in GM’s or Chrysler’s business, including the production or sale of GM or Chrysler vehicles; the quality or
resale value of GM or Chrysler vehicles; the use of GM or Chrysler marketing incentives; GM’s or Chrysler’s relationships with its key
suppliers; or GM’s or Chrysler’s relationship with the United Auto Workers and other labor unions and other factors impacting GM or
Chrysler or their respective employees, or significant adverse changes in their respective liquidity position and access to the capital markets;
could have a material adverse effect on our profitability and financial condition.
There is no assurance that the global automotive market or GM’s and Chrysler’s respective share of that market will not suffer downturns
in the future, and any negative impact could in turn have a material adverse effect on our business, results of operations, and financial
position.
Our business requires substantial capital and liquidity, and disruption in our funding sources and access to the capital markets would
have a material adverse effect on our liquidity, capital positions, and financial condition.
Our liquidity and the long-term viability of Ally depend on many factors, including our ability to successfully raise capital and secure
appropriate bank financing. We are currently required to maintain a Tier 1 leverage ratio of 15% at Ally Bank, which will require that Ally
maintain substantial equity funds in Ally Bank and inject substantial additional equity funds into Ally Bank as Ally Bank’s assets increase
over time.
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Ally Financial Inc. • Form 10-K
We have significant maturities of unsecured debt each year. While we have reduced our reliance on unsecured funding, it continues to
remain a critical component of our capital structure and financing plans. At December 31, 2012, approximately $1.3 billion in principal
amount of total outstanding consolidated unsecured debt is scheduled to mature in 2013, and approximately $5.6 billion and $5.1 billion in
principal amount of consolidated unsecured debt is scheduled to mature in 2014 and 2015, respectively. We also obtain short-term funding
from the sale of floating rate demand notes, all of which the holders may elect to have redeemed at any time without restriction. At December
31, 2012, a total of $3.1 billion in principal amount of Demand Notes were outstanding. We also rely on secured funding. At December 31,
2012, approximately $11.5 billion of outstanding consolidated secured debt is scheduled to mature in 2013, approximately $13.6 billion is
scheduled to mature in 2014, and approximately $8.6 billion is scheduled to mature in 2015. Furthermore, at December 31, 2012,
approximately $15.7 billion in certificates of deposit at Ally Bank are scheduled to mature in 2013, which is not included in the 2013
unsecured maturities provided above. Additional financing will be required to fund a material portion of the debt maturities over these
periods. The capital markets continue to be volatile, and Ally’s access to the debt markets may be significantly reduced during periods of
market stress. In addition, we will continue to have significant original issue discount amortization expenses (OID expense) in the near future,
which will adversely affect our net income and resulting capital position. OID expense was $349 million in 2012, and the remaining
scheduled amortization of OID is $261 million, $188 million, and $56 million in 2013, 2014, and 2015, respectively.
As a result of the volatility in the markets and our current unsecured debt ratings, we have increased our reliance on various secured debt
markets. Although market conditions have improved, there can be no assurances that this will continue. In addition, we continue to rely on our
ability to borrow from other financial institutions, and many of our primary bank facilities are up for renewal on a yearly basis. Any weakness
in market conditions and a tightening of credit availability could have a negative effect on our ability to refinance these facilities and increase
the costs of bank funding. Ally and Ally Bank also continue to access the securitization markets. While markets have continued to stabilize
following the 2008 liquidity crisis, there can be no assurances these sources of liquidity will remain available to us.
Our indebtedness and other obligations are significant and could materially and adversely affect our business.
We have a significant amount of indebtedness. At December 31, 2012, we had approximately $82.8 billion in principal amount of
indebtedness outstanding (including $45.1 billion in secured indebtedness). Interest expense on our indebtedness constituted approximately
48% of our total financing revenue and other interest income for the year ended December 31, 2012. In addition, during the twelve months
ending December 31, 2012, we declared and paid preferred stock dividends of $802 million in the aggregate.
We have the ability to create additional unsecured indebtedness. If our debt service obligations increase, whether due to the increased
cost of existing indebtedness or the incurrence of additional indebtedness, we may be required to dedicate a significant portion of our cash
flow from operations to the payment of principal of, and interest on, our indebtedness, which would reduce the funds available for other
purposes. Our indebtedness also could limit our ability to withstand competitive pressures and reduce our flexibility in responding to
changing business and economic conditions.
The worldwide financial services industry is highly competitive. If we are unable to compete successfully or if there is increased
competition in the automotive financing and/or insurance markets or generally in the markets for securitizations or asset sales, our business
could be negatively affected.
The markets for automotive financing, banking, and insurance are highly competitive. The market for automotive financing has grown
more competitive as more consumers are financing their vehicle purchases and as more competitors continue to enter this market as a result of
how well automotive finance assets generally performed relative to other asset classes during the 2008 economic downturn. More recently,
competition for automotive financing has further intensified as a growing number of banks have become increasingly interested in
automotive-finance assets, which has resulted in pressure on our net interest margins. For example, on April 1, 2011, TD Bank Group
announced the closing of its acquisition of Chrysler Financial, which could enhance Chrysler Financial’s ability to expand its product
offerings and may result in increased competition. Ally Bank faces significant competition from commercial banks, savings institutions,
mortgage companies, and other financial institutions. Our insurance business faces significant competition from insurance carriers, reinsurers,
third-party administrators, brokers, and other insurance-related companies. Many of our competitors have substantial positions nationally or
in the markets in which they operate. Some of our competitors have lower cost structures, substantially lower costs of capital, and are much
less reliant on securitization activities, unsecured debt, and other public markets. Our competitors may be subject to different, and in some
cases, less stringent, legislative and regulatory regimes than we are, thus putting us at a competitive disadvantage to these competitors. We
face significant competition in most areas including product offerings, rates, pricing and fees, and customer service. If we are unable to
compete effectively in the markets in which we operate, our profitability and financial condition could be negatively affected.
The markets for asset securitizations and whole-loan sales are competitive, and other issuers and originators could increase the amount of
their issuances and sales. In addition, lenders and other investors within those markets often establish limits on their credit exposure to
particular issuers, originators, and asset classes, or they may require higher returns to increase the amount of their exposure. Increased
issuance by other participants in the market or decisions by investors to limit their credit exposure to (or to require a higher yield for) us or to
automotive securitizations or whole-loans could negatively affect our ability and that of our subsidiaries to price our securitizations and
whole-loan sales at attractive rates. The result would be lower proceeds from these activities and lower profits for our subsidiaries and us.
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Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance,
which may adversely affect our capital, financial condition, and results of operations.
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expenses, which
represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans, all as described
in Note 1 to the Consolidated Financial Statements. The allowance, in the judgment of management, is established to reserve for estimated
loan losses and risks inherent in the loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently
involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and
quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, accounting rules
and related guidance, new information regarding existing loans, identification of additional problem loans, and other factors, both within and
outside of our control, may require an increase in the allowance for loan losses.
Bank regulatory agencies periodically review our allowance for loan losses, as well as our methodology for calculating our allowance for
loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments
different than those of management. An increase in the allowance for loan losses results in a decrease in net income and capital and may have
a material adverse effect on our capital, financial condition and results of operations.
The previously contemplated plan and settlement related to the ResCap bankruptcy has been allowed to lapse by ResCap, and as a
result, there is substantial uncertainty related to resolution of the bankruptcy and substantial claims could be brought against us.
On May 14, 2012 (the Petition Date), Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries
(collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York (the Bankruptcy Court). In connection with the filings in May, Ally Financial Inc. and its direct and
indirect subsidiaries and affiliates (excluding the Debtors) (collectively, AFI) had reached an agreement with the Debtors and certain creditor
constituencies on a prearranged Chapter 11 plan (the Plan). The Plan included a proposed settlement (the Settlement) between AFI and the
Debtors, which included, among other things, an obligation of AFI to make a $750 million cash contribution to the Debtor's estate, and a
release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-
related causes of action against AFI held by third parties.
The Settlement contemplated certain milestone requirements that the Debtors failed to satisfy, including the Bankruptcy Court's
confirmation of the Plan on or before October 31, 2012. While the failure to meet this October 31 milestone would have resulted in the
Settlement's automatic termination, AFI and the Debtors agreed to monthly temporary waivers of this automatic termination through February
28, 2013. This waiver was not extended beyond this date, and therefore the Settlement has terminated.
As of the Petition Date, institutional investors in residential mortgage-backed securities (RMBS Investors) issued by ResCap's affiliates
and holding more than 25 percent of at least one class in each of 290 securitizations agreed to settle alleged representation and warranty
claims against the Debtors' estates in exchange for a total $8.7 billion allowed claim in the Debtors' bankruptcy cases, subject to the
applicable securitization trustees' acceptance of the terms of the settlements (the RMBS Settlements). The RMBS Investors also signed
separate plan support agreements (PSAs) with the Debtors and AFI in support of the Plan at the time of entering into the RMBS Settlements.
To date, RMBS Investors holding more than 25 percent of at least one class in each of 336 securitizations have agreed to the RMBS
Settlements. These 336 securitizations have an aggregate original principal balance of approximately $189 billion (out of a total of 392
outstanding securitizations with an original principal balance of $221 billion). The RMBS Settlements are subject to Bankruptcy Court
approval, and the Bankruptcy Court has scheduled a hearing to consider such approval in late May 2013. The PSAs are not part of this
scheduled Bankruptcy Court hearing. A number of creditors have raised objections to the RMBS Settlements, but the trustees representing the
336 securitization trusts and AFI have filed statements in support of the Debtors' motion to approve the RMBS Settlements. Separately, the
Debtors have failed to meet several Plan milestones in their bankruptcy cases, each of which has given the RMBS Investors the right to
terminate the PSAs upon three business days advance written notice to the Debtors and AFI. The RMBS Investors have not given the Debtors
and AFI such a notice to date, but have the right to do so at any time. If the RMBS Settlements were not approved or the RMBS Investors
were to decide not to support any proposed plan, it could adversely impact the likelihood that any plan is approved by the Bankruptcy Court.
AFI continues to support the RMBS Settlements at this time.
On June 4, 2012, Berkshire Hathaway Inc. filed a motion in the Bankruptcy Court for the appointment of an independent examiner to
investigate, among other things, certain of the Debtors' transactions with AFI occurring prior to the Petition Date, any claims the Debtors may
hold against AFI's officers and directors, and any claims the Debtors proposed to release under the Plan. On June 20, 2012, the Bankruptcy
Court approved the appointment of an examiner and, subsequently, the United States Trustee for the Southern District of New York appointed
former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner (the Examiner). On July 27, 2012, the Bankruptcy Court entered an order
approving the scope of the Examiner's investigation. The investigation includes, among other things: (a) all material pre-petition transactions
between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain
post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements,
the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally
Bank; (c) all state and federal law claims or causes of action the Debtors proposed to release as part of the Plan; and (d) the release of all
existing or potential ResCap-related causes of action against AFI held by third parties. In the Examiner's original work plan, the Examiner
estimated that his investigation and related report would be completed six months from approximately August 6, 2012. However, on February
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Ally Financial Inc. • Form 10-K
7, 2013 the Examiner informed the Bankruptcy Court in the third supplement to the work plan that the investigation and related report will not
be completed until early May 2013.
On December 26, 2012, the Bankruptcy Court, in an effort to facilitate plan negotiations, entered an order appointing bankruptcy judge
James M. Peck, Esq. as mediator to assist the parties in resolving certain issues relating to the formulation and confirmation of the Plan. There
can be no assurance that the mediation process will continue or will ultimately lead to a successful agreement among the parties.
On February 26, 2013, the official committee of unsecured creditors appointed in the Debtors' bankruptcy cases (the Creditors'
Committee) filed with the Bankruptcy Court a response to the Debtors' motions for appointment of a chief restructuring officer and to extend
their exclusive period to file a chapter 11 plan, which, among other things, states that the Creditors' Committee supports such extension
through and including April 30, 2013, and during such time the Creditors' Committee will agree not to bring any claims against AFI. The
response further states that the Debtors consent to the Creditors' Committee seeking standing in the Bankruptcy Court to prosecute and/or
settle the Debtors' alleged claims against AFI and agree to settle claims against AFI only with Creditors' Committee consent.
On February 27, 2013, the Debtors filed a motion with the Bankruptcy Court seeking, for purposes of any proposed chapter 11 plan, that
GMAC Mortgage's obligation to conduct and pay for independent file review regarding certain residential foreclosure actions and foreclosure
sales prosecuted by GMAC Mortgage and its subsidiaries, as required under the Consent Order, be classified as a general unsecured claim in
an amount to be determined, and that the automatic stay under the Bankruptcy Code be applied to prevent the FRB, the FDIC, and other
governmental entities from taking any action to enforce the obligation against the Debtors. If the Bankruptcy Court approves the motion, such
governmental entities are likely to seek to enforce the obligation against AFI, and any such obligations ultimately borne by AFI could be
material. The Debtors have requested that the motion be heard at a hearing on March 21, 2013.
We are currently named as defendants in various lawsuits relating to ResCap mortgage-backed securities and certain other mortgage-
related matters, which are described in more detail in Note 29 to the Consolidated Financial Statements. The majority of these matters are
currently subject to orders entered by the Bankruptcy Court staying the matters through either March 31, 2012 or April 30, 2013. Unless the
Debtors seek and obtain Bankruptcy Court approval to extend these stay orders, these matters are expected to proceed against us once the
applicable stay orders expire.
As a result of the termination of the Settlement, AFI is no longer obligated to make the $750 million cash contribution and neither party
is bound by the Settlement. Further, AFI is not entitled to receive any releases from either the Debtors or any third party claimants, as was
contemplated under the Plan and Settlement. However, AFI has not withdrawn its offer to provide a $750 million cash contribution to the
Debtors' estate if an acceptable settlement can be reached. As a result of the termination of the Settlement, substantial claims could be brought
against us, which could have a material adverse impact on our results of operations, financial position or cash flows.
We are exposed to consumer credit risk, which could adversely affect our profitability and financial condition.
We are subject to credit risk resulting from defaults in payment or performance by customers for our contracts and loans, as well as
contracts and loans that are securitized and in which we retain a residual interest. Furthermore, a weak economic environment and high
unemployment rates could exert pressure on our consumer automotive finance customers resulting in higher delinquencies, repossessions, and
losses. There can be no assurances that our monitoring of our credit risk as it affects the value of these assets and our efforts to mitigate credit
risk through our risk-based pricing, appropriate underwriting policies, and loss-mitigation strategies are, or will be, sufficient to prevent a
further adverse effect on our profitability and financial condition. We have begun to increase our nonprime automobile financing. We define
nonprime consumer automobile loans as those loans with a FICO score (or an equivalent score) at origination of less than 620. In addition, we
have increased our used automobile financing. Borrowers that finance used vehicles tend to have lower FICO scores as compared to new
vehicle borrowers, and defaults resulting from vehicle breakdowns are more likely to occur with used vehicles as compared to new vehicles
that are financed. At December 31, 2012, the carrying value of our Automotive Finance operations nonprime consumer automobile loans
before allowance for loan losses was $5.1 billion, or approximately 9.4% of our total consumer automobile loans. Of these loans, $62 million
were considered nonperforming as they had been placed on nonaccrual status in accordance with internal loan policies. Refer to the
Nonaccrual Loans section of Note 1 to the Consolidated Financial Statements for additional information. As we grow our nonprime
automobile financing loans over time, our credit risk may increase. As part of the underwriting process, we rely heavily upon information
supplied by third parties. If any of this information is intentionally or negligently misrepresented and the misrepresentation is not detected
before completing the transaction, the credit risk associated with the transaction may be increased.
General business and economic conditions may significantly and adversely affect our revenues, profitability, and financial condition.
Our business and earnings are sensitive to general business and economic conditions in the United States. A downturn in economic
conditions resulting in increased short and long term interest rates, inflation, fluctuations in the debt capital markets, unemployment rates,
consumer and commercial bankruptcy filings, or a decline in the strength of national and local economies and other factors that negatively
affect household incomes could decrease demand for our financing products and increase financing delinquency and losses on our customer
and dealer financing operations. We have been negatively affected due to the significant stress in the residential real estate and related capital
markets and, in particular, the lack of home price appreciation in many markets in which we lend. Further, a significant and sustained increase
in fuel prices could lead to diminished new and used vehicle purchases and negatively affect our automotive finance business.
If the rate of inflation were to increase, or if the debt capital markets or the economies of the United States were to weaken, or if home
prices or new and used vehicle purchases experience declines, we could be significantly and adversely affected, and it could become more
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Ally Financial Inc. • Form 10-K
expensive for us to conduct our business. For example, business and economic conditions that negatively affect household incomes, housing
prices, and consumer behavior related to our businesses could decrease (1) the demand for our new and used vehicle financing and (2) the
value of the collateral underlying our portfolio of held-for-investment assets and new and used vehicle loans and interests that continue to be
held by us, thus further increasing the number of consumers who become delinquent or default on their loans. In addition, the rate of
delinquencies, foreclosures, and losses on our loans could be higher during more severe economic slowdowns.
Any sustained period of increased delinquencies, foreclosures, or losses could further harm our ability to sell our new and used vehicle
loans, the prices we receive for our new and used vehicle loans, or the value of our portfolio of mortgage and new and used vehicle loans
held-for-investment or interests from our securitizations, which could harm our revenues, profitability, and financial condition. Continued
adverse business and economic conditions could affect demand for new and used vehicles, housing, the cost of construction, and other related
factors that could harm the revenues and profitability of our business.
The current debt crisis in Europe, the risk that certain countries may default on their sovereign debt, and recent rating agency actions
with respect to European countries and the United States and the resulting impact on the financial markets, could have a material adverse
impact on our business, results of operations and financial position.
The current crisis in Europe has created uncertainty with respect to the ability of certain European Union countries to continue to service
their sovereign debt obligations. In the past several years, rating agencies have lowered their ratings on several euro-zone countries. The
continuation of the European debt crisis has adversely impacted financial markets and has created substantial volatility and uncertainty, and
will likely continue to do so. Risks related to this have had, and are likely to continue to have, a negative impact on global economic activity
and the financial markets. The effects of the European debt crisis could be even more significant if a Eurozone country determines to depart
the European Monetary Union, which would lead to redenomination of obligations of obligors in that country and cause foreign exchange,
operational, and settlement disruptions. In addition, on August 5, 2011, Standard & Poor’s Ratings Services lowered its long-term sovereign
credit rating on the United States of America to ‘AA+’ from ‘AAA’, and the outlook on its long-term rating is negative. The U.S. downgrade,
any future downgrades, as well as the perceived creditworthiness of U.S. government-related obligations, including uncertainty surrounding
the U.S. federal deficit and debt ceiling debate, could impact our ability to obtain, and the pricing with respect to, funding that is collateralized
by affected instruments and obtained through the secured and unsecured markets. As these conditions persist, our business, results of
operation, and financial position could be materially adversely affected.
Acts or threats of terrorism and political or military actions taken by the United States or other governments could adversely affect
general economic or industry conditions.
Geopolitical conditions may affect our earnings. Acts or threats of terrorism and political or military actions taken by the United States or
other governments in response to terrorism, or similar activity, could adversely affect general economic or industry conditions.
The U.S. Department of Treasury (Treasury) holds a majority of the outstanding common stock.
At February 28, 2013, Treasury held 981,971 shares of common stock, which represents approximately 74% of the voting power of the
holders of common stock outstanding for matters requiring a vote of the holders of common stock. In addition, as of the date hereof, Treasury
holds 118,750,000 shares of Series F-2 Preferred Stock (which are convertible into shares of common stock in accordance with Ally's
certificate of incorporation), with an aggregate liquidation preference of approximately $5.9 billion.
Pursuant to the Amended and Restated Governance Agreement dated May 21, 2009, as of the date hereof, Treasury also has the right to
appoint six of the eleven members to our board of directors. As a result of this stock ownership interest and Treasury's right to appoint six
directors to our board of directors, Treasury has the ability to exert control, through its power to vote for the election of our directors, over
various matters. To the extent Treasury elects to exert such control over us, its interests (as a government entity) may differ from those of our
other stockholders and it may influence, through its ability to vote for the election of our directors, matters including:
•
•
•
•
the selection, tenure and compensation of our management;
our business strategy and product offerings;
our relationship with our employees and other constituencies; and
our financing activities, including the issuance of debt and equity securities.
In particular, Treasury may have a greater interest in promoting U.S. economic growth and jobs than our other stockholders. In the future
we may also become subject to new and additional laws and government regulations regarding various aspects of our business as a result of
participation in the TARP program and the U.S. government's ownership in our business. These regulations and actions by directors could
make it more difficult for us to compete with other companies that are not subject to similar regulations.
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Ally Financial Inc. • Form 10-K
The limitations on compensation imposed on us due to our participation in TARP, including the restrictions placed on our compensation
by the Special Master for TARP Executive Compensation, may adversely affect our ability to retain and motivate our executives and
employees.
Our performance is largely dependent on the talent and efforts of our management team and employees. As a result of our participation
in TARP, the compensation of certain members of our management team and employees is subject to extensive restrictions under the
Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009 (the ARRA), which
was signed into law on February 17, 2009, as implemented by the Interim Final Rule issued by Treasury on June 15, 2009 (the IFR). In
addition, due to our level of participation in TARP, pursuant to ARRA and the IFR, the Office of the Special Master for TARP Executive
Compensation has the authority to further regulate our compensation arrangements with certain of our executives and employees. In addition,
we may become subject to further restrictions under any other future legislation or regulation limiting executive compensation. Many of the
restrictions are not limited to our senior executives and affect other employees whose contributions to revenue and performance may be
significant. These limitations may leave us unable to create a compensation structure that permits us to retain and motivate certain of our
executives and employees or to attract new executives or employees, especially if we are competing against institutions that are not subject to
the same restrictions. Any such inability could have a material and adverse effect on our business, financial condition, and results of
operations.
Our borrowing costs and access to the unsecured debt capital markets depend significantly on our credit ratings.
The cost and availability of unsecured financing are materially affected by our short- and long-term credit ratings. Each of Standard &
Poor’s Rating Services; Moody’s Investors Service, Inc.; Fitch, Inc.; and Dominion Bond Rating Service rates our debt. Our current ratings as
assigned by each of the respective rating agencies are below investment grade, which negatively impacts our access to liquidity and increases
our borrowing costs in the unsecured market. Ratings reflect the rating agencies’ opinions of our financial strength, operating performance,
strategic position, and ability to meet our obligations. On February 2, 2012, Fitch downgraded our senior debt to BB- from BB and changed
the outlook to negative. Future downgrades of our credit ratings would increase borrowing costs and further constrain our access to the
unsecured debt markets and, as a result, would negatively affect our business. In addition, downgrades of our credit ratings could increase the
possibility of additional terms and conditions being added to any new or replacement financing arrangements as well as impact elements of
certain existing secured borrowing arrangements.
Agency ratings are not a recommendation to buy, sell, or hold any security and may be revised or withdrawn at any time by the issuing
organization. Each agency’s rating should be evaluated independently of any other agency’s rating.
Our profitability and financial condition could be materially and adversely affected if the residual value of off-lease vehicles decrease in
the future.
Our expectation of the residual value of a vehicle subject to an automotive lease contract is a critical element used to determine the
amount of the lease payments under the contract at the time the customer enters into it. As a result, to the extent the actual residual value of
the vehicle, as reflected in the sales proceeds received upon remarketing at lease termination, is less than the expected residual value for the
vehicle at lease inception, we incur additional depreciation expense and/or a loss on the lease transaction. General economic conditions, the
supply of off-lease and other vehicles to be sold, new vehicle market prices, perceived vehicle quality, overall price and volatility of gasoline
or diesel fuel, among other factors, heavily influence used vehicle prices and thus the actual residual value of off-lease vehicles. Consumer
confidence levels and the strength of automotive manufacturers and dealers can also influence the used vehicle market. For example, during
2008, sharp declines in demand and used vehicle sale prices adversely affected our remarketing proceeds and financial results.
Vehicle brand images, consumer preference, and vehicle manufacturer marketing programs that influence new and used vehicle markets
also influence lease residual values. In addition, our ability to efficiently process and effectively market off-lease vehicles affects the disposal
costs and proceeds realized from the vehicle sales. While manufacturers, at times, may provide support for lease residual values including
through residual support programs, this support does not in all cases entitle us to full reimbursement for the difference between the
remarketing sales proceeds for off-lease vehicles and the residual value specified in the lease contract. Differences between the actual residual
values realized on leased vehicles and our expectations of such values at contract inception could have a negative impact on our profitability
and financial condition.
Significant indemnification payments or contract, lease, or loan repurchase activity of retail contracts or leases could harm our
profitability and financial condition.
We have repurchase obligations in our capacity as servicer in securitizations and whole-loan sales. If a servicer breaches a representation,
warranty, or servicing covenant with respect to an automotive receivable, the servicer may be required by the servicing provisions to
repurchase that asset from the purchaser or otherwise compensate one or more classes of investors for losses caused by the breach. If the
frequency at which repurchases of assets or other payments occurs increases substantially from its present rate, the result could be a material
adverse effect on our financial condition, liquidity, and results of operations.
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Ally Financial Inc. • Form 10-K
A loss of contractual servicing rights could have a material adverse effect on our financial condition, liquidity, and results of operations.
We are the servicer for all of the receivables we have acquired or originated and transferred to other parties in securitizations and whole-
loan sales of automotive receivables. We are paid a fee for these services, which fees in the aggregate constitute a substantial revenue stream
for us. In each case, we are subject to the risk of termination under the circumstances specified in the applicable servicing provisions.
In most securitizations and whole-loan sales, the owner of the receivables will be entitled to declare a servicer default and terminate the
servicer upon the occurrence of specified events. These events typically include a bankruptcy of the servicer, a material failure by the servicer
to perform its obligations, and a failure by the servicer to turn over funds on the required basis. The termination of these servicing rights, were
it to occur, could have a material adverse effect on our financial condition, liquidity, and results of operations.
Our earnings may decrease because of decreases or increases in interest rates.
We are subject to risks from decreasing interest rates, particularly given the Federal Reserve’s recent steps to keep interest rates low in an
attempt to improve economic growth. A low interest rate environment or a flat or inverted yield curve may adversely affect certain of our
businesses by compressing net interest margins or reducing the amounts we earn on our investment securities portfolio, thereby reducing our
net interest income and other revenues.
Rising interest rates could also have an adverse impact on our business as well. For example, rising interest rates:
• will increase our cost of funds;
• may reduce our consumer automotive financing volume by influencing customers to pay cash for, as opposed to financing, vehicle
purchases or not to buy new vehicles;
• may negatively impact our ability to remarket off-lease vehicles; and
• will generally reduce the value of automotive financing loans and contracts and retained interests and fixed income securities held
in our investment portfolio.
Throughout 2009 and 2010 the credit risk embedded in the balance sheet was reduced as a result of asset sales, asset markdowns, and a
change in the mix of our loan assets as the legacy portfolios were replaced with assets underwritten to tighter credit standards. This reduction
in risk has resulted in a mix of assets outstanding on the balance sheet as of December 31, 2012, with a lower yielding profile than the prior
year. During this same period of time we experienced a significant decline in our consumer automotive operating lease portfolio that was
realizing higher yields from remarketing gains due to historically high used vehicle prices. The combination of the above factors resulted in a
decline in asset yields more than the decline in liability rates, and therefore the decline in the net interest spread on the balance sheet
throughout 2010 and into 2011.
Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates and could affect our
profitability and financial condition as could our failure to comply with hedge accounting principles and interpretations.
We employ various economic hedging strategies to mitigate the interest rate and prepayment risk inherent in many of our assets and
liabilities. Our hedging strategies rely on assumptions and projections regarding our assets, liabilities, and general market factors. If these
assumptions and projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or
prepayment speeds, we may experience volatility in our earnings that could adversely affect our profitability and financial condition. In
addition, we may not be able to find market participants that are willing to act as our hedging counterparties, which could have an adverse
effect on the success of our hedging strategies.
In addition, hedge accounting in accordance with accounting principles generally accepted in the United States of America (GAAP)
requires the application of significant subjective judgments to a body of accounting concepts that is complex.
A failure of or interruption in, as well as, security risks of the communications and information systems on which we rely to conduct our
business could adversely affect our revenues and profitability.
We rely heavily upon communications and information systems to conduct our business. Any failure or interruption of our information
systems or the third-party information systems on which we rely as a result of inadequate or failed processes or systems, human errors,
employee misconduct, catastrophic events, or other external events could cause underwriting or other delays and could result in fewer
applications being received, slower processing of applications, and reduced efficiency in servicing. In addition, our communication and
information systems may present security risks, and could be susceptible to hacking or identity theft. For example, similar to other large
financial institutions, Ally's website, ally.com, was recently the subject of cyber attacks that resulted in slow performance and unavailability
of the website for some customers. The occurrence of any of these events could have a material adverse effect on our business.
We use estimates and assumptions in determining the fair value of certain of our assets. If our estimates or assumptions prove to be
incorrect, our cash flow, profitability, financial condition, and business prospects could be materially and adversely affected.
We use estimates and various assumptions in determining the fair value of many of our assets, including certain held-for-investment and
held-for-sale loans for which we elected fair value accounting, retained interests from securitizations of loans and contracts, MSRs, and other
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Ally Financial Inc. • Form 10-K
investments, which do not have an established market value or are not publicly traded. We also use estimates and assumptions in determining
the residual values of leased vehicles. In addition, we use estimates and assumptions in determining our reserves for legal matters, insurance
losses and loss adjustment expenses which represent the accumulation of estimates for both reported losses and those incurred, but not
reported, including claims adjustment expenses relating to direct insurance and assumed reinsurance agreements. For further discussion
related to estimates and assumptions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Critical Accounting Estimates.” Our actual experience may differ materially from these estimates and assumptions. A material difference
between our estimates and assumptions and our actual experience may adversely affect our cash flow, profitability, financial condition, and
business prospects.
Fluctuations in valuation of investment securities or significant fluctuations in investment market prices could negatively affect revenues.
Investment market prices in general are subject to fluctuation. Consequently, the amount realized in the subsequent sale of an investment
may significantly differ from the reported market value and could negatively affect our revenues. Additionally, negative fluctuations in the
value of available-for-sale investment securities could result in unrealized losses recorded in equity. Fluctuation in the market price of a
security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative
investments, national and international events, and general market conditions.
Changes in accounting standards issued by the Financial Accounting Standards Board (FASB) could adversely affect our reported
revenues, profitability, and financial condition.
Our financial statements are subject to the application of GAAP, which are periodically revised and/or expanded. The application of
accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting
standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and
those who interpret the standards, such as the FASB and the SEC, banking regulators, and our independent registered public accounting firm.
Those changes could adversely affect our reported revenues, profitability, or financial condition.
Recently, the FASB has proposed new financial accounting standards, and has many active projects underway, that could materially
affect our reported revenues, profitability, or financial condition. These proposed standards or projects include the potential for significant
changes in the accounting for financial instruments (including loans, deposits, allowance for loan losses, and debt) and the accounting for
leases, among others. It is possible that any changes, if enacted, could adversely affect our reported revenues, profitability, or financial
condition.
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to
different counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and
dealers, commercial banks, investment banks, and other institutions. Many of these transactions expose us to credit risk in the event of default
of our counterparty.
Our inability to maintain relationships with dealers could have an adverse effect on our business, results of operations, and financial
condition.
Our business depends on the continuation of our relationships with our customers, particularly the automotive dealers with whom we do
business. If we are not able to maintain existing relationships with key automotive dealers or if we are not able to develop new relationships
for any reason, including if we are not able to provide services on a timely basis or offer products that meet the needs of the dealers, our
business, results of operations, and financial condition could be adversely affected.
Adverse economic conditions or changes in laws in states in which we have customer concentrations may negatively affect our operating
results and financial condition.
We are exposed to consumer loan portfolio concentration in certain states, including California, Texas, and Florida. Factors adversely
affecting the economies and applicable laws in these and other states could have an adverse effect on our business, results of operations and
financial position.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal corporate offices are located in Detroit, Michigan; New York, New York; and Charlotte, North Carolina. In Detroit, we
lease approximately 247,000 square feet from GM pursuant to a lease agreement expiring in November 2016. In New York, we lease
approximately 35,000 square feet of office space under a lease that expires in July 2015. In Charlotte, we lease approximately 133,000 square
feet of office space under a lease expiring in December 2015.
The primary offices for Dealer Financial Services operations are located in Detroit, Michigan, and Southfield, Michigan. The primary
office for our Automotive Finance operations is located in Detroit, Michigan, and is included in the totals referenced above. The primary
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Ally Financial Inc. • Form 10-K
office for our Insurance operations is located in Southfield, Michigan, where we lease approximately 71,000 square feet of office space under
leases expiring in April 2016.
The primary offices for our Mortgage operations are located in Fort Washington, Pennsylvania. In Fort Washington, we lease
approximately 450,000 square feet of office space pursuant to a lease that expires in November 2019.
In addition to the properties described above, we lease additional space to conduct our operations. We believe our facilities are adequate
for us to conduct our present business activities.
Item 3. Legal Proceedings
Refer to Note 29 to the Consolidated Financial Statements for a discussion related to our legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Ally Financial Inc. • Form 10-K
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Common Stock
We currently have a total of 2,021,384 shares of common stock authorized for issuance, and at February 28, 2013, a total of
1,330,970 shares of common stock were issued and outstanding. Further, we have reserved 690,272 of the remaining authorized but unissued
shares of common stock for issuance in connection with any future conversion of Ally's Fixed Rate Cumulative Mandatorily Convertible
Preferred Stock, Series F-2 (Series F-2 Preferred Stock). Our common stock is not registered with the Securities and Exchange Commission,
and there is no established trading market for the shares. At February 28, 2013, there were 153 holders of common stock reflected on our
stock register.
Subject to certain exceptions, for so long as any shares of the Series F-2 Preferred Stock are outstanding and owned by the
U.S. Department of Treasury (Treasury), Ally and its subsidiaries are generally prohibited from paying certain dividends or distributions on,
or redeeming, repurchasing or acquiring, any common stock without the consent of Treasury. Ally is also generally prohibited from making
any dividends or distributions on, or redeeming, repurchasing, or acquiring, its common stock unless all accrued and unpaid dividends for all
past dividend periods on the Series F-2 Preferred Stock are fully paid. In addition, pursuant to the terms of Ally's Fixed Rate Cumulative
Perpetual Preferred Stock, Series G, Ally is not permitted to make any Restricted Payments on or prior to January 1, 2014, and may only
make Restricted Payments after January 1, 2014, if certain conditions are satisfied. For this purpose, Restricted Payments include dividends or
distribution of assets on any share of common stock and any redemption, purchase, or other acquisition of any shares of common stock,
subject to certain exceptions.
Preferred Stock
For a discussion of preferred stock currently outstanding, refer to Note 18 to the Consolidated Financial Statements.
Unregistered Sales of Equity Securities
Ally did not have any unregistered sales of its equity securities in fiscal year 2012, except as previously disclosed on Form 8-K.
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Ally Financial Inc. • Form 10-K
Item 6. Selected Financial Data
The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis
(MD&A) of Financial Condition and Results of Operations, our Consolidated Financial Statements, and the Notes to Consolidated Financial
Statements. The historical financial information presented may not be indicative of our future performance.
The following table presents selected statement of income data.
Year ended December 31, ($ in millions)
2012
2011
2010
2009
2008
Total financing revenue and other interest income
$
7,468
$
7,061
$
8,017
$
8,887
$
12,143
Interest expense
Depreciation expense on operating lease assets
Impairment of investment in operating leases
Net financing revenue
Total other revenue (a)
Total net revenue
Provision for loan losses
Total noninterest expense
(Loss) income from continuing operations before income tax
(benefit) expense
Income tax (benefit) expense from continuing operations (b)
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Basic and diluted earnings per common share:
Net (loss) income from continuing operations
Net income (loss)
Non-GAAP financial measures (c):
Net income (loss)
4,200
1,399
—
1,869
3,029
4,898
329
5,324
(755)
(1,284)
529
667
5,039
941
—
1,081
2,897
3,978
188
4,741
(951)
51
(1,002)
845
5,460
1,251
—
1,306
4,416
5,722
357
4,973
392
104
288
741
5,502
2,256
—
1,129
3,432
4,561
5,174
6,425
(7,038)
29
(7,067)
(3,276)
7,548
3,159
1,082
354
14,212
14,566
2,857
6,789
4,920
(108)
5,028
(3,160)
$
$
$
1,196
$
(157) $
1,029
$
(10,343) $
1,868
(205) $
(1,326) $
(1,965) $
(15,662) $
296
(691)
(1,039)
(21,850)
46,172
17,152
1,196
$
(157) $
1,029
$
(10,343) $
1,868
Add: Original issue discount amortization expense (d)
Add: Income tax (benefit) expense from continuing operations
Less: Gain on extinguishment of debt related to the 2008 bond
exchange
Less: Income (loss) from discontinued operations, net of tax
336
(1,284)
—
667
962
51
—
845
1,300
104
—
741
1,143
29
—
(3,276)
Core pretax (loss) income (c)
$
(419) $
11
$
1,692
$
(5,895) $
70
(108)
11,460
(3,160)
(6,470)
(a) Total other revenue for 2008 includes $12.6 billion of gains on the extinguishment of debt, primarily related to private exchange and cash tender offers
settled during the fourth quarter.
(b) Effective June 30, 2009, we converted from a limited liability company into a corporation and, as a result, became subject to corporate U.S. federal, state,
and local taxes. Our conversion to a corporation resulted in a change in tax status and a net deferred tax liability of $1.2 billion was established through
income tax expense.
(c) Core pretax (loss) income is not a financial measure defined by accounting principles generally accepted in the United States of America (GAAP). We
define core pretax income as earnings from continuing operations before income taxes, original issue discount amortization expense primarily associated
with our 2008 bond exchange, and the gain on extinguishment of debt related to the 2008 bond exchange. We believe that the presentation of core pretax
(loss) income is useful information for the users of our financial statements in understanding the earnings from our core businesses. In addition, core
pretax (loss) income is the primary measure that management uses to assess the performance of our operations. We believe that core pretax (loss) income
is a useful alternative measure of our ongoing profitability and performance, when viewed in conjunction with GAAP measures. The presentation of this
additional information is not a substitute for net income (loss) determined in accordance with GAAP.
(d) Primarily represents original issue discount amortization expense associated with the 2008 bond exchange that was reported as a loss on extinguishment
of debt in the Consolidated Statement of Income.
25
Table of Contents
Ally Financial Inc. • Form 10-K
The following table presents selected balance sheet and ratio data.
Year ended December 31, ($ in millions)
Selected period-end balance sheet data:
Total assets
Long-term debt
Preferred stock/interests (a)
Total equity
Financial ratios
Efficiency ratio (b)
Core efficiency ratio (b)
Return on assets (c)
Net income (loss) from continuing operations
Net income (loss)
Core pretax (loss) income
Return on equity (c)
Net income (loss) from continuing operations
Net income (loss)
Core pretax (loss) income
Equity to assets (c)
Net interest spread (c)(d)
Net interest spread excluding original issue discount (c)(d)
Net yield on interest-earning assets (c)(f)
Net yield on interest-earning assets excluding original issue discount (c)(f)
Regulatory capital ratios
Tier 1 capital (to risk-weighted assets) (g)
Total risk-based capital (to risk-weighted assets) (h)
Tier 1 leverage (to adjusted quarterly average assets) (i)
Total equity
Goodwill and certain other intangibles
Unrealized gains and other adjustments
Trust preferred securities
Tier 1 capital (g)
Preferred equity
Trust preferred securities
Tier 1 common capital (non-GAAP) (j)
Risk-weighted assets (k)
Tier 1 common (to risk-weighted assets) (j)
2012
2011
2010
2009
2008
$ 182,347
$ 184,059
$
$
$
74,561
6,940
19,898
$
$
$
92,885
6,940
19,280
$
$
$
$
172,008
$ 172,306
$ 189,476
86,703
6,972
20,398
$
$
$
88,066
12,180
20,794
$ 115,935
$
$
6,287
21,854
108.70 %
101.72 %
119.18 %
95.97 %
86.91%
70.82%
140.87 %
112.64 %
46.61 %
213.76 %
0.29 %
0.65 %
(0.23)%
2.80 %
6.32 %
(2.21)%
10.30 %
1.14 %
1.46 %
1.37 %
1.62 %
13.13 %
14.07 %
11.16 %
(0.55)%
(0.09)%
0.01 %
(4.99)%
(0.78)%
0.05 %
11.10 %
0.59 %
1.43 %
0.84 %
1.56 %
13.65 %
14.69 %
11.45 %
0.16%
0.58%
0.96%
1.39%
4.98%
8.19%
11.69%
0.97%
2.21%
1.15%
2.22%
14.93%
16.30%
12.99%
(3.97)%
(5.81)%
(3.31)%
(29.14)%
(42.65)%
(24.31)%
13.63 %
0.45 %
1.84 %
1.03 %
2.08 %
14.12 %
15.52 %
12.68 %
$
19,898
$
19,280
$
20,398
$
20,794
(494)
(1,715)
2,543
20,232
(6,940)
(2,543)
(493)
(262)
2,542
21,067
(6,940)
(2,542)
(532)
(309)
2,541
22,098
(6,972)
(2,541)
(534)
(447)
2,540
22,353
(12,180)
(2,540)
$
10,749
$ 154,038
$
11,585
$ 154,319
$
$
12,585
$
7,633
147,979
$ 158,326
6.98 %
7.51 %
8.50%
4.82 %
2.65 %
0.99 %
(3.41)%
23.01 %
8.55 %
(29.61)%
11.53 %
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(e)
(a) Effective June 30, 2009, we converted from a Delaware limited liability company into a Delaware corporation. Each unit of each class of common membership interest issued
and outstanding immediately prior to the conversion was converted into an equivalent number of shares of common stock with substantially the same rights and preferences as
the common membership interests. Upon conversion, holders of our preferred membership interests also received an equivalent number of shares of preferred stock with
substantially the same rights and preferences as the former preferred membership interests.
(b) The efficiency ratio equals total other noninterest expense divided by total net revenue. The core efficiency ratio equals total other noninterest expense divided by total net
revenue excluding original issue discount amortization expense and gain on extinguishment of debt related to the 2008 bond exchange.
(c) The 2012, 2011, 2010, and 2009 ratios were computed based on average assets and average equity using a combination of monthly and daily average methodologies. The 2008
ratios have been computed based on period-end total assets and period-end total equity at December 31, 2008.
(d) Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities, excluding discontinued operations
for the periods shown.
(e) Not applicable at December 31, 2008 as we did not become a bank holding company until December 24, 2008.
(f) Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.
(g) Tier 1 capital generally consists of common equity, minority interests, qualifying noncumulative preferred stock, and the fixed rate cumulative preferred stock sold to Treasury
under TARP, less goodwill and other adjustments.
(h) Total risk-based capital is the sum of Tier 1 and Tier 2 capital. Tier 2 capital generally consists of preferred stock not qualifying as Tier 1 capital, limited amounts of
(i)
subordinated debt and the allowance for loan losses, and other adjustments. The amount of Tier 2 capital may not exceed the amount of Tier 1 capital.
Tier 1 leverage equals Tier 1 capital divided by adjusted quarterly average total assets (which reflects adjustments for disallowed goodwill and certain intangible assets). The
minimum Tier 1 leverage ratio is 3% or 4% depending on factors specified in the regulations.
(j) We define Tier 1 common as Tier 1 capital less noncommon elements, including qualifying perpetual preferred stock, minority interest in subsidiaries, trust preferred securities,
and mandatorily convertible preferred securities. Ally considers various measures when evaluating capital utilization and adequacy, including the Tier 1 common equity ratio, in
addition to capital ratios defined by banking regulators. This calculation is intended to complement the capital ratios defined by banking regulators for both absolute and
comparative purposes. Because GAAP does not include capital ratio measures, Ally believes there are no comparable GAAP financial measures to these ratios. Tier 1 common
equity is not formally defined by GAAP or codified in the federal banking regulations and, therefore, is considered to be a non-GAAP financial measure. Ally believes the Tier
1 common equity ratio is important because we believe analysts and banking regulators may assess our capital adequacy using this ratio. Additionally, presentation of this
measure allows readers to compare certain aspects of our capital adequacy on the same basis to other companies in the industry.
(k) Risk-weighted assets are defined by regulation and are determined by allocating assets and specified off-balance sheet financial instruments into several broad risk categories.
26
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operation (MD&A), as well as other
portions of this Form 10-K, may contain certain statements that constitute forward-looking statements within the meaning of the federal
securities laws. The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,”
“priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the
negatives of any of these words or similar expressions are intended to identify forward-looking statements. All statements herein, other than
statements of historical fact, including without limitation statements about future events and financial performance, are forward-looking
statements that involve certain risks and uncertainties. You should not place undue reliance on any forward-looking statement and should
consider all uncertainties and risks discussed in this report, including those under Item 1A, Risk Factors, as well as those provided in any
subsequent SEC filings. Forward-looking statements apply only as of the date they are made, and Ally undertakes no obligation to update any
forward-looking statement to reflect events or circumstances that arise after the date the forward-looking statement are made.
Overview
Ally Financial Inc. (formerly GMAC Inc.) is a leading, independent, financial services firm. Founded in 1919, we are a leading
automotive financial services company with over 90 years experience providing a broad array of financial products and services to
automotive dealers and their customers. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act
of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise
in the growing direct (internet, telephone, mobile, and mail) banking market.
Our Business
Dealer Financial Services
Our Dealer Financial Services operations offer a wide range of financial services and insurance products to almost 15,000 automotive
dealerships and approximately 4 million of their retail customers. We have deep dealer relationships that have been built over our greater-than
90-year history and our dealer-focused business model makes us a preferred automotive finance company for many automotive dealers. Our
broad set of product offerings and customer-focused marketing programs differentiate Ally in the marketplace and help drive higher product
penetration in our dealer relationships. Our ability to generate attractive automotive assets is driven by our platform and scale, strong
relationships with automotive dealers, a full suite of dealer financial products, automotive loan-servicing capabilities, dealer-based incentive
programs, and superior customer service.
Our automotive financial services include providing retail installment sales financing, loans, and leases, offering term loans to dealers,
financing dealer floorplans and other lines of credit to dealers, fleet leasing, and vehicle remarketing services. We also offer vehicle service
contracts and commercial insurance, primarily covering dealers' wholesale vehicle inventories. We are a leading provider of vehicle service
contracts, and maintenance coverages.
We have a longstanding relationship with General Motors Company (GM) and have developed strong relationships directly with GM-
franchised dealers. We are a preferred financing provider to GM and Chrysler Group LLC (Chrysler) (including Fiat) for incentivized retail
loans. Our agreements with GM and Chrysler expire on December 31, 2013 and April 30, 2013, respectively. Ally currently competes in the
marketplace for all other parts of the business with GM and Chrysler dealers including wholesale financing, standard rate consumer financing,
and leasing. Ally expects to continue to play a significant role with GM and Chrysler dealers in the future as the dealer is Ally’s direct
customer for the majority of business that is conducted.
We have further diversified our customer base by establishing agreements to become preferred financing providers with other vehicle
manufacturers including, Thor Industries, Maserati, The Vehicle Production Group LLC, Forest River, and Mitsubishi Motors. During 2010
our primary emphasis was on originating loans of higher credit tier borrowers. For this reason, our current operating results continue to reflect
higher credit quality, lower yielding loans with lower credit loss experience. Ally however seeks to be a meaningful lender to a wide spectrum
of borrowers. In 2010 we enhanced our risk management practices and efforts on risk-based pricing. We have gradually increased volumes in
lower credit tiers in 2011 and 2012. We plan to continue to increase the proportion of our non-GM and Chrysler business, as we focus on
maintaining and growing our dealer-customer base through our full suite of products, our dealer relationships, the scale of our platform, and
our dealer-based incentive programs.
Our Insurance operations offer both consumer finance and insurance products sold primarily through the automotive dealer channel, and
commercial insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer finance and insurance
products, we provide vehicle service contracts, maintenance coverage, and Guaranteed Automobile Protection (GAP) products. We also
underwrite selected commercial insurance coverage, which primarily insures dealers' wholesale vehicle inventory in the United States.
Change in Reportable Segments
During the fourth quarter of 2012, we announced that we had reached agreements to sell substantially all of our International operations.
As a result, beginning in the fourth quarter of 2012, we are presenting our continuing Automotive Finance activities under one reportable
operating segment, Automotive Finance operations. Previously our Automotive Finance operations were presented as two reportable
operating segments, North American Automotive Finance operations and International Automotive Finance operations.
27
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Mortgage
The principal ongoing Mortgage operations are conducted through Ally Bank. We intend to continue to originate a modest level of jumbo
and conventional conforming residential mortgages for our own portfolio through a select group of correspondent lenders. Our Mortgage
operations also consist of noncore business activities including portfolios in run-off.
On October 26, 2012, we announced that Ally Bank had begun to explore strategic alternatives for its agency mortgage servicing rights
portfolio and its business lending operations. On February 28, 2013, we sold our business lending operations to Walter Investment
Management Corp. The majority of Ally Bank’s serviced mortgage assets are subserviced by GMAC Mortgage, LLC (GMACM), a subsidiary
of ResCap, pursuant to a servicing agreement. Additionally, in July 2012, we announced our intention to shut down our U.S. Warehouse
Lending business and, as of December 31, 2012, we successfully managed receivables down to $0 with no commitments outstanding. Our
intent is to significantly reduce or eliminate our mortgage-related activities with respect to the origination of conforming mortgage loans with
the intent to sell into securitizations sponsored by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac), or Government National Mortgage Association (Ginnie Mae) (collectively, the Government-sponsored
Enterprises, or GSEs), the retention of mortgage servicing rights, and the extension of credit to third-party mortgage originators (warehouse
lending).
Residential Capital, LLC (ResCap) and certain of its wholly-owned subsidiaries (collectively, the Debtors), filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York on May 14,
2012. Refer to Note 1 to the Consolidated Financial Statements for further information regarding the Debtors' Bankruptcy and the
deconsolidation of ResCap.
Subsequent to the bankruptcy filing, ResCap announced the sale of certain assets to third parties. Upon the closing of those sales, we do
not expect ResCap to continue to broker loans to us. This will primarily impact the production of loans within the Direct Lending channel,
which are currently sourced exclusively from ResCap.
As the actions discussed continue to progress, we expect the level of loan production and mortgage-related assets (with the exception of
mortgage loans held for investment), as well as the income before income tax expense from Mortgage operations, to decline.
Change in Reportable Segments
On May 14, 2012, the Debtors filed for relief under Chapter 11 of the Bankruptcy Code in the United States. As a result of the
bankruptcy filing, ResCap was deconsolidated from our financial statements; and beginning in the second quarter of 2012, we began
presenting our mortgage business activities under one reportable operating segment, Mortgage operations. Previously our Mortgage
operations had been presented as two reportable operating segments, Origination and Servicing operations and Legacy Portfolio and Other
operations. The new presentation is consistent with the organizational alignment of the business and management's current view of the
mortgage business.
Corporate and Other
Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate
investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of
the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also
includes our Commercial Finance Group, certain equity investments, reclassifications and eliminations between the reportable operating
segments, and overhead that was previously allocated to operations that have since been sold or classified as discontinued operations. Our
Commercial Finance Group provides senior secured commercial-lending products to primarily U.S.-based middle market companies.
The net financing revenue of our Automotive Finance and Mortgage operations includes the results of an FTP process that insulates these
operations from interest rate volatility by matching assets and liabilities with similar interest rate sensitivity and maturity characteristics. The
FTP process assigns charge rates to the assets and credit rates to the liabilities within our Automotive Finance and Mortgage operations,
respectively, based on anticipated maturity and a benchmark index plus an assumed credit spread. The assumed credit spread represents the
cost of funds for each asset class based on a blend of funding channels available to the enterprise, including unsecured and secured capital
markets, private funding facilities, and deposits. In addition, a risk-based methodology, which incorporates each operations credit, market, and
operational risk components is used to allocate equity to these operations.
Change in Reportable Segments
During the fourth quarter of 2012, we began to allocate expenses associated with certain deposit gathering activities and other additional
costs of holding liquidity to our Automotive Finance and Mortgage operations. These expenses were previously included within our Corporate
and Other activities. Additionally, we began to include overhead that was previously allocated to operations that have since been sold or
moved into discontinued operations within our Corporate and Other activities.
Ally Bank
Ally Bank, our direct banking platform, provides us with a stable and diversified low-cost funding source. Our focus is on building a
stable deposit base driven by our compelling brand and strong value proposition. Ally Bank raises deposits directly from customers through
direct banking via the internet, telephone, mobile, and mail channels. Ally Bank has established a strong and growing retail banking franchise
28
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
which is based on a promise of being straightforward, easy to use, and offering high-quality customer service. Ally Bank's products and
services are designed to develop long-term customer relationships and capitalize on the shift in consumer preference for direct banking.
Ally Bank offers a full spectrum of deposit product offerings, such as checking, savings, and certificates of deposit (CDs), as well as 48-
month raise your rate CDs, IRA deposit products, Popmoney person-to-person transfer service, eCheck remote deposit capture, Ally Perks
debit rewards program, and Mobile Banking. In addition, brokered deposits are obtained through third-party intermediaries. At December 31,
2012, Ally Bank had $46.9 billion of deposits, including $35.0 billion of retail deposits. The growth of our retail base from $7.2 billion at the
end of 2008 to $35.0 billion at December 31, 2012, has enabled us to reduce our cost of funds during that period. The growth in deposits is
primarily attributable to our retail deposits while our brokered deposits have remained at historical levels. Strong retention rates, reflecting the
strength of the franchise, have materially contributed to our growth in retail deposits.
Funding and Liquidity
Our funding strategy largely focuses on the development of diversified funding sources which we manage across products, programs,
markets, and investor groups. We fund our assets primarily with a mix of retail and brokered deposits, public and private asset-backed
securitizations, asset sales, committed and uncommitted credit facilities and public unsecured debt.
The diversity of our funding sources enhances funding flexibility, limits dependence on any one source and results in a more cost-
effective funding strategy over the long term. Throughout 2008 and 2009, the global credit markets experienced extraordinary levels of
volatility and stress. As a result, access by market participants, including Ally, to the capital markets was significantly constrained and
borrowing costs increased. In response, numerous government programs were established aimed at improving the liquidity position of U.S.
financial services firms. After converting to a bank holding company in late 2008, we participated in several of the programs, including
Temporary Liquidity Guaranty Program (TLGP), Term Auction Facility, and Term Asset-Backed Securities Loan Facility. Our diversification
strategy and participation in these programs helped us to maintain sufficient liquidity during this period of financial distress to meet all
maturing unsecured debt obligations and to continue our lending and operating activities. During 2012, we repaid the TLGP debt and the
other programs were discontinued prior to 2012.
As part of our overall transformation from an independent financial services company to a bank holding company, we took actions to
further diversify and develop more stable funding sources and, in particular, embarked upon initiatives to grow our consumer deposit-taking
capabilities within Ally Bank. In addition, we began distinguishing our liquidity management strategies between bank funding and nonbank
funding.
Maximizing bank funding continues to be the cornerstone of our long-term liquidity strategy. We have made significant progress in
migrating assets to Ally Bank and growing our retail deposit base since becoming a bank holding company. Retail deposits provide a low-cost
source of funds that are less sensitive to interest rate changes, market volatility or changes in our credit ratings than other funding sources. At
December 31, 2012, deposit liabilities totaled $47.9 billion, which constituted 37% of our total funding. This compares to just 14% at
December 31, 2008.
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance Ally Bank's automotive
loan portfolios. During 2012, we issued $11.8 billion in secured funding backed by retail automotive loans and leases as well as dealer
floorplan automotive loans of Ally Bank. Continued structural efficiencies in securitizations combined with improving capital market
conditions have resulted in a reduction in the cost of funds achieved through secured funding transactions, making them a very attractive
source of funding. Additionally, for retail loans and leases, the term structure of the transaction locks in funding for a specified pool of loans
and leases for the life of the underlying asset. Once a pool of retail automobile loans are selected and placed into a securitization, the
underlying assets and corresponding debt amortize simultaneously resulting in committed and matched funding for the life of the asset. We
manage the execution risk arising from secured funding by maintaining a diverse investor base and maintaining committed secured facilities.
As we have shifted our focus to migrating assets to Ally Bank and growing our bank funding capabilities, our reliance on parent
company liquidity has consequently been reduced. Funding sources at the parent company generally consist of longer-term unsecured debt,
private credit facilities, and asset-backed securitizations. In 2012, we issued over $3.6 billion of unsecured debt globally through several
issuances. At December 31, 2012, we had $1.3 billion and $5.6 billion of outstanding unsecured long-term debt with maturities in 2013 and
2014, respectively. To fund these maturities, we expect to use existing pre-issued liquidity combined with maintaining an opportunistic
approach to new issuance.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at the
parent company was $15.6 billion and Ally Bank had $13.2 billion of available liquidity at December 31, 2012. Parent company liquidity is
defined as our consolidated operations less Ally Bank and the subsidiaries of Ally Insurance's holding company. At the same time, these
strategies have also resulted in a cost of funds improvement of approximately 95 basis points since the first quarter of 2011. Looking forward,
given our enhanced liquidity and capital position and generally improved credit ratings, we expect that our cost of funds will continue to
improve over time.
Credit Strategy
We are a full spectrum automotive finance lender with most of our automotive loan originations underwritten within the prime-lending
markets as we continue to prudently expand in nonprime markets. During 2012, we continued to recognize improvement in our credit risk
profile as a result of proactive credit risk initiatives that were taken in 2009 and 2010 and modest improvement in the overall economic
29
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
environment. Additionally, we discontinued certain nonstrategic operations, mainly in our international businesses. Within our Automotive
Finance operations, we exited certain underperforming dealer relationships. Within our Mortgage operations, we have taken action with the
intent to significantly reduce or eliminate our mortgage-related activities with respect to the origination of conforming mortgage loans with
the intent to sell into GSE-sponsored securitizations, the retention of mortgage servicing rights, and the extension of credit to third-party
mortgage originators (warehouse lending). We intend to continue to originate a modest level of high-quality non-conforming mortgages that
exceed GSE limits (jumbo mortgages) for retention as mortgage loans held for investment.
During the year ended December 31, 2012, the credit performance of our portfolios remained strong overall as our asset quality trends
within our automotive and mortgage portfolios were stable. Nonperforming loans continued to decline, benefiting from the deconsolidation of
ResCap. Charge-offs also declined primarily due to recoveries in the commercial portfolio. Our provision for loan losses increased to $329
million in 2012 from $188 million in 2011 due to higher asset levels in the consumer and commercial automotive portfolios and our prudent
expansion of underwriting strategy to originate volumes across a broader credit spectrum, which was significantly narrowed during the
recession.
We continue to see signs of economic stabilization in the housing and vehicle markets, although our total credit portfolio will continue to
be affected by sustained levels of high unemployment and continued uncertainty in the housing market.
Bank Holding Company and Treasury's Investments
During 2008, and continuing into 2009, the credit, capital, and mortgage markets became increasingly disrupted. This disruption led to
severe reductions in liquidity and adversely affected our capital position. As a result, Ally sought approval to become a bank holding company
to obtain access to capital at a lower cost to remain competitive in our markets. On December 24, 2008, Ally and IB Finance Holding
Company, LLC, the holding company of Ally Bank, were each approved as bank holding companies under the Bank Holding Company Act of
1956. At the same time, Ally Bank converted from a Utah-chartered industrial bank into a Utah-chartered commercial nonmember bank. Ally
Bank as an FDIC-insured depository institution, is subject to the supervision and examination of the Federal Deposit Insurance Corporation
(FDIC) and the Utah Department of Financial Institutions (UDFI). Ally Financial Inc. is subject to the supervision and examination of the
Board of Governors of the Federal Reserve System (FRB). We are required to comply with regulatory risk-based and leverage capital
requirements, as well as various safety and soundness standards established by the FRB, and are subject to certain statutory restrictions
concerning the types of assets or securities that we may own and the activities in which we may engage.
As one of the conditions to becoming a bank holding company, the FRB required several actions of Ally, including meeting a minimum
amount of regulatory capital. In order to meet this requirement, Ally took several actions, the most significant of which were the execution of
private debt exchanges and cash tender offers to purchase and/or exchange certain of our and our subsidiaries outstanding notes held by
eligible holders for a combination of cash, newly issued notes of Ally, and in the case of certain of the offers, preferred stock. The transactions
resulted in an extinguishment of all notes tendered or exchanged into the offers and the new notes and stock were recorded at fair value on the
issue date. This resulted in a pretax gain on extinguishment of debt of $11.5 billion in 2008 and a corresponding increase to our capital levels.
The gain included a $5.4 billion original issue discount representing the difference between the face value and the fair value of the new notes
and is being amortized as interest expense over the term of the new notes. In addition, the U.S. Department of Treasury (Treasury) made an
initial investment in Ally on December 29, 2008, pursuant to the Troubled Asset Relief Program (TARP) with a $5.0 billion purchase of Ally
perpetual preferred stock with a total liquidation preference of $5.25 billion (Perpetual Preferred Stock).
On May 21, 2009, Treasury made a second investment of $7.5 billion in exchange for Ally's mandatorily convertible preferred stock with
a total liquidation preference of approximately $7.9 billion (Old MCP), which included a $4 billion investment to support our agreement with
Chrysler to provide automotive financing to Chrysler dealers and customers and a $3.5 billion investment related to the FRB's Supervisory
Capital Assessment Program requirements. Shortly after this second investment, on May 29, 2009, Treasury acquired 35.36% of Ally
common stock when it exercised its right to acquire 190,921 shares of Ally common stock from GM as repayment for an $884 million loan
that Treasury had previously provided to GM.
On December 30, 2009, we entered into another series of transactions with Treasury under TARP, pursuant to which Treasury
(i) converted 60 million shares of Old MCP (with a total liquidation preference of $3.0 billion) into 259,200 shares of additional Ally common
stock; (ii) invested $1.25 billion in new Ally mandatorily convertible preferred stock with a total liquidation preference of approximately $1.3
billion (the New MCP); and (iii) invested $2.54 billion in new trust preferred securities with a total liquidation preference of approximately
$2.7 billion (Trust Preferred Securities). At this time, Treasury also exchanged all of its Perpetual Preferred Stock and remaining Old MCP
(following the conversion of Old MCP described above) into additional New MCP.
On December 30, 2010, Treasury converted 110 million shares of New MCP (with a total liquidation preference of approximately $5.5
billion) into 531,850 shares of additional Ally common stock. The conversion reduces dividends by approximately $500 million per year,
assists with capital preservation, and is expected to improve profitability with a lower cost of funds.
On March 1, 2011, the Declaration of Trust and certain other documents related to the Trust Preferred Securities were amended, and all
of the outstanding Trust Preferred Securities held by Treasury were designated 8.125% Fixed Rate/Floating Rate Trust Preferred Securities,
Series 2. On March 7, 2011, Treasury sold 100% of the Series 2 Trust Preferred Securities in an offering registered with the SEC. Ally did not
receive any proceeds from the sale.
30
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Following the transactions described above, Treasury currently holds 73.78% of Ally common stock and approximately $5.9 billion in
New MCP. As a result of its current common stock investment, Treasury is entitled to appoint six of the eleven total members of the Ally
Board of Directors.
The following table summarizes the investments in Ally made by Treasury in 2008 and 2009.
Investment type
Date
Cash
investment
Warrants
Total
Preferred equity
December 29, 2008
$
5,000
$
250
$
($ in millions)
TARP
SCAP 1
SCAP 2
SCAP 2
GM Loan Conversion (a)
Common equity
Preferred equity (MCP)
Preferred equity (MCP)
December 30, 2009
Trust preferred securities
December 30, 2009
May 21, 2009
May 21, 2009
884
7,500
1,250
2,540
5,250
884
7,875
1,313
2,667
—
375
63
127
815
Total cash investments
$
17,174
$
$
17,989
(a)
In January 2009, Treasury loaned $884 million to General Motors. In connection with that loan, Treasury acquired rights to exchange that loan for
190,921 shares. In May 2009, Treasury exercised that right.
The following table summarizes Treasury's investment in Ally at December 31, 2012.
December 31, 2012 ($ in millions)
MCP (a)
Common equity (b)
Book Value
Face Value
$
5,685
$
5,938
73.78%
(a) Reflects the exchange of face value of $5.25 billion of Perpetual Preferred Stock to MCP in December 2009 and the conversion of face value of $3.0
billion and $5.5 billion of MCP to common equity in December 2009 and December 2010, respectively.
(b) Represents the current common equity ownership position by Treasury.
Discontinued Operations
During 2012, 2011, and 2010, we committed to dispose certain operations of our Automotive Finance operations, Insurance operations,
Mortgage operations, and Commercial Finance Group, and have classified these operations as discontinued. For all periods presented, all of
the operating results for these operations have been removed from continuing operations. Refer to Note 2 to the Consolidated Financial
Statements for more details. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.
Sales transactions for our Automotive Finance operations are expected to close in stages throughout 2013. It is anticipated that there
could be significant gains or losses occurring during interim periods of 2013 as the various stages close. We believe that when all of the
various stages are closed, we will realize a gain on the sale of our Automotive Finance discontinued operations.
31
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Primary Lines of Business
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, and Mortgage are our primary lines of
business. The following table summarizes the operating results excluding discontinued operations of each line of business. Operating results
for each of the lines of business are more fully described in the MD&A sections that follow.
Favorable/
(unfavorable)
2012-2011
% change
Favorable/
(unfavorable)
2011-2010
% change
7
(13)
51
20
23
4
(49)
n/m
(51)
21
(14)
(22)
(55)
26
(30)
(24)
(43)
(181)
27
n/m
Year ended December 31, ($ in millions)
2012
2011
2010
Total net revenue (loss)
Dealer Financial Services
Automotive Finance operations
$
3,149
$
2,952
$
Insurance operations
Mortgage operations
Corporate and Other
Total
1,214
1,768
1,398
1,171
3,421
1,801
2,587
(1,233)
(1,543)
(2,087)
$
4,898
$
3,978
$
5,722
Income (loss) from continuing operations before income tax
(benefit) expense
Dealer Financial Services
Automotive Finance operations
$
1,389
$
1,333
$
1,757
Insurance operations
Mortgage operations
Corporate and Other
Total
n/m = not meaningful
160
689
316
(622)
557
772
(2,993)
(1,978)
(2,694)
$
(755) $
(951) $
392
32
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Consolidated Results of Operations
The following table summarizes our consolidated operating results excluding discontinued operations for the periods shown. Refer to the
operating segment sections of the MD&A that follows for a more complete discussion of operating results by line of business.
Year ended December 31, ($ in millions)
2012
2011
2010
Favorable/
(unfavorable)
2012-2011
% change
Favorable/
(unfavorable)
2011-2010
% change
Net financing revenue
Total financing revenue and other interest income
$
7,468
$
7,061
$
Interest expense
Depreciation expense on operating lease assets
Net financing revenue
Other revenue
Net servicing income
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Loss on extinguishment of debt
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
4,200
1,399
1,869
693
1,059
532
(148)
146
747
3,029
4,898
329
1,365
461
3,498
5,324
5,039
941
1,081
569
1,170
470
(64)
259
493
2,897
3,978
188
1,322
483
2,936
4,741
(Loss) income from continuing operations before income tax
(benefit) expense
Income tax (benefit) expense from continuing operations
(755)
(1,284)
(951)
51
Net income (loss) from continuing operations
$
529
$
(1,002) $
n/m = not meaningful
2012 Compared to 2011
8,017
5,460
1,251
1,306
1,094
1,371
1,239
(124)
502
334
4,416
5,722
357
1,348
547
3,078
4,973
392
104
288
6
17
(49)
73
22
(9)
13
(131)
(44)
52
5
23
(75)
(3)
5
(19)
(12)
21
n/m
153
(12)
8
25
(17)
(48)
(15)
(62)
48
(48)
48
(34)
(30)
47
2
12
5
5
n/m
51
n/m
We earned net income from continuing operations of $529 million for the year ended December 31, 2012, compared to a net loss from
continuing operations of $1.0 billion for the year ended December 31, 2011. Net income from continuing operations for the year ended
December 31, 2012, was favorably impacted by our Automotive Finance operations, primarily due to an increase in consumer automotive
financing revenue related to growth in the retail loan and operating lease portfolios. Additional favorability for the year ended December 31,
2012 was primarily the result of a more favorable servicing asset valuation, net of hedge, compared to the same period in 2011, higher fee
income and net origination revenue related to increased consumer mortgage-lending production associated with government-sponsored
refinancing programs, higher net gains on the sale of mortgage loans, and lower original issue discount (OID) amortization expense related to
bond maturities and normal monthly amortization. The increase was partially offset by a $1.2 billion charge related to the Debtors' Chapter 11
filing, higher provision for loan losses, and lower investment income due to impairment related to certain investment securities that we do not
plan on holding to recovery.
Total financing revenue and other interest income increased $407 million for the year ended December 31, 2012, compared to 2011. The
increase resulted primarily from an increase in operating lease revenue and consumer financing revenue at our Automotive Finance operations
driven primarily by an increase in consumer asset levels as a result of increased used vehicle automotive financing and higher automotive
industry sales, as well as limited use of whole-loan sales as a funding source in recent periods. Additionally, we continue to prudently expand
our nonprime origination volume. The increase was partially offset by the deconsolidation of ResCap effective May 14, 2012, which primarily
impacted our Mortgage operations, as well as a lower average yield mix as higher rate Ally Bank mortgage loans run off.
Interest expense decreased 17% for the year ended December 31, 2012, compared to 2011. OID amortization expense decreased $576
million for the year ended December 31, 2012, compared to 2011, due to bond maturities and normal monthly amortization. Additionally,
interest expense decreased at our Mortgage operations due to the deconsolidation of ResCap and lower funding costs.
33
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Depreciation expense on operating lease assets increased 49% for the year ended December 31, 2012, compared to 2011, primarily due
to higher lease asset balances as a result of strong lease origination volume and lower lease remarketing gains primarily due to lower lease
remarketing volume. During the latter half of 2009, we re-entered the U.S. leasing market with targeted lease product offerings and have
continued to expand lease volume since that time.
Net servicing income was $693 million for the year ended December 31, 2012, compared to $569 million in 2011. The increase was
primarily due to the performance of the derivative servicing hedge as compared to a less favorable hedge performance in 2011, partially offset
by lower servicing fees due to the deconsolidation of ResCap.
Insurance premiums and service revenue earned decreased 9% for the year ended December 31, 2012, compared to 2011, primarily due
to declining U.S. vehicle service contracts written between 2007 and 2009 as a result of lower domestic vehicle sales volume.
Gain on mortgage and automotive loans increased 13% for the year ended December 31, 2012, compared to 2011. Though we
deconsolidated ResCap during the second quarter of 2012, the increase was primarily due to higher consumer mortgage-lending production
through our direct lending channel and margins associated with government-sponsored refinancing programs, higher margins on warehouse
and correspondent lending due to decreased competition and more selective originations from these channels, and improved gains on
specified pooled mortgage loans.
Loss on extinguishment of debt increased $84 million for the year ended December 31, 2012, compared to the same period in 2011,
primarily due to fees incurred related to the early termination of FHLB debt as a result of replacing our higher-cost long-term debt structure in
favor of a lower-cost short-term FHLB debt structure.
Other gain on investments, net, was $146 million for the year ended December 31, 2012, compared to $259 million in 2011. The
decrease was primarily due to the recognition of $61 million other-than-temporary impairment on certain equity securities in 2012 and lower
realized investment gains.
Other income, net of losses, increased 52% for the year ended December 31, 2012, compared to 2011. The increase was primarily due to
higher fee income and net origination revenue related to increased consumer mortgage-lending production associated with government-
sponsored refinancing programs and a decrease in fair value option election valuation losses related to the deconsolidation of ResCap,
partially offset by lower remarketing fee income from our Automotive Finance operations driven by lower remarketing volumes through our
proprietary SmartAuction platform.
The provision for loan losses was $329 million for the year ended December 31, 2012, compared to $188 million in 2011. The increase
was driven primarily by higher asset levels in the consumer automotive portfolio and our prudent expansion of underwriting strategy to
originate volumes across a broader credit spectrum, which was significantly narrowed during the recession.
Other operating expenses increased 19% for the year ended December 31, 2012, compared to 2011. The increase was primarily due to a
$1.2 billion charge related to ResCap's Chapter 11 filing (refer to Note 1 for more information regarding the Debtors' bankruptcy,
deconsolidation, and this charge), a $90 million expense related to penalties imposed by certain regulators and other governmental agencies in
connection with mortgage foreclosure-related matters during the second quarter of 2012, and higher professional services expense, partially
offset by lower mortgage representation and warranty expense related to the deconsolidation of ResCap.
We recognized consolidated income tax benefit from continuing operations of $1.3 billion for the year ended December 31, 2012,
compared to income tax expense of $51 million in 2011. In 2011, we had a full valuation allowance against our domestic net deferred tax
assets and certain international net deferred tax assets. For the year ended December 31, 2012, our results from operations benefited $1.3
billion from the release of U.S. federal and state valuation allowances and related effects on the basis of management's reassessment of the
amount of its deferred tax assets that are more likely than not to be realized. Refer to Note 23 to the Consolidated Financial Statements for
further information.
2011 Compared to 2010
We incurred a net loss from continuing operations of $1.0 billion for the year ended December 31, 2011, compared to net income from
continuing operations of $288 million for the year ended December 31, 2010. Continuing operations for the year ended December 31, 2011,
were unfavorably impacted by a decrease in net servicing income due to a drop in interest rates and increased market volatility, lower gains on
the sale of loans, and a $230 million expense related to penalties imposed by certain regulators and other governmental agencies in connection
with mortgage foreclosure-related matters. Partially offsetting these decreases were lower representation and warranty expense and provision
for loan losses.
Total financing revenue and other interest income decreased by 12% for the year ended December 31, 2011, compared to 2010.
Operating lease revenue and the related depreciation expense at our Automotive Finance operations declined due to a lower average operating
lease portfolio balance as a result of our decision in late 2008 to significantly curtail leasing. Depreciation expense was also impacted by
lower lease remarketing gains resulting from lower lease termination volumes. The decrease in our Mortgage operations resulted from a
decline in average asset levels due to loan sales, the deconsolidation of previously on-balance sheet securitizations, and portfolio runoff.
Partially offsetting the decrease was an increase in consumer financing revenue at our Automotive Finance operations driven primarily by an
increase in consumer asset levels related to strong loan origination volume during 2010 and 2011 resulting primarily from higher automotive
industry sales, increased used vehicle financing volume, and higher on-balance sheet retention.
34
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Interest expense decreased 8% for the year ended December 31, 2011, compared to 2010, primarily as a result of a change in our funding
mix with an increased amount of funding coming from deposit liabilities as well as favorable trends in the securitization markets.
Net servicing income was $569 million for the year ended December 31, 2011, compared to $1.1 billion in 2010. The decrease was
primarily due to a decrease in interest rates and increased market volatility compared to favorable valuation adjustments in 2010.
Additionally, 2011 includes a valuation adjustment that estimates the impact of higher servicing costs related to enhanced foreclosure
procedures, establishment of single point of contact, and other processes to comply with a consent order (the Consent Order) with the FRB
and the FDIC entered into on April 13, 2011.
Insurance premiums and service revenue earned decreased 15% for the year ended December 31, 2011, compared to 2010. The decrease
was primarily driven by the sale of certain international insurance operations during the fourth quarter of 2010 and lower earnings from our
U.S. vehicle service contracts written between 2007 and 2009 due to lower domestic vehicle sales volume.
Gain on mortgage and automotive loans decreased 62% for the year ended December 31, 2011, compared to 2010. The decrease was
primarily due to lower margins on mortgage loan sales, a decrease in mortgage loan production, lower whole-loan mortgage sales and
mortgage loan resolutions in 2011, the absence of the 2010 gain on the deconsolidation of an on-balance sheet securitization, and the
expiration of our automotive forward flow agreements during the fourth quarter of 2010.
We incurred a loss on extinguishment of debt of $64 million for the year ended December 31, 2011, compared to a loss of $124 million
for the year ended December 31, 2010. The activity in all periods related to the extinguishment of certain Ally debt, which included $50
million of accelerated amortization of original issue discount for 2011, compared to $101 million in 2010.
Other gain on investments was $259 million for the year ended December 31, 2011, compared to $502 million in 2010. The decrease was
primarily due to lower realized investment gains on our Insurance operations investment portfolio.
Other income, net of losses, increased 48% for the year ended December 31, 2011, compared to 2010. The increase during 2011 was
primarily due to the positive impact of a $121 million gain on the early settlement of a loss holdback provision related to certain historical
automotive whole-loan forward flow agreements and a favorable change in the fair value option election adjustment.
The provision for loan losses was $188 million for the year ended December 31, 2011, compared to $357 million in 2010. The decrease
during 2011 reflected improved credit quality of the overall portfolio as a result of the decision to curtail nonprime lending in 2009 and the
continued runoff and improved loss performance of our Nuvell nonprime automotive financing portfolio.
Insurance losses and loss adjustment expenses decreased 12% for the year ended December 31, 2011, compared to 2010. The decrease
was primarily due to lower frequency and severity experienced in our U.S. vehicle service contract business and the sale of certain
international insurance operations during the fourth quarter of 2010, which was partially offset by higher weather-related losses in the United
States on our dealer inventory insurance products.
Other operating expenses decreased 5% for the year ended December 31, 2011, compared to 2010. The decrease was primarily related to
a decrease of $346 million in mortgage representation and warranty reserve expense, lower insurance commissions expense, and lower
vehicle remarketing and repossession expense. The decrease was partially offset by a $230 million expense related to penalties imposed by
certain regulators and other governmental agencies in connection with mortgage foreclosure-related matters.
We recognized consolidated income tax expense of $51 million for the year ended December 31, 2011, compared to $104 million in
2010. For those respective periods, we had a full valuation allowance against our domestic net deferred tax assets and certain international net
deferred tax assets. Accordingly, tax expense was driven by U.S. state income taxes in states where profitable subsidiaries are required to file
separately from other loss companies in the group or where the use of prior losses is restricted, and foreign income taxes on pretax profits
within foreign jurisdictions. The decrease in income tax expense for 2011, compared to 2010, was driven by increased foreign pretax losses.
35
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance
operations.
Automotive Finance Operations
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations excluding discontinued operations for the
periods shown. Automotive Finance operations include the automotive activities of Ally Bank. The amounts presented are before the
elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
2012
2011
2010
Favorable/
(unfavorable)
2012-2011
% change
Favorable/
(unfavorable)
2011-2010
% change
Net financing revenue
Consumer
Commercial
Loans held-for-sale
Operating leases
Other interest income
Total financing revenue and other interest income
Interest expense
Depreciation expense on operating lease assets
Net financing revenue
Other revenue
Servicing fees
Gain on automotive loans, net
Other income
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Other operating expenses
Total noninterest expense
$
2,827
$
2,411
$
1,152
15
2,379
52
6,425
2,199
1,399
2,827
109
41
172
322
3,149
253
416
1,091
1,507
1,134
5
1,929
92
5,571
2,100
941
2,530
161
48
213
422
2,952
89
395
1,135
1,530
Income before income tax expense
$
1,389
$
1,333
$
1,953
1,210
112
2,579
109
5,963
2,011
1,255
2,697
227
248
249
724
3,421
260
352
1,052
1,404
1,757
Total assets
n/m = not meaningful
2012 compared to 2011
$ 128,411
$ 112,591
$ 97,961
17
2
n/m
23
(43)
15
(5)
(49)
12
(32)
(15)
(19)
(24)
7
(184)
(5)
4
2
4
14
23
(6)
(96)
(25)
(16)
(7)
(4)
25
(6)
(29)
(81)
(14)
(42)
(14)
66
(12)
(8)
(9)
(24)
15
Our Automotive Finance operations earned income before income tax expense of $1.4 billion for the year ended December 31, 2012,
compared to $1.3 billion for the year ended December 31, 2011. Results for the year ended December 31, 2012 were favorably impacted by
higher consumer and operating lease revenues driven by growth in the retail loan and operating lease portfolios. These items were partially
offset by higher provision for loan losses, lower operating lease remarketing gains due primarily to lower remarketing volume, lower
servicing fees, and lower income generated from lease remarketing.
Consumer financing revenue increased 17% for the year ended December 31, 2012, compared to 2011, due to an increase in consumer
asset levels driven by limited use of whole-loan sales as a funding source in recent periods, increased volumes of used vehicle automotive
financing, and higher automotive industry sales; however, our GM and Chrysler penetration levels for new retail automotive loans were lower
than those in 2011. Additionally, we continue to prudently expand our nonprime origination volume. The increase in consumer revenue from
volume was partially offset by lower yields as a result of the competitive market environment for automotive financing.
Commercial financing revenue increased $18 million for the year ended December 31, 2012, compared to 2011. The increase was
primarily driven by higher commercial loan balances due to growth in our wholesale dealer floorplan lending and dealer loan portfolio,
partially offset by lower yields as a result of competitive markets for automotive commercial financing.
36
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Operating lease revenue increased 23% for the year ended December 31, 2012, compared to 2011, primarily due to higher lease asset
balances as a result of strong origination volume.
Interest expense increased $99 million for the year ended December 31, 2012, compared to 2011. The increase was primarily due to
higher levels of earning assets, primarily as a result of growth in the retail loan and lease portfolios.
Depreciation expense on operating lease assets increased 49% for the year ended December 31, 2012, compared to 2011, primarily due
to higher lease asset balances as a result of strong lease origination volume and lower lease remarketing gains primarily due to lower lease
remarketing volume.
Servicing fee income decreased 32% for the year ended December 31, 2012, compared to 2011, due to lower levels of off-balance sheet
retail serviced assets.
Gains on the sale of automotive loans were $41 million for the year ended December 31, 2012, compared to $48 million for 2011. We
sold approximately $2.5 billion of retail automotive loans during 2012 compared to approximately $2.8 billion during 2011. While we
continue to opportunistically utilize whole-loan sales as a source of funding, we have primarily focused on securitization and deposit-based
funding sources.
Other income decreased 19% for the year ended December 31, 2012, compared to 2011, primarily due to lower remarketing fee income
driven by lower remarketing volumes through our proprietary SmartAuction platform.
The provision for loan losses was $253 million for the year ended December 31, 2012, compared to $89 million in 2011. The increase
was primarily due to continued growth in the consumer portfolio and our prudent expansion of underwriting strategy to originate volumes
across a broader credit spectrum, which was significantly narrowed during the recession.
2011 Compared to 2010
Our Automotive Finance operations earned income before income tax expense of $1.3 billion for the year ended December 31, 2011,
compared to $1.8 billion for the year ended December 31, 2010. Results for the year ended December 31, 2011, were primarily driven by less
favorable remarketing results in our operating lease portfolio due primarily to lower lease terminations and the absence of gains on the sale of
automotive loans due to the expiration of our forward flow agreements during the fourth quarter of 2010. These declines were partially offset
by increased consumer financing revenue driven by strong loan origination volume related primarily to improvement in automotive industry
sales, the growth in used vehicle financing volume, and a lower loan loss provision due to an improved credit mix and improved consumer
credit performance.
Consumer financing revenue increased 23% for the year ended December 31, 2011, compared to 2010, due to an increase in consumer
asset levels primarily related to strong loan origination volume during 2010 and 2011 resulting primarily from higher automotive industry
sales, increased used vehicle financing volume, and higher on-balance sheet retention. Additionally, we continue to prudently expand our
nonprime origination volume and introduce innovative finance products to the marketplace. The increase in consumer revenue was partially
offset by lower yields as a result of an increasingly competitive market environment and a change in the consumer asset mix, including the
runoff of the higher-yielding Nuvell nonprime automotive financing portfolio.
Loans held-for-sale financing revenue decreased $107 million for the year ended December 31, 2011, compared to 2010, due to the
expiration of whole-loan forward flow agreements during the fourth quarter of 2010. Subsequent to the expiration of these agreements,
consumer loan originations have largely been retained on-balance sheet utilizing deposit funding from Ally Bank and on-balance sheet
securitization transactions.
Operating lease revenue decreased 25% for the year ended December 31, 2011, compared to 2010. Operating lease revenue and
depreciation expense declined due to a lower average operating lease portfolio balance. Depreciation expense was also impacted by lower
remarketing gains due primarily to a decline in lease termination volume. In 2008 and 2009, we significantly curtailed our lease product
offerings in the United States. During the latter half of 2009, we re-entered the U.S. leasing market with targeted lease product offerings and
have continued to expand lease volume since that time.
Servicing fee income decreased $66 million for the year ended December 31, 2011, compared to 2010, due to lower levels of off-balance
sheet retail serviced assets driven by a reduction of new whole-loan sales subsequent to the expiration of our forward flow agreements in the
fourth quarter of 2010.
Net gain on automotive loans decreased $200 million for the year ended December 31, 2011, compared to 2010, primarily due to the
expiration of whole-loan forward flow agreements during the fourth quarter of 2010.
The provision for loan losses was $89 million for the year ended December 31, 2011, compared to $260 million in 2010. The decrease
was primarily due to improved credit quality that drove improved loss performance in the consumer loan portfolio and continued strength in
the used vehicle market, partially offset by continued growth in the consumer loan portfolio.
37
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Automotive Finance Operations
Our Automotive Finance operations provide automotive financing services to consumers and automotive dealers. For consumers, we
provide retail financing and leasing for new and used vehicles, and through our commercial automotive financing operations, we fund dealer
purchases of new and used vehicles through wholesale or floorplan financing.
Consumer Automotive Financing
Historically, we have provided two basic types of financing for new and used vehicles: retail installment sale contracts (retail contracts)
and lease contracts. In most cases, we purchase retail contracts and leases for new and used vehicles from dealers when the vehicles are
purchased or leased by consumers. Our consumer automotive financing operations generate revenue through finance charges or lease
payments and fees paid by customers on the retail contracts and leases. In connection with lease contracts, we also recognize a gain or loss on
the remarketing of the vehicle at the end of the lease.
The amount we pay a dealer for a retail contract is based on the negotiated purchase price of the vehicle and any other products, such as
service contracts, less any vehicle trade-in value and any down payment from the consumer. Under the retail contract, the consumer is
obligated to make payments in an amount equal to the purchase price of the vehicle (less any trade-in or down payment) plus finance charges
at a rate negotiated between the consumer and the dealer. In addition, the consumer is also responsible for charges related to past-due
payments. When we purchase the contract, it is normal business practice for the dealer to retain some portion of the finance charge as income
for the dealership. Our agreements with dealers place a limit on the amount of the finance charges they are entitled to retain. Although we do
not own the vehicles we finance through retail contracts, we hold a perfected security interest in those vehicles.
With respect to consumer leasing, we purchase leases (and the associated vehicles) from dealerships. The purchase price of consumer
leases is based on the negotiated price for the vehicle less any vehicle trade-in and any down payment from the consumer. Under the lease, the
consumer is obligated to make payments in amounts equal to the amount by which the negotiated purchase price of the vehicle (less any
trade-in value or down payment) exceeds the contract residual value (including residual support) of the vehicle at lease termination, plus lease
charges. The consumer is also generally responsible for charges related to past due payments, excess mileage, excessive wear and tear, and
certain disposal fees where applicable. When the lease contract is entered into, we estimate the residual value of the leased vehicle at lease
termination. At contract inception, we generally determine the projected residual values based on independent data, including independent
guides of vehicle residual values, and analysis. These projected values may be upwardly adjusted as a marketing incentive if the manufacturer
considers above-market residual support necessary to encourage consumers to lease vehicles. To the extent the actual residual value of the
vehicle, as reflected in the sales proceeds received upon remarketing at lease termination, is less than the expected residual value for the
vehicle at lease inception, we incur additional depreciation expense and/or a loss on the lease transaction.
Our standard U.S. leasing plan, SmartLease, requires a monthly payment by the consumer. We also offer an alternative leasing plan,
SmartLease Plus, that requires one up-front payment of all lease amounts at the time the consumer takes possession of the vehicle.
During 2011, we introduced the Ally Buyer's Choice product on new GM and Chrysler vehicles to select states in the United States. The
Ally Buyer's Choice financing product allows customers to own their vehicle with a fixed rate and payment with the option to sell it to us at a
pre-determined point during the contract term and at a pre-determined price.
Consumer leases are operating leases; therefore, credit losses on the operating lease portfolio are not as significant as losses on retail
contracts because lease credit losses are primarily limited to payments and assessed fees. Since some of these fees are not assessed until the
vehicle is returned, these losses on the lease portfolio are correlated with lease termination volume. U.S. operating lease accounts past due
over 30 days represented 0.73% and 0.66% of the total portfolio at December 31, 2012 and 2011, respectively.
With respect to all financed vehicles, whether subject to a retail contract or a lease contract, we require that property damage insurance
be obtained by the consumer. In addition, for lease contracts, we require that bodily injury, collision, and comprehensive insurance be
obtained by the consumer.
Total consumer financing revenue of our Automotive Finance operations was $2.8 billion, $2.4 billion, and $2.0 billion in 2012, 2011,
and 2010, respectively.
38
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Consumer Automotive Financing Volume
The following table summarizes our new and used vehicle consumer financing volume, including lease, and our share of consumer sales
in the United States.
Consumer automotive
financing volume
% Share of
consumer sales
Year ended December 31, (units in thousands)
2012
2011
2010
2012
2011
2010
GM new vehicles
Chrysler new vehicles
Other non-GM / Chrysler new vehicles
Used vehicles
579
315
81
485
707
304
68
466
596
302
33
255
30
26
38
32
38
45
Total consumer automotive financing volume
1,460
1,545
1,186
The decline in consumer automotive financing volume in 2012, compared to 2011, was primarily driven by lower retail penetration at
both GM and Chrysler in the United States. Additionally, both used and non-GM/Chrysler originations were higher due to the continued
strategic focus within these markets. We continue to increase our focus on used vehicle financing, primarily through franchised dealers. The
decrease in GM and Chrysler penetration during the year ended December 31, 2012 was primarily due to the market for automotive financing
growing more competitive as more consumers are financing their vehicle purchases and as more competitors continue to enter this market as a
result of how well automotive finance assets generally performed relative to other asset classes during the 2008 economic downturn.
Manufacturer Marketing Incentives
Automotive manufacturers may elect to sponsor incentive programs (on both retail contracts and leases) by supporting finance rates
below the standard market rates at which we purchase retail contracts. These marketing incentives are also referred to as rate support or
subvention. When automotive manufacturers utilize these marketing incentives, we are compensated at contract inception for the present
value of the difference between the customer rate and our standard rates. For retail loans, we defer and recognize this amount as a yield
adjustment over the life of the contract. For lease contracts, this payment reduces our cost basis in the underlying lease asset.
Automotive manufacturers may also provide incentives on leased vehicles by supporting an above-market residual value, referred to as
residual support, to encourage consumers to lease vehicles. Residual support results in a lower monthly lease payment for the consumer.
While we are compensated by the manufacturer at the time of lease origination to raise the contract residual, we may bear the risk of loss to
the extent the value of the leased vehicle upon remarketing is below the contract residual value of the vehicle at the time the lease contract is
signed. Under certain residual support programs, the automotive manufacturer may reimburse us to the extent remarketing sales proceeds are
less than the residual value set forth in the lease contract and no greater than our standard residual rates that would have otherwise been
applied. To the extent remarketing sales proceeds are more than the contract residual at termination, we may reimburse the automotive
manufacturer for a portion of the higher residual value.
Under what we refer to as pull-ahead programs, consumers may be encouraged by the manufacturer to terminate leases early in
conjunction with the acquisition of a new vehicle. As part of these programs, we waive all or a portion of the customer's remaining payment
obligation. Under most programs, the automotive manufacturer compensates us for a portion of the foregone revenue from the waived
payments that are offset partially to the extent that our remarketing sales proceeds are higher than otherwise would be realized if the vehicle
had been remarketed at lease contract maturity.
We are currently party to an agreement with GM pursuant to which GM initially agreed to offer all vehicle financing incentives to
customers through Ally. However, the agreement, which was originally entered into in November 2006, provides for annual reductions in the
percentage of financing subvention programs that GM is required to provide through Ally, and currently applies to a limited percentage. The
agreement expires on December 31, 2013.
We are also party to an agreement to make available automotive financing products and services to Chrysler dealers and customers. We
provide dealer financing and services and retail financing to qualified Chrysler dealers and customers as we deem appropriate according to
our credit policies and in our sole discretion, and Chrysler is obligated to use Ally for a designated minimum threshold percentage of Chrysler
retail financing subvention programs. On April 25, 2012, Chrysler provided us with notification of nonrenewal related to this agreement and
as a result, the agreement will expire on April 30, 2013.
39
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the total U.S. consumer origination dollars and percentage mix by product type.
Year ended December 31, ($ in billions)
2012
2011
2010
2012
2011
2010
Consumer automotive
financing originations
% Share of
consumer sales
GM new vehicles
New retail standard
New retail subvented
Lease
$
6,230
$
9,009
$
5,960
5,919
6,734
5,075
8,460
6,532
2,954
16
15
15
23
17
13
Total GM new vehicle originations
18,109
20,818
17,946
Chrysler new vehicles
New retail standard
New retail subvented
Lease
Total Chrysler new vehicle originations
Other new retail vehicles
Other lease
Used vehicles
4,431
1,971
2,380
8,782
2,178
93
9,581
4,062
2,454
2,165
8,681
1,684
76
8,990
3,324
3,893
891
8,108
736
43
4,736
12
10
5
6
6
—
25
6
5
4
—
22
27
21
9
11
12
3
2
—
15
Total consumer automotive financing originations
$
38,743
$
40,249
$
31,569
At December 31, 2012, the percentage of U.S. new retail contracts acquired that included rate subvention from GM and Chrysler
decreased as a percentage of total U.S. new retail contracts compared to 2011, primarily driven by lower retail penetration at both GM and
Chrysler in the United States as a result of the continued evolution of our business model. Additionally, both used and non-GM/Chrysler
originations were higher due to the continued strategic focus within these markets. We continue to increase our focus on used vehicle
financing, primarily through franchised dealers. The fragmented used vehicle financing market provides an attractive opportunity that we
believe will further expand and support our dealer relationships and increase our volume of retail loan originations.
Servicing
We have historically serviced all retail contracts and leases we retained on-balance sheet. We historically sold a portion of the retail
contracts we originated and retained the right to service and earn a servicing fee for our servicing functions. Ally Servicing LLC, a wholly
owned subsidiary, performs most servicing activities for U.S. retail contracts and consumer automobile leases.
Servicing activities consist largely of collecting and processing customer payments, responding to customer inquiries such as requests for
payoff quotes, processing customer requests for account revisions (such as payment extensions and rewrites), maintaining a perfected security
interest in the financed vehicle, monitoring vehicle insurance coverage, and disposing of off-lease vehicles. Servicing activities are generally
consistent for our Automotive Finance operations; however, certain practices may be influenced by local laws and regulations.
Our U.S. customers have the option to receive monthly billing statements to remit payment by mail or through electronic fund transfers,
or to establish online web-based account administration through the Ally Account Center. Customer payments are processed by regional third-
party processing centers that electronically transfer payment data to customers' accounts.
Servicing activities also include initiating contact with customers who fail to comply with the terms of the retail contract or lease,
typically via telephone or sending a reminder notice, when an account becomes 3 to 15 days past due. Accounts that become 30 to 45 days
past due are transferred to special collection teams that track accounts more closely. The nature and timing of these activities depend on the
repayment risk of the account.
During the collection process, we may offer a payment extension to a customer experiencing temporary financial difficulty. A payment
extension enables the customer to delay monthly payments for 30, 60, or 90 days, thereby deferring the maturity date of the contract by the
period of delay. Extensions granted to a customer typically do not exceed 90 days in the aggregate during any 12-month period or 180 days in
aggregate over the life of the contract. During the deferral period, we continue to accrue and collect interest on the contract as part of the
deferral agreement. If the customer's financial difficulty is not temporary and management believes the customer could continue to make
payments at a lower payment amount, we may offer to rewrite the remaining obligation, extending the term and lowering the monthly
payment obligation. In those cases, the principal balance generally remains unchanged while the interest rate charged to the customer
generally increases. Extension and rewrite collection techniques help mitigate financial loss in those cases where management believes the
customer will recover from financial difficulty and resume regularly scheduled payments or can fulfill the obligation with lower payments
over a longer period. Before offering an extension or rewrite, collection personnel evaluate and take into account the capacity of the customer
to meet the revised payment terms. Generally, we do not consider extensions that fall within our policy guidelines to represent more than an
insignificant delay in payment and, therefore, they are not considered Troubled Debt Restructurings (TDRs). Although the granting of an
extension could delay the eventual charge-off of an account, typically we are able to repossess and sell the related collateral, thereby
40
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
mitigating the loss. As an indication of the effectiveness of our consumer credit practices, of the total amount outstanding in the U. S.
traditional retail portfolio at December 31, 2009, only 7.5% of the extended or rewritten balances were subsequently charged off through
December 31, 2012. A three-year period was utilized for this analysis as this approximates the weighted average remaining term of the
portfolio. At December 31, 2012, 7.6% of the total amount outstanding in the servicing portfolio had been granted an extension or was
rewritten.
Subject to legal considerations, in the United States we normally begin repossession activity once an account becomes greater than 60-
days past due. Repossession may occur earlier if management determines the customer is unwilling to pay, the vehicle is in danger of being
damaged or hidden, or the customer voluntarily surrenders the vehicle. Approved third-party repossession firms handle repossessions.
Normally the customer is given a period of time to redeem the vehicle by paying off the account or bringing the account current. If the vehicle
is not redeemed, it is sold at auction. If the proceeds do not cover the unpaid balance, including unpaid earned finance charges and allowable
expenses, the resulting deficiency is charged off. Asset recovery centers pursue collections on accounts that have been charged off, including
those accounts where the vehicle was repossessed, and skip accounts where the vehicle cannot be located.
At December 31, 2012 and 2011, our total consumer automotive serviced portfolio was $75.3 billion and $85.5 billion, respectively,
compared to our consumer automotive on-balance sheet portfolio of $67.3 billion and $73.2 billion at December 31, 2012 and 2011,
respectively. Refer to Note 11 to the Consolidated Financial Statements for further information regarding servicing activities.
Remarketing and Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is
responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer
at scheduled lease termination, the vehicle is returned to us for remarketing through an auction. We generally bear the risk of loss to the extent
the value of a leased vehicle upon remarketing is below the contract residual value determined at the time the lease contract is signed.
Automotive manufacturers may share this risk with us for certain leased vehicles, as described previously under Manufacturer Marketing
Incentives. Our methods of vehicle sales in the United States at lease termination primarily include the following:
•
•
•
Sale to dealer — After the lessee declines an option to purchase the off-lease vehicle, the dealer who accepts the returned off-lease
vehicle has the opportunity to purchase the vehicle directly from us at a price we define.
Internet auctions — Once the lessee and dealer decline their options to purchase, we offer off-lease vehicles to dealers and certain
other third parties in the United States through our proprietary internet site (SmartAuction). This internet sales program maximizes
the net sales proceeds from off-lease vehicles by reducing the time between vehicle return and ultimate disposition, reducing
holding costs, and broadening the number of prospective buyers. We maintain the internet auction site, set the pricing floors on
vehicles, and administer the auction process. We earn a service fee for every vehicle sold through SmartAuction, which, in 2012,
was 221,000 vehicles.
Physical auctions — We dispose of our off-lease vehicles not purchased at termination by the lease consumer or dealer or sold on
an internet auction through traditional official manufacturer-sponsored auctions. We are responsible for handling decisions at the
auction including arranging for inspections, authorizing repairs and reconditioning, and determining whether bids received at
auction should be accepted.
Commercial Automotive Financing
Automotive Wholesale Dealer Financing
One of the most important aspects of our dealer relationships is supporting the sale of vehicles through wholesale or floorplan financing.
We primarily support automotive finance purchases by dealers of new and used vehicles manufactured or distributed before sale or lease to
the retail customer. Wholesale automotive financing represents the largest portion of our commercial financing business and is the primary
source of funding for dealers' purchases of new and used vehicles. During 2012, we financed an average commercial wholesale floorplan
receivables balance of $15.3 billion of new GM vehicles, representing a 71% share of GM's U.S. dealer inventory. We also financed an
average of $6.7 billion of new Chrysler vehicles representing a 58% share of Chrysler's U.S. dealer inventory. In addition, we financed an
average of $2.2 billion of new non-GM/Chrysler vehicles and $3.0 billion of used vehicles.
Wholesale credit is arranged through lines of credit extended to individual dealers. In general, each wholesale credit line is secured by all
vehicles and typically by other assets owned by the dealer or the operator's or owner's personal guarantee. As part of our floorplan financing
arrangement, we typically require repurchase agreements with the automotive manufacturer to repurchase new vehicle inventory under certain
circumstances. The amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles, which includes destination
and other miscellaneous charges, and a price rebate, known as a holdback, from the manufacturer to the dealer in varying amounts stated as a
percentage of the invoice price. Interest on wholesale automotive financing is generally payable monthly. Most wholesale automotive
financing is structured to yield interest at a floating rate indexed to the Prime Rate. The rate for a particular dealer is based on, among other
things, competitive factors, the amount and status of the dealer's creditworthiness, and various incentive programs.
Under the terms of the credit agreement with the dealer, we may demand payment of interest and principal on wholesale credit lines at
any time; however, unless we terminate the credit line or the dealer defaults or the risk and exposure warrant, we generally require payment of
the principal amount financed for a vehicle upon its sale or lease by the dealer to the customer.
41
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Total commercial wholesale revenue of our Automotive Finance operations was $999 million, $976 million, and $909 million in 2012,
2011, and 2010, respectively.
Commercial Wholesale Financing Volume
The following table summarizes the average balances of our commercial wholesale floorplan finance receivables of new and used
vehicles and share of dealer inventory in the United States.
Average balance
% Share of
dealer inventory
Year ended December 31, ($ in millions)
2012
2011
2010
2012
2011
2010
GM new vehicles (a)
Chrysler new vehicles (a)
Other non-GM / Chrysler new vehicles
Used vehicles
$
15,331
$
13,407
$
10,941
6,693
2,230
2,985
6,228
1,844
2,920
4,665
1,704
2,727
71
58
78
67
82
72
Total commercial wholesale finance receivables
$
27,239
$
24,399
$
20,037
(a) Share of dealer inventory based on a 13 month average of dealer inventory (excludes in-transit units).
Commercial wholesale financing average volume increased during 2012, compared to 2011, primarily due to growing dealer inventories
required to support increasing automobile sales. GM and Chrysler wholesale penetration decreased during 2012, compared to 2011, as a result
of increased competition in the wholesale marketplace.
Other Commercial Automotive Financing
We also provide other forms of commercial financing for the automotive industry including automotive dealer term loans and automotive
fleet financing. Automotive dealer term loans are loans that we make to dealers to finance other aspects of the dealership business. These
loans are typically secured by real estate, other dealership assets, and are personally guaranteed by the individual owners of the dealership.
Automotive fleet financing may be obtained by dealers, their affiliates, and other companies and be used to purchase vehicles, which they
lease or rent to others.
Servicing and Monitoring
We service all of the wholesale credit lines in our portfolio and the wholesale automotive finance receivables that we have securitized. A
statement setting forth billing and account information is distributed on a monthly basis to each dealer. Interest and other nonprincipal charges
are billed in arrears and are required to be paid immediately upon receipt of the monthly billing statement. Generally, dealers remit payments
to us through wire transfer transactions initiated by the dealer through a secure web application.
Dealers are assigned a risk rating based on various factors, including capital sufficiency, operating performance, financial outlook, and
credit and payment history. The risk rating affects the amount of the line of credit, the determination of further advances, and the management
of the account. We monitor the level of borrowing under each dealer's account daily. When a dealer's balance exceeds the credit line, we may
temporarily suspend the granting of additional credit or increase the dealer's credit line or take other actions following evaluation and analysis
of the dealer's financial condition and the cause of the excess.
We periodically inspect and verify the existence of dealer vehicle inventories. The timing of the verifications varies, and ordinarily no
advance notice is given to the dealer. Among other things, verifications are intended to determine dealer compliance with the financing
agreement and confirm the status of our collateral.
42
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Insurance Operations
Results of Operations
The following table summarizes the operating results of our Insurance operations excluding discontinued operations for the periods
shown. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
Insurance premiums and other income
2012
2011
2010
Favorable/
(unfavorable)
2012-2011
% change
Favorable/
(unfavorable)
2011-2010
% change
Insurance premiums and service revenue earned
$ 1,055
$
1,153
$
1,342
Investment income
Other income
Total insurance premiums and other income
Expense
Insurance losses and loss adjustment expenses
Acquisition and underwriting expense
Compensation and benefits expense
Insurance commissions expense
Other expenses
Total acquisition and underwriting expense
Total expense
Income from continuing operations before income tax
expense
Total assets
Insurance premiums and service revenue written
Combined ratio (a)
124
35
1,214
454
61
382
157
600
220
25
1,398
452
61
431
138
630
418
41
1,801
511
64
510
159
733
1,054
1,082
1,244
$
160
$ 8,439
$ 1,061
$
$
$
316
8,036
1,039
$
$
$
557
8,789
1,029
98.3%
93.1%
90.6%
(8)
(44)
40
(13)
—
—
11
(14)
5
3
(49)
5
2
(14)
(47)
(39)
(22)
12
5
15
13
14
13
(43)
(9)
1
(a) Management uses a combined ratio as a primary measure of underwriting profitability with its components measured using accounting principles
generally accepted in the United States of America. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of
all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other
income.
2012 Compared to 2011
Our Insurance operations earned income from continuing operations before income tax expense of $160 million for the year ended
December 31, 2012, compared to $316 million for the year ended December 31, 2011. The decrease was primarily attributable to lower
investment income, lower insurance premiums and service revenue earned from our U.S. vehicle service contracts, and higher weather-related
losses, including the effects of Storm Sandy.
Insurance premiums and service revenue earned was $1.1 billion for the year ended December 31, 2012, compared to $1.2 billion in
2011. The decrease was primarily due to declining U.S. vehicle service contracts written between 2007 and 2009 as a result of lower domestic
vehicle sales volume.
Investment income totaled $124 million for the year ended December 31, 2012, compared to $220 million in 2011. The decrease was
primarily due to the recognition of other-than-temporary impairment on certain equity securities of $61 million and lower realized investment
gains.
Other income totaled $35 million for the year ended December 31, 2012, compared to $25 million in 2011. The increase was primarily
due to a gain of $8 million on the sale of our Canadian personal lines business during the second quarter of 2012.
Insurance losses and loss adjustment expenses totaled $454 million for the year ended December 31, 2012, compared to $452 million for
the year ended December 31, 2011. The slight increase was driven primarily by higher weather-related losses in the United States on our
dealer inventory insurance products, including the effects of Storm Sandy, mostly offset by lower frequency experienced in our vehicle
service contract business and lower losses matching our decrease in earned premium. Despite the decrease in insurance premiums and service
revenue earned, insurance losses and loss adjustment expenses increased primarily due to the impacts of Storm Sandy, which further impacted
the increase in the combined ratio.
Acquisition and underwriting expense decreased 5% for the year ended December 31, 2012, compared to 2011. The decrease was
primarily a result of lower commission expense in our U.S. dealership-related products matching our decrease in earned premiums, partially
offset by increased technology expense.
43
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
2011 Compared to 2010
Our Insurance operations earned income from continuing operations before income tax expense of $316 million for the year ended
December 31, 2011, compared to $557 million for the year ended December 31, 2010. The decrease was primarily attributable to lower
insurance premiums and service contract revenue earned from our U.S. vehicle service contracts and lower realized investment gains.
Insurance premiums and service revenue earned was $1.2 billion for the year ended December 31, 2011, compared to $1.3 billion in
2010. The decrease was primarily due to the sale of certain international insurance operations during the fourth quarter of 2010 and lower
earnings from our U.S. vehicle service contracts written between 2007 and 2009 due to lower domestic vehicle sales volume.
Investment income totaled $220 million for the year ended December 31, 2011, compared to $418 million in 2010. The decrease was
primarily due to lower realized investment gains.
Insurance losses and loss adjustment expenses totaled $452 million for the year ended December 31, 2011, compared to $511 million in
2010. The decrease was primarily due to lower frequency and severity experienced in our U.S. vehicle service contract business and the sale
of certain international insurance operations during the fourth quarter of 2010, which was partially offset by higher weather-related losses in
the United States on our dealer inventory insurance products.
Acquisition and underwriting expense decreased 14% for the year ended December 31, 2011, compared to 2010. The decrease was
primarily due to the sale of certain international insurance operations during the fourth quarter of 2010 and lower commission expense in our
U.S. dealership-related products matching our decrease in earned premiums.
Premium and Service Revenue Written
The following table shows premium and service revenue written by insurance product.
Year ended December 31, ($ in millions)
Vehicle service contracts
New retail
Used retail
Reinsurance
Total vehicle service contracts
Wholesale
Other finance and insurance (a)
North American operations
International and Corporate (b)
Total
2012
2011
2010
$
$
406
509
(119)
796
132
129
1,057
4
$
376
514
(103)
787
115
133
1,035
4
315
517
(91)
741
103
113
957
72
$
1,061
$
1,039
$
1,029
(a) Other finance and insurance includes Guaranteed Automobile Protection (GAP) coverage, excess wear and tear, wind-down of Canadian personal lines,
and other ancillary products.
International and Corporate includes certain international operations that were sold during the fourth quarter of 2010 and other run-off products.
(b)
Insurance premiums and service revenue written was $1.1 billion for the year ended December 31, 2012, compared to $1.0 billion in
2011 and 2010. Insurance premiums and service revenue written increased slightly due to higher written premiums in our new retail vehicle
service contract and dealer inventory insurance products. Vehicle service contract revenue is earned over the life of the service contract on a
basis proportionate to the anticipated cost pattern. Accordingly, the majority of earnings from vehicle service contracts written during 2012
will be recognized as income in future periods.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these
investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an
Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect
our risk tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
44
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
December 31, ($ in millions)
Cash
Noninterest-bearing cash
Interest-bearing cash
Total cash
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
Foreign government
Mortgage-backed
Asset-backed
Corporate debt
Other debt
Total debt securities
Equity securities
Total available-for-sale securities
Total cash and securities
2012
2011
$
$
129
488
617
1,090
303
714
8
1,264
—
3,379
1,148
4,527
$
5,144
$
211
629
840
496
678
590
95
1,491
23
3,373
1,054
4,427
5,267
45
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Mortgage Operations
Results of Operations
The following table summarizes the operating results for our Mortgage operations excluding discontinued operations for the periods
shown. Our Mortgage operations include the ResCap legal entity (prior to its deconsolidation from Ally Financial as of May 14, 2012) and the
mortgage operations of Ally Bank. Refer to Note 1 to the Consolidated Financial Statements for further details on ResCap. The amounts
presented are before the elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
2012
2011
2010
Favorable/
(unfavorable)
2012-2011
% change
Favorable/
(unfavorable)
2011-2010
% change
Net financing revenue
Total financing revenue and other interest income
$
Interest expense
Net financing revenue
Servicing fees
Servicing asset valuation and hedge activities, net
Total servicing income, net
Gain on mortgage loans, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Representation and warranty expense
Other operating expenses
Total noninterest expense
Income (loss) from continuing operations before income tax
expense
Total assets
n/m = not meaningful
2012 Compared to 2011
$
$
743
592
151
592
(8)
584
529
504
1,617
1,768
86
252
67
674
993
689
14,744
$
1,147
$
937
210
1,198
(789)
409
395
157
961
1,171
150
394
324
925
1,711
1,122
589
1,261
(394)
867
990
141
1,998
2,587
144
322
670
679
1,643
1,671
(35)
37
(28)
(51)
99
43
34
n/m
68
51
43
36
79
27
40
$
$
(622) $
772
33,906
$
36,786
n/m
(57)
(33)
16
(64)
(5)
(100)
(53)
(60)
11
(52)
(55)
(4)
(22)
52
(36)
2
(181)
(8)
Our Mortgage operations earned income from continuing operations before income tax expense of $689 million for the year ended
December 31, 2012, compared to losses from continuing operations before income tax expense of $622 million for the year ended
December 31, 2011. During 2011, we experienced an unfavorable servicing asset valuation, net of hedge, that did not recur in 2012.
Additionally, during 2012, we earned higher fee income and net origination revenue related to increased consumer mortgage-lending
production associated with government-sponsored refinancing programs, and higher net gains on the sale of mortgage loans. We incurred
lower representation and warranty expense and operating expenses resulting from the deconsolidation of ResCap during the second quarter of
2012. Refer to Note 1 to the Consolidated Financial Statements for further information regarding ResCap.
Net financing revenue was $151 million for the year ended December 31, 2012, compared to $210 million in 2011. The decrease in net
financing revenue was primarily due to the deconsolidation of ResCap during the second quarter of 2012. Additionally, total financing
revenue and other interest income decreased in 2012 due to lower average yield mix as higher-rate Ally Bank mortgage loans continued to run
off. Partially offsetting the decrease was lower interest expense related to lower funding costs.
Total servicing income, net was $584 million for the year ended December 31, 2012, compared to $409 million in 2011. The increase
was primarily due to the performance of the derivative servicing hedge as compared to a less favorable hedge performance in 2011. The
increase was partially offset by lower servicing fees due to the deconsolidation of ResCap.
The net gain on mortgage loans increased 34% for the year ended December 31, 2012, compared to 2011. Though we deconsolidated
ResCap during the second quarter of 2012, the increase was primarily due to higher consumer mortgage-lending production through our direct
lending channel and margins associated with government-sponsored refinancing programs, higher margins on warehouse and correspondent
lending due to decreased competition and more selective originations from these channels, and improved market gains on specified pooled
loans.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Other income, net of losses, was $504 million for the year ended December 31, 2012, compared to $157 million in 2011. The increase
was primarily due to higher fee income and net origination revenue related to increased consumer mortgage-lending production associated
with government-sponsored refinancing programs and a decrease in fair value option election valuation losses resulting from the
deconsolidation of ResCap.
The provision for loan losses was $86 million for the year ended December 31, 2012, compared to $150 million in 2011. The decrease
for the year ended December 31, 2012, was primarily due to lower net charge-offs in 2012 due to the continued runoff of legacy mortgage
assets and improvements in home prices.
Total noninterest expense decreased 40% for the year ended December 31, 2012, compared to 2011. The decrease was primarily driven
by lower representation and warranty expense and compensation and benefits expense resulting from the deconsolidation of ResCap. The
decrease was partially offset by a $90 million expense related to penalties imposed by certain regulators and other governmental agencies in
connection with mortgage foreclosure-related matters during the second quarter of 2012.
2011 Compared to 2010
Our Mortgage operations incurred a loss before income tax expense of $622 million for the year ended December 31, 2011, compared to
income before income tax expense of $772 million for the year ended December 31, 2010. The decrease was primarily driven by lower net
gains on the sale of mortgage loans, unfavorable servicing asset valuation, net of hedge, lower financing revenue related to a decrease in asset
levels, and a $230 million expense related to penalties imposed by certain regulators and other governmental agencies in connection with
mortgage foreclosure-related matters. The decrease was partially offset by lower representation and warranty expense.
Net financing revenue was $210 million for the year ended December 31, 2011, compared to $589 million in 2010. The decrease was
driven by lower financing revenue and other interest income due primarily to a decline in average asset levels related to loan sales, the
deconsolidation of previously on-balance sheet securitizations, and portfolio runoff. The decrease was partially offset by lower interest
expense related to a reduction in average borrowings commensurate with a smaller asset base.
Total servicing income, net was $409 million for the year ended December 31, 2011, compared to $867 million in 2010. The decrease
was primarily due to a drop in interest rates and increased market volatility compared to favorable valuation adjustments in 2010.
Additionally, 2011 includes a valuation adjustment that estimates the impact of higher servicing costs related to enhanced foreclosure
procedures, establishment of single point of contact, and other processes to comply with the Consent Order.
The net gain on mortgage loans was $395 million for the year ended December 31, 2011, compared to $990 million in 2010. The
decrease during 2011 was primarily due to lower margins and production, lower whole-loan sales, lower gains on mortgage loan resolutions,
and the absence of the 2010 gain on the deconsolidation of an on-balance sheet securitization. Refer to Note 10 to the Consolidated Financial
Statements for information on the deconsolidation.
Total noninterest expense decreased 2% for the year ended December 31, 2011, compared to 2010. The decrease was primarily driven by
lower representation and warranty expense in 2011 as 2010 included a significant increase in expense to cover anticipated repurchase requests
and settlements with key counterparties. The decrease was partially offset by a $230 million expense related to penalties imposed by certain
regulators and other governmental agencies in connection with mortgage foreclosure-related matters, higher loan processing and underwriting
fees, and an increase in compensation and benefits expense due to an increase in headcount related to expansion activities in our broker, retail,
and servicing operations.
Loan Production
U.S. Mortgage Loan Production Channels
Ally Bank continues to perform certain mortgage activities as a result of the ResCap bankruptcy process. Subsequent to the bankruptcy
filing, ResCap announced the sale of certain assets to third parties. Upon the closing of those sales, we do not expect ResCap to continue to
broker loans to us. This will primarily impact the production of loans within the direct lending channel, which are currently sourced
exclusively from ResCap. We expect the level of loan production to continue to decline.
We have three primary channels for residential mortgage loan production: the purchase of loans in the secondary market (primarily from
Ally Bank correspondent lenders), the origination of loans through our direct-lending network, and the origination of loans through our
mortgage brokerage network.
• Correspondent lender and secondary market purchases — Loans purchased from correspondent lenders are originated or
purchased by the correspondent lenders and subsequently sold to us. All of the purchases from correspondent lenders are conducted
through Ally Bank. We qualify and approve any correspondent lenders who participate in the loan purchase programs. We intend to
continue to originate a modest level of jumbo and conventional conforming residential mortgages for our own portfolio through a
select group of correspondent lenders.
• Direct-lending network — Our direct-lending network consists of internet and telephone-based call center operations as well as our
retail network. Virtually all of the residential mortgage loans of this channel are brokered to Ally Bank.
47
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
• Mortgage brokerage network — Residential mortgage loans originated through mortgage brokers. We review and underwrite the
application submitted by the mortgage broker, approve or deny the application, set the interest rate and other terms of the loan, and,
upon acceptance by the borrower and the satisfaction of all conditions required by us, fund the loan through Ally Bank. We qualify
and approve all mortgage brokers who generate mortgage loans and continually monitor their performance.
The following table summarizes U.S. consumer mortgage loan production by channel.
Year ended December 31, ($ in millions)
Correspondent lender and secondary market
purchases
Direct lending
Mortgage brokers
Total U.S. production
2012
2011
2010
Number of
loans
Dollar
amount of
loans
Number of
loans
Dollar
amount of
loans
Number of
loans
Dollar
amount of
loans
58,766
$
75,096
12,996
146,858
$
14,224
14,640
3,601
32,465
196,964
$
45,349
263,963
$
61,465
37,743
12,018
7,414
3,495
36,064
2,035
7,586
491
246,725
$
56,258
302,062
$
69,542
The following table summarizes the composition of our U.S. consumer mortgage loan production. ResCap was deconsolidated from Ally
as of May 14, 2012. Refer to Note 1 to the Consolidated Financial Statements for further details on ResCap.
Year ended December 31, ($ in millions)
Ally Bank
ResCap
Total U.S. production
Mortgage Loan Production by Type
2012
2011
2010
Number of
loans
Dollar
amount of
loans
Number of
loans
Dollar
amount of
loans
Number of
loans
Dollar
amount of
loans
146,074
784
146,858
$
$
32,324
245,849
141
876
32,465
246,725
$
$
56,130
300,738
128
1,324
56,258
302,062
$
$
69,320
222
69,542
We intend to continue to originate a modest level of jumbo and conventional conforming residential mortgages for our held-for-
investment portfolio through a select group of correspondent lenders. During 2012, 2011, and 2010, we primarily originated prime
conforming and government-insured residential mortgage loans. We define prime as mortgage loans with a FICO score of 660 and above. Our
mortgage loans are categorized as follows.
•
•
•
Prime conforming mortgage loans — Prime credit quality first-lien mortgage loans secured by 1-4 family residential properties
that meet or conform to the underwriting standards established by the GSEs for inclusion in their guaranteed mortgage securities
programs.
Prime nonconforming mortgage loans — Prime credit quality first-lien mortgage loans secured by 1-4 family residential properties
that either (1) do not conform to the underwriting standards established by the GSEs because they had original principal amounts
exceeding GSE limits, which are commonly referred to as jumbo mortgage loans, or (2) have alternative documentation
requirements and property or credit-related features (e.g., higher loan-to-value or debt-to-income ratios) but are otherwise
considered prime credit quality due to other compensating factors.
Prime second-lien mortgage loans — Open- and closed-end mortgage loans secured by a second or more junior-lien on single-
family residences, which include home equity mortgage loans and lines of credit. We ceased originating prime second-lien
mortgage loans during 2008.
• Government mortgage loans — First-lien mortgage loans secured by 1-4 family residential properties that are insured by the
Federal Housing Administration or guaranteed by the Veterans Administration.
• Nonprime mortgage loans — First-lien and certain junior-lien mortgage loans secured by single-family residences made to
individuals with credit profiles that do not qualify for a prime loan, have credit-related features that fall outside the parameters of
traditional prime mortgage products, or have performance characteristics that otherwise exposes us to comparatively higher risk of
loss. Nonprime includes mortgage loans the industry characterizes as “subprime,” as well as high combined loan-to-value second-
lien loans that fell out of our standard loan programs due to noncompliance with one or more criteria. We ceased originating
nonprime mortgage loans during 2007.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table summarizes our U.S. consumer mortgage loan production by type.
Year ended December 31, ($ in millions)
Prime conforming
Prime nonconforming
Government
Total U.S. production
U.S. Warehouse Lending
2012
2011
2010
Number of
loans
Dollar
amount of
loans
Number of
loans
Dollar
amount of
loans
Number of
loans
Dollar
amount of
loans
133,359
$
27,920
209,031
$
47,511
228,936
$
2,706
10,793
2,211
2,334
2,008
35,686
1,679
7,068
1,837
71,289
146,858
$
32,465
246,725
$
56,258
302,062
$
53,721
1,548
14,273
69,542
Historically, we provided warehouse-lending facilities to correspondent lenders and other mortgage originators in the United States.
These facilities enabled lenders and originators to finance residential mortgage loans until they were sold in the secondary mortgage loan
market. In July 2012, we announced our intention to shut down this business and, as of December 31, 2012, we successfully managed
receivables down to $0 with no commitments outstanding. At December 31, 2011, we had total warehouse line of credit commitments of $2.8
billion, against which we had $1.9 billion of advances outstanding.
Loans Outstanding
Consumer mortgage loans held-for-sale and consumer mortgage loans held-for-investment as of December 31, 2012, represent loans held
by Ally Bank. ResCap was deconsolidated from Ally Financial as of May 14, 2012. Refer to Note 1 to the Consolidated Financial Statements
for further details on ResCap.
Consumer mortgage loans held-for-sale were as follows.
December 31, ($ in millions)
Prime conforming
Prime nonconforming
Prime second-lien
Government (a)
Nonprime
International
Total (b)
Net premiums (discounts)
Fair value option election adjustment
Lower-of-cost or fair value adjustment
Total, net (c)
2012
2011
$
2,407
$
3,345
—
—
8
—
—
2,415
26
49
—
571
545
3,294
561
17
8,333
(221)
60
(60)
$
2,490
$
8,112
(a)
(b)
(c)
Includes loans subject to conditional repurchase options of $0 million and $2.3 billion sold to Ginnie Mae-guaranteed securitizations at December 31,
2012, and December 31, 2011, respectively. The corresponding liability is recorded in accrued expenses and other liabilities on the Consolidated Balance
Sheet.
Includes unpaid principal write-down of $0 million and $1.5 billion at December 31, 2012, and December 31, 2011, respectively. The amounts are write-
downs taken upon the transfer of mortgage loans from held-for-investment to held-for-sale during the fourth quarter of 2009 and charge-offs taken in
accordance with our charge-off policy.
Includes loans subject to conditional repurchase options of $0 million and $106 million sold to off-balance sheet private-label securitizations at
December 31, 2012, and December 31, 2011, respectively. The corresponding liability is recorded in accrued expenses and other liabilities on the
Consolidated Balance Sheet.
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Ally Financial Inc. • Form 10-K
Consumer mortgage loans held-for-investment were as follows.
December 31, ($ in millions)
Prime conforming
Prime nonconforming
Prime second-lien
Government
Nonprime
International
Total
Net premiums
Fair value option election adjustment
Allowance for loan losses
Other
Total, net (a)
2012
2011
$
245
$
8,322
1,137
—
—
—
278
8,069
2,200
—
1,349
422
9,704
12,318
43
—
(432)
8
38
(1,601)
(495)
—
$
9,323
$
10,260
(a) At December 31, 2012, and December 31, 2011, the carrying value of mortgage loans held-for-investment relating to securitization transactions accounted
for as on-balance sheet securitizations and pledged as collateral totaled $0 million and $837 million, respectively. The investors in these on-balance sheet
securitizations have no recourse to our other assets beyond the loans pledged as collateral other than market customary representation and warranty
provisions.
Mortgage Loan Servicing
Our retained mortgage servicing rights consist of primary servicing rights. When we act as primary servicer, we collect and remit
mortgage loan payments, respond to borrower inquiries, account for principal and interest, hold custodial and escrow funds for payment of
property taxes and insurance premiums, counsel or otherwise work with delinquent borrowers, supervise foreclosures and property
dispositions, and generally administer the loans. The majority of our serviced mortgage assets are subserviced by GMAC Mortgage, LLC, a
subsidiary of ResCap, pursuant to a servicing agreement. Historically, we acted as a master servicer. When we acted as master servicer, we
collected mortgage loan payments from primary servicers and distributed those funds to investors in mortgage-backed and mortgage-related
asset-backed securities and whole-loan packages. Key services in this regard include loan accounting, claims administration, oversight of
primary servicers, loss mitigation, bond administration, cash flow waterfall calculations, investor reporting, and tax-reporting compliance. In
return for performing these functions, we receive servicing fees equal to a specified percentage of the outstanding principal balance of the
loans being serviced and may also be entitled to other forms of servicing compensation, such as late payment fees or prepayment penalties.
Servicing compensation also includes interest income or the float earned on collections that are deposited in various custodial accounts
between their receipt and the scheduled/contractual distribution of the funds to investors. Refer to Note 11 to the Consolidated Financial
Statements for additional information.
The value of mortgage servicing rights is sensitive to changes in interest rates and other factors. We have developed and implemented an
economic hedge program to, among other things, mitigate the overall risk of loss due to a change in the fair value of our mortgage servicing
rights. Accordingly, we hedge the change in the total fair value of our mortgage servicing rights. The effectiveness of this economic hedging
program may have a material effect on the results of operations. Refer to the Critical Accounting Estimates section of this MD&A and Note
22 to the Consolidated Financial Statements for further discussion. On October 26, 2012, we announced that Ally Bank began to explore
strategic alternatives for its agency mortgage servicing rights portfolio, including a potential sale of the asset. A sale alternative would require
GSE approval.
The following table summarizes our primary consumer mortgage loan-servicing portfolio by product category.
December 31, ($ in millions)
U.S. primary servicing portfolio
Prime conforming
Prime nonconforming
Prime second-lien
Government
Nonprime
International primary servicing portfolio
Total primary servicing portfolio (a)
2012
2011
$
117,544
$
226,239
11,628
1,136
16
—
—
47,767
6,871
49,027
20,753
5,773
$
130,324
$
356,430
(a) Excludes loans for which we acted as a subservicer. Subserviced loans totaled $0 billion and $26.4 billion at December 31, 2012 and 2011, respectively.
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Ally Financial Inc. • Form 10-K
Corporate and Other
The following table summarizes the activities of Corporate and Other excluding discontinued operations for the periods shown.
Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate
investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of
the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also
includes our Commercial Finance Group, certain equity investments, overhead that was previously allocated to operations that have since
been sold or classified as discontinued operations, and reclassifications and eliminations between the reportable operating segments. Our
Commercial Finance Group provides senior secured commercial-lending products to primarily U.S.-based middle market companies.
Year ended December 31, ($ in millions)
2012
2011
2010
Net financing loss
Favorable/
(unfavorable)
2012-2011
% change
Favorable/
(unfavorable)
2011-2010
% change
Total financing revenue and other interest income
$
157
$
196
$
206
(20)
(5)
23
6
15
16
48
(42)
n/m
n/m
26
9
23
—
—
68
68
26
27
4
Interest expense
Original issue discount amortization
Other interest expense
Total interest expense
Net financing loss (a)
Other (expense) revenue
Loss on extinguishment of debt
Other gain on investments, net
Other income, net of losses
Total other (expense) revenue
Total net loss
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Other operating expense (b)
Accrual related to ResCap Bankruptcy and deconsolidation (c)
Impairment of investment in ResCap (c)
Other
Total other operating expense
Total noninterest expense
349
981
1,330
(1,173)
(148)
69
19
(60)
925
992
1,917
(1,721)
(64)
84
158
178
1,204
1,055
2,259
(2,053)
(124)
146
(56)
(34)
(1,233)
(1,543)
(2,087)
(10)
(51)
(47)
62
1
31
32
(131)
(18)
(88)
(134)
20
(80)
636
750
442
(58)
1,134
1,770
472
—
—
14
14
486
610
(35)
—
—
44
44
654
n/m
n/m
n/m
n/m
n/m
(51)
4
Loss from continuing operations before income tax expense
$
(2,993) $
(1,978) $
(2,694)
Total assets
$ 30,753
$ 29,526
$ 28,472
n/m = not meaningful
(a) Refer to the table that follows for further details on the components of net financing loss.
(b)
Includes a reduction of $814 million for the year ended December 31, 2012, and $757 million for each of the years ended December 31, 2011, and 2010,
related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense
within other operating expense.
(c) Refer to Note 1 to the Consolidated Financial Statements for further information regarding the deconsolidation of ResCap.
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Ally Financial Inc. • Form 10-K
The following table summarizes the components of net financing losses for Corporate and Other.
At and for the year ended December 31, ($ in millions)
2012
2011
2010
Original issue discount amortization
2008 bond exchange amortization
Other debt issuance discount amortization
Total original issue discount amortization (a)
Net impact of the funds transfer pricing methodology
Unallocated liquidity costs (b)
Funds-transfer pricing / cost of funds mismatch (c)
Unassigned equity costs (d)
Total net impact of the funds transfer pricing methodology
Other (including Commercial Finance Group net financing revenue)
Total net financing losses for Corporate and Other
Outstanding original issue discount balance
$
(320) $
(886) $
(1,158)
(29)
(349)
(586)
170
(467)
(883)
59
(39)
(925)
(564)
42
(364)
(886)
90
(46)
(1,204)
(495)
(364)
(77)
(936)
87
$
$
(1,173) $
(1,721) $
(2,053)
1,840
$
2,194
$
3,169
(a) Amortization is included as interest on long-term debt in the Consolidated Statement of Comprehensive Income.
(b) Represents the unallocated cost of funding our cash and investment portfolio.
(c) Represents our methodology to assign funding costs to classes of assets and liabilities based on expected duration and the London interbank offer rate
(LIBOR) swap curve plus an assumed credit spread. Matching duration allocates interest income and interest expense to the reportable segments so the
respective reportable segments results are insulated from interest rate risk. The balance above is the resulting benefit (loss) due to holding interest rate risk
at Corporate and Other.
(d) Primarily represents the unassigned cost of maintaining required capital positions for certain of our regulated entities, primarily Ally Bank and Ally
Insurance.
The following table presents the scheduled remaining amortization of the original issue discount at December 31, 2012.
Year ended December 31, ($ in millions)
2013
2014
2015
2016
2017
2018 and
thereafter (a)
Total
Original issue discount
Outstanding balance
Total amortization (b)
2008 bond exchange amortization (c)
$ 1,579
$ 1,391
$
1,335
$ 1,272
$ 1,197
261
241
188
166
56
43
63
53
75
66
$—
1,197
1,059
$
1,840
1,628
(a) The maximum annual scheduled amortization for any individual year is $158 million in 2030 of which $152 million is related to 2008 bond exchange
amortization.
(b) The amortization is included as interest on long-term debt on the Consolidated Statement of Comprehensive Income.
(c) 2008 bond exchange amortization is included in total amortization.
2012 Compared to 2011
Loss from continuing operations before income tax expense for Corporate and Other was $3.0 billion for the year ended December 31,
2012, compared to $2.0 billion for the year ended December 31, 2011. Corporate and Other’s loss from continuing operations before income
tax expense was driven by net financing losses, which primarily represents original issue discount amortization expense and the net impact of
our FTP methodology, which includes the unallocated cost of maintaining our liquidity and investment portfolios.
The higher loss from continuing operations before income tax expense for the year ended December 31, 2012 was primarily due to a
$1.2 billion charge related to ResCap's filing for relief under Chapter 11 of the bankruptcy code in the United States. Refer to Note 1 to the
Consolidated Financial Statements for additional information related to ResCap. Additionally, higher losses for the year ended December 31,
2012 were impacted by the early prepayment of certain Federal Home Loan Bank debt to further reduce funding costs, the absence of a $121
million gain on the early settlement of a loss holdback provision related to certain historical automotive whole-loan forward flow agreements
recognized during 2011, and an increase in compensation and benefits expense as a result of increased incentive compensation and pension-
related expenses. The pension-related expenses resulted from our decision to de-risk our long-term pension liability through lump-sum
buyouts and annuity placements for former subsidiaries. Refer to Note 24 to the Consolidated Financial Statements for further detail on these
certain pension actions. Partially offsetting the higher losses for the year ended December 31, 2012 were decreases in OID amortization
expense related to bond maturities and normal monthly amortization. Additionally, we incurred no accelerated amortization of OID for the
year ended December 31, 2012, compared to $50 million for the year ended December 31, 2011.
Corporate and Other also includes the results of our Commercial Finance Group. Our Commercial Finance Group earned income from
continuing operations before income tax expense of $48 million for the year ended December 31, 2012, compared to $141 million for the
year ended December 31, 2011. The decrease was primarily related to lower net revenue resulting from a decline in income from servicer
advance collections, lower accelerated fee income due to fewer early loan payoffs during 2012, compared to 2011. Additionally, provision
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Ally Financial Inc. • Form 10-K
expense was less favorable in 2012 due to a greater decline in portfolio-level reserves in 2011 associated with higher recoveries on
nonperforming exposures, combined with the runoff of the majority of our higher-risk non-core portfolio.
2011 Compared to 2010
Loss from continuing operations before income tax expense for Corporate and Other was $2.0 billion for the year ended December 31,
2011, compared to $2.7 billion for the year ended December 31, 2010. Corporate and Other's loss from continuing operations before income
tax expense for both periods was driven by net financing losses, which primarily represents original issue discount amortization expense and
the net impact of our FTP methodology, which includes the unallocated cost of maintaining our liquidity and investment portfolios.
The improvement in the loss from continuing operations before income tax expense for the year ended December 31, 2011, was
primarily due to a decrease in original issue discount amortization expense related to bond maturities and normal monthly amortization and
favorable net impact of the FTP methodology. The net FTP methodology improvement was primarily the result of favorable unallocated
interest costs due to lower non-earning assets and unamortized original issue discount balance. Additionally, 2011 was favorably impacted by
a $121 million gain on the early settlement of a loss holdback provision related to certain historical automotive whole-loan forward flow
agreements, a reduction in debt fees driven by the restructuring of our secured facilities and the termination of our automotive forward flow
agreements, and by a lower loss on the extinguishment of certain Ally debt (which included accelerated amortization of original issue
discount of $50 million for the year ended December 31, 2011, compared to $101 million in 2010).
Corporate and Other also includes the results of our Commercial Finance Group. Our Commercial Finance Group earned income from
continuing operations before income tax expense of $141 million for the year ended December 31, 2011, compared to $182 million for the
year ended December 31, 2010. The decrease was primarily due to lower asset levels partially offset by lower expenses and favorable loss
provisions.
Cash and Securities
The following table summarizes the composition of the cash and securities portfolio held at fair value by Corporate and Other.
2012
2011
$
944
$
5,942
6,886
—
—
1,124
—
—
6,191
2,332
—
9,647
4
9,651
$
16,537
$
1,768
9,781
11,549
589
589
1,051
1
106
6,722
2,520
305
10,705
4
10,709
22,847
December 31, ($ in millions)
Cash
Noninterest-bearing cash
Interest-bearing cash
Total cash
Trading securities
Mortgage-backed
Total trading securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
U.S. states and political subdivisions
Foreign government
Mortgage-backed
Asset-backed
Other debt (a)
Total debt securities
Equity securities
Total available-for-sale securities
Total cash and securities
(a)
Includes intersegment eliminations.
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Ally Financial Inc. • Form 10-K
Risk Management
Managing the risk/reward trade-off is a fundamental component of operating our businesses. Our risk management program is overseen
by the Ally Board of Directors (the Board), various risk committees, and the executive leadership team. The Board sets the risk appetite across
our company while the risk committees and executive leadership team identify and monitor potential risks and manage the risk to be within
our risk appetite. Ally's primary risks include credit, lease residual, market, operational, insurance/underwriting, country, and liquidity.
• Credit risk — The risk of loss arising from a creditor not meeting its financial obligations to our firm.
•
Lease Residual risk — The risk of loss arising from the possibility that the actual proceeds realized upon the sale of returned
vehicles will be lower than the projection of the values used in establishing the pricing at lease inception.
• Market risk — The risk of loss arising from changes in the fair value of our assets or liabilities (including derivatives) caused by
movements in market variables, such as interest rates, foreign-exchange rates, and equity and commodity prices.
• Operational risk — The risk of loss arising from inadequate or failed processes or systems, human factors, or external events.
•
Insurance/Underwriting risk — The risk of loss associated with either (i) fortuitous occurrences (e.g., fires, hurricanes, tortuous
conduct) and/or (ii) the failure to consider the frequency of losses, severity of losses or the correlation of losses with multiple
events.
• Country risk — The risk that economic, social and political conditions, and events in foreign countries will adversely affect our
financial interests.
•
Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by an inability, or
perceived inability, to meet our financial obligations, and to withstand unforeseen liquidity stress events (see Liquidity
Management, Funding, and Regulatory Capital discussion within this MD&A).
While risk oversight is ultimately the responsibility of the Board, our governance structure starts within each line of business, including
committees established to oversee risk in their respective areas. The lines of business are responsible for executing on risk strategies, policies,
and controls that are fundamentally sound and compliant with global risk management policies and with applicable laws and regulations. The
line of business risk committees, which report up to the Risk and Compliance Committee of the Board, monitor the performance within each
portfolio and determine whether to amend any risk practices based upon portfolio trends.
In addition, the Global Risk Management and Compliance organizations are accountable for independently monitoring, measuring, and
reporting on our various risks. They are also responsible for monitoring that our risks remain within the tolerances established by the Board,
developing and maintaining policies, and implementing risk management methodologies.
All lines of business and global functions are subject to full and unrestricted audits by Audit Services. Audit Services reports to the Audit
Committee of the Board, and is primarily responsible for assisting the Audit Committee in fulfilling its governance and oversight
responsibilities. Audit Services is granted free and unrestricted access to any and all of our records, physical properties, technologies,
management, and employees.
In addition, our Global Loan Review Group provides an independent assessment of the quality of Ally's credit risk portfolios and credit
risk management practices. This group reports its findings directly to the Risk and Compliance Committee. The findings of this group help to
strengthen our risk management practices and processes throughout the organization.
54
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Loan and Lease Exposure
The following table summarizes the exposures from our loan and lease activities.
December 31, ($ in millions)
Finance receivables and loans
Dealer Financial Services
Mortgage operations
Corporate and Other
Total finance receivables and loans
Held-for-sale loans
Dealer Financial Services
Mortgage operations
Corporate and Other
Total held-for-sale loans
Total on-balance sheet loans
Off-balance sheet securitized loans
Dealer Financial Services
Mortgage operations
Corporate and Other
Total off-balance sheet securitized loans
Operating lease assets
Dealer Financial Services
Mortgage operations
Corporate and Other
Total operating lease assets
Serviced loans and leases
Dealer Financial Services
Mortgage operations (a)
Corporate and Other
Total serviced loans and leases
(a)
Includes primary mortgage loan-servicing portfolio only.
2012
2011
$
86,542
$
100,734
9,821
2,692
12,753
1,268
99,055
114,755
—
2,490
86
2,576
101,631
1,495
119,384
—
120,879
13,550
—
—
13,550
134,122
130,324
1,344
$
$
$
$
$
$
425
8,112
20
8,557
123,312
—
326,975
—
326,975
9,275
—
—
9,275
122,881
356,430
1,762
$
$
$
$
$
$
$
265,790
$
481,073
The risks inherent in our loan and lease exposures are largely driven by changes in the overall economy, used vehicle and housing price
levels, unemployment levels, and their impact to our borrowers. The potential financial statement impact of these exposures varies depending
on the accounting classification and future expected disposition strategy. We retain the majority of our automobile loans as they complement
our core business model, but we do sell loans from time to time on an opportunistic basis. We primarily originate mortgage loans with the
intent to sell them and, as such, retain only a small percentage of the loans that we originate or purchase. Mortgage loans that we do not
intend to retain are sold to investors, primarily through securitizations guaranteed by GSEs. However, we may retain an interest or right to
service these loans. We ultimately manage the associated risks based on the underlying economics of the exposure. Given our recent strategic
actions, we intend to continue to originate a modest level of jumbo and conventional conforming residential mortgages through a select group
of correspondent lenders with the intent to retain within our held-for-investment portfolio.
•
Finance receivables and loans — Loans that we have the intent and ability to hold for the foreseeable future or until maturity or
loans associated with an on-balance sheet securitization classified as secured financing. These loans are recorded at the principal
amount outstanding, net of unearned income and premiums and discounts. Probable credit-related losses inherent in our finance
receivables and loans carried at historical cost are reflected in our allowance for loan losses and recognized in current period
earnings. We manage the economic risks of these exposures, including credit risk, by adjusting underwriting standards and risk
limits, augmenting our servicing and collection activities (including loan modifications and restructurings), and optimizing our
product and geographic concentrations. Additionally, we had historically elected to carry certain mortgage loans of ResCap at fair
value. Changes in the fair value of these loans are recognized in a valuation allowance separate from the allowance for loan losses
and were reflected in current period earnings. We used market-based instruments, such as derivatives, to hedge changes in the fair
value of these loans. Refer to the Critical Accounting Estimates discussion within this MD&A and Note 1 to the Consolidated
Financial Statements for further information.
55
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
• Held-for-sale loans — Loans that we have the intent to sell. These loans are recorded on our balance sheet at the lower of cost or
estimated fair value and are evaluated by portfolio and product type. Changes in the recorded value are recognized in a valuation
allowance and reflected in current period earnings. We manage the economic risks of these exposures, including market and credit
risks, in various ways including the use of market-based instruments such as derivatives. Refer to the Critical Accounting Estimates
discussion within this MD&A and Note 1 to the Consolidated Financial Statements for further information.
• Off-balance sheet securitized loans — Loans that we transfer off-balance sheet to nonconsolidated variable interest entities. We
primarily report this exposure as cash, servicing rights, or retained interests (if applicable). Similar to finance receivables and loans,
we manage the economic risks of these exposures, including credit risk, through activities including servicing and collections. Refer
to the Critical Accounting Estimates discussion within this MD&A and Note 1 to the Consolidated Financial Statements for further
information.
• Operating lease assets — The net book value of the automobile assets we lease are based on the expected residual values upon
remarketing the vehicles at the end of the lease. We are exposed to fluctuations in the expected residual value upon remarketing the
vehicle at the end of the lease, and as such at contract inception, we generally determine the projected residual values based on
independent data, including independent guides of vehicle residual values, and analysis. A valuation allowance related to lease
credit losses is recorded directly against the lease rent receivable balance which is a component of Other Assets. An impairment to
the carrying value of the assets may be deemed necessary if there is an unfavorable and unrecoverable change in the value of the
recorded asset. Refer to the Critical Accounting Estimates discussion within this MD&A and Note 1 to the Consolidated Financial
Statements for further information.
•
Serviced loans and leases — Loans that we service on behalf of our customers or another financial institution. As such, these loans
can be on or off our balance sheet. For our mortgage servicing rights, we record an asset or liability (at fair value) based on whether
the expected servicing benefits will exceed the expected servicing costs. Changes in the fair value of the mortgage servicing rights
are recognized in current period earnings. We also service consumer automobile loans. We do not record servicing rights assets or
liabilities for these loans because we receive a fee that adequately compensates us for the servicing costs. We manage the economic
risks of these exposures, including market and credit risks, in part through market-based instruments such as derivatives and
securities. Refer to the Critical Accounting Estimates discussion within this MD&A and Note 1 to the Consolidated Financial
Statements for further information.
Credit Risk Management
Credit risk is defined as the potential failure to receive payments when due from a creditor in accordance with contractual obligations.
Therefore, credit risk is a major source of potential economic loss to us. To mitigate the risk, we have implemented specific processes across
all lines of business utilizing both qualitative and quantitative analyses. Credit risk is monitored by global and line of business committees and
the Global Risk Management organization. Together they oversee the credit decisioning and management processes and monitor that credit
risk exposures are managed in a safe-and-sound manner and are within our risk appetite. In addition, our Global Loan Review Group provides
an independent assessment of the quality of our credit portfolios and credit risk management practices, and directly reports its findings to the
Risk and Compliance Committee on a regular basis.
We have policies and practices that reflect our commitment to maintain an independent and ongoing assessment of credit risk and credit
quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and lease
portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are
potential problem areas, loans and leases with potential credit weaknesses, and assessment of the adequacy of internal credit risk policies and
procedures to monitor compliance with relevant laws and regulations. In addition, we maintain limits and underwriting guidelines that reflect
our risk appetite.
We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market
conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated
geographic region or a particular product or industry segment. To mitigate risk concentrations, we may take part in loan sales and
syndications.
Additionally, we have implemented numerous initiatives in an effort to mitigate loss and provide ongoing support to customers in
financial distress. For automobile loans, we offer several types of assistance to aid our customers. Loss mitigation includes changing the
maturity date, extending payments, and rewriting the loan terms. We have implemented these actions with the intent to provide the borrower
with additional options in lieu of repossessing their vehicle. For mortgage loans, as part of our participation in certain governmental
programs, we offer mortgage loan modifications to qualified borrowers. Numerous initiatives, such as the Home Affordable Modification
Program (HAMP) are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity
extensions, delinquent interest capitalization, and changes to contractual interest rates.
Furthermore, we manage our counterparty credit exposure based on the risk profile of the counterparty. Within our policies, we have
established minimum standards and requirements for managing counterparty risk exposures in a safe-and-sound manner. Counterparty credit
risk is derived from multiple exposure types, including derivatives, securities trading, securities financing transactions, financial futures, cash
balances (e.g. due from depository institutions, restricted accounts and cash equivalents), and investment in debt securities. For more
information on Derivative Counterparty Credit Risk, refer to Note 22 to the Consolidated Financial Statements.
56
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
During 2012, the U.S. economy continued to expand and the labor market recovered further. Within the U.S. automotive portfolio,
encouraging trends include higher automotive industry sales when compared to the previous year. Additionally, the housing market continued
to recover with strong home price appreciation in late 2012 and existing home sales registered their highest annual level since 2007. We
continue to be cautious with the outlook due to weak manufacturing activity, slow global economic growth and pending budgets cuts to the
U.S. federal government.
On-balance Sheet Portfolio
Our on-balance sheet portfolio includes both finance receivables and loans and held-for-sale loans. At December 31, 2012, this primarily
included $86.5 billion of automobile finance receivables and loans and $12.3 billion of mortgage finance receivables and loans. Within our
on-balance sheet portfolio, we had historically elected to account for certain mortgage loans of ResCap at fair value. The valuation allowance
recorded on fair value-elected loans is separate from the allowance for loan losses. Changes in the fair value of loans are classified as gain on
mortgage and automotive loans, net, in the Consolidated Statement of Comprehensive Income.
During 2012, we further executed on our strategy of discontinuing and selling or liquidating nonstrategic operations. Refer to Note 2 to
the Consolidated Financial Statements for additional information.
The following table presents our total on-balance sheet consumer and commercial finance receivables and loans reported at carrying
value before allowance for loan losses.
December 31, ($ in millions)
2012
2011
2012
2011
2012
2011
Outstanding
Nonperforming (a)
Accruing past due 90
days or more (b)
Consumer
Finance receivables and loans
Loans at historical cost
Loans at fair value
Total finance receivables and loans
Loans held-for-sale
Total consumer loans
Commercial
Finance receivables and loans
Loans at historical cost
Loans at fair value
Total finance receivables and loans
Loans held-for-sale
Total commercial loans
$
63,536
$
73,452
$
642
$
—
63,536
2,490
66,026
835
74,287
8,537
82,824
35,519
40,468
—
—
35,519
40,468
86
20
35,605
40,488
—
642
25
667
216
—
216
—
216
883
$
567
210
777
2,820
3,597
339
—
339
—
339
1
—
1
—
1
—
—
—
—
—
1
$
$
4
—
4
73
77
—
—
—
—
—
77
Total on-balance sheet loans
$
101,631
$
123,312
$
$
3,936
$
(a)
Includes nonaccrual troubled debt restructured loans of $419 million and $934 million at December 31, 2012, and December 31, 2011, respectively.
(b) Generally, loans that are 90 days past due and still accruing represent loans with government guarantees. This includes no troubled debt restructured loans
classified as 90 days past due and still accruing at December 31, 2012, and $42 million at December 31, 2011.
Total on-balance sheet loans outstanding at December 31, 2012, decreased $21.7 billion to $101.6 billion from December 31, 2011
reflecting a decrease of $16.8 billion in the consumer portfolio and a decrease of $4.9 billion in the commercial portfolio. The decrease in
total on-balance sheet loans outstanding was primarily driven by the reclassification of foreign Automotive Finance operations to
discontinued operations and the deconsolidation of ResCap, partially offset by domestic automobile originations which outpaced portfolio
runoff. Refer to Note 1 and Note 2 to the Consolidated Financial Statements for additional information related to ResCap and discontinued
operations, respectively.
The total TDRs outstanding at December 31, 2012, decreased $744 million to $1.2 billion from December 31, 2011, due to the
deconsolidation of ResCap.
During the third quarter of 2012, the Office of the Comptroller of the Currency (OCC) advised the banks for which they serve as the
primary bank regulatory agency that certain loans that are current, have been discharged in a Chapter 7 Bankruptcy and have not been
reaffirmed by the borrower should be accounted for as TDRs and written down to collateral value regardless of their current payment history
and expected continued performance. The OCC is not our primary regulator, and our primary regulator has not provided definitive guidance.
It is expected that all of the banking regulators will be evaluating this issue in the first quarter of 2013; however, due to industry practice, we
have determined that these loans should be accounted for as TDRs on a prospective basis. The write down based on the discounted expected
cash flows of these assets has already been considered in our allowance for loan and lease losses recorded at December 31, 2012. The impact
of any change will not be material.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Total nonperforming loans at December 31, 2012, decreased $3.1 billion to $883 million from December 31, 2011, reflecting a decrease
of $2.9 billion of consumer nonperforming loans and a decrease of $123 million of commercial nonperforming loans. The decrease in total
nonperforming loans from December 31, 2011, was primarily due to the deconsolidation of ResCap. Nonperforming loans include finance
receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined
not to be probable. Refer to Note 1 to the Consolidated Financial Statements for additional information.
The following table includes consumer and commercial net charge-offs from finance receivables and loans at historical cost and related
ratios reported at carrying value before allowance for loan losses.
Year ended December 31, ($ in millions)
Consumer
Finance receivables and loans at historical cost
Commercial
Finance receivables and loans at historical cost
Total finance receivables and loans at historical cost
Net charge-offs (recoveries)
Net charge-off ratios (a)
2012
2011
2012
2011
$
$
507
$
514
0.7%
0.7%
(33)
474
$
39
553
(0.1)
0.4
0.1
0.5
(a) Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value
and loans held-for-sale during the year for each loan category.
Net charge-offs were $474 million for the year ended December 31, 2012, compared to $553 million for the year ended December 31,
2011. The decrease in net charge-offs for the year ended December 31, 2012, was largely due to recoveries in the commercial portfolio. Loans
held-for-sale are accounted for at the lower-of-cost or fair value, and therefore we do not record charge-offs.
The Consumer Credit Portfolio and Commercial Credit Portfolio discussions that follow relate to consumer and commercial finance
receivables and loans recorded at historical cost. Finance receivables and loans recorded at historical cost have an associated allowance for
loan losses. Finance receivables and loans measured at fair value were excluded from these discussions since those exposures are not
accounted for within our allowance for loan losses.
Consumer Credit Portfolio
Our consumer portfolio primarily consists of automobile loans, first mortgages, and home equity loans (we ceased originating home
equity loans in 2009). Loan losses in our consumer portfolio are influenced by general business and economic conditions including
unemployment rates, bankruptcy filings, and home and used vehicle prices. Additionally, our consumer credit exposure is significantly
concentrated in automobile lending (largely through GM and Chrysler dealerships). Due to our subvention relationships, we are able to
mitigate some interest income exposure to certain consumer defaults by receiving a rate support payment directly from the automotive
manufacturers at origination.
Credit risk management for the consumer portfolio begins with the initial underwriting and continues throughout a borrower's credit
cycle. We manage consumer credit risk through our loan origination and underwriting policies, credit approval process, and servicing
capabilities. We use proprietary credit-scoring models to differentiate the expected default rates of credit applicants enabling us to better
evaluate credit applications for approval and to tailor the pricing and financing structure according to this assessment of credit risk. We
regularly review the performance of the credit scoring models and update them for historical information and current trends. These and other
actions mitigate but do not eliminate credit risk. Improper evaluations of a borrower's creditworthiness, fraud, and/or changes in the
applicant's financial condition after approval could negatively affect the quality of our receivables portfolio, resulting in loan losses.
Our servicing activities are another key factor in managing consumer credit risk. Servicing activities consist largely of collecting and
processing customer payments, responding to customer inquiries such as requests for payoff quotes, and processing customer requests for
account revisions (such as payment extensions and refinancings). Servicing activities are generally consistent across our operations; however,
certain practices may be influenced by local laws and regulations.
During the year ended December 31, 2012, the credit performance of the consumer portfolio remained strong as our charge-off rate was
relatively stable. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and
charge-offs, refer to Note 1 to the Consolidated Financial Statements.
58
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes consumer finance receivables and loans recorded at historical cost reported at carrying value before
allowance for loan losses.
December 31, ($ in millions)
2012
2011
2012
2011
2012
2011
Outstanding
Nonperforming (a)
Accruing past due 90
days or more (b)
$
53,713
$
46,576
$
260
$
139
$
— $
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
7,173
2,648
63,534
2
—
—
2
6,867
3,102
56,545
16,883
24
—
16,907
342
40
642
—
—
—
—
258
58
455
89
23
—
112
567
$
1
—
1
—
—
—
—
1
$
—
1
—
1
3
—
—
3
4
Total consumer finance receivables and loans
$
63,536
$
73,452
$
642
$
Includes nonaccrual troubled debt restructured loans of $373 million and $180 million at December 31, 2012, and December 31, 2011, respectively.
(a)
(b) There were no troubled debt restructured loans classified as 90 days past due and still accruing at December 31, 2012, and December 31, 2011.
Total consumer outstanding finance receivables and loans decreased $9.9 billion at December 31, 2012 compared with December 31,
2011. This decrease was related to the reclassification of foreign Automotive Finance operations to discontinued operations. This was partially
offset by an increase in our core domestic business driven by automobile consumer loan originations, which outpaced portfolio runoff,
primarily due to increased industry sales and growth in used and non-GM/Chrysler originations. Additionally, we continued to prudently
expand our nonprime originations.
Total consumer nonperforming finance receivables and loans at December 31, 2012, increased $75 million to $642 million from
December 31, 2011, reflecting an increase of $32 million of consumer automobile nonperforming finance receivables and loans and an
increase of $43 million of consumer mortgage nonperforming finance receivables and loans. Nonperforming consumer domestic automotive
finance receivables and loans increased due in part to seasoning of the domestic portfolio as well as increased TDRs as we continue to provide
additional options in lieu of repossessing vehicles. Nonperforming consumer domestic mortgage finance receivables and loans increased
primarily due to increased TDRs as we continue foreclosure prevention and loss mitigation procedures along with our participation in a
variety of government-sponsored refinancing programs. Refer to Note 8 to the Consolidated Financial Statements for additional information.
Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans were
1.0% and 0.8% at December 31, 2012 and December 31, 2011, respectively.
Consumer domestic automotive loans accruing and past due 30 days or more increased $290 million to $1.1 billion at December 31,
2012, compared with December 31, 2011. The increase is primarily due to asset growth, prudent expansion of underwriting strategy, which
was significantly narrowed during the recession, and seasoning of the portfolio.
59
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes consumer net charge-offs from finance receivables and loans at historical cost and related ratios reported at
carrying value before allowance for loan losses.
Year ended December 31, ($ in millions)
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Net charge-offs
Net charge-off ratios (a)
2012
2011
2012
2011
$
267
$
249
0.5%
0.6%
82
56
405
102
—
—
102
507
115
74
438
72
4
—
76
$
514
1.2
2.0
0.7
0.6
4.4
—
0.6
0.7
1.7
2.3
0.8
0.4
1.2
—
0.4
0.7
Total foreign
Total consumer finance receivables and loans
$
(a) Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value
and loans held-for-sale during the year for each loan category.
Our net charge-offs from total consumer automobile finance receivables and loans were $369 million for the year ended December 31,
2012, compared to $321 million for the year ended December 31, 2011. The $18 million increase in net charge-offs from the domestic
automobile finance receivables and loans for the year ended December 31, 2012, was driven primarily by higher outstandings as the net
charge-off rate improved.
Our net charge-offs from total consumer mortgage receivables and loans were $138 million for the year ended December 31, 2012,
compared to $193 million in 2011. The decrease was driven by the improved mix of remaining loans as the lower quality legacy loans
continued to runoff.
The following table summarizes the unpaid principal balance of total consumer loan originations for the periods shown. Total consumer
loan originations include loans classified as finance receivables and loans and loans held-for-sale during the period.
Year ended December 31, ($ in millions)
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Total consumer loan originations
2012
2011
$ 30,351
$ 32,933
32,465
—
62,816
56,258
—
89,191
9,653
9,983
—
—
9,653
1,403
—
11,386
$
72,469
$
100,577
Total automobile-originated loans decreased $2.9 billion for the year ended December 31, 2012, compared to 2011. The decrease was
primarily due to lower retail penetration at both GM and Chrysler. Total mortgage-originated loans decreased $25.2 billion for the year ended
December 31, 2012. The decline in loan production was primarily driven by the reduction in correspondent lending.
Consumer loan originations retained on-balance sheet as held-for-investment were $42.2 billion at December 31, 2012, compared to
$44.6 billion at December 31, 2011. The decrease was primarily due to lower retail penetration at both GM and Chrysler.
60
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table shows the percentage of total consumer finance receivables and loans recorded at historical cost reported at carrying
value before allowance for loan losses by state and foreign concentration. Total automobile loans were $53.7 billion and $63.5 billion at
December 31, 2012, and December 31, 2011, respectively. Total mortgage and home equity loans were $9.8 billion and $10.0 billion at
December 31, 2012, and December 31, 2011, respectively.
December 31,
Texas
California
Florida
Michigan
Pennsylvania
Illinois
New York
Ohio
Georgia
North Carolina
Other United States
Foreign (b)
Total consumer loans
2012 (a)
2011
Automobile
12.9%
5.6
6.7
5.0
5.2
4.3
4.6
4.0
3.7
3.3
44.7
—
1st Mortgage
and home
equity
5.8%
29.2
3.6
4.1
1.6
4.8
2.0
0.8
1.9
2.0
44.2
—
Automobile
9.5%
4.6
4.8
4.0
3.6
3.1
3.5
2.9
2.5
2.2
32.9
26.4
1st Mortgage
and home
equity
5.5%
25.7
4.0
4.8
1.6
5.0
2.3
1.0
1.8
2.1
45.9
0.3
100.0%
100.0%
100.0%
100.0%
(a) Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2012.
(b) Foreign consumer finance receivables and loans as of December 31, 2012, was $2 million. These remaining foreign balances are within Finland and the
Czech Republic.
We monitor our consumer loan portfolio for concentration risk across the geographies in which we lend. The highest concentrations of
loans in the United States are in Texas and California, which represented an aggregate of 21.0% and 16.4% of our total outstanding consumer
finance receivables and loans at December 31, 2012, and December 31, 2011, respectively.
Concentrations in our Mortgage operations are closely monitored given the volatility of the housing markets. Our consumer mortgage
loan concentrations in California, Florida, and Michigan receive particular attention as the real estate value depreciation in these states has
been amongst the most severe.
Repossessed and Foreclosed Assets
We classify an asset as repossessed or foreclosed (included in other assets on the Consolidated Balance Sheet) when physical possession
of the collateral is taken. We dispose of the acquired collateral in a timely fashion in accordance with regulatory requirements. For more
information on repossessed and foreclosed assets, refer to Note 1 to the Consolidated Financial Statements.
Repossessed assets in our Automotive Finance operations at December 31, 2012, increased $6 million to $62 million from December 31,
2011. Foreclosed mortgage assets at December 31, 2012, decreased $71 million to $6 million from December 31, 2011, primarily due to the
deconsolidation of ResCap.
Higher-Risk Mortgage Loans
Since 2009, we primarily focused our origination efforts on prime conforming and government-insured residential mortgages in the
United States. However, we continued to hold mortgage loans originated in prior years that have features that expose us to potentially higher
credit risk including high original loan-to-value mortgage loans (prime or nonprime), payment-option adjustable-rate mortgage loans (prime
nonconforming), interest-only mortgage loans (classified as prime conforming or nonconforming for domestic production and prime
nonconforming or nonprime for international production), and below-market rate (teaser) mortgages (prime or nonprime).
In circumstances when a loan has features such that it falls into multiple categories, it is classified to a category only once based on the
following hierarchy: (1) high original loan-to-value (LTV) mortgage loans, (2) payment-option adjustable-rate mortgage loans, (3) interest-
only mortgage loans, and (4) below-market rate (teaser) mortgages. Given the continued stress within the housing market, we believe this
hierarchy provides the most relevant risk assessment of our nontraditional products.
• High loan-to-value mortgages — Defined as first-lien loans with original loan-to-value ratios equal to or in excess of 100% or
second-lien loans that when combined with the underlying first-lien mortgage loan result in an original loan-to-value ratio equal to
or in excess of 100%. We ceased originating these loans with the intent to retain during 2009.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
•
•
Payment-option adjustable-rate mortgages — Permit a variety of repayment options. The repayment options include minimum,
interest-only, fully amortizing 30-year, and fully amortizing 15-year payments. The minimum payment option generally sets the
monthly payment at the initial interest rate for the first year of the loan. The interest rate resets after the first year, but the borrower
can continue to make the minimum payment. The interest-only option sets the monthly payment at the amount of interest due on the
loan. If the interest-only option payment would be less than the minimum payment, the interest-only option is not available to the
borrower. Under the fully amortizing 30- and 15-year payment options, the borrower's monthly payment is set based on the interest
rate, loan balance, and remaining loan term. We ceased originating these loans during 2008.
Interest-only mortgages — Allow interest-only payments for a fixed time. At the end of the interest-only period, the loan payment
includes principal payments and can increase significantly. The borrower's new payment, once the loan becomes amortizing
(i.e., includes principal payments), will be greater than if the borrower had been making principal payments since the origination of
the loan. We ceased originating these loans with the intent to retain during 2010.
• Below-market rate (teaser) mortgages — Contain contractual features that limit the initial interest rate to a below-market interest
rate for a specified time period with an increase to a market interest rate in a future period. The increase to the market interest rate
could result in a significant increase in the borrower's monthly payment amount. We ceased originating these loans with the intent to
retain during 2008.
The following table summarizes mortgage finance receivables and loans by higher-risk loan type. These finance receivables and loans
are recorded at historical cost and reported at carrying value before allowance for loan losses.
2012
2011
December 31, ($ in millions)
Outstanding Nonperforming
Accruing
past due
90 days
or more
Outstanding
Nonperforming
Accruing
past due
90 days or
more
Interest-only mortgage loans (a)
Below-market rate (teaser) mortgages
Total higher-risk mortgage loans
$
$
2,063
192
2,255
$
$
125
3
128
$
$
— $
—
— $
2,947
248
3,195
$
$
147
6
153
$
$
—
—
—
(a) The majority of the interest-only mortgage loans are expected to start principal amortization in 2015 or beyond.
High original LTV mortgage finance receivables and loans and payment-option adjustable-rate mortgage finance receivables and loans
remained flat at $1 million and $3 million, respectively, at December 31, 2012 and December 31, 2011. There were no high original LTV
mortgage loans or payment-option adjustable-rate mortgage loans classified as nonperforming or 90 days past due and still accruing at
December 31, 2012 and December 31, 2011.
The allowance for loan losses was $104 million, or 4.6%, of total higher-risk held-for-investment mortgage loans recorded at historical
cost based on carrying value outstanding before allowance for loans losses at December 31, 2012.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes our five largest state concentrations based on our higher-risk mortgage finance receivables and loans
recorded at historical cost and reported at carrying value before allowance for loan losses.
December 31, ($ in millions)
2012
California
Virginia
Maryland
Illinois
Michigan
Other United States
Total higher-risk mortgage loans
2011
California
Virginia
Maryland
Illinois
Michigan
Other United States
Total higher-risk mortgage loans
Commercial Credit Portfolio
Interest-only
mortgage loans
Below-market
rate (teaser)
mortgages
Total
higher-risk
mortgage loans
$
$
$
$
$
$
$
500
216
166
107
106
968
2,063
748
274
217
153
199
60
$
9
5
6
5
107
192
78
10
6
8
9
$
$
1,356
2,947
$
137
248
$
560
225
171
113
111
1,075
2,255
826
284
223
161
208
1,493
3,195
Our commercial portfolio consists primarily of automotive loans (wholesale floorplan, dealer term loans including real estate loans, and
automotive fleet financing), and some commercial finance loans. In general, the credit risk of our commercial portfolio is impacted by overall
economic conditions in the countries in which we operate and the financial health of the automotive manufacturers that provide the inventory
we floorplan. As part of our floorplan financing arrangements, we typically require repurchase agreements with the automotive manufacturer
to repurchase new vehicle inventory under certain circumstances.
Our credit risk on the commercial portfolio is markedly different from that of our consumer portfolio. Whereas the consumer portfolio
represents smaller-balance homogeneous loans that exhibit fairly predictable and stable loss patterns, the commercial portfolio exposures can
be less predictable. We utilize an internal credit risk rating system that is fundamental to managing credit risk exposure consistently across
various types of commercial borrowers and captures critical risk factors for each borrower. The ratings are used for many areas of credit risk
management, such as loan origination, portfolio risk monitoring, management reporting, and loan loss reserves analyses. Therefore, the rating
system is critical to an effective and consistent credit risk management framework.
During the year ended December 31, 2012, the credit performance of the commercial portfolio remained strong as nonperforming
finance receivables and loans and net charge-offs declined. For information on our commercial credit risk practices and policies regarding
delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes total commercial finance receivables and loans reported at carrying value before allowance for loan losses.
December 31, ($ in millions)
2012
2011
2012
2011
2012
2011
Outstanding
Nonperforming (a)
Accruing past due
90 days or more (b)
Domestic
Commercial and industrial
Automobile
Mortgage
Other (c)
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other (c)
Commercial real estate
Automobile
Mortgage
Total foreign
$
30,270
$
26,552
$
146
$
105
$
— $
—
2,679
2,552
—
35,501
—
—
18
—
—
18
1,887
1,178
2,331
—
31,948
8,265
24
63
154
14
8,520
—
33
37
—
216
—
—
—
—
—
—
—
22
56
—
183
118
—
15
11
12
156
339
—
—
—
—
—
—
—
—
—
—
—
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
Total commercial finance receivables and loans
$
35,519
$
40,468
$
216
$
Includes nonaccrual troubled debt restructured loans of $29 million and $21 million at December 31, 2012, and December 31, 2011, respectively.
(a)
(b) There were no troubled debt restructured loans classified as 90 days past due and still accruing at December 31, 2012 and December 31, 2011.
(c) Other commercial primarily includes senior secured commercial lending.
Total commercial finance receivables and loans outstanding decreased $4.9 billion to $35.5 billion at December 31, 2012, from
December 31, 2011. The domestic commercial and industrial outstandings increased $3.3 billion primarily due to increased automotive
industry sales and corresponding rise in inventories as well as ResCap's debtor-in-possession financing, partially offset by the wind-down of
the mortgage warehouse lending's portfolio. The foreign commercial and industrial outstandings decreased $8.3 billion primarily due to the
reclassification of foreign Automotive Finance operations to discontinued operations.
Total domestic commercial nonperforming finance receivables and loans were $216 million at December 31, 2012, an increase of $33
million compared to December 31, 2011. However, portfolio performance was stable during 2012, and total nonperforming commercial
finance receivables and loans as a percentage of outstanding commercial finance receivables and loans declined from 0.8% as of
December 31, 2011 to 0.6% as of December 31, 2012.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table includes total commercial net charge-offs from finance receivables and loans at historical cost and related ratios
reported at carrying value before allowance for loan losses.
Year ended December 31, ($ in millions)
Domestic
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Total commercial finance receivables and loans
Net charge-offs (recoveries)
Net charge-off ratios (a)
2012
2011
2012
2011
$
$
2
(1)
(3)
(1)
—
(3)
(2)
—
(28)
—
—
(30)
(33)
$
$
7
(3)
(7)
6
(1)
2
(1)
8
2
1
27
37
39
—%
(0.1)
(0.2)
—
—
—
—
2.2
(75.3)
0.3
(7.1)
(0.4)
(0.1)
—%
(0.3)
(0.5)
0.3
n/m
—
—
25.0
0.8
0.3
60.9
0.4
0.1
n/m = not meaningful
(a) Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value
and loans held-for-sale during the year for each loan category.
Our net charge-offs from commercial finance receivables and loans resulted in recoveries of $33 million for the year ended
December 31, 2012, compared to net charge-offs of $39 million in 2011. The decrease in net charge-offs during 2012 was largely driven by
strong recoveries in certain wind-down portfolios and an improved mix of loans in the existing portfolios.
Commercial Real Estate
The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real
estate finance receivables and loans were $2.6 billion and $2.5 billion at December 31, 2012, and December 31, 2011, respectively.
65
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents the percentage of total commercial real estate finance receivables and loans by geographic region and
property type. These finance receivables and loans are reported at carrying value before allowance for loan losses.
December 31,
Geographic region
Texas
Michigan
Florida
California
New York
Virginia
North Carolina
Pennsylvania
Georgia
Tennessee
Other United States
Foreign
Total commercial real estate finance receivables and loans
Property type
Automotive dealers
Other
Total commercial real estate finance receivables and loans
Commercial Criticized Exposure
2012
2011
13.0%
12.6
11.7
9.3
4.9
3.9
3.9
3.3
3.0
2.3
32.1
—
12.4%
14.1
12.4
9.3
3.5
4.1
2.1
2.9
2.5
1.8
28.3
6.6
100.0%
100.0%
100.0%
—
100.0%
99.4%
0.6
100.0%
Finance receivables and loans classified as special mention, substandard, or doubtful are deemed criticized. These classifications are
based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or
have already defaulted. These finance receivables and loans require additional monitoring and review including specific actions to mitigate
our potential economic loss.
The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentrations.
These finance receivables and loans are reported at carrying value before allowance for loan losses.
December 31,
Industry
Automotive
Manufacturing
Services
Other
Total commercial criticized finance receivables and loans
2012
2011
85.7%
82.9%
5.5
4.9
3.9
1.8
1.9
13.4
100.0%
100.0%
Total criticized exposures declined $1.4 billion to $1.7 billion at December 31, 2012 from December 31, 2011, primarily due to the
reclassification of foreign Automotive Finance operations to discontinued operations as well as improvements in dealer financial condition
within the domestic automotive industry. The increase in our automotive criticized concentration rate was driven primarily by the decrease in
overall criticized outstandings.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Selected Loan Maturity and Sensitivity Data
The table below shows the commercial finance receivables and loans portfolio and the distribution between fixed and floating interest
rates based on the stated terms of the commercial loan agreements. This portfolio is reported at carrying value before allowance for loan
losses.
December 31, 2012 ($ in millions)
Within 1 year (a)
1-5 years
After 5 years
Total (b)
Commercial and industrial
Commercial real estate
Total domestic
Foreign
Total commercial finance receivables and loans
Loans at fixed interest rates
Loans at variable interest rates
Total commercial finance receivables and loans
$
$
31,107
$
1,798
$
44
$
131
31,238
3
31,241
$
$
$
2,004
3,802
15
3,817
1,809
2,008
3,817
$
$
$
417
461
—
461
381
80
461
$
32,949
2,552
35,501
18
35,519
Includes loans (e.g., floorplan) with revolving terms.
(a)
(b) Loan maturities are based on the remaining maturities under contractual terms.
Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Consumer
automobile
Consumer
mortgage
Total
consumer
Commercial
Total
Allowance at January 1, 2012
$
766
$
516
$
1,282
$
221
$
1,503
Charge-offs
Domestic
Foreign
Total charge-offs
Recoveries
Domestic
Foreign
Total recoveries
Net charge-offs
Provision for loan losses
Foreign provision for loan losses
Deconsolidation of ResCap
Other (a)
(438)
(178)
(616)
171
76
247
(369)
257
115
—
(194)
(149)
—
(149)
11
—
11
(138)
86
—
(9)
(3)
(587)
(178)
(765)
182
76
258
(507)
343
115
(9)
(197)
Allowance at December 31, 2012
$
575
$
452
$
1,027
$
(8)
(3)
(11)
11
33
44
33
(14)
(50)
—
(47)
143
(595)
(181)
(776)
193
109
302
(474)
329
65
(9)
(244)
$
1,170
Allowance for loan losses to finance receivables and loans
outstanding at December 31, 2012 (b)
Net charge-offs to average finance receivables and loans
outstanding at December 31, 2012 (b)
Allowance for loan losses to total nonperforming finance
receivables and loans at December 31, 2012 (b)
Ratio of allowance for loans losses to net charge-offs at
December 31, 2012
1.1%
0.5%
4.6%
1.4%
1.6%
0.7%
0.4 %
(0.1)%
1.2%
0.4%
221.3%
118.0%
159.8%
66.4 %
136.3%
1.6
3.3
2.0
(4.3)
2.5
(a) Other includes the allowance of foreign Automotive Finance operations finance receivables and loans that were reclassified as discontinued operations.
(b) Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a
percentage of the unpaid principal balance, net of premiums and discounts.
The allowance for consumer loan losses at December 31, 2012, declined $255 million compared to December 31, 2011. The decline
reflects the reclassification of the foreign Automotive Finance operations to discontinued operations and the runoff of legacy portfolios, which
was partially offset by an increase in loans outstanding.
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The allowance for commercial loan losses declined $78 million at December 31, 2012, compared to December 31, 2011, primarily
related to the ongoing strength in dealer performance, the reclassification of foreign Automotive Finance operations to discontinued
operations, and general overall improvement in the Commercial Finance Group's portfolio.
($ in millions)
Consumer
automobile
Consumer
mortgage
Total
consumer
Commercial
Total
Allowance at January 1, 2011
$
970
$
580
$
1,550
$
323
$
1,873
Charge-offs
Domestic
Foreign
Total charge-offs
Recoveries
Domestic
Foreign
Total recoveries
Net charge-offs
Provision for loan losses
Foreign provision for loan losses
Other
Allowance at December 31, 2011
$
Allowance for loan losses to finance receivables and loans
outstanding at December 31, 2011 (a)
Net charge-offs to average finance receivables and loans
outstanding at December 31, 2011 (a)
Allowance for loan losses to total nonperforming finance
receivables and loans at December 31, 2011 (a)
Ratio of allowance for loans losses to net charge-offs at
December 31, 2011
(435)
(145)
(580)
186
73
259
(321)
102
52
(37)
766
1.2%
0.5%
(205)
(5)
(210)
16
1
17
(193)
129
—
—
(640)
(150)
(790)
202
74
276
(514)
231
52
(37)
(27)
(63)
(90)
25
26
51
(39)
(43)
(21)
1
(667)
(213)
(880)
227
100
327
(553)
188
31
(36)
$
516
$
1,282
$
221
$
1,503
5.2%
1.9%
1.7%
0.7%
0.5%
0.1%
1.3%
0.5%
335.8%
152.1%
226.0%
65.3%
165.9%
2.4
2.7
2.5
5.7
2.7
(a) Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a
percentage of the unpaid principal balance, net of premiums and discounts.
The allowance for consumer loan losses was $1.3 billion at December 31, 2011, compared to $1.6 billion at December 31, 2010. The
decline reflected overall improved credit quality of newer vintages reflecting tightened underwriting standards which was partially offset by
an increase in loans outstanding.
The allowance for commercial loan losses was $221 million at December 31, 2011, compared to $323 million at December 31, 2010.
The decline was primarily related to improvement in dealer performance and continued wind-down of non-core commercial assets.
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Ally Financial Inc. • Form 10-K
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
2012
2011
Allowance for
loan losses
Allowance as
a % of loans
outstanding
Allowance as
a % of
allowance for
loan losses
Allowance for
loan losses
Allowance as
a % of loans
outstanding
Allowance as
a % of
allowance for
loan losses
December 31, ($ in millions)
Consumer
Domestic
Consumer automobile
$
575
1.1%
49.2% $
600
1.3%
39.9%
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Total consumer loans
Commercial
Domestic
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Total commercial loans
Total allowance for loan losses
$
245
207
1,027
—
—
—
—
1,027
55
—
48
40
—
143
—
—
—
—
—
—
143
1,170
20.9
17.7
87.8
—
—
—
—
87.8
4.7
—
4.1
3.4
—
12.2
—
—
—
—
—
—
12.2
100.0% $
275
237
1,112
166
4
—
170
1,282
62
1
52
39
—
154
48
10
1
3
5
67
221
1,503
4.0
7.7
2.0
1.0
14.5
—
1.0
1.7
0.2
—
4.4
1.7
—
0.5
0.6
43.1
1.9
1.7
33.2
0.8
0.5
1.3
18.3
15.8
74.0
11.1
0.2
—
11.3
85.3
4.0
0.1
3.5
2.6
—
10.2
3.2
0.7
0.1
0.2
0.3
4.5
14.7
100.0%
3.4
7.8
1.6
—
—
—
—
1.6
0.2
—
1.8
1.6
—
0.4
—
—
—
—
—
—
0.4
1.2
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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
Year ended December 31, ($ in millions)
2012
2011
2010
Consumer
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Total consumer loans
Commercial
Domestic
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Total commercial loans
Total provision for loan losses
$
257
$
102
$
228
52
34
343
—
—
—
—
68
55
225
—
6
—
6
343
231
(3)
(1)
(10)
—
—
(14)
—
—
—
—
—
—
(3)
(3)
(51)
(10)
(1)
(68)
—
5
—
—
20
25
(14)
(43)
$
329
$
188
$
72
90
390
(2)
2
—
—
390
2
(13)
(47)
34
(10)
(34)
(2)
(5)
—
—
8
1
(33)
357
Lease Residual Risk Management
We are exposed to residual risk on vehicles in the consumer lease portfolio. This lease residual risk represents the possibility that the
actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at
lease inception. The following factors most significantly influence lease residual risk. For additional information on our valuation of
automobile lease assets and residuals, refer to the Critical Accounting Estimates — Valuation of Automobile Lease Assets and Residuals
section within this MD&A.
• Used vehicle market — We have exposure to changes in used vehicle prices. General economic conditions, used vehicle supply and
demand, and new vehicle market prices heavily influence used vehicle prices.
• Residual value projections — We establish risk adjusted residual values at lease inception by consulting independently published
guides and proprietary statistical models. The residual values are consistently monitored during the lease term. These values are
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Ally Financial Inc. • Form 10-K
projections of expected values in the future (typically between two and four years) based on current assumptions for the respective
make and model. Actual realized values often differ.
• Remarketing abilities — Our ability to efficiently process and effectively market off-lease vehicles affects the disposal costs and
the proceeds realized from vehicle sales.
• Manufacturer vehicle and marketing programs — Automotive manufacturers influence lease residual results in the following
ways:
The brand image of automotive manufacturers and consumer demand for their products affect residual risk.
Automotive manufacturer marketing programs may influence the used vehicle market for those vehicles through programs
such as incentives on new vehicles, programs designed to encourage lessees to terminate their leases early in conjunction with
the acquisition of a new vehicle (referred to as pull-ahead programs), and special rate used vehicle programs.
Automotive manufacturers may provide support to us for certain residual deficiencies.
The following table summarizes the volume of our serviced lease terminations in the United States over recent periods. It also
summarizes the average sales proceeds on 24-, 36-, and 48-month scheduled lease terminations for those same periods. The mix of terminated
vehicles in 2012 was used to normalize results over previous periods to more clearly demonstrate market pricing trends.
Year ended December 31,
Off-lease vehicles remarketed (in units)
Average sales proceeds on scheduled lease terminations ($ per unit)
24-month (a)
36-month (b)
48-month
2012
2011
2010
63,315
248,624
376,203
$
22,586
n/m $
22,400
n/m
18,124
n/m
16,134
n/m
14,289
n/m = not meaningful
(a) During 2011, 24-month lease terminations were not materially sufficient to create a historical comparison due to our temporary curtailment of leasing in
2009.
(b) The 36-month lease terminations were not materially sufficient to create a historical multi-year comparison from that term due to our temporary
curtailment of leasing in 2009.
The number of off-lease vehicles remarketed in 2012 reached a historic low, declining 75% from 2011. The significant decrease was due
to our temporary curtailment of leasing in late 2008 through 2009. Sales proceeds have strengthened since 2009 due primarily to the lower
supply of attractive used vehicles, which can be largely attributed to the significant drop in new vehicle sales and leasing activity during the
last economic downturn. For information on our Investment in Operating Leases, refer to Note 9 to the Consolidated Financial Statements.
Market Risk
Our automotive financing, mortgage, and insurance activities give rise to market risk representing the potential loss in the fair value of
assets or liabilities and earnings caused by movements in market variables, such as interest rates, foreign-exchange rates, equity prices,
market perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases.
We are exposed to interest rate risk arising from changes in interest rates related to financing, investing, and cash management activities.
More specifically, we have entered into contracts to provide financing, to retain mortgage servicing rights, and to retain various assets related
to securitization activities all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk
arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including
derivatives, to maintain the desired level of exposure to the risk of interest rate and other fluctuations. Refer to Note 22 to the Consolidated
Financial Statements for further information.
We are also exposed to foreign-currency risk arising from the possibility that fluctuations in foreign-exchange rates will affect future
earnings or asset and liability values related to our global operations. We enter into hedges to mitigate foreign exchange risk.
We also have exposure to equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to
price risk influenced by capital market movements. We enter into equity options to economically hedge our exposure to the equity markets.
Although the diversity of our activities from our complementary lines of business may partially mitigate market risk, we also actively
manage this risk. We maintain risk management control systems to monitor interest rates, foreign-currency exchange rates, equity price risks,
and any of their related hedge positions. Positions are monitored using a variety of analytical techniques including market value, sensitivity
analysis, and value at risk models.
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Fair Value Sensitivity Analysis
The following table and subsequent discussion presents a fair value sensitivity analysis of our assets and liabilities using isolated
hypothetical movements in specific market rates. The analysis assumes adverse instantaneous, parallel shifts in market-exchange rates,
interest rate yield curves, and equity prices. Additionally, since only adverse fair value impacts are included, the natural offset between asset
and liability rate sensitivities that arise within a diversified balance sheet, such as ours, is not considered.
December 31, ($ in millions)
Financial instruments exposed to changes in:
Interest rates
Estimated fair value
Effect of 10% adverse change in rates
Foreign-currency exchange rates
Estimated fair value
Effect of 10% adverse change in rates
Equity prices
Estimated fair value
Effect of 10% decrease in prices
2012
2011
Nontrading
Trading
Nontrading
Trading
$
(a)
(a)
—
—
$
(a)
(a)
549
(2)
$
$
2,791
$
— $
6,724
$
(279)
—
(672)
1,152
$
— $
1,059
$
(115)
—
(106)
—
—
—
—
(a) Refer to the next section titled Net Interest Income Sensitivity Analysis for information on the interest rate sensitivity of our nontrading financial
instruments.
The fair value of our foreign-currency exchange-rate sensitive financial instruments decreased during the year ended December 31,
2012, compared to 2011, due to decreases in finance receivables and loans that were reclassified to discontinued operations partially offset by
a decrease in foreign-denominated short-term borrowings and foreign-denominated long-term debt that were also reclassified to discontinued
operations. The net decrease consequently drove the decrease in the fair value estimate and associated adverse 10% change in rates impact.
The increase in the fair value of our equity sensitive financial instruments was due to a slightly higher equity investment balance compared to
prior year. This change in equity exposure drove our increased sensitivity to a 10% decrease in equity prices.
Net Interest Income Sensitivity Analysis
We use net interest income sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our
nontrading financial instruments. Interest rate risk represents the most significant market risk to the nontrading exposures. We actively
monitor the level of exposure so that movements in interest rates do not adversely affect future earnings.
We prepare forward-looking forecasts of net interest income, which take into consideration anticipated future business growth, asset/
liability positioning, and interest rates based on the implied forward curve. Simulations are used to assess changes in net interest income in
multiple interest rates scenarios relative to the baseline forecast. The changes in net interest income relative to the baseline are defined as the
sensitivity. The net interest income sensitivity tests measure the potential change in our pretax net interest income over the following twelve
months. A number of alternative rate scenarios are tested including immediate parallel shocks to the forward yield curve, nonparallel shocks
to the forward yield curve, and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types.
Included in our forward-looking forecast is the planned sale of our international and Canadian operations. These instruments were moved
to discontinued operations at year end 2012 based on their expected sale in 2013. Consequently, the interest income and expense from these
instruments is not included in net interest income and their interest sensitivity is managed using a fair value approach. Therefore, we no
longer include the interest sensitivity of these financial instruments in our net interest income simulations.
Our twelve-month pretax net interest income sensitivity based on the forward-curve was as follows.
Year ended December 31, ($ in millions)
Parallel rate shifts
-100 basis points
+100 basis points
+200 basis points
2012
2011
$
(7) $
(46)
48
73
(84)
88
The adverse change in net interest income in the -100 basis point scenario in the 2012 analysis is mainly due to the low interest rate
environment as further declines in deposit and short funding rates are limited. The positive change in net interest income in the +200 basis point
scenario is mainly due to income on certain commercial loans that have rate index floors. Interest income on these loans increases significantly
as interest rates and the related rate index rises above the level of the floor.
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Ally Financial Inc. • Form 10-K
The change in net interest income sensitivity from the prior year was due to the lower and flatter yield curve and to a lesser extent the
planned sale of our international operations.
Operational Risk
We define operational risk as the risk of loss resulting from inadequate or failed processes or systems, human factors, or external events.
Operational risk is an inherent risk element in each of our businesses and related support activities. Such risk can manifest in various ways,
including errors, business interruptions, and inappropriate behavior of employees, and can potentially result in financial losses and other
damage to us. Examples of operational risk include legal/compliance, vendor management, model, reputational, and representation and
warranty obligation risks (See the Purchase Obligations discussion within this MD&A).
To monitor and control such risk, we maintain a system of policies and a control framework designed to provide a sound and well-
controlled operational environment. This framework employs practices and tools designed to maintain risk governance, risk and control
assessment and testing, risk monitoring, and transparency through risk reporting mechanisms. The goal is to maintain operational risk at
appropriate levels in view of our financial strength, the characteristics of the businesses and the markets in which we operate, and the related
competitive and regulatory environment.
Notwithstanding these risk and control initiatives, we may incur losses attributable to operational risks from time to time, and there can
be no assurance these losses will not be incurred in the future.
Insurance / Underwriting Risk
In underwriting our vehicle service contracts and insurance policies, we assess the particular risk involved, including losses and loss
adjustment expenses, and determine the acceptability of the risk as well as the categorization of the risk for appropriate pricing. We base our
determination of the risk on various assumptions tailored to the respective insurance product. With respect to vehicle service contracts,
assumptions include the quality of the vehicles produced, the price of replacement parts, repair labor rates in the future, and new model
introductions. Insurance risk also includes event risk, which is synonymous with pure risk, hazard risk, or insurance risk, and presents no
chance of gain, only of loss.
In some instances, reinsurance is used to reduce the risk associated with volatile businesses, such as catastrophe risk in U.S. dealer
vehicle inventory insurance. Our commercial products business is covered by traditional catastrophe protection, aggregate stop loss
protection, and an extension of catastrophe coverage for hurricane events. In addition, loss control techniques, such as hail nets or storm path
monitoring to assist dealers in preparing for severe weather, help to mitigate loss potential.
We mitigate losses by the active management of claim settlement activities using experienced claims personnel and the evaluation of
current period reported claims. Losses for these events may be compared to prior claims experience, expected claims, or loss expenses from
similar incidents to assess the reasonableness of incurred losses.
In accordance with industry and accounting practices and applicable insurance laws and regulatory requirements, we maintain reserves
for reported losses, losses incurred but not reported, and loss adjustment expenses. The estimated values of our prior reported loss reserves
and changes to the estimated values are routinely monitored by credentialed actuaries. Our reserve estimates are regularly reviewed by
management; however, since the reserves are based on estimates and numerous assumptions, the ultimate liability may differ from the amount
estimated.
Country Risk
We have exposures to obligors domiciled in foreign countries; and therefore, our portfolio is subject to country risk. Country risk is the
risk that conditions in a foreign country will impair the value of our assets, restrict our ability to repatriate equity or profits, or adversely
impact the ability of the guarantor to uphold their obligations to us. Country risk includes risks arising from the economic, political, and social
conditions prevalent in a country, as well as the strengths and weaknesses in the legal and regulatory framework. These conditions may have
potentially favorable or unfavorable consequences for our investments in a particular country.
Country risk is measured by determining our cross-border outstandings in accordance with Federal Financial Institutions Examination
Council guidelines. Cross-border outstandings are reported as assets within the country of which the obligor or guarantor resides.
Furthermore, outstandings backed by tangible collateral are reflected under the country in which the collateral is held. For securities received
as collateral, cross-border outstandings are assigned to the domicile of the issuer of the securities. Resale agreements are presented based on
the domicile of the counterparty.
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Ally Financial Inc. • Form 10-K
The following table lists all countries in which cross-border outstandings exceed 1.0% of consolidated assets.
($ in millions)
2012 (b)
Canada
Germany
United Kingdom
2011 (b)
Canada
Germany
United Kingdom
Banks
Sovereign
Other
Net
local country
assets
Derivatives
Total
cross-border
outstandings (a)
$
396
$
305
$
190
$
2,953
$
6
$
10
265
30
—
3
16
3,340
2,348
450
237
$
343
$
250
$
451
$
3,746
$
20
$
47
311
32
6
5
13
3,219
962
576
1,356
3,850
3,833
2,866
4,810
3,879
2,648
(a) As we continue to execute on our strategy of selling or liquidating our nonstrategic operations, our total cross-border outstandings will significantly
decline upon the completion of the transactions.
(b) Our total cross-border exposure to Portugal, Ireland, Italy, Greece, and Spain was $649 million and $327 million as of December 31, 2012, and 2011,
respectively, most of which was nonsovereign exposure.
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Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to ensure our ability to meet changes in loan and lease demand, debt maturities, deposit
withdrawals, and other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our
primary objective is to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all
market cycles. Sources of liquidity include both retail and brokered deposits and secured and unsecured market-based funding across various
maturity, interest rate, currency, and investor profiles. Further liquidity is available through a pool of unencumbered highly liquid securities,
borrowing facilities, repurchase agreements, as well as funding programs supported by the Federal Reserve and the Federal Home Loan Bank
of Pittsburgh (FHLB).
We define liquidity risk as the risk that an institution's financial condition or overall safety and soundness is adversely affected by an
inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise
from a variety of institution specific or market-related events that could have a negative impact on cash flows available to the organization.
Effective management of liquidity risk helps ensure an organization's preparedness to meet uncertain cash flow obligations caused by
unanticipated events. The ability of financial institutions to manage liquidity needs and contingent funding exposures has proven essential to
their solvency.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for monitoring Ally's liquidity position,
funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate
Treasury is responsible for managing the liquidity positions of Ally within prudent operating guidelines and targets approved by ALCO and
the Risk and Compliance Committee of the Ally Financial Board of Directors. We manage liquidity risk at the business segment, legal entity,
and consolidated levels. Each business segment, along with Ally Bank, prepares periodic forecasts depicting anticipated funding needs and
sources of funds with oversight and monitoring by Corporate Treasury. Corporate Treasury manages liquidity under baseline economic
projections as well as more severe economic stressed environments. Corporate Treasury, in turn, plans, and executes our funding strategies.
Ally uses multiple measures to frame the level of liquidity risk, manage the liquidity position, or identify related trends as early warning
indicators. These measures include coverage ratios that measure the sufficiency of the liquidity portfolio and stability ratios that measure
longer-term structural liquidity. In addition, we have established several internal management routines designed to review all aspects of
liquidity and funding plans, evaluate the adequacy of liquidity buffers, review stress testing results, and assist senior management in the
execution of its structured funding strategy and risk management accountabilities.
We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available credit facility capacity that,
taken together, allows us to operate and to meet our contractual and contingent obligations in the event of market-wide disruptions and
enterprise-specific events. We maintain available liquidity at various entities and consider regulatory restrictions and tax implications that may
limit our ability to transfer funds across entities. At December 31, 2012, we maintained $15.6 billion of total available parent company
liquidity and $13.2 billion of total available liquidity at Ally Bank. Parent company liquidity is defined as our consolidated operations less
Ally Bank and the subsidiaries of Ally Insurance's holding company. To optimize cash and secured facility capacity between entities, the
parent company lends cash to Ally Bank on occasion under an intercompany loan agreement. At December 31, 2012, $1.6 billion was
outstanding under the intercompany loan agreement. Amounts outstanding are repayable to the parent company upon demand, subject to five
days notice. As a result, this amount is included in the parent company available liquidity and excluded from the available liquidity at Ally
Bank.
In December 2010, the Basel Committee on Banking Supervision issued “Basel III: International framework for liquidity risk
measurement, standards and monitoring”, which includes two minimum liquidity risk standards. The first standard is the Liquidity Coverage
Ratio (LCR). The LCR measures the ratio of unencumbered, high-quality liquid assets to liquidity needs for a 30-calendar-day time horizon
under a severe liquidity stress scenario specified by supervisors. The second standard is the Net Stable Funding Ratio (NSFR). The NSFR is
structured to ensure that long term assets are funded with at least a minimum amount of stable liabilities in relation to their liquidity risk
profiles. It aims to encourage better assessment of liquidity risk across all on- and off-balance sheet items. In January 2013, the Group of
Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision unanimously endorsed
amendments to the Liquidity Coverage Ratio announced in December 2010. A summary of changes include: a phased-in implementation with
minimum ratio of 60% in 2015, growing by 10% per year to reach 100% by 2019; an expanded definition of high quality liquid assets; and
adjustments to net cash outflows. The GHOS indicated that the NSFR will be a priority for the Basel Committee over the next two years and
the scheduled implementation date remains unchanged at January 2018. We continue to monitor the potential impacts of these developments
and expect to be able to meet the final requirements.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on our timely and cost-effective access to retail deposits and funding in
different segments of the capital markets. We continue to be focused on maintaining and enhancing our liquidity. Our funding strategy largely
focuses on the development of diversified funding sources across a global investor base to meet all our liquidity needs throughout different
market cycles, including periods of financial distress. These funding sources include unsecured debt capital markets, unsecured retail term
notes, public and private asset-backed securitizations, committed and uncommitted credit facilities, brokered certificates of deposits, and retail
deposits. We also supplement these sources with a modest amount of short-term borrowings, including Demand Notes, unsecured bank loans,
and repurchase arrangements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one source, and
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Ally Financial Inc. • Form 10-K
results in a more cost-effective funding strategy over the long term. We evaluate funding markets on an ongoing basis to achieve an
appropriate balance of unsecured and secured funding sources and the maturity profiles of both. In addition, we further distinguish our
funding strategy between Ally Bank funding and parent company or nonbank funding.
We diversify Ally Bank's overall funding in order to reduce reliance on any one source of funding and to achieve a well-balanced
funding portfolio across a spectrum of risk, duration, and cost of funds characteristics. Over the past few years, we have been focused on
diversifying our funding sources, in particular at Ally Bank by growing retail deposits, expanding public and private securitization programs,
maintaining the maturity profile of our brokered deposit portfolio while not exceeding a $10.0 billion portfolio, establishing repurchase
agreements, and continuing to access funds from the Federal Home Loan Banks.
Since 2009, we have been directing new bank-eligible assets in the United States to Ally Bank in order to reduce and minimize our
nonbanking exposures and funding requirements and utilize our growing consumer deposit-taking capabilities. This has allowed us to use
bank funding for a wider array of our automotive finance assets and to provide a sustainable long-term funding channel for the business,
while also improving the cost of funds for the enterprise.
Ally Bank
Ally Bank raises deposits directly from customers through the direct banking channel via the internet and over the telephone. These
deposits provide our Automotive Finance and Mortgage operations with a stable and low-cost funding source. At December 31, 2012, Ally
Bank had $46.9 billion of total external deposits, including $35.0 billion of retail deposits.
At December 31, 2012, Ally Bank maintained cash liquidity of $2.7 billion and unencumbered highly liquid U.S. federal government and
U.S. agency securities of $5.9 billion. In addition, at December 31, 2012, Ally Bank had unused capacity in committed secured funding
facilities of $6.2 billion, including an equal allocation of shared unused capacity of $3.0 billion from a facility also available to the parent
company. Our ability to access this unused capacity depends on having eligible assets to collateralize the incremental funding and, in some
instances, the execution of interest rate hedges. To optimize use of cash and secured facility capacity between entities, Ally Financial lends
cash to Ally Bank from time to time under an intercompany agreement. Amounts outstanding on this loan are repayable to Ally Financial at
any time. Ally Bank has total available liquidity of $13.2 billion at December 31, 2012, which excludes the intercompany loan of $1.6 billion.
Maximizing bank funding continues to be a key part of our long-term liquidity strategy. We have made significant progress in migrating
assets to Ally Bank and growing our retail deposit base since becoming a bank holding company in December 2008. Retail deposit growth is
key to further reducing our cost of funds and decreasing our reliance on the capital markets. We believe deposits provide a stable, low-cost
source of funds that are less sensitive to interest rate changes, market volatility, or changes in our credit ratings when compared to other
funding sources. We have continued to expand our deposit gathering efforts through our direct and indirect marketing channels. Current retail
product offerings consist of a variety of products including certificates of deposits (CDs), savings accounts, money market accounts, IRA
deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party
intermediaries. During 2012, the deposit base at Ally Bank grew $7.3 billion, ending the year at $46.9 billion from $39.6 billion at
December 31, 2011. The growth in deposits has been primarily attributable to our retail deposit portfolio, particularly within our savings and
money market checking accounts, and our CDs. Strong retention rates continue to materially contribute to our growth in retail deposits. In the
fourth quarter of 2012 we retained 93% of maturing CD balances up for renewal in the same period. In addition to retail and brokered
deposits, Ally Bank had access to funding through a variety of other sources including FHLB advances, public securitizations, private secured
funding arrangements, and the Federal Reserve's Discount Window. At December 31, 2012, debt outstanding from the FHLB totaled $4.8
billion with no debt outstanding from the Federal Reserve. Also, as part of our liquidity and funding plans, Ally Bank utilizes certain
securities as collateral to access funding from repurchase agreements with third parties. Repurchase agreements are generally short-term. At
December 31, 2012, Ally Bank had no debt outstanding under repurchase agreements. Refer to Note 14 to the Consolidated Financial
Statements for a summary of deposit funding by type.
The following table shows Ally Bank's number of accounts and deposit balances by type as of the end of each quarter since 2011.
($ in millions)
4th Quarter
2012
3rd Quarter
2012
2nd Quarter
2012
1st Quarter
2012
4th Quarter
2011
3rd Quarter
2011
2nd Quarter
2011
1st Quarter
2011
Number of retail accounts
1,219,791
1,142,837
1,082,753
1,036,468
976,877
919,670
851,991
798,622
Deposits
Retail
Brokered
Other (a)
Total deposits
$
$
35,041 $
32,139 $
30,403 $
29,323 $
27,685 $
26,254 $
24,562 $
23,469
9,914
1,977
9,882
2,487
9,905
2,411
9,884
2,314
9,890
2,029
9,911
2,704
9,903
2,405
9,836
2,064
46,932 $
44,508 $
42,719 $
41,521 $
39,604 $
38,869 $
36,870 $
35,369
(a) Other deposits include mortgage escrow and other deposits (excluding intercompany deposits).
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance our Ally Bank
automotive loan portfolios. During 2012, Ally Bank completed eleven term securitization transactions backed by retail and dealer floorplan
automotive loans and lease notes raising $11.8 billion. Securitization has proven to be a reliable and cost-effective funding source.
Additionally, for retail automotive loans and lease notes, the term structure of the transaction locks in funding for a specified pool of loans
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Ally Financial Inc. • Form 10-K
and leases for the life of the underlying asset creating an effective tool for managing interest rate and liquidity risk. We manage the execution
risk arising from secured funding by maintaining a diverse investor base and maintaining capacity in our committed secured facilities. At
December 31, 2012, Ally Bank had exclusive access to $8.5 billion from committed credit facilities. Ally Bank also had access to a $4.1
billion committed facility that is shared with the parent company.
Nonbank Funding
At December 31, 2012, the parent company maintained liquid cash in the amount of $4.2 billion and unencumbered highly liquid
U.S. federal government and U.S. agency securities of $0.9 billion. In addition, at December 31, 2012, the parent company had available
liquidity from unused capacity in committed credit facilities of $7.2 billion, including an equal allocation of shared unused capacity of $3.0
billion from a facility also available to Ally Bank. Parent company funding is defined as our consolidated operations less our Insurance
operations and Ally Bank. Our ability to access unused capacity in secured facilities depends on the availability of eligible assets to
collateralize the incremental funding and, in some instances, the funding also relies on the execution of interest rate hedges. Funding sources
at the parent company generally consist of longer-term unsecured debt, unsecured retail term notes, committed credit facilities, asset-backed
securitizations, and a modest amount of short-term borrowings. To optimize use of cash and secured facility capacity between entities, Ally
Financial lends cash to Ally Bank from time to time under an intercompany agreement. Amounts outstanding on this loan are repayable to
Ally Financial at any time. The parent company has total available liquidity of $15.6 billion at December 31, 2012, which includes the
intercompany loan of $1.6 billion. The total available liquidity amount at December 31, 2012 also includes $1.7 billion of availability that is
sourced from certain committed funding arrangements generally reliant upon the origination of future automotive receivables over the next
twelve months.
During 2012, we completed five transactions totaling $3.6 billion in funding through the U.S. debt capital markets. We will continue to
access the unsecured debt capital markets on an opportunistic basis to help pre-fund upcoming debt maturities. In addition, we have short-
term and long-term unsecured debt outstanding from a legacy retail term note program known as SmartNotes. This program generally
consisted of fixed-rate instruments with fixed-maturity dates ranging from 9 months to 30 years that were issued through a network of
participating broker-dealers. During 2012, we launched a new retail term note program known as Ally Term Notes. There were $7.9 billion
and $9.0 billion of combined retail term notes outstanding at December 31, 2012, and December 31, 2011, respectively.
We also obtain unsecured funding from the sale of floating-rate demand notes under our Demand Notes program. The holder has the
option to require us to redeem these notes at any time without restriction. Demand Notes outstanding were $3.1 billion at December 31, 2012,
compared to $2.8 billion at December 31, 2011. Unsecured short-term bank loans also provide short-term funding. At December 31, 2012, we
had $167 million in short-term bank loans, a decrease of $1.4 billion from December 31, 2011. Refer to Note 15 and Note 16 to the
Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt,
respectively.
Secured funding continues to be a significant source of financing at the parent company. During 2012, the parent company completed
automotive-related transactions that included the renewal and extension of $22.3 billion of committed secured funding capacity, the creation
of incremental private secured funding capacity totaling $7.1 billion, and $2.4 billion in public term securitizations in Europe and Canada. In
January 2013 we completed a public retail securitization using the Capital Auto Receivables Asset Trust (CARAT) platform, our first since
2008, raising more than $1.5 billion. We continue to maintain significant funding capacity at the parent company to fund automotive-related
assets, including a $7.5 billion syndicated facility that can fund automotive retail and commercial loans, as well as leases. In March 2012, this
facility was renewed by a syndicate of nineteen lenders and extended such that half of the capacity will mature in March 2013 and the other
half will mature in March 2014. In addition to this facility, there are a variety of others that provide funding in various countries. At
December 31, 2012, the parent company had $30.3 billion of exclusive commitments globally in various facilities secured by automotive
assets. The parent company also had access to a $4.1 billion committed facility that is shared with Ally Bank.
Recent Funding Developments
In summary, during 2012, we completed funding transactions totaling more than $28.0 billion and renewed key existing funding
facilities as we realized access to both the public and private markets. Key funding highlights from 2012 and 2013 to date were as follows:
• We accessed the unsecured debt capital markets in February, June, August, and December of 2012 and raised $3.6 billion.
•
In 2012, we have continued to access the public asset-backed securitization markets completing eleven U.S. transactions that raised
$11.8 billion. Included within the total amount is Ally Bank's inaugural term lease transaction in the U.S. totaling $1.3 billion in
funding. Additionally, we completed European and Canadian (retail and dealer floorplan) transactions that raised $1.9 billion and
$516 million, respectively.
• We created $7.1 billion of new private capacity to fund automotive assets.
• We renewed and extended more than $22.0 billion of key automotive funding facilities. The automotive facility renewal amount
includes the March 2012 refinancing of $15.0 billion in credit facilities at both the parent company and Ally Bank with a syndicate
of nineteen lenders. The $15.0 billion capacity is secured by retail, lease and dealer floorplan automotive assets and is allocated to
two separate $7.5 billion facilities, one of which is available to the parent company and a Canadian subsidiary while the other is
available to Ally Bank. Half of the capacity matures in March 2013 and the other half matures in March 2014. We are currently
working on the renewal of the $15.0 billion facility and expect to reduce the total capacity.
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•
•
In January 2013, Ally Financial issued its first public securitization since 2008 using its existing CARAT platform. This transaction
raised more than $1.5 billion in funding.
In February 2013, Ally Bank issued a public dealer floorplan securitization. This deal raised $1.0 billion in funding.
In October and December of 2012, we repaid $2.9 billion and $4.5 billion in debt issued under the FDIC's Temporary Liquidity
Guarantee Program, respectively. As of December 31, 2012, there is no outstanding TLGP debt.
Funding Sources
The following table summarizes debt and other sources of funding and the amount outstanding under each category for the periods
shown.
As a result of our funding strategy to maximize funding sources at Ally Bank and grow our retail deposit base, the percentage of funding
sources from Ally Bank has increased in 2012 from 2011 levels. In addition, deposits represent a larger portion of the overall funding mix.
December 31, ($ in millions)
Bank
Nonbank
Total
%
2012
Secured financings
Institutional term debt
Retail debt programs (a)
Bank loans and other
Total debt (b)
Deposits (c)
Total on-balance sheet funding
2011
Secured financings
Institutional term debt
Retail debt programs (a)
Temporary Liquidity Guarantee Program (d)
Bank loans and other
Total debt (b)
Deposits (c)
Total on-balance sheet funding
Off-balance sheet securitizations
Mortgage loans
Total off-balance sheet securitizations
$
29,161
$
15,950
$
$
$
—
—
2
29,163
46,932
76,095
25,533
—
—
—
1
25,534
39,604
22,200
13,451
164
51,765
983
52,748
27,432
22,456
14,148
7,400
2,446
73,882
5,446
65,138
$
79,328
— $
— $
60,630
60,630
$
$
$
$
$
$
$
$
$
$
45,111
22,200
13,451
166
80,928
47,915
35
17
10
—
62
38
128,843
100
52,965
22,456
14,148
7,400
2,447
99,416
45,050
37
15
10
5
2
69
31
144,466
100
60,630
60,630
(a) Primarily includes $7.9 billion and $9.0 billion of Retail Term Notes at December 31, 2012 and December 31, 2011, respectively.
(b) Excludes fair value adjustment as described in Note 25 to the Consolidated Financial Statements.
(c) Bank deposits include retail, brokered, mortgage escrow, and other deposits. Nonbank deposits include dealer deposits. Intercompany deposits are not
included.
(d) The $7.4 billion of TLGP matured and was repaid in the fourth quarter of 2012.
Refer to Note 16 to the Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at December 31,
2012.
Funding Facilities
We utilize both committed and uncommitted credit facilities. The financial institutions providing the uncommitted facilities are not
contractually obligated to advance funds under them. The amounts outstanding under our various funding facilities are included on our
Consolidated Balance Sheet.
The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions.
The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they
can be amortizing and not allow for any further funding after the closing date. At December 31, 2012, $34.3 billion of our $43.0 billion of
committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of
December 31, 2012, we had $13.9 billion of committed funding capacity from revolving facilities with a remaining tenor greater than
364 days.
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Committed Funding Facilities
December 31, ($ in billions)
2012
2011
2012
2011
2012
2011
Outstanding
Unused capacity (a)
Total capacity
$
3.8
$
5.8
$
4.7
$
3.7
$
8.5
$
9.5
Bank funding
Secured - U.S.
Nonbank funding
Unsecured
Automotive Finance — U.S.
Automotive Finance — International
Secured
Automotive Finance — U.S. (b) (c)
Automotive Finance — International (b)
Mortgage operations
Total nonbank funding
Shared capacity (d)
U.S.
International
—
0.1
12.9
9.6
—
22.6
1.0
0.1
—
0.3
4.2
10.1
0.7
15.3
1.5
0.1
—
—
5.4
2.4
—
7.8
3.0
—
0.5
—
10.2
3.0
0.5
14.2
2.5
—
—
0.1
18.3
12.0
—
30.4
4.0
0.1
0.5
0.3
14.4
13.1
1.2
29.5
4.0
0.1
43.1
Total committed facilities
$
27.5
$
22.7
$
15.5
$
20.4
$
43.0
$
(a) Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent
incremental collateral is available and contributed to the facilities.
(b) Total unused capacity includes $2.2 billion as of December 31, 2012, and $4.9 billion as of December 31, 2011, from certain committed funding
arrangements that are generally reliant upon the origination of future automotive receivables and that are available in 2013.
Includes the secured facilities of our Commercial Finance Group.
(c)
(d) Funding is generally available for assets originated by Ally Bank or the parent company, Ally Financial Inc.
Uncommitted Funding Facilities
Outstanding
Unused capacity
Total capacity
December 31, ($ in billions)
2012
2011
2012
2011
2012
2011
Bank funding
Secured — U.S.
Federal Reserve funding programs
$
— $
— $
FHLB advances
Total bank funding
Nonbank funding
Unsecured
Automotive Finance — International
Secured
Automotive Finance — International
Mortgage operations
Total nonbank funding
Total uncommitted facilities
$
Ally Bank Funding Facilities
Facilities for Automotive Finance Operations — Secured
4.8
4.8
2.1
0.1
—
2.2
7.0
$
5.4
5.4
1.9
0.1
—
2.0
7.4
$
1.8
0.4
2.2
0.4
0.1
—
0.5
2.7
$
$
3.2
—
3.2
0.5
0.1
0.1
0.7
3.9
$
$
1.8
5.2
7.0
2.5
0.2
—
2.7
9.7
$
3.2
5.4
8.6
2.4
0.2
0.1
2.7
$
11.3
At December 31, 2012, Ally Bank had exclusive access to $8.5 billion from committed credit facilities. Ally Bank's largest facility is a
$7.5 billion revolving syndicated credit facility secured by automotive receivables. During the first quarter of 2012, we renewed this facility
with half of this facility maturing in March 2013, and the remainder maturing in March 2014. At December 31, 2012, the amount outstanding
under this facility was $3.8 billion. Ally Bank also had access to a $4.1 billion committed facility that is shared with the parent company. In
the event these facilities are not renewed in the future, the outstanding debt will be repaid over time as the underlying collateral amortizes.
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Nonbank Funding Facilities
Facilities for Automotive Finance Operations — Unsecured
We maintain $144 million in revolving committed unsecured bank facilities in our international operations, most of which mature in
March 2013.
Facilities for Automotive Finance Operations — Secured
The parent company's largest facility is a $7.5 billion revolving syndicated credit facility secured by automotive receivables. During the
first quarter of 2012, we renewed this facility with half of this facility maturing in March 2013, and the remainder maturing in March 2014. In
the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At
December 31, 2012, there was $7.5 billion outstanding under this facility.
In addition to our syndicated revolving credit facility, we also maintain various bilateral and multilateral secured credit facilities in
multiple countries that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool
of automotive assets. Many of the facilities have revolving commitments and allow for the funding of additional assets during the
commitment period. At December 31, 2012, the parent company maintained exclusive access to $30.3 billion of committed secured credit
facilities and forward purchase commitments to fund automotive assets, and also had access to a $4.1 billion committed facility that is shared
with Ally Bank.
Cash Flows
Net cash provided by operating activities was $5.0 billion for the year ended December 31, 2012, compared to $5.5 billion for the same
period in 2011. During the year ended December 31, 2012, the net cash inflow from sales and repayment of mortgage and automotive loans
held-for-sale exceeded cash outflow from new originations and purchases of such loans by $1.0 billion. During the year ended December 31,
2011, this activity resulted in a net cash inflow of $0.9 billion.
Net cash used in investing activities was $16.6 billion for the year ended December 31, 2012, compared to $14.1 billion for the same
period in 2011. The net cash outflow from finance receivables and loans decreased $4.5 billion for the year ended December 31, 2012,
compared to 2011. The cash outflow to purchase operating lease assets exceeded cash inflows from disposals of such assets by $5.7 billion for
the year ended December 31, 2012, compared to a net cash outflow of $1.0 billion for the year ended December 31, 2011. The increase in net
cash outflows associated with leasing activities compared to the prior year was primarily due to a decrease in cash received on lease
dispositions. Cash received from sales, maturities, and repayments of available-for-sale investment securities, net of purchases, increased $0.7
billion during the year ended December 31, 2012, compared to 2011.
Net cash provided by financing activities for the year ended December 31, 2012, totaled $8.0 billion, compared to $10.1 billion in the
same period in 2011. Cash provided by short-term debt increased $2.2 billion in the year ended December 31, 2012, compared to 2011, while
cash provided by bank deposits increased by $1.7 billion. Cash used to repay long-term debt exceeded cash generated from long-term debt
issuances by $0.5 billion for the year ended December 31, 2012. In 2011, cash from issuances of long-term debt exceed repayments by $4.3
billion.
Capital Planning and Stress Tests
As a bank holding company with $50 billion or more of consolidated assets, Ally is required to conduct periodic stress tests and submit a
proposed capital action plan to the FRB every January, which the FRB must take action on by the following March. The proposed capital
action plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or
equity capital instrument, any capital distribution, and any similar action that the FRB determines could have an impact on Ally's consolidated
capital. The proposed capital action plan must also include a discussion of how Ally will maintain capital above the minimum regulatory
capital ratios and above a Tier 1 common equity-to-total risk-weighted assets ratio of 5 percent, and serve as a source of strength to Ally
Bank. The FRB must approve Ally's proposed capital action plan before Ally may take any proposed capital action covered by the new
regime. Ally submitted its annual capital plan in January 2012, and then submitted a revised capital plan in June of 2012. In connection with
its reviews, the FRB provided notice of non-objection to Ally's planned preferred dividends and interest on the trust preferred securities and
subordinated debt. We continue to have active, frequent and constructive dialogue with the FRB, and have submitted the required 2013 capital
plan on January 7, 2013.
Regulatory Capital
Refer to Note 21 to the Consolidated Financial Statements.
Credit Ratings
The cost and availability of unsecured financing are influenced by credit ratings, which are intended to be an indicator of the
creditworthiness of a particular company, security, or obligation. Lower ratings result in higher borrowing costs and reduced access to capital
markets. This is particularly true for certain institutional investors whose investment guidelines require investment-grade ratings on term debt
and the two highest rating categories for short-term debt (particularly money market investors).
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Ally Financial Inc. • Form 10-K
Nationally recognized statistical rating organizations rate substantially all our debt. The following table summarizes our current ratings
and outlook by the respective nationally recognized rating agencies.
Rating agency
Short-term
Senior debt
Outlook
Date of last action
Fitch
Moody’s
S&P
DBRS
B
Not-Prime
C
R-4
BB-
B1
B+
Rating Watch Negative
April 18, 2012 (a)
Positive
Positive
February 25, 2013 (b)
May 17, 2012 (c)
BB-Low
Review - Developing
May 15, 2012 (d)
(a) Fitch placed our senior debt on Rating Watch Negative and affirmed the short-term rating of B on April 18, 2012.
(b) Moody's confirmed our senior debt rating of B1 and changed the outlook to Positive on February 25, 2013.
(c) Standard & Poor’s affirmed our senior debt rating of B+ and the short-term rating of C, and changed the outlook to Positive on May 17, 2012.
(d) DBRS placed our ratings Under Review - Developing on May 15, 2012.
Insurance Financial Strength Ratings
Substantially all of our Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from the
A.M. Best Company. The FSR is intended to be an indicator of the ability of the insurance company to meet its senior most obligations to
policyholders. Lower ratings generally result in fewer opportunities to write business as insureds, particularly large commercial insureds, and
insurance companies purchasing reinsurance have guidelines requiring high FSR ratings. On February 14, 2013, A.M. Best affirmed the FSR
of B++ (good) and the ICR of BBB.
Off-balance Sheet Arrangements
Refer to Note 10 to the Consolidated Financial Statements.
Securitization
Securitization of assets allows us to diversify funding sources by enabling us to convert assets into cash earlier than what would have
occurred in the normal course of business. Information regarding our securitization activities is further described in Note 10 to the
Consolidated Financial Statements. As part of these activities, assets are generally sold to securitization entities. These securitization entities
are separate legal entities that assume the risk and reward of ownership of the receivables. Neither we nor those subsidiaries are responsible
for the other entities' debts, and the assets of the subsidiaries are not available to satisfy our claim or those of our creditors. In turn, the
securitization entities establish separate trusts to which they transfer the assets in exchange for the proceeds from the sale of asset- or
mortgage-backed securities issued by the trust. The trusts' activities are generally limited to acquiring the assets, issuing asset- or mortgage-
backed securities, making payments on the securities, and periodically reporting to the investors. We may account for the transfer of assets as
a sale if we either do not hold a significant variable interest or do not provide servicing or asset management functions for the financial assets
held by the securitization entity.
Certain of our securitization transactions, while similar in legal structure to the transaction described in the foregoing do not meet the
required criteria to be accounted for as off-balance sheet arrangements; therefore, they are accounted for as secured financings. As secured
financings, the underlying automobile finance retail contracts, wholesale loans, automobile leases, commercial loans, or mortgage loans
remain on our Consolidated Balance Sheet with the corresponding obligation (consisting of the beneficial interests issued by the securitization
entity) reflected as debt. We recognize interest income on the finance receivables, automobile leases and loans, and interest expense on the
beneficial interests issued by the securitization entity; and we provide for loan losses on the finance receivables and loans as incurred or adjust
to fair value for fair value-elected loans. At December 31, 2012 and 2011, $68.0 billion and $78.5 billion of our total assets, respectively, were
related to secured financings. Refer to Note 16 to the Consolidated Financial Statements for further discussion.
As part of our securitization activities, we typically agree to service the transferred assets for a fee, and we may earn other related
ongoing income. The amount of the fees earned is disclosed in Note 11 to the Consolidated Financial Statements. We may also retain a
portion of senior and subordinated interests issued by the trusts; these interests are reported as investment securities, or other assets on our
Consolidated Balance Sheet and are disclosed in Note 6 and Note 13 to the Consolidated Financial Statements. For secured financings,
retained interests are not recognized as a separate asset on our Consolidated Balance Sheet. Subordinate interests typically provide credit
support to the more highly rated senior interest in a securitization transaction and may be subject to all or a portion of the first loss position
related to the sold assets.
The FDIC, which regulates Ally Bank, promulgated safe harbor regulation for securitizations by banks. Compliance with this regulation
requires the sponsoring bank to retain either five percent of each class of beneficial interests issued in the securitization or a representative
sample of similar financial assets equal to five percent of the securitized financial assets to comply with the regulation. The retained interests
or assets must be held for the life of the securitization and may not be sold, pledged or hedged, except that interest rate and currency hedging
is permitted. This risk retention requirement adversely affects the efficiency of securitizations, because it reduces the amount of funds that can
be raised against a given pool of financial assets.
We sometimes use derivative financial instruments to facilitate securitization activities, as further described in Note 22 to the
Consolidated Financial Statements.
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Our economic exposure related to the securitization trusts is generally limited to cash reserves, our other interests retained in financial
asset sales, and our customary representation and warranty provisions described in Note 10 to the Consolidated Financial Statements. The
trusts have a limited life and generally terminate upon final distribution of amounts owed to investors or upon exercise by us, as servicer of a
cleanup call option, when the servicing of the sold contracts becomes burdensome. In addition, the trusts do not invest in our equity or in the
equity of any of our affiliates.
Purchase Obligations
Certain of the structures related to whole-loan sales, securitization transactions, and other off-balance sheet activities contain provisions
that are standard in the whole-loan sale and securitization markets where we may (or, in certain limited circumstances, are obligated to)
purchase specific assets from entities. Our obligations are as follows.
Loan Repurchases and Obligations Related to Loan Sales
ResCap Bankruptcy Filing
As described in Note 1 and Note 29 to the Consolidated Financial Statements, on May 14, 2012, Residential Capital, LLC (ResCap) and
certain of its wholly owned direct and indirect subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. As a result of the deconsolidation of
ResCap, a significant portion of our representation and warranty reserve was eliminated. Representation and warranty reserve was $105
million at December 31, 2012 with respect to Ally Bank's sold and serviced loans.
Overview
Ally Bank, within our Mortgage operations, sells loans that take the form of securitizations guaranteed by Fannie Mae and Freddie Mac.
In connection with securitizations and loan sales, the trustee, for the benefit of the related security holders, is provided various representations
and warranties related to the loans sold. The specific representations and warranties typically relate to, among other things, the ownership of
the loan, the validity of the lien securing the loan, the loan's compliance with the criteria for inclusion in the transaction, including compliance
with underwriting standards or loan criteria established by the buyer, the ability to deliver required documentation and compliance with
applicable laws. In general, the representations and warranties described above may be enforced against Ally Bank at any time unless a sunset
provision is in place. Upon discovery of a breach of a representation or warranty, the breach is corrected in a manner conforming to the
provisions of the sale agreement. This may require Ally Bank to repurchase the loan, indemnify the investor for incurred losses, or otherwise
make the investor whole. See Repurchase Process below.
Originations
Representation and warranty risk-mitigation strategies include, but are not limited to, pursuing settlements with investors where
economically beneficial in order to resolve a pipeline of demands in lieu of loan-by-loan assessments that could result in repurchasing loans,
aggressively contesting claims we do not consider valid (rescinding claims), or seeking recourse against correspondent lenders from whom
we purchased loans wherever appropriate.
The following table summarizes domestic mortgage loans sold by ResCap where Ally Bank maintained the mortgage servicing rights;
and following the deconsolidation of ResCap, the loans that were sold by Ally Bank. The following table presents domestic mortgage loans
sold categorized by GSE (original unpaid principal balance).
Year ended December 31, ($ in billions)
2012
2011
2010
2009
2008
2007
Fannie Mae
Freddie Mac
Total sales (a)
$
$
21.5
6.9
28.4
$
$
33.8
15.8
49.6
$
$
35.2
15.7
50.9
$
$
21.1
8.5
29.6
$
$
17.7
8.6
26.3
$
$
6.7
2.3
9.0
(a) Representation and warranty obligations vary by loan and may not apply to all loans sold by Ally Bank.
Representation and Warranty Obligation Reserve Methodology
The liability for representation and warranty obligations reflects management's best estimate of probable lifetime losses at Ally Bank. We
consider historical and recent demand trends in establishing the reserve. The methodology used to estimate the reserve considers a variety of
assumptions including borrower performance (both actual and estimated future defaults), repurchase demand behavior, historical loan defect
experience, historical mortgage insurance rescission experience, and historical and estimated future loss experience, which includes
projections of future home price changes as well as other qualitative factors including investor behavior. In cases where we may not be able to
reasonably estimate losses, a liability is not recognized. Management monitors the adequacy of the overall reserve and makes adjustments to
the level of reserve, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience with
counterparties.
At the time a loan is sold, an estimate of the fair value of the liability is recorded and classified in accrued expenses and other liabilities
on our Consolidated Balance Sheet and recorded as a component of gain (loss) on mortgage and automotive loans, net, in our Consolidated
Statement of Comprehensive Income. We recognize changes in the liability when additional relevant information becomes available. Changes
in the estimate are recorded as other operating expenses in our Consolidated Statement of Comprehensive Income. The repurchase reserve at
December 31, 2012, relates exclusively to GSE exposure. Ally Bank experienced a decrease in new claims for the year ended December 31,
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2012 compared to 2011. The decrease in repurchase claims was driven by significantly fewer new claims during the fourth quarter of 2012.
The following table presents Ally Bank's new claims by GSEs (original unpaid principal balance).
Year ended December 31, ($ in millions)
Fannie Mae
Freddie Mac
Total claims
2012
2011
$
$
255
108
363
$
$
210
160
370
The following table presents the total number and original unpaid principal balance (UPB) of loans related to unresolved representation
and warranty demands (indemnification claims or repurchase demands). The table includes demands that we have requested be rescinded but
have not been agreed to by the investor. Total unresolved representation and warranty demands where Ally Bank has requested the investor to
rescind increased to $23 million or 40% of outstanding claims at December 31, 2012, compared to $11 million or 24% of outstanding claims
at December 31, 2011.
December 31, ($ in millions)
Fannie Mae
Freddie Mac
Total number of loans and unpaid principal balance
Repurchase Process
2012
2011
Number of
Loans
Original UPB
of Loans
Number of
Loans
Original UPB
of Loans
187
72
259
$
$
41
17
58
72
138
210
$
$
15
31
46
After receiving a claim under representation and warranty obligations, Ally Bank will review the claim to determine the appropriate
response (e.g., appeal and provide or request additional information) and take appropriate action (rescind, repurchase the loan, or remit
indemnification payment). Historically, repurchase demands were generally related to loans that became delinquent within the first few years
following origination. As a result of market developments over the past several years, investor repurchase demand behavior has changed
significantly. GSEs are more likely to submit claims for loans at any point in the loan's life cycle, including requests for loans that become
delinquent or loans that incur a loss. Representation and warranty claims are generally reviewed on a loan-by-loan basis to validate if there
has been a breach requiring a potential repurchase or indemnification payment. Ally Bank actively contests claims to the extent they are not
considered valid. Ally Bank is not required to repurchase a loan or provide an indemnification payment where claims are not valid.
The risk of repurchase or indemnification and the associated credit exposure is managed through underwriting and quality assurance
practices and by servicing mortgage loans to meet investor standards. Ally Bank believes that, in general, the longer a loan performs prior to
default, the less likely it is that an alleged breach of representation and warranty will be found to have a material and adverse impact on the
loan's performance. When loans are repurchased, Ally Bank bears the related credit loss on the loans. Repurchased loans are classified as
held-for-sale and initially recorded at fair value.
The following table presents Ally Bank's new claims by vintage (original unpaid principal balance).
Year ended December 31, ($ in millions)
Pre 2008
2008
Post 2008
Total claims
Private Mortgage Insurance
2012
2011
$
$
73
$
181
109
363
$
42
149
179
370
Mortgage insurance is required for certain consumer mortgage loans sold to the GSEs and certain securitization trusts. Mortgage
insurance is typically required for first-lien consumer mortgage loans having a loan-to-value ratio at origination of greater than 80 percent.
Mortgage insurers are, in certain circumstances, permitted to rescind existing mortgage insurance that covers consumer loans if they
demonstrate certain loan underwriting requirements have not been met. Upon receipt of a rescission notice, Ally Bank will assess the notice
and, if appropriate, refute the notice, or if the notice cannot be refuted, Ally Bank attempts to remedy the defect. In the event the mortgage
insurance cannot be reinstated, Ally Bank may be obligated to repurchase the loan or provide an indemnification payment in the event of a
loss, subject to contractual limitations. While Ally Bank makes every effort to reinstate the mortgage insurance, it has had limited success and
as a result, most of these requests result in rescission of the mortgage insurance. At December 31, 2012, Ally Bank has approximately $9
million in original unpaid principal balance of outstanding mortgage insurance rescission notices where it has not received a repurchase
demand. However, this unpaid principal amount is not representative of expected future losses.
Guarantees
Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based
on changes in an underlying agreement that is related to a guaranteed party. Our guarantees include standby letters of credit and certain
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contract provisions regarding securitizations and sales. Refer to Note 28 to the Consolidated Financial Statements for more information
regarding our outstanding guarantees to third parties.
Aggregate Contractual Obligations
The following table provides aggregated information about our outstanding contractual obligations disclosed elsewhere in our
Consolidated Financial Statements.
December 31, 2012 ($ in millions)
Description of obligation
Long-term debt
Total (a)
Scheduled interest payments for fixed-rate long-term debt
Estimated interest payments for variable-rate long-term debt (b)
Estimated net payments under interest rate swap agreements (b)
Originate/purchase mortgages or securities
Commitments to provide capital to investees
Home equity lines of credit
Lending commitments
Lease commitments
Purchase obligations
Bank certificates of deposit
Total
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
$
75,307
$
12,834
$
32,881
$
11,797
$
17,795
3,004
13,236
23,123
1,053
68
4,249
86
411
768
252
511
2,473
437
—
4,249
80
—
184
70
253
4,410
516
—
—
2
4
176
112
159
94
—
—
3
38
380
47
74
31,084
15,688
10,469
4,927
$ 136,912
$
36,268
$
48,729
$
20,364
$
31,551
6
68
—
1
369
28
23
25
—
(a) Total amount reflects the remaining principal obligation and excludes original issue discount of $1.8 billion and fair value adjustments of $1.1 billion
related to fixed-rate debt designated as a hedged item.
(b) Estimate utilized a forecasted variable interest model, when available, or the applicable variable interest rate as of the most recent reset date prior to
December 31, 2012.
The foregoing table does not include our reserves for insurance losses and loss adjustment expenses, which total $341 million at
December 31, 2012. While payments due on insurance losses are considered contractual obligations because they related to insurance policies
issued by us, the ultimate amount to be paid and the timing of payment for an insurance loss is an estimate subject to significant uncertainty.
Furthermore, the timing on payment is also uncertain; however, the majority of the balance is expected to be paid out in less than five years.
Similarly, due to uncertainty in the timing of future cash flows related to our unrecognized tax benefits, the contractual obligations detailed
above do not include $102 million in unrecognized tax benefits.
The following provides a description of the items summarized in the preceding table of contractual obligations.
Long-term Debt
Amounts represent the scheduled maturity of long-term debt at December 31, 2012, assuming that no early redemptions occur. The
maturity of secured debt may vary based on the payment activity of the related secured assets. The amounts presented are before the effect of
any unamortized discount or fair value adjustment. Refer to Note 15 and Note 16 to the Consolidated Financial Statements for additional
information on our debt obligations.
Originate/Purchase Mortgages or Securities
As part of our Mortgage operations, we enter into commitments to originate and purchase mortgages and MBS. Refer to Note 28 to the
Consolidated Financial Statements for additional information.
Commitments to Provide Capital to Investees
As part of arrangements with specific private equity funds, we are obligated to provide capital to investees. Refer to Note 28 to the
Consolidated Financial Statements for additional information.
Home Equity Lines of Credit
We are committed to fund the future remaining balance on unused lines of credit on mortgage loans. The funding is subject to customary
lending conditions, such as a satisfactory credit rating, delinquency status, and adequate home equity value. Refer to Note 28 to the
Consolidated Financial Statements for additional information.
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Lending Commitments
Our Automotive Finance operations and Commercial Finance Group have outstanding revolving lending commitments with customers.
The amounts presented represent the unused portion of those commitments at December 31, 2012. Refer to Note 28 to the Consolidated
Financial Statements for additional information.
Lease Commitments
We have obligations under various operating lease arrangements (primarily for real property) with noncancelable lease terms that expire
after December 31, 2012. Refer to Note 28 to the Consolidated Financial Statements for additional information.
Purchase Obligations
We enter into multiple contractual arrangements for various services. The arrangements represent fixed payment obligations under our
most significant contracts and primarily relate to contracts with information technology providers. Refer to Note 28 to the Consolidated
Financial Statements for additional information.
Bank Certificates of Deposit
Refer to Note 14 to the Consolidated Financial Statements for additional information.
Critical Accounting Estimates
Accounting policies are integral to understanding our Management's Discussion and Analysis of Financial Condition and Results of
Operations. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of
America (GAAP) requires management to make certain judgments and assumptions, on the basis of information available at the time of the
financial statements, in determining accounting estimates used in the preparation of these statements. Our significant accounting policies are
described in Note 1 to the Consolidated Financial Statements; critical accounting estimates are described in this section. An accounting
estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time
the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the
results of operations and cash flows. Our management has discussed the development, selection, and disclosure of these critical accounting
estimates with the Audit Committee of the Board, and the Audit Committee has reviewed our disclosure relating to these estimates.
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain instruments and to determine fair value disclosures. Refer to
Note 25 to the Consolidated Financial Statements for description of valuation methodologies used to measure material assets and liabilities at
fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized. We follow the fair value
hierarchy set forth in Note 25 to the Consolidated Financial Statements in order to prioritize the inputs utilized to measure fair value. We
review and modify, as necessary, our fair value hierarchy classifications on a quarterly basis. As such, there may be reclassifications between
hierarchy levels.
The following table summarizes assets and liabilities measured at fair value and the amounts measured using Level 3 inputs. The table
includes recurring and nonrecurring measurements.
Year ended December 31, ($ in millions)
Assets at fair value
As a percentage of total assets
Liabilities at fair value
As a percentage of total liabilities
Assets at fair value using Level 3 inputs
As a percentage of assets at fair value
Liabilities at fair value using Level 3 inputs
As a percentage of liabilities at fair value
n/m = not meaningful
2012
$ 20,408
$
$
$
11%
2,468
2%
1,288
6%
3
n/m
$
$
$
$
2011
30,172
16%
6,299
4%
4,666
15%
878
14%
Level 3 assets declined 72% or $3.4 billion primarily due to the deconsolidation of ResCap during the year ended December 31, 2012,
which resulted in a significant decline in mortgage servicing rights, mortgage loans held-for-sale, net, and consumer mortgage finance
receivables and loans, net. Refer to Note 1 to the Consolidated Financial Statements for further information on the deconsolidation of ResCap.
As the value of the consumer mortgage finance receivables and loans, net, declined, the value of the related on-balance sheet securitization
debt also declined, which was the primary reason Level 3 liabilities declined by 99.9% or $875 million.
We have numerous internal controls in place to ensure the appropriateness of fair value measurements. Significant fair value measures
are subject to detailed analytics and management review and approval. We have an established model validation policy and program in place
that covers all models used to generate fair value measurements. This model validation program ensures a controlled environment is used for
the development, implementation, and use of the models and change procedures. Further, this program uses a risk-based approach to select
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models to be reviewed and validated by an independent internal risk group to ensure the models are consistent with their intended use, the
logic within the models is reliable, and the inputs and outputs from these models are appropriate. Additionally, a wide array of operational
controls are in place to ensure the fair value measurements are reasonable, including controls over the inputs into and the outputs from the fair
value measurement models. For example, we backtest the internal assumptions used within models against actual performance. We also
monitor the market for recent trades, market surveys, or other market information that may be used to benchmark model inputs or outputs.
Certain valuations will also be benchmarked to market indices when appropriate and available. We have scheduled model and/or input
recalibrations that occur on a periodic basis but will recalibrate earlier if significant variances are observed as part of the backtesting or
benchmarking noted above.
Considerable judgment is used in forming conclusions from market observable data used to estimate our Level 2 fair value
measurements and in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs
such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these
inputs can have a significant effect on fair value measurements. Accordingly, our estimates of fair value are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
Allowance for Loan Losses
We maintain an allowance for loan losses (the allowance) to absorb probable loan credit losses inherent in the held-for-investment
portfolio, excluding those loans measured at fair value in accordance with applicable accounting standards. The allowance is maintained at a
level that management considers to be adequate based upon ongoing quarterly assessments and evaluations of collectability and historical loss
experience in our lending portfolio. The allowance is management's estimate of incurred losses in our lending portfolio and involves
significant judgment. Management performs quarterly analysis of these portfolios to determine if impairment has occurred and to assess the
adequacy of the allowance based on historical and current trends and other factors affecting credit losses. Additions to the allowance are
charged to current period earnings through the provision for loan losses; amounts determined to be uncollectible are charged directly against
the allowance, while amounts recovered on previously charged-off accounts increase the allowance. Determining the appropriateness of the
allowance requires management to exercise significant judgment about matters that are inherently uncertain, including the timing, frequency,
and severity of credit losses that could materially affect the provision for loan losses and, therefore, net income. The methodology for
determining the amount of the allowance differs between the consumer automobile, consumer mortgage, and commercial portfolio segments.
For additional information regarding our portfolio segments and classes, refer to Note 8 to the Consolidated Financial Statements. While we
attribute portions of the allowance across our lending portfolios, the entire allowance is available to absorb probable loan losses inherent in
our total lending portfolio.
The consumer portfolio segments consist of smaller-balance, homogeneous loans. Excluding certain loans that are identified as
individually impaired, the allowance for each consumer portfolio segment (automobile and mortgage) is evaluated collectively. The allowance
is based on aggregated portfolio segment evaluations that begin with estimates of incurred losses in each portfolio segment based on various
statistical analyses. We leverage proprietary statistical models, including vintage and migration analyses, based on recent loss trends, to
develop a systematic incurred loss reserve. These statistical loss forecasting models are utilized to estimate incurred losses and consider
several credit quality indicators including, but not limited to, historical loss experience, estimated foreclosures or defaults based on observable
trends, delinquencies, and general economic and business trends. Management believes these factors are relevant to estimate incurred losses
and are updated on a quarterly basis in order to incorporate information reflective of the current economic environment, as changes in these
assumptions could have a significant impact. In order to develop our best estimate of probable incurred losses inherent in the loan portfolio,
management reviews and analyzes the output from the models and may adjust the reserves to take into consideration environmental,
qualitative and other factors that may not be captured in the models. These adjustments are documented and reviewed through our risk
management processes. Management reviews, updates, and validates its systematic process and loss assumptions on a periodic basis. This
process involves an analysis of loss information, such as a review of loss and credit trends, a retrospective evaluation of actual loss
information to loss forecasts, and other analyses.
The commercial loan portfolio segment is primarily composed of larger-balance, nonhomogeneous exposures within our Automotive
Finance operations, Commercial Finance Group, and Mortgage operations. As of December 31, 2012, we no longer have any commercial
loans within our mortgage operations. These loans are primarily evaluated individually and are risk-rated based on borrower, collateral, and
industry-specific information that management believes is relevant in determining the occurrence of a loss event and measuring impairment.
A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the
loan agreement based on current information and events. Management establishes specific allowances for commercial loans determined to be
individually impaired based on the present value of expected future cash flows, discounted at the loans' effective interest rate, observable
market price or the fair value of collateral, whichever is determined to be the most appropriate. Estimated costs to sell or realize the value of
the collateral on a discounted basis are included in the impairment measurement, when appropriate. In addition to the specific allowances for
impaired loans, loans that are not identified as individually impaired are grouped into pools based on similar risk characteristics and
collectively evaluated. These allowances are based on historical loss experience, concentrations, current economic conditions, and
performance trends within specific geographic locations. The commercial historical loss experience is updated quarterly to incorporate the
most recent data reflective of the current economic environment.
The determination of the allowance is influenced by numerous assumptions and many factors that may materially affect estimates of
loss, including volatility of loss given default, probability of default, and rating migration. The critical assumptions underlying the allowance
include: (1) segmentation of each portfolio based on common risk characteristics; (2) identification and estimation of portfolio indicators and
other factors that management believes are key to estimating incurred credit losses; and (3) evaluation by management of borrower, collateral,
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and geographic information. Management monitors the adequacy of the allowance and makes adjustments as the assumptions in the
underlying analyses change to reflect an estimate of incurred loan losses at the reporting date, based on the best information available at that
time. In addition, the allowance related to the commercial portfolio segment is influenced by estimated recoveries from automotive
manufacturers relative to guarantees or agreements with them to repurchase vehicles used as collateral to secure the loans. If an automotive
manufacturer is unable to fully honor its obligations, our ultimate loan losses could be higher. To the extent that actual outcomes differ from
our estimates, additional provision for credit losses may be required that would reduce earnings.
Valuation of Automobile Lease Assets and Residuals
We have significant investments in vehicles in our operating lease portfolio. In accounting for operating leases, management must make
a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the
lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to
four years. At contract inception, we generally determine the projected residual values based on independent data, including independent
guides of vehicle residual values, and analysis. Risk adjustments are determined at lease inception and are based on current auction results
adjusted for key variables that historically have shown an impact on auction values (as further described in the Lease Residual Risk
discussion in the Risk Management section of this MD&A). The customer is obligated to make payments during the term of the lease for the
difference between the purchase price and the contract residual value plus a finance charge. However, since the customer is not obligated to
purchase the vehicle at the end of the contract, we are exposed to a risk of loss to the extent the value of the vehicle is below the residual
value estimated at contract inception. Management periodically performs a detailed review of the estimated realizable value of leased vehicles
to assess the appropriateness of the carrying value of lease assets.
To account for residual risk, we depreciate automobile operating lease assets to estimated realizable value on a straight-line basis over
the lease term. The estimated realizable value is initially based on the residual value established at contract inception. Over the life of the
lease, management evaluates the adequacy of the estimate of the realizable value and may make adjustments to the extent the expected value
of the vehicle at lease termination changes. Any adjustments would result in a change in the depreciation rate of the lease asset, thereby
affecting the carrying value of the operating lease asset.
In addition to estimating the residual value at lease termination, we must also evaluate the current value of the operating lease assets and
test for impairment to the extent necessary in accordance with applicable accounting standards. Impairment is determined to exist if the
undiscounted expected future cash flows (including the expected residual value) are lower than the carrying value of the asset. There were no
such impairment charges in 2012, 2011, or 2010.
Our depreciation methodology on operating lease assets considers management's expectation of the value of the vehicles upon lease
termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the
estimated carrying value of automobile lease assets include: (1) estimated market value information obtained and used by management in
estimating residual values, (2) proper identification and estimation of business conditions, (3) our remarketing abilities, and (4) automotive
manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the value of the lease
residuals. Expected residual values include estimates of payments from automotive manufacturers related to residual support and risk-sharing
agreements. To the extent an automotive manufacturer is not able to fully honor its obligation relative to these agreements, our depreciation
expense would be negatively impacted.
Valuation of Mortgage Servicing Rights
Mortgage servicing rights represent the capitalized value of the right to receive future cash flows from the servicing of mortgage loans
for others. Mortgage servicing rights are a significant source of value derived from the sale or securitization of mortgage loans. Because
residential mortgage loans typically contain a prepayment option, borrowers may often elect to prepay their mortgage loans by refinancing at
lower rates during declining interest rate environments. The borrower's ability to prepay is at times impacted by other factors in the current
environment that may limit their eligibility to refinance (e.g. a high loan-to-value ratio). When this occurs, the stream of cash flows generated
from servicing the original mortgage loan is terminated. As such, the market value of mortgage servicing rights has historically been very
sensitive to changes in interest rates and tends to decline as market interest rates decline and increase as interest rates rise.
We capitalize mortgage servicing rights on residential mortgage loans that we have originated and purchased based on the fair market
value of the servicing rights associated with the underlying mortgage loans at the time the loans are sold or securitized. GAAP requires that
the value of mortgage servicing rights be determined based on market transactions for comparable servicing assets, if available. In the absence
of representative market trade information, valuations should be based on other available market evidence and modeled market expectations
of the present value of future estimated net cash flows that market participants would expect from servicing. When observable prices are not
available, management uses internally developed discounted cash flow models to estimate the fair value. These internal valuation models
estimate net cash flows based on internal operating assumptions that we believe would be used by market participants, combined with market-
based assumptions for loan prepayment rates, interest rates, default rates and discount rates that management believes approximate yields
required by investors for these assets. Servicing cash flows primarily include servicing fees, escrow account income, ancillary income and late
fees, less operating costs to service the loans. The estimated cash flows are discounted using an option-adjusted spread-derived discount rate.
Management considers the best available information and exercises significant judgment in estimating and assuming values for key variables
in the modeling and discounting process. All of our mortgage servicing rights are carried at estimated fair value.
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We use the following key assumptions in our valuation approach.
•
Prepayment — The most significant drivers of mortgage servicing rights value are actual and forecasted portfolio prepayment
behavior. Prepayment speeds represent the rate at which borrowers repay their mortgage loans prior to scheduled maturity.
Prepayment speeds are influenced by a number of factors such as the value of collateral, competitive market factors, government
programs or incentives, or levels of foreclosure activity. However, the most significant factor influencing prepayment speeds is
generally the interest rate environment. As interest rates rise, prepayment speeds generally slow, and as interest rates decline,
prepayment speeds generally accelerate. When mortgage loans are paid or expected to be paid earlier than originally estimated, the
expected future cash flows associated with servicing such loans are reduced. We primarily use third-party models to project
residential mortgage loan payoffs. In other cases, we estimate prepayment speeds based on historical and expected future
prepayment rates. We measure model performance by comparing prepayment predictions against actual results at both the portfolio
and product level.
• Discount rate — The cash flows of our mortgage servicing rights are discounted at prevailing market rates, which include an
appropriate risk-adjusted spread, which management believes approximates yields required by investors for these assets.
• Base mortgage rate — The base mortgage rate represents the current market interest rate for newly originated mortgage loans. This
rate is a key component in estimating prepayment speeds of our portfolio because the difference between the current base mortgage
rate and the interest rates on existing loans in our portfolio is an indication of the borrower's likelihood to refinance.
• Cost to service — In general, servicing cost assumptions are based on internally projected actual expenses directly related to
servicing. These servicing cost assumptions are compared to market-servicing costs when market information is available. Our
servicing cost assumptions include expenses associated with our activities related to loans in default.
• Volatility — Volatility represents the expected rate of change of interest rates. The volatility assumption used in our valuation
methodology is intended to estimate the range of expected outcomes of future interest rates. We use implied volatility assumptions
in connection with the valuation of our mortgage servicing rights. Implied volatility is defined as the expected rate of change in
interest rates derived from the prices at which options on interest rate swaps, or swaptions, are trading. We update our volatility
assumptions for the change in implied swaptions volatility during the period, adjusted by the ratio of historical mortgage to
swaption volatility.
We also periodically perform a series of reasonableness tests as we deem appropriate, including the following.
• Review and compare data provided by an independent third-party broker. We evaluate and compare our fair value price, multiples,
and underlying assumptions to data provided by independent third-party broker, including prepayment speeds, discount rates, cost
to service, and fair value multiples.
• Review and compare pricing of publicly traded interest-only securities. We evaluate and compare our fair value to publicly traded
interest-only stripped MBS by age and coupon for reasonableness.
• Review and compare fair value price and multiples. We evaluate and compare our fair value price and multiples to market fair
value price and multiples in external surveys produced by third parties.
• Compare actual monthly cash flows to projections. We reconcile actual monthly cash flows to those projected in the mortgage
servicing rights valuation. Based on the results of this reconciliation, we assess the need to modify the individual assumptions used
in the valuation. This process ensures the model is calibrated to actual servicing cash flow results.
• Review and compare recent bulk mortgage servicing right acquisition activity. We evaluate market trades for reliability and
relevancy and then consider, as appropriate, our estimate of fair value of each significant transaction to the traded price. Currently,
there are limited market transactions that are directly observable, which are the best indicators of fair value. However, we continue
to monitor and track market activity on an ongoing basis.
We generally expect our valuation to be within a reasonable range of that implied by these tests. Changes in these assumptions could
have a significant impact on the determination of fair market value. In order to develop our best estimate of fair value, management reviews
and analyzes the output from the models and may adjust the assumptions to take into consideration other factors that may not be captured. If
we determine our valuation has exceeded the reasonable range, we may adjust it accordingly. At December 31, 2012, based on the market
information obtained, we determined that our mortgage servicing rights valuations and assumptions used to value those servicing rights were
reasonable and consistent with what an independent market participant would use to value the asset.
The assumptions used in modeling expected future cash flows of mortgage servicing rights have a significant impact on the fair value of
mortgage servicing rights and potentially a corresponding impact to earnings. Refer to Note 11 to the Consolidated Financial Statements for
sensitivity analysis.
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Goodwill
The accounting for goodwill is discussed in Note 1 to the Consolidated Financial Statements. Goodwill is reviewed for potential
impairment at the reporting unit level on an annual basis, as of August 31, or in interim periods if events or circumstances indicate a potential
impairment. Goodwill is allocated to the reporting units at the date the goodwill is initially recorded. Once goodwill has been allocated to the
reporting units, it generally no longer retains its identification with a particular acquisition, but instead becomes identified with the reporting
unit as a whole. As a result, all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit.
Goodwill impairment testing is performed at the reporting unit level, one level below the business segment. For more information on our
segments, refer to Note 26 to the Consolidated Financial Statements.
Goodwill impairment testing involves management's judgment, requiring an assessment of whether the carrying value of the reporting
unit can be supported by the fair value of the individual reporting unit using widely accepted valuation techniques, such as the market
approach (earnings, transaction, pricing multiples and/or other market intelligence that would indicate what a market participant would pay)
and the income approach (discounted cash flow methods). In applying these methodologies we utilize a number of factors, including actual
operating results, future business plans, economic projections, and market data. A combination of methodologies is used and weighted
appropriately for each reporting unit. If actual results differ from these estimates, it may have an adverse impact on the valuation of goodwill
that could result in a reduction of the excess over carrying value and possible impairment of goodwill. At December 31, 2012, we did not
have material goodwill at our reporting units that is at risk of failing Step 1 of the goodwill impairment test.
Legal and Regulatory Reserves
Our legal and regulatory reserves reflect management's best estimate of probable losses on legal and regulatory matters. As a legal or
regulatory matter develops, management, in conjunction with internal and external counsel handling the matter, evaluates on an ongoing basis
whether such matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency related
to a legal or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that
would make such loss contingency both probable and estimable. When the loss contingency related to a legal or regulatory matter is deemed
to be both probable and estimable, we will establish a liability with respect to such loss contingency and record a corresponding amount to
other operating expenses. To estimate the probable loss, we evaluate the individual facts and circumstances of the case including information
learned through the discovery process, rulings on dispositive motions, settlement discussions, our prior history with similar matters and other
rulings by courts, arbitrators or others. The reserves are continuously monitored and updated to reflect the most recent information related to
each matter.
Additionally, in matters for which a loss event is not deemed probable, but rather reasonably possible to occur, we would attempt to
estimate a loss or range of loss related to that event, if possible. For these matters, we do not record a liability. However, if we are able to
estimate a loss or range of loss, we would disclose this loss, if it is material to our financial statements. To estimate a range of probable or
reasonably possible loss, we evaluate each individual case in the manner described above. We do not accrue for matters for which a loss event
is deemed remote.
For details regarding the nature of all material contingencies, refer to Note 29 to the Consolidated Financial Statements.
Loan Repurchase and Obligations Related to Loan Sales
The liability for representation and warranty obligations reflects management's best estimate of probable lifetime losses. We consider
historical and recent demand trends in establishing the reserve. The methodology used to estimate the reserve considers a variety of
assumptions including borrower performance (both actual and estimated future defaults), repurchase demand behavior, historical loan defect
experience, historical mortgage insurance rescission experience, and historical and estimated future loss experience, which includes
projections of future home price changes as well as other qualitative factors including investor behavior. In cases where we may not be able to
reasonably estimate losses, a liability is not recognized. Management monitors the adequacy of the overall reserve and makes adjustments to
the level of reserve, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience with
counterparties.
Determination of Provision for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best
assessment of estimated current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign
jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In
evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and
negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and
results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued and
deconsolidated operations and incorporate assumptions about the amount of future state, federal and foreign pretax operating income. These
assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage
the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating
income (loss).
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A valuation allowance of $1.6 billion and $2.1 billion was recorded against the net U.S. deferred tax asset balance as of December 31,
2012, and December 31, 2011, respectively. For the year ended December 31, 2012, our results from operations benefited $1.3 billion from
the release of U.S. federal and state valuation allowances and related effects on the basis of management's reassessment of the amount of its
deferred tax assets that are more likely than not to be realized.
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future
realization of deferred tax assets. As of December 31, 2012, we determined that positive evidence existed to conclude that it is more likely
than not that ordinary-in-character deferred tax assets are realizable, and therefore, we reduced the valuation allowance accordingly. Positive
evidence in this assessment consisted of forecasts of future taxable income that are sufficient to realize net operating loss carryforwards
before their expiration, coupled with our emergence from a cumulative three-year U.S. pretax loss (after removing the effects of non-recurring
charges and discontinued operations). Certain U.S. deferred tax assets remain offset with a valuation allowance as discussed below.
We believe it is more likely than not that the benefit for certain U.S. net operating loss, capital loss, and foreign tax credit carryforwards
will not be realized. In recognition of this risk, we have provided a valuation allowance of $1.6 billion on the deferred tax assets relating to
these carryforwards. In particular, the deferred tax assets and liabilities as of December 31, 2012, reflect the U.S. income tax effects of the
anticipated sale of entities held-for-sale at net book value. In concluding to maintain a valuation allowance against our capital loss
carryforwards, we considered the positive evidence that we have entered into agreements to sell our held-for-sale entities for amounts in
excess of book value. We also considered and ultimately weighted more heavily the negative evidence that we have historically had difficulty
generating significant capital gains; capital loss carryforwards have a relatively short carryforward period; the timing of disposal of the held-
for-sale entities is uncertain; and the disposal of the held-for-sale entities are subject to various levels of regulatory approval in numerous
countries. Successful completion during 2013 of the sales of entities currently held-for-sale may result in capital gains that would allow us to
realize capital loss carryforwards. A related reversal of valuation allowance on these deferred tax assets would be recognized as an income tax
benefit upon such utilization.
For additional information regarding our provision for income taxes, refer to Note 23 to the Consolidated Financial Statements.
Recently Issued Accounting Standards
Refer to Note 1 to the Consolidated Financial Statements for further information related to recently adopted and recently issued
accounting standards.
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Statistical Table
The accompanying supplemental information should be read in conjunction with the more detailed information, including our
Consolidated Financial Statements and the notes thereto, which appears elsewhere in this Annual Report.
Net Interest Margin Table
The following table presents an analysis of net interest margin excluding discontinued operations for the periods shown.
Year ended December 31, ($ in millions)
Assets
Interest-bearing cash and cash equivalents
Trading assets
Investment securities (b)
Loans held-for-sale, net
Finance receivables and loans, net (c) (d)
Investment in operating leases, net (e)
Total interest-earning assets
Noninterest-bearing cash and cash
equivalents
2012
Interest
income/
interest
expense
$
26
13
262
155
4,603
980
6,039
Average
balance (a)
$
10,731
273
12,336
4,406
95,715
11,185
134,646
1,917
0.24% $
4.76
2.12
3.52
4.81
8.76
4.49
$
$
17,500
(1,246)
30,924
183,741
Other assets
Allowance for loan losses
Assets of discontinued operations (f)
Total assets
Liabilities
Interest-bearing deposit liabilities
Short-term borrowings
Long-term debt (g) (h) (i)
Total interest-bearing liabilities (g) (h) (j)
Noninterest-bearing deposit liabilities
Total funding sources (h) (k)
Other liabilities
Liabilities of discontinued operations (f)
Total liabilities
Total equity
Total liabilities and equity
Net financing revenue
Net interest spread (l)
Net interest spread excluding original issue discount (l)
Net interest spread excluding original issue discount and
including noninterest-bearing deposit liabilities (l)
42,440
3,945
79,044
125,429
2,261
127,690
6,207
30,924
164,821
18,920
183,741
$
Net yield on interest-earning assets (m)
Net yield on interest-earning assets excluding original issue
discount (m)
$
1.52% $
2.28
4.38
3.35
$
644
90
3,466
4,200
4,200
3.29
$
Yield/
rate
Average
balance (a)
Yield/
rate
Average
balance (a)
2011
Interest
income/
interest
expense
$
21
19
326
332
4,409
988
6,095
0.19% $
5.29
2.49
3.66
5.22
12.40
4.84
$
$
614
116
4,309
5,039
1.64% $
2.67
5.61
4.25
5,039
4.17
$
10,939
359
13,100
9,062
84,392
7,968
125,820
1,180
22,274
(1,543)
33,106
180,837
37,423
4,345
76,780
118,548
2,237
120,785
6,877
33,106
160,768
20,069
180,837
12,634
163
10,200
13,165
67,296
8,827
112,285
427
30,492
(2,113)
35,594
176,685
30,456
5,309
72,526
108,291
2,070
110,361
10,068
35,594
156,023
20,662
176,685
2010
Interest
income/
interest
expense
$
34
15
306
587
4,475
1,332
6,749
Yield/
rate
0.27%
9.20
3.00
4.46
6.65
15.09
6.01
$
579
141
4,740
5,460
1.90%
2.66
6.54
5.04
5,460
4.95
$ 1,839
$ 1,056
$ 1,289
1.14%
1.46%
1.51%
1.37%
1.62%
0.59%
1.43%
1.49%
0.84%
1.56%
0.97%
2.21%
2.28%
1.15%
2.22%
(a) Average balances are calculated using a combination of monthly and daily average methodologies.
(b) Excludes income on equity investments of $30 million, $25 million, and $17 million at December 31, 2012, 2011, and 2010, respectively. Yields on available-for-sale debt
securities are based on fair value as opposed to historical cost.
(c) Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1
(d)
(e)
to the Consolidated Financial Statements.
Includes other interest income of $5 million, $5 million, and $3 million at December 31, 2012, 2011, and 2010, respectively.
Includes gains on sale of $116 million, $217 million, and $555 million at December 31, 2012, 2011, and 2010, respectively. Excluding these gains on sale, the annualized yield
would be 7.72%, 9.68%, and 8.80% at December 31, 2012, 2011, and 2010, respectively.
Includes the effects of derivative financial instruments designated as hedges.
(f) Average balances and rates are impacted by allocations made to match assets of discontinued operations with liabilities of discontinued operations.
(g)
(h) Average balance includes $1,927 million, $2,522 million, and $3,710 million related to original issue discount at December 31, 2012, 2011, and 2010, respectively. Interest
expense includes original issue discount amortization of $336 million, $912 million, and $1,204 million during the year ended December 31, 2012, 2011, and 2010,
respectively.
Excluding original issue discount the rate on long-term debt was 3.87%, 4.28%, and 4.64% at December 31, 2012, 2011, and 2010, respectively.
Excluding original issue discount the rate on total interest-bearing liabilities was 3.03%, 3.41%, and 3.80% at December 31, 2012, 2011, and 2010, respectively.
(i)
(j)
(k) Excluding original issue discount the rate on total funding sources was 2.98%, 3.35%, and 3.73% at December 31, 2012, 2011, and 2010, respectively.
(l) Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
(m) Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.
91
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
The following table presents an analysis of the changes in net interest income, volume and rate.
2012 vs 2011
Increase (decrease)
due to (a)
Yield/
rate
2011 vs 2010
Increase (decrease)
due to (a)
Yield/
rate
Total
$
$
$
Total
Volume
Volume
Year ended December 31, ($ in millions)
Assets
Interest-bearing cash and cash equivalents
Trading assets
Investment securities
Loans held-for-sale, net
Finance receivables and loans, net
Investment in operating leases, net
Total interest-earning assets
Liabilities
Interest-bearing deposit liabilities
Short-term borrowings
Long-term debt
Total interest-bearing liabilities
Net financing revenue
(a) Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.
(9) $
(8)
(58)
(93)
(1,071)
(223)
$ (1,462) $
(4) $
12
78
(162)
1,005
(121)
808
(48) $
(16)
(967)
$ (1,031) $
$
268
$
5
(6)
(64)
(177)
194
(8)
(56) $
— $
(4)
(18)
(164)
562
331
707
5
(2)
(46)
(13)
(368)
(339)
(763) $
30
(26)
(843)
(839) $
783
$
(86) $
1
(698)
(783) $
(679) $
78
(10)
124
192
515
121
(26)
267
362
446
$
$
$
$
$
$
$
$
$
$
(13)
4
20
(255)
(66)
(344)
(654)
35
(25)
(431)
(421)
(233)
92
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Outstanding Finance Receivables and Loans
The following table presents the composition of our on-balance sheet finance receivables and loans.
December 31, ($ in millions)
2012
2011
2010
2009
2008
Consumer
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Total consumer loans
Commercial
Domestic
Commercial and industrial
Automobile (a)
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile (b)
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Total commercial loans
Total finance receivables and loans (c)
Loans held-for-sale
$
53,713
$
46,576
$
34,604
$
12,514
$
16,281
7,173
2,648
6,997
3,575
7,057
3,964
7,960
4,238
63,534
57,148
45,625
24,712
13,542
7,777
37,600
2
—
—
2
63,536
16,883
16,650
17,731
21,705
256
—
17,139
74,287
742
—
17,392
63,017
405
1
18,137
42,849
4,604
54
26,363
63,963
30,270
26,552
24,944
19,604
16,913
—
2,679
2,552
—
1,887
1,178
2,331
—
1,540
1,795
2,071
1
1,572
2,688
2,008
121
1,627
3,257
1,941
1,696
35,501
31,948
30,351
25,993
25,434
—
—
18
—
—
18
35,519
8,265
24
63
154
14
8,520
40,468
8,398
41
312
216
78
9,045
39,396
7,943
10,749
96
437
221
162
195
960
167
260
8,859
34,852
12,331
37,765
$
$
99,055
$ 114,755
$ 102,413
2,576
$
8,557
$
11,411
$
$
77,701
$ 101,728
20,625
$
7,919
(a) Amount includes Notes Receivable from General Motors of $3 million at December 31, 2009.
(b) Amounts include no Notes Receivable from General Motors at December 31, 2012 and $529 million, $484 million, $908 million, and $1.7 billion at
December 31, 2011, 2010, 2009, and 2008, respectively.
Includes historical cost, fair value, and repurchased loans.
(c)
93
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Nonperforming Assets
The following table summarizes the nonperforming assets in our on-balance sheet portfolio.
December 31, ($ in millions)
2012
2011
2010
2009
2008
Consumer
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Total consumer (a)
Commercial
Domestic
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Total commercial (b)
$
260
$
139
$
129
$
267
$
294
342
40
642
—
—
—
—
642
146
—
33
37
—
216
—
—
—
—
—
—
216
858
8
62
928
25
316
91
546
89
142
—
231
777
105
—
22
56
—
183
118
—
15
11
12
156
339
452
108
689
78
261
—
339
1,028
261
—
37
193
1
492
35
40
97
6
70
248
740
1,116
82
56
1,768
150
47
782
114
1,163
2,547
540
3,381
119
125
33
—
152
1,315
281
37
856
256
56
1,486
66
35
131
24
141
397
1,883
3,198
255
58
1,034
—
1,159
4,540
1,448
140
64
153
1,070
2,875
7
—
19
2
143
171
3,046
7,586
787
95
8,468
731
Total nonperforming finance receivables and loans
Foreclosed properties
Repossessed assets (c)
Total nonperforming assets
Loans held-for-sale
$
$
$
$
1,254
2,820
$
$
1,965
3,273
$
$
3,511
3,390
$
$
(a)
(b)
Interest revenue that would have been accrued on total consumer finance receivables and loans at original contractual rates was $54 million during the
year ended December 31, 2012. Interest income recorded for these loans was $23 million during the year ended December 31, 2012.
Interest revenue that would have been accrued on total commercial finance receivables and loans at original contractual rates was $21 million during the
year ended December 31, 2012. Interest income recorded for these loans was $15 million during the year ended December 31, 2012.
(c) Repossessed assets exclude $3 million, $3 million, $14 million, $23 million, and $34 million of repossessed operating lease assets at December 31, 2012,
2011, 2010, 2009, and 2008, respectively.
94
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Accruing Finance Receivables and Loans Past Due 90 Days or More
The following table presents our on-balance sheet accruing loans past due 90 days or more as to principal and interest.
December 31, ($ in millions)
2012
2011
2010
2009
2008
$
— $
— $
— $
— $
1
—
1
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
1
$
— $
1
—
1
3
—
—
3
4
—
—
—
—
—
—
—
—
—
—
—
—
—
4
73
$
$
1
—
1
5
—
—
5
6
—
—
—
—
—
—
—
—
—
—
—
—
—
6
25
$
$
1
—
1
5
1
—
6
7
—
—
—
—
—
—
—
—
3
—
—
3
3
10
33
$
$
19
33
—
52
40
—
—
40
92
—
—
—
—
—
—
—
—
—
—
—
—
—
92
7
Consumer
Domestic
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Total consumer
Commercial
Domestic
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Total commercial
Total accruing finance receivables and loans past due 90 days or more
Loans held-for-sale
$
$
95
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Allowance for Loan Losses
The following table presents an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Balance at January 1,
2012
2011
2010
2009
2008
$
1,503
$
1,873
$
2,445
$
3,433
$
2,755
Cumulative effect of change in accounting principles (a)
—
—
222
—
(616)
Charge-offs
Domestic
Foreign
Write-downs related to transfers to held-for-sale
Total charge-offs
Recoveries
Domestic
Foreign
Total recoveries
Net charge-offs
Provision for loan losses
Foreign provision for loan losses
Deconsolidation of ResCap
Other
Balance at December 31,
(595)
(181)
—
(776)
193
109
302
(474)
329
65
(9)
(244)
(667)
(213)
—
(880)
227
100
327
(553)
188
31
—
(36)
(1,297)
(349)
—
(1,646)
363
85
448
(1,198)
357
81
—
(34)
(3,380)
(633)
(3,438)
(7,451)
276
76
352
(7,099)
5,174
996
—
(59)
(2,192)
(347)
—
(2,539)
219
71
290
(2,249)
2,857
553
—
133
$
1,170
$
1,503
$
1,873
$
2,445
$
3,433
(a) Effect of change in accounting principle due to adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities.
96
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
December 31, ($ in millions)
Amount
% of
total
Amount
% of
total
Amount
% of
total
Amount
% of
total
Amount
% of
total
2012
2011
2010
2009
2008
Consumer
Domestic
Consumer automobile
$
575
49.2
$
600
39.9
$
769
41.0
$
772
31.6
$
1,115
32.5
245
207
1,027
20.9
17.7
87.8
275
237
1,112
18.3
15.8
74.0
322
256
1,347
17.2
13.7
71.9
387
251
1,410
15.8
10.3
57.7
525
177
1,817
15.3
5.2
53.0
—
—
—
—
—
—
—
—
166
11.1
201
10.7
252
10.2
279
8.1
4
—
170
1,282
0.2
—
11.3
85.3
2
—
203
1,550
0.1
—
10.8
82.7
2
—
254
1,664
0.1
—
10.3
68.0
409
31
719
2,536
11.9
0.9
20.9
73.9
Total consumer loans
1,027
87.8
55
—
48
40
—
4.7
—
4.1
3.4
—
62
1
52
39
—
4.0
0.1
3.5
2.6
—
73
—
97
54
—
3.9
—
5.2
2.9
—
157
10
322
—
54
6.4
0.4
13.2
—
2.2
143
12.2
154
10.2
224
12.0
543
22.2
—
—
—
—
—
—
—
—
—
—
—
—
48
10
1
3
5
67
221
3.2
0.7
0.1
0.2
0.3
4.5
33
12
39
2
13
99
1.7
0.7
2.1
0.1
0.7
5.3
14.7
323
17.3
54
20
111
—
53
238
781
2.2
0.8
4.6
—
2.2
9.8
32.0
178
93
65
—
458
794
45
3
9
—
46
103
897
5.2
2.7
1.9
—
13.3
23.1
1.3
0.1
0.3
—
1.3
3.0
26.1
Total commercial loans
143
12.2
Total allowance for loan losses
$
1,170
100.0
$
1,503
100.0
$
1,873
100.0
$
2,445
100.0
$
3,433
100.0
97
Consumer mortgage
1st Mortgage
Home equity
Total domestic
Foreign
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total foreign
Commercial
Domestic
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total domestic
Foreign
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total foreign
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
Deposit Liabilities
The following table presents the average balances and interest rates paid for types of domestic deposits.
Year ended December 31, ($ in millions)
Average
balance (a)
Average
deposit rate
Average
balance (a)
Average
deposit rate
Average
balance (a)
Average
deposit rate
2012
2011
2010
Domestic deposits
Noninterest-bearing deposits
Interest-bearing deposits
$
2,262
—% $
2,237
—% $
2,071
—%
Savings and money market checking accounts
Certificates of deposit
Dealer deposits
10,953
29,972
1,515
0.88
1.64
3.81
9,696
26,109
1,685
0.88
1.77
3.87
8,015
21,153
1,288
1.21
2.04
4.00
Total domestic deposit liabilities
$
44,702
1.44% $
39,727
1.55% $
32,527
1.78%
(a) Average balances are calculated using a combination of monthly and daily average methodologies.
The following table presents the amount of domestic certificates of deposit in denominations of $100 thousand or more segregated by
time remaining until maturity.
December 31, 2012 ($ in millions)
Domestic certificates of deposit
($100,000 or more)
Three months
or less
Over three months
through
six months
Over six months
through
twelve months
Over
twelve months
Total
$
1,735
$
1,793
$
2,779
$
5,666
$
11,973
98
Table of Contents
Quantitative and Qualitative Disclosures about Market Risk
Ally Financial Inc. • Form 10-k
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Refer to the Market Risk and the Operational Risk sections of Item 7, Management's Discussion and Analysis.
99
Table of Contents
Management's Report on Internal Control over Financial Reporting
Ally Financial Inc. • Form 10-K
4Item 8. Financial Statements and Supplementary Data
Ally management is responsible for establishing and maintaining effective internal control over financial reporting. The Company's
internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Senior
Executive Vice President of Finance and Corporate Planning to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of published financial statements in accordance with generally accepted accounting principles.
The Company's internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Consolidated Financial
Statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent
or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted, under the supervision of the Company's Chief Executive Officer and Senior Executive Vice President of
Finance and Corporate Planning, an evaluation of the effectiveness of the Company's internal control over financial reporting based on the
framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission,
commonly referred to as the “COSO” criteria.
Based on the assessment performed, management concluded that at December 31, 2012, Ally's internal control over financial reporting
was effective based on the COSO criteria.
The independent registered public accounting firm, Deloitte & Touche LLP, has audited the Consolidated Financial Statements of Ally
and has issued an attestation report on our internal control over financial reporting at December 31, 2012, as stated in its report, which is
included herein.
/S/ MICHAEL A. CARPENTER
Michael A. Carpenter
Chief Executive Officer
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Senior Executive Vice President of Finance and Corporate
Planning
March 1, 2013
March 1, 2013
100
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Ally Financial Inc.:
We have audited the accompanying Consolidated Balance Sheet of Ally Financial Inc. and subsidiaries (the “Company”) as of
December 31, 2012 and 2011, and the related Consolidated Statements of Income, Comprehensive Income, Changes in Equity, and Cash
Flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2012, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1,
2013, expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Detroit, Michigan
March 1, 2013
101
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Ally Financial Inc.:
We have audited the internal control over financial reporting of Ally Financial Inc. and subsidiaries (the “Company”) as of December 31,
2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, as stated in the accompanying Management's Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2012, of the Company and our report dated March 1, 2013,
expressed an unqualified opinion on those consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Detroit, Michigan
March 1, 2013
102
Table of Contents
Consolidated Statement of Income
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
Financing revenue and other interest income
Interest and fees on finance receivables and loans
Interest on loans held-for-sale
Interest on trading assets
Interest and dividends on available-for-sale investment securities
Interest-bearing cash
Operating leases
Total financing revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Total interest expense
Depreciation expense on operating lease assets
Net financing revenue
Other revenue
Servicing fees
Servicing asset valuation and hedge activities, net
Total servicing income, net
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Loss on extinguishment of debt
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
(Loss) income from continuing operations before income tax expense
Income tax (benefit) expense from continuing operations
Net income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Statement continues on the next page.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
103
2012
2011
2010
$
4,603
$
4,409
$
4,475
155
13
292
26
2,379
7,468
644
90
3,466
4,200
1,399
1,869
701
(8)
693
1,059
532
(148)
146
747
3,029
4,898
329
1,365
461
3,498
5,324
(755)
(1,284)
529
667
332
19
351
21
1,929
7,061
614
116
4,309
5,039
941
1,081
1,358
(789)
569
1,170
470
(64)
259
493
2,897
3,978
188
1,322
483
2,936
4,741
(951)
51
(1,002)
845
587
15
323
34
2,583
8,017
579
141
4,740
5,460
1,251
1,306
1,488
(394)
1,094
1,371
1,239
(124)
502
334
4,416
5,722
357
1,348
547
3,078
4,973
392
104
288
741
$
1,196
$
(157) $
1,029
Table of Contents
Consolidated Statement of Income
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions except per share data)
Net income (loss) attributable to common shareholders
Net income (loss) from continuing operations
Preferred stock dividends — U.S. Department of Treasury
Preferred stock dividends
Impact of preferred stock conversion or amendment (a)
Net loss from continuing operations attributable to common shareholders (b)
Income from discontinued operations, net of tax
Net income (loss) attributable to common shareholders
Basic weighted-average common shares outstanding
Diluted weighted-average common shares outstanding (b)
Basic earnings per common share
Net loss from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Diluted earnings per common share (b)
Net loss from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
2012
2011
2010
$
529
$
(1,002) $
(535)
(267)
—
(273)
667
394
(534)
(260)
32
(1,764)
845
$
(919) $
1,330,970
1,330,970
1,330,970
1,330,970
288
(963)
(282)
(616)
(1,573)
741
(832)
800,597
800,597
(205) $
(1,326) $
(1,965)
501
296
635
926
$
(691) $
(1,039)
(205) $
(1,326) $
(1,965)
501
296
635
926
$
(691) $
(1,039)
$
$
$
$
$
(a) Refer to Note 18 to the Consolidated Financial Statements for further detail.
(b) Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss from
continuing operations attributable to common shareholders for 2012, 2011, and 2010, respectively, loss from continuing operations attributable to
common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
104
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Consolidated Statement of Comprehensive Income
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
Net income (loss)
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on investment securities
Net unrealized gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Cash flow hedges
Net unrealized (losses) gains arising during the period
Defined benefit pension plans
Net losses, prior service costs, and transition obligations arising during the period
Less: Net losses, prior service costs, and transition obligations reclassified to net income
Net change
Other comprehensive income (loss), net of tax
Cumulative effect of change in accounting principle (a)
Comprehensive income (loss)
2012
2011
2010
$
1,196
$
(157) $
1,029
331
141
190
184
(168)
16
(4)
(36)
(58)
22
224
—
196
284
(88)
(237)
173
(64)
320
497
(177)
165
(182)
(17)
—
33
(27)
(7)
(20)
(172)
—
(59)
(19)
(40)
(201)
(4)
824
$
1,420
$
(329) $
(a) Relates to the adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
105
Table of Contents
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K
December 31, ($ in millions)
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Total cash and cash equivalents
Trading assets
Investment securities
Loans held-for-sale, net ($2,490 and $3,919 fair value-elected)
Finance receivables and loans, net
Finance receivables and loans, net ($— and $835 fair value-elected)
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Mortgage servicing rights
Premiums receivable and other insurance assets
Other assets
Assets of operations held-for-sale
Total assets
Liabilities
Deposit liabilities
Noninterest-bearing
Interest-bearing
Total deposit liabilities
Short-term borrowings
Long-term debt ($— and $830 fair value-elected)
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities ($— and $29 fair value-elected)
Liabilities of operations held-for-sale
Total liabilities
Equity
Common stock and paid-in capital
Mandatorily convertible preferred stock held by U.S. Department of Treasury
Preferred stock
Accumulated deficit
Accumulated other comprehensive income
Total equity
Total liabilities and equity
The Notes to the Consolidated Financial Statements are an integral part of these statements.
106
2012
2011
$
1,073
$
6,440
7,513
—
14,178
2,576
99,055
(1,170)
97,885
13,550
952
1,609
11,908
32,176
2,475
10,560
13,035
622
15,135
8,557
114,755
(1,503)
113,252
9,275
2,519
1,853
18,741
1,070
$
182,347
$
184,059
$
1,977
$
45,938
47,915
7,461
74,561
932
2,296
6,585
22,699
162,449
19,668
5,685
1,255
(7,021)
311
19,898
2,029
43,021
45,050
7,680
92,885
1,587
2,576
14,664
337
164,779
19,668
5,685
1,255
(7,415)
87
19,280
$
182,347
$
184,059
Table of Contents
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K
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.
December 31, ($ in millions)
Assets
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net ($— and $835 fair value-elected)
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Other assets
Assets of operations held-for-sale
Total assets
Liabilities
Short-term borrowings
Long-term debt ($— and $830 fair value-elected)
Interest payable
Accrued expenses and other liabilities
Liabilities of operations held-for-sale
Total liabilities
The Notes to the Consolidated Financial Statements are an integral part of these statements.
2012
2011
$
— $
9
31,510
(144)
31,366
6,060
2,868
12,139
52,433
400
26,461
1
16
9,686
$
$
40,935
(210)
40,725
4,389
3,029
—
48,152
795
33,143
14
405
—
$
$
$
36,564
$
34,357
107
Table of Contents
Consolidated Statement of Changes in Equity
Ally Financial Inc. • Form 10-K
Mandatorily
convertible
preferred
stock
held by
U.S.
Department
of Treasury
Common
stock and
paid-in
capital
Preferred
stock
Accumulated
deficit
Accumulated
other
comprehensive
income
Total
equity
($ in millions)
Balance at January 1, 2010 (a)
$
13,829
$
10,893
$
1,287
$
(5,732) $
464
$
20,741
Capital contributions
Net income
Preferred stock dividends - U.S. Department
of Treasury
Preferred stock dividends
Dividends to shareholders
Conversion of preferred stock and related
amendment (b)
Other comprehensive loss
Other (c)
15
5,824
(5,208)
1,029
(963)
(282)
(11)
(616)
74
15
1,029
(963)
(282)
(11)
—
(205)
74
(205)
Balance at December 31, 2010 (a)
$
19,668
$
5,685
$
1,287
$
(6,501) $
259
$
20,398
Net loss
Preferred stock dividends —
U.S. Department of Treasury
Preferred stock dividends
Series A preferred stock amendment (b)
(32)
Other comprehensive loss
Other (c)
(157)
(534)
(260)
32
5
(157)
(534)
(260)
—
(172)
5
(172)
Balance at December 31, 2011
$
19,668
$
5,685
$
1,255
$
(7,415) $
87
$
19,280
Net income
Preferred stock dividends —
U.S. Department of Treasury
Preferred stock dividends
Other comprehensive income
1,196
(535)
(267)
Balance at December 31, 2012
$
19,668
$
5,685
$
1,255
$
(7,021) $
1,196
(535)
(267)
224
$
19,898
224
311
(a)
Includes decreases of $46 million and $45 million, respectively, for the years ended December 31, 2010 and 2009, from previously reported balances for
the correction of immaterial errors. Refer to Note 1 for further detail.
(b) Refer to Note 18 to the Consolidated Financial Statements for further detail.
(c) Represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership
Income for the tax period January 1, 2009, through June 30, 2009.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
108
Table of Contents
Consolidated Statement of Cash Flows
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
2012
2011
2010
Operating activities
Net income (loss)
Reconciliation of net income (loss) to net cash provided by operating activities
Depreciation and amortization
Other impairment
Changes in fair value of mortgage servicing rights
Provision for loan losses
Gain on sale of loans, net
Net gain on investment securities
Loss on extinguishment of debt
Originations and purchases of loans held-for-sale
Proceeds from sales and repayments of loans held-for-sale
Impairment and accruals related to Residential Capital, LLC deconsolidation
Net change in
Trading securities
Deferred income taxes
Interest payable
Other assets
Other liabilities
Other, net
Net cash provided by operating activities
Investing activities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from maturities and repayment of available-for-sale securities
Net increase in finance receivables and loans
Proceeds from sales of finance receivables and loans
Purchases of operating lease assets
Disposals of operating lease assets
Proceeds from sale of business units, net (a)
Net cash effect from deconsolidation of Residential Capital, LLC
Other, net
Net cash used in investing activities
Statement continues on the next page.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
$
1,196
$
(157) $
1,029
2,381
19
677
405
(527)
(177)
148
2,713
40
1,606
217
(459)
(294)
64
4,146
170
872
469
(1,014)
(520)
123
(33,075)
(60,270)
(73,823)
34,073
1,192
61,187
80,093
—
—
595
(1,491)
(311)
802
(595)
(263)
5,049
(483)
(198)
(98)
(311)
1,390
546
5,493
(39)
(272)
177
1,240
(504)
(540)
11,607
(12,816)
(19,377)
(24,116)
7,662
5,673
14,232
4,965
17,872
4,527
(11,943)
(16,998)
(17,344)
2,332
(7,444)
1,745
516
(539)
2,868
(6,528)
5,517
50
—
(1,741)
1,143
(16,555)
(14,128)
3,138
(3,551)
8,627
161
—
3,119
(7,567)
109
Table of Contents
Consolidated Statement of Cash Flows
Ally Financial Inc. • Form 10-K
Year ended December 31, ($ in millions)
Financing activities
Net change in short-term borrowings
Net increase in bank deposits
Proceeds from issuance of long-term debt
Repayments of long-term debt
Dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange-rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures
Cash paid for
Interest
Income taxes
Noncash items
Increase in finance receivables and loans due to a change in accounting principle (c)
Increase in long-term debt due to a change in accounting principle (c)
Transfer of mortgage servicing rights into trading securities through certification
Conversion of preferred stock to common equity
Other disclosures
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated
as held-for-sale
Consolidation of loans, net
Consolidation of variable interest entity debt
Deconsolidation of loans, net
Deconsolidation of variable interest entity debt
2012
2011
2010
2,694
7,580
514
5,840
39,401
44,754
(3,629)
6,556
39,002
(39,909)
(40,473)
(49,530)
(802)
(927)
(819)
234
(1,253)
869
8,037
10,050
(7,985)
(58)
(3,527)
(1,995)
13,035
49
1,464
(99)
102
(3,843)
725
11,670
14,788
$
7,513
$ 13,035
$ 11,670
$
5,311
$
5,630
$
5,531
404
—
—
—
—
127
—
—
—
—
507
—
—
266
—
517
17,990
17,054
—
5,208
241
1,324
—
—
—
—
137
78
1,969
1,903
(a) The amounts are net of cash and cash equivalents of $147 million at December 31, 2012, $88 million at December 31, 2011, and $1.2 billion at December
31, 2010 of business units at the time of disposition.
(b) Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Consolidated Statement of Cash Flows. The
cash balance of these operations is reported as assets of operations held-for-sale on the Consolidated Balance Sheet.
(c) Relates to the adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
The Notes to the Consolidated Financial Statements are an integral part of these statements.
110
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is a leading, independent, diversified, financial
services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad
array of financial products and services to automotive dealers and their customers. We became a bank holding company on
December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly
owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (online and telephonic) banking market.
Residential Capital, LLC
On May 14, 2012 (the Petition Date), Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries
(collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York (the Bankruptcy Court). In connection with the filings in May, Ally Financial Inc. and its direct and
indirect subsidiaries and affiliates (excluding the Debtors) (collectively, AFI) had reached an agreement with the Debtors and certain creditor
constituencies on a prearranged Chapter 11 plan (the Plan). The Plan included a proposed settlement (the Settlement) between AFI and the
Debtors, which included, among other things, an obligation of AFI to make a $750 million cash contribution to the Debtors' estate, and a
release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-
related causes of action against AFI held by third parties.
The Settlement contemplated certain milestone requirements that the Debtors failed to satisfy, including the Bankruptcy Court's
confirmation of the Plan on or before October 31, 2012. While the failure to meet this October 31 milestone would have resulted in the
Settlement's automatic termination, AFI and the Debtors agreed to monthly temporary waivers of this automatic termination through February
28, 2013. This waiver was not extended beyond this date, and therefore the Settlement has terminated.
On November 21, 2012, the Bankruptcy Court entered orders approving the sale of the Debtors' (i) mortgage servicing platform (the
Platform Sale) to Ocwen Loan Servicing, LLC and Walter Investment Management Corp. and (ii) “whole-loan” portfolio (the Whole-Loan
Sale) to Berkshire Hathaway Inc. under section 363 of the Bankruptcy Code, and not as part of the Plan as originally contemplated. The
Whole-Loan Sale closed on February 5, 2013, and the Platform Sale closed on February 15, 2013.
As of the Petition Date, institutional investors in residential mortgage-backed securities (RMBS Investors) issued by ResCap's affiliates
and holding more than 25 percent of at least one class in each of 290 securitizations agreed to settle alleged representation and warranty
claims against the Debtors' estates in exchange for a total $8.7 billion allowed claim in the Debtors' bankruptcy cases, subject to the
applicable securitization trustees' acceptance of the terms of the settlements (the RMBS Settlements). The RMBS Investors also signed
separate plan support agreements (PSAs) with the Debtors and AFI in support of the Plan at the time of entering into the RMBS Settlements.
To date, RMBS Investors holding more than 25 percent of at least one class in each of 336 securitizations have agreed to the RMBS
Settlements. These 336 securitizations have an aggregate original principal balance of approximately $189 billion (out of a total of 392
outstanding securitizations with an original principal balance of $221 billion). The RMBS Settlements are subject to Bankruptcy Court
approval, and the Bankruptcy Court has scheduled a hearing to consider such approval in late May 2013. The PSAs are not part of this
scheduled Bankruptcy Court hearing. A number of creditors have raised objections to the RMBS Settlements, and the trustees representing the
securitization trusts and AFI have filed statements in support of the Debtors' motion to approve the RMBS Settlements. Separately, the
Debtors have failed to meet several Plan milestones in their bankruptcy cases, each of which has given the RMBS Investors the right to
terminate the PSAs upon three business days advance written notice to the Debtors and AFI. The RMBS Investors have not given the Debtors
and AFI such a notice to date, but have the right to do so at any time. If the RMBS Settlements were not approved or the RMBS Investors
were to decide not to support any proposed plan, it could adversely impact the likelihood that any such proposed plan is approved by the
Bankruptcy Court. AFI continues to support the RMBS Settlements at this time.
On June 4, 2012, Berkshire Hathaway Inc. filed a motion in the Bankruptcy Court for the appointment of an independent examiner to
investigate, among other things, certain of the Debtors' transactions with AFI occurring prior to the Petition Date, any claims the Debtors may
hold against AFI's officers and directors, and any claims the Debtors proposed to release under the Plan. On June 20, 2012, the Bankruptcy
Court approved the appointment of an examiner and, subsequently, the United States Trustee for the Southern District of New York appointed
former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner (the Examiner). On July 27, 2012, the Bankruptcy Court entered an order
approving the scope of the Examiner's investigation. The investigation includes, among other things: (a) all material pre-petition transactions
between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain
post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements,
the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally
Bank; (c) all state and federal law claims or causes of action the Debtors proposed to release as part of the Plan; and (d) the release of all
existing or potential ResCap-related causes of action against AFI held by third parties. In the Examiner's original work plan, the Examiner
estimated that his investigation and related report would be completed six months from approximately August 6, 2012. However, on February
7, 2013 the Examiner informed the Bankruptcy Court in the third supplement to the work plan that the investigation and related report will not
be completed until early May 2013.
On December 26, 2012, the Bankruptcy Court, in an effort to facilitate plan negotiations, entered an order appointing bankruptcy judge
James M. Peck, Esq. as mediator to assist the parties in resolving certain issues relating to the formulation and confirmation of the Plan. There
can be no assurance that the mediation process will continue or will ultimately lead to a successful agreement among the parties.
111
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
On February 26, 2013, the official committee of unsecured creditors appointed in the Debtors' bankruptcy cases (the Creditors'
Committee) filed with the Bankruptcy Court a response to the Debtors' motions for appointment of a chief restructuring officer and to extend
their exclusive period to file a chapter 11 plan, which, among other things, states that the Creditors' Committee supports such extension
through and including April 30, 2013, and during such time the Creditors' Committee will agree not to bring any claims against AFI. The
response further states that the Debtors consent to the Creditors' Committee seeking standing in the Bankruptcy Court to prosecute and/or
settle the Debtors' alleged claims against AFI and agree to settle claims against AFI only with Creditors' Committee consent.
On February 27, 2013, the Debtors filed a motion with the Bankruptcy Court seeking, for purposes of any proposed chapter 11 plan, that
GMAC Mortgage's obligation to conduct and pay for independent file review regarding certain residential foreclosure actions and foreclosure
sales prosecuted by GMAC Mortgage and its subsidiaries, as required under the Consent Order, be classified as a general unsecured claim in
an amount to be determined, and that the automatic stay under the Bankruptcy Code be applied to prevent the FRB, the FDIC, and other
governmental entities from taking any action to enforce the obligation against the Debtors. If the Bankruptcy Court approves the motion, such
governmental entities are likely to seek to enforce the obligation against AFI, and any such obligations ultimately borne by AFI could be
material. The Debtors have requested that the motion be heard at a hearing on March 21, 2013.
We are currently named as defendants in various lawsuits relating to ResCap mortgage-backed securities and certain other mortgage-
related matters, which are described in more detail in Note 29. Substantially all of these matters are currently subject to orders entered by the
Bankruptcy Court staying the matters through either March 31, 2012 or April 30, 2013. Unless the Debtors seek and obtain Bankruptcy Court
approval to extend these stay orders, these matters are expected to proceed against us once the applicable stay orders expire.
As a result of the termination of the Settlement, AFI is no longer obligated to make the $750 million cash contribution and neither party
is bound by the Settlement. Further, AFI is not entitled to receive any releases from either the Debtors or any third party claimants, as was
contemplated under the Plan and Settlement. However, AFI has not withdrawn its offer to provide a $750 million cash contribution to the
Debtors' estate if an acceptable settlement can be reached. As a result of the termination of the Settlement, substantial claims could be brought
against us, which could have a material adverse impact on our results of operations, financial position or cash flows. We would have strong
legal and factual defenses with respect to any such claims, and would vigorously defend them.
As a result of the bankruptcy filing, effective May 14, 2012, we have deconsolidated ResCap from our financial statements and ResCap
is prospectively accounted for using the cost method. Furthermore, circumstances indicated to us that as of May 14, 2012, our investment in
ResCap would not be recoverable, and accordingly we recorded a full impairment of such investment. ResCap's results of operations have
been removed from our Consolidated Financial Statements since May 14, 2012. As of December 31, 2012, due to Ally Bank performing
certain mortgage activities during the bankruptcy process and the related uncertainty associated with the timing of resolution of the ResCap
bankruptcy, we did not classify ResCap as a discontinued operation. Accordingly, ResCap's results are presented as continuing operations
within our Consolidated Statement of Income for periods prior to May 14, 2012. Our Consolidated Statement of Income includes the
following for ResCap's results of operations (amounts presented are before the elimination of balances and transactions with Ally).
Year ended December 31, ($ in millions)
2012
2011
2010
Total net revenue
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations before income tax expense
Income tax expense from continuing operations
Net income (loss) from continuing operations
$
$
476
$
632
$
—
437
39
7
32
24
1,438
(830)
15
$
(845) $
2,051
(7)
1,526
532
7
525
Based on our assessment of the effect of the deconsolidation of ResCap, obligations under the Plan, and other impacts related to the
Chapter 11 filing, we recorded a charge of $1.2 billion during 2012, within our other operating expenses. This charge primarily consists of the
impairment of Ally's $442 million equity investment in ResCap and the $750 million cash contribution to be made by us to the Debtors' estate
described above. As of December 31, 2012, we have $1.3 billion of financing due from ResCap, which is classified as Finance Receivables
and Loans, net on our Consolidated Balance Sheet. We maintain no allowance or impairment against these receivables because management
considers them to be fully collectible. At December 31, 2012, our hedging arrangements with ResCap were fully collateralized. Additionally,
under a shared services agreement (SSA), each entity agreed to provide services to the other for a period of one year. The SSA will
automatically renew each year unless either entity provides written notice of nonrenewal to the other party at least three months prior to the
expiration. The SSA fees received by Ally and the expenses paid to ResCap will be reflected within the Consolidated Statement of Income as
a reduction or increase of noninterest expense. Because of the uncertain nature of the bankruptcy proceedings, we cannot predict the ultimate
financial impact to Ally. Refer to Note 29 for additional information regarding these bankruptcy proceedings.
Consolidation and Basis of Presentation
The Consolidated Financial Statements include our accounts and accounts of our majority-owned subsidiaries after eliminating all
significant intercompany balances and transactions and include all variable interest entities (VIEs) in which we are the primary beneficiary.
Refer to Note 10 for further details on our VIEs. Our accounting and reporting policies conform to accounting principles generally accepted in
112
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines
prescribed by bank regulatory authorities.
We operate our international subsidiaries in a similar manner as we operate in the United States of America (U.S. or United States),
subject to local laws or other circumstances that may cause us to modify our procedures accordingly. The financial statements of subsidiaries
that operate outside of the United States generally are measured using the local currency as the functional currency. All assets and liabilities of
foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. The resulting translation adjustments are recorded in
accumulated other comprehensive income. Income and expense items are translated at average exchange rates prevailing during the reporting
period.
Correction of Immaterial Error
We have revised our consolidated financial statements for the years ended December 31, 2010 and 2009, for the correction of an
immaterial error related to the accounting for a fair value derivative hedge associated with a specific bond affected by our 2008 bond
exchange. The correction of the error resulted in an increase in long-term debt and an associated increase in interest on long-term debt that
reduced previously reported net income by $46 million and $45 million for the years ended December 31, 2010 and 2009, respectively. Total
equity at December 31, 2010 has also been reduced by $91 million compared to amounts previously reported. We concluded based on our
quantitative and qualitative analysis that these related amounts are not material to our results of operations or financial condition.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting
period 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.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and certain highly liquid investment securities with maturities of three months or less
from the date of purchase. Cash and cash equivalents that have restrictions on our ability to withdraw the funds are included in other assets on
our Consolidated Balance Sheet. The book value of cash equivalents approximates fair value because of the short maturities of these
instruments. Certain securities with original maturities less than 90 days that are held as a portion of longer-term investment portfolios,
primarily held by our Insurance operations, are classified as investment securities.
Securities
Our portfolio of securities includes government securities, corporate bonds, asset- and mortgage-backed securities (MBS), interests in
securitization trusts, equity securities, and other investments. Securities are classified based on management's intent. Our trading assets
primarily consisted of MBS and retained and purchased interests in certain securitizations. The trading assets are carried at fair value with
changes in fair value recorded in current period earnings. All other securities are classified as available-for-sale and carried at fair value with
unrealized gains and losses included in accumulated other comprehensive income or loss, on an after-tax basis. Premiums and discounts on
debt securities are amortized as an adjustment to investment yield generally over the stated maturity of the security. We employ a systematic
methodology that considers available evidence in evaluating potential other-than-temporary impairment of our investments classified as
available-for-sale. 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 performance of the underlying assets for
interests in securitized assets, and our intent and ability to hold the investment.
Once a decline in fair value of an equity 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 or it is not more likely than not that we will have to sell the security prior to the security's anticipated recovery.
Noncredit component losses are amortized over the remaining life of the debt security by offsetting the recorded value of the asset.
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 investment securities refer to Note 6.
Loans Held-for-sale
Loans held-for-sale may include consumer automobile, consumer mortgage, and commercial receivables and loans. Loans held-for-sale
are carried at either fair value because of the fair value option election or lower of cost or estimated fair value. Loan origination fees, as well
as discount points and incremental direct origination costs, are initially recorded as an adjustment of the cost basis of the loan and are
reflected in the gain or loss on sale of loans when sold. Fair value is determined by type of loan and is generally based on contractually
established commitments from investors, current investor yield requirements, current secondary market pricing, or cash flow models using
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market-based yield requirements. Our fair value option election loans primarily consist of conforming and government-insured mortgage
loans. Refer to Note 7 for information on loans held-for-sale and Note 25 for information on fair value measurement.
Finance Receivables and Loans
Finance receivables and loans are reported at the principal amount outstanding, net of unearned income, premiums and discounts, and
allowances. Unearned income, which includes unearned rate support received from an automotive manufacturer on certain automotive loans
and deferred origination fees reduced by origination costs, is amortized over the contractual life of the related finance receivable or loan using
the effective interest method. We make incentive payments for consumer auto loan originations to automotive dealers under our Ally Dealer
Rewards Program and account for these payments as direct loan origination costs. Loan commitment fees are generally deferred and
amortized over the commitment period. For information on finance receivables and loans, refer to Note 8.
We classify finance receivables and loans between loans held-for-sale and loans held-for-investment based on management's assessment
of our intent and ability to hold loans for the foreseeable future or until maturity. Management's intent and ability with respect to certain loans
may change from time to time depending on a number of factors including economic, liquidity, and capital conditions. Management's view of
the foreseeable future is based on the longest reasonably reliable net income, liquidity, and capital forecast period.
Our portfolio segments are based on the level at which we develop and document our methodology for determining the allowance for
loan losses. Additionally, the classes of finance receivables are based on several factors including the method for monitoring and assessing
credit risk, the method of measuring carrying value, and the risk characteristics of the finance receivable. Based on an evaluation of our
process for developing the allowance for loan losses including the nature and extent of exposure to credit risk arising from finance
receivables, we have determined our portfolio segments to be consumer automobile, consumer mortgage, and commercial.
• Consumer automobile — Consists of retail automobile financing for new and used vehicles.
• Consumer mortgage — Consists of the following classes of finance receivables.
•
1st Mortgage — Consists of residential mortgage loans that are secured in a first-lien position and have priority over all
other liens or claims on the respective collateral.
• Home equity — Consists of residential home equity loans or mortgages with a subordinate-lien position.
• Commercial — Consists of the following classes of finance receivables.
• Commercial and Industrial
•
Automobile — Consists of financing operations to fund dealer purchases of new and used vehicle through
wholesale or floorplan financing. Additional commercial offerings include automotive dealer term loans,
revolving lines of credit, and dealer fleet financing.
• Mortgage — Consists primarily of warehouse lending.
• Other — Consists of senior secured commercial lending.
• Commercial Real Estate
•
Automobile — Consists of term loans to finance dealership land and buildings.
• Mortgage — Related primarily to activities within our business capital group, which provides financing to
residential land developers and homebuilders. These activities are in wind-down and do not represent a material
component of our business.
Nonaccrual Loans
Revenue recognition is suspended when any finance receivables and loans are placed on nonaccrual status. Generally, all classes of
finance receivables and loans are placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full
collection is determined not to be probable. Exceptions include commercial real estate loans that are placed on nonaccrual status when
delinquent for 60 days. These loans are reported as nonperforming loans in Note 8. Revenue accrued, but not collected, at the date finance
receivables and loans are placed on nonaccrual status is reversed and subsequently recognized only to the extent it is received in cash or until
it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received
is applied to reduce the carrying value of such loans. Finance receivables and loans are restored to accrual status only when contractually
current and the collection of future payments is reasonably assured.
Generally, we recognize all classes of loans as past due when they are 30 days delinquent on making a contractually required payment.
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Impaired Loans
All classes of loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due (both
principal and interest) according to the terms of the loan agreement.
For all classes of consumer loans, impaired loans are loans that have been modified in troubled debt restructurings.
All classes of commercial loans are considered impaired on an individual basis and reported as impaired when we determine it is
probable that we will be unable to collect all amounts due according to the terms of the loan agreement.
For all classes of impaired loans, income recognition is consistent with that of nonaccrual loans discussed above. For collateral
dependent loans, if the recorded investment in impaired loans exceeds the fair value of the collateral, a charge-off is recorded consistent with
the TDR discussion below.
Troubled Debt Restructurings (TDRs)
When the terms of finance receivables or loans are modified, consideration must be given as to whether or not the modification results in
a TDR. A modification is considered to be a TDR when both a) the borrower is experiencing financial difficulty and b) we grant a concession
to the borrower. These considerations require significant judgment and vary by portfolio segment. In all cases, the cumulative impacts of all
modifications are considered at the time of the most recent modification.
For all classes of consumer loans, various qualitative factors are utilized for assessing the financial difficulty of the borrower. These
include, but are not limited to, the borrowers default status on any of its debts, bankruptcy and recent changes in financial circumstances (loss
of job, etc.). A concession has been granted when as a result of the modification we do not expect to collect all amounts due, including interest
accrued at the original contract rate. Types of modifications that may be considered concessions include but are not limited to extensions of
terms at a rate that does not constitute a market rate, a reduction, deferral or forgiveness of principal or interest owed and loans that have been
discharged in a Chapter 7 Bankruptcy and have not been reaffirmed by the borrower.
In addition to the modifications noted above, in our consumer automobile class of loans we also provide extensions or deferrals of
payments to borrowers who we deem to be experiencing only temporary financial difficulty. In these cases, there are limits within our
operational policies to minimize the number of times a loan can be extended, as well as limits to the length of each extension, including a
cumulative cap over the life of the loan. Before offering an extension or deferral, we evaluate the capacity of the customer to make the
scheduled payments after the deferral period. During the deferral period, we continue to accrue and collect interest on the loan as part of the
deferral agreement. We grant these extensions or deferrals when we expect to collect all amounts due including interest accrued at the original
contract rate.
A restructuring that results in only a delay in payment that is deemed to be insignificant is not a concession and such modification is not
considered to be a TDR. In order to assess whether a restructuring that results in a delay in payment is insignificant, we consider the amount
of the restructured payments subject to delay in conjunction with the unpaid principal balance or the collateral value of the loan, whether or
not the delay is significant with respect to the frequency of payments under the original contract, or the loan's original expected duration. In
the cases where payment extensions on our automobile loan portfolio cumulatively extend beyond 90 days and are more than 10% of the
original contractual term or any cumulative extension beyond 180 days, we deem the delay in payment to be more than insignificant, and as
such, classify these types of modifications as TDRs. Otherwise, we believe that the modifications do not represent a concessionary
modification and accordingly, they are not classified as TDRs.
For all classes of commercial loans, similar qualitative factors are considered when assessing the financial difficulty of the borrower. In
addition to the factors noted above, consideration is also given to the borrower's forecasted ability to service the debt in accordance with the
contractual terms, possible regulatory actions and other potential business disruptions (e.g. the loss of a significant customer or other revenue
stream). Consideration of a concession is also similar for commercial loans. In addition to the factors noted above, consideration is also given
to whether additional guarantees or collateral have been provided.
For all loans, TDR classification typically results from our loss mitigation activities. For loans held-for-investment that are not carried at
fair value and are TDRs, impairment is typically measured based on the differences between the net carrying value of the loan and the present
value of the expected future cash flows of the loan. The loan may also be measured for impairment based on the fair value of the underlying
collateral less costs to sell for loans that are collateral dependent. We recognize impairment by either establishing a valuation allowance or
recording a charge-off.
The financial impacts of modifications that meet the definition of a TDR are reported in the period in which they are identified as TDRs.
Additionally, if a loan that is classified as a TDR redefaults within twelve months of the modification, we are required to disclose such
instances of redefault. For the purpose of this disclosure, we have determined that a loan is considered to have redefaulted when the loan
meets the requirements for evaluation under our charge-off policy except for commercial loans where redefault is defined as 90 days past due.
Our policy is to generally place all TDRs on nonaccrual status until the loan has been brought fully current, the collection of contractual
principal and interest is reasonably assured, and six consecutive months of repayment performance is achieved. In certain cases, if a borrower
has been current up to the time of the modification and repayment of the debt subsequent to the modification is reasonably assured, we may
choose to continue to accrue interest on the loan.
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Charge-offs
As a general rule, consumer automobile loans are written down to estimated collateral value, less costs to sell, once a loan becomes
120 days past due. Consumer first-lien mortgage loans, which consists of our entire 1st mortgage class and a subset of our home equity class
that are secured by real estate in a first-lien position are written down to the estimated fair value of the collateral, less costs to sell, once a
mortgage loan becomes 180 days past due. Second-lien consumer mortgage loans within our home equity class are charged off at 180 days
past due. Second-lien consumer mortgage loans in bankruptcy that are 60 days past due are fully charged off within 60 days of receipt of
notification of filing from the bankruptcy court. Consumer automobile and first-lien consumer mortgage loans in bankruptcy that are 60 days
past due are written down to the estimated fair value of the collateral, less costs to sell, within 60 days of receipt of notification of discharge
from the bankruptcy court. Regardless of other timelines noted within this policy, loans are considered collateral dependent at the time
foreclosure or repossession proceedings begin and are charged off to the estimated fair value of the underlying collateral, less costs to sell at
that time.
Commercial loans are individually evaluated and where collectability of the recorded balance is in doubt are written down to the
estimated fair value of the collateral less costs to sell. Generally, all commercial loans are charged off when it becomes unlikely that the
borrower is willing or able to repay the remaining balance of the loan and any underlying collateral is not sufficient to recover the outstanding
principal. Collateral dependent loans are charged-off to the fair market value of collateral less costs to sell and non-collateral dependent loans
are fully written-off.
Allowance for Loan Losses
The allowance for loan losses (the allowance) is management's estimate of incurred losses in the lending portfolios. We determine the
amount of the allowance required for each of our portfolio segments based on its relative risk characteristics. The evaluation of these factors
for both consumer and commercial finance receivables and loans involves complex, subjective judgments. Additions to the allowance are
charged to current period earnings through the provision for loan losses; amounts determined to be uncollectible are charged directly against
the allowance, net of amounts recovered on previously charged-off accounts.
The allowance is comprised of two components: specific reserves established for individual loans evaluated as impaired and portfolio-
level reserves established for large groups of typically smaller balance homogeneous loans that are collectively evaluated for impairment. We
evaluate the adequacy of the allowance based on the combined total of these two components. Determining the appropriateness of the
allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. It is possible that others,
given the same information, may at any point in time reach different reasonable conclusions.
Measurement of impairment for specific reserves is generally determined on a loan-by-loan basis. Loans determined to be specifically
impaired are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, an observable
market price, or the estimated fair value of the collateral less estimated costs to sell, whichever is determined to be the most appropriate.
When these measurement values are lower than the carrying value of that loan, impairment is recognized. Loans that are not identified as
individually impaired are pooled with other loans with similar risk characteristics for evaluation of impairment for the portfolio-level
allowance.
For the purpose of calculating portfolio-level reserves, we have grouped our loans into three portfolio segments: consumer automobile,
consumer mortgage, and commercial. The allowance consists of the combination of a quantitative assessment component based on statistical
models, a retrospective evaluation of actual loss information to loss forecasts, and includes a qualitative component based on management
judgment. Management takes into consideration relevant qualitative factors, including external and internal trends such as the impacts of
changes in underwriting standards, collections and account management effectiveness, geographic concentrations, and economic events,
among other factors, that have occurred but are not yet reflected in the quantitative assessment component. All qualitative adjustments are
adequately documented, reviewed, and approved through our established risk governance processes. Refer to Note 8 for information on the
allowance for loan losses.
Consumer Loans
Our consumer automobile and consumer mortgage portfolio segments are reviewed for impairment based on an analysis of loans that are
grouped into common risk categories (i.e., past due status, loan or lease type, collateral type, borrower, industry or geographic
concentrations). We perform periodic and systematic detailed reviews of our lending portfolios to identify inherent risks and to assess the
overall collectability of those portfolios. Loss models are utilized for these portfolios, which consider a variety of credit quality indicators
including, but not limited to, historical loss experience, current economic conditions, anticipated repossessions or foreclosures based on
portfolio trends, delinquencies and credit scores, and expected loss factors by loan type.
Consumer Automobile Portfolio Segment
The allowance for loan losses within the consumer automobile portfolio segment is calculated using proprietary statistical models and
other risk indicators applied to pools of loans with similar risk characteristics, including credit bureau score and loan-to-value ratios to arrive
at an estimate of incurred losses in the portfolio. These statistical loss forecasting models are utilized to estimate incurred losses and consider
a variety of factors including, but not limited to, historical loss experience, estimated defaults based on portfolio trends, delinquencies, and
general economic and business trends. These statistical models predict forecasted losses inherent in the portfolio based on both vintage and
migration analyses.
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The forecasted losses consider historical factors such as frequency (the number of contracts that we expect to default) and loss severity
(the expected loss on a per vehicle basis). The loss severity within the consumer automobile portfolio segment is impacted by the market
values of vehicles that are repossessed. Vehicle market values are affected by numerous factors including vehicles supply, the condition of the
vehicle upon repossession, the overall price and volatility of gasoline or diesel fuel, consumer preference related to specific vehicle segments,
and other factors. The historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic
environment.
The quantitative assessment component may be supplemented with qualitative reserves based on management's determination that such
adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external
factors that have occurred but are not yet reflected in the forecasted losses and may affect the performance of the portfolio.
Our methodology and policies with respect to the allowance for loan losses for our consumer automobile portfolio segment did not
change during 2012.
Consumer Mortgage Portfolio Segment
The allowance for loan losses within the consumer mortgage portfolio segment is calculated by using proprietary statistical models based
on pools of loans with similar risk characteristics, including credit score, loan-to-value, loan age, documentation type, product type, and loan
purpose, to arrive at an estimate of incurred losses in the portfolio. These statistical loss forecasting models are utilized to estimate incurred
losses and consider a variety of factors including, but not limited to, historical loss experience, estimated foreclosures or defaults based on
portfolio trends, delinquencies, and general economic and business trends.
The forecasted losses are statistically derived based on a suite of behavioral based transition models. This transition framework predicts
various stages of delinquency, default, and voluntary prepayment over the course of the life of the loan. The transition probability is a function
of the loan and borrower characteristics and economic variables and considers historical factors such as frequency (the number of contracts
that we expect to default) and loss severity (the expected loss on a per loan basis). When a default event is predicted, a severity model is
applied to estimate future loan losses. Loss severity within the consumer mortgage portfolio segment is impacted by the market values of
foreclosed properties, which is affected by numerous factors, including geographic considerations and the condition of the foreclosed
property. The historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic
environment.
The quantitative assessment component is supplemented with qualitative reserves based on management's determination that such
adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external
factors that have occurred but are not yet reflected in the forecasted losses and may affect the credit quality of the portfolio.
Our methodology and policies with respect to the allowance for loan losses for our consumer mortgage portfolio segment did not change
during 2012.
Commercial
The allowance for loan losses within the commercial portfolio is comprised of reserves established for specific loans evaluated as
impaired and portfolio-level reserves based on nonimpaired loans grouped into pools based on similar risk characteristics and collectively
evaluated.
A commercial loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement based on current information and events. These loans are primarily evaluated individually and are
risk-rated based on borrower, collateral, and industry-specific information that management believes is relevant in determining the occurrence
of a loss event and measuring impairment. Management establishes specific allowances for commercial loans determined to be individually
impaired based on the present value of expected future cash flows, discounted at the loan's effective interest rate, observable market price or
the fair value of collateral, whichever is determined to be the most appropriate. Estimated costs to sell or realize the value of the collateral on
a discounted basis are included in the impairment measurement, when appropriate.
Loans not identified as impaired are grouped into pools based on similar risk characteristics and collectively evaluated. Our risk rating
models use historical loss experience, concentrations, current economic conditions, and performance trends. The commercial historical loss
experience is updated quarterly to incorporate the most recent data reflective of the current economic environment. The determination of the
allowance is influenced by numerous assumptions and many factors that may materially affect estimates of loss, including volatility of loss
given default, probability of default, and rating migration. In assessing the risk rating of a particular loan, several factors are considered
including an evaluation of historical and current information involving subjective assessments and interpretations. In addition, the allowance
related to the commercial portfolio segment is influenced by estimated recoveries from automotive manufacturers relative to guarantees or
agreements with them to repurchase vehicles used as collateral to secure the loans.
The quantitative assessment component may be supplemented with qualitative reserves based on management's determination that such
adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external
factors that have occurred and may affect the credit quality of the portfolio.
Our methodology and policies with respect to the allowance for loan losses for our commercial portfolio segment did not change during
2012.
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Securitizations and Variable Interest Entities
We securitize, sell, and service consumer automobile loans, operating leases, wholesale loans, and consumer mortgage loans.
Securitization transactions typically involve the use of variable interest entities and are accounted for either as sales or secured financings. We
may retain economic interests in the securitized and sold assets, which are generally retained in the form of senior or subordinated interests,
interest- or principal-only strips, cash reserve accounts, residual interests, and servicing rights.
In order to conclude whether or not a variable interest entity is required to be consolidated, careful consideration and judgment must be
given to our continuing involvement with the variable interest entity. In circumstances where we have both the power to direct the activities of
the entity that most significantly impact the entity's performance and the obligation to absorb losses or the right to receive benefits of the
entity that could be significant, we would conclude that we would consolidate the entity, which would also preclude us from recording an
accounting sale on the transaction. In the case of a consolidated variable interest entity, the accounting is consistent with a secured financing,
i.e., we continue to carry the loans and we record the related securitized debt on our balance sheet. Unrecorded economic interests in
consolidated variable interest entities can be determined as the difference between the recognized assets and recognized liabilities.
In transactions where either one or both of the power or economic criteria mentioned above are not met, we then must determine whether
or not we achieve a sale for accounting purposes. In order to achieve a sale for accounting purposes, the assets being transferred must be
legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond our control. If we were to fail any of the
three criteria for sale accounting, the accounting would be consistent with the preceding paragraph (i.e., a secured borrowing). Refer to Note
10 for discussion on variable interest entities.
Gains or losses on off-balance sheet securitizations take into consideration the fair value of the retained interests including the value of
certain servicing assets or liabilities, if any, which are initially recorded at fair value at the date of sale. The estimate of the fair value of the
retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows from the
interests. Refer to Note 25 for a discussion of fair value estimates.
Gains or losses on off-balance sheet securitizations and sales are reported in gain (loss) on mortgage and automotive loans, net, in our
Consolidated Statement of Income for consumer automobile loans, wholesale loans, and consumer mortgage loans. Declines in the fair value
of retained interests, other than servicing, below the carrying amount are reflected in other comprehensive income, or as other (loss) gain on
investments, net, in our Consolidated Statement of Income if such declines are determined to be other-than-temporary or if the interests are
classified as trading. Retained interests, as well as any purchased securities, are generally included in available-for-sale investment securities,
trading investment securities, or other assets. Designation as available-for-sale or trading depends on management's intent. Securities that are
noncertificated and cash reserve accounts related to securitizations are included in other assets on our Consolidated Balance Sheet.
We retain servicing responsibilities for all of our consumer automobile loan, operating lease, and wholesale loan securitizations and for
the majority of our consumer mortgage loan securitizations. We may receive servicing fees based on the securitized loan balances and certain
ancillary fees, all of which are reported in servicing fees in the Consolidated Statement of Income. We also retain the right to service the
consumer mortgage loans sold in securitization transactions involving the Federal National Mortgage Association (Fannie Mae), the Federal
Home Loan Mortgage Corporation (Freddie Mac), and the Government National Mortgage Association (Ginnie Mae) (collectively the
Government-sponsored Enterprises or GSEs) and private investors. We also serve as the collateral manager in the securitizations of
commercial investment securities.
Whether on- or off-balance sheet, the investors in the securitization trusts generally have no recourse to our assets outside of customary
market representation and warranty repurchase provisions.
Mortgage Servicing Rights
Primary servicing rights represent our right to service consumer residential mortgages securitized by us or through the GSEs and third-
party whole-loan sales. Primary servicing involves the collection of payments from individual borrowers and the distribution of these
payments to the investors or master servicer. Master-servicing rights represented our right to service mortgage- and asset-backed securities
and whole-loan packages issued for investors. Master-servicing involved the collection of borrower payments from primary servicers and the
distribution of those funds to investors in mortgage- and asset-backed securities and whole-loans packages. We also purchased and sold
primary and master-servicing rights through transactions with other market participants.
We capitalize the value expected to be realized from performing specified mortgage servicing activities for others as mortgage servicing
rights (MSRs) when the expected future cash flows from servicing are projected to be more than adequate compensation for such activities.
These capitalized servicing rights are purchased or retained upon sale or securitization of mortgage loans. MSRs are not recorded on
securitizations accounted for as secured financings.
We measure all mortgage servicing assets and liabilities at fair value. We define our servicing rights based on both the availability of
market inputs and the manner in which we manage the risks of our servicing assets and liabilities. We leverage all available relevant market
data to determine the fair value of our recognized servicing assets and liabilities.
Since quoted market prices for MSRs are not readily available, we estimate the fair value of MSRs by determining the present value of
future expected cash flows using modeling techniques that incorporate management's best estimates of key variables including expected cash
flows, prepayment speeds, and return requirements commensurate with the risks involved. Cash flow assumptions are modeled using our
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internally forecasted revenue and expenses, and where possible, the reasonableness of assumptions is periodically validated through
comparisons to market data. Prepayment speed estimates are determined from historical prepayment rates on similar assets or obtained from
third-party data. Return requirement assumptions are determined using data obtained from market participants, where available, or based on
current relevant interest rates plus a risk-adjusted spread. We also consider other factors that can impact the value of the MSRs, such as surety
provider termination clauses and servicer terminations that could result if we failed to materially comply with the covenants or conditions of
our servicing agreements and did not remedy the failure. Since many factors can affect the estimate of the fair value of MSRs, we regularly
evaluate the major assumptions and modeling techniques used in our estimate and review these assumptions against market comparables, if
available. We monitor the actual performance of our MSRs by regularly comparing actual cash flow, credit, and prepayment experience to
modeled estimates. Refer to Note 11 for further discussion of our servicing activities.
Repossessed and Foreclosed Assets
Assets are classified as repossessed and foreclosed and included in other assets when physical possession of the collateral is taken
regardless of whether foreclosure proceedings have taken place. Repossessed and foreclosed assets are carried at the lower of the outstanding
balance at the time of repossession or foreclosure or the fair value of the asset less estimated costs to sell. Losses on the revaluation of
repossessed and foreclosed assets are charged to the allowance for loan losses at the time of repossession. Declines in value after repossession
are charged to other operating expenses for loans and depreciation expense for operating lease assets as incurred.
Goodwill and Other Intangibles
Goodwill and other intangible assets, net of accumulated amortization, are reported in other assets. In accordance with applicable
accounting standards, goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired, including
identifiable intangibles. Goodwill is reviewed for impairment utilizing a two-step process. The first step of the impairment test requires us to
define the reporting units and compare the fair value of each of these reporting units to the respective carrying value. The fair value of the
reporting units in our impairment test is determined based on various analyses including discounted cash flow projections using assumptions a
market participant would use. If the carrying value is less than the fair value, no impairment exists, and the second step does not need to be
completed. If the carrying value is higher than the fair value or there is an indication that impairment may exist, a second step must be
performed to compute the amount of the impairment, if any. Applicable accounting standards require goodwill to be tested for impairment
annually at the same time every year and whenever an event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. Our annual goodwill impairment assessment is performed as of August 31 of each year.
Refer to Note 13 for further discussion on goodwill.
Investment in Operating Leases
Investment in operating leases represents the automobiles that are underlying the leases and is reported at cost, less accumulated
depreciation and net of impairment charges and origination fees or costs. Depreciation of vehicles is generally provided on a straight-line
basis to an estimated residual value over the lease term. Manufacturer support payments that we receive are treated as a reduction to the cost-
basis in the underlying lease asset and are recognized over the life of the contract as a reduction to depreciation expense. We periodically
evaluate our depreciation rate for leased vehicles based on projected residual values. Income from operating lease assets that includes lease
origination fees, net of lease origination costs, is recognized as operating lease revenue on a straight-line basis over the scheduled lease term.
We have significant investments in the residual values of assets in our operating lease portfolio. The residual values represent an estimate
of the values of the assets at the end of the lease contracts. At contract inception, we generally determine the projected residual values based
on independent data, including independent guides of vehicle residual values, and analysis. Realization of the residual values is dependent on
our future ability to market the vehicles under the prevailing market conditions. Over the life of the lease, we evaluate the adequacy of our
estimate of the residual value and may make adjustments to the depreciation rates to the extent the expected value of the vehicle (including
any residual support payments) at lease termination changes. In addition to estimating the residual value at lease termination, we also evaluate
the current value of the operating lease asset and test for impairment to the extent necessary based on market considerations and portfolio
characteristics. Impairment is determined to exist if the undiscounted expected future cash flows are lower than the carrying value of the
asset. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of
the assets exceeds the fair value as estimated by discounted cash flows. The accrual of revenue on operating leases is generally discontinued
at the time an account is determined to be uncollectible, at the earliest of time of repossession, within 60 days of bankruptcy notification and
greater than 60 days past due, or greater than 120 days past due.
When a lease vehicle is returned to us, the asset is reclassified from investment in operating leases, net, to other assets and recorded at
the lower-of-cost or estimated fair value, less costs to sell, on our Consolidated Balance Sheet.
Impairment of Long-lived Assets
The carrying value of long-lived assets (including property and equipment) are evaluated for impairment whenever events or changes in
circumstances indicate that their carrying values may not be recoverable from the estimated undiscounted future cash flows expected to result
from their use and eventual disposition. Recoverability of assets to be held and used is measured by a comparison of their carrying amount to
future net undiscounted cash flows expected to be generated by the assets. If these assets are considered to be impaired, the impairment is
measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by discounted cash flows. No material
impairment was recognized in 2012, 2011, or 2010.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
An impairment test on an asset group to be sold or otherwise disposed of is performed upon occurrence of a triggering event or when
certain criteria are met (e.g., the asset is planned to be disposed of within twelve months, appropriate levels of authority have approved the
sale, there is an active program to locate a buyer, etc), which cause the disposal group to be classified as held-for-sale. Long-lived assets held-
for-sale are recorded at the lower of their carrying amount or estimated fair value less cost to sell. If the carrying value of the assets held-for-
sale exceeds the fair value less cost to sell, we recognize an impairment loss based on the excess of the carrying amount over the fair value of
the assets less cost to sell. During 2012, 2011, and 2010, impairment losses were recognized on asset groups that were classified as held-for-
sale or disposed of by sale. Refer to Note 2 for a discussion of discontinued and held-for-sale operations.
Property and Equipment
Property and equipment stated at cost, net of accumulated depreciation and amortization, are reported in other assets on our Consolidated
Balance Sheet. Included in property and equipment are certain buildings, furniture and fixtures, leasehold improvements, company vehicles,
IT hardware and software, and capitalized software costs. Depreciation is computed on the straight-line basis over the estimated useful lives
of the assets, which generally ranges from three to thirty years. Capitalized software is generally amortized on a straight-line basis over its
useful life, which generally ranges from three to five years. Capitalized software that is not expected to provide substantive service potential
or for which development costs significantly exceed the amount originally expected is considered impaired and written down to fair value.
Software expenditures that are considered general, administrative, or of a maintenance nature are expensed as incurred.
Unearned Insurance Premiums and Service Revenue
Insurance premiums, net of premiums ceded to reinsurers, and service revenue are earned over the terms of the policies. The portion of
premiums and service revenue written applicable to the unexpired terms of the policies is recorded as unearned insurance premiums or
unearned service revenue. For extended service and maintenance contracts, premiums and service revenues are earned on a basis
proportionate to the anticipated cost emergence. For other short duration contracts, premiums and unearned service revenue are earned on a
pro rata basis. For further information, refer to Note 3.
Deferred Policy Acquisition Costs
Commissions, including compensation paid to sellers of vehicle service contracts and other costs of acquiring insurance that are
primarily related to and vary with the production of business, are deferred and recorded in other assets. Deferred policy acquisition costs are
amortized over the terms of the related policies and service contracts on the same basis as premiums and revenue are earned except for direct
response advertising costs, which are amortized over their expected future benefit. We group costs incurred for acquiring like contracts and
consider anticipated investment income in determining the recoverability of these costs.
Reserves for Insurance Losses and Loss Adjustment Expenses
Reserves for insurance losses and loss adjustment expenses are reported in accrued expenses and other liabilities. They are established
for the unpaid cost of insured events that have occurred as of a point in time. More specifically, the reserves for insurance losses and loss
adjustment expenses represent the accumulation of estimates for both reported losses and those incurred, but not reported, including claims
adjustment expenses relating to direct insurance and assumed reinsurance agreements. Estimates for salvage and subrogation recoverable are
recognized at the time losses are incurred and netted against provision for insurance losses and loss adjustment expenses. Reserves are
established for each business at the lowest meaningful level of homogeneous data. Since the reserves are based on estimates, the ultimate
liability may vary from such estimates. The estimates are regularly reviewed and adjustments, which can potentially be significant, are
included in earnings in the period in which they are deemed necessary.
Legal and Regulatory Reserves
Reserves for legal and regulatory matters are established when those matters present loss contingencies that are both probable and
estimable, with a corresponding amount recorded to other noninterest expense. In cases where we have an accrual for losses, it is our policy to
include an estimate for probable and estimable legal expenses related to the case. If, at the time of evaluation, the loss contingency related to a
litigation or regulatory matter is not both probable and estimable, we do not establish an accrued liability. We continue to monitor legal and
regulatory matters for further developments that could affect the requirement to establish a liability or that may impact the amount of a
previously established liability. There may be exposure to loss in excess of any amounts recognized. For certain other matters where the risk
of loss is determined to be reasonably possible, estimable, and material to the financial statements, disclosure regarding details of the matter
and an estimated range of loss is required. The estimated range of possible loss does not represent our maximum loss exposure. Financial
statement disclosure is also required for matters that are deemed probable or reasonably possible, material to the financial statements, but for
which an estimated range of loss is not possible to determine. While we believe our reserves are adequate, the outcome of legal and regulatory
proceedings is extremely difficult to predict and we may settle claims or be subject to judgments for amounts that differ from our estimates.
For information regarding the nature of all material contingencies, refer to Note 29.
Loan Repurchase and Obligations Related to Loan Sales
Our Mortgage operations sell loans that take the form of securitizations guaranteed by the GSEs or by whole-loan purchasers. In
addition, we infrequently sell securities to investors through private-label securitizations. In connection with these activities we provide to the
GSEs, investors, whole-loan purchasers, and financial guarantors (monolines) various representations and warranties related to the loans sold.
These representations and warranties generally relate to, among other things, the ownership of the loan, the validity of the lien securing the
loan, the loan's compliance with the criteria for inclusion in the transaction, including compliance with underwriting standards or loan criteria
established by the buyer, ability to deliver required documentation and compliance with applicable laws. Generally, the representations and
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
warranties described in Note 29 may be enforced at any time over the life of the loan. Historically, ResCap assumed all of the customary
representation and warranty obligations for loans purchased from Ally Bank and subsequently sold into the secondary market. A significant
portion of our representation and warranty obligations were eliminated as a result of the deconsolidation of ResCap. As a result of the
deconsolidation of ResCap, we recorded a representation and warranty reserve to Ally Bank. See Note 29 for additional information.
Upon a breach of a representation, we correct the breach in a manner conforming to the provisions of the sale agreement. This may
require us either to repurchase the loan or to indemnify (make-whole) a party for incurred losses or provide other recourse to a GSE or
investor. Repurchase demands and claims for indemnification payments are reviewed on a loan-by-loan basis to validate if there has been a
breach requiring repurchase or a make-whole payment. We actively contest claims to the extent we do not consider them valid. In cases where
we repurchase loans, we bear the credit loss on the loans. Repurchased loans are classified as held-for-sale and initially recorded at fair value
and subsequently at the lower of cost or market. We seek to manage the risk of repurchase and associated credit exposure through our
underwriting and quality assurance practices and by servicing mortgage loans to meet investor standards.
The reserve for representation and warranty obligations reflects management's best estimate of probable lifetime loss. We consider
historical and recent demand trends in establishing the reserve. The methodology used to estimate the reserve considers a variety of
assumptions including borrower performance (both actual and estimated future defaults), repurchase demand behavior, historical loan defect
experience, historical and estimated future loss experience, which includes projections of future home price changes as well as other
qualitative factors including investor behavior. In cases where we may not be able to reasonably estimate losses, a liability is not recognized.
Management monitors the adequacy of the overall reserve and makes adjustments to the level of reserve, as necessary, after consideration of
other qualitative factors including ongoing dialogue with counterparties.
At the time a loan is sold, an estimate of the fair value of the liability is recorded and classified in other liabilities on our Consolidated
Balance Sheet, and recorded as a component of gain (loss) on mortgage and automotive loans, net, in our Consolidated Statement of Income.
We recognize changes in the reserve when additional relevant information becomes available. Changes in the liability are recorded as other
operating expenses in our Consolidated Statement of Income.
Earnings per Common Share
We compute basic earnings (loss) per common share by dividing net income (loss) from continuing operations attributable to common
shareholders after deducting dividends on preferred stock by the weighted-average number of common shares outstanding during the period.
We compute diluted earnings (loss) per common share by dividing net income (loss) from continuing operations after deducting dividends on
preferred stock by the weighted-average number of common shares outstanding during the period plus the dilution resulting from the
conversion of convertible preferred stock, if applicable.
Derivative Instruments and Hedging Activities
We primarily use derivative instruments for risk management purposes. Derivatives that were held for trading purposes were limited to
those entered into by our broker-dealer. Some of our derivative instruments are designated in qualifying hedge accounting relationships; other
derivative instruments do not qualify for hedge accounting or are not elected to be designated in a qualifying hedging relationship. In
accordance with applicable accounting standards, all derivative financial instruments, whether designated for hedge accounting or not, are
required to be recorded on the balance sheet as assets or liabilities and measured at fair value. Additionally, we report derivative financial
instruments on the Consolidated Balance Sheet primarily on a gross basis. For additional information on derivative instruments and hedging
activities, refer to Note 22.
At inception of a hedge accounting relationship, we designate each qualifying derivative financial instrument as a hedge of the fair value
of a specifically identified asset or liability (fair value hedge); as a hedge of the variability of cash flows to be received or paid related to a
recognized asset or liability (cash flow hedge); or as a hedge of the foreign-currency exposure of a net investment in a foreign operation. We
formally document all relationships between hedging instruments and hedged items and risk management objectives for undertaking various
hedge transactions. Both at the hedge's inception and on an ongoing basis, we formally assess whether the derivatives that are used in hedging
relationships are highly effective in offsetting changes in fair values or cash flows of hedged items.
Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges along with the gain or
loss on the hedged asset or liability attributable to the hedged risk, are recorded in the current period earnings. For qualifying cash flow
hedges, the effective portion of the change in the fair value of the derivative financial instruments is recorded in accumulated other
comprehensive income, and recognized in the income statement when the hedged cash flows affect earnings. For a derivative designated as
hedging the foreign-currency exposure of a net investment in a foreign operation, the gain or loss is reported in accumulated other
comprehensive income as part of the cumulative translation adjustment. The ineffective portions of fair value, cash flow, and net investment
hedges are immediately recognized in earnings, along with the portion of the change in fair value that is excluded from the assessment of
hedge effectiveness, if any.
The hedge accounting treatment described herein is no longer applied if a derivative financial instrument is terminated or the hedge
designation is removed or is assessed to be no longer highly effective. For these terminated fair value hedges, any changes to the hedged asset
or liability remain as part of the basis of the asset or liability and are recognized into income over the remaining life of the asset or liability.
For terminated cash flow hedges, unless it is probable that the forecasted cash flows will not occur within a specified period, any changes in
fair value of the derivative financial instrument previously recognized remain in accumulated other comprehensive income, and are
reclassified into earnings in the same period that the hedged cash flows affect earnings. The previously recognized net derivative gain or loss
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
for a net investment hedge continues to remain in accumulated other comprehensive income until earnings are impacted by sale or liquidation
of the associated foreign operation. In all instances, after hedge accounting is no longer applied, any subsequent changes in fair value of the
derivative instrument will be recorded into earnings.
Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated for hedge
accounting under GAAP and changes in the fair value of derivative financial instruments held for trading purposes are reported in current
period earnings.
Loan Commitments
We enter into commitments to purchase and make loans whereby the interest rate on the loans is set prior to funding (i.e., interest rate
lock commitments). Interest rate lock commitments for mortgage loans to be originated for sale and all purchase commitments are derivative
financial instruments carried at fair value in accordance with applicable accounting standards with changes in fair value included within
current period earnings. The fair value of purchase and interest rate lock commitments include expected net future cash flows related to the
associated servicing of the loan. Servicing assets are recognized as distinct assets once they are contractually separated from the underlying
loan by sale or securitization. Day-one gains or losses on derivative interest rate lock commitments are recognized when applicable.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best
assessment of estimated future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions.
Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In
evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and
negative evidence including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations
and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating
income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. For additional
information regarding our provision for income taxes, refer to Note 23.
We recognize the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination. Also, we recognize accrued interest and penalties related to uncertain income tax
positions in interest expense and other operating expenses, respectively.
Share-based Compensation
Under accounting guidance for share-based compensation, compensation cost recognized includes cost for share-based awards. For
certain share-based awards compensation cost is ratably charged to expense over the applicable service periods. For other share-based awards,
the awards require liability treatment and are remeasured quarterly at fair value until they are paid, with changes in fair value charged to
compensation expense in the period in which the change occurs. Refer to Note 24 for a discussion of our share-based compensation plans.
Foreign Exchange
Foreign-denominated assets and liabilities resulting from foreign-currency transactions are valued using period-end foreign-exchange
rates and the results of operations and cash flows are determined using approximate weighted average exchange rates for the period.
Translation adjustments are related to foreign subsidiaries using local currency as their functional currency and are reported as a separate
component of accumulated other comprehensive income. We may elect to enter into foreign-currency derivatives to mitigate our exposure to
changes in foreign-exchange rates. Refer to Derivative Instruments and Hedging Activities above for a discussion of our hedging activities of
the foreign-currency exposure of a net investment in a foreign operation.
Recently Adopted Accounting Standards
Financial Services - Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
(ASU 2010-26)
As of January 1, 2012, we adopted Accounting Standards Update (ASU) 2010-26, which amends ASC 944, Financial Services -
Insurance. The amendments in this ASU specify which costs incurred in the acquisition of new and renewal insurance contracts should be
capitalized. All other acquisition-related costs should be expensed as incurred. If the initial application of the amendments in this ASU results
in the capitalization of acquisition costs that had not been previously capitalized, an entity may elect not to capitalize those types of costs.
Both retrospective application and early adoption was permitted. We elected prospective application and did not early adopt the ASU. The
adoption did not have a material impact to our consolidated financial condition or results of operations.
Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs (ASU 2011-04)
As of January 1, 2012, we adopted ASU 2011-04, which amends ASC 820, Fair Value Measurements. The amendments in this ASU
clarify how to measure fair value and it contains new disclosure requirements to provide more transparency into Level 3 fair value
measurements. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements
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Ally Financial Inc. • Form 10-K
prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS). The ASU must be applied prospectively.
The adoption did not have a material impact to our consolidated financial condition or results of operations.
Intangibles-Goodwill and Other - Testing Goodwill for Impairment (ASU 2011-08)
As of January 1, 2012, we adopted ASU 2011-08, which amends ASC 350, Intangibles-Goodwill and Other. This ASU permits the
option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If
it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not more than the carrying
amount, the two-step impairment test would not be required. Otherwise, further evaluation under the existing two-step framework would be
required. The adoption did not have a material impact to our consolidated financial condition or results of operations.
Recently Issued Accounting Standards
Balance Sheet - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11 and ASU 2013-01)
In December 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-11, which amends ASC 210, Balance Sheet.
This ASU contains new disclosure requirements regarding the nature of an entity's rights of setoff and related arrangements associated with its
financial instruments and derivative instruments. In addition, in January 2013, the FASB issued ASU 2013-01, which simply clarified the
scope of ASU 2011-11. The new disclosures will give financial statement users information about both gross and net exposures. ASU 2011-11
and ASU 2013-01 are effective for us on January 1, 2013, and retrospective application is required. Since the guidance relates only to
disclosures, adoption is not expected to have a material effect on our consolidated financial condition or results of operations.
Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU
2013-02)
In February, 2013 the FASB issued ASU 2013-02, which amends ASC 220, Comprehensive Income. The ASU contains new
requirements related to the presentation and disclosure of items that are reclassified out of other comprehensive income. The new
requirements will give financial statement users a more comprehensive view of items that are reclassified out of other comprehensive income.
ASU 2013-02 is effective for us on January 1, 2013, and is to be applied prospectively. Since the guidance relates only to presentation and
disclosure of information, adoption is not expected to have a material effect on our consolidated financial condition or results of operations.
2. Discontinued and Held-for-sale Operations
Discontinued Operations
We classify operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not
expect to retain any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all
of the operating results for these discontinued operations have been removed from continuing operations and presented separately as
discontinued operations, net of tax, in the Consolidated Statement of Income. The Notes to the Consolidated Financial Statements have been
adjusted to exclude discontinued operations unless otherwise noted.
Select Mortgage Operations
During the second quarter of 2012, we sold the Canadian mortgage operations of ResMor Trust. During 2010, we sold certain
international operations. These operations included residential mortgage loan origination, acquisition, servicing, asset management, sale, and
securitizations in the United Kingdom and continental Europe.
Select Insurance Operations
During the fourth quarter of 2011, we committed to sell our U.K.-based operations that provide vehicle service contracts and insurance
products in Europe and Latin America. On February 28, 2013, we sold our U.K.-based operations to a wholly owned subsidiary of AmTrust
Financial Services, Inc. Additionally, during the fourth quarter of 2012, we committed to sell our Mexican insurance business, ABA Seguros,
to the ACE Group. In connection with the classification of these Insurance operations as held-for-sale we recognized a pretax loss of $55
million during the year ended December 31, 2012. The loss represents the impairment recognized to present the operations at the lower-of-
cost or fair value. The fair value was determined using sales agreements with third-party purchasers (a Level 2 fair value input). We expect to
complete the ABA Seguros sale during the first half of 2013.
During the second quarter of 2011, we completed the sale of our U.K. consumer property and casualty insurance business. During 2010,
we completed the sale of our U.S. consumer property and casualty insurance business.
Select Automotive Finance Operations
During the fourth quarter of 2012, we committed to sell our Canadian automotive finance operations, Ally Credit Canada Limited, and
ResMor Trust (Ally Canada) to Royal Bank of Canada. On February 1, 2013, we completed the sale of Ally Canada. Refer to Note 31 for
more information regarding the sale. Additionally, 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. (GM Financial). On the same date, we entered into an agreement
with GM Financial to acquire our 40% interest in a motor vehicle finance joint venture in China. No impairment was recognized to present
the operations at the lower-of-cost or fair value. We expect to complete the sales by region during 2013.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
During the first quarter of 2012, we completed the sale of our Venezuela operations. During the first quarter of 2011, we completed the
sale of our Ecuador operations. During 2010, we completed the sale of our Argentina and Poland operations and our full-service leasing
operations in Australia, Belgium, France, Poland, and the United Kingdom. We also ceased operations in Australia and Russia and classified
them as discontinued during 2010.
Select Corporate and Other Operations
During the fourth quarter of 2012, we ceased operations at our Commercial Finance operations' European division and classified it as
discontinued.
Select Financial Information
Select financial information of discontinued operations is summarized below. The pretax income or loss, including direct costs to
transact, includes any impairment recognized to present the operations at the lower-of-cost or fair value. Fair value was based on the
estimated sales price, which could differ from the ultimate sales price due to price volatility, changing interest rates, changing foreign-
currency rates, and future economic conditions.
Year ended December 31, ($ in millions)
Select Mortgage operations
Total net revenue (loss)
Pretax (loss) income including direct costs to transact a sale
Tax (benefit) expense
Select Insurance operations
Total net revenue
Pretax income including direct costs to transact a sale (a)
Tax expense (b)
Select Automotive Finance operations
Total net revenue
Pretax income including direct costs to transact a sale (a)
Tax expense (b)
Select Corporate and Other operations
Total net revenue
Pretax income
Tax expense (benefit)
(a)
(b)
Includes certain treasury and other corporate activity recognized by Corporate and Other.
Includes certain income tax activity recognized by Corporate and Other.
2012
2011
2010
$
$
7
$
(4) $
(13)
(15)
625
$
86
53
(38)
(8)
710
145
39
$
94
49
7
976
31
19
$
1,503
$
1,690
$
1,646
786
235
11
83
2
$
820
92
7
44
3
$
698
17
22
3
(3)
$
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Held-for-sale Operations
The assets and liabilities of operations held-for-sale are summarized below.
December 31, 2012 ($ in millions)
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Total cash and cash equivalents
Investment securities
Finance receivables and loans, net
Finance receivables and loans, net
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Premiums receivable and other insurance assets
Other assets
Impairment on assets of held-for-sale operations
Total assets
Liabilities
Interest-bearing deposit liabilities
Short-term borrowings
Long-term debt
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Total liabilities
Select
Insurance
operations (a)
Select
Automotive
Finance
operations (b)
Total
held-for-sale
operations
$
8
$
100
$
119
127
576
—
—
—
—
277
94
(53)
1,918
2,018
424
25,835
(208)
25,627
144
—
2,942
—
1,021
$
31,155
$
$
3,907
2,800
13,514
177
—
1,498
$
21,896
$
— $
—
—
—
506
297
803
$
$
$
108
2,037
2,145
1,000
25,835
(208)
25,627
144
277
3,036
(53)
32,176
3,907
2,800
13,514
177
506
1,795
22,699
(a)
(b)
Includes our U.K.-based operations that provide vehicle service contracts and insurance products, and ABA Seguros.
Includes our Canadian and Other International entities (including full-service leasing operations and other automotive finance operations).
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2011 ($ in millions)
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Total cash and cash equivalents
Investment securities
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Premiums receivable and other insurance assets
Other assets
Impairment on assets of held-for-sale operations
Total assets
Liabilities
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Total liabilities
Select
Mortgage
operations (a)
Select
Insurance
operations (b)
Select
Automotive
Finance
operations (c)
Total
held-for-sale
operations
$
— $
—
—
—
260
285
—
285
—
—
140
—
$
$
$
685
$
— $
80
80
$
4
54
58
186
—
—
—
—
—
77
14
—
335
130
99
229
$
$
$
$
$
55
38
93
—
—
11
(1)
10
91
—
30
(174)
50
$
— $
28
28
$
59
92
151
186
260
296
(1)
295
91
77
184
(174)
1,070
130
207
337
(a)
(b)
(c)
Includes the Canadian mortgage operations of ResMor Trust.
Includes our U.K.-based operations that provide vehicle service contracts and insurance products.
Includes the operations of Venezuela and our full-service leasing operations.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Recurring Fair Value
The following table displays the assets and liabilities of our held-for-sale operations measured at fair value on a recurring basis. Refer to
Note 25 for descriptions of valuation methodologies used to measure material assets at fair value and details of the valuation models, key
inputs to these models, and significant assumptions used.
Recurring fair value measurements
Level 1
Level 2
Level 3
Total
($ in millions)
December 31, 2012
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government
Corporate debt
Other
Other assets
Derivative assets:
Interest rate contracts
Total assets
Liabilities
Accrued expenses and other liabilities:
Derivative liabilities
Interest rate contracts
Foreign currency contracts
Total liabilities
December 31, 2011
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government
Other assets
Interest retained in financial asset sales
Total assets
$
555
$
—
—
—
42
76
327
22
$
— $
597
76
327
31
—
—
9
9
555
$
467
$
$
1,031
— $
—
— $
24
1
25
$
$
11
18
29
$
$
35
19
54
171
$
15
$
— $
186
—
171
$
—
15
$
66
66
$
66
252
$
$
$
$
$
3.
Insurance Premiums and Service Revenue Earned
The following table is a summary of insurance premiums and service revenue written and earned.
Year ended December 31, ($ in millions)
Written
Earned
Written
Earned
Written
Earned
2012
2011
2010
Insurance premiums
Direct
Assumed
Gross insurance premiums
Ceded
Net insurance premiums
Service revenue
$
337
$
339
$
359
$
326
$
44
381
(141)
240
826
49
388
(109)
279
780
38
397
(129)
268
788
76
402
(126)
276
894
$
359
210
569
(229)
340
718
337
281
618
(228)
390
981
Insurance premiums and service revenue written
and earned
$
1,066
$
1,059
$
1,056
$
1,170
$
1,058
$
1,371
127
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
4. Other Income, Net of Losses
Details of other income, net of losses, were as follows.
Year ended December 31, ($ in millions)
Mortgage processing fees and other mortgage income
Late charges and other administrative fees
Remarketing fees
Securitization income
Fair value adjustment on derivatives (a)
Change due to fair value option elections (b)
Other, net
Total other income, net of losses
(a) Refer to Note 22 for a description of derivative instruments and hedging activities.
(b) Refer to Note 25 for a description of fair value option elections.
5. Other Operating Expenses
Details of other operating expenses were as follows.
2012
2011
2010
$
481
$
231
$
83
63
45
(30)
(19)
124
747
$
82
96
194
(137)
(101)
128
493
$
$
234
92
126
20
(189)
(217)
268
334
Year ended December 31, ($ in millions)
2012
2011
2010
Impairment and accruals related to ResCap Bankruptcy and deconsolidation (a)
$
1,192
$
— $
Insurance commissions
Technology and communications
Lease and loan administration
Professional services
Advertising and marketing
Regulatory and licensing fees
Fines and penalties
Premises and equipment depreciation
Mortgage representation and warranty obligation, net
Occupancy
Vehicle remarketing and repossession
State and local non-income taxes
Other
Total other operating expenses
382
347
315
281
150
119
90
83
67
58
52
15
347
432
418
168
294
168
127
222
81
324
72
84
49
497
—
511
431
143
241
137
115
—
70
670
72
123
42
523
$
3,498
$
2,936
$
3,078
(a) This charge consists of the $442 million total impairment of our investment in ResCap and a $750 million accrual of a cash settlement offer to the
Debtors' estate. Refer to Note 1 for more information regarding the Debtors' bankruptcy, deconsolidation, and this charge.
128
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
6.
Investment Securities
Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, interests in securitization trusts, and
other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.
December 31, ($ in millions)
Available-for-sale securities
Debt securities
U.S. Treasury and federal
agencies
U.S. states and political
subdivisions
Foreign government
Mortgage-backed residential (a)
Asset-backed
Corporate debt
Other
Total debt securities
Equity securities
Total available-for-sale
securities (b)
2012
2011
Amortized
cost
Gross unrealized
gains
losses
Fair
value
Amortized
cost
Gross unrealized
gains
losses
Fair
value
$
2,212
$
3
$
(1) $
2,214
$
1,535
$
13
$
(2) $
1,546
—
295
6,779
2,309
1,209
—
12,804
1,193
—
8
130
32
57
—
230
32
—
—
(3)
(1)
(3)
—
(8)
(73)
—
303
6,906
2,340
1,263
—
13,026
1,152
1
765
7,266
2,600
1,486
326
13,979
1,188
—
20
87
28
23
1
172
25
—
(1)
(41)
(13)
(18)
—
(75)
(154)
1
784
7,312
2,615
1,491
327
14,076
1,059
$
13,997
$
262
$
(81) $
14,178
$
15,167
$
197
$
(229) $
15,135
(a) Residential mortgage-backed securities include agency-backed bonds totaling $4,983 million and $6,114 million at December 31, 2012, and
December 31, 2011, respectively.
(b) Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled
$15 million and $16 million at December 31, 2012, and December 31, 2011, respectively.
129
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause
actual maturities to differ from scheduled maturities.
Total
Due in
one year
or less
Due after
one year
through
five years
Due after
five years
through
ten years
Due after
ten years (a)
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
($ in millions)
December 31, 2012
Fair value of available-for-sale debt
securities (b)
U.S. Treasury and federal agencies
$ 2,214
0.9% $
422 —% $
0.7% $ 1,110
1.4% $
— —%
303
6,906
2,340
1,263
2.5
2.7
2.1
5.1
1
2.2
— —
— —
9
3.2
682
136
1.8
— —
1,543
560
2.0
4.0
166
35
510
596
3.0
4.3
1.7
6.0
— —
6,871
287
98
2.7
3.3
5.8
$ 13,026
2.4
$ 12,804
$
$
432
0.1
$ 2,921
2.0
$ 2,417
2.6
$ 7,256
2.6
431
$ 2,880
$ 2,369
$ 7,124
Foreign government
Mortgage-backed residential
Asset-backed
Corporate debt
Total available-for-sale debt
securities
Amortized cost of available-for-sale
debt securities
December 31, 2011
Fair value of available-for-sale debt
securities (b)
U.S. Treasury and federal agencies
$ 1,546
0.9 % $
231 — % $ 1,202
0.9 % $
113
2.2 % $
— — %
U.S. states and political
subdivisions
Foreign government
Mortgage-backed residential
Asset-backed
Corporate debt
Other
1
784
7,312
2,615
1,491
327
5.4
4.4
2.5
2.1
4.9
1.4
— —
77
3
7.7
4.8
— —
19
316
4.9
1.3
— —
— —
506
2
1,599
741
4.3
6.3
1.9
4.4
— —
201
189
574
606
11
3.3
2.6
1.9
5.6
4.6
1
5.4
— —
7,118
442
125
2.5
3.2
4.7
— —
Total available-for-sale debt
securities
$ 14,076
2.6
Amortized cost of available-for-sale
debt securities
$ 13,979
$
$
646
1.7
$ 4,050
2.4
$ 1,694
3.5
$ 7,686
2.6
644
$ 4,026
$ 1,678
$ 7,631
(a)
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or
prepayment options.
(b) Yields on tax-exempt obligations are computed on a tax-equivalent basis.
The balances of cash equivalents were $3.4 billion and $5.6 billion at December 31, 2012, and December 31, 2011, respectively, and
were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents gross gains and losses realized upon the sales of available-for-sale securities and other-than-temporary
impairment.
Year ended December 31, ($ in millions)
Gross realized gains
Gross realized losses
Other-than-temporary impairment
Net realized gains
2012
2011
2010
$
$
241
$
298
$
(34)
(61)
(28)
(11)
146
$
259
$
537
(34)
(1)
502
130
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents interest and dividends on available-for-sale securities.
Year ended December 31, ($ in millions)
Taxable interest
Taxable dividends
Interest and dividends exempt from U.S. federal income tax
Interest and dividends on available-for-sale securities
2012
2011
2010
$
$
262
$
327
$
30
—
24
—
292
$
351
$
296
17
10
323
Certain available-for-sale securities were sold at a loss in 2012, 2011, and 2010 as a result of market conditions within these respective
periods (e.g., a downgrade in the rating of a debt security). The table below summarizes available-for-sale securities in an unrealized loss
position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we
believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of December 31, 2012, we did
not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more
likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As of December 31, 2012, we had
the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, we
believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-
temporarily impaired at December 31, 2012. Refer to Note 1 for additional information related to investment securities and our methodology
for evaluating potential other-than-temporary impairments.
2012
2011
Less than
12 months
12 months
or longer
Less than
12 months
12 months
or longer
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
December 31, ($ in millions)
Available-for-sale securities
Debt securities
U.S. Treasury and federal
agencies
Foreign government
Mortgage-backed residential
Asset-backed
Corporate debt
Total temporarily impaired debt
securities
Temporarily impaired equity
securities
Total temporarily impaired
available-for-sale securities
11
493
143
120
1,011
380
$
244
$
(1) $
— $
— $
$
(2) $
— $
—
(2)
(1)
(2)
(6)
—
23
1
15
39
—
(1)
—
(1)
(2)
179
197
2,302
994
444
4,116
(1)
(39)
(13)
(16)
(71)
—
45
1
30
76
18
—
—
(2)
—
(2)
(4)
(6)
(39)
218
(34)
770
(148)
$
1,391
$
(45) $
257
$
(36) $
4,886
$
(219) $
94
$
(10)
7. Loans Held-for-Sale, Net
The composition of loans held-for-sale, net, was as follows.
December 31, ($ in millions)
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage (a)
Commercial and industrial
Other
2012
2011
Domestic
Foreign
Total
Domestic
Foreign
Total
$
— $
— $
— $
425
$
— $
425
2,490
—
2,490
86
—
—
—
—
2,490
—
2,490
7,360
740
8,100
86
20
12
—
12
—
12
7,372
740
8,112
20
$
8,557
Total loans held-for-sale (b)
$
2,576
$
— $
2,576
$
8,545
$
(a) Fair value option-elected domestic consumer mortgages were $2.5 billion and $3.9 billion at December 31, 2012, and December 31, 2011, respectively.
Refer to Note 25 for additional information.
(b) Totals are net of unamortized premiums and discounts and deferred fees and costs. Included in the totals are net unamortized premiums of $26 million at
December 31, 2012, and net unamortized discounts of $221 million at December 31, 2011.
131
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table summarizes held-for-sale mortgage loans reported at carrying value by higher-risk loan type.
December 31, ($ in millions)
High original loan-to-value (greater than 100%) mortgage loans
Payment-option adjustable-rate mortgage loans
Interest-only mortgage loans
Below-market rate (teaser) mortgages
Total higher-risk mortgage loans held-for-sale
8. Finance Receivables and Loans, Net
2012
2011
$
$
378
$
—
10
—
388
$
423
12
298
169
902
The composition of finance receivables and loans, net, reported at carrying value before allowance for loan losses was as follows.
December 31, ($ in millions)
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
Loans at fair value (a)
2012
2011
Domestic
Foreign
Total
Domestic
Foreign
Total
$
53,713
$
2
$
53,715
$
46,576
$
16,883
$
63,459
7,173
2,648
9,821
30,270
—
2,679
2,552
—
35,501
—
—
—
—
—
—
18
—
—
18
—
20
7,173
2,648
9,821
6,867
3,102
9,969
24
—
24
6,891
3,102
9,993
30,270
26,552
8,265
34,817
—
2,697
2,552
—
1,887
1,178
2,331
—
35,519
31,948
—
603
24
63
154
14
8,520
232
1,911
1,241
2,485
14
40,468
835
$
99,055
$
89,096
$
25,659
$ 114,755
Total finance receivables and loans (b)
$
99,035
$
Includes domestic consumer mortgages at fair value as a result of fair value option election. Refer to Note 25 for additional information.
(a)
(b) Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $895 million and $2.9 billion at December 31,
2012, and December 31, 2011, respectively.
132
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
Allowance at January 1, 2012
Charge-offs
Domestic
Foreign
Total charge-offs
Recoveries
Domestic
Foreign
Total recoveries
Net charge-offs
Provision for loan losses
Foreign provision for loan losses
Deconsolidation of ResCap
Other (a)
Allowance at December 31, 2012
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Finance receivables and loans at historical cost
Ending balance
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Consumer
automobile
766
$
Consumer
mortgage
516
$
Commercial
221
$
Total
$
1,503
(438)
(178)
(616)
171
76
247
(369)
257
115
—
(194)
575
16
556
3
$
$
53,715
260
53,425
30
$
$
(149)
—
(149)
11
—
11
(138)
86
—
(9)
(3)
452
186
266
—
9,821
873
8,948
—
$
$
(8)
(3)
(11)
11
33
44
33
(14)
(50)
—
(47)
143
26
117
—
$
$
(595)
(181)
(776)
193
109
302
(474)
329
65
(9)
(244)
1,170
228
939
3
35,519
1,538
33,981
—
99,055
2,671
96,354
30
(a) Other includes the allowance of foreign Automotive Finance operations finance receivables and loans that were reclassified as discontinued operations.
($ in millions)
Allowance at January 1, 2011
Charge-offs
Domestic
Foreign
Total charge-offs
Recoveries
Domestic
Foreign
Total recoveries
Net charge-offs
Provision for loan losses
Foreign provision for loan losses
Other
Allowance at December 31, 2011
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Finance receivables and loans at historical cost
Ending balance
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Consumer
automobile
970
$
Consumer
mortgage
$
580
Commercial
323
$
Total
$
1,873
(435)
(145)
(580)
186
73
259
(321)
102
52
(37)
766
7
749
10
$
$
63,459
69
63,302
88
$
$
(205)
(5)
(210)
16
1
17
(193)
129
—
—
516
172
344
—
9,993
606
9,387
—
$
$
(27)
(63)
(90)
25
26
51
(39)
(43)
(21)
1
221
61
160
—
$
$
(667)
(213)
(880)
227
100
327
(553)
188
31
(36)
1,503
240
1,253
10
40,468
464
40,004
—
113,920
1,139
112,693
88
133
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents information about significant sales of finance receivables and loans recorded at historical cost and transfers
of finance receivables and loans from held-for-investment to held-for-sale.
December 31, ($ in millions)
Consumer automobile
Consumer mortgage
Commercial
Total sales and transfers
2012
2011
1,960
$
3,279
40
96
107
34
2,096
$
3,420
$
$
The following table presents an analysis of our past due finance receivables and loans, net, recorded at historical cost reported at carrying
value before allowance for loan losses.
December 31, ($ in millions)
2012
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
Total consumer and commercial
2011
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
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
$
920
$
213
$
138
$
1,271
$
52,444
$
53,715
$
$
66
15
81
—
—
—
—
—
—
1,001
802
91
21
112
—
—
—
2
—
2
37
6
43
—
—
—
—
—
—
$
$
256
162
$
$
35
11
46
1
—
—
1
2
4
156
18
174
16
—
1
8
—
25
337
179
162
18
180
126
—
1
34
12
173
532
259
39
298
16
—
1
8
—
25
$
$
1,594
1,143
$
$
288
50
338
127
—
1
37
14
179
$
$
6,914
2,609
9,523
30,254
—
2,696
2,544
—
35,494
97,461
62,316
6,603
3,052
9,655
34,690
1,911
1,240
2,448
—
40,289
$
1,660
$
112,260
$
7,173
2,648
9,821
30,270
—
2,697
2,552
—
35,519
99,055
63,459
6,891
3,102
9,993
34,817
1,911
1,241
2,485
14
40,468
113,920
Total consumer and commercial
$
916
$
212
$
134
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the carrying value before allowance for loan losses of our finance receivables and loans recorded at
historical cost on nonaccrual status.
December 31, ($ in millions)
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
2012
2011
$
260
$
228
342
40
382
146
—
33
37
—
216
858
$
281
58
339
223
—
37
67
12
339
906
Total consumer and commercial finance receivables and loans
$
Management performs a quarterly analysis of the consumer automobile, consumer mortgage, and commercial portfolios using a range of
credit quality indicators to assess the adequacy of the allowance based on historical and current trends. The tables below present the
population of loans by quality indicators for our consumer automobile, consumer mortgage, and commercial portfolios.
The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies
for our consumer finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.
Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90
days or when full collection is determined not to be probable. Refer to Note 1 for additional information.
December 31, ($ in millions)
Performing
Nonperforming
Total
Performing
Nonperforming
Total
2012
2011
$
53,455
$
260
$
53,715
$
63,231
$
228
$
63,459
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
$
9,439
$
382
$
9,821
$
9,654
$
339
$
6,831
2,608
342
40
7,173
2,648
6,610
3,044
281
58
6,891
3,102
9,993
The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance
receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.
December 31, ($ in millions)
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Pass
2012
Criticized (a)
Total
Pass
2011
Criticized (a)
Total
$
28,978
$
1,292
$
30,270
$
32,464
$
2,353
$
34,817
—
2,417
2,440
—
—
280
112
—
—
2,697
2,552
—
1,760
883
2,305
—
151
358
180
14
1,911
1,241
2,485
14
Total commercial
$
33,835
$
1,684
$
35,519
$
37,412
$
3,056
$
40,468
(a)
Includes loans classified as special mention, substandard, or doubtful. These classifications are based on regulatory definitions and generally represent
loans within our portfolio that have a higher default risk or have already defaulted.
135
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Impaired Loans and Troubled Debt Restructurings
Impaired Loans
Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms
of the loan agreement. For more information on our impaired finance receivables and loans, refer to Note 1.
The following table presents information about our impaired finance receivables and loans recorded at historical cost.
December 31, ($ in millions)
2012
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
Total consumer and commercial finance
receivables and loans
2011
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
Unpaid
principal
balance
Carrying
value before
allowance
Impaired
with no
allowance
Impaired
with an
allowance
Allowance for
impaired
loans
$
260
$
260
$
90
$
170
$
$
$
811
147
958
146
—
33
37
—
216
1,434
69
516
97
613
222
—
37
68
12
339
$
$
725
148
873
146
—
33
37
—
216
1,349
69
508
98
606
222
—
37
68
12
339
$
$
123
1
124
54
—
9
9
—
72
602
147
749
92
—
24
28
—
144
$
$
286
$
1,063
— $
83
—
83
64
—
25
32
1
122
69
425
98
523
158
—
12
36
11
217
16
137
49
186
7
—
7
12
—
26
228
7
126
46
172
22
—
5
18
5
50
Total consumer and commercial finance
receivables and loans
$
1,021
$
1,014
$
205
$
809
$
229
136
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present average balance and interest income for our impaired finance receivables and loans.
Year ended December 31, ($ in millions)
2012
2011
2010
Average
balance
Interest
income
Average
balance
Interest
income
Average
balance
Interest
income
$
131
$
12
$
35
$
2
$
— $
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
598
95
693
178
5
32
64
6
285
24
4
28
8
—
6
1
—
15
55
463
90
553
303
19
84
126
40
572
$
1,160
$
18
4
22
19
6
1
7
1
34
58
405
79
484
335
53
650
275
137
1,450
$
1,934
$
—
15
4
19
13
2
6
3
6
30
49
Total consumer and commercial finance receivables and loans
$
1,109
$
Troubled Debt Restructurings
TDRs are loan modifications where concessions were granted to borrowers experiencing financial difficulties. Numerous initiatives, such
as the Home Affordable Modification Program (HAMP) are in place to provide support to our mortgage customers in financial distress,
including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates. Additionally
for automobile loans, we offer several types of assistance to aid our customers including changing the maturity date and rewriting the loan
terms. Total TDRs recorded at historical cost and reported at carrying value before allowance for loan losses were $1.2 billion at
December 31, 2012, reflecting an increase of $441 million from December 31, 2011. Refer to Note 1 for additional information.
137
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents information related to finance receivables and loans recorded at historical cost modified in connection with
a troubled debt restructuring during the period.
Year ended December 31, ($ in millions)
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Mortgage
Other
Commercial real estate
Automobile
Mortgage
Total commercial
2012 (a)
2011
Pre-
modification
carrying value
before
allowance
Post-
modification
carrying value
before
allowance
Number
of
loans
Number
of
loans
Pre-
modification
carrying value
before
allowance
Post-
modification
carrying value
before
allowance
36,285
$
407
$
295
6,411
$
85
$
1,664
1,305
2,969
9
—
—
8
—
17
412
24
436
15
—
—
14
—
29
327
23
350
15
—
—
13
—
28
375
888
1,263
2
1
2
5
2
12
133
51
184
5
38
11
12
4
70
85
132
47
179
5
28
10
11
3
57
Total consumer and commercial finance
receivables and loans
39,271
$
872
$
673
7,686
$
339
$
321
(a) Due to recent industry practice, bankruptcy loans that have not been reaffirmed have been included within our TDR population beginning in the fourth
quarter of 2012.
The following table presents information about finance receivables and loans recorded at historical cost that have redefaulted during the
reporting period and were within 12 months or less of being modified as a troubled debt restructuring. Redefault is when finance receivables
and loans meet the requirements for evaluation under our charge-off policy (Refer to Note 1 for additional information) except for commercial
finance receivables and loans where redefault is defined as 90 days past due.
Year ended December 31, ($ in millions)
Consumer automobile
Consumer mortgage
1st Mortgage
Home equity
Total consumer mortgage
Commercial
Commercial and industrial
Automobile
Commercial real estate
Automobile
Total commercial
2012 (a)
Carrying
value
before
allowance
Number
of
loans
Charge-
off amount
Number
of
loans
2011
Carrying
value
before
allowance
Charge-
off amount
2,290
$
26
$
12
420
$
112
41
153
4
3
7
16
3
19
3
3
6
11
28
39
1
—
1
1
2
3
—
—
—
15
$
4
2
2
4
3
—
3
2
—
1
1
—
—
—
3
Total consumer and commercial finance receivables and
loans
2,450
$
51
$
460
$
11
$
(a) Due to recent industry practice, bankruptcy loans that have not been reaffirmed have been included within our TDR population beginning in the fourth
quarter of 2012.
At December 31, 2012, and December 31, 2011, commercial commitments to lend additional funds to debtors owing receivables whose
terms had been modified in a troubled debt restructuring were $25 million and $45 million, respectively.
138
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Concentration Risk
Consumer
We monitor our consumer loan portfolio for concentration risk across the geographies in which we lend. The highest concentrations of
loans in the United States are in Texas and California, which represent an aggregate of 21.0% of our total outstanding consumer loans at
December 31, 2012.
Concentrations in our mortgage portfolio are closely monitored given the volatility of the housing markets. Our consumer mortgage loan
concentrations in California, Florida, and Michigan receive particular attention as the real estate value depreciation in these states has been the
most severe.
The following table shows the percentage of total consumer finance receivables and loans recorded at historical cost reported at carrying
value before allowance for loan losses by state and foreign concentration.
December 31,
Texas
California
Florida
Michigan
Pennsylvania
Illinois
New York
Ohio
Georgia
North Carolina
Other United States
Foreign (b)
Total consumer loans
2012 (a)
2011
Automobile
12.9%
5.6
6.7
5.0
5.2
4.3
4.6
4.0
3.7
3.3
44.7
—
1st Mortgage
and home
equity
5.8%
29.2
3.6
4.1
1.6
4.8
2.0
0.8
1.9
2.0
44.2
—
Automobile
9.5%
4.6
4.8
4.0
3.6
3.1
3.5
2.9
2.5
2.2
32.9
26.4
1st Mortgage
and home
equity
5.5%
25.7
4.0
4.8
1.6
5.0
2.3
1.0
1.8
2.1
45.9
0.3
100.0%
100.0%
100.0%
100.0%
(a) Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2012.
(b) Foreign consumer finance receivables and loans as of December 31, 2012, was $2 million. These remaining foreign balances are within Finland and the
Czech Republic.
Consumer Higher-Risk Mortgage
The following table summarizes held-for-investment mortgage finance receivables and loans recorded at historical cost and reported at
carrying value before allowance for loan losses by higher-risk loan type.
December 31, ($ in millions)
Interest-only mortgage loans (a)
Below-market rate (teaser) mortgages
Total higher-risk mortgage finance receivables and loans
(a) The majority of the interest-only mortgage loans are expected to start principal amortization in 2015 or beyond.
2012
2011
$
$
2,063
192
2,255
$
$
2,947
248
3,195
139
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents our five largest state concentrations within our held-for-investment mortgage finance receivables and loans
recorded at historical cost and reported at carrying value before allowance for loan losses by higher-risk loan type.
December 31, ($ in millions)
2012
California
Virginia
Maryland
Illinois
Michigan
Other United States
Total higher-risk mortgage loans
2011
California
Virginia
Maryland
Illinois
Michigan
Other United States
Total higher-risk mortgage loans
Commercial Real Estate
Interest-only
mortgage loans
Below-market
rate (teaser)
mortgages
Total
higher-risk
mortgage
loans
$
$
$
$
$
$
$
500
216
166
107
106
968
2,063
748
274
217
153
199
60
$
9
5
6
5
107
192
78
10
6
8
9
$
$
1,356
2,947
$
137
248
$
560
225
171
113
111
1,075
2,255
826
284
223
161
208
1,493
3,195
The commercial real estate portfolio consists of loans issued primarily to automotive dealers. The following table shows the percentage
of total commercial real estate finance receivables and loans reported at carrying value before allowance for loan losses by geographic region
and property type.
December 31,
Geographic region
Texas
Michigan
Florida
California
New York
Virginia
North Carolina
Pennsylvania
Georgia
Tennessee
Other United States
Foreign
Total commercial real estate finance receivables and loans
Property type
Automotive dealers
Other
Total commercial real estate finance receivables and loans
140
2012
2011
13.0%
12.4%
12.6
11.7
9.3
4.9
3.9
3.9
3.3
3.0
2.3
32.1
—
14.1
12.4
9.3
3.5
4.1
2.1
2.9
2.5
1.8
28.3
6.6
100.0%
100.0%
100.0%
—
99.4%
0.6
100.0%
100.0%
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Commercial Criticized Exposure
Finance receivables and loans classified as special mention, substandard, or doubtful are deemed as criticized. These classifications are
based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or
have already defaulted. The following table presents the percentage of total commercial criticized finance receivables and loans reported at
carrying value before allowance for loan losses by industry concentrations.
December 31,
Industry
Automotive
Manufacturing
Services
Other
Total commercial criticized finance receivables and loans
9.
Investment in Operating Leases, Net
Investments in operating leases were as follows.
December 31, ($ in millions)
Vehicles and other equipment
Accumulated depreciation
Investment in operating leases, net
2012
2011
85.7%
82.9%
5.5
4.9
3.9
1.8
1.9
13.4
100.0%
100.0%
2012
2011
$
$
16,009
(2,459)
13,550
$
$
11,160
(1,885)
9,275
Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale of operating lease assets.
The following summarizes the components of depreciation expense on operating lease assets.
Year ended December 31, ($ in millions)
Depreciation expense on operating lease assets (excluding remarketing gains)
Remarketing gains
Depreciation expense on operating lease assets
2012
2011
2010
$
$
1,515
(116)
1,399
$
$
1,158
(217)
941
$
$
1,806
(555)
1,251
The following table presents the future lease nonresidual rental payments due from customers for equipment on operating leases.
Year ended December 31, ($ in millions)
2013
2014
2015
2016
2017 and after
Total
$
2,573
1,705
618
27
—
$
4,923
10. Securitizations and Variable Interest Entities
Overview
We are involved in several types of securitization and financing transactions that utilize special-purpose entities (SPEs). A SPE is an
entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity and favorable capital
treatment by securitizing certain of our financial assets.
The SPEs involved in securitization and other financing transactions are generally considered variable interest entities (VIEs). VIEs are
entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated
financial support or whose equity investors lack the ability to control the entity's activities. Due to the deconsolidation of ResCap, our
mortgage securitization activity and involvement with certain mortgage-related VIEs has substantially changed. Refer to Note 1 for additional
information related to ResCap.
Securitizations
We provide a wide range of consumer and commercial automobile loans, operating leases, other commercial loans, and mortgage loan
products to a diverse customer base. We often securitize these loans and leases (which we collectively describe as loans or financial assets)
through the use of securitization entities, which may or may not be consolidated on our Consolidated Balance Sheet. We securitize consumer
141
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
and commercial automobile loans, operating leases, and other commercial loans through private-label securitizations. We securitize consumer
mortgage loans through transactions involving the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). We previously securitized consumer mortgage loans through private-label mortgage securitizations and
through transactions involving the Government National Mortgage Association (Ginnie Mae). We refer to Fannie Mae, Freddie Mac, and
Ginnie Mae collectively as the Government-Sponsored Enterprises or GSEs. During 2012 and 2011, our consumer mortgage loans were
primarily securitized through the GSEs.
In executing a securitization transaction, we typically sell pools of financial assets to a wholly owned, bankruptcy-remote SPE, which
then transfers the financial assets to a separate, transaction-specific securitization entity for cash, servicing rights, and in some transactions,
other retained interests. The securitization entity is funded through the issuance of beneficial interests in the securitized financial assets. The
beneficial interests take the form of either notes or trust certificates which are sold to investors and/or retained by us. These beneficial
interests are collateralized by the transferred loans and entitle the investors to specified cash flows generated from the securitized loans. In
addition to providing a source of liquidity and cost-efficient funding, securitizing these financial assets also reduces our credit exposure to the
borrowers beyond any economic interest we may retain.
Each securitization is governed by various legal documents that limit and specify the activities of the securitization entity. The
securitization entity is generally allowed to acquire the loans, to issue beneficial interests to investors to fund the acquisition of the loans, and
to enter into derivatives or other yield maintenance contracts to hedge or mitigate certain risks related to the financial assets or beneficial
interests of the entity. A servicer, who is generally us, is appointed pursuant to the underlying legal documents to service the assets the
securitization entity holds and the beneficial interests it issues. Servicing functions include, but are not limited to, making certain payments of
property taxes and insurance premiums, default and property maintenance payments, as well as advancing principal and interest payments
before collecting them from individual borrowers. Our servicing responsibilities, which constitute continued involvement in the transferred
financial assets, consist of primary servicing (i.e., servicing the underlying transferred financial assets) and previously master servicing
(i.e., servicing the beneficial interests that result from the securitization transactions). Certain securitization entities also require the servicer to
advance scheduled principal and interest payments due on the beneficial interests issued by the entity regardless of whether cash payments are
received on the underlying transferred financial assets. Accordingly, we are required to provide these servicing advances when applicable.
Refer to Note 11 for additional information regarding our servicing rights.
The GSEs provide a guarantee of the payment of principal and interest on the beneficial interests issued in securitizations. In private-
label securitizations, cash flows from the assets initially transferred into the securitization entity represent the sole source for payment of
distributions on the beneficial interests issued by the securitization entity and for payments to the parties that perform services for the
securitization entity, such as the servicer or the trustee. In certain private-label securitization transactions, a liquidity facility may exist to
provide temporary liquidity to the entity. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution
periods. In previous certain private-label securitizations, monoline insurance may have existed to cover certain shortfalls to certain investors
in the beneficial interests issued by the securitization entity. As noted above, in certain private-label securitizations, the servicer is required to
advance scheduled principal and interest payments due on the beneficial interests regardless of whether cash payments are received on the
underlying transferred financial assets. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain private-
label securitization transactions may have previously allowed for the acquisition of additional loans subsequent to the initial loan transfer.
Principal collections on other loans and/or the issuance of new beneficial interests, such as variable funding notes, generally funded those
loans; we were often contractually required to invest in these new interests.
We may have retained beneficial interests in our private-label securitizations, which may have represented a form of significant
continuing economic interest. These retained interests included, but are not limited to, senior or subordinate asset-backed securities and
residuals, and previously included senior or subordinate mortgage-backed securities, interest-only strips, and principal-only strips. Certain of
these retained interests provided credit enhancement to the trust as they may have absorbed credit losses or other cash shortfalls. Additionally,
the securitization agreements may have required cash flows to be directed away from certain of our retained interests due to specific over-
collateralization requirements, which may or may not have been performance-driven.
We generally hold certain conditional repurchase options specific to private label securitizations that allow us to repurchase assets from
the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the
remaining transferred financial assets or outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which
represents the point where servicing becomes burdensome (a clean-up call option). The repurchase price is typically the par amount of the
loans plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase a transferred financial
asset if certain events outside our control are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives
us the option to purchase the loan or contract if it exceeds a certain prespecified delinquency level. We generally have complete discretion
regarding when or if we will exercise these options, but we would do so only when it is in our best interest.
Other than our customary representation and warranty provisions, these securitizations are nonrecourse to us, thereby transferring the
risk of future credit losses to the extent the beneficial interests in the securitization entities are held by third parties. Representation and
warranty provisions generally require us to repurchase loans or indemnify the investor or other party for incurred losses to the extent it is
determined that the loans were ineligible or were otherwise defective at the time of sale. Refer to Note 29 for detail on representation and
warranty provisions. We did not provide any noncontractual financial support to any of these entities during 2012 or 2011.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Other Variable Interest Entities
Servicer Advance Funding Entity
We previously assisted in the financing of our servicer advance receivables; we formed a VIE that issued variable funding notes to third-
party investors that were collateralized by servicer advance receivables. These servicer advance receivables were transferred to the VIE and
consisted of delinquent principal and interest advances we made as servicer to various investors; property taxes and insurance premiums
advanced to taxing authorities and insurance companies on behalf of borrowers; and amounts advanced for mortgages in foreclosure. The
VIE funded the purchase of the receivables through financing obtained from the third-party investors and subordinated loans or an equity
contribution from our mortgage activities. This VIE was not consolidated on our balance sheet at December 31, 2012 as a result of the
deconsolidation of ResCap, but was consolidated on our balance sheet at December 31, 2011. The beneficial interest holder of this VIE does
not have legal recourse to our general credit. We do not have a contractual obligation to provide any type of financial support in the future,
nor have we provided noncontractual financial support to the entity during 2012 or 2011.
Other
We had involvements with various other on-balance sheet, immaterial VIEs. Most of these VIEs were used for additional liquidity
whereby we sold certain financial assets into the VIE and issued beneficial interests to third parties for cash.
We also provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a
line of credit to provide liquidity and minimize our exposure under these contracts. Since we do not have control over the entities or the
power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee and the line of credit.
Involvement with Variable Interest Entities
The determination of whether financial assets transferred by us to these VIEs (and related liabilities) are consolidated on our balance
sheet (also referred to as on-balance sheet) or not consolidated on our balance sheet (also referred to as off-balance sheet) depends on the
terms of the related transaction and our continuing involvement (if any) with the VIE. We are deemed the primary beneficiary and therefore
consolidate VIEs for which we have both (a) the power, through voting rights or similar rights, to direct the activities that most significantly
impact the VIE's economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could
potentially be significant to the VIE and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant
to the VIE. We determine whether we hold a significant variable interest in a VIE based on a consideration of both qualitative and quantitative
factors regarding the nature, size, and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on
an ongoing basis.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Our involvement with consolidated and nonconsolidated VIEs in which we hold variable interests is presented below.
December 31, ($ in millions)
2012
On-balance sheet variable interest entities
Consumer automobile
Commercial automobile
Commercial other
Off-balance sheet variable interest entities
Consumer automobile
Consumer mortgage — other
Commercial other
Total
2011
On-balance sheet variable interest entities
Consumer automobile
Consumer mortgage — private-label
Commercial automobile
Other
Off-balance sheet variable interest entities
Consumer mortgage — Ginnie Mae
Consumer mortgage — CMHC
Consumer mortgage — private-label
Consumer mortgage — other
Commercial other
Total
Consolidated
involvement
with VIEs (a)
Assets of
nonconsolidated
VIEs (a)
Maximum exposure to
loss in nonconsolidated
VIEs
28,566
23,139
728
—
—
(28) (e)
$
1,495
$
1,495 (b)
— (c)
— (f)
12 (d)
85
52,405
$
1,495
$
1,592
26,504
1,098
19,594
956
$
$
$
2,652 (g) $
44,127
$
66 (g)
141 (g)
—
83 (e)
3,222
4,408
— (c)
— (f)
44,127 (b)
66 (h)
4,408 (b)
17 (d)
242
$
51,094
$
51,757
$
48,860
(a) Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.
(b) Maximum exposure to loss represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty
provisions. This measure is based on the unlikely event that all of the loans have underwriting defects or other defects that trigger a representation and
warranty provision and the collateral supporting the loans are worthless. This required disclosure is not an indication of our expected loss.
Includes a VIE for which we have no management oversight and therefore we are not able to provide the total assets of the VIE. However, in March 2011
we sold excess servicing rights valued at $266 million to the VIE.
(c)
(d) Our maximum exposure to loss in this VIE is a component of servicer advances made that are allocated to the trust. The maximum exposure to loss
(e)
(f)
(g)
presented represents the unlikely event that every loan underlying the excess servicing rights sold defaults, and we, as servicer, are required to advance the
entire excess service fee to the trust for the contractually established period. This required disclosure is not an indication of our expected loss.
Includes $0 million and $100 million classified as finance receivables and loans, net, and $0 million and $20 million classified as other assets, offset by
$28 million and $37 million classified as accrued expenses and other liabilities at December 31, 2012, and December 31, 2011, respectively.
Includes VIEs for which we have no management oversight and therefore we are not able to provide the total assets of the VIEs.
Includes $0 billion and $2.4 billion classified as mortgage loans held-for-sale, $0 million and $92 million classified as trading securities or other assets,
and $0 million and $386 million classified as mortgage servicing rights at December 31, 2012, and December 31, 2011, respectively. CMHC is the
Canada Mortgage and Housing Corporation.
(h) Due to combination of the credit loss insurance on the mortgages and the guarantee by CMHC on the issued securities, the maximum exposure to loss
would be limited to the amount of the retained interests. Additionally, the maximum loss would occur only in the event that CMHC dismisses us as
servicer of the loans due to servicer performance or insolvency.
On-balance Sheet Variable Interest Entities
We engage in securitization and other financing transactions that do not qualify for off-balance sheet treatment. In these situations, we
hold beneficial interests or other interests in the VIE, which represent a form of significant continuing economic interest. These retained
interests include, but are not limited to, senior or subordinate asset-backed securities and residuals, and previously included senior or
subordinate mortgage-backed securities, interest-only strips, and principal-only strips. Certain of these retained interests provide credit
enhancement to the securitization entity as they may absorb credit losses or other cash shortfalls. Additionally, the securitization documents
may require cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which
may or may not be performance-driven. Because these securitization entities are consolidated, these retained interests and servicing rights are
not recognized as separate assets on our Consolidated Balance Sheet.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
We consolidated certain of these entities because we had a controlling financial interest in the VIE, primarily due to our servicing
activities, and because we hold a significant variable interest in the VIE. We are generally the primary beneficiary of automobile securitization
entities for which we perform servicing activities and have retained a significant variable interest in the form of a beneficial interest. We were
previously the primary beneficiary of certain mortgage private-label securitization entities.
The consolidated VIEs included in the Consolidated Balance Sheet represent separate entities with which we are involved. The third-
party investors in the obligations of consolidated VIEs have legal recourse only to the assets of the VIEs and do not have such recourse to us,
except for the customary representation and warranty provisions or when we are the counterparty to certain derivative transactions involving
the VIE. In addition, the cash flows from the assets are restricted only to pay such liabilities. Thus, our economic exposure to loss from
outstanding third-party financing related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets. All
assets of consolidated VIEs, presented below based upon the legal transfer of the underlying assets in order to reflect legal ownership, are
restricted for the benefit of the beneficial interest holders. Refer to Note 25 for discussion of the assets and liabilities for which the fair value
option has been elected.
December 31, ($ in millions)
Assets
Loans held-for-sale, net
Finance receivables and loans, net
Consumer
Commercial
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Other assets
Assets of operations held-for-sale
Total assets
Liabilities
Short-term borrowings
Long-term debt
Interest payable
Accrued expenses and other liabilities
Liabilities of operations held-for-sale
Total liabilities
2012
2011
$
— $
9
13,671
17,839
(144)
31,366
6,060
2,868
12,139
52,433
400
26,461
1
16
9,686
$
$
21,622
19,313
(210)
40,725
4,389
3,029
—
48,152
795
33,143
14
405
—
$
$
$
36,564
$
34,357
Off-balance Sheet Variable Interest Entities
The nature, purpose, and activities of nonconsolidated securitization entities are similar to those of our consolidated securitization
entities with the primary difference being the nature and extent of our continuing involvement. The cash flows from the assets of
nonconsolidated securitization entities generally are the sole source of payment on the securitization entities’ liabilities. The creditors of these
securitization entities have no recourse to us with the exception of market customary representation and warranty provisions as described in
Note 29.
Nonconsolidated VIEs include entities for which we either do not hold potentially significant variable interests or do not provide
servicing or asset management functions for the financial assets held by the securitization entity. Additionally, to qualify for off-balance sheet
treatment, transfers of financial assets must meet the sale accounting conditions in ASC 860, Transfers and Servicing. Previously, our
residential mortgage loan securitizations consisted of Ginnie Mae and private-label securitizations. We are not the primary beneficiary of any
GSE loan securitization transaction because we do not have the power to direct the significant activities of such entities. Previously, we did
not consolidate certain private-label mortgage securitizations because we did not have a variable interest that could potentially have been
significant or we did not have power to direct the activities that most significantly impacted the performance of the VIE.
For nonconsolidated securitization entities, the transferred financial assets are removed from our balance sheet provided the conditions
for sale accounting are met. The financial assets obtained from the securitization are primarily reported as cash, servicing rights, or retained
interests (if applicable). Typically, we conclude that the fee we are paid for servicing consumer automobile finance receivables represents
adequate compensation, and consequently, we do not recognize a servicing asset or liability. As an accounting policy election, we elected fair
value treatment for our mortgage servicing rights (MSR) portfolio. Liabilities incurred as part of these securitization transactions, such as
representation and warranty provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities
on our Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets
recognized, the assets derecognized, and the liabilities recognized as part of the transaction.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following summarizes all pretax gains and losses recognized on financial assets sold into nonconsolidated securitization and similar
asset-backed financing entities.
Year ended December 31, ($ in millions)
Consumer automobile
Consumer mortgage — GSEs
Consumer mortgage — private-label
Total pretax gain
2012
2011
2010
$
$
6
$
— $
942
—
818
—
—
1,065
17
948
$
818
$
1,082
The following table summarizes cash flows received from and paid related to securitization entities, asset-backed financings, or other
similar transfers of financial assets where the transfer is accounted for as a sale and we have a continuing involvement with the transferred
assets (e.g., servicing) that were outstanding in 2012, 2011, and 2010. Additionally, this table contains information regarding cash flows
received from and paid to nonconsolidated securitization entities that existed during each period.
Year ended December 31, ($ in millions)
2012
Consumer
automobile
Consumer
mortgage GSEs
Consumer mortgage
private-label
Cash proceeds from transfers completed during the period
$
1,979
$
32,796
$
Cash flows received on retained interests in securitization entities
Servicing fees
Purchases of previously transferred financial assets
Representations and warranties obligations
Other cash flows
2011
Cash proceeds from transfers completed during the period
Cash flows received on retained interests in securitization entities
Servicing fees
Purchases of previously transferred financial assets
Representations and warranties obligations
Other cash flows
2010
Cash proceeds from transfers completed during the period
Cash flows received on retained interests in securitization entities
Servicing fees
Purchases of previously transferred financial assets
Representations and warranties obligations
Other cash flows
$
$
—
12
—
—
—
—
693
(876)
(108)
(96)
— $
59,815
$
—
—
—
—
—
—
999
(2,537)
(143)
(13)
— $
68,822
$
—
1
—
—
(6)
—
1,081
(1,865)
(389)
(39)
5
71
63
(12)
(7)
255
722
68
201
(222)
(38)
187
1,090
81
209
(282)
(18)
(22)
146
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables represent on-balance sheet loans held-for-sale and finance receivable and loans, off-balance sheet securitizations,
and whole-loan sales where we have continuing involvement. The table presents quantitative information about delinquencies and net credit
losses. Refer to Note 11 for further detail on total serviced assets.
Total Amount
Amount 60 days or more
past due
Net credit losses
December 31, ($ in millions)
2012
2011
2012
2011
2012
2011
On-balance sheet loans
Consumer automobile
Consumer mortgage (a)
Commercial automobile
Commercial mortgage
Commercial other
$
53,715
$
63,884
$
12,311
32,822
—
2,783
18,940
37,302
1,925
1,261
Total on-balance sheet loans
101,631
123,312
Off-balance sheet securitization entities
Consumer automobile
Consumer mortgage - GSEs (b)
Consumer mortgage-private-label
Total off-balance sheet securitization entities
Whole-loan transactions (c)
Total
1,495
119,384
—
120,879
6,756
—
262,984
63,991
326,975
33,961
351
241
24
—
1
617
4
1,892
—
1,896
129
$
341
$
369
$
3,242
162
14
1
3,760
—
9,456
11,301
20,757
2,901
16
(1)
(1)
(31)
352
2
n/m
1,234
1,236
243
321
181
13
31
(5)
541
—
n/m
3,982
3,982
782
5,305
$
229,266
$
484,248
$
2,642
$
27,418
$
1,831
$
(a)
Includes loans subject to conditional repurchase options of $0 billion and $2.3 billion guaranteed by the GSEs, and $0 million and $132 million sold to
certain private-label mortgage securitization entities at December 31, 2012, and 2011, respectively.
(b) Anticipated credit losses are not meaningful due to the GSE guarantees.
(c) Whole-loan transactions are not part of a securitization transaction, but represent consumer automobile and consumer mortgage pools of loans sold to
third-party investors.
11. Servicing Activities
Mortgage Servicing Rights
The following table summarizes activity related to MSRs, which are carried at fair value. As there are limited MSR market transactions
that are directly observable, management estimates fair value using internally developed discounted cash flow models (an income approach)
to estimate the fair value. These internal valuation models estimate net cash flows based on internal operating assumptions that we believe
would be used by market participants in orderly transactions combined with market-based assumptions for loan prepayment rates, interest
rates, and discount rates that we believe approximate yields required by investors in this asset.
Year ended December 31, ($ in millions)
Estimated fair value at January 1,
Additions recognized on sale of mortgage loans
Additions from purchases of servicing rights
Subtractions from sales of servicing assets
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model
Other changes in fair value
Deconsolidation of ResCap
Estimated fair value at December 31,
2012 (a)
2011
$
2,519
$
3,738
240
—
—
(282)
(395)
(1,130)
622
31
(266)
(1,041)
(565)
—
$
952
$
2,519
(a) The remaining balance is at Ally Bank, due to the deconsolidation of ResCap. Ally Bank announced that it has begun to explore strategic alternatives for
its agency MSR portfolio.
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model include all changes due to a
revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily include the accretion of the present value of the
discount related to forecasted cash flows and the economic runoff of the portfolio.
147
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The key economic assumptions and sensitivity of the fair value of MSRs to immediate 10% and 20% adverse changes in those
assumptions were as follows.
December 31, ($ in millions)
Weighted average life (in years)
Weighted average prepayment speed
Impact on fair value of 10% adverse change
Impact on fair value of 20% adverse change
Weighted average discount rate
Impact on fair value of 10% adverse change
Impact on fair value of 20% adverse change
2012
2011
4.6
13.5%
(77)
$
(144)
7.7%
$
(10)
(19)
4.7
15.7%
(135)
(257)
10.2%
(59)
(114)
$
$
These sensitivities are hypothetical and should be considered with caution. Changes in fair value based on a 10% and 20% variation in
assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be
linear. Also, the effect of a variation in a particular assumption on the fair value is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and
increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset
balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks
associated with these assets.
Risk Mitigation Activities
The primary risk of our servicing rights is interest rate risk and the resulting impact on prepayments. A significant decline in interest
rates could lead to higher-than-expected prepayments that could reduce the value of the MSRs. We economically hedge the impact of these
risks with both derivative and nonderivative financial instruments. Refer to Note 22 for additional information regarding the derivative
financial instruments used to economically hedge MSRs.
The components of servicing valuation and hedge activities, net, were as follows.
Year ended December 31, ($ in millions)
Change in estimated fair value of mortgage servicing rights
Change in fair value of derivative financial instruments
Servicing asset valuation and hedge activities, net
Mortgage Servicing Fees
The components of mortgage servicing fees were as follows.
Year ended December 31, ($ in millions)
Contractual servicing fees, net of guarantee fees and including subservicing
Late fees
Ancillary fees
Total mortgage servicing fees
Mortgage Servicing Advances
2012
2011
2010
(677) $
(1,606) $
669
817
(8) $
(789) $
(872)
478
(394)
2012
2011
2010
504
$
977
$
29
59
65
156
998
77
187
592
$
1,198
$
1,262
$
$
$
$
In connection with our primary Mortgage servicing activities (i.e., servicing of mortgage loans), we make certain payments for property
taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before
collecting them from individual borrowers. Servicing advances including contractual interest, are priority cash flows in the event of a loan
principal reduction or foreclosure and ultimate liquidation of the real estate-owned property. These servicing advances are included in other
assets on the Consolidated Balance Sheet and totaled $82 million and $1.9 billion at December 31, 2012 and 2011, respectively. We maintain
an allowance for uncollected primary servicing advances of $1 million and $43 million at December 31, 2012 and 2011, respectively. Our
potential obligation is influenced by the loan’s performance and credit quality. Additionally, we have a fiduciary responsibility for mortgage
escrow and custodial funds that totaled $0 billion and $4.4 billion at December 31, 2012 and 2011, respectively. A portion of these balances
are included in deposit liabilities on our Consolidated Balance Sheet. Refer to Note 14 for additional information.
Due to the deconsolidation of ResCap on May 14, 2012, we no longer act as a subservicer or master servicer of mortgage loans. Refer to
Note 1 for more information regarding the deconsolidation. When we acted as a subservicer of mortgage loans we performed the
responsibilities of a primary servicer but did not own the corresponding primary servicing rights. We received a fee from the primary servicer
for such services. As the subservicer, we had the same responsibilities of a primary servicer in that we made certain payments of property
148
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
taxes and insurance premiums, default and property maintenance, as well as advances of principal and interest payments before collecting
them from individual borrowers. At December 31, 2011, outstanding servicer advances related to subserviced loans were $125 million and we
had a reserve for uncollected subservicer advances $1 million.
At December 31, 2011, we were the master servicer (i.e., servicer of beneficial interests issued by mortgage securitization entities) for
467,722 loans, having an aggregate unpaid principal balance of $61.4 billion. In many cases, where we acted as master servicer, we also acted
as primary servicer. In connection with our master-servicing activities, we serviced the mortgage-backed and mortgage-related asset-backed
securities and whole-loan packages sold to investors. As the master servicer, we collected mortgage loan payments from primary servicers and
distributed those funds to investors in the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages. As the
master servicer, we were required to advance scheduled payments to the securitization trust or whole-loan investors. To the extent the primary
servicer does not advance the payments, we were responsible for advancing the payment to the trust or whole-loan investors. Master-servicing
advances, including contractual interest, are priority cash flows in the event of a default, thus making their collection reasonably assured. In
most cases, we were required to advance these payments to the point of liquidation of the loan or reimbursement of the trust or whole-loan
investors. At December 31, 2011, outstanding master-servicing advances were $158 million and we had no reserve for uncollected master-
servicing advances.
Mortgage Serviced Assets
Total serviced mortgage assets consist of primary servicing activities. These include loans owned by Ally Bank, where Ally Bank is the
primary servicer, and loans sold to third-party investors, where Ally Bank has retained primary servicing. Loans owned by Ally Bank are
categorized as loans held-for-sale or finance receivables and loans which are discussed in further detail in Note 7 and Note 8, respectively.
The loans sold to third-party investors were sold through off-balance sheet GSE securitization transactions.
The unpaid principal balance of our serviced mortgage assets were as follows.
December 31, ($ in millions)
On-balance sheet mortgage loans
Held-for-sale and investment
Operations held-for-sale
Off-balance sheet mortgage loans
Loans sold to third-party investors
Private-label
GSEs
Whole-loan
Purchased servicing rights
Operations held-for-sale
Total primary serviced mortgage loans
Subserviced mortgage loans
Subserviced operations held-for-sale
Total subserviced mortgage loans
Master-servicing-only mortgage loans
Total serviced mortgage loans
2012 (a)
2011
$
$
10,938
—
18,871
541
—
119,384
2
—
—
130,324
—
—
—
—
130,324
$
50,886
262,868
15,105
3,247
4,912
356,430
26,358
4
26,362
8,557
391,349
$
(a) The remaining balances were serviced by Ally Bank, due to the deconsolidation of ResCap. Ally Bank announced that it has begun to explore strategic
alternatives for its agency MSR portfolio.
Ally Bank is subject to certain net worth requirements associated with its servicing agreements with Fannie Mae and Freddie Mac. The
majority of Ally Bank’s serviced mortgage assets are subserviced by GMAC Mortgage, LLC, a subsidiary of ResCap, pursuant to a servicing
agreement. At December 31, 2012, Ally Bank was in compliance with the requirements of the servicing agreements.
Automobile Finance Servicing Activities
We service consumer automobile contracts. Historically, we have sold a portion of our consumer automobile contracts. With respect to
contracts we sell, we retain the right to service and earn a servicing fee for our servicing function. Typically, we conclude that the fee we are
paid for servicing consumer automobile finance receivables represents adequate compensation, and consequently, we do not recognize a
servicing asset or liability. We recognized automobile servicing fee income of $109 million, $160 million, and $227 million during the years
ended December 31, 2012, 2011, and 2010, respectively.
149
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Automobile Finance Serviced Assets
The total serviced automobile finance loans outstanding were as follows.
December 31, ($ in millions)
On-balance sheet automobile finance loans and leases
Consumer automobile
Commercial automobile
Operating leases
Operations held-for-sale
Other
Off-balance sheet automobile finance loans
Loans sold to third-party investors
Securitizations
Whole-loan
Total serviced automobile finance loans and leases
12. Premiums Receivable and Other Insurance Assets
Premiums receivable and other insurance assets consisted of the following.
December 31, ($ in millions)
Prepaid reinsurance premiums
Reinsurance recoverable on unpaid losses
Reinsurance recoverable on paid losses
Premiums receivable
Deferred policy acquisition costs
Total premiums receivable and other insurance assets
2012
2011
$
53,715
$
32,822
13,550
25,979
41
63,884
37,302
9,275
102
—
1,474
6,541
—
12,318
$
134,122
$
122,881
$
2012
2011
$
236
234
40
108
991
218
321
54
288
972
$
1,609
$
1,853
150
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
13. Other Assets
The components of other assets were as follows.
December 31, ($ in millions)
Property and equipment at cost
Accumulated depreciation
Net property and equipment
Restricted cash collections for securitization trusts (a)
Fair value of derivative contracts in receivable position
Collateral placed with counterparties
Deferred tax asset (b)
Restricted cash and cash equivalents
Other accounts receivable
Cash reserve deposits held-for-securitization trusts (c)
Unamortized debt issuance costs
Nonmarketable equity securities
Interests retained in financial asset sales
Accrued interest and rent receivable
Real estate and other investments
Servicer advances
Prepaid expenses and deposits
Goodwill
Other assets
Total other assets
2012
2011
$
693
$
1,152
(411)
282
2,983
2,298
1,290
1,190
889
525
442
425
303
154
147
98
92
60
27
703
(787)
365
1,596
5,687
1,448
238
1,381
1,110
838
612
419
231
232
385
2,142
568
518
971
$
11,908
$
18,741
(a) Represents cash collection from customer payments on securitized receivables. These funds are distributed to investors as payments on the related secured
debt.
(b) The increase in the deferred tax asset represents the release of a material portion of our U.S. valuation allowance. Refer to Note 23 for more information.
(c) Represents credit enhancement in the form of cash reserves for various securitization transactions.
The changes in the carrying amounts of goodwill for the periods shown were as follows.
($ in millions)
Goodwill at January 1, 2010
Transfer of assets of discontinued operations held-for-sale
Foreign-currency translation
Goodwill at December 31, 2010
Transfer of assets of discontinued operations held-for-sale
Foreign-currency translation
Goodwill at December 31, 2011
Transfer of assets of discontinued operations held-for-sale
Goodwill at December 31, 2012
Automotive
Finance
operations
Insurance
operations
Total
$
$
$
$
469
$
57
$
526
(1)
—
468
$
—
—
468
$
(468)
— $
(1)
1
57
(4)
(3)
50
(23)
27
$
$
$
(2)
1
525
(4)
(3)
518
(491)
27
151
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
14. Deposit Liabilities
Deposit liabilities consisted of the following.
December 31, ($ in millions)
Domestic deposits
Noninterest-bearing deposits
Interest-bearing deposits
Savings and money market checking accounts
Certificates of deposit
Dealer deposits
Total domestic deposit liabilities
Foreign deposits
Interest-bearing deposits
Savings and money market checking accounts
Certificates of deposit
Dealer deposits
Total foreign deposit liabilities
Total deposit liabilities
2012
2011
$
1,977
$
2,029
13,871
31,084
983
47,915
—
—
—
—
9,035
28,540
1,769
41,373
1,408
1,958
311
3,677
$
47,915
$
45,050
Noninterest-bearing deposits primarily represent third-party escrows associated with our mortgage loan-servicing portfolio. The escrow
deposits are not subject to an executed agreement and can be withdrawn without penalty at any time. At December 31, 2012, and
December 31, 2011, certificates of deposit included $12.0 billion and $10.0 billion, respectively, of domestic certificates of deposit in
denominations of $100 thousand or more.
The following table presents the scheduled maturity of total certificates of deposit.
Year ended December 31, ($ in millions)
2013
2014
2015
2016
2017
Total certificates of deposit
15. Short-term Borrowings
The following table presents the composition of our short-term borrowings portfolio.
$
15,688
6,133
4,336
3,545
1,382
$
31,084
December 31, ($ in millions)
Unsecured
Secured (a)
Total
Unsecured
Secured (a)
Total
2012
2011
Demand notes
Bank loans and overdrafts
Federal Home Loan Bank
Other (b)
Total short-term borrowings
Weighted average interest rate (c)
$
3,094
$
— $
3,094
$
2,756
$
— $
167
—
—
—
3,800
400
167
3,800
400
1,613
—
146
—
1,400
1,765
$
3,261
$
4,200
$
7,461
$
4,515
$
3,165
$
1.0%
2,756
1,613
1,400
1,911
7,680
3.6%
(a) Refer to Note 16 for further details on assets restricted as collateral for payment of the related debt.
(b) Other primarily includes nonbank secured borrowings at our Commercial Finance Group at December 31, 2012 and Automotive Finance operations at
December 31, 2011.
(c) Based on the debt outstanding and the interest rate at December 31 of each year.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
16. Long-term Debt
The following tables present the composition of our long-term debt portfolio.
December 31, ($ in millions)
2012
Senior debt
Fixed rate (b)
Variable rate
Total senior debt (c)
Subordinated debt
Fixed rate
Variable rate (d)
Total subordinated debt (e)
VIE secured debt
Fixed rate
Variable rate
Total VIE secured debt
Trust preferred securities
Fixed rate
Fair value adjustment (f)
Total long-term debt (g)
2011
Senior debt
Fixed rate (b)
Variable rate
Total senior debt (c)
Subordinated debt
Fixed rate
Variable rate (d)
Total subordinated debt (e)
VIE secured debt
Fixed rate
Variable rate
Total VIE secured debt
Trust preferred securities
Fixed rate
Amount
Interest
rate
Weighted
average
interest
rate (a)
Due date
range
$
28,336
2,345
30,681
0.38 - 10.29%
6.69% 2013 - 2049
0.65 - 8.00%
0.92% 2013 - 2018
0.25 - 8.30%
1.36% 2013 - 2017
8.13%
8.13%
2040
251
13,451
13,702
19,077
7,384
26,461
2,623
1,094
74,561
39,657
3,393
$
$
43,050
0.00 - 16.68%
6.15 % 2012 - 2049
4,675
8,246
12,921
0.76 - 17.05%
4.62 % 2012 - 2031
16,538
16,605
33,143
2,622
1,149
$
92,885
0.32 - 8.30%
1.96 % 2012 - 2040
8.13 %
8.13 %
2040
Fair value adjustment (f)
Total long-term debt (g)
(a) Based on the debt outstanding and the interest rate at December 31 of each year.
(b)
(c)
(d)
Includes $0.0 billion at December 31, 2012 and $7.4 billion at December 31, 2011, guaranteed by the Federal Deposit Insurance Corporation (FDIC)
under the Temporary Liquidity Guarantee Program.
Includes secured long-term debt of $0.0 billion at December 31, 2012 and $4.0 billion at December 31, 2011.
Includes $13.5 billion and $8.2 billion of debt outstanding from the Automotive secured revolving credit facilities at December 31, 2012 and 2011,
respectively.
Includes secured long-term debt of $13.5 billion and $12.7 billion at December 31, 2012 and 2011, respectively.
(e)
(f) Amount represents the hedge accounting adjustment of fixed-rate debt.
(g)
Includes fair value option-elected secured long-term debt of $0 million and $830 million at December 31, 2012 and 2011, respectively. Refer to Note 25
for additional information.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, ($ in millions)
Unsecured
Secured
Total
Unsecured
Secured
Total
2012
2011
Long-term debt
Due within one year
Due after one year
Fair value adjustment
Total long-term debt
$
1,070
$
11,503
$
12,573
$
11,664
$
14,521
$
31,486
1,094
29,408
—
60,894
1,094
30,272
1,149
35,279
—
26,185
65,551
1,149
$
33,650
$
40,911
$
74,561
$
43,085
$
49,800
$
92,885
The following table presents the scheduled remaining maturity of long-term debt, assuming no early redemptions will occur. The actual
payment of secured debt may vary based on the payment activity of the related pledged assets.
Year ended December 31,
($ in millions)
Unsecured
Long-term debt
Original issue discount
Total unsecured
Secured
Long-term debt
Total long-term debt
2013
2014
2015
2016
2017
2018 and
thereafter
Fair value
adjustment
Total
$
1,331
$
5,603
$
5,115
$
1,971
$
3,671
$
16,705
$
1,094
$ 35,490
(261)
1,070
(188)
5,415
(56)
(63)
(75)
5,059
1,908
3,596
(1,197)
15,508
—
(1,840)
1,094
33,650
11,503
13,596
8,567
3,123
3,032
1,090
—
40,911
$ 12,573
$ 19,011
$ 13,626
$
5,031
$
6,628
$
16,598
$
1,094
$ 74,561
To achieve the desired balance between fixed- and variable-rate debt, we utilize interest rate swap agreements. The use of these
derivative financial instruments had the effect of synthetically converting $10.2 billion of our fixed-rate debt into variable-rate obligations and
$14.5 billion of our variable-rate debt into fixed-rate obligations at December 31, 2012.
The following summarizes assets restricted as collateral for the payment of the related debt obligation primarily arising from
securitization transactions accounted for as secured borrowings and repurchase agreements.
December 31, ($ in millions)
Trading assets
Investment securities
Loans held-for-sale
Mortgage assets held-for-investment and lending receivables
Consumer automobile finance receivables
Commercial automobile finance receivables
Investment in operating leases, net
Mortgage servicing rights
Other assets
Total assets restricted as collateral (b)
Secured debt (c)
2012
2011
Total
Ally Bank (a)
Total
Ally Bank (a)
$
— $
— $
27
$
1,911
—
9,866
29,557
19,606
6,058
—
999
1,911
—
9,866
14,833
19,606
1,691
—
272
780
805
12,197
33,888
20,355
4,555
1,920
3,973
$
$
67,997
45,111
$
$
48,179
29,162
$
$
78,500
52,965
$
$
—
780
—
11,188
17,320
14,881
431
1,286
1,816
47,702
25,533
(a) Ally Bank is a component of the total column.
(b) Ally Bank has an advance agreement with the Federal Home Loan Bank of Pittsburgh (FHLB) and had assets pledged to secure borrowings that were
restricted as collateral to the FHLB totaling $12.6 billion and $10.9 billion at December 31, 2012, and 2011, respectively. These assets were composed
primarily of consumer and commercial mortgage finance receivables and loans, net. Ally Bank has access to the Federal Reserve Bank Discount Window.
Ally Bank had assets pledged and restricted as collateral to the Federal Reserve Bank totaling $1.9 billion and $4.3 billion at December 31, 2012, and
2011, respectively. These assets were composed of consumer mortgage finance receivables and loans, net; consumer automobile finance receivables and
loans, net; and investment securities. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund the operations
or liabilities of Ally or its subsidiaries.
Includes $4.2 billion and $3.2 billion of short-term borrowings at December 31, 2012, and 2011, respectively.
(c)
Trust Preferred Securities
On December 30, 2009, we entered into a Securities Purchase and Exchange Agreement with U.S. Department of Treasury (Treasury)
and GMAC Capital Trust I, a Delaware statutory trust (the Trust), which is a finance subsidiary that is wholly owned by Ally. As part of the
agreement, the Trust sold to Treasury 2,540,000 trust preferred securities (TRUPS) issued by the Trust with an aggregate liquidation
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Ally Financial Inc. • Form 10-K
preference of $2.5 billion. Additionally, we issued and sold to Treasury a ten-year warrant to purchase up to 127,000 additional TRUPS with
an aggregate liquidation preference of $127 million, at an initial exercise price of $0.01 per security, which Treasury immediately exercised in
full.
On March 1, 2011, the Declaration of Trust and certain other documents related to the TRUPS were amended and all the outstanding
TRUPS held by Treasury were designated 8.125% Fixed Rate / Floating Rate Trust Preferred Securities, Series (Series 2 TRUPS). On
March 7, 2011, Treasury sold 100% of the Series 2 TRUPS in an offering registered with the SEC. Ally did not receive any proceeds from the
sale.
Each Series 2 TRUPS security has a liquidation amount of $25. Distributions are cumulative and are payable until redemption at the
applicable coupon rate. Distributions are payable at an annual rate of 8.125% payable quarterly in arrears, beginning August 15, 2011, to but
excluding February 15, 2016. From and including February 15, 2016, to but excluding February 15, 2040, distributions will be payable at an
annual rate equal to three-month London interbank offer rate plus 5.785% payable quarterly in arrears, beginning May 15, 2016. Ally has the
right to defer payments of interest for a period not exceeding 20 consecutive quarters. The Series 2 TRUPS have no stated maturity date, but
must be redeemed upon the redemption or maturity of the related debentures (Debentures), which mature on February 15, 2040. The Series 2
TRUPS are generally nonvoting, other than with respect to certain limited matters. During any period in which any Series 2 TRUPS remain
outstanding but in which distributions on the Series 2 TRUPS have not been fully paid, none of Ally or its subsidiaries will be permitted to
(i) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or otherwise make a liquidation payment
with respect to, any of Ally’s capital stock or make any guarantee payment with respect thereto; or (ii) make any payments of principal,
interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or junior in interest to the
Debentures with certain specified exceptions in each case.
Covenants and Other Requirements
In secured funding transactions, there are trigger events that could cause the debt to be prepaid at an accelerated rate or could cause our
usage of the credit facility to be discontinued. The triggers are generally based on the financial health and performance of the servicer as well
as performance criteria for the pool of receivables, such as delinquency ratios, loss ratios, commercial payment rates. During 2012, there were
no trigger events that resulted in the repayment of debt at an accelerated rate or impacted the usage of our credit facilities.
When we issue debt securities in private offerings, we may be subject to registration rights agreements. Under these agreements, we
generally agree to use reasonable efforts to cause the consummation of a registered exchange offer or to file a shelf registration statement
within a prescribed period. In the event that we fail to meet these obligations, we may be required to pay additional penalty interest with
respect to the covered debt during the period in which we fail to meet our contractual obligations.
Funding Facilities
We utilize both committed and uncommitted credit facilities. The financial institutions providing the uncommitted facilities are not
contractually obligated to advance funds under them. The amounts outstanding under our various funding facilities are included on our
Consolidated Balance Sheet.
As of December 31, 2012, Ally Bank had exclusive access to $8.5 billion of funding capacity from committed credit facilities. Ally Bank
also has access to a $4.1 billion committed facility that is shared with the parent company. Funding programs supported by the Federal
Reserve and the FHLB, together with repurchase agreements, complement Ally Bank’s private committed facilities.
The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions.
The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they
can be amortizing and do not allow for any further funding after the closing date. At December 31, 2012, $34.3 billion of our $43.0 billion of
committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of
December 31, 2012, we had $13.9 billion of committed funding capacity from revolving facilities with a remaining tenor greater than
364 days.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Committed Funding Facilities
December 31, ($ in billions)
2012
2011
2012
2011
2012
2011
Outstanding
Unused capacity (a)
Total capacity
$
3.8
$
5.8
$
4.7
$
3.7
$
8.5
$
9.5
Bank funding
Secured - U.S.
Nonbank funding
Unsecured
Automotive Finance — U.S.
Automotive Finance — International
Secured
Automotive Finance — U.S. (b) (c)
Automotive Finance — International (b)
Mortgage operations
Total nonbank funding
Shared capacity (d)
U.S.
International
—
0.1
12.9
9.6
—
22.6
1.0
0.1
—
0.3
4.2
10.1
0.7
15.3
1.5
0.1
—
—
5.4
2.4
—
7.8
3.0
—
0.5
—
10.2
3.0
0.5
14.2
2.5
—
—
0.1
18.3
12.0
—
30.4
4.0
0.1
0.5
0.3
14.4
13.1
1.2
29.5
4.0
0.1
43.1
Total committed facilities
$
27.5
$
22.7
$
15.5
$
20.4
$
43.0
$
(a) Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent
incremental collateral is available and contributed to the facilities.
(b) Total unused capacity includes $2.2 billion as of December 31, 2012, and $4.9 billion as of December 31, 2011, from certain committed funding
arrangements that are generally reliant upon the origination of future automotive receivables and that are available in 2013.
Includes the secured facilities of our Commercial Finance Group.
(c)
(d) Funding is generally available for assets originated by Ally Bank or the parent company, Ally Financial Inc.
Uncommitted Funding Facilities
Outstanding
Unused capacity
Total capacity
December 31, ($ in billions)
2012
2011
2012
2011
2012
2011
Bank funding
Secured — U.S.
Federal Reserve funding programs
$
— $
— $
FHLB advances
Total bank funding
Nonbank funding
Unsecured
Automotive Finance — International
Secured
Automotive Finance — International
Mortgage operations
Total nonbank funding
Total uncommitted facilities
$
5.4
5.4
1.9
0.1
—
2.0
7.4
$
4.8
4.8
2.1
0.1
—
2.2
7.0
$
156
1.8
0.4
2.2
0.4
0.1
—
0.5
2.7
$
$
3.2
—
3.2
0.5
0.1
0.1
0.7
3.9
$
$
1.8
5.2
7.0
2.5
0.2
—
2.7
9.7
$
3.2
5.4
8.6
2.4
0.2
0.1
2.7
$
11.3
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
17. Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities were as follows.
December 31, ($ in millions)
Fair value of derivative contracts in payable position
Collateral received from counterparties
Accrual related to ResCap Bankruptcy and deconsolidation (a)
Accounts payable
Employee compensation and benefits
Reserves for insurance losses and loss adjustment expenses
Reserve for mortgage representation and warranty obligation
Deferred revenue
Non-income tax payable
Deferred income tax liability
GM payable, net
Current income tax payable
Loan repurchases liabilities
Other liabilities
2012
2011
$
2,468
$
941
750
565
494
341
105
97
15
6
1
1
—
801
5,367
1,410
—
1,178
649
580
825
86
296
111
228
200
2,387
1,347
Total accrued expenses and other liabilities
$
6,585
$
14,664
(a) Refer to Note 1 for more information regarding the Debtors' bankruptcy, deconsolidation, and this accrual.
18. Equity
Common Stock
Our common stock has a par value of $0.01 and there are 2,021,384 shares authorized for issuance. Our common stock is not registered
with the Securities and Exchange Commission, and there is no established trading market for the shares. Treasury holds 73.78% of Ally
common stock. The following table presents changes in the number of shares issued and outstanding.
(in shares)
Common stock
January 1,
New issuances
Conversion of Series F-2 Preferred Stock (a)
December 31,
2012
2011
2010
1,330,970
1,330,970
799,120
—
—
531,850
1,330,970
1,330,970
1,330,970
(a) On December 30, 2010, 110,000,000 shares of Series F-2 Preferred Stock owned by Treasury were converted into 531,850 shares of Ally common stock.
Preferred Stock
Series F-2 Mandatorily Convertible Preferred Stock held by U.S. Department of Treasury
On December 30, 2009, Ally entered into a Securities Purchase and Exchange Agreement (the Purchase Agreement) with Treasury,
pursuant to which a series of transactions occurred resulting in Treasury acquiring 228,750,000 shares of Ally's newly issued Fixed Rate
Cumulative Mandatorily Convertible Preferred Stock, Series F-2 (the New MCP), with a total liquidation preference of $11.4 billion. On
December 30, 2010, Treasury converted 110,000,000 shares of the New MCP into 531,850 shares of Ally common stock. The conversion
occurred at an agreed upon rate that exceeded the initial conversion rate as defined in Exhibit H to the Ally Certificate of Incorporation. The
fair value of the additional shares was approximately $586 million and represented an inducement. The fair value of the additional common
shares issued to Treasury was determined using a combination of valuation techniques consistent with the market approach (Level 3 fair value
inputs). The market approach we used to estimate the fair value of our common stock incorporated a combination of the tangible equity and
earnings multiples from comparable publicly traded companies deemed similar to Ally (and its operating segments) and by observing
comparable transactions in the marketplace. We also considered the implied valuation of our common stock based on the December 30, 2010,
conversion with Treasury.
In connection with the conversion, the New MCP Certificate of Designation was amended to require us to deliver additional shares to the
New MCP holders upon occurrence of certain specified events. The fair value associated with this provision was $30 million and was
reflected in the New MCP balance at December 31, 2010. The fair value of the provision was determined utilizing an option pricing model
using inputs and assumptions that management believes a willing market participant would use in estimating fair value (a Level 3 fair value
input).
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As a result, Treasury now holds 118,750,000 shares of the New MCP, with a total liquidation preference of $5.9 billion. Dividends of the
New MCP accrue at 9% per annum. Dividends are payable quarterly, in arrears, only if and when declared by Ally's Board of Directors. The
New MCP generally is nonvoting, other than class-voting on certain matters under certain circumstances, including generally, the
authorization of senior capital stock, the adverse amendment of the New MCP, and any exchange or reclassification involving the New MCP
or merger or consolidation of Ally. Upon conversion of the New MCP into Ally common stock, the holder would have the voting rights
associated with the common stock.
The shares of the New MCP are convertible into common stock at the applicable conversion rate (as provided in the Certificate of
Designation) either: (i) at Ally's option, at any time or from time to time, with the prior approval of the Federal Reserve provided that Ally is
not permitted to convert any shares of the New MCP held by Treasury except (a) with the prior written consent of Treasury (which consent
may be granted in the sole discretion of Treasury with respect to each conversion considering such factors as it deems appropriate at such
time, which may include seeking to condition the terms on which it may provide such consent, which may include seeking an alteration of the
conversion rate) or (b) pursuant to an order of the Federal Reserve compelling such a conversion; or (ii) at the option of the holder, upon the
occurrence of certain specified transactions. All shares of the New MCP that remain outstanding on December 30, 2016, will automatically
convert into common stock at a conversion rate of 0.00432 common shares per share of the New MCP. Under any conversion of the
New MCP, settlement will always occur by issuance of our common stock.
Subject to the approval of the Federal Reserve and the restrictions imposed by the terms of our other preferred stock, we may opt to
redeem, in whole or in part, from time to time, the New MCP then outstanding at any time. The New MCP may be redeemed at the greater
of the liquidation preference, plus any accrued and unpaid dividends or the as-converted value, as defined in the Certificate of Designation.
Subject to certain exceptions, for so long as any shares of the New MCP are outstanding and owned by Treasury, Ally is generally
prohibited from paying certain dividends or distributions on, or redeeming, repurchasing, or acquiring its capital stock or other equity
securities without the consent of Treasury. Additionally, Ally is generally prohibited from making any dividends or distributions on, or
redeeming, repurchasing, or acquiring its capital stock or other equity securities unless all accrued and unpaid dividends for all past dividend
periods on the New MCP are fully paid.
Series A Preferred Stock
On March 1, 2011, pursuant to a registration rights agreement between Ally and GM, GM notified Ally of its intent to sell shares of
Ally's existing Fixed Rate Perpetual Preferred Stock, Series A (Existing Series A Preferred Stock), held by a subsidiary of GM. On
March 25, 2011, Ally filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation (the Amendment) with the
Secretary of State of the State of Delaware. Pursuant to the Amendment, Ally's Certificate of Incorporation, which included the terms of the
Existing Series A Preferred Stock, was amended to modify certain terms of the Existing Series A Preferred Stock. As part of the Amendment,
the Existing Series A Preferred Stock was redesignated as Ally's Fixed Rate / Floating Rate Perpetual Preferred Stock, Series A (the Amended
Series A Preferred Stock) and the liquidation amount was reduced from $1,000 per share to $25 per share. The Amendment, and a
corresponding amendment to Ally's bylaws, also increased the authorized number of shares of Amended Series A Preferred Stock to
160,870,560 shares, which was adjusted to account for the decreased liquidation amount per share. The total number of shares outstanding
following the Amendment is 40,870,560 shares.
Immediately following the Amendment, the subsidiary of GM that held all of the outstanding Amended Series A Preferred Stock sold
100% of such stock in an offering registered with the SEC. Ally did not receive any proceeds from the sale.
Holders of the Amended Series A Preferred Stock are entitled to receive, when, and if declared by Ally, noncumulative cash dividends.
Beginning March 25, 2011, to but excluding May 15, 2016, dividends accrue at a fixed rate of 8.5% per annum. Beginning on May 15, 2016,
dividends will accrue at a rate equal to three-month London interbank offer rate (LIBOR) plus 6.243%, commencing on August 15, 2016, in
each case on the 15th day of February, May, August, and November. Dividends will be payable to holders of record at the close of business on
the preceding February 1, May 1, August 1, or November 1, as the case may be, or on such other date, not more than seventy calendar days
prior to the dividend payment date, as will be fixed by the Ally Board of Directors. In the event that dividends with respect to a dividend
period have not been paid in full on the dividend payment date, we will be prohibited, subject to certain specified exceptions, from
(i) redeeming, purchasing or otherwise acquiring, any stock that ranks on a parity basis with, or junior in interest to, the Amended Series A
Preferred Stock; (ii) paying any dividends or making any distributions with respect to any stock that ranks junior in interest to the Amended
Series A Preferred Stock, until such time as Ally has paid the dividends payable on shares of the Amended Series A Preferred Stock with
respect to a subsequent dividend period; and (iii) declaring or paying any dividend on any stock ranking on a parity basis with the Amended
Series A Preferred Stock, subject to certain exceptions.
The holders of the Amended Series A Preferred Stock do not have voting rights other than those set forth in the certificate of designations
for the Amended Series A Preferred Stock included in Ally's Certificate of Incorporation. Ally may not redeem the Amended Series A
Preferred Stock before May 15, 2016, and after such time the Amended Series A Preferred Stock may be redeemed in certain circumstances.
In the event of any liquidation, dissolution or winding up of the affairs of Ally, holders of the Amended Series A Preferred Stock will be
entitled to receive the liquidation amount per share of Amended Series A Preferred Stock and an amount equal to all declared, but unpaid
dividends declared prior to the date of payment out of assets available for distribution, before any distribution is made for holders of stock that
ranks junior in interest to the Amended Series A Preferred Stock, subject to the rights of Ally's creditors.
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Ally Financial Inc. • Form 10-K
The changes to the terms of the Existing Series A Preferred Stock pursuant to the terms of the Amendment were deemed substantive, and
as a result, the transaction was accounted for as a redemption of the Existing Series A Preferred Stock and the issuance of the Amended
Series A Preferred Stock. The Existing Series A Preferred Stock was removed at its carrying value, the Amended Series A Preferred Stock was
recognized at its fair value, and the difference of $32 million was recorded as an increase to retained earnings, which impacted the income
available to common stockholders used for the earnings per common share calculation.
Series G Preferred Stock
Effective June 30, 2009, we converted (the Conversion) from a Delaware limited liability company into a Delaware corporation in
accordance with applicable law. In connection with the Conversion, the 7% Cumulative Perpetual Preferred Stock (the Blocker Preferred) of
Preferred Blocker Inc. (PBI), a wholly owned subsidiary, was required to be converted into or exchanged for preferred stock. For this purpose,
we had previously authorized for issuance its 7% Fixed Rate Cumulative Perpetual Preferred Stock, Series G (the Series G Preferred Stock).
Pursuant to the terms of a Certificate of Merger, effective October 15, 2009, PBI merged with and into Ally with Ally continuing as the
surviving entity. At that time, each share of the Blocker Preferred issued and outstanding immediately prior to the effective time of the merger
was converted into the right to receive an equal number of newly issued shares of Series G Preferred Stock. In the aggregate, 2,576,601 shares
of Series G Preferred Stock were issued to holders of the Blocker Preferred in connection with the merger. The Series G Preferred Stock ranks
equally in right of payment with each of our outstanding series of preferred stock in accordance with the terms thereof.
The Series G Preferred Stock accrues dividends at a rate of 7% per annum. Dividends are payable quarterly, in arrears, only if and when
declared by Ally's Board of Directors. Subject to any other restrictions contained in the terms of any other series of stock or other agreements
that Ally is or may become subject to, at Ally's option and subject to Ally having obtained any required regulatory approvals, Ally may,
subject to certain conditions, redeem the Series G Preferred Stock, in whole or in part, at any time or from time to time, upon proper notice
given, at a redemption price equal to the liquidation amount plus the amount of any accrued and unpaid dividends thereon through the date of
redemption. The Series G Preferred Stock generally is nonvoting other than class-voting on certain matters under certain circumstances
including generally, the authorization of senior capital stock or amendments that adversely impact the Series G Preferred Stock. Ally is
generally prohibited from making any Restricted Payments on or prior to January 1, 2014, and may only make Restricted Payments after
January 1, 2014, if certain conditions are satisfied. For this purpose, Restricted Payments include, subject to certain exceptions, any dividend
payment or distribution of assets on any common stock or any redemption, purchase, or other acquisition of any shares of common stock.
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Ally Financial Inc. • Form 10-K
The following table summarizes information about our Series F-2, Series A, and Series G preferred stock.
December 31,
2012
2011
Mandatorily convertible preferred stock held by U.S. Department of Treasury
Series F-2 preferred stock (a)
Carrying value ($ in millions)
Par value (per share)
Liquidation preference (per share)
Number of shares authorized
Number of shares issued and outstanding
Dividend/coupon
Redemption/call feature
Preferred stock
Series A preferred stock
Carrying value ($ in millions)
Par value (per share)
Liquidation preference (per share)
Number of shares authorized
Number of shares issued and outstanding
Dividend/coupon
Prior to May 15, 2016
On and after May 15, 2016
Redemption/call feature
Series G preferred stock (d)
Carrying value ($ in millions)
Par value (per share)
Liquidation preference (per share)
Number of shares authorized
Number of shares issued and outstanding
Dividend/coupon
Redemption/call feature
$
5,685
$
0.01
50
228,750,000
118,750,000
5,685
0.01
50
228,750,000
118,750,000
9%
9%
Perpetual (b)
Perpetual (b)
$
1,021
$
0.01
25
160,870,560
40,870,560
1,021
0.01
25
160,870,560
40,870,560
8.5%
8.5%
three month
LIBOR + 6.243%
three month
LIBOR + 6.243%
Perpetual (c)
Perpetual (c)
$
$
234
0.01
1,000
2,576,601
2,576,601
234
0.01
1,000
2,576,601
2,576,601
7%
7%
Perpetual (e)
Perpetual (e)
(a) Mandatorily convertible to common equity on December 30, 2016.
(b) Convertible prior to mandatory conversion date with consent of Treasury.
(c) Nonredeemable prior to May 15, 2016.
(d) Pursuant to a registration rights agreement, we are required to maintain an effective shelf registration statement. In the event we fail to meet this
obligation, we may be required to pay additional interest to the holders of the Series G Preferred Stock.
(e) Redeemable beginning at December 31, 2011.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
19. Accumulated Other Comprehensive Income (Loss)
The following table presents changes, net of tax, in each component of accumulated other comprehensive income (loss).
($ in millions)
Balance at January 1, 2010
2010 net change
Balance at December 31, 2010
2011 net change
Balance at December 31, 2011
2012 net change
Unrealized
gains (losses)
on
investment
securities (a)
Translation
adjustments
and net
investment
hedges
Cash flow
hedges
Defined
benefit
pension
plans
Accumulated
other
comprehensive
income (loss)
$
151
$
433
$
(27) $
(97) $
(177)
(26)
(88)
(114)
190
(17)
416
(64)
352
16
33
6
—
6
(4)
(40)
(137)
(20)
(157)
22
460
(201)
259
(172)
87
224
311
Balance at December 31, 2012
$
76
$
368
$
2
$
(135) $
(a) Represents the after-tax difference between the fair value and amortized cost of our available-for-sale securities portfolio.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents the before- and after-tax changes in each component of accumulated other comprehensive income (loss).
December 31, ($ in millions)
2012
Unrealized gains (losses) on investment securities
Net unrealized gains arising during the period
Less: Net realized gains reclassified to net income (a)
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Cash flow hedges
Net unrealized losses arising during the period
Defined benefit pension plans
Net losses, prior service costs, and transition obligation arising during the period
Less: Net losses, prior service costs, and transition obligations reclassified to net income
Net change
Other comprehensive income
2011
Unrealized gains (losses) on investment securities
Net unrealized gains arising during the period
Less: Net realized gains reclassified to net income (b)
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Defined benefit pension plans
Net losses, prior service costs, and transition obligation arising during the period
Less: Net losses, prior service costs, and transition obligations reclassified to net income
Net change
Other comprehensive loss
2010
Unrealized gains on investment securities
Net unrealized gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Cash flow hedges
Net unrealized gains arising during the period
Defined benefit pension plans
Before Tax Tax Effect
After Tax
$
$
$
$
$
$
377
174
203
(46) $
(33)
(13)
182
(270)
(88)
(7)
(55)
(95)
40
148
213
296
(83)
(238)
173
(65)
$
$
(25)
(12)
(13)
(161) $
$
317
506
(189)
178
(182)
(4)
35
2
102
104
3
19
37
(18)
76
$
(17) $
(12)
(5)
1
—
1
(2)
5
(7)
(11) $
$
3
(9)
12
(13)
—
(13)
(2)
331
141
190
184
(168)
16
(4)
(36)
(58)
22
224
196
284
(88)
(237)
173
(64)
(27)
(7)
(20)
(172)
320
497
(177)
165
(182)
(17)
33
Net losses, prior service costs, and transition obligation arising during the period
Less: Net losses, prior service costs, and transition obligations reclassified to net income
Net change
(59)
(19)
(40)
(201)
Includes gains of $28 million at December 31, 2012, classified as income (loss) from discontinued operations, net of tax, in our Consolidated Statement of
Income.
Includes gains of $2 million at December 31, 2011, classified as income (loss) from discontinued operations, net of tax, in our Consolidated Statement of
Income.
(45)
(14)
(31)
(189) $
Other comprehensive loss
(a)
(14)
(5)
(9)
(12) $
(b)
$
162
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
20. Earnings per Common Share
The following table presents the calculation of basic and diluted earnings per common share.
Year ended December 31, ($ in millions except per share data)
2012
2011
2010
Net income (loss) from continuing operations
Preferred stock dividends — U.S. Department of Treasury
Preferred stock dividends
Impact of preferred stock conversion or amendment (a)
Net loss from continuing operations attributable to common shareholders (b)
Income from discontinued operations, net of tax
Net income (loss) attributable to common shareholders
Basic weighted-average common shares outstanding
Diluted weighted-average common shares outstanding (b)
Basic earnings per common share
Net loss from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Diluted earnings per common share (b)
Net loss from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
$
529
$
(1,002) $
(535)
(267)
—
(273)
667
394
(534)
(260)
32
(1,764)
845
$
(919) $
1,330,970
1,330,970
1,330,970
1,330,970
288
(963)
(282)
(616)
(1,573)
741
(832)
800,597
800,597
(205) $
(1,326) $
(1,965)
501
296
635
926
$
(691) $
(1,039)
(205) $
(1,326) $
(1,965)
501
296
635
926
$
(691) $
(1,039)
$
$
$
$
$
(a) Refer to Note 18 for further detail.
(b) Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss from
continuing operations attributable to common shareholders for 2012, 2011, and 2010, respectively, loss from continuing operations attributable to
common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
The effects of converting the outstanding Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares are not
included in the diluted earnings per share calculation for the years ended December 31, 2012, 2011, and 2010, respectively, as the effects
would be antidilutive for those periods. As such, 574 thousand of potential common shares were excluded from the diluted earnings per share
calculation for the years ended December 31, 2012 and 2011, respectively, and 987 thousand of potential common shares were excluded from
the diluted earnings per share calculation for the year ended December 31, 2010.
21. Regulatory Capital and Other Regulatory Matters
As a bank holding company, we and our wholly owned state-chartered banking subsidiary, Ally Bank, are subject to risk-based capital
and leverage guidelines issued by federal and state banking regulators that require that our capital-to-assets ratios meet certain minimum
standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by
regulators that, if undertaken, could have a direct material effect on the consolidated financial statements or the results of operations and
financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we
must meet specific capital guidelines that involve quantitative measures of our assets and certain off-balance sheet items. Our capital amounts
and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
The risk-based capital ratios are determined by allocating assets and specified off-balance sheet financial instruments into several broad
risk categories with higher levels of capital being required for the categories that present greater risk. Under the guidelines, total capital is
divided into two tiers: Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common equity, minority interests, qualifying
noncumulative preferred stock, and the fixed rate cumulative preferred stock sold to Treasury under the Troubled Asset Relief Program
(TARP), less goodwill and other adjustments. Tier 2 capital generally consists of perpetual preferred stock not qualifying as Tier 1 capital,
limited amounts of subordinated debt and the allowance for loan losses, and other adjustments. The amount of Tier 2 capital may not exceed
the amount of Tier 1 capital.
Total risk-based capital is the sum of Tier 1 and Tier 2 capital. Under the guidelines, banking organizations are required to maintain a
minimum Total risk-based capital ratio (Total capital to risk-weighted assets) of 8% and a Tier 1 risk-based capital ratio (Tier 1 capital to risk-
weighted assets) of 4%.
The federal banking regulators also have established minimum leverage ratio guidelines. The leverage ratio is defined as Tier 1 capital
divided by adjusted quarterly average total assets (which reflect adjustments for disallowed goodwill and certain intangible assets). The
minimum Tier 1 leverage ratio is 3% or 4% depending on factors specified in the regulations.
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Ally Financial Inc. • Form 10-K
A banking institution meets the regulatory definition of “well-capitalized” when its Total risk-based capital ratio equals or exceeds 10%
and its Tier 1 risk-based capital ratio equals or exceeds 6%; and for insured depository institutions, when its leverage ratio equals or exceeds
5%, unless subject to a regulatory directive to maintain higher capital levels.
The banking regulators have also developed a measure of capital called “Tier 1 common” defined as Tier 1 capital less noncommon
elements, including qualifying perpetual preferred stock, minority interest in subsidiaries, trust preferred securities, and mandatory
convertible preferred securities. Tier 1 common is used by banking regulators, investors and analysts to assess and compare the quality and
composition of Ally's capital with the capital of other financial services companies. Also, bank holding companies with assets of $50 billion
or more, such as Ally, must develop and maintain a capital plan annually, and among other elements, the capital plan must include a
discussion of how we will maintain a pro forma Tier 1 common ratio (Tier 1 common to risk-weighted assets) above 5% under expected
conditions and certain stressed scenarios.
On October 29, 2010, Ally, IB Finance Holding Company, LLC, Ally Bank, and the FDIC entered into a Capital and Liquidity
Maintenance Agreement (CLMA). The CLMA requires capital at Ally Bank to be maintained at a level such that Ally Bank's leverage ratio is
at least 15%. For this purpose, the leverage ratio is determined in accordance with the FDIC's regulations related to capital maintenance.
The following table summarizes our capital ratios.
December 31, ($ in millions)
Amount
Ratio
Amount
Ratio
2012
2011
Required
minimum
Well-
capitalized
minimum
Risk-based capital
Tier 1 (to risk-weighted assets)
Ally Financial Inc.
Ally Bank
Total (to risk-weighted assets)
Ally Financial Inc.
Ally Bank
Tier 1 leverage (to adjusted quarterly average
assets) (a)
Ally Financial Inc.
Ally Bank
Tier 1 common (to risk-weighted assets)
$
20,232
13.13% $
21,067
14,136
16.26
12,953
$
21,669
14.07% $
22,664
14,827
17.06
13,675
13.65%
17.42
14.69%
18.40
4.00%
4.00
8.00%
8.00
6.00%
6.00
10.00%
10.00
$
20,232
11.16% $
21,067
11.45% 3.00–4.00%
(b)
14,136
15.30
12,953
15.50
15.00
(c)
5.00%
Ally Financial Inc.
Ally Bank
$
10,749
6.98% $
11,585
n/a
n/a
n/a
7.51%
n/a
n/a
n/a
n/a
n/a
n/a = not applicable
(a) Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology.
(b) There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.
(c) Ally Bank, in accordance with the CLMA, is required to maintain a Tier 1 leverage ratio of at least 15%.
At December 31, 2012, Ally and Ally Bank were “well-capitalized” and met all capital requirements to which each was subject.
Basel Capital Accord and Other Regulatory Matters
In June 2012, the U.S. federal banking agencies released three notices of proposed rulemaking (NPRs) and a Market Risk Final Rule
(effective January 1, 2013). The three NPRs represent substantial revisions to the regulatory capital rules for banking organizations. If
adopted, as proposed, these NPRs would incorporate the international Basel III capital framework, as well as implement certain provisions of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). On August 8, 2012, the federal banking agencies
extended the public comment period on the NPRs to October 22, 2012.
Highlights of the NPRs include a revised definition of capital in order to implement the Basel III reforms as well as higher minimum
capital ratios that will apply to most banking organizations and would be phased in between 2013 and 2019 consistent with the Basel
Committee's international implementation time line. The NPRs remove the use of credit ratings from both the standardized and advanced
approaches, as required by the Dodd-Frank Act. In addition, the standards in the existing Basel I risk-based capital rules, which the NPRs
refer to as the “general risk-based capital requirements,” would be revised, effective January 1, 2015, to include a more risk-sensitive risk-
weighting approach. On November 9, 2012, the federal banking agencies announced that the Basel III proposals would not become effective
on January 31, 2013.
The Market Risk Final Rule, which amends the calculation of market risk capital, only applies to banking organizations with significant
trading assets and liabilities. We do not currently meet the minimum requirements for application of the Market Risk Rule; accordingly, this
rule is not currently applicable to us.
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Ally Financial Inc. • Form 10-K
Compliance with evolving capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable
requirements within the established timeframes.
International Banks, Finance Companies, and Other Foreign Operations
Certain of our foreign subsidiaries operate in local markets as either banks or regulated finance companies and are subject to regulatory
restrictions. These regulatory restrictions, among other things, require that our subsidiaries meet certain minimum capital requirements and
may restrict dividend distributions and ownership of certain assets. Total assets of our regulated international banks and finance companies
were approximately $15.3 billion and $13.6 billion at December 31, 2012 and 2011, respectively. In addition, the Bank Holding Company Act
of 1956 imposes restrictions on Ally's ability to invest equity abroad without FRB approval. Many of our other operations are also heavily
regulated in many jurisdictions outside the United States.
Depository Institutions
Ally Bank is a state nonmember bank, chartered by the State of Utah, and subject to the supervision of the FDIC and the Utah
Department of Financial Institutions. Ally Bank's deposits are insured by the FDIC, and Ally Bank is required to file periodic reports with the
FDIC concerning its financial condition. Total assets of Ally Bank were $94.8 billion and $85.3 billion at December 31, 2012 and 2011,
respectively. Ally Bank is subject to Utah law (and, in certain instances, federal law) that places restrictions and limitations on the amount of
dividends or other distributions. Ally Bank did not make any dividend or other distributions to Ally in 2012 or 2011.
The FRB requires banks to maintain minimum average reserve balances. The amount of the required reserve balance for Ally Bank was
$214 million and $205 million at December 31, 2012 and 2011, respectively.
U.S. Mortgage Business
Our U.S. mortgage business is subject to extensive federal, state, and local laws, rules, and regulations, in addition to judicial and
administrative decisions that impose requirements and restrictions on this business. As a Federal Housing Administration-approved lender,
certain of our U.S. mortgage subsidiaries are required to submit audited financial statements to the Department of Housing and Urban
Development on an annual basis. The U.S. mortgage business is also subject to examination by the Federal Housing Commissioner to assure
compliance with Federal Housing Administration regulations, policies, and procedures. The federal, state, and local laws, rules, and
regulations to which our U.S. mortgage business is subject, among other things, impose licensing obligations and financial requirements; limit
the interest rates, finance charges, and other fees that can be charged; regulate the use of credit reports and the reporting of credit information;
impose underwriting requirements; regulate marketing techniques and practices; require the safeguarding of nonpublic information about
customers; and regulate servicing practices, including the assessment, collection, foreclosure, claims handling, and investment and interest
payments on escrow accounts.
Certain of our mortgage subsidiaries are required to satisfy regulatory net worth requirements. Failure to meet minimum capital
requirements can initiate certain mandatory actions by federal, state, and foreign agencies that could have a material effect on our results of
operations and financial condition. These entities were in compliance with these requirements at December 31, 2012.
Insurance Companies
Our Insurance operations are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions under
applicable state and foreign insurance law, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies. Under
various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus, with approvals
required from the regulatory authorities for dividends in excess of certain statutory limitations. At December 31, 2012, the maximum dividend
that could be paid by the U.S. insurance subsidiaries over the next twelve months without prior statutory approval was $118 million.
22. Derivative Instruments and Hedging Activities
We enter into interest rate and foreign-currency swaps, futures, forwards, options, and swaptions in connection with our market risk
management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities,
including investment securities, MSRs, and debt. In addition, we use foreign exchange contracts to mitigate foreign-currency risk associated
with foreign-currency-denominated investment securities, foreign-currency-denominated debt, foreign exchange transactions, and our net
investment in foreign subsidiaries. Our primary objective for utilizing derivative financial instruments is to manage market risk volatility
associated with interest rate and foreign-currency risks related to the assets and liabilities.
Interest Rate Risk
We execute interest rate swaps to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate
and certain variable-rate instruments to a fixed rate. We monitor our mix of fixed- and variable-rate debt in relation to the rate profile of our
assets. When it is cost-effective to do so, we may enter into interest rate swaps to achieve our desired mix of fixed- and variable-rate debt.
Derivatives qualifying for hedge accounting consist of fixed-rate debt obligations in which receive-fixed swaps are designated as hedges of
specific fixed-rate debt obligations. Other derivatives qualifying for hedge accounting consist of an existing variable-rate liability in which
pay-fixed swaps are designated as hedges of the expected future cash flows in the form of interest payments on the outstanding borrowing
associated with Ally Bank's secured floating-rate credit facility.
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Ally Financial Inc. • Form 10-K
We enter into economic hedges to mitigate exposure for the following categories.
• MSRs — Our MSRs are generally subject to loss in value when mortgage rates decline. Declining mortgage rates generally result in
an increase in refinancing activity that increases prepayments and results in a decline in the value of MSRs. To mitigate the impact
of this risk, we maintain a portfolio of financial instruments, primarily derivative instruments that increase in value when interest
rates decline. The primary objective is to minimize the overall risk of loss in the value of MSRs due to the change in fair value
caused by interest rate changes.
We may use a multitude of derivative instruments to manage the interest rate risk related to MSRs. They include, but are not
limited to, interest rate futures contracts, call or put options on U.S. Treasuries, swaptions, forward sales of MBS, futures, interest
rate swaps, interest rate floors, and interest rate caps. We monitor and actively manage our risk on a daily basis.
• Mortgage loan commitments and mortgage and automobile loans held-for-sale — We are exposed to interest rate risk from the
time an interest rate lock commitment (IRLC) is made until the time the mortgage loan is sold. Changes in interest rates impact the
market price for our loans; as market interest rates decline, the value of existing IRLCs and loans held-for-sale increase and vice
versa. Our primary objective in risk management activities related to IRLCs and mortgage loans held-for-sale is to eliminate or
greatly reduce any interest rate risk associated with these items.
The primary derivative instrument we use to accomplish the risk management objective for mortgage loans and IRLCs is
forward sales of MBS, primarily Fannie Mae or Freddie Mac to-be-announced securities. These instruments typically are entered
into at the time the IRLC is made. The value of the forward sales contracts moves in the opposite direction of the value of our
IRLCs and mortgage loans held-for-sale. We also use other derivatives, such as interest rate swaps, options, and futures, to
economically hedge automobile loans held-for-sale and certain portions of the mortgage portfolio. Nonderivative instruments, such
as short positions of U.S. Treasuries, may also be periodically used to economically hedge the mortgage portfolio.
• Debt — With the exception of a portion of our fixed-rate debt and a portion of our outstanding floating-rate borrowing associated
with Ally Bank's secured floating-rate credit facility, we do not apply hedge accounting to our derivative portfolio held to mitigate
interest rate risk associated with our debt portfolio. Typically, the significant terms of the interest rate swaps match the significant
terms of the underlying debt resulting in an effective conversion of the rate of the related debt.
• Other — We enter into futures, options, and swaptions to economically hedge our net fixed versus variable interest rate exposure.
We also enter into equity options to economically hedge our exposure to the equity markets.
Foreign Currency Risk
We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to foreign-
currency financial instruments. Currency forwards are used to economically hedge foreign exchange exposure on foreign-currency-
denominated debt by converting the funding currency to the same currency of the assets being financed. Similar to our interest rate
derivatives, the derivatives are generally entered into or traded concurrent with the debt issuance with the terms of the derivative matching the
terms of the underlying debt.
Our foreign subsidiaries maintain both assets and liabilities in local currencies; these local currencies are generally the subsidiaries'
functional currencies for accounting purposes. Foreign-currency exchange-rate gains and losses arise when the assets or liabilities of our
subsidiaries are denominated in currencies that differ from its functional currency. In addition, our equity is impacted by the cumulative
translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other
comprehensive income (loss). We enter into foreign-currency forwards and option-based contracts with external counterparties to hedge
foreign exchange exposure on our net investments in foreign subsidiaries. In March 2011, we elected to dedesignate all of our existing net
investment hedge relationships and changed our method of measuring hedge effectiveness from the spot method to the forward method for
new hedge relationships entered into prospectively. For the net investment hedges that were designated under the spot method up until
dedesignation date, the hedges were recorded at fair value with changes recorded to accumulated other comprehensive income (loss) with the
exception of the spot to forward difference that was recorded to earnings. For current net investment hedges designated under the forward
method, the hedges are recorded at fair value with the changes recorded to accumulated other comprehensive income (loss) including the spot
to forward difference. The net derivative gain or loss remains in accumulated other comprehensive income (loss) until earnings are impacted
by the sale or the liquidation of the associated foreign operation.
We also have a centralized-lending program to manage liquidity for all of our subsidiary businesses. Foreign-currency-denominated loan
agreements are executed with our foreign subsidiaries in their local currencies. We evaluate our foreign-currency exposure resulting from
intercompany lending and manage our currency risk exposure by entering into foreign-currency derivatives with external counterparties. Our
foreign-currency derivatives are recorded at fair value with changes recorded as income offsetting the gains and losses on the associated
foreign-currency transactions.
We also periodically purchase nonfunctional currency denominated investment securities and enter into foreign-currency forward
contracts with external counterparties to hedge against changes in the fair value of the securities, through maturity, due to changes in the
related foreign-currency exchange rate. The foreign-currency forward contracts are recorded at fair value with changes recorded to earnings.
The changes in value of the securities due to changes in foreign-currency exchange rates are also recorded to earnings. In the case of
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
securities classified as available-for-sale, any changes in fair value due to unhedged risks are recorded to accumulated other comprehensive
income.
Except for our net investment hedges and fair value foreign-currency hedges of available-for-sale securities, we generally have not
elected to treat any foreign-currency derivatives as hedges for accounting purposes principally because the changes in the fair values of the
foreign-currency swaps are substantially offset by the foreign-currency revaluation gains and losses of the underlying assets and liabilities.
Counterparty Credit Risk
Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit
risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the
contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral as measured by the
market value of the derivative financial instrument.
To mitigate the risk of counterparty default, we maintain collateral agreements with certain counterparties. The agreements require both
parties to maintain collateral in the event the fair values of the derivative financial instruments meet established thresholds. In the event that
either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that
we and the counterparty post collateral for the value of our total obligation to each other. Contractual terms provide for standard and
customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional
collateral when their obligation rises or removes collateral when it falls. We also have unilateral collateral agreements whereby we are the
only entity required to post collateral.
Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding
liability balances upon the occurrence of a specified credit risk-related event. If a credit risk-related event had been triggered the amount of
additional collateral required to be posted by us would have been insignificant.
We placed cash and securities collateral totaling $1.3 billion and $1.4 billion at December 31, 2012 and 2011, respectively, in accounts
maintained by counterparties. We received cash collateral from counterparties totaling $941 million and $1.4 billion at December 31, 2012
and 2011, respectively. The receivables for collateral placed and the payables for collateral received are included on our Consolidated Balance
Sheet in other assets and accrued expenses and other liabilities, respectively. In certain circumstances, we receive or post securities as
collateral with counterparties. We do not record such collateral received on our Consolidated Balance Sheet unless certain conditions are met.
At December 31, 2012 and 2011, we received noncash collateral of $0.3 million and $43 million, respectively.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Balance Sheet Presentation
The following table summarizes the fair value amounts of derivative instruments reported on our Consolidated Balance Sheet. The fair
value amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those
that are not, and are further segregated by type of contract within those two categories. At December 31, 2012, $2.3 billion of the derivative
contracts in a receivable position were classified as other assets on the Consolidated Balance Sheet. At December 31, 2011, $5.7 billion and
$14 million of the derivative contracts in a receivable position were classified as other assets and trading assets, respectively, on the
Consolidated Balance Sheet. At December 31, 2012, $2.5 billion of derivative contracts in a liability position were classified as accrued
expenses and other liabilities on the Consolidated Balance Sheet. At December 31, 2011, $5.4 billion of derivative contracts in a liability
position and $12 million of trading derivatives were both classified as accrued expenses and other liabilities on the Consolidated Balance
Sheet.
December 31, ($ in millions)
Derivatives qualifying for hedge accounting
Interest rate risk
Fair value accounting hedges
Cash flow accounting hedges
Total interest rate risk
Foreign exchange risk
Net investment accounting hedges
Total derivatives qualifying for hedge accounting
Economic hedges and trading derivatives
Interest rate risk
MSRs
Mortgage loan commitments and mortgage
loans held-for-sale
Debt
Other
Total interest rate risk
Foreign exchange risk
Total economic hedges and trading derivatives
2012
2011
Derivative contracts in a
Derivative contracts in a
receivable
position (a)
payable
position (b)
Notional
amount
receivable
position (a)
payable
position (b)
Notional
amount
$
411
$
— $
7,248
$
289
$
—
411
35
446
10
10
53
63
2,580
9,828
8,693
18,521
4
293
123
416
$
4
—
4
54
58
8,398
3,000
11,398
8,208
19,606
1,616
2,299
146,405
4,812
5,012
523,037
49
28
154
1,847
5
1,852
23
29
27
2,378
27
2,405
9,617
17,716
41,514
215,252
2,464
217,716
95
81
160
5,148
137
5,285
107
54
101
5,274
47
5,321
24,950
25,934
42,142
616,063
7,569
623,632
Total derivatives
$
2,298
$
2,468
$
236,237
$
5,701
$
5,379
$
643,238
(a)
(b)
Includes accrued interest of $175 million and $459 million at December 31, 2012 and 2011, respectively.
Includes accrued interest of $144 million and $458 million at December 31, 2012 and 2011, respectively.
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Ally Financial Inc. • Form 10-K
Comprehensive Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments reported in our Consolidated
Statement of Comprehensive Income.
Year ended December 31, ($ in millions)
Derivatives qualifying for hedge accounting
Gain recognized in earnings on derivatives (a)
Interest rate contracts
Interest on long-term debt
Foreign exchange contracts
Other income, net of losses
Loss recognized in earnings on hedged items (b)
Interest rate contracts
Interest on long-term debt
Foreign exchange contracts
Other income, net of losses
Total derivatives qualifying for hedge accounting
Economic and trading derivatives
(Loss) gain recognized in earnings on derivatives
Interest rate contracts
Interest on long-term debt
Servicing asset valuation and hedge activities, net
Loss on mortgage and automotive loans, net
Other income, net of losses
Other operating expenses
Total interest rate contracts
Foreign exchange contracts (c)
Interest on long-term debt
Other income, net of losses
Other operating expenses
Total foreign exchange contracts
Gain recognized in earnings on derivatives
2012
2011
2010
$
164
$
892
$
161
—
35
—
(193)
(848)
(119)
—
(29)
(35)
44
—
42
(3)
669
(125)
(18)
—
523
(39)
(48)
2
(85)
(3)
817
(727)
(70)
—
17
61
17
(21)
57
$
409
$
118
$
—
478
(332)
(102)
(9)
35
(127)
158
—
31
108
(a) Amounts exclude gains related to interest for qualifying accounting hedges of debt, which are primarily offset by the fixed coupon payment on the long-
term debt. The gains were $123 million, $257 million, and $322 million for the years ended December 31, 2012, 2011, and 2010, respectively.
(b) Amounts exclude gains related to amortization of deferred basis adjustments on the hedged items. The gains were $231 million, $229 million, and $164
million for the years ended December 31, 2012, 2011, and 2010, respectively.
(c) Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or receivable. Gains of $75 million, and losses of $77
million and $53 million, were recognized for the years ended December 31, 2012, 2011, and 2010, respectively.
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Ally Financial Inc. • Form 10-K
The following table summarizes derivative instruments used in cash flow and net investment hedge accounting relationships.
Year ended December 31, ($ in millions)
2012
2011
2010
Cash flow hedges
Interest rate contracts
Gain reclassified from accumulated other comprehensive income to interest on long-term
debt
(Loss) gain recorded directly to interest on long-term debt
Total interest on long-term debt
(Loss) gain recognized in other comprehensive income
Net investment hedges
Foreign exchange contracts
(Loss) gain reclassified from accumulated other comprehensive income to other income,
net of losses
Loss recorded directly to other income, net of losses (a)
Total other income, net of losses
(Loss) gain recognized in other comprehensive income (b)
$
$
$
$
$
$
1
$
(7)
(6) $
(7) $
— $
5
5
$
(1) $
—
—
—
4
(1) $
—
(1) $
(270) $
(8) $
(3)
(11) $
173
$
12
(18)
(6)
(183)
(a) The amounts represent the forward points excluded from the assessment of hedge effectiveness.
(b) The amounts represent the effective portion of net investment hedges. There are offsetting amounts recognized in accumulated other comprehensive
income related to the revaluation of the related net investment in foreign operations. There were gains of $285 million, losses of $237 million, and gains
of $187 million for the years ended December 31, 2012, 2011, and 2010, respectively.
23. Income Taxes
The following table summarizes income (loss) from continuing operations before income tax expense.
Year ended December 31, ($ in millions)
U.S. (loss) income
Non-U.S. income (loss)
(Loss) income from continuing operations before income tax expense
2012
2011
2010
$
$
(773) $
(834) $
18
(117)
(755) $
(951) $
443
(51)
392
The significant components of income tax expense from continuing operations were as follows.
Year ended December 31, ($ in millions)
Current income tax (benefit) expense
U.S. federal
Foreign
State and local
Total current (benefit) expense
Deferred income tax (benefit) expense
U.S. federal
Foreign
State and local
Total deferred benefit
2012
2011
2010
$
— $
(24)
10
(14)
(1,058)
25
(237)
(1,270)
$
18
26
12
56
—
(5)
—
(5)
23
36
58
117
(6)
—
(7)
(13)
104
Total income tax (benefit) expense from continuing operations
$
(1,284) $
51
$
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Ally Financial Inc. • Form 10-K
A reconciliation of the (benefit) provision for income taxes with the amounts at the statutory U.S. federal income tax rate is shown in the
following table.
Year ended December 31, ($ in millions)
Statutory U.S. federal tax (benefit) expense
Change in tax resulting from
Effect of valuation allowance change
State and local income taxes, net of federal income tax benefit
Tax Credits
Changes in unrecognized tax benefits
Foreign tax differential
Non-deductible expenses
Other, net
Tax (benefit) expense
2012
2011
2010
$
(264) $
(333) $
137
(984)
(71)
(45)
(7)
2
64
21
339
(124)
7
(3)
(5)
31
8
7
2
—
54
(20)
4
51
104
$
(1,284) $
51
$
As discussed in Note 1, on May 14, 2012, we deconsolidated ResCap for financial reporting purposes. For U.S. federal tax purposes,
however, ResCap will continue to be included in our consolidated return filing until ultimate disposition of our ownership in ResCap. Given
that the Debtors are disregarded entities for U.S. tax purposes, there should not be a reduction to our net deferred tax assets as a result of the
Bankruptcy filing.
Our income tax (benefit) expense from continuing operations has not naturally corresponded with our (loss) income from continuing
operations before income tax for the years ended December 31, 2012, 2011, and 2010, given we had U.S. and foreign valuation allowance
movements during those years. For 2012, consolidated income tax benefit from continuing operations of $1.3 billion is largely driven by a
release of a portion of our U.S. valuation allowance.
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future
realization of deferred tax assets. As of December 31, 2012, we determined that positive evidence existed to conclude that it is more likely
than not that ordinary-in-character deferred tax assets are realizable, and therefore, we reduced the valuation allowance accordingly. Positive
evidence in this assessment consisted of forecasts of future taxable income that are sufficient to realize net operating loss carryforwards
before their expiration, coupled with our emergence from a cumulative three-year U.S. pretax loss (after removing the effects of non-recurring
charges and discontinued operations). Certain U.S. deferred tax assets remain offset with a valuation allowance as discussed below.
We believe it is more likely than not that the benefit for certain U.S. net operating loss, capital loss, and foreign tax credit carryforwards
will not be realized. In recognition of this risk, we have provided a valuation allowance of $1.6 billion on the deferred tax assets relating to
these carryforwards. In particular, the deferred tax assets and liabilities as of December 31, 2012, reflect the U.S. income tax effects of the
anticipated sale of entities held-for-sale at net book value. In concluding to maintain a valuation allowance against our capital loss
carryforwards, we considered the positive evidence that we have entered into agreements to sell our held-for-sale entities for amounts in
excess of book value. We also considered and ultimately weighted more heavily the negative evidence that we have historically had difficulty
generating significant capital gains; capital loss carryforwards have a relatively short carryforward period; the timing of disposal of the held-
for-sale entities is uncertain; and the disposal of the held-for-sale entities are subject to various levels of regulatory approval in numerous
countries. Successful completion during 2013 of the sales of entities currently held-for-sale may result in capital gains that would allow us to
realize capital loss carryforwards. A related reversal of valuation allowance on these deferred tax assets would be recognized as an income tax
benefit upon such utilization.
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Ally Financial Inc. • Form 10-K
The significant components of deferred tax assets and liabilities are reflected in the following table.
December 31, ($ in millions)
Deferred tax assets
Tax credit carryforwards
Tax loss carryforwards
Mark-to-market on consumer finance receivables and loans
Equity investment in ResCap
Provision for loan losses
Hedging transactions
State and local taxes
ResCap settlement accrual
Sales of finance receivables and loans
Unearned insurance premiums
Contingency reserves
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Lease transactions
Basis difference in subsidiaries
Deferred acquisition costs
Debt transactions
Unrealized gains on securities
Other
Gross deferred tax liabilities
Net deferred tax assets
2012
2011
$
1,631
$
1,025
161
1,976
880
486
306
267
263
262
206
142
19
247
695
—
775
280
186
—
182
158
169
568
5,734
(1,653)
4,081
5,150
(2,274)
2,876
1,756
2,052
454
333
226
16
112
2,897
$
1,184
$
—
328
32
180
157
2,749
127
At December 31, 2012, we had U.S. federal and state net operating loss carryforwards and capital loss carryforwards. The federal net
operating loss carryforwards of $668 million expire in the years 2025–2031. The federal capital loss carryforwards of $2.2 billion expire in
the years 2014–2017. The corresponding expiration periods for the state net operating loss carryforwards of $1.7 billion and capital loss
carryforwards of $3.1 billion are 2014–2032 and 2014–2017, respectively. Additionally, U.S. foreign tax credit carryforwards of $1.6 billion
are available as of December 31, 2012, and expire in the years 2013–2022.
Foreign pretax income is subject to U.S. taxation when effectively repatriated. Before the third quarter of 2012, we fully provided for
federal income taxes on the undistributed earnings of foreign subsidiaries except to the extent those earnings were indefinitely reinvested
outside the United States. As of December 31, 2012, however, we no longer assert that any foreign earnings are indefinitely reinvested outside
of the United States. This change in assertion is primarily due to the fact that agreements to sell our international operations were signed
during the fourth quarter of 2012. These sales will be taxable in the United States in future periods and will result in the effective repatriation
of foreign earnings. As a result of this change in assertion, all deferred tax liabilities for incremental U.S. tax that stem from temporary
differences related to investments in foreign subsidiaries or foreign corporate joint ventures have been recognized as of December 31, 2012.
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Ally Financial Inc. • Form 10-K
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits.
($ in millions)
Balance at January 1,
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Expiration of statute of limitations
Foreign-currency translation adjustments
Deconsolidation of ResCap and discontinued operations
Balance at December 31,
2012
2011
2010
$
198
$
214
$
14
2
(4)
(17)
(4)
(5)
(82)
11
20
(3)
(35)
—
(9)
—
172
69
3
(23)
(9)
(2)
4
—
$
102
$
198
$
214
Included in the unrecognized tax benefits balances are some items, the recognition of which would not affect the effective tax rate, such
as the tax effect of certain temporary differences and the portion of gross state unrecognized tax benefits that would be offset by the tax
benefit of the associated federal deduction. At December 31, 2012, 2011, and 2010, the balance of unrecognized tax benefits that, if
recognized, would affect our effective tax rate is $84 million, $179 million, and $199 million, respectively.
We recognize accrued interest and penalties related to uncertain income tax positions in interest expense and other operating expenses,
respectively. For the years ended December 31, 2012, 2011, and 2010, $1 million, $1 million, and $1 million, respectively, were accrued for
interest and penalties with the cumulative accrued balance totaling $7 million at December 31, 2012, $178 million at December 31, 2011, and
$201 million at December 31, 2010.
We anticipate the examination of various U.S. income tax returns along with the examinations by various foreign, state, and local
jurisdictions will be completed within the next twelve months. As such, it is reasonably possible that certain tax positions may be settled and
the unrecognized tax benefits would decrease by $22 million, which includes interest and penalties.
We file tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. Our most significant operations remaining
following our commitment to sell various international operations are the United States and Canada. The oldest tax years that remain subject
to examination for those jurisdictions are 2009 and 2004, respectively.
24. Employee Benefit and Compensation Plans
Defined Contribution Plan
A significant number of our employees are covered by defined contribution plans. Employer contributions vary based on criteria specific
to each individual plan and amounted to $56 million, $66 million, and $58 million in 2012, 2011, and 2010, respectively. These costs were
recorded as compensation and benefits expense in our Consolidated Statement of Income. We expect contributions for 2013 to be similar to
contributions made in 2012.
Defined Benefit Pension Plan
Certain of our employees are eligible to participate in separate retirement plans that provide for pension payments upon retirement based
on factors such as length of service and salary. In recent years, we have transferred, frozen, or terminated a significant number of our other
defined benefit plans. All income and expense noted for pension accounting was recorded as compensation and benefits expense in our
Consolidated Statement of Income.
The following summarizes information related to our pension plans.
Year ended December 31, ($ in millions)
Projected benefit obligation
Fair value of plan assets
Underfunded status
2012
2011
$
$
$
355
214
528
398
(141) $
(130)
The underfunded position is recognized on the Consolidated Balance Sheet and the change in the underfunded position was recorded in
other comprehensive income (loss).
Defined Benefit Pension Plan Actions
GMAC Mortgage Group LLC, our wholly owned subsidiary, sponsors a defined benefit pension plan (the GMACM Pension Plan) for
which the accrual of additional benefits were previously frozen. The GMACM Pension Plan primarily covers former employees of certain
discontinued or non-core businesses of our Mortgage and Insurance operations. In October 2012, we entered into an agreement under which
the GMACM Pension Plan purchased a group annuity contract from a third-party insurance company that requires the insurance company to
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Ally Financial Inc. • Form 10-K
pay and administer all future annuity payments to the current retiree population of the GMACM Pension Plan (retired as of September 1,
2012) beginning on January 1, 2013. Additionally, during the fourth quarter the GMACM Pension Plan completed a program whereby we
offered voluntary lump-sum distributions to terminated employees with vested benefits. In connection with these combined actions we
recorded a settlement loss of $95 million.
Other Postretirement Benefits
Certain of our subsidiaries participated in various postretirement medical, dental, vision, and life insurance plans. We have provided for
certain amounts associated with estimated future postretirement benefits other than pensions and characterized such amounts as other
postretirement benefits. Other postretirement benefits expense (income), which is recorded in compensation and benefits expense in our
Consolidated Statement of Income, was minimal in 2012, 2011, and 2010. We expect our other postretirement benefit expense to continue to
be minimal in future years.
Share-based Compensation Plans
Based on our transactions with Treasury during 2009, we are required to comply with the limitations on executive pay as determined by
the Special Master of TARP Compensation (Special Master). We have established Deferred Stock Units (DSUs) and Incentive Restricted
Stock Units (IRSUs) as forms of compensation to our senior executives, which have been approved by the Special Master. We also grant
Restricted Stock Units (RSUs) to executives under the Long-Term Equity Compensation Incentive Plan (LTIP). Each of our approved
compensation plans and awards were designed to provide our executives with an opportunity to share in the future growth in value of Ally,
which is necessary to attract and retain key executives.
Pursuant to the terms of the LTIP plan, the Ally Board of Directors determines a share price valuation for share-based compensation
awards not less than annually. The Ally Board of Directors thus determined a share price of $8,500 per share for purposes of the LTIP plan as
of December 31, 2011. A share price valuation of $9,000 per share was determined as of March 31, 2012. The valuation remained unchanged
at $9,000 per share as of December 31, 2012. The changes in award valuation resulted in an increase to compensation expense for RSU, DSU,
and IRSU awards of $5 million, $8 million, and $2 million, respectively, recognized in 2012. The impact was recorded as compensation and
benefits expense in our Consolidated Statement of Income.
RSU awards are incentive awards granted to executives as phantom shares of Ally. The majority of awards granted in 2008 and 2009 vest
ratably on an annual basis based on continued service on December 31, 2012 with the final tranche vesting on December 31, 2012.
Participants had the option at grant date to defer the valuation and payout for awards granted in 2008 and 2009. A majority of the participants
who received awards granted in 2010, 2011, and 2012 vest ratably over a three-year period starting on the date the award was issued with the
majority of the awards fully vesting in February 2013, February 2014, and February 2015, respectively. The awards require liability treatment
and are remeasured quarterly at fair value until they are paid. The compensation costs related to these awards are ratably charged to expense
over the applicable service period. Changes in fair value related to the portion of the awards that have vested and have not been paid are
recognized in earnings in the period in which the changes occur. At December 31, 2012 there were a total of 17,057 RSU award shares
outstanding, composed of 189 shares awarded during 2008, 844 shares awarded during 2009, 2,648 shares awarded during 2010, 5,956 shares
awarded during 2011, and 7,420 shares awarded during 2012. At December 31, 2011 there were a total of 26,707 RSU award shares
outstanding, composed of 3,806 shares awarded during 2008, 5,199 shares awarded during 2009, 9,281 shares awarded during 2010, and
8,421 shares awarded during 2011. We recognized compensation expense related to RSU awards of $92 million, $56 million and $63 million
for the years ended December 31, 2012, 2011 and 2010, respectively. These costs were recorded as compensation and benefits expense in our
Consolidated Statement of Income.
DSU awards are granted to senior executives as phantom shares of Ally and are included as part of their base salary. DSU awards are
generally granted ratably each pay period throughout the year, vest immediately upon grant, and are paid in cash. DSUs awarded in 2012 will
generally be redeemable in three equal installments: the first on the final payroll date of 2012, the second ratably over 2013 and the third
ratably over 2014. DSUs awarded in 2011 are generally redeemable in three equal annual installments beginning on the first anniversary of
grant. The DSU awards require liability treatment and are remeasured quarterly at fair value until they are paid, with each change in value
fully charged to compensation expense in the period in which the change occurs. At December 31, 2012 and 2011 there were a total of
13,190 and 13,743 DSU award shares outstanding, respectively. We recognized compensation expense related to DSU awards of $65 million,
$25 million and $75 million for the years ended December 31, 2012, 2011 and 2010, respectively, for the outstanding awards. These costs
were recorded as compensation and benefits expense in our Consolidated Statement of Income.
IRSU awards are incentive awards granted to senior executives as phantom shares of Ally. There were no IRSUs granted to senior
executives in 2012. IRSU awards from 2009, 2010 and 2011 generally vest in full after two years from the date of grant based on continued
service with Ally. After the vesting requirement is met, IRSU payouts will be made only as we repay our TARP obligations. Payouts will be
made in 25% increments based on the percentage of TARP obligations that have been repaid, as determined in accordance with the
established guidelines for determining "repayment".
As of December 31, 2012, Ally had repaid more than 25%, but less than 50%, of its TARP obligations. Payouts are based on the fair
value of the phantom shares at the time of the payout. The awards require liability treatment and are remeasured quarterly at fair value until
they are paid. The compensation costs related to these awards are ratably charged to expense over the requisite service period. Changes in fair
value relating to the portion of the awards that have vested and have not been paid are recognized in earnings in the period in which the
changes occur. At December 31, 2012 and 2011 there were a total of 6,475 and 7,975 IRSU award shares outstanding, respectively. We
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Ally Financial Inc. • Form 10-K
recognized compensation expense related to IRSU awards of $30 million, $14 million and $10 million for the years ended December 31,
2012, 2011 and 2010, respectively, for the outstanding awards. These costs were recorded as compensation and benefits expense in our
Consolidated Statement of Income.
25. Fair Value
Fair Value Measurements
For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a
liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement
date. Fair value is based on the assumptions market participants would use when pricing an asset or liability. Additionally, entities are required
to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.
GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest
priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e.,
unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its
valuation. The following is a description of the three hierarchy levels.
Level 1
Level 2
Level 3
Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity
must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.
Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive
markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable
market data by correlation or other means for substantially the full term of the assets or liabilities.
Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management's best
assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are
valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment
or estimation.
Transfers
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfer occurred.
There were no transfers between any levels during the year ended December 31, 2012.
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the
valuation models, key inputs to those models, and significant assumptions utilized.
•
•
Trading assets (excluding derivatives) — Trading assets were recorded at fair value. Our portfolio included MBS (including senior
and subordinated interests) that were either investment-grade, noninvestment grade, or unrated securities. Valuations were primarily
based on internally developed discounted cash flow models (an income approach) that used assumptions consistent with current
market conditions. The valuation considered recent market transactions, experience with similar securities, current business
conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilized various significant
assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment
speeds, delinquency levels, and credit losses).
Available-for-sale securities — Available-for-sale securities are carried at fair value based on observable market prices, when
available. If observable market prices are not available, our valuations are based on internally developed discounted cash flow
models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar
securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are
required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally
developed inputs (including prepayment speeds, delinquency levels, and credit losses).
• Mortgage loans held-for-sale, net — Our mortgage loans held-for-sale are accounted for at either fair value because of fair value
option elections or they were accounted for at the lower-of-cost or fair value. Mortgage loans held-for-sale are typically pooled
together and sold into certain exit markets depending on underlying attributes of the loan, such as GSE eligibility, product type,
interest rate, and credit quality. Two valuation methodologies are used to determine the fair value of mortgage loans held-for-sale.
The methodology used depends on the exit market as described below.
Level 2 mortgage loans — This includes all GSE-eligible mortgage loans carried at fair value due to fair value option
election, which are valued predominantly using published forward agency prices. It also includes any domestic loans and
foreign loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair
value) or quoted market prices for similar loans are available.
Level 3 mortgage loans — This included all conditional repurchase option loans carried at fair value due to the fair value
option election and all GSE-ineligible residential mortgage loans that were accounted for at the lower-of-cost or fair value. The
fair value of these residential mortgage loans were determined using internally developed valuation models because observable
market prices were not available. The loans were priced on a discounted cash flow basis utilizing cash flow projections from
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Ally Financial Inc. • Form 10-K
internally developed models that utilized prepayment, default, and discount rate assumptions. To the extent available, we
utilized market observable inputs such as interest rates and market spreads. If market observable inputs were not available, we
were required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates.
Refer to the section within this note titled Fair Value Option for Financial Assets and Financial Liabilities for further
information about the fair value elections.
•
Consumer mortgage finance receivables and loans, net — We elected the fair value option for certain consumer mortgage finance
receivables and loans. The elected mortgage loans collateralized on-balance sheet securitization debt in which we estimated credit
reserves pertaining to securitized assets that could have exceeded or already had exceeded our economic exposure. We also elected
the fair value option for all mortgage securitization trusts required to be consolidated. The elected mortgage loans represented a
portion of the consumer finance receivables and loans. The balance for which the fair value option was not elected was reported on
the balance sheet at the principal amount outstanding, net of charge-offs, allowance for loan losses, and premiums or discounts.
The loans were measured at fair value using a portfolio approach. The objective in fair valuing the loans and related
securitization debt was to account properly for our retained economic interest in the securitizations. As a result of reduced liquidity
in capital markets, values of both these loans and the securitized bonds were expected to be volatile. Since this approach involved
the use of significant unobservable inputs, we classified all the mortgage loans elected under the fair value option as Level 3. Refer
to the section within this note titled Fair Value Option of Financial Assets and Financial Liabilities for additional information.
• MSRs — MSRs are classified as Level 3 because there are limited MSR market transactions that are directly observable; therefore,
we use internally developed discounted cash flow models (an income approach) to estimate the fair value. These internal valuation
models estimate net cash flows based on internal operating assumptions that we believe would be used by market participants in
orderly transactions combined with market-based assumptions for loan prepayment rates, interest rates, and discount rates that we
believe approximate yields required by investors in this asset. Cash flows primarily include servicing fees, float income, and late
fees in each case less operating costs to service the loans. The estimated cash flows are discounted using an option-adjusted spread-
derived discount rate.
•
Interests retained in financial asset sales — The interests retained are in securitization trusts and deferred purchase prices on the
sale of whole-loans. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an
income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers
recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as
available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward
interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).
• Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk management strategies.
Certain of these derivatives are exchange traded, such as Eurodollar futures. To determine the fair value of these instruments, we
utilize the quoted market prices for the particular derivative contracts; therefore, we classified these contracts as Level 1.
We also execute over-the-counter derivative contracts, such as interest rate swaps, swaptions, forwards, caps, floors, and
agency to-be-announced securities. We utilize third-party-developed valuation models that are widely accepted in the market to
value these over-the-counter derivative contracts. The specific terms of the contract and market observable inputs (such as interest
rate forward curves and interpolated volatility assumptions) are used in the model. We classified these over-the-counter derivative
contracts as Level 2 because all significant inputs into these models were market observable.
We also hold certain derivative contracts that are structured specifically to meet a particular hedging objective. These
derivative contracts often are utilized to hedge risks inherent within certain on-balance sheet securitizations. To hedge risks on
particular bond classes or securitization collateral, the derivative's notional amount is often indexed to the hedged item. As a result,
we typically are required to use internally developed prepayment assumptions as an input into the model to forecast future notional
amounts on these structured derivative contracts. Accordingly, we classified these derivative contracts as Level 3.
We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value
of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the
posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we
do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk
and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if
warranted. The CVA calculation utilizes our credit default swap spreads and the spreads of the counterparty.
• On-balance sheet securitization debt — We elected the fair value option for certain mortgage loans held-for-investment and the
related on-balance sheet securitization debt. We valued securitization debt that was elected pursuant to the fair value option and any
economically retained positions using market observable prices whenever possible. The securitization debt was principally in the
form of asset- and MBS collateralized by the underlying mortgage loans held-for-investment. Due to the attributes of the underlying
collateral and current market conditions, observable prices for these instruments were typically not available. In these situations, we
considered observed transactions as Level 2 inputs in our discounted cash flow models. Additionally, the discounted cash flow
models utilized other market observable inputs, such as interest rates, and internally derived inputs including prepayment speeds,
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Ally Financial Inc. • Form 10-K
credit losses, and discount rates. Fair value option-elected financing securitization debt was classified as Level 3 as a result of the
reliance on significant assumptions and estimates for model inputs. Refer to the section within this note titled Fair Value Option for
Financial Assets and Financial Liabilities for further information about the election. The debt that was not elected under the fair
value option is reported on the balance sheet at cost, net of premiums or discounts and issuance costs.
Recurring Fair Value
The following tables display the assets and liabilities measured at fair value on a recurring basis including financial instruments elected
for the fair value option. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial
instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our
risk management activities.
December 31, 2012 ($ in millions)
Assets
Investment securities
Available-for-sale securities
Debt securities
Recurring fair value measurements
Level 1
Level 2
Level 3
Total
U.S. Treasury and federal agencies
$
697
$
1,517
$
— $
2,214
3
—
—
—
700
1,152
1,852
—
—
—
40
—
40
103
300
6,906
2,340
1,263
12,326
—
12,326
2,490
—
—
2,170
40
2,210
99
—
—
—
—
—
—
—
—
952
154
48
—
48
—
303
6,906
2,340
1,263
13,026
1,152
14,178
2,490
952
154
2,258
40
2,298
202
$
1,995
$
17,125
$
1,154
$
20,274
$
$
(13) $
(2,374) $
(1) $
(2,388)
—
(13)
(78)
(2,452)
(2)
(3)
(80)
(2,468)
(13) $
(2,452) $
(3) $
(2,468)
Foreign government
Mortgage-backed residential
Asset-backed
Corporate debt securities
Total debt securities
Equity securities (a)
Total available-for-sale securities
Mortgage loans held-for-sale, net (b)
Mortgage servicing rights
Other assets
Interests retained in financial asset sales
Derivative contracts in a receivable position
Interest rate
Foreign currency
Total derivative contracts in a receivable position
Collateral placed with counterparties (c)
Total assets
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate
Foreign currency
Total derivative contracts in a payable position
Total liabilities
(a) Our investment in any one industry did not exceed 21%.
(b) Carried at fair value due to fair value option elections.
(c) Represents collateral in the form of investment securities. Cash collateral was excluded.
177
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2011 ($ in millions)
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities
Total trading assets
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
States and political subdivisions
Foreign government
Mortgage-backed residential
Asset-backed
Corporate debt securities
Other debt securities
Total debt securities
Equity securities (a)
Total available-for-sale securities
Mortgage loans held-for-sale, net (b)
Consumer mortgage finance receivables and loans, net (b)
Mortgage servicing rights
Other assets
Interests retained in financial asset sales
Derivative contracts in a receivable position (c)
Interest rate
Foreign currency
Total derivative contracts in a receivable position
Collateral placed with counterparties (d)
Total assets
Liabilities
Long-term debt
On-balance sheet securitization debt (b)
Accrued expenses and other liabilities
Derivative contracts in a payable position (c)
Interest rate
Foreign currency
Total derivative contracts in a payable position
Loan repurchase liabilities (b)
Trading liabilities (excluding derivatives)
Total liabilities
(a) Our investment in any one industry did not exceed 18%.
(b) Carried at fair value due to fair value option elections.
(c)
(d) Represents collateral in the form of investment securities. Cash collateral was excluded.
Includes derivatives classified as trading.
178
Recurring fair value measurements
Level 1
Level 2
Level 3
Total
$
— $
—
$
575
575
$
33
33
608
608
903
—
427
—
—
—
—
1,330
1,059
2,389
—
—
—
—
79
—
79
328
643
1
357
7,312
2,553
1,491
327
12,684
—
12,684
3,889
—
—
—
5,274
242
5,516
—
—
—
—
—
62
—
—
62
—
62
30
835
2,519
231
88
18
106
—
1,546
1
784
7,312
2,615
1,491
327
14,076
1,059
15,135
3,919
835
2,519
231
5,441
260
5,701
328
$
2,796
$
22,664
$
3,816
$
29,276
$
— $
— $
(830) $
(830)
(32)
—
(32)
—
(61)
(5,229)
(99)
(5,328)
—
—
(17)
(2)
(19)
(29)
—
(5,278)
(101)
(5,379)
(29)
(61)
$
(93) $
(5,328) $
(878) $
(6,299)
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table presents quantitative information regarding the significant unobservable inputs used in significant Level 3 assets and
liabilities measured at fair value on a recurring basis.
December 31, 2012 ($ in millions)
Assets
Mortgage servicing rights
Other assets
Level 3
recurring
measurements
Valuation technique
Unobservable input
Range
$
952
(a)
(a)
(a)
Interests retained in financial asset sales
154
Discounted cash flow
Discount rate
5.4-6.1%
Commercial paper
rate
0-0.1%
(a) Refer to Note 11 for information related to MSR valuation assumptions and sensitivities.
179
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. We often
economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items
presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following
tables do not fully reflect the impact of our risk management activities.
Net realized/unrealized
gains (losses)
Level 3 recurring fair value measurements
Fair value
at Jan. 1,
2012
included
in
earnings
included
in OCI
Purchases
Sales
Issuances
Settlements
Transfers out
due to
deconsolidation
or
discontinued
operations (a)
Fair value
at Dec. 31,
2012
Net
unrealized
gains (losses)
included in
earnings still
held at
Dec. 31,
2012
$
33 $
2 (b) $
— $
— $ —
$
— $
(4) $
(31) $
— $
4 (b)
62
30
19
—
835
121 (c)
2,519
(677) (e)
231
46 (f)
71
16
87
$
3,797 $
(78) (h)
(32) (h)
(110)
(599)
(12)
—
—
—
—
—
—
—
—
12
—
—
(69)
—
(245) (d)
—
—
—
—
240
—
—
—
—
—
—
—
—
—
—
—
—
—
(11)
(124)
—
(123)
53
—
53
—
(31)
(587)
—
—
—
—
—
51 (c)
(1,130)
952
(677) (e)
—
1
14
15
154
—
47
(2)
45
1 (h)
(50) (h)
(49)
(671)
$
(12) $
12 $ (314)
$
240 $
(209) $
(1,764) $
1,151 $
$
(830) $
(115) (c)
$
— $
— $ —
$
— $
389 $
556 $
— $
(62) (c)
($ in millions)
Assets
Trading assets
(excluding
derivatives)
Mortgage-backed
residential
securities
Investment securities
Available-for-sale
debt securities
Asset-backed
Mortgage loans held-
for-sale, net (c)
Consumer mortgage
finance receivables
and loans, net (c)
Mortgage servicing
rights
Other assets
Interests retained in
financial asset
sales
Derivative contracts,
net (g)
Interest rate
Foreign currency
Total derivative
contracts in a
receivable
position, net
Total assets
Liabilities
Long-term debt
On-balance sheet
securitization
debt (c)
Accrued expenses and
other liabilities
Loan repurchase
liabilities (c)
Total liabilities
$
(859) $
(115)
$
— $
(11) $ —
$
(29)
—
—
(11)
—
—
— $
10
399 $
30
586 $
—
— $
—
(62)
(a) Represents the amounts transferred out of Level 3 due to the deconsolidation of ResCap or discontinued operations. Refer to Note 1 for additional information related to
ResCap. Refer to Note 2 for additional information related to discontinued operations.
(b) The fair value adjustment was reported as other income, net of losses, and the related interest was reported as interest on trading assets in the Consolidated Statement of Income.
(c) Carried at fair value due to fair value option elections. Refer to the next section of this note titled Fair Value Option for Financial Assets and Liabilities for the location of the
gains and losses in the Consolidated Statement of Income.
Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Consolidated Statement of Income.
(d) Represents the sale of consumer mortgage finance receivable and loans sold as part of the sale of a business line during 2012.
(e)
(f) Reported as other income, net of losses, in the Consolidated Statement of Income.
(g)
(h) Refer to Note 22 for information related to the location of the gains and losses on derivative instruments in the Consolidated Statement of Income.
Includes derivatives classified as trading.
180
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Net realized/unrealized
gains (losses)
Level 3 recurring fair value measurements
Fair value
at
Jan. 1,
2011
included
in
earnings
included
in OCI
Purchases
Sales
Issuances
Settlements
Transfers
out of level
3
Fair value
at Dec. 31,
2011
Net
unrealized
gains (losses)
included in
earnings still
held at
Dec. 31,
2011
$
44 $
5 (a)
$
— $
— $ —
$
— $
(16) $
94
138
—
5
1
—
1
4
—
18 (b)
18
(1) (c)
1,015
352 (c)
3,738
(1,606) (d)
568
180 (f)
(13)
—
(13)
$
5,451 $
148 (h)
16 (h)
164
(888)
—
—
—
14
14
—
1
—
—
—
—
—
—
—
(94)
(94)
(1)
(64)
(65)
(1)
—
—
94
94
46
—
31
—
—
—
—
—
—
—
(266) (e)
622
—
—
—
—
—
—
—
—
3
—
—
—
—
(16)
—
—
—
(18)
(533)
—
(41)
—
(41)
$
15 $
171 $ (426)
$
625 $
(1,128) $
—
—
—
—
—
—
—
—
—
$
33 $
14 (a)
—
33
—
62
62
30
—
14
—
—
—
(2) (c)
835
136 (c)
2,519
(1,605) (d)
(520)
—
231
(15) (f)
(23)
(i)
—
(23)
(23)
71
16
87
145 (h)
16 (h)
161
$
3,797 $
(1,311)
$
(972) $
(371) (c)
$
1 $
— $ —
$
— $
512 $
—
$
(830) $
(184) (c)
($ in millions)
Assets
Trading assets
(excluding
derivatives)
Mortgage-backed
residential
securities
Asset-backed
securities
Total trading assets
Investment securities
Available-for-sale
debt securities
Mortgage-
backed
residential
Asset-backed
Total debt
securities
Mortgage loans held-
for-sale, net (c)
Consumer mortgage
finance receivables
and loans, net (c)
Mortgage servicing
rights
Other assets
Interests retained in
financial asset
sales
Derivative contracts,
net (g)
Interest rate
Foreign currency
Total derivative
contracts in a (payable)
receivable position, net
Total assets
Liabilities
Long-term debt
On-balance sheet
securitization
debt (c)
Accrued expenses and
other liabilities
Loan repurchase
liabilities (c)
Total liabilities
$
(972) $
(369)
$
1 $
(46) $ —
$
—
2 (c)
—
(46)
—
—
— $
15
527 $
—
—
(29)
2 (c)
$
(859) $
(182)
(a) The fair value adjustment was reported as other income, net of losses, and the related interest was reported as interest on trading assets in the Consolidated Statement of Income.
(b) The fair value adjustment was reported as other income, net of losses, and the related interest was reported as interest and dividends on available-for-sale investment securities
in the Consolidated Statement of Income.
(c) Carried at fair value due to fair value option elections. Refer to the next section of this note titled Fair Value Option for Financial Assets and Liabilities for the location of the
gains and losses in the Consolidated Statement of Income.
Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Consolidated Statement of Income.
(d)
(e) Represents excess mortgage servicing rights transferred to an agency-controlled trust in exchange for trading securities. These securities were then sold instantaneously to third-
party investors for $266 million.
Includes derivatives classified as trading.
(f) Reported as other income, net of losses, in the Consolidated Statement of Income.
(g)
(h) Refer to Note 22 for information related to the location of the gains and losses on derivative instruments in the Consolidated Statement of Income.
(i)
The in-house valuations of some derivative contracts classified as Level 3 was replaced with third-party-developed valuation models that are widely accepted in the market to
value these over-the-counter derivative contracts. The specific terms of the contract and market observable inputs are entered into the model. We reclassified these over-the-
counter derivative contracts as Level 2 because all significant inputs into these models were market observable.
181
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Nonrecurring Fair Value
We may be required to measure certain assets and liabilities at fair value from time to time. These periodic fair value measures typically
result from the application of lower-of-cost or fair value accounting or certain impairment measures. These items would constitute
nonrecurring fair value measures.
The following tables display the assets and liabilities measured at fair value on a nonrecurring basis.
December 31, 2012 ($ in millions)
Level 1 Level 2 Level 3
Total
Nonrecurring
fair value measurements
Lower-of-
cost
or
fair value
or valuation
reserve
allowance
Total loss
included in
earnings for
the year
ended
Assets
Commercial finance receivables and loans, net (a)
Automotive
Other
Total commercial finance receivables and loans, net
Other assets
Repossessed and foreclosed assets (c)
Cost basis investment in ResCap (d)
$ — $ — $
108
$
108
$
—
—
—
—
—
—
—
—
23
131
3
—
23
131
3
—
(19)
(7)
(26)
(2)
—
Total assets
$ — $ — $
134
$
134
$
(28) $
n/m (b)
n/m (b)
n/m (b)
n/m (b)
(442)
(442)
n/m = not meaningful
(a) Represents the portion of the portfolio specifically impaired during 2012. The related valuation allowance represents the cumulative adjustment to fair
value of those specific receivables.
(b) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value
measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the
respective valuation or loan loss allowance.
(c) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
(d) Represents the impairment of our investment in ResCap during 2012. Refer to Note 1 for additional information related to ResCap.
182
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Nonrecurring
fair value measurements
December 31, 2011 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Lower-of-
cost
or
fair value
or valuation
reserve
allowance
Total loss
included in
earnings for
the year
ended
Mortgage loans held-for-sale (a)
$ — $ — $
479
$
479
$
(60)
n/m (b)
Commercial finance receivables and loans, net (c)
Automotive
Mortgage
Other
Total commercial finance receivables and loans, net
Other assets
Property and equipment
Repossessed and foreclosed assets (e)
—
—
—
—
—
—
Total assets
$ — $
—
1
—
1
13
32
46
310
14
20
344
—
27
310
15
20
345
13
59
(30)
(10)
(10)
(50)
n/m (b)
n/m (b)
n/m (b)
n/m (b)
n/m (d)
$
(8)
(15)
n/m (b)
$
850
$
896
$
(125) $
(8)
n/m = not meaningful
(a) Represents loans held-for-sale that are required to be measured at the lower-of-cost or fair value. The table above includes only loans with fair values
below cost during 2011. The related valuation allowance represents the cumulative adjustment to fair value of those specific assets.
(b) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value
measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the
respective valuation or loan loss allowance.
(c) Represents the portion of the portfolio specifically impaired during 2011. The related valuation allowance represents the cumulative adjustment to fair
value of those specific receivables.
(d) The total gain (loss) included in earnings is the most relevant indicator of the impact on earnings.
(e) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
The following table presents quantitative information regarding the significant unobservable inputs used in significant Level 3 assets
measured at fair value on a nonrecurring basis.
December 31, 2012 ($ in millions)
Assets
Commercial finance receivables and loans, net
Level 3
nonrecurring
measurements
Valuation technique
Unobservable input
Range
Automotive
$
108
Fair value of
collateral
Adjusted appraisal
value
65.0-95.0%
Fair Value Option for Financial Assets and Financial Liabilities
A description of the financial assets and liabilities elected to be measured at fair value is as follows. Our intent in electing fair value for
all these items was to mitigate a divergence between accounting losses and economic exposure for certain assets and liabilities.
• On-balance sheet mortgage securitizations — We elected to measure at fair value certain domestic consumer mortgage finance
receivables and loans and the related debt held in on-balance sheet mortgage securitization structures. The fair value-elected loans
were classified as finance receivable and loans, net, on the Consolidated Balance Sheet. Our policy is to separately record interest
income on the fair value-elected loans (unless the loans are placed on nonaccrual status); however, the accrued interest was
excluded from the fair value presentation. We classified the fair value adjustment recorded for the loans as other income, net of
losses, in the Consolidated Statement of Income.
We continued to record the fair value-elected debt balances as long-term debt on the Consolidated Balance Sheet. Our policy is
to separately record interest expense on the fair value-elected debt, which continues to be classified as interest on long-term debt in
the Consolidated Statement of Income. We classified the fair value adjustment recorded for this fair value-elected debt as other
income, net of losses, in the Consolidated Statement of Income.
•
Conforming and government-insured mortgage loans held-for-sale — We elected the fair value option for conforming and
government-insured mortgage loans held-for-sale funded after July 31, 2009. We elected the fair value option to mitigate earnings
volatility by better matching the accounting for the assets with the related hedges.
183
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Excluded from the fair value option were conforming and government-insured loans funded on or prior to July 31, 2009, and
those repurchased or rerecognized. The loans funded on or prior to July 31, 2009, were ineligible because the election must be made
at the time of funding. Repurchased and rerecognized conforming and government-insured loans were not elected because the
election would not mitigate earning volatility. We repurchase or rerecognize loans due to representation and warranty obligations or
conditional repurchase options. Typically, we will be unable to resell these assets through regular channels due to characteristics of
the assets. Since the fair value of these assets is influenced by factors that cannot be hedged, we did not elect the fair value option.
We carry the fair value-elected conforming and government-insured loans as loans held-for-sale, net, on the Consolidated
Balance Sheet. Our policy is to separately record interest income on the fair value-elected loans (unless they are placed on
nonaccrual status); however, the accrued interest was excluded from the fair value presentation. Upfront fees and costs related to the
fair value-elected loans were not deferred or capitalized. The fair value adjustment recorded for these loans is classified as gain
(loss) on mortgage loans, net, in the Consolidated Statement of Income. In accordance with GAAP, the fair value option election is
irrevocable once the asset is funded even if it is subsequently determined that a particular loan cannot be sold.
• Nongovernment-eligible mortgage loans held-for-sale subject to conditional repurchase options — We elected the fair value
option for both nongovernment-eligible mortgage loans held-for-sale subject to conditional repurchase options and the related
liability. These conditional repurchase options within our private label securitizations allowed us to repurchase a transferred
financial asset if certain events outside our control were met. The typical conditional repurchase option was a delinquent loan
repurchase option that gave us the option to purchase the loan if it exceeded a certain prespecified delinquency level. We had
complete discretion regarding when or if we would exercise these options, but generally we would do so only when it is in our best
interest. We recorded the asset and the corresponding liability on our balance sheet when the option becomes exercisable. The fair
value option election must be made at initial recording. As such, the conditional repurchase option assets and liabilities recorded
prior to January 1, 2011, were ineligible for the fair value election.
We carried these fair value-elected optional repurchase loan balance as loans held-for-sale, net, on the Consolidated Balance
Sheet. The fair value adjustment recorded for these loans was classified as other income, net of losses, in the Consolidated
Statement of Income. We carried the fair value-elected corresponding liability as accrued expenses and other liabilities on the
Consolidated Balance Sheet. The fair value adjustment recorded for these liabilities were classified as other income, net of losses, in
the Consolidated Statement of Income.
184
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following tables summarize the fair value option elections and information regarding the amounts recorded as earnings for each fair
value option-elected item.
Changes included in the
Consolidated Statement of Income
Interest
and fees
on finance
receivables
and loans (a)
Interest
on loans
held-for-
sale (a)
Interest
on
long-term
debt (b)
Gain on
mortgage
loans, net
Other
income,
net of losses
Total
included
in
earnings
Change in
fair value
due to
credit risk (c)
Year ended December 31, ($ in millions)
2012
Assets
Mortgage loans held-for-sale, net
$
— $
82
$
— $
262
$
— $
344
$
— (d)
Consumer mortgage finance receivables
and loans, net
Liabilities
Long-term debt
On-balance sheet securitization debt
59
—
—
—
—
(34)
—
—
Total
2011
Assets
62
121
(24) (e)
(81)
(115)
350
$
(8) (f)
Mortgage loans held-for-sale, net
$
— $
176
$
— $
908
$
— $
1,084
$
— (d)
Consumer mortgage finance receivables
and loans, net
Liabilities
Long-term debt
On-balance sheet securitization debt
Accrued expenses and other liabilities
Loan repurchase liabilities
Total
200
—
—
—
—
—
—
(116)
—
—
—
—
153
353
(119) (e)
(256)
(372)
(20) (f)
2
2
$
1,067
—
Interest income is measured by multiplying the unpaid principal balance on the loans by the coupon rate and the number of days of interest due.
Interest expense is measured by multiplying bond principal by the coupon rate and the number of days of interest due to the investor.
(a)
(b)
(c) Factors other than credit quality that impact fair value include changes in market interest rates and the illiquidity or marketability in the current
marketplace. Lower levels of observable data points in illiquid markets generally result in wide bid/offer spreads.
(d) The credit impact for loans held-for-sale is assumed to be zero because the loans are either suitable for sale or are covered by a government guarantee.
(e) The credit impact for consumer mortgage finance receivables and loans was quantified by applying internal credit loss assumptions to cash flow models.
(f) The credit impact for on-balance sheet securitization debt is assumed to be zero until our economic interests in a particular securitization is reduced to
zero, at which point the losses on the underlying collateral will be expected to be passed through to third-party bondholders. Losses allocated to third-
party bondholders, including changes in the amount of losses allocated, will result in fair value changes due to credit. We also monitor credit ratings and
will make credit adjustments to the extent any bond classes are downgraded by rating agencies.
185
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
The following table provides the aggregate fair value and the aggregate unpaid principal balance for the fair value option-elected loans
and long-term debt instruments.
December 31, ($ in millions)
Assets
Mortgage loans held-for-sale, net
Total loans
Nonaccrual loans
Loans 90+ days past due (b)
Consumer mortgage finance receivables and loans, net
Total loans
Nonaccrual loans (c)
Loans 90+ days past due (b) (c)
Liabilities
Long-term debt
On-balance sheet securitization debt
Accrued expenses and other liabilities
Loan repurchase liabilities
2012
2011
Unpaid
principal
balance
Fair
value (a)
Unpaid
principal
balance
Fair
value (a)
$
2,416
$
2,490
$
3,766
$
3,919
47
36
—
—
—
25
19
—
—
—
54
53
2,436
506
362
27
27
835
209
163
$
— $
— $
(2,559) $
(830)
—
—
(57)
(29)
(a) Excludes accrued interest receivable.
(b) Loans 90+ days past due are also presented within the nonaccrual loan balance and the total loan balance; however, excludes government-insured loans
that are still accruing interest.
(c) The fair value of consumer mortgage finance receivables and loans is calculated on a pooled basis; therefore, we allocated the fair value of nonaccrual
loans and loans 90+ days past due to individual loans based on the unpaid principal balances. For further discussion regarding the pooled basis, refer to
the previous section of this note titled Consumer mortgage finance receivables and loans, net.
Fair Value of Financial Instruments
The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a
recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to
determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation
methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is
required in interpreting market data to develop estimates of fair value, so the estimates are not necessarily indicative of the amounts that could
be realized or would be paid in a current market exchange. The effect of using different market assumptions or estimation methodologies
could be material to the estimated fair values. Fair value information presented herein was based on information available at December 31,
2012 and 2011.
December 31, ($ in millions)
Financial assets
2012
Estimated fair value
2011
Carrying
value
Level 1
Level 2
Level 3
Total
Carrying
value
Estimated
fair value
Loans held-for-sale, net (a)
$
2,576
$
— $
2,490
$
86
$
2,576
$
8,557
$
8,674
Finance receivables and loans, net (a)
Nonmarketable equity investments
97,885
303
—
—
—
272
98,907
98,907
113,252
113,576
34
306
419
423
Financial liabilities
Deposit liabilities
Short-term borrowings
Long-term debt (a)(b)
$
47,915
$
— $
— $
48,752
$
48,752
$
45,050
$
45,696
7,461
74,882
6
—
—
36,018
7,454
42,533
7,460
78,551
7,680
93,525
7,622
92,142
(a)
Includes financial instruments carried at fair value due to fair value option elections. Refer to the previous section of this note titled Fair Value Option for
Financial Assets and Liabilities for further information about the fair value elections.
(b) The carrying value includes deferred interest for zero-coupon bonds of $321 million and $640 million at December 31, 2012, and 2011, respectively.
The following describes the methodologies and assumptions used to determine fair value for the significant classes of financial
instruments. In addition to the valuation methods discussed below, we also followed guidelines for determining whether a market was not
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
active and a transaction was not distressed. As such, we assumed the price that would be received in an orderly transaction (including a
market-based return) and not in forced liquidation or distressed sale.
•
•
Loans held-for-sale, net — Loans held-for-sale classified as Level 2 include all GSE-eligible mortgage loans valued predominantly
using published forward agency prices. It also includes any domestic loans and foreign loans where recently negotiated market
prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are
available. Loans held-for-sale classified as Level 3 include all loans valued using internally developed valuation models because
observable market prices were not available. The loans are priced on a discounted cash flow basis utilizing cash flow projections
from internally developed models that utilize prepayment, default, and discount rate assumptions. To the extent available, we will
utilize market observable inputs such as interest rates and market spreads. If market observable inputs are not available, we are
required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates.
Finance receivables and loans, net — With the exception of mortgage loans held-for-investment, the fair value of finance
receivables was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each
category of finance receivables (an income approach using Level 3 inputs). The carrying value of commercial receivables in certain
markets and certain other automotive- and mortgage-lending receivables for which interest rates reset on a short-term basis with
applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest
rate adjustment feature. The fair value of commercial receivables in other markets was based on discounted future cash flows using
applicable spreads to approximate current rates applicable to similar assets in those markets.
For mortgage loans held-for-investment used as collateral for securitization debt, we used a portfolio approach with Level 3
inputs to measure these loans at fair value. The objective in fair valuing these loans (which are legally isolated and beyond the reach
of our creditors) and the related collateralized borrowings is to reflect our retained economic position in the securitizations. For
mortgage loans held-for-investment that are not securitized, we used valuation methods and assumptions similar to those used for
mortgage loans held-for-sale. These valuations consider unique attributes of the loans such as geography, delinquency status,
product type, and other factors. Refer to the section above titled Loans held-for-sale, net, for a description of methodologies and
assumptions used to determine the fair value of mortgage loans held-for-sale.
• Deposit liabilities — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and
dealer deposits. The fair value of deposits at Level 3 were estimated by discounting projected cash flows based on discount factors
derived from the forward interest rate swap curve.
• Debt — Level 2 debt was valued using quoted market prices in inactive markets. Debt valued using internally derived inputs, such
as prepayment speeds and discount rates, was classified as Level 3.
26. Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and
expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in
deciding how to allocate resources and in assessing performance.
We report our results of operations on a line-of-business basis through three operating segments - Automotive Finance operations,
Insurance operations, and Mortgage operations, with the remaining activity reported in Corporate and Other. The operating segments are
determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by
management. The following is a description of each of our reportable operating segments.
Automotive Finance operations — Provides automotive financing services to consumers and automotive dealers and includes the
automotive activities of Ally Bank. For consumers, we offer retail automotive financing and leasing for new and used vehicles, and
through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale or
floorplan financing.
Insurance operations — Offers both consumer finance and insurance products sold primarily through the automotive dealer
channel, and commercial insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer
finance and insurance products, we provide vehicle service contracts, maintenance coverage, and GAP products. We also underwrite
selected commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventory in the United States.
Mortgage operations — Our ongoing Mortgage operations are conducted through Ally Bank. We intend to continue to originate a
modest level of jumbo and conventional conforming residential mortgages for our own portfolio through a select group of
correspondent lenders. Our Mortgage operations also include noncore business activities that are winding down or were business
activities of ResCap, which was deconsolidated on May 14, 2012, including, among other things: portfolios in runoff; and our
mortgage reinsurance business.
Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate
investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of
the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also
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Ally Financial Inc. • Form 10-K
includes our Commercial Finance Group, certain equity investments, overhead that was previously allocated to operations that have since
been sold or classified as discontinued operations, and reclassifications and eliminations between the reportable operating segments.
We utilize an FTP methodology for the majority of our business operations. The FTP methodology assigns charge rates and credit rates
to classes of assets and liabilities based on expected duration and the LIBOR swap curve plus an assumed credit spread. Matching duration
allocates interest income and interest expense to these reportable segments so their respective results are insulated from interest rate risk. This
methodology is consistent with our ALM practices, which includes managing interest rate risk centrally at a corporate level. The net residual
impact of the FTP methodology is included within the results of Corporate and Other.
The information presented in our reportable operating segments and geographic areas tables that follow are based in part on internal
allocations, which involve management judgment.
Change in Reportable Segment Information
As a result of a change in management's view of our operations, we have changed the presentation of our reportable operating segments
during the year ended December 31, 2012. These changes include the following:
• During the fourth quarter of 2012, we announced that we had reached agreements to sell substantially all of our International
operations. As a result, beginning in the fourth quarter of 2012, we are presenting our continuing Automotive Finance activities
under one reportable operating segment, Automotive Finance operations. Previously our Automotive Finance operations were
presented as two reportable operating segments, North American Automotive Finance operations and International Automotive
Finance operations.
• During the fourth quarter of 2012, we began to allocate certain expenses associated with deposit gathering activities and other
additional costs of holding liquidity to our Automotive Finance and Mortgage operations. These expenses were previously included
within our Corporate and Other activities. Additionally, we began to include overhead that was previously allocated to operations
that have since been sold or moved into discontinued operations within our Corporate and Other activities.
• On May 14, 2012, the Debtors filed for relief under Chapter 11 of the Bankruptcy Code in the United States. As a result of the
bankruptcy filing, ResCap was deconsolidated from our financial statements; and beginning in the second quarter of 2012, we
began presenting our mortgage business activities under one reportable operating segment, Mortgage operations. Previously our
Mortgage operations had been presented as two reportable operating segments, Origination and Servicing operations and Legacy
Portfolio and Other operations. The new presentation is consistent with the organizational alignment of the business and
management's current view of the mortgage business.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Financial information for our reportable operating segments is summarized as follows.
Year ended December 31,
($ in millions)
2012
Net financing revenue (loss)
Other revenue (loss)
Total net revenue (loss)
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations
before income tax expense
Total assets
2011
Net financing revenue (loss)
Other revenue
Total net revenue (loss)
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations
before income tax expense
Total assets
2010
Net financing revenue (loss)
Other revenue (loss)
Total net revenue (loss)
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations
before income tax expense
Total assets
$
$
$
$
$
$
$
$
$
Automotive
Finance
operations
Insurance
operations
Mortgage
operations (a)
Corporate
and
Other (b)
Consolidated
(c)
2,827
$
64
$
151
$
(1,173) $
322
3,149
253
1,507
1,389
128,411
2,530
422
2,952
89
1,530
1,333
112,591
2,697
724
3,421
260
1,404
$
$
$
$
$
$
1,150
1,214
—
1,054
160
8,439
62
1,336
1,398
—
1,082
316
8,036
73
1,728
1,801
—
1,244
$
$
$
$
$
$
1,617
1,768
86
993
689
14,744
210
961
1,171
150
1,643
$
$
$
(60)
(1,233)
(10)
1,770
1,869
3,029
4,898
329
5,324
(2,993) $
(755)
30,753
$
182,347
(1,721) $
178
(1,543)
(51)
486
1,081
2,897
3,978
188
4,741
(622) $
(1,978) $
(951)
$
$
33,906
589
1,998
2,587
144
1,671
29,526
$
184,059
(2,053) $
(34)
(2,087)
(47)
654
1,306
4,416
5,722
357
4,973
1,757
97,961
$
$
557
8,789
$
$
772
36,786
$
$
(2,694) $
392
28,472
$
172,008
(a) Represents the ResCap legal entity (prior to its deconsolidation from Ally as of May 14, 2012) and the mortgage activities of Ally Bank.
(b) Total assets for the Commercial Finance Group were $1.5 billion, $1.2 billion, and $1.6 billion at December 31, 2012, 2011 and 2010, respectively.
(c) Net financing revenue after the provision for loan losses totaled $1.5 billion, $0.9 billion, and $0.9 billion in 2012, 2011 and 2010, respectively.
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Ally Financial Inc. • Form 10-K
Information concerning principal geographic areas were as follows.
Year ended December 31, ($ in millions)
Income (loss)
from continuing
operations
before income
tax expense (b)
Revenue
(a)
Net income
(loss) (b)
Identifiable
assets (c)
Long-lived
assets (d)
2012
Canada
Europe (e)
Latin America
Asia-Pacific
Total foreign
Total domestic (f)
Total
2011
Canada
Europe (e)
Latin America
Asia-Pacific
Total foreign
Total domestic (f)
Total
2010
Canada
Europe (e)
Latin America
Asia-Pacific
Total foreign
Total domestic (f)
Total
$
236
$
$
$
$
$
21
2
4
263
4,635
4,898
175
(44)
(50)
2
83
3,895
3,978
164
(58)
9
4
119
5,603
$
$
$
$
$
5,722
$
$
13,362
$
$
51
33
(19)
3
68
(823)
295
183
219
99
796
400
$
$
(755) $
1,196
(16) $
(11)
(105)
—
(132)
(819)
436
175
104
69
784
(941)
10,971
8,050
395
32,778
149,542
182,320
15,156
9,976
7,647
292
33,071
150,470
(951) $
(157) $
183,541
$
$
$
$
(35) $
(60)
(14)
6
(103)
495
392
$
402
278
164
7
851
178
17,321
11,321
6,917
202
35,761
135,722
$
1,029
$
171,483
$
1
16
33
—
50
13,831
13,881
282
92
30
—
404
9,236
9,640
1,522
406
35
—
1,963
7,541
9,504
(a) Revenue consists of net financing revenue and total other revenue as presented in our Consolidated Statement of Income.
(b) The domestic amounts include original discount amortization of $349 million, $925 million, and $1.2 billion for the year ended December 31, 2012, 2011,
and 2010, respectively.
Identifiable assets consist of total assets excluding goodwill.
(c)
(d) Long-lived assets consist of investment in operating leases, net, and net property and equipment.
(e) Amounts include eliminations between our foreign operations.
(f) Amounts include eliminations between our domestic and foreign operations.
27. Parent and Guarantor Consolidating Financial Statements
Certain of our senior notes are guaranteed by a group of subsidiaries (the Guarantors). The Guarantors, each of which is a 100% directly
owned subsidiary of Ally Financial Inc., are Ally US LLC, IB Finance Holding Company, LLC (IB Finance), and GMAC
Continental Corporation (GMAC Continental). The Guarantors fully and unconditionally guarantee the senior notes on a joint and several
basis. In connection with the purchase and sale agreement with General Motors Financial (GMF) described in Note 2, all of the common
stock of GMAC Continental will be sold to GMF. Following the closing of this equity sale transaction, GMAC Continental will cease to be a
Guarantor, and the proceeds from the sale of GMAC Continental will be reinvested in IB Finance or a subsidiary of IB Finance. Following the
completion of this transaction, IB Finance and Ally US LLC will remain note Guarantors.
The following financial statements present condensed consolidating financial data for (i) Ally Financial Inc. (on a parent company-only
basis), (ii) the Guarantors, (iii) the nonguarantor subsidiaries (all other subsidiaries), and (iv) an elimination column for adjustments to arrive
at (v) the information for the parent company, Guarantors, and nonguarantors on a consolidated basis.
Investments in subsidiaries are accounted for by the parent company and the Guarantors using the equity-method for this presentation.
Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The
elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of
subsidiaries, investments in subsidiaries, and intercompany balances and transactions between the parent, Guarantors, and nonguarantors.
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Ally Financial Inc. • Form 10-K
Condensed Consolidating Statements of Income and Comprehensive Income
Year ended December 31, 2012 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
Interest and fees on finance receivables and loans — intercompany
$
852
116
Interest on loans held-for-sale
Interest on trading assets
Interest and dividends on available-for-sale investment securities
Interest-bearing cash
Interest-bearing cash — intercompany
Operating leases
Total financing revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Interest on intercompany debt
Total interest expense
Depreciation expense on operating lease assets
Net financing (loss) revenue
Dividends from subsidiaries
Nonbank subsidiaries
Other revenue
Servicing fees
Servicing asset valuation and hedge activities, net
Total servicing income, net
Insurance premiums and service revenue earned
(Loss) gain on mortgage and automotive loans, net
Loss on extinguishment of debt
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net (loss) revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
(Loss) income from continuing operations before income tax
benefit and undistributed income of subsidiaries
Income tax benefit from continuing operations
Net (loss) income from continuing operations
Income (loss) from discontinued operations, net of tax
Undistributed income of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net income
— $
3,751
$
— $
4,603
—
—
—
—
—
—
—
—
—
—
—
1
1
—
(1)
22
140
13
292
10
16
2,147
6,391
586
30
795
132
1,543
1,286
3,562
(138)
—
—
—
—
(16)
—
(154)
—
—
(17)
(132)
(149)
—
(5)
—
155
13
292
26
—
2,379
7,468
644
90
3,466
—
4,200
1,399
1,869
15
—
—
16
—
232
1,231
58
60
2,688
(1)
2,805
113
(1,687)
1,074
448
—
(1,522)
—
191
—
191
—
(2)
—
—
173
362
(251)
81
760
—
1,128
1,888
(2,220)
(172)
(2,048)
119
859
2,266
—
—
—
—
—
—
—
474
474
921
—
473
—
1
474
447
—
447
(93)
859
(105)
510
(8)
502
1,059
534
(148)
146
1,290
3,383
6,945
248
608
461
3,083
4,152
2,545
(1,112)
3,657
641
—
—
—
—
—
—
—
—
—
(1,190)
(1,190)
(2,717)
—
(476)
—
(714)
(1,190)
(1,527)
—
(1,527)
—
(1,718)
(2,161)
701
(8)
693
1,059
532
(148)
146
747
3,029
4,898
329
1,365
461
3,498
5,324
(755)
(1,284)
529
667
—
—
$
1,196
$
1,108
$
4,298
$
(5,406) $
1,196
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2012 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Net income
$
1,196
$
1,108
$
4,298
$
(5,406) $
1,196
Other comprehensive (loss) income, net of tax
Unrealized gains on investment securities
Net unrealized gains arising during the period
Less: Net realized gains (losses) reclassified to net income
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Cash flow hedges
190
—
190
184
(168)
16
39
—
39
114
—
114
329
141
188
205
—
205
(227)
—
(227)
(319)
—
(319)
331
141
190
184
(168)
16
Net unrealized gains arising during the period
(4)
(4)
(4)
8
(4)
Defined benefit pension plans
Net gains (losses), prior service costs, and transition
obligations arising during the period
Less: Net losses, prior service costs, and transition
obligations reclassified to net income
Net change
Other comprehensive (loss) income, net of tax
22
—
22
224
—
—
—
149
(36)
(58)
22
411
(22)
—
(22)
(560)
(36)
(58)
22
224
Comprehensive (loss) income
$
1,420
$
1,257
$
4,709
$
(5,966) $
1,420
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2011 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
1,071
$
— $
3,348
$
(10) $
4,409
Interest and fees on finance receivables and loans — intercompany
Interest on loans held-for-sale
Interest on trading assets
Interest and dividends on available-for-sale investment securities
Interest-bearing cash
Operating leases
Total financing revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Interest on intercompany debt
Total interest expense
Depreciation expense on operating lease assets
Net financing (loss) revenue
Dividends from subsidiaries
Nonbank subsidiaries
Other revenue
Servicing fees
Servicing asset valuation and hedge activities, net
Total servicing income, net
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Loss on extinguishment of debt
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net (loss) revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
(Loss) income from continuing operations before income tax
(benefit) expense and undistributed income (loss) of
subsidiaries
Income tax (benefit) expense from continuing operations
Net (loss) income from continuing operations
Income (loss) from discontinued operations, net of tax
Undistributed income (loss) of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net (loss) income
213
5
—
4
5
713
2,011
65
56
3,405
(13)
3,513
250
(1,752)
1,383
270
—
270
—
22
(64)
10
(167)
71
(298)
58
694
—
546
1,240
(1,596)
(616)
(980)
24
1,254
(455)
—
—
—
—
—
—
—
—
—
(1)
2
1
—
(1)
—
—
—
—
—
—
—
—
37
37
36
—
37
—
1
38
(2)
(1)
(1)
(8)
1,254
477
26
327
19
347
16
1,216
5,299
549
60
926
236
1,771
691
2,837
(239)
—
—
—
—
—
(249)
—
—
(21)
(225)
(246)
—
(3)
—
332
19
351
21
1,929
7,061
614
116
4,309
—
5,039
941
1,081
—
(1,383)
—
1,089
(789)
300
1,170
448
—
249
1,287
3,454
6,291
130
628
483
3,017
4,128
2,033
668
1,365
826
—
—
(1)
—
(1)
—
—
—
—
(664)
(665)
(2,051)
—
(37)
—
(628)
(665)
(1,386)
—
(1,386)
3
(2,508)
(22)
1,358
(789)
569
1,170
470
(64)
259
493
2,897
3,978
188
1,322
483
2,936
4,741
(951)
51
(1,002)
845
—
—
$
(157) $
1,722
$
2,191
$
(3,913) $
(157)
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2011 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Net (loss) income
$
(157) $
1,722
$
2,191
$
(3,913) $
(157)
Other comprehensive (loss) income, net of tax
Unrealized (losses) gains on investment securities
Net unrealized (losses) gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Defined benefit pension plans
Net (losses) gains, prior service costs, and transition
obligations arising during the period
Less: Net losses, prior service costs, and transition
obligations reclassified to net income
Net change
Other comprehensive (loss) income, net of tax
(82)
6
(88)
(237)
173
(64)
(20)
—
(20)
(172)
50
—
50
(114)
—
(114)
1
—
1
(63)
171
278
(107)
(219)
—
(219)
(27)
(7)
(20)
(346)
57
—
57
333
—
333
19
—
19
409
Comprehensive (loss) income
$
(329) $
1,659
$
1,845
$
(3,504) $
196
284
(88)
(237)
173
(64)
(27)
(7)
(20)
(172)
(329)
194
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2010 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
Interest and fees on finance receivables and loans — intercompany
Interest on loans held-for-sale
Interest on trading assets
Interest and dividends on available-for-sale investment securities
Interest and dividends on available-for-sale investment securities —
intercompany
Interest-bearing cash
Operating leases
Total financing revenue and other interest income
Interest expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Interest on intercompany debt
Total interest expense
Depreciation expense on operating lease assets
Net financing (loss) revenue
Dividends from subsidiaries
Nonbank subsidiaries
Other revenue
Servicing fees
Servicing asset valuation and hedge activities, net
Total servicing income, net
Insurance premiums and service revenue earned
Gain on mortgage and automotive loans, net
Loss on extinguishment of debt
Other gain on investments, net
Other income, net of losses
Total other revenue
Total net (loss) revenue
Provision for loan losses
Noninterest expense
Compensation and benefits expense
Insurance losses and loss adjustment expenses
Other operating expenses
Total noninterest expense
(Loss) income from continuing operations before income tax
(benefit) expense and undistributed income of subsidiaries
Income tax (benefit) expense from continuing operations
Net (loss) income from continuing operations
Income from discontinued operations, net of tax
Undistributed income of subsidiaries
Bank subsidiary
Nonbank subsidiaries
Net income
938
411
75
—
4
112
13
1,063
2,616
52
43
3,735
(21)
3,809
435
(1,628)
182
434
—
434
—
31
(127)
6
(151)
193
(1,253)
(200)
785
—
744
1,529
(2,582)
(574)
(2,008)
150
902
1,985
$
— $
3,538
$
(1) $
4,475
—
—
—
—
—
—
—
—
—
—
(1)
2
1
—
(1)
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
902
259
4
512
15
321
9
21
1,520
5,940
527
98
1,026
417
2,068
816
3,056
—
1,055
(394)
661
1,371
1,208
(9)
502
1,046
4,779
7,835
557
563
547
2,930
4,040
3,238
678
2,560
592
—
—
(415)
—
—
(2)
(121)
—
—
(539)
—
—
(20)
(398)
(418)
—
(121)
(183)
(1)
—
(1)
—
—
12
(6)
(561)
(556)
(860)
—
—
—
(596)
(596)
(264)
—
(264)
(4)
(1,804)
(2,244)
—
587
15
323
—
34
2,583
8,017
579
141
4,740
—
5,460
1,251
1,306
—
1,488
(394)
1,094
1,371
1,239
(124)
502
334
4,416
5,722
357
1,348
547
3,078
4,973
392
104
288
741
—
—
$
1,029
$
1,164
$
3,152
$
(4,316) $
1,029
195
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2010 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Net income
$
1,029
$
1,164
$
3,152
$
(4,316) $
1,029
Other comprehensive (loss) income, net of tax
Unrealized (losses) gains on investment securities
Net unrealized (losses) gains arising during the period
Less: Net realized gains reclassified to net income
Net change
Translation adjustments and net investment hedges
Translation adjustments
Hedges
Net change
Cash flow hedges
Net unrealized gains arising during the period
Defined benefit pension plans
Net losses, prior service costs, and transition obligations
arising during the period
Less: Net losses, prior service costs, and transition
obligations reclassified to net income
Net change
Other comprehensive (loss) income, net of tax
Cumulative effect of change in accounting principle (a)
(174)
3
(177)
165
(182)
(17)
33
(40)
—
(40)
(201)
(4)
(85)
—
(85)
442
—
442
—
—
—
—
357
—
649
499
150
630
—
630
—
(81)
(19)
(62)
718
(4)
(70)
(5)
(65)
(1,072)
—
(1,072)
—
62
—
62
(1,075)
4
Comprehensive income
$
824
$
1,521
$
3,866
$
(5,387) $
(a) Relates to the adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
320
497
(177)
165
(182)
(17)
33
(59)
(19)
(40)
(201)
(4)
824
196
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Balance Sheet
December 31, 2012 ($ in millions)
Assets
Cash and cash equivalents
Noninterest-bearing
Noninterest-bearing — intercompany
Interest-bearing
Interest-bearing — intercompany
Total cash and cash equivalents
Investment securities
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net
Intercompany loans to
Bank subsidiary
Nonbank subsidiaries
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Intercompany receivables from
Bank subsidiary
Nonbank subsidiaries
Investment in subsidiaries
Bank subsidiary
Nonbank subsidiaries
Mortgage servicing rights
Premiums receivable and other insurance assets
Other assets
Assets of operations held-for-sale
Total assets
Liabilities
Deposit liabilities
Noninterest-bearing
Noninterest-bearing — intercompany
Interest-bearing
Total deposit liabilities
Short-term borrowings
Long-term debt
Intercompany debt to
Nonbank subsidiaries
Intercompany payables to
Bank subsidiary
Nonbank subsidiaries
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Liabilities of operations held-for-sale
Total liabilities
Total equity
Total liabilities and equity
Parent (a)
Guarantors
Nonguarantors
(a)
Consolidating
adjustments
Ally
consolidated
$
729
$
— $
344
$
— $
39
3,204
—
3,972
—
—
12,486
1,600
3,514
(170)
17,430
2,003
677
315
14,288
19,180
—
—
2,514
855
—
—
—
—
—
—
—
—
—
—
—
—
—
334
14,288
3,723
—
—
—
762
—
3,236
452
4,032
14,178
2,576
86,569
—
672
(1,000)
86,241
11,547
—
378
—
—
952
1,609
9,968
30,582
(39)
—
(452)
(491)
—
—
—
(1,600)
(4,186)
—
(5,786)
—
(677)
(1,027)
(28,576)
(22,903)
—
—
(574)
(23)
1,073
—
6,440
—
7,513
14,178
2,576
99,055
—
—
(1,170)
97,885
13,550
—
—
—
—
952
1,609
11,908
32,176
61,234
$
19,107
$
162,063
$
(60,057) $
182,347
— $
— $
1,977
$
— $
—
983
983
3,094
32,342
530
752
674
748
—
2,187
26
41,336
19,898
—
—
—
—
—
—
—
—
—
—
451
725
1,176
17,931
39
44,955
46,971
4,367
42,219
5,708
—
278
184
2,296
4,517
21,948
128,488
33,575
(39)
—
(39)
—
—
(6,238)
(752)
(952)
—
—
(570)
—
(8,551)
(51,506)
$
61,234
$
19,107
$
162,063
$
(60,057) $
1,977
—
45,938
47,915
7,461
74,561
—
—
—
932
2,296
6,585
22,699
162,449
19,898
182,347
$
$
(a) Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership.
197
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
December 31, 2011 ($ in millions)
Assets
Cash and cash equivalents
Noninterest-bearing
Interest-bearing
Interest-bearing — intercompany
Total cash and cash equivalents
Trading assets
Investment securities
Loans held-for-sale, net
Finance receivables and loans, net
Finance receivables and loans, net
Intercompany loans to
Bank subsidiary
Nonbank subsidiaries
Allowance for loan losses
Total finance receivables and loans, net
Investment in operating leases, net
Intercompany receivables from
Bank subsidiary
Nonbank subsidiaries
Investment in subsidiaries
Bank subsidiary
Nonbank subsidiaries
Mortgage servicing rights
Premiums receivable and other insurance assets
Other assets
Assets of operations held-for-sale
Total assets
Liabilities
Deposit liabilities
Noninterest-bearing
Interest-bearing
Total deposit liabilities
Short-term borrowings
Long-term debt
Intercompany debt to
Nonbank subsidiaries
Intercompany payables to
Bank subsidiary
Nonbank subsidiaries
Interest payable
Unearned insurance premiums and service revenue
Accrued expenses and other liabilities
Liabilities of operations held-for-sale
Total liabilities
Total equity
Total liabilities and equity
Parent (a)
Guarantors
Nonguarantors
(a)
Consolidating
adjustments
Ally
consolidated
$
1,413
$
— $
1,062
$
— $
4,848
—
6,261
—
—
425
15,151
4,920
5,397
(245)
25,223
928
82
1,070
13,094
17,433
—
—
2,664
(174)
14
—
14
—
—
—
476
—
356
(2)
830
—
—
327
13,094
3,809
—
—
2
—
5,698
516
7,276
622
15,135
8,132
99,128
—
550
(1,256)
98,422
8,347
—
577
—
—
2,519
1,853
16,713
1,244
—
(516)
(516)
—
—
—
—
(4,920)
(6,303)
—
(11,223)
—
(82)
(1,974)
(26,188)
(21,242)
—
—
(638)
—
2,475
10,560
—
13,035
622
15,135
8,557
114,755
—
—
(1,503)
113,252
9,275
—
—
—
—
2,519
1,853
18,741
1,070
$
$
67,006
$
18,076
$
160,840
$
(61,863) $
184,059
— $
— $
2,029
$
— $
1,768
1,768
2,756
39,615
574
39
1,266
1,167
—
541
—
47,726
19,280
—
—
136
214
492
—
1
3
—
323
—
1,169
16,907
41,253
43,282
4,788
53,056
—
—
—
—
10,673
(11,739)
—
750
417
2,576
14,438
337
130,317
30,523
(39)
(2,017)
—
—
(638)
—
(14,433)
(47,430)
2,029
43,021
45,050
7,680
92,885
—
—
—
1,587
2,576
14,664
337
164,779
19,280
$
67,006
$
18,076
$
160,840
$
(61,863) $
184,059
(a) Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership.
198
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2012 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by (used in) operating activities
$
102
$
306
$
5,862
$
(1,221) $
5,049
Investing activities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from maturities and repayments of available-for-sale
securities
Net decrease (increase) in finance receivables and loans
Proceeds from sales of finance receivables and loans
Net decrease in loans — intercompany
Net increase in operating lease assets
Capital contributions to subsidiaries
Returns of contributed capital
Net cash effect from deconsolidation of ResCap
Proceeds from sale of business units, net
Other, net
Net cash provided by (used in) investing activities
Financing activities
Net change in short-term borrowings — third party
Net increase in bank deposits
Proceeds from issuance of long-term debt — third party
Repayments of long-term debt — third party
Net change in debt — intercompany
Dividends paid — third party
Dividends paid and returns of contributed capital — intercompany
Capital contributions from parent
Other, net
Net cash (used in) provided by financing activities
Effect of exchange-rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Adjustment for change in cash and cash equivalents of operations
held-for-sale
Cash and cash equivalents at beginning of year
—
—
—
3,027
352
3,879
(2,268)
(261)
2,079
—
29
(247)
6,590
338
—
3,613
(11,238)
(44)
(802)
—
—
(785)
(8,918)
(63)
(2,289)
—
6,261
—
—
—
2
—
105
—
—
—
—
—
(13)
94
25
—
70
(73)
(149)
—
(457)
169
1
(414)
—
(14)
—
14
(12,816)
7,662
5,673
(14,972)
1,980
129
(3,431)
—
—
(539)
487
(1,481)
(17,308)
2,331
7,619
35,718
(28,598)
(3,984)
—
(2,843)
92
(143)
10,192
5
(1,249)
(1,995)
7,276
Cash and cash equivalents at end of year
$
3,972
$
— $
4,032
$
—
—
—
—
—
(4,113)
—
261
(2,079)
—
—
—
(5,931)
—
(39)
—
—
4,177
—
3,300
(261)
—
7,177
—
25
—
(516)
(491) $
(12,816)
7,662
5,673
(11,943)
2,332
—
(5,699)
—
—
(539)
516
(1,741)
(16,555)
2,694
7,580
39,401
(39,909)
—
(802)
—
—
(927)
8,037
(58)
(3,527)
(1,995)
13,035
7,513
199
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2011 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
2,695
$
209
$
3,973
$
(1,384) $
5,493
Investing activities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from maturities and repayments of available-for-sale
securities
Net increase in finance receivables and loans
Proceeds from sales of finance receivables and loans
Net decrease (increase) in loans — intercompany
Net decrease (increase) in operating lease assets
Capital contributions to subsidiaries
Returns of contributed capital
Proceeds from sale of business units, net
Other, net
Net cash provided by (used in) investing activities
Financing activities
Net change in short-term borrowings — third party
Net increase in bank deposits
Proceeds from issuance of long-term debt — third party
Repayments of long-term debt — third party
Net change in debt — intercompany
Dividends paid — third party
Dividends paid and returns of contributed capital — intercompany
Capital contributions from parent
Other, net
Net cash (used in) provided by financing activities
Effect of exchange-rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Adjustment for change in cash and cash equivalents of operations
held-for-sale
Cash and cash equivalents at beginning of year
—
1,494
1
(2,933)
1,346
2,743
2,890
(1,634)
1,255
—
124
5,286
237
—
3,201
(9,414)
71
(819)
—
—
308
(6,416)
31
1,596
—
4,665
Cash and cash equivalents at end of year
$
6,261
$
—
—
—
(51)
—
11
—
(855)
—
—
(1)
(896)
47
—
200
(226)
30
—
(207)
855
—
699
—
12
—
2
14
(19,377)
12,738
4,964
(14,014)
1,522
(88)
(3,901)
—
—
50
1,020
(17,086)
230
5,840
41,353
(30,833)
(2,755)
—
(2,431)
1,634
(74)
12,964
18
(131)
(99)
7,506
—
—
—
—
—
(2,666)
—
2,489
(1,255)
—
—
(1,432)
—
—
—
—
2,654
—
2,638
(2,489)
—
2,803
—
(13)
—
(503)
$
7,276
$
(516) $
(19,377)
14,232
4,965
(16,998)
2,868
—
(1,011)
—
—
50
1,143
(14,128)
514
5,840
44,754
(40,473)
—
(819)
—
—
234
10,050
49
1,464
(99)
11,670
13,035
200
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Year ended December 31, 2010 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
4,552
$
13
$
7,230
$
(188) $
11,607
Investing activities
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from maturities and repayments of available-for-sale
securities
Net decrease in investment securities — intercompany
Net (increase) decrease in finance receivables and loans
Proceeds from sales of finance receivables and loans
Net decrease (increase) in loans — intercompany
Net (increase) decrease in operating lease assets
Capital contributions to subsidiaries
Returns of contributed capital
Proceeds from sale of business unit, net
Other, net
(1,485)
41
—
323
(5,177)
6
7,736
(2,770)
(2,036)
880
59
104
—
—
—
—
96
—
(283)
—
(1,737)
—
—
(1)
Net cash (used in) provided by investing activities
(2,319)
(1,925)
Financing activities
Net change in short-term borrowings — third party
Net increase in bank deposits
Proceeds from issuance of long-term debt — third party
Repayments of long-term debt — third party
Net change in debt — intercompany
Dividends paid — third party
Dividends paid and returns of contributed capital — intercompany
Capital contributions from parent
Other, net
Net cash provided by (used in) financing activities
Effect of exchange-rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Adjustment for change in cash and cash equivalents of operations
held-for-sale
Cash and cash equivalents at beginning of year
735
—
5,824
(4,292)
243
(1,253)
—
—
418
1,675
—
3,908
—
757
Cash and cash equivalents at end of year
$
4,665
$
28. Guarantees and Commitments
Guarantees
50
—
90
(256)
300
—
—
1,725
—
1,909
—
(3)
—
5
2
(22,631)
17,872
4,527
260
(12,263)
3,132
(302)
7,846
—
—
102
3,016
1,559
(4,414)
6,556
33,047
(44,982)
(7,774)
—
(1,068)
2,048
451
(16,136)
102
(7,245)
725
14,026
—
(41)
—
(583)
—
—
(7,151)
—
3,773
(880)
—
—
(4,882)
—
—
41
—
7,231
—
1,068
(3,773)
—
4,567
—
(503)
—
—
$
7,506
$
(503) $
(24,116)
17,872
4,527
—
(17,344)
3,138
—
5,076
—
—
161
3,119
(7,567)
(3,629)
6,556
39,002
(49,530)
—
(1,253)
—
—
869
(7,985)
102
(3,843)
725
14,788
11,670
Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based
on changes in the underlying agreements with the guaranteed parties. The following summarizes our outstanding guarantees, including those
of our discontinued operations, made to third parties on our Consolidated Balance Sheet, for the periods shown.
December 31, ($ in millions)
Default automotive repurchases
Standby letters of credit and other guarantees
Default Automotive Repurchases
2012
2011
Maximum
liability
Carrying
value
of liability
Maximum
liability
Carrying
value
of liability
$
1,897
$
— $
1,600
$
274
44
333
—
88
Certain of our discontinued international automotive financing businesses provide certain investors in our on-balance sheet arrangements
(securitizations) and whole-loan transactions with repurchase commitments for loans that become contractually delinquent within a specified
201
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
time from their date of origination or purchase. The maximum obligation represents the principal balance for loans sold that are covered by
these stipulations. Refer to Note 10 for further information regarding our securitization trusts.
Standby Letters of Credit
Our Commercial Finance Group issues standby letters of credit to customers that represent irrevocable guarantees of payment of
specified financial obligations. Third-party beneficiaries primarily utilize standby letters of credit as insurance in the event of nonperformance
by our customers. Assets of the customers (e.g., trade receivables, inventory, and cash deposits) generally collateralize letters of credit.
Expiration dates on letters of credit range from certain ongoing commitments that will expire during the upcoming year to terms of several
years for certain letters of credit.
If nonperformance by a customer occurs for letters of credit, we can be liable for payment of the letter of credit to the beneficiary with
our likely recourse being a charge back to the customer or liquidation of the collateral. The majority of customers with whom we have letter
of credit exposure fall into the “acceptable” risk-rating category of our Commercial Finance Group's internal risk-rating system. This category
is essentially at the midpoint of our risk rating classifications.
Commitments
Financing Commitments
The contractual commitments were as follows.
December 31, ($ in millions)
Commitments to
Sell mortgages or securities (a)
Originate/purchase mortgages or securities (a)
Provide capital to investees (b)
Provide retail automotive receivables to third-parties (c)
Warehouse and construction-lending commitments (d)
Home equity lines of credit (e)
Unused revolving credit line commitments (f)
2012
2011
$
6,282
$
12,632
4,249
86
425
100
411
668
6,741
56
1,779
1,018
2,234
1,304
(a) Amounts primarily include commitments accounted for as derivatives.
(b) We are committed to contribute capital to certain private equity funds. The fair value of these commitments is considered in the overall valuation of the
underlying assets with which they are associated.
(c) Certain of our discontinued international automotive financing businesses are committed to provide retail automotive receivables to third-party banks in
exchange for secured debt. The transaction does not meet the definition of a sale.
(d) The fair value of these commitments is considered in the overall valuation of the related assets.
(e) We are committed to fund the remaining unused balances on home equity lines of credit for certain home equity loans sold into securitization structures
(both on- and off-balance sheet structures) if certain deal-specific triggers are met. At December 31, 2012, the commitments to fund home equity lines of
credit in off-balance sheet securitizations represented $0 million of the total unfunded commitments.
(f) The unused portion of revolving lines of credit reset at prevailing market rates and, as such, approximate market value.
The mortgage-lending and revolving credit line commitments contain an element of credit risk. Management reduces its credit risk for
unused mortgage-lending and unused revolving credit line commitments by applying the same credit policies in making commitments as it
does for extending loans. We typically require collateral as these commitments are drawn.
Lease Commitments
Future minimum rental payments required under operating leases, primarily for real property, with noncancelable lease terms expiring
after December 31, 2012, are as follows.
Year ended December 31, ($ in millions)
2013
2014
2015
2016
2017
2018 and thereafter
Total minimum payment required
$
70
62
50
29
18
23
$
252
Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $63
million, $79 million, and $84 million in 2012, 2011, and 2010, respectively.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Contractual Commitments
We have entered into multiple agreements for information technology, marketing and advertising, and voice and communication
technology and maintenance. Many of the agreements are subject to variable price provisions, fixed or minimum price provisions, and
termination or renewal provisions.
Year ended December 31, ($ in millions)
2013
2014 and 2015
2016 and 2017
2018 and thereafter
Total future payment obligations
29. Contingencies and Other Risks
$
$
253
159
74
25
511
In the normal course of business, we enter into transactions that expose us to varying degrees of risk.
Concentration with GM and Chrysler
The profitability and financial condition of our operations are heavily dependent upon the performance, operations, and prospects of
GM, Chrysler, and their dealers. We have preferred provider agreements that provide for limited exclusivity privileges with respect to
subvention programs offered by GM and Chrysler. These agreements do not provide us with any benefits relating to standard rate financing or
lease products. Our preferred provider agreements with GM and Chrysler terminate on December 31, 2013, and April 30, 2013, respectively.
Mortgage-Related Matters
ResCap Bankruptcy Filing
On May 14, 2012, Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the
Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and
affiliates (excluding the Debtors) (collectively, AFI) had reached an agreement with the Debtors and certain creditor constituencies on a
prearranged Chapter 11 plan (the Plan). The Plan included a proposed settlement (the Settlement) between AFI and the Debtors, which
included, among other things, an obligation of AFI to make a $750 million cash contribution to the Debtors' estate, and a release of all
existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of
action against AFI held by third parties.
The Settlement contemplated certain milestone requirements that the Debtors failed to satisfy, including the Bankruptcy Court's
confirmation of the Plan on or before October 31, 2012. While the failure to meet this October 31 milestone would have resulted in the
Settlement's automatic termination, AFI and the Debtors agreed to monthly temporary waivers of this automatic termination through February
28, 2013. This waiver was not extended beyond this date, and therefore the Settlement has terminated.
As a result of the termination of the Settlement, AFI is no longer obligated to make the $750 million cash contribution and neither party
is bound by the Settlement. Further, AFI is not entitled to receive any releases from either the Debtors or any third party claimants, as was
contemplated under the Plan and Settlement. However, AFI has not withdrawn its offer to provide a $750 million cash contribution to the
Debtors' estate if an acceptable settlement can be reached. As a result of the termination of the Settlement, substantial claims could be brought
against us, which could have a material adverse impact on our results of operations, financial position or cash flows. For further information
with respect to the bankruptcy, refer to Note 1.
Based on our assessment of the effect of the deconsolidation of ResCap, potential obligations as a result of the ResCap bankruptcy, and
other impacts related to the bankruptcy filing, we recorded a charge of $1.2 billion during the year ended December 31, 2012. This charge
primarily consisted of the impairment of Ally's $442 million equity investment in ResCap and an additional $750 million, which is the
amount AFI has offered to contribute to the Debtors' estate. Given the inherent uncertainty of the bankruptcy process, it is possible that the
$750 million estimate could be increased or decreased in the future, but we are unable to estimate the amount of any potential modification.
Mortgage Settlements and Consent Order
On February 9, 2012, we announced that we had reached an agreement with respect to investigations into procedures followed by
mortgage servicing companies and banks in connection with mortgage origination and servicing activities and foreclosure home sales and
evictions (the Mortgage Settlement). Further, as a result of an examination conducted by the FRB and FDIC, on April 13, 2011, we entered
into a consent order (the Consent Order) with the FRB and the FDIC, that required, among other things, GMAC Mortgage, LLC to retain
independent consultants to conduct a risk assessment related to mortgage servicing activities and, separately, to conduct a review of certain
past residential mortgage foreclosure actions (the Foreclosure Review). The Debtors are primarily liable for all remaining obligations under
both the Mortgage Settlement and Consent Order. AFI is secondarily liable for the specific performance of required actions, and is jointly and
severally liable for certain financial obligations. On September 19, 2012, the official committee of unsecured creditors appointed in the
Debtors' bankruptcy cases (the Creditors' Committee) filed an objection to the Debtors' motions to compensate the independent consultants
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
for their Foreclosure Review services. In its objection, the Creditors' Committee alleged, among other things, that AFI should be responsible
for the costs of the Foreclosure Review. On October 11, 2012, the Bankruptcy Court entered an interim order allowing the Debtors to continue
paying the independent consultants on an interim 90 day basis, while reserving all parties' rights with respect to the allocation of costs
between the Debtors and AFI for the Foreclosure Review. On January 14, 2013, the bankruptcy court entered an interim order authorizing the
Debtors to continue paying the independent consultants for their Foreclosure Review services until February 28, 2013, and then on February
28, 2013, the bankruptcy court entered an interim order authorizing the Debtors to continue paying the independent consultants until March
21, 2013, reserving all parties' rights until that time. On February 27, 2013, the Debtors filed a motion with the Bankruptcy Court seeking, for
purposes of any proposed chapter 11 plan, that GMAC Mortgage's obligation to conduct and pay for independent file review regarding certain
residential foreclosure actions and foreclosure sales prosecuted by GMAC Mortgage and its subsidiaries, as required under the Consent Order,
be classified as a general unsecured claim in an amount to be determined, and that the automatic stay under the Bankruptcy Code be applied
to prevent the FRB, the FDIC, and other governmental entities from taking any action to enforce the obligation against the Debtors. If the
Bankruptcy Court approves the motion, such governmental entities are likely to seek to enforce the obligation against AFI, and any such
obligations ultimately borne by AFI could be material. The Debtors have requested that the motion be heard at a hearing on March 21, 2013.
Legal Proceedings
We are subject to potential liability under various governmental proceedings, claims, and legal actions that are pending or otherwise
asserted against us. We are named as defendants in a number of legal actions, and we are involved in governmental proceedings arising in
connection with our respective businesses. Some of the pending actions purport to be class actions, and certain legal actions include claims
for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We establish reserves for legal claims
when payments associated with the claims become probable and the payments can be reasonably estimated. Given the inherent difficulty of
predicting the outcome of litigation and regulatory matters, it is generally very difficult to predict what the eventual outcome will be, and
when the matter will be resolved. The actual costs of resolving legal claims may be higher or lower than any amounts reserved for the claims.
Mortgage-backed Securities Litigation
We have previously disclosed various litigation matters where the Debtors (as defined above) were named as defendants in cases relating
to mortgage-backed securities and certain other mortgage-related matters. As a result of the bankruptcy filings, all litigation against the
Debtors has been automatically stayed and will be resolved in the bankruptcy litigation out of the assets of the estate. Ally believes that it has
no potential future liability with respect to any litigation claims pending solely against the Debtors.
Ally Financial Inc. and certain of its subsidiaries (excluding the Debtors) (collectively, the AFI Entities) are named as defendants in
various cases relating to ResCap mortgage-backed securities (MBS) and certain other mortgage-related matters, which are described in more
detail below (collectively, the Mortgage Cases). In the private-label securities litigation, the plaintiffs generally allege that misstatements and
omissions occurred in registration statements, prospectuses, prospectus supplements, and other documents related to MBS offerings. The
alleged misstatements and omissions typically concern underwriting standards. The plaintiffs generally claim that such misstatements and
omissions constitute violations of state and/or federal securities law and common law including negligent misrepresentation and fraud.
Plaintiffs seek monetary damages and rescission. In these cases, the claims against Ally Financial Inc. are all indirect or vicarious in nature,
which generally requires proof of direct liability against the underlying Debtor entities before the litigants can seek to hold Ally Financial Inc.
responsible for such underlying conduct. With respect to the private-label monoline bond insurer claims, certain monoline bond insurers
generally allege breach of contract and fraud, as described more specifically below.
As described earlier, the proposed bankruptcy Plan, which provided for a release of all existing and potential causes of action against the
AFI Entities held by ResCap (including the Mortgage Cases), has been terminated. As a result, the Mortgage Cases are expected to proceed
against us. We intend to vigorously defend these cases.
Other than the Cambridge Place I and II, New Jersey Carpenters, FHFA and FDIC matters, all of the private-label securities matters are
currently subject to orders entered by the Bankruptcy Court staying the matter through April 30, 2013 in connection with the Debtors
bankruptcy. The Cambridge Place I and II and New Jersey Carpenters matters are currently subject to stay orders through March 31, 2013,
and the FHFA and FDIC matters are currently proceeding against the applicable Ally defendants. Other than the MBIA matter, all of the
private-label monoline bond insurer claims are currently subject to orders entered by the Bankruptcy Court staying the matter through April
30, 2013 in connection with the Debtors bankruptcy. The MBIA matter is currently proceeding against the applicable Ally defendants. All of
the stay orders permit motion to dismiss practice and limited discovery to proceed for and against the non-Debtor Ally defendants.
Set forth below are descriptions of these proceedings.
Private-label Securities Litigation
Allstate Litigation
On February 14, 2011, the Allstate Insurance Company and various of its subsidiaries and affiliates (collectively, Allstate) filed a
complaint in Hennepin County District Court, Minnesota, against Ally Securities LLC (Ally Securities) and a number of ResCap entities. The
complaint alleges that the defendants misrepresented in the offering materials the riskiness and credit quality of, and omitted material
information related to, residential mortgage-backed securities (MBS) Allstate purchased. The complaint asserts claims for fraud and negligent
misrepresentation and seeks money damages and costs, including attorneys' fees. A motion to dismiss the amended complaint was granted in
part and denied in part on November 28, 2011, pursuant to which the court dismissed the negligent misrepresentation claim and allowed the
fraud and Consumer Fraud Act claims to proceed.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Cambridge Place I and II Litigation
On February 11, 2011, Cambridge Place Investments filed two complaints against Ally Securities and a number of ResCap entities
alleging violations of state securities laws and seeks, in both cases, recovery of money damages, together with statutory interest from the date
of payment, costs, and attorneys' fees. Plaintiff dismissed the Debtor entities in March 2012 and the case remains pending against Ally
Securities only.
FDIC Litigation
The Federal Deposit Insurance Corporation filed four complaints against Ally Securities between May 2012 and August 2012 alleging
violations of federal and state securities laws, in each alleging that Ally Securities made misleading statements in a registration statement.
Plaintiff seeks rescission and money damages in all cases including pre- and post-judgment interest, attorney's fees and costs of court. Ally
Securities has filed motions to dismiss in three of the four cases, and expects to file a motion to dismiss in the fourth case as well.
FHFA Litigation
FHFA, as conservator for Freddie Mac, filed a complaint on September 2, 2011, against Ally Financial Inc., Ally Securities, GMAC
Mortgage Group (GMACMG), and a number of ResCap entities, in New York County Supreme Court. The case was removed to Federal
District Court, Southern District of New York. Subsequent to the ResCap bankruptcy filing, the FHFA amended its complaint to remove all
Debtor entities. The complaint alleges that Ally Financial Inc., GMACMG and Ally Securities violated federal and state securities laws and
engaged in aiding and abetting a fraud, asserts control person liability against Ally Financial. The plaintiff seeks rescission and recovery of
money damages, with interest, as well as consequential and punitive damages, attorney's fees and costs and judgment interest. Motions to
dismiss were filed by defendants on July 13, 2012, and were granted in part and denied in part on December 19, 2012. The dismissed portions
of the complaint did not substantially alter the original allegations, entities involved, or securities offerings at issue in the case.
FHLB Litigation
Federal Home Loan Bank (FHLB) of Indianapolis filed an Amended Complaint in Marion County Superior Court for rescission and
damages on July 14, 2011, asserting claims for common law negligence and violations of state and federal securities laws, and names Ally
Securities, and GMACMG, and a number of ResCap entities. The complaint alleges that the offering documents for the securities
underwritten and issued by the defendants contained material misrepresentations of fact, evidenced by high default and foreclosure rates, and
seeks damages or statutory recovery upon tender, plus interest, attorneys' fees, and costs, including expert witness fees and an order voiding
the transactions at issue. The defendants filed a motion to dismiss, which was granted in part and denied in part. The negligent
misrepresentation claim remains against Ally Securities only.
FHLB of Boston filed a complaint on April 20, 2011, in Suffolk County Superior Court, naming numerous defendants including Ally
Financial Inc.; GMACMG, and a number of ResCap entities. The complaint alleges that the defendants collectively packaged, marketed,
offered, and sold private-label MBS, and FHLB of Boston purchased such securities in reliance upon misstatements and omissions of material
facts in the offering documents. The complaint alleges negligent misrepresentation and violations of the Massachusetts Uniform Securities
Act. Plaintiffs seek damages, plus interest, attorneys' fees, and costs, including expert witness fees. The defendants removed this case to
federal court. The AFI Entities filed a Motion to Dismiss on October 11, 2012.
FHLB of Chicago filed a Corrected Amended Complaint for Rescission and Damages on October 15, 2011, in Cook County Circuit
Court, which names, among other defendants, Ally Financial Inc., Ally Securities, GMACMG, and a number of ResCap entities. The
complaint alleges that the offering documents for the securities underwritten and issued by defendants contained material misrepresentations
of fact and asserts claims for violations of state securities law and negligent misrepresentation. The complaint seeks rescission of the
transactions at issue, money damages, and attorney's fees and costs, including expert witness fees. The defendants' motion to dismiss was
denied September 12, 2012.
John Hancock Litigation
John Hancock Life Insurance Company filed a complaint in Hennepin County, Minnesota on July 27, 2012 against Ally Financial Inc.,
Ally Bank, Ally Securities, GMACMG and a number of ResCap individual directors and officers. The complaint alleges fraud, aiding and
abetting fraud, negligent misrepresentation, and violations of federal and state securities laws. The plaintiff seeks rescission and money
damages, including costs, reasonable attorneys' fees and expert fees, and prejudgment interest relating to forty-nine securities offerings.
Huntington Bancshares Litigation
Huntington Bancshares, Inc. (Huntington), commenced a lawsuit on October 11, 2011, against Ally Financial Inc., Ally Securities, and a
number of ResCap entities and individual directors and officers. The complaint alleges that the defendants made misrepresentations and
omissions of material facts related to the originator's loan underwriting guidelines in the offering materials for five residential mortgage-
backed securities. The complaint asserts claims for fraud, aiding and abetting fraud, negligent misrepresentation, and violation of the
Minnesota Securities Act and seeks rescission, money damages, and certain costs. The defendants' motion to dismiss was granted and all
parties and claims were dismissed with prejudice on December 11, 2012. The plaintiff filed a timely notice of appeal on February 8, 2013. No
appeal dates have been set.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Massachusetts Mutual Life Insurance Company Litigation
On February 9, 2011, the Massachusetts Mutual Life Insurance Company (MassMutual) filed a complaint in the United States District
Court for the District of Massachusetts against numerous defendants, including Ally Securities and a former director of ResCap. The
complaint alleges that the defendants' public filings and offering documents associated with MBS that MassMutual purchased contained false
statements and omissions of material facts. MassMutual asserts claims for violations of the Massachusetts Uniform Securities Act and seeks
both compensatory and statutory damages. The defendants' motion to dismiss was granted in part and denied in part in February 2012,
although claims against Ally Securities remain.
New Jersey Carpenters Litigation
On January 3, 2011, New Jersey Carpenters Health Fund, New Jersey Carpenters Vacation Fund, and Boilermaker Blacksmith National
Pension Trust, on behalf of themselves and a putative class (collectively, New Jersey Carpenters), filed a Consolidated Second Amended
Securities Class Action Complaint against numerous defendants including Ally Securities, and a number of ResCap entities and individual
directors and officers. The complaint alleges that the plaintiffs and the class purchased MBS between June 28, 2006, and May 30, 2007, and
asserts that the offering documents associated with these transactions contained misrepresentations and omitted material information in
violation of the federal securities laws. The complaint seeks compensatory damages, rescission or a rescissory measure of damages, and
attorneys' fees and costs, among other relief. New Jersey Carpenters moved for class certification. The court denied the plaintiffs' motion for
class certification, and the Plaintiffs appealed and 2nd Circuit affirmed the District Court's ruling. Plaintiffs were then allowed limited
discovery to re-attempt class certification and the District Court certified a modified class and allowed claims to be reinstated by certain
intervenors. The defendants have filed a motion for reconsideration of class certification.
Stichting Pensioenfonds Litigation
On October 11, 2011 Stichting filed a complaint in District Court of Minnesota against Ally Financial Inc., Ally Securities, and a number
of ResCap entities and individual directors and officers. The complaint alleges fraud, aiding and abetting fraud, negligent misrepresentation
and violation of state securities laws and seeks money damages, including attorney's fees, court costs and expert fees, and judgment interest.
The Defendants filed a motion to dismiss on July 30, 2012. The plaintiffs subsequently were granted leave to amend their complaint which
added Ally Bank, IB Finance Holding Co., and two securities offerings. The Defendants anticipate filing a motion to dismiss.
Union Central Life Litigation
Union Central filed a complaint on April 28, 2011 against Ally Financial Inc., Ally Securities and a number of ResCap entities and a
former ResCap director alleging violation of the federal securities laws, state common law fraud, negligent misrepresentation and unjust
enrichment. The plaintiff seeks compensatory and statutory damages, and attorneys fees and costs, including expert witness fees. A motion to
dismiss was filed on July 27, 2012.
Western & Southern Litigation
Western & Southern filed a complaint on June 30, 2011 in Hamilton County, Ohio against Ally Securities and a number of ResCap
entities alleging violation of state securities laws and negligent misrepresentation and seeks rescission and money damages, including
compensatory and punitive damages, interest, and attorney's fees and costs. A motion to dismiss was granted for all parties except Ally
Securities.
Private-label Monoline Bond Insurer Claims
Assured Guaranty Litigation
Assured Guaranty filed a complaint on May 11, 2012 in Federal District Court, the Southern District of New York, against Ally
Financial, Ally Bank and a number of ResCap entities alleging claims for breach of contract, reimbursement and indemnification under New
York law and seeks monetary damages in connection with 2004 and 2006 mortgage securitizations.
MBIA Litigation
MBIA Insurance Corporation (MBIA) filed complaints on December 4, 2008, and April 1, 2010, in the New York County Supreme Court
against GMAC Mortgage and RFC. The complaints allege that defendants breached their contractual representations and warranties relating
to the characteristics of mortgage loans contained in certain insured MBS offerings and includes claims for fraud, improper servicing and
failure to notify the insurer of the alleged breach. Both cases were automatically stayed on May 14, 2012 in connection with the Debtors'
bankruptcy filings. MBIA subsequently filed a complaint on September 17, 2012 against Ally Financial Inc., IB Finance Holding Company
LLC, Ally Bank, Ally Securities, and GMACMG, alleging aiding and abetting common law fraud, and against Ally Bank, breach of contract
relating to the characteristics of the mortgage loans contained in certain insured offerings and seeks damages relating to all claims. The
Defendants filed a motion to dismiss on February 15, 2013.
FGIC Litigation
FGIC filed twelve complaints in New York state court against Ally Financial Inc. (ten of the twelve), Ally Bank (four of the twelve) and
a number of ResCap entities between November 29, 2011 and March 13, 2012, alleging that the Debtor defendants breached their contractual
representations and warranties relating to the characteristics of mortgage loans contained in certain insured MBS offerings. FGIC also alleges
that Ally Financial Inc. is liable under alter ego and fraudulent inducement theories and that Ally Bank aided and abetted such fraudulent
inducement and seeks damages relating to all claims. All of the FGIC cases were removed to the U.S. District Court for the Southern District
of New York, and the defendants have asked the Court for leave to file motions to dismiss each case.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
Regulatory Matters
We continue to respond to subpoenas and document requests from the SEC, seeking information covering a wide range of mortgage-
related matters, including, among other things, various aspects surrounding securitizations of residential mortgages. We are also responding to
subpoenas received from the U.S. Department of Justice, which include broad requests for documentation and other information in connection
with its investigation of potential fraud and other potential legal violations related to mortgage backed securities, as well as the origination
and/or underwriting of mortgage loans. In addition, the CFPB has recently advised us that they are investigating certain of our retail financing
practices. It is possible that this could result in actions against us.
Loan Repurchases and Obligations Related to Loan Sales
Representation and Warranty Obligation Reserve Methodology
A significant portion of our representation and warranty obligations were eliminated as a result of the deconsolidation of ResCap.
Representation and warranty reserve was $105 million at December 31, 2012 with respect to Ally Bank's sold and serviced loans. The current
liability for representation and warranty obligations reflects management's best estimate of probable losses with respect to Ally Bank's
mortgage loans sold to Freddie Mac and Fannie Mae. We considered historical and recent demand trends in establishing the reserve. The
methodology used to estimate the reserve considers a variety of assumptions including borrower performance (both actual and estimated
future defaults), repurchase demand behavior, historical loan defect experience, historical mortgage insurance rescission experience, and
historical and estimated future loss experience, which includes projections of future home price changes as well as other qualitative factors
including investor behavior. It is difficult to predict and estimate the level and timing of any potential future demands. In cases where we may
not be able to reasonably estimate losses, a liability is not recognized. Management monitors the adequacy of the overall reserve and makes
adjustments to the level of reserve, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience
with counterparties.
At the time a loan is sold, an estimate of the fair value of the liability is recorded and classified in accrued expenses and other liabilities
on our Consolidated Balance Sheet and recorded as a component of gain (loss) on mortgage and automotive loans, net, in our Consolidated
Statement of Comprehensive Income. We recognize changes in the liability when additional relevant information becomes available. Changes
in the estimate are recorded as other operating expenses in our Consolidated Statement of Comprehensive Income. The repurchase reserve at
December 31, 2012, relates exclusively to GSE exposure.
The following table summarizes the changes in our reserve for representation and warranty obligations.
Year ended December 31, ($ in millions)
Balance at January 1,
Provision for mortgage representation and warranty expenses
Loan sales
Change in estimate — continuing operations
Total additions
Resolved claims (b)
Recoveries
Deconsolidation of ResCap
Balance at December 31,
2012 (a)
2011
$
825
$
830
16
67
83
(146)
8
(665)
$
105
$
19
324
343
(360)
12
—
825
(a) The remaining balance is at Ally Bank as a result of the deconsolidation of ResCap. Refer to Note 1 for more information regarding the Debtors'
Bankruptcy and the deconsolidation of ResCap.
Includes principal losses and accrued interest on repurchased loans, indemnification payments, and settlements with counterparties.
(b)
Other Contingencies
We are subject to potential liability under various other exposures including tax, nonrecourse loans, self-insurance, and other
miscellaneous contingencies. We establish reserves for these contingencies when the loss becomes probable and the amount can be reasonably
estimated. The actual costs of resolving these items may be substantially higher or lower than the amounts reserved for any one item. Based
on information currently available, it is the opinion of management that the eventual outcome of these items will not have a material adverse
impact on our results of operations, financial position, or cash flows.
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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
30. Quarterly Financial Statements (unaudited)
2012 ($ in millions)
Net financing revenue
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
Income (loss) from continuing operations before income tax expense (benefit)
Income tax expense (benefit) from continuing operations
Net income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Basic earnings per common share
Net (loss) income from continuing operations
Net income (loss)
Diluted earnings per common share
Net (loss) income from continuing operations
Net income (loss)
2011
Net financing revenue
Other revenue
Total net revenue
Provision for loan losses
Total noninterest expense
(Loss) from continuing operations before income tax expense (benefit)
Income tax expense from continuing operations
Net loss from continuing operations
Income from discontinued operations, net of tax
Net income (loss)
Basic and diluted earnings per common share
Net loss from continuing operations
Net loss
31. Subsequent Events
Declaration of Quarterly Dividend Payments
$
$
$
$
$
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
$
342
$
$
$
473
774
1,247
443
762
1,205
34
2,290
(1,119)
(8)
(1,111)
213
1,012
1,354
98
1,120
136
18
118
192
310
$
(898) $
(62) $
(985) $
82
(825)
(62)
82
(985)
(825)
$
207
827
$
341
873
1,034
85
1,061
(112)
19
(131)
277
146
$
1,214
59
1,277
(122)
9
(131)
244
113
$
$
$
105
877
265
43
222
162
384
16
137
16
137
247
385
632
57
983
(408)
13
(421)
211
611
481
1,092
92
1,037
(37)
(1,337)
1,300
100
1,400
825
901
647
700
286
812
1,098
(13)
1,420
(309)
10
(319)
113
(206)
(390)
(305)
$
(210) $
(227) $
(242) $
(467) $
(19)
(58)
(308)
On January 3, 2013, the Ally Board of Directors declared quarterly dividend payments on certain outstanding preferred stock. This
included a cash dividend of $1.125 per share, or a total of $134 million, on Fixed Rate Cumulative Mandatorily Convertible Preferred Stock,
Series F-2; a cash dividend of $17.50 per share, or a total of $45 million, on Fixed Rate Cumulative Perpetual Preferred Stock, Series G; and a
cash dividend of $0.53 per share, or a total of $22 million, on Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A. The dividends
were paid on February 15, 2013.
Canadian Automotive Finance Operation Sale
On February 1, 2013, we completed the sale of our Canadian automotive finance operation, Ally Credit Canada Limited, and ResMor
Trust (Ally Canada) to Royal Bank of Canada. Ally received $4.1 billion USD for the business in the form of a $3.7 billion payment at
closing and $400 million of dividends from Ally Canada following the announcement of the transaction.
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Ally Financial Inc. • Form 10-K
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded,
processed, summarized, and reported within the specified time periods. Our disclosure controls and procedures are also designed to ensure
that information required to be disclosed in the reports we file and submit under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer (Principal Executive Officer) and Senior Executive Vice President of Finance and
Corporate Planning (Principal Financial Officer), to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer evaluated, with the
participation of our management, the effectiveness of our disclosure controls and procedures and concluded that our disclosure controls and
procedures were effective.
There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred
during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal controls over financial
reporting.
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls
or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within Ally have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Refer to Item 8 for Management's Report on Internal Control over Financial Reporting.
Item 9B. Other Information
None.
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Part III
Ally Financial Inc. • Form 10-K
Item 10. Directors, Executive Officers, and Corporate Governance
The following table presents information regarding directors, executive officers, and other significant employees of Ally.
Name
Franklin W. Hobbs
Robert T. Blakely
Mayree C. Clark
John D. Durrett
Stephen A. Feinberg
Kim S. Fennebresque
Gerald Greenwald
Marjorie Magner
Henry S. Miller
John J. Stack
Michael A. Carpenter
Jeffrey J. Brown
James G. Mackey
Barbara Yastine
William F. Muir
David J. DeBrunner
Brian Gunn
Age
Position
65
71
55
64
52
62
77
63
67
66
65
39
45
53
58
46
40
Director (Chairman of the Board)
Director (Chairman of Audit Committee)
Director (Member of Audit Committee)
Director (Member of Audit Committee)
Director
Director
Director
Director (Member of Audit Committee)
Director
Director (Member of Audit Committee)
Director and Chief Executive Officer
Senior Executive Vice President of Finance and Corporate Planning
Chief Financial Officer
Chief Executive Officer and President of Ally Bank
President
Vice President, Chief Accounting Officer, and Corporate Controller
Chief Risk Officer
Directors, Executive Officers, and Other Significant Employees
Franklin W. Hobbs — Director of Ally since May 2009. He currently serves as Chairman of the board. Since 2004, he has been an
advisor to One Equity Partners LLC, which manages investments and commitments for JPMorgan Chase & Co. in direct private equity
transactions. He was previously the CEO of Houlihan Lokey Howard & Zukin. In that role, he oversaw all operations, which included
advisory services for mid-market companies involved in mergers and acquisitions and corporate restructurings. He previously was Chairman
of UBS AG's Warburg Dillon, Read & Co. Inc. unit. Prior to that, he was President and CEO of Dillon, Read & Co. Inc. Hobbs earned his
bachelor's degree from Harvard College and master's degree in business administration from Harvard Business School. He serves as a director
on the Boards of the Lord Abbett & Company, Molson Coors Brewing Company, and UNICEF.
Robert T. Blakely — Director of Ally since May 2009. He currently serves as Chairman of the Audit Committee. Previously, he was a
trustee of the Financial Accounting Foundation, the oversight board for the Financial Accounting Standards Board. Blakely is the former
executive vice president and chief financial officer of Fannie Mae. In this role, he led the financial restatement and implementation of
Sarbanes-Oxley controls. He was previously the chief financial officer of WorldCom/MCI, Lyondell Chemical, Tenneco, and US Synthetic
Fuels Corporation where he gained valuable experience dealing with accounting principles and financial reporting rules and regulations,
evaluating financial results, and generally overseeing the financial reporting processes of large corporations. Blakely received his PhD from
Massachusetts Institute of Technology and his master's and bachelor's degrees from Cornell University.
Mayree C. Clark — Director of Ally since May 2009. She currently serves as Chairman and member of the Ally Risk Management and
Compliance Committee and the Audit Committee. She serves on the board of the Stanford Management Company, which manages the
University's endowment. Clark is the founding partner of Eachwin Capital, an asset management firm that has created an investment strategy
which keys off the quality of corporate management for the equity securities in which it invests. Clark is a former partner and member of the
executive committee at AEA Holdings. Previously, Clark held a variety of executive positions at Morgan Stanley over a span of nearly
25 years, serving as Global Research Director, Director of Global Private Wealth Management, and deputy to the chairman, president and
CEO. Clark began her career as an economic associate in antitrust litigation at National Economic Research Associates, Inc. Clark earned a
bachelor's degree from the University of Southern California and a master's degree in business administration from Stanford University
Graduate School of Business.
John D. Durrett — Director of Ally since February 2011. He currently serves as a member of the Audit Committee and Compliance
Committee. He serves as a strategic adviser to Serent Capital, a San Francisco-based private equity firm, and sits on the boards of two of
Serent's portfolio companies. Durrett is a director emeritus of McKinsey & Co.,Inc., and completed his 27-year career with the firm in 2007.
He served in numerous senior leadership positions during his tenure at McKinsey and also served as a member of the firm's Shareholder's
Council and chaired its Finance and Infrastructure Committee. Durrett was also a long-time member of McKinsey's Compensation Committee
and the Director's and Principal's Review Committees. Durrett received a bachelor's degree from Millsaps College, a juris doctorate from
Emory University and a master's degree in business administration from the Wharton School of the University of Pennsylvania.
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Stephen A. Feinberg — Director of Ally since March 2009. He co-founded Cerberus Capital Management in November 1992. Feinberg
began his career at Drexel Burnham Lambert where he was actively involved in trading large pools of firm capital. From 1985 to 1992, after
leaving Drexel Burnham Lambert, he managed money in separate accounts, most of which was firm capital of Gruntal & Co., Inc. Feinberg
has over 25 years of experience in distressed investing, including investments in the financial services industry, and he has served as a control
party in connection with investments in numerous financial institutions, including various lending institutions. Feinberg is a 1982 graduate of
Princeton University.
Kim S. Fennebresque — Director of Ally since May 2009. Fennebresque served as chairman and chief executive officer of Dahlman
Rose & Co. and is a senior advisor at Cowen Group, Inc. He also served as its chairman, president, and chief executive officer where he
oversaw all aspects of the management and operations of the company. Fennebresque has extensive business experience and has served as an
investment banker for over three decades. He has demonstrated leadership capability and has extensive knowledge of the management of a
publicly traded company. The depth and breadth of his exposure to areas of compensation, legal, accounting, and regulatory issues make him
a skilled advisor. Prior to joining Cowen Group, Fennebresque served as head of the Corporate Finance and Mergers & Acquisitions
departments at UBS. He also was a general partner and co-head of Investment Banking at Lazard Frères & Co. and held various positions at
The First Boston Corporation. Fennebresque is a graduate of Trinity College and Vanderbilt Law School. He is currently on the boards of
TEAK Fellowship, and Fountain House.
Gerald Greenwald — Appointed to the Ally board of directors in August 2012. Greenwald is a founder of Greenbriar Equity Group, a
private equity firm focused on the global transportation sector. Previously, Greenwald was the chairman and chief executive officer of United
Airlines from 1994 to 1999. Greenwald began his career in the automotive industry at Ford Motor Company where he worked in several
positions including controller, director of operations in Europe and president of Ford of Venezuela. He later joined Chrysler, where he worked
in various positions including corporate controller and chief financial officer before being promoted to vice chairman. Greenwald received a
bachelor's degree from Princeton University and a master's degree from Wayne State University. He serves on the boards of Align Aerospace
Holdings, Inc., GENCO Distribution System, Inc., Ryan Herco Flow Solutions, Western Peterbilt, Inc. and The Aspen Institute, and Chairman
of a RAND Corporation Advisory Council.
Marjorie Magner — Director of Ally since May 2010. She also serves on the Audit Committee and Risk and Compliance Committee.
Magner is a founding member and partner of Brysam Global Partners, a specialized private equity firm that invests in financial services.
Previously, she served as chairman and chief executive officer of the Global Consumer Group at Citigroup. In this position, she was
responsible for the company's operations serving consumers through retail banking, credit cards, and consumer finance. She earned a
bachelor's degree in psychology from Brooklyn College and a master's degree from Krannert School of Management, Purdue University.
Magner also serves on the boards of Accenture Ltd., Gannett Company, Inc., and the Brooklyn College Foundation. She is a member of the
dean's advisory council for the Krannert School of Management.
Henry S. Miller — Appointed to the Ally board of directors in August 2012. Miller has served as chairman of Marblegate Asset
Management, LLC since its formation in 2009. Miller was also co-founder, chairman and managing director of Miller Buckfire & Co., LLC.
Prior to founding Miller Buckfire, he was vice chairman and managing director at Dresdner Kleinwort Wasserstein. He also served as
managing director and head of both the restructuring and transportation industry group of Salomon Brothers. He also previously held senior
leadership roles at Prudential Securities and Lehman Brothers. Miller received his bachelor's degree from Fordham University and a master's
degree in business administration from from Columbia Business School. He is a trustee of Save the Children, the Washington Institute for
Near East Policy, and Fordham University, as well as a member of the board of directors of AIG and a member of the board of overseers of
Columbia Business School.
John J. Stack — Director of Ally since April 2010. He also serves on the Audit Committee and Risk and Compliance Committee. Stack
served as chairman and chief executive officer of Ceska Sporitelna, a.s., the largest bank in the Czech Republic, from 2000 to 2007. Prior to
that, he spent 22 years in retail banking in various roles at Chemical Bank and then later at Chase Bank. Stack began his career in government
working in staff roles in the New York City Mayor's Office and then the New York City Courts System. He earned a bachelor's degree from
Iona College and a master's degree from Harvard Graduate School of Business Administration. He also serves on the boards of Erste Bank
Group and Mutual of America.
Michael A. Carpenter — Chief Executive Officer of Ally since November 2009 and a member of the Ally Board of Directors since May
2009. He oversees all Ally strategy and operations to focus on strengthening the core businesses, while positioning the company for long-term
growth. Carpenter has broad and deep experience in banking, capital markets, turnarounds, and corporate strategy. Most recently, he founded
Southgate Alternative Investments in 2007. From 2002 to 2006, he was chairman and chief executive officer of Citigroup Alternative
Investments overseeing $60 billion of proprietary capital and customer funds globally in various alternative investment vehicles. From 1998
to 2002, Carpenter was chairman and chief executive officer of Citigroup's Global Corporate & Investment Bank with responsibility for
Salomon Smith Barney Inc. and Citibank's corporate banking activities globally. Carpenter was named chairman and CEO of Salomon Smith
Barney in 1998, shortly after the merger that created Citigroup, and led the first ever successful integration of a commercial and investment
bank. Prior to Citigroup, he was chairman and CEO of Travelers Life & Annuity and vice chairman of Travelers Group Inc. responsible for
strategy and business development. From 1989 to 1994, he was chairman of the board, president, and CEO of Kidder Peabody Group Inc., a
wholly owned subsidiary of General Electric Company. From 1986 to 1989, Carpenter was executive vice president of GE Capital
Corporation. He first joined GE in 1983 as vice president of Corporate Business Development and Planning and was responsible for strategic
planning and development as well as mergers and acquisitions. Earlier in his career, Carpenter spent nine years as vice president and director
of the Boston Consulting Group consulting to major companies on corporate strategy and three years with Imperial Chemical Industries of the
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United Kingdom. Carpenter received a bachelor of science degree from the University of Nottingham, England, and an MBA from the
Harvard Business School where he was a Baker Scholar. He also holds an honorary degree of Doctor of Laws from the University of
Nottingham. He serves on the boards of Autobytel Inc., U.S. Retirement Partners and the New York City Investment Fund and has been a
board member of the New York Stock Exchange, General Signal, Loews Cineplex, and various other private and public companies.
Jeffrey J. Brown — Appointed Senior Executive Vice President of Finance and Corporate Planning in June 2011. In this role, Brown
oversees the finance, treasury and corporate strategy activities of the company. Brown joined Ally in March 2009 as corporate treasurer with
responsibility for global treasury activities, including funding and balance sheet management. Prior to joining Ally, Brown was the corporate
treasurer for Bank of America where he had responsibility for the core treasury functions including funding and managing interest rate risk.
Brown was at Bank of America for 10 years, beginning his career in finance and later joining the balance sheet management division. Brown
previously served as the bank's deputy treasurer and oversaw balance sheet management and the company's corporate funding division. He
was also a member of the company's Asset/Liability Management Committee. He received a bachelor's degree in economics from Clemson
University and an executive master's degree in business from Queens University in Charlotte. He serves on the Trevillian Cabinet of the
College of Business and Behavioral Sciences at Clemson University and on the advisory board of McColl School of Business at Queen's
University in Charlotte.
James G. Mackey — Chief Financial Officer of Ally since June 2011, after serving as interim Chief Financial Officer since April 2010. In
this role, he is responsible for the oversight of the company's financial analysis, controls and reporting, accounting, business planning, and
investor relations. Mackey joined the company in 2009 as group vice president and senior finance executive responsible for financial planning
and analysis, investor relations, corporate treasury finance, and banking subsidiary financial departments. Previously, Mackey served as chief
financial officer for the corporate investments, corporate treasury, and private equity divisions at Bank of America. Earlier in his tenure at
Bank of America, he served as managing director within the global structured products group. Prior to Bank of America, Mackey served in
the financial institutions practice group at PricewaterhouseCoopers LLP, specializing in capital markets accounting and consulting. He holds a
bachelor's degree in business administration and a master's degree in accounting from the University of North Carolina at Chapel Hill. He is
also a registered certified public accountant in North Carolina.
Barbara A. Yastine —Chief Executive Officer and President of Ally Bank since May 2012. She also continues as chair of the bank, a
position she assumed when she joined Ally in 2010. Yastine is a seasoned executive with diverse experience at financial services companies.
Prior to joining Ally, she served as a principal of Southgate Investment Partners, LLC. Before that, she was chief financial officer for Credit
Suisse First Boston from 2002 to 2004 and had responsibility for controllership, treasury, risk management, strategy, mergers and
acquisitions, and tax. She was with Citigroup and its predecessors for 15 years with her last position being as chief financial officer of
Citigroup's global corporate and investment bank. During her time at Citigroup, she also served as chief auditor, chief administrative officer
of the global consumer group, and as executive vice president of what is now CitiFinancial. Yastine began her career at Citigroup predecessor
Primerica as the head of investor relations. Yastine serves on the boards of directors of Primerica Corporation and privately held Symphony
Services Corp., as well as nonprofit Phoenix House. Yastine is a former trustee of the Financial Accounting Foundation. She holds a
bachelor's of arts degree in journalism and a master's degree in finance, both from New York University.
William F. Muir — President of Ally since 2004, and head of its Global Automotive Services business. He oversees the company's
automotive finance, insurance, vehicle remarketing and servicing operations. Muir is also a member of the Ally Bank board of
directors. Chairman of Ally Insurance Group since June 1999, and a Member of the Ally Commercial Finance and Ally Bank Boards of
Directors since February 2002 and March 2004, respectively. Prior to that time, Muir served as executive vice president and chief financial
officer from February 1998 to 2004. From 1996 to 1998, Muir served as executive-in-charge of operations and then executive director of
planning at Delphi Automotive Systems, a former subsidiary of GM. Prior to serving at Delphi Automotive Systems, Muir served in various
executive capacities with Ally since first joining Ally in 1992. He also served in a number of capacities with GM since joining the company in
1983. Muir received a bachelor's degree in industrial engineering and operations research from Cornell University in 1977. He earned a
master's of business administration degree from Harvard University in 1983.
David J. DeBrunner — Vice President, Chief Accounting Officer, and Controller of Ally since September 2007. DeBrunner joined Ally
from Fifth Third Bancorp (Fifth Third) where he was senior vice president, corporate controller, and chief accounting officer from
January 2002 to August 2007. Prior to that position, he served as the chief financial officer for the commercial division of Fifth Third
beginning in December 1999. DeBrunner joined Fifth Third in 1992 and held various financial leadership positions throughout the company.
Prior to his time at Fifth Third, he held positions at Deloitte and Touche LLP in the Chicago and Cincinnati offices. DeBrunner holds a
bachelor's of science in accounting from Indiana University and is a member of the American Institute of Certified Public Accountants and the
Ohio Society of Certified Public Accountants.
Brian Gunn — Chief Risk Officer of Ally since November 2011. In this role, Gunn has overall responsibility for achieving an
appropriate balance between risk and return, mitigating unnecessary risk and protecting the company's financial returns. Gunn joined Ally in
2008 as chief risk officer for the Global Automotive Services business where he was responsible for overseeing disciplined risk processes,
governance and analytics in support of Ally's efforts to diversify and grow its automotive product lines. In this role, Gunn established a global
automotive risk management framework for all product lines across North America, Latin America, Europe and China. Prior to joining Ally,
Gunn served in a number of senior leadership positions with GE Money of Stamford, Conn., most recently as chief risk officer for GE Money
Canada. In this role, he was responsible for all areas of risk management and collections across various product lines. Gunn received a
master's degree in Banking and Finance from Hofstra University in Hempstead, N.Y., and a bachelor's degree in Finance from Providence
College in Providence, R.I.
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Ally Financial Inc. • Form 10-K
Ally Code of Ethics
Ally has published on its website the Ally Code of Conduct and Ethics (the Code) that is applicable to all employees. The Code further
includes certain provisions that apply specifically to Ally “financial professionals” (as that term is defined in the Code). The Code has been
posted on Ally's internet website at www.ally.com, under “About Ally,” and “Policies & Charters.” Any amendment to, or waiver from, a
provision of the Code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or
persons performing similar functions will be posted at this same internet website location as required by applicable law.
Certain Corporate Governance Matters
Election of Directors — Our current directors were elected pursuant to the terms of the Amended and Restated Governance Agreement
dated May 21, 2009 (the Governance Agreement), which we have entered into with certain of our shareholders (see Exhibit 10.2 to our
Form 8-K filed on May 22, 2009). Based on the current ownership of our common stock, the Governance Agreement provides that the Ally
Board of Directors (Board) is to be comprised of the following: (1) one director designated by affiliates of Cerberus Capital
Management, L.P., (2) six directors designated by the U.S. Department of Treasury (Treasury), (3) the chief executive officer of Ally and
(4) three independent directors chosen by the members described in (1) through (3) above. Currently, the Board consists of the Cerberus
appointed director, the chief executive officer of Ally, six directors appointed by Treasury, and three independent directors.
Audit Committee — We have established a separately designated standing Audit Committee. Members currently include Chairman
Robert T. Blakely, Mayree C. Clark, John D. Durrett Jr., Marjorie Magner, and John J. Stack. Each member is “independent” as required by
Rule 10A-3 of the Exchange Act and under rules of the New York Stock Exchange, and the Board has determined that all members are also
qualified as “audit committee financial experts,” as defined by the SEC.
Other Board Committees — We have also established a Risk and Compliance Committee (Risk Committee) and a Compensation,
Nominating, and Governance Committee (CNG Committee). Members of the Risk Committee currently include Mayree C. Clark (Committee
Chairwoman), Franklin W. Hobbs, Marjorie Magner, Henry S. Miller, and John J. Stack. Members of the CNG Committee currently include
Kim S. Fennebresque (Committee Chairman), Robert T. Blakely, and Franklin W. Hobbs.
Director Independence — Our common stock is not registered with the SEC or listed on any stock exchange. As such, we are not
required by law to have a majority of our Board consist of independent directors. However, the Governance Agreement provides that, based
on the current common stock ownership structure, the Ally Board is to consist of eleven members with three of such members being
independent. For this purpose, “independent” is determined in accordance with the rules and regulations promulgated by the SEC and the
New York Stock Exchange, each as in effect from time to time. Independent directors are appointed by a majority vote of Treasury Designated
Managers, the Cerberus Designated Managers, and the Management Designated Managers (as those terms are defined in the Governance
Agreement) which majority must include at least one designee of Treasury. The Board has independently and affirmatively determined that all
Board members, except for Mr. Carpenter, meet all the requirements for independence. Pursuant to Ally's Bylaws, any Board member that
qualifies as “independent” under the applicable standards may perform any independent director function (e.g., serve on an audit committee
of the Board). Members of the Ally Audit Committee include Chairman Robert T. Blakely, Mayree C. Clark, John D. Durrett Jr.,
Marjorie Magner, and John J. Stack. New York Stock Exchange rules require members of our audit committee to meet the SEC's definition of
“independence” as provided by Rule 10A-3 of the Exchange Act. The Ally Board has determined that each member of our audit committee
meets this independence requirement.
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Ally Financial Inc. • Form 10-K
Item 11. Executive Compensation
Corporate Governance and Related Disclosures
The Compensation, Nominating and Governance Committee
The Ally Compensation, Nominating and Governance Committee (the Committee) is a committee of the Ally Board of Directors (Board)
consisting of three non-employee independent directors, including Kim S. Fennebresque (Committee Chairman), Robert T. Blakely, and
Franklin W. Hobbs.
The Committee, pursuant to its Charter, is, among other things, responsible for the following:
• Discharging the Board's responsibilities with respect to the establishment, maintenance and administration of Ally's compensation
plans, including determining the total compensation of the Chief Executive Officer and executive officers plus other senior
executives designated by the Committee as under its purview;
• Overseeing Ally's leadership development and succession planning programs;
•
Identifying qualified individuals for membership on the Board (consistent with criteria approved by the Board) and to recommend
to the Board the director nominees;
• Reviewing and recommending to the Board the director compensation for service on the Board;
•
Leading the Board and its committees in their annual self-evaluation and the annual review of the Board's performance;
• Developing and recommending to the Board a corporate governance policy for the Board, and overseeing Ally's corporate
governance procedures and practices related to the Board; and
•
Performing any and all duties required of it under applicable laws, rules, regulations, regulatory guidance, or other legal authority.
Compensation, Nominating and Governance Committee Process
Ally's executive compensation programs are administered by the Committee. During 2012, the Committee met 14 times.
The Committee determines the compensation of senior executives under its purview, including the compensation of our named executive
officers (NEOs, who are also our Senior Executive Officers (SEOs) for purposes of the Troubled Asset Relief Program (TARP) requirements).
In making its determination for senior executives other than the Chief Executive Officer (CEO) and Residential Capital, LLC (ResCap)
executives, and in making changes to our executive compensation program, the Committee considers the recommendations of the CEO. The
Committee determines the compensation of the CEO without recommendations from the CEO or other management. The Committee
considers the recommendations of the ResCap Board of Directors and the ResCap CEO in making changes to compensation for ResCap
executives under its purview. The Committee has delegated to the CEO the authority to determine cash and equity compensation for
executives other than for the approximately 25 highest-compensated employees (Top 25), ResCap executives, and other select senior
executives as determined by the Committee. The Committee also meets periodically in executive session without the presence of any
members of management. The Committee seeks the input of Ally's Risk Management functions, and in its deliberations on compensation
related issues it also consults with the chairperson of the Board's Risk and Compliance Committee and Audit Committee.
Frederic W. Cook & Co. (Cook) served as an independent advisor during 2012. Cook reports directly to the Committee and provides
ongoing advice with respect to the plans and programs covering the executives, including our NEOs and non-employee directors, for which
the Committee is responsible. Cook reviews all materials developed by management in advance of Committee meetings, provides advice and
recommendations concerning changes to our plans and programs, as well as information on market practices and trends, and attends meetings
of the Committee. Cook undertakes no separate work for Ally.
Ally management engaged Pearl Meyer & Partners (Pearl Meyer) to provide consulting assistance on matters pertaining to executive
compensation, including a competitive assessment of the compensation paid to Ally's CEO, a price differential analysis for purposes of
assisting in the Company's valuation to determine restricted stock unit awards, an analysis of total direct compensation for top executives and
an updated competitive assessment of the compensation for Ally's 25 highest-compensated executives requested by the Special Master for
TARP related to executive compensation (the Special Master). Ally management also engaged McLagan Partners (McLagan), an Aon Hewitt
Company, to provide consulting assistance on certain matters pertaining to executive compensation, including compensation benchmarking.
Compensation, Nominating and Governance Committee Report
The Committee has reviewed and discussed with Ally management the Compensation Discussion and Analysis and, based on that
discussion, recommended it to the Ally Board of Directors for inclusion in this Form 10-K.
The Committee, with the assistance of Ally's Risk Management and Human Resource functions, conducts assessments of the risks
associated with Ally's compensation policies and practices every six months as required by TARP. To complete such assessments, in 2012 the
Committee followed a process that consisted of the following: (1) ranking plans in a tiered system based on each plan's potential to encourage
risk taking as determined by the size of the potential payout and the nature of the activities engaged in by participants; (2) identifying risk
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Ally Financial Inc. • Form 10-K
mitigators built into each plan such as caps, clawback features, and mandatory deferrals; and (3) implementing as necessary additional risk
mitigators or controls in plans.
Based on the risk assessments conducted during 2012, the Committee concluded that (1) the SEO compensation programs do not
encourage excessive and unnecessary risk taking that could threaten the value of Ally; (2) other employee compensation plans do not
encourage unnecessary or excessive risk taking that could threaten the value of the Company, or reward
results to the detriment of
value creation; and (3) Ally's compensation programs do not encourage the manipulation of reported earnings.
The Committee, with the assistance of the Company's senior risk officers, will continue to assess the risks associated with Ally's
compensation plans every six months and take necessary steps to identify and eliminate any features that may unnecessarily expose Ally to
risks or encourage manipulation of reported earnings.
The Compensation, Nominating and Governance Committee certifies that:
•
•
•
It has reviewed with senior risk officers the SEO compensation plans and has identified and limited features to ensure that
these plans do not encourage SEOs to take unnecessary and excessive risks that threaten the value of Ally.
It has reviewed with senior risk officers the employee compensation plans and has identified and limited features as it deemed
necessary to ensure that Ally is not exposed to unnecessary risks.
It has reviewed the employee compensation plans to eliminate any features in these plans that would encourage the
manipulation of reported earnings of Ally to enhance the compensation of any employee.
THE COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE
Kim S. Fennebresque (Committee Chairman)
Robert T. Blakely
Franklin W. Hobbs
Executive Compensation Discussion and Analysis
Introduction
For the full year 2012, Ally reported net income of $1.2 billion. Ally's industry-leading U.S. automotive finance franchise remained well-
positioned, despite significant competition. Ally grew U.S. net financing revenue 39 percent from the prior year, and also showed significant
growth in U.S. automotive earning assets, increasing 18 percent year-over-year, and the Ally Bank franchise continued to build its deposit
base and maintained strong customer loyalty with a unique consumer value proposition. Ally made significant strides in the fourth quarter on
its key strategic actions aimed at strengthening the company's longer term financial profile and accelerating repayment of the U.S.
Department of Treasury's investment.
Executive Compensation Limitations
In connection with our participation in TARP, certain determinations of the Office of the Special Master for TARP Executive
Compensation (Special Master), and other laws and regulations, Ally is subject to certain limitations on executive compensation, the most
significant of which are:
• Cash salaries are limited based on the determination of the Special Master;
•
The majority of an SEO's compensation paid in equity that must be held long-term;
• Any incentive compensation granted must be in the form of long-term restricted equity that is contingent on performance and paid
out after incremental TARP repayments;
•
•
•
Perquisites and “other” compensation capped at $25,000, with limited exceptions;
Suspension of the accrual of benefits to supplemental executive retirement plans;
Prohibition on incentives for SEOs that could cause them to take unnecessary or excessive risks;
• Clawback of any bonus or incentive compensation paid to an SEO based on statements of earnings, revenues, gains, or other
performance criteria that are later found to be materially inaccurate, is based on erroneous data that resulted in an accounting
restatement due to material noncompliance with any financial reporting requirement under the securities laws within the three years
prior to payment, or is found to require repayment under the provisions of any other Federal law or regulation that may govern the
Company's executive compensation; and
•
Prohibition on any severance payable to the SEOs and the next five most highly compensated employees.
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Ally Financial Inc. • Form 10-K
Ally Compensation Program Overview and Philosophy
Working within the limitations imposed on our executive compensation by TARP, Ally's compensation philosophy has been, and
continues to be, that there should be a strong linkage between compensation and performance. We believe compensation should:
• Align with long-term value creation for our shareholders;
•
•
•
Provide appropriate incentives based on individual, business, and Company performance;
Encourage prudent, but not excessive risk taking;
Provide a total compensation opportunity competitive with market practice; and
• Be internally equitable for the relative value of the employee's position at Ally.
In addition, our compensation plans are intended to achieve performance enabling us to complete the repayment to the U.S. taxpayers as
quickly as practicable.
Ally supports the compensation principles underlying the TARP compensation rules, and we believe our compensation philosophy is
consistent with the TARP compensation principles. The Special Master has required that the majority of compensation for NEOs and the next
20 highest-compensated employees be in the form of long-term stock or stock units, that such stock or stock units should be held for specified
minimum periods of time, and that any incentive payments should be subject to recoupment if paid based on information that is subsequently
found to be materially inaccurate. The Company and the Committee fully support and have implemented these principles for our NEOs and
the next 20 highest-compensated employees.
Refer to the Long-term Equity-based Incentives section for a discussion of the long-term stock awards that are granted to our NEOs.
The Pay Process for 2012
For 2012, the total compensation opportunity for the NEOs was determined by the Special Master, following review and approval of
recommended total direct compensation levels for each of the NEOs by the Committee.
On May 14, 2012, our indirect mortgage subsidiary Residential Capital, LLC (ResCap), and certain of its wholly owned direct and
indirect subsidiaries, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Southern District of New York (Bankruptcy Court). Further, and also on May 14, 2012, we announced that we were launching a process to
explore strategic alternatives with respect to our international operations. The Committee determined that the existing compensation structures
in place for Ally did not adequately address issues raised by these developments. As a result, the Committee sought and obtained the Special
Master's approval of certain modifications to the compensation structures for the NEOs and other senior executives of the company. The
purpose of the modifications was to better ensure that existing senior management was retained and remained fully focused on implementing
the announced steps as well as operating the ongoing businesses.
Effective with the bankruptcy filing of Residential Capital, LLC, compensation for all employees of Residential Capital, LLC, including
Thomas Marano, were under the purview of the Bankruptcy Court and not directly determined by Ally. Following the bankruptcy filing, Ally
and ResCap reached an agreement, memorialized by a Bankruptcy Court order, that clarified that Ally was financially responsible for
compensation issued to ResCap employees prior to May 14, 2012, and ResCap was financially responsible for compensation issued to
ResCap employees on or after May 14, 2012. Additionally, following the bankruptcy filing, at the request of the ResCap Board of Directors,
the Committee sought and obtained the Special Master's approval of a modified compensation structure for Mr. Marano and other employees
of ResCap whose compensation was restricted by TARP. The Special Master's Supplemental Determination Letter of November 30, 2012,
provides that no compensation awarded after May 14, 2012 to covered employees of ResCap should be in the form of Ally equity and all that
such compensation should be awarded in either cash or deferred cash. These modifications were also disclosed, as required, to the Bankruptcy
Court. All compensation paid to employees of ResCap after the deconsolidation of ResCap following the bankruptcy filing on May 14, 2012,
including Thomas Marano, is the responsibility of ResCap, and was therefore not reflected as compensation expense by Ally in its financial
statements for 2012.
Assessing Ally Compensation Competitiveness
We compare our total direct compensation against a peer group of other comparably sized financial services companies with whom we
compete for business and senior executive talent. We use publicly available reported pay data from a peer group of companies approved by
the Committee to conduct the competitive assessment for the CEO and principal financial officer positions. For the other NEO and senior
executive positions, we use market survey data from several survey sources to conduct the competitive assessments. Wherever practical, the
market surveys include companies that are part of the peer group approved by the Committee.
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Ally Financial Inc. • Form 10-K
During 2011, the Committee approved revisions to the peer group to increase the focus on bank holding companies. No changes were
made to the peer group during 2012, which consists of the ten financial services companies listed below:
• BB&T
• KeyCorp
• Capital One Financial
• PNC Financial
• Discover
• Fifth Third Bancorp
• Regions Financial
• SunTrust Banks
• U.S. Bancorp
• Wells Fargo
For 2012, survey data used for the remaining NEOs and other senior executives came from one or more survey sources, including the
Hewitt Total Compensation Measurement™ (TCM™) database, Towers Watson Executive Financial Services survey, McLagan Investment
Management survey, and McLagan Fixed Income Sales and Trading survey. Because multiple survey sources are used and not all survey
participants provide data for each of the remaining NEOs, it is not possible to list the survey participants included in our competitive data
analyzed for positions other than the CEO and the principal financial officer.
For executives below the Top 25 whose pay is not determined by the Special Master, our compensation philosophy is to set base salaries
and employee benefits at median competitive levels and to set annual incentive compensation to deliver total annual cash and equity
compensation up to or exceeding the 75th percentile when warranted by achievement of aggressive performance goals and top quartile
competitive performance. If annual performance goals are not achieved, annual incentive compensation is reduced or eliminated, and total
annual cash and equity compensation falls to below the market median. The size of long-term equity-based incentive awards relative to total
compensation is set annually to ensure senior management maintains an appropriate level of long-term balance in their total compensation
and to achieve individual differentiation of total compensation based on performance considerations and retention needs.
Due to the pay restrictions applicable to the NEOs under TARP, including limitations on incentive compensation, total direct
compensation rather than individual elements of pay (i.e., base salary, annual incentives, and long-term incentives) is set to be competitive.
The Committee sets proposed total direct compensation levels for each of the NEOs based on his or her job responsibilities. Once the
Committee determines and approves the proposed compensation packages for the NEOs, they are submitted to the Special Master for
approval. The Special Master then reviews the proposed packages to determine if they are aligned with TARP requirements and set at
appropriate market levels. The Special Master subsequently issues a Determination Letter, specifying the final design and allocation of total
pay approved for the NEOs. At the end of the year, the Committee reviews the performance of the NEOs relative to their individual goals and
objectives. For 2012, there was no incentive compensation (i.e., the long-term incentive restricted stock units (IRSUs)) eligible to be awarded
to any NEO under the Supplemental Determination Letters issued by the Special Master.
Role of Management in Compensation Decisions
Compensation recommendations for the NEOs other than the CEO and Thomas Marano are presented to and discussed with the
Committee by the CEO. The Committee then determines and approves the proposed compensation for the NEOs, which is submitted to the
Special Master for final approval.
The Committee determines and approves the compensation of the CEO without the recommendation of management. The Committee
exercises its responsibilities with respect to the determination of the compensation of Thomas Marano based on the recommendation of the
ResCap Board of Directors and, subsequent to May 14, 2012, upon Bankruptcy Court approval.
Components of Ally Compensation Program
Due to the TARP restrictions on cash compensation and limitations on incentive compensation, base salary is delivered in a combination
of cash and equity. All NEOs were ineligible to receive any incentives for 2012. We also offer limited perquisites and other benefits in order
to enhance the effectiveness of our NEOs in focusing their time and energy on performing their duties and responsibilities and to enable us to
offer a competitive compensation package to attract and retain senior executive talent.
Base Salary
Under our compensation philosophy, base salary is intended to provide a predictable level of compensation that is competitive in the
marketplace for the position responsibilities and individual skills, knowledge, and experience of each executive. However, the pay restrictions
under TARP significantly limit the form and amount of base salary paid in 2012. As a result, a significant portion of total direct compensation
is delivered in the form of equity-based salary for alignment with shareholders' interests.
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Ally Financial Inc. • Form 10-K
The following table shows base salaries paid to the NEOs in 2012.
NEO
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
2012 Base salary
Cash ($)
Deferred Cash
($) (a)
—
600,000
600,000
600,000
550,000
600,000
—
—
—
—
—
5,582,052
Equity (Deferred
stock units) ($)
9,500,000
3,797,892
4,587,357
3,400,000
2,450,000
1,821,397
Total ($)
9,500,000
4,397,892
5,187,357
4,000,000
3,000,000
8,003,449
(a) Deferred cash awarded to Mr. Marano was granted after May 14, 2012 in lieu of DSUs pursuant to the request of the ResCap Board of Directors and the
Special Master's November 30, 2012 Supplemental Determination Letter.
Equity salary is delivered in the form of deferred stock units (DSUs), which are immediately vested, but are subject to restrictions on the
timing of payout. Except for the CEO, DSUs and deferred cash earned in 2012 will be payable in three equal installments: the first on the
final payroll date of 2012, the second ratably over 2013 and the third ratably over 2014. DSUs earned by the CEO in 2012 are payable only in
three equal, annual installments beginning on the first anniversary of grant.
Annual Cash Incentives
All NEOs were ineligible to receive annual cash incentives in 2012 due to restrictions under TARP and will continue to be ineligible for
as long as the TARP restrictions are in place.
Long-term Equity-based Incentives
Prior to 2012, we provided long-term equity-based incentives in the form of IRSUs to have an incentive compensation component in the
total direct compensation opportunity for our NEOs, and to provide retention and alignment with shareholder interests. Due to the restrictions
under TARP, grants of long-term IRSUs are the only incentive compensation permitted for the NEOs and the next 20 highest-compensated
employees.
NEOs and the balance of the Top 25 were not eligible for IRSUs in 2012. The long-term IRSU awards granted prior to 2012 to the Top
25 vest after two years from the day they are granted. The long-term IRSU award granted to our CEO in 2011 vests two-thirds after two years
from the date they were granted and in full three years from the date they were granted. Earlier IRSU awards made to our CEO vest three
years from the date they were granted. After the vesting requirement is met, the NEOs will receive payouts as the Company repays its TARP
obligations. Payouts will be made in 25% increments based on the percentage of TARP obligations that have been repaid, as determined in
accordance with the established guidelines for determining “repayment”. As of December 31, 2012, Ally had repaid more than 25%, but less
than 50%, of its TARP obligations, as determined in accordance with the established guidelines. Therefore, 25% of IRSUs granted will be
immediately payable to recipients upon the vesting date(s).
Special Master's 2012 Supplemental Determination Letters and Modified Compensation Structures
On May 14, 2012, our indirect mortgage subsidiary Residential Capital, LLC, and certain of its wholly owned direct and indirect
subsidiaries, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York. Further, and also on May 14, 2012, we announced that we were launching a process to explore strategic
alternatives with respect to our international operations. The Committee determined that the existing compensation structures in place for Ally
did not adequately address issues raised by these developments. As a result, the Committee sought and obtained the Special Master's approval
of certain modifications to the compensation structures for the NEOs and other senior executives of the company. The purpose of the
modifications was to better ensure that existing senior management was retained and remained fully focused on implementing the announced
steps as well as operating the ongoing businesses.
The modifications to the compensation structures for the NEOs and other senior executives, which were approved by the Special Master
in 2012 and then adopted by the Committee, specified as follows:
• No increase in total direct compensation for any Top 25 employee.
• No increase in cash salary for any Top 25 employee.
•
•
The portion of each Top 25 employee's total direct compensation for 2012 that would have been payable in the form of long-term
IRSUs would instead be paid in additional salary in the form of DSUs. As a result, no incentive compensation of any kind would be
payable for 2012 for any Top 25 employee.
Except for the CEO, DSUs earned in 2012 will be payable in three equal installments: the first on the final payroll date of 2012, the
second ratably over 2013 and the third ratably over 2014. DSUs earned by the CEO in 2012 are payable only in three equal, annual
installments beginning on the first anniversary of grant.
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Ally Financial Inc. • Form 10-K
•
•
Except for the CEO, DSUs earned in 2009 and 2010 and not yet paid will be payable in equal installments over the period ending
on the third anniversary of the grant.
Except for the CEO, long-term IRSUs previously awarded for prior services will vest after two years of service. Even if vested, as
required by the Interim Final Rule, all IRSU awards may be paid only in 25% installments as Ally repays its TARP obligations in
25% increments, and will otherwise be forfeited.
Benefits and Perquisites
We provide our NEOs with health and welfare benefits under the broad-based program generally available to all of our employees. This
allows them to receive certain benefits that are not readily available to individuals except through an employer and to receive certain benefits
on a pretax basis. Our benefit program includes the Ally Retirement Savings Plan. We provide the savings plan in lieu of higher current cash
compensation to ensure that employees have a source of retirement income and because these plans enjoy more favorable tax treatment than
current compensation. Under this plan, employee contributions of up to 6% of salary were matched 100% by Ally. The plan also provided a
2% nonmatching contribution on both salary and annual cash incentives, which fully vests after being employed for three years, and a 2%
nonmatching discretionary contribution on salary in light of the Company's 2012 performance.
Ally suspended nonqualified contributions to its Retirement Savings Plan in 2009 and did not make any additional nonqualified
contributions in 2012. Therefore, employer contributions for 2012 were made only under the qualified portion of the plan only which limits
contributions to pay up to $250,000.
In addition to broad-based benefits, the NEOs are provided with limited supplemental benefits and perquisites to remain competitive in
attracting and retaining executive talent. For 2012, in accordance with the TARP restrictions, the total value of these perquisites and
supplemental benefits was capped at $25,000.
Long-term Compensation Structure
Based on the compensation structure for 2012, long-term equity-based compensation, represented by DSUs, comprises a significant
portion of each NEOs total compensation. The long-term equity-based portion of total compensation for each NEO and its associated
percentage of total compensation for 2012 are as follows.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
Total
compensation
($)
Long-term equity-based compensation
Dollar amount
awarded ($)
Percent of total
compensation (%)
9,557,119
4,428,059
5,215,956
4,031,723
3,030,904
8,030,548
9,500,000
3,797,892
4,587,357
3,400,000
2,450,000
1,821,397
99.4%
85.8%
88.0%
84.3%
80.8%
22.7%
Employment Agreements and Severance
Ally currently has no employment agreement with any of the NEOs.
As a condition to participating in TARP, Ally's NEOs and the next five most highly compensated employees are not eligible for any
severance in the event of termination of employment. These restrictions apply until Ally repays its TARP obligations.
Clawback Provisions
In connection with the risk assessment Ally conducted in 2012, the Company has reviewed all of its incentive compensation programs to
ensure they include language allowing the Company to recoup incentive payments made to recipients in the event those payments were based
on financial statements that are later found to be materially inaccurate. Incentive plans that did not include such language were revised to
allow for incentive payments to be recovered. A recipient who fails to promptly repay Ally under such circumstances is subject to termination
of employment.
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Ally Financial Inc. • Form 10-K
Summary Compensation Table
The following table shows compensation for any person serving as principal executive officer or principal financial officer during 2012,
as well as Ally's next three most highly compensated executive officers.
Year
Salary
($) (a) (b)
All other
compensation
($) (f)
Total
($)
Stock
awards
($) (c) (d) (e)
9,500,000
9,500,000
9,708,750
3,797,892
3,743,678
3,750,000
4,587,357
4,587,357
3,400,000
3,147,280
2,450,000
2,305,738
1,922,951
1,821,397
7,403,449
6,906,250
Name and principal position
Michael A. Carpenter
Chief Executive Officer
Jeffrey J. Brown
Senior Executive Vice President of Finance and Corporate
Planning
Barbara Yastine
Chief Executive Officer and President, Ally Bank
William Muir
President
James G. Mackey
Chief Financial Officer
2012
2011
2010
2012
2011
2010
2012
2011
2012
2011
2012
2011
2010
2012
2011
2010
(a) The amounts shown as salary represent the cash portion of base salary and do not include the DSU award values that are part of the executive's base salary and are shown as
stock awards in this table. Amounts for Mr. Marano for 2012 include $5,582,052 deferred cash paid in lieu of DSUs granted after May 14, 2012 pursuant to the request of the
ResCap Board of Directors, the Special Master's November 30, 2012 Supplemental Determination Letter, and disclosure to the Bankruptcy Court. Deferred cash is payable in
three equal installments: the first on the final payroll date of 2012, the second ratably over 2013 and the third ratably over 2014. At the request of the ResCap Board of
Directors, effective January 1, 2013, the annual salary to be paid to Mr. Marano was reduced to $2,000,000 per year. Of this amount, $600,000 will be paid in cash and the
balance will be paid in deferred cash, subject to the approval of the Special Master. Mr. Marano also served as Chief Capital Markets Officer through May 14, 2012.
For 2010, represents the amount of Mr. Carpenter's compensation that was paid in cash prior to March 23, 2010, when his compensation structure changed to be fully based on
long-term equity of the Company.
—
—
186,346
600,000
600,000
500,000
600,000
600,000
600,000
509,000
550,000
550,000
475,068
6,182,052
600,000
500,000
9,557,119
9,543,077
9,925,054
4,428,059
4,373,287
4,288,908
5,215,956
5,215,307
4,031,723
3,686,875
3,030,904
2,885,391
2,419,623
8,030,548
8,034,899
7,433,035
57,119
43,077
29,958
30,167
29,609
38,908
28,599
27,950
31,723
30,595
30,904
29,653
21,604
27,099
31,450
26,785
Thomas Marano
Chief Executive Officer, ResCap
(b)
(c) The 2012 total represents the grant date fair value of the Ally DSU awards granted in 2012 and is not necessarily the cash payment received. The amounts for each NEO for
2012 are displayed in the following table. For Mr. Marano, Stock Awards for 2012 of $1,821,397 were granted prior to May 14, 2012. Amounts granted after May 14, 2012
were granted as deferred cash as explained in footnote (a) above. For further information related to compensation paid to ResCap employees, including Mr. Marano, refer to The
Pay Process for 2012.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
DSU ($)
IRSU ($)
Total ($)
9,500,000
3,797,892
4,587,357
3,400,000
2,450,000
1,821,397
—
—
—
—
—
—
9,500,000
3,797,892
4,587,357
3,400,000
2,450,000
1,821,397
(d) The 2011 total represents the grant date fair value of the Ally DSU and IRSU awards granted in 2011 and is not necessarily the cash payment received. The amounts for each
NEO for 2011 are displayed in the following table.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
DSU ($)
IRSU ($)
Total ($)
8,000,000
2,350,000
2,858,238
1,931,520
1,353,825
4,735,633
1,500,000
9,500,000
1,393,678
3,743,678
1,729,119
4,587,357
1,215,760
3,147,280
951,913
2,305,738
2,667,816
7,403,449
(e) The 2010 total represents the grant date fair value of the Ally DSU and IRSU awards granted in 2010 and is not necessarily the cash payment received. The amount for
Mr. Carpenter includes $395,096 of IRSU awards that were granted in January 2010 for performance in 2009, as per the SEC rules. The amounts for each NEO for 2010 are
displayed in the following table.
Name
Michael Carpenter
Jeffrey J. Brown
James G. Mackey
Thomas Marano
(f) Refer to the All Other Compensation in 2012 section for further details.
220
DSU ($)
IRSU ($)
Total ($)
7,813,654
2,350,000
1,119,964
4,437,500
1,895,096
9,708,750
1,400,000
3,750,000
802,987
1,922,951
2,468,750
6,906,250
Table of Contents
Ally Financial Inc. • Form 10-K
All Other Compensation in 2012
Financial counseling (a)
Liability insurance (b)
Wellness credit (c)
Total perquisites
Life insurance (d)
401(k) matching contribution (e)
Total all other compensation
Michael A.
Carpenter
Jeffrey J.
Brown
Barbara
Yastine
William
Muir
James G.
Mackey
Thomas
Marano
$
3,500
$
3,500
$
— $
— $
3,439
$
3,500
425
—
3,925
28,194
25,000
425
—
3,925
1,242
25,000
425
—
425
3,174
25,000
825
—
825
5,898
25,000
425
150
4,014
1,890
25,000
$
57,119
$
30,167
$
28,599
$
31,723
$
30,904
$
425
—
3,925
3,174
20,000
27,099
(a) We provide a taxable allowance to certain senior executives for financial counseling and estate planning services with one of several approved providers.
The NEOs are provided an enhanced financial and estate planning service. Costs associated with this benefit are reflected in the table above, based on the
actual charge for the services received. Any taxes assessed on the imputed income for the value of this service are the responsibility of the executive.
(b) Represents the total cost of liability insurance for 2012.
(c) Represents a $150 wellness credit for participating in and completing various wellness initiatives as part of a company-wide wellness program.
(d) Represents the total cost of life insurance for 2012.
(e) Represents the employer contribution, Company match contribution, and discretionary contribution made to the employees' 401(k) fund.
Grants of Plan-based Awards in 2012 — Estimated Future Payments under Equity Incentive Plan Awards
The following table represents Ally DSU awards, which are stated in phantom shares.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
Awards made:
January 1, 2012 - May
31, 2012 (a)
Awards made:
June 1, 2012 -
December 31, 2012 (a)
463.3
114.6
139.4
101.0
70.7
210.7
609.0
311.5
375.3
280.4
204.1
—
Total 2012
($) (a)
9,500,000
3,797,892
4,587,357
3,400,000
2,450,000
1,821,397
(a) For all NEOs, DSU awards were granted ratably during the respective periods.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
All other stock awards:
number of shares or unit of stock (b) (c)
Grant date
fair value
of stock or unit awards
($)(d)
1,072.3
426.1
514.7
381.4
274.8
210.7
9,500,000
3,797,892
4,587,357
3,400,000
2,450,000
1,821,397
Award
DSU
DSU
DSU
DSU
DSU
DSU
(b) For Mr. Marano, all 210.7 shares were granted prior to May 14, 2012. Amounts exclude deferred cash granted in lieu of DSUs after May 14, 2012
pursuant to the request of the ResCap Board of Directors, the Special Master's November 30, 2012 Supplemental Determination Letter, and disclosure to
the Bankruptcy Court.
(c) The award grants are expressed as phantom shares of Ally.
(d) The grant date fair value amounts shown do not reflect realized cash compensation by the NEOs, which is described in the Stock Awards Vested Table for
the awards. The value shown represents the computed fair value at the date of grant of each award, which was $8,500 per share for each award from
January 1, 2012 through March 31, 2012. The grant date fair value for awards granted between April 1, 2012 through December 31, 2012 was $9,000 per
share. For a further discussion of the valuation of equity awards, see footnote (a) in the Outstanding Equity Awards at 2012 Fiscal Year End - Stock
Awards section below and Note 24 to our Consolidated Financial Statements.
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Ally Financial Inc. • Form 10-K
Outstanding Equity Awards at 2012 Fiscal Year End — Stock Awards
The following table provides information for the named executive officers regarding the Ally IRSU awards outstanding at December 31,
2012.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
Number of
shares or units
of stock that have
not vested (#) (a) (b)
Market value
of shares or
units of stock
that have
not vested ($) (a)
50.6
192.0
187.5
174.2
216.1
152.0
119.0
333.5
455,151
1,728,001
1,687,500
1,567,888
1,945,259
1,367,730
1,070,903
3,001,293
Grant
date
1/28/2010
12/16/2010
12/19/2011
12/19/2011
12/19/2011
12/19/2011
12/19/2011
12/19/2011
(a) Amounts shown represent Ally IRSU awards granted to named executives that have not vested. Each award represents one phantom share of Ally. The fair
market value for the phantom shares is determined by the Board at least annually, as required by the Ally Financial Long-Term Equity Compensation
Incentive Plan. The fair market value for each phantom share at December 31, 2012 was determined to be $9,000. During 2012, Sandler O'Neill &
Partners, L.P. (Sandler O'Neill), an independent investment banking firm, was engaged to provide certain valuation analyses and to prepare an annual
report regarding the fair market value of the Company's common equity securities, and to provide other services related thereto. The valuation amounts as
of March 31, 2012 and December 31, 2012 were determined based on the analyses provided by Sandler O'Neill.
(b) Vesting terms of IRSUs granted to NEOs (with the exception of Mr. Carpenter) were modified in 2012 as a result of the Special Master's Supplemental
Determination Letter dated June 8, 2012. For these NEOs, 2011 awards will vest after two years of service. Even if vested, as required by the Interim
Final Rule, IRSU awards may be paid only in 25% installments as Ally repays its TARP obligations in 25% increments, and will otherwise be forfeited.
No modifications were made to Mr. Carpenter's awards. Mr. Carpenter's grants vest as follows: grant dated January 28, 2010 vests January 28, 2013, grant
dated December 16, 2010 vests December 16, 2013 and grant dated December 19, 2011 vests December 19, 2014.
Options Exercised and Shares Vested in 2012
During 2012, no stock options were held by the named executive officers.
The following table reflects the Ally IRSU and RSU awards that vested in 2012. A substantial portion of the value cannot be paid until
Ally further repays its TARP obligations.
Name
Michael A. Carpenter
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
Number of shares
acquired on vesting
(#) (a) (b)
Value realized
on vesting ($) (b) (c)
—
336.8
64.0
281.4
172.9
559.0
—
3,030,934
576,000
2,532,831
1,526,579
5,030,628
(a) Amounts shown represent the 2012 vesting of the continued service portion of Mr. Brown's, Mr. Muir's, Mr. Mackey's and Mr. Marano's 2009 IRSU
grants and 2010 IRSU grants. Also for Mr. Muir, the amount shown represents the 2008 RSU which vested and paid December 31, 2012. Ms. Yastine's
amount shown represents the 2012 vesting of the continued service portion of her 2010 IRSU. The 2009 IRSU and 2010 IRSU vesting was modified in
2012 as a result of the Special Master Supplemental letter dated June 8, 2012. Except for Mr. Carpenter, these awards vested after two years of service
from the grant date. Even if vested, as required by the Interim Final Rule, these awards may be paid only in 25% installments as Ally repays its TARP
obligations in 25% increments, and will otherwise be forfeited.
(b) Mr. Muir's final tranche of his 2008 RSU award vested and paid on December 31, 2012.
(c) The value realized for the vested shares is their fair market value as determined at least annually by the Board, as required by the Ally Long-Term Equity
Compensation Incentive Plan. The amounts paid in 2012 represent the first 25% installment based on the partial repayment of TARP obligations and were
as follows: $757,734 for Mr. Brown, $144,000 for Ms. Yastine, $603,361 for Mr. Muir, $381,645 for Mr. Mackey, and $1,257,657 for Mr. Marano.
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Ally Financial Inc. • Form 10-K
Nonqualified Deferred Compensation in 2012
The table below reflects year-end balances, Company distributions, and all earnings associated primarily with the Ally nonqualified
equalization plan. This plan allows Company contributions to this plan to continue after the IRS maximum limits under our 401(k) plan have
been reached.
Name
Michael A. Carpenter
Plan name
DSUs (a) (b)
Jeffrey J. Brown
Barbara Yastine
William Muir
James G. Mackey
Thomas Marano
Nonqualified Benefit
Equalization Plan (c)
DSUs (a) (b)
DSUs (a) (b)
Nonqualified Benefit
Equalization Plan (c)
DSUs (a) (b)
DSUs (a) (b)
Nonqualified Benefit
Equalization Plan (c)
DSUs (a) (b)
Deferred Cash (d)
Nonqualified deferred compensation
Executive
contributions
in last FY($)
Registrant
contributions
in last FY ($)
Aggregate
earnings
in last FY ($)
Aggregate
withdrawals/
distributions ($)
Aggregate
balance
at last FYE ($)
—
—
—
—
—
—
—
—
—
—
9,500,000
904,553
4,488,084
19,859,733
—
3,797,892
4,587,357
—
3,400,000
2,450,000
—
1,821,397
5,582,052
2,650
254,624
297,361
23,020
254,810
137,038
5,733
518,350
—
—
2,947,646
3,293,894
—
3,532,010
1,695,288
—
4,230,388
1,943,035
27,413
5,121,993
6,107,921
213,996
4,241,966
3,006,041
50,986
6,364,448
3,639,017
(a)
In 2009, we included DSU awards, which vested at grant date, within the Options Exercised and Shares Vested in 2009 table. Starting in 2010 and
continuing in 2012, we have included the DSU award information in the Nonqualified Deferred Compensation in 2012 table to more accurately reflect the
form of the awards.
(b) The NEOs had outstanding DSU award values at December 31, 2011, of $13,943,264 for Mr. Carpenter, $4,017,124 for Mr. Brown, $4,517,096 for
Ms. Yastine, $4,119,166 for Mr. Muir, $2,114,292 for Mr. Mackey, and $8,255,088 for Mr. Marano.
(c) Ally maintains a nonqualified benefit equalization plan for highly-compensated employees, including the NEOs. This plan is a nonqualified savings plan
designed to allow for the equalization of benefits for highly compensated employees under the Ally 401(k) Program when such employees' contribution
and benefit levels exceed the maximum limitations on contributions and benefits imposed by Section 2004 of the Employee Retirement Income Security
Act of 1974, as amended, and Section 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended. This plan is maintained as an unfunded plan
and all expenses for administration of the plan and payment of amounts to participants are borne by Ally. Each participant is credited with earnings based
on a set of investment options selected by the participant similar to 401(k) investment option to all employees. Pursuant to the Special Master's
Determination Letter dated October 22, 2009, contributions to this plan were suspended. Therefore, the amounts shown reflect contributions made by the
Company prior to receipt of the Determination Letter.
(d) Mr. Marano received deferred cash after May 14, 2012 in lieu of DSUs pursuant to the request of the ResCap Board of Directors, the Special Master's
November 30, 2012 Supplemental Determination Letter, and disclosure to the Bankruptcy Court. Deferred cash is payable in three equal installments: the
first on the final payroll date of 2012, the second ratably over 2013 and the third ratably over 2014.
Executive Compensation — Post-employment and Termination Benefits
As a condition to participating in TARP, Ally's NEOs and next five highest paid employees waived any right to severance in the event of
their termination of employment. These waivers apply until Ally repays its TARP obligations to the U.S. Department of Treasury.
Director Compensation
Employee directors do not receive any separate compensation for their Board activities. Non-employee directors receive the
compensation described below.
Effective April 1, 2012, the annual retainer paid to non-employee directors was increased from $180,000 to $200,000 and was paid
entirely in cash. DSUs had been included in the program for $110,000 of the $180,000 annual retainer in 2011, and were also awarded for a
portion of the annual retainer paid for the first quarter of 2012, as part of planning for a potential initial public offering. An additional retainer
is paid to non-employee directors who serve as a chair of a standing committee, which was also increased during 2012 from $30,000 to
$50,000 each. All non-employee directors who serve as members of committees, including chairs of a committee, are paid additional retainers
of $20,000 each. The Chair of the Board receives an additional retainer of $250,000. For the first quarter of 2012, this additional retainer was
paid half in cash and half in DSUs, and was changed to all cash effective April 1, 2012, the same as the Board retainer. Meeting fees of $2,000
for each in-person meeting and telephonic meeting lasting more than one hour are payable when the Board or any committee meets more than
eight times per year.
Non-employee directors are reimbursed for travel expenses incurred in conjunction with their duties as directors. Furthermore, Ally will
provide the broadest form of indemnification permitted under Delaware law in connection with liabilities that may arise as a result of their
role on the Board, provided that the director satisfies the statutory standard of care.
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Ally Financial Inc. • Form 10-K
Beginning January 1, 2012, Ally pays additional director compensation to John J. Stack for his service as a director of Ally Bank in an
annual amount equal to $165,000, representing the equivalent of a Board retainer of $115,000 and an additional retainer of $50,000 for
service on committees in lieu of meeting fees.
The following table provides compensation for non-employee directors who served during fiscal 2012.
2012 Director Compensation Table
Director name
Robert T. Blakely
Mayree C. Clark
John D. Durrett
Kim S. Fennebresque
Franklin W. Hobbs
Marjorie Magner
John J. Stack
Henry S. Miller
Gerald Greenwald
Fees earned
or paid in
cash ($) (a) (b)
281,500
277,250
230,250
248,500
446,250
246,750
462,250
85,001
85,850
Stock awards
($) (a) (c) (d)
Total ($) (a)
27,500
27,500
27,500
27,500
58,750
27,500
27,500
—
—
309,000
304,750
257,750
276,000
505,000
274,250
489,750
85,001
85,850
(a) The retainer and fees for our non-employee directors were prorated based on when each director served on the Board and their respective committees.
(b) As noted above, the non-employee directors' cash retainer and fees consist of the following components:
Director Name
Robert T. Blakely
Mayree C. Clark
John D. Durrett
Kim S. Fennebresque
Franklin W. Hobbs
Marjorie Magner
John J. Stack
Henry S. Miller
Gerald Greenwald
Annual cash
retainer ($)
Committee chair or
member/chair of
Board fees ($)
Ally Bank
Board Fees ($)
Additional
meeting fees ($)
167,500
167,500
167,500
167,500
167,500
167,500
167,500
75,754
75,754
85,000
85,000
40,000
65,000
258,750
60,000
105,000
7,247
6,096
—
—
—
—
—
—
165,000
—
—
29,000
24,750
22,750
16,000
20,000
19,250
24,750
2,000
4,000
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Ally Financial Inc. • Form 10-K
(c) As noted above, stock awards granted to the non-employee directors are in the form of DSUs. Amounts in this column represent the aggregate grant date
fair value of the DSU awards granted to the directors in 2012 and 2011. The grant date fair value of each DSU award granted to the directors in 2012 and
2011 are as follows:
Director name
Robert T. Blakely
Mayree C. Clark
John D. Durrett
Kim S. Fennebresque
Franklin W. Hobbs
Marjorie Magner
John J. Stack
Award
Grant Date
Grant date fair
value of stock or
unit awards ($)
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
DSU
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
3/31/2011
6/30/2011
10/1/2011
12/31/2011
3/31/2012
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
2,411
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
58,750
58,750
58,750
58,750
58,750
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
27,500
(d) The following table sets forth the aggregate number of DSUs held by each non-employee director at December 31, 2012. Each DSU represents one
phantom share of Ally.
Name
Robert T. Blakely
Mayree C. Clark
John D. Durrett
Kim S. Fennebresque
Franklin W. Hobbs
Marjorie Magner
John J. Stack
Number of DSUs (#)
15.0
15.0
12.6
15.0
32.1
15.0
15.0
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Ally Financial Inc. • Form 10-K
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The following table sets forth information with respect to beneficial ownership of Ally common stock by each person known by us to be
the beneficial owner of more than five percent of our outstanding common stock. The number of shares reported below are as reflected in our
stock register at February 28, 2013, and the percentages provided are based on 1,330,970 shares of common stock outstanding at February 28,
2013.
Name and address of beneficial owner
U.S. Department of Treasury
1500 Pennsylvania Avenue
Washington, D.C. 20220
GMAC Common Equity Trust I
c/o Hillel Bennett
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
Persons affiliated with Cerberus Capital Management, L.P.
c/o Cerberus Capital Management, L.P.
299 Park Avenue, 22nd Floor
New York, New York 10171
(a) All ownership is direct.
Amount and nature
of beneficial
ownership (a)
Percent
of class
981,971
73.78%
132,280
9.94%
115,434
8.67%
For details with respect to equity incentive plans, refer to Item 11, Executive Compensation.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain relationships and related transactions are described below.
Relationship with General Motors
Products and Services Provided to GM
We provide various products and services to GM on terms comparable to those we provide to third parties. Except as described below,
we currently expect to continue to provide these services to GM on an ongoing basis. These products and services include the following:
• We provide wholesale and term-loan financing to dealerships that are either wholly owned by GM or in which GM has a controlling
interest. The majority of these dealerships are located in the United States. At December 31, 2012, finance receivables and loans to
dealerships owned or majority-owned by GM totaled $260 million.
• We provide operating leases to GM-affiliated entities for buildings with a net book value of $61 million at December 31, 2012. The
income statement effect of lease revenues was $8 million during the year ended December 31, 2012.
•
The income statement effect for interest on notes receivable from GM was $7 million during the year ended December 31, 2012.
• We have other lease arrangements whereby we lease facilities to GM whereby we have advanced $3 million. The income statement
effect for leasing revenues under these arrangements was $1 million for the year ended December 31, 2012.
•
In certain states, we provide insurance to GM for vehicle service contracts and for which we have recognized insurance premiums
of $101 million for the year ended December 31, 2012.
• GM may elect to sponsor financing incentive programs for wholesale dealer financing, which is known as wholesale subvention.
The income statement effect of wholesale subvention and service fees was $177 million for the year ended December 31, 2012.
Support Services Provided by GM
GM historically has provided a variety of support services for our business, and we reimburse GM for the costs of providing these
services to us. In addition, GM supports us by reimbursing us for certain programs it has with its customers or for expenses we may
experience due to their business operations. The services GM provides us, including reimbursement arrangements, include:
• GM may elect to sponsor incentive programs (on both retail contracts and leases) by supporting financing rates below standard rates
at which we purchase retail contracts. In addition, under residual support programs, GM may upwardly adjust residual values above
the standard lease rates. The subvention related receivables were $172 million at December 31, 2012.
• GM provides lease residual value support as a marketing incentive to encourage consumers to lease vehicles. For certain specific
contracts at termination of the lease, GM reimburses us to the extent the remarketing sales proceeds are less than the residual value
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Ally Financial Inc. • Form 10-K
set forth in the contract and no greater than our standard residual rates. To the extent remarketing sales proceeds are more than the
contract residual at termination, we reimburse GM for its portion of the higher residual value. The income from GM for residual
support was $5 million for the year ended December 31, 2012.
• GM provides financing rates below standard rates at which we purchase contracts (rate support). The revenue from GM for rate
support was $629 million for the year ended December 31, 2012.
• GM reimburses us for certain selling expenses we may incur on certain vehicles sold by us at auction. The income statement effect
for the reimbursements was $1 million for the year ended December 31, 2012.
• GM occasionally provides payment guarantees on certain commercial and dealer loans and receivables Ally has outstanding. The
amount of commercial and dealer loans and receivables covered by a GM guarantee was $127 million at December 31, 2012.
• GM provides us certain other services and facilities services for which we reimburse them. The income statement effect for these
services was $86 million for the year ended December 31, 2012.
• GM provides us certain marketing services for which we reimburse them. The income statement effect for the marketing services
was $5 million for the year ended December 31, 2012.
• We have accounts payable to GM that include wholesale settlement payments to GM and notes payable. The balance outstanding
for accounts payable was $563 million for the year ended December 31, 2012.
Credit Arrangements and Other Amounts Due from or Owed to GM
• We provide wholesale financing to GM for vehicles in which GM retains title while the vehicles are consigned to Ally or dealers in
Italy. The financing to GM remains outstanding until title is transferred to the dealers. The amount of financing provided to GM by
Ally under this arrangement varies based on inventory levels. At December 31, 2012, the amount of this financing outstanding was
$11 million.
•
In various countries in Europe, we were party to a Rental Fleet Agreement in which we agreed to buy from the rental companies, on
agreed terms reflecting fair value, all vehicles sold by GM to rental car companies that GM had become obligated to repurchase.
The Rental Fleet Agreement provided for a true-up mechanism whereby GM was required to reimburse us to the extent the revenues
we earned from the resale of the vehicles were less than the amount we paid the rental companies to purchase such vehicles. At
December 31, 2012, we had a receivable in the amount of $18 million for providing this service.
Capital Contributions Received from GM
During 2012, we did not receive any capital contributions from GM.
Related Party Transaction Procedures
Pursuant to the Ally Financial Inc. Bylaws dated December 30, 2009 (the Bylaws), Ally and its subsidiaries must, subject to certain
limited exceptions, conduct all transactions with its affiliates, stockholders and their affiliates, current or former officers or directors, or any of
their respective family members on terms that are fair and reasonable and no less favorable to Ally than it would obtain in a comparable
arm's-length transaction with an independent third party.
In addition, the Bylaws further provide for procedures and approval requirements for certain transactions with related persons.
Specifically, without prior approval of the holders of a majority of Ally common stock (which must include a minimum of two common
stockholders) and at least a majority of the Ally independent directors, we are not permitted to enter into any transaction with any affiliate,
stockholder (other than governmental entities, except for the U.S. Department of Treasury in its capacity as a stockholder) or any of their
affiliates, or any senior executive officer (other than agreements entered into in connection with a person's employment) if the value of the
consideration provided exceeds $5 million or, if there is no monetary consideration paid or quantifiable value exchanged, if the agreement is
otherwise determined to be material. Notwithstanding the foregoing, no stockholder approval is required if at least a majority of Ally
independent directors determine that such transaction is entered into in the ordinary course of Ally's business and is on terms no less favorable
to Ally than those that would have been obtained in a comparable transaction with an independent third party.
Director Independence
For a discussion of the independence of members of the Ally Board of Directors and certain other corporate governance matters, refer to
Certain Corporate Governance Matters in Item 10.
Item 14. Principal Accountant Fees and Services
We retained Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively,
Deloitte & Touche) to audit our consolidated financial statements for the year ended December 31, 2012. We also retained Deloitte & Touche,
as well as other accounting and consulting firms, to provide various other services in 2012.
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Ally Financial Inc. • Form 10-K
The aggregate fees billed to us for professional services performed by Deloitte & Touche were as follows.
December 31, ($ in millions)
Audit fees (a)
Audit-related fees (b)
Tax fees (c)
Total principal accountant fees
2012
2011
$
$
20 $
5
—
25 $
20
6
1
27
(a) Audit fees include fees for the integrated audit of our annual Consolidated Financial Statements, reviews of interim financial statements included in our
Quarterly Reports on Form 10-Q, and audit services in connection with statutory and regulatory filings. In addition, this category includes approximately
$1 million in both 2012 and 2011, pertaining to services such as comfort letters for securities issuances and consents to the incorporation of audit reports
in filings with SEC.
(b) Audit-related fees include fees for assurance and related services that are traditionally performed by the principal accountant, including attest services
related to servicing and compliance, agreed-upon procedures relating to securitizations and financial asset sales, internal control reviews, consultation
concerning financial accounting and reporting standards, audits in connection with acquisitions and divestitures, employee benefit plan audits, and audits
of actuarial estimates.
(c) Tax fees include fees for services performed for tax compliance, tax planning, and tax advice, including preparation of tax returns and claims for refund,
and tax payment-planning services. Tax planning and advice also include assistance with tax audits and appeals and tax advice related to specific
transactions.
The services performed by Deloitte & Touche in 2012 were preapproved in accordance with the Independent Auditor Services and
Preapproval Policy of the Ally Audit Committee. This policy requires the independent registered public accounting firm to present the
proposed audit services and related fees to the Ally Audit Committee for approval prior to the commencement of the services. Amounts
exceeding the initially approved audit fees, or audit services not initially contemplated or considered during the initial approval, must be
separately approved by the Committee.
The Ally Audit Committee must also preapprove all audit-related services, tax services, and all other services that are proposed to be
provided by the independent registered public accounting firm. Similar to audit services, management and the independent registered public
accounting firm annually present the proposed services and related fees to the Ally Audit Committee for approval prior to the commencement
of services. The Committee's approval of the services and fees form the basis for an annual limit on such fees. The Committee periodically
reviews the spending against these limits. Services that were not initially contemplated or considered during the initial approval must be
separately approved by the Committee.
The Ally Audit Committee determined that all services provided by Deloitte & Touche during 2012 were compatible with maintaining
their independence as principal accountants.
228
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Part IV
Ally Financial Inc. • Form 10-K
Item 15. Exhibits, Financial Statement Schedules
The exhibits listed on the accompanying Index of Exhibits are filed or incorporated by reference as a part of this report. This Index is
incorporated herein by reference. Certain financial statements schedules have been omitted because prescribed information has been
incorporated into our Consolidated Financial Statements or notes thereto.
Exhibit
3.1
Description
Amended and Restated Certificate of Incorporation of Ally
Financial Inc., dated as of March 25, 2011
3.2
4.1
4.1.1
4.1.2
4.1.3
4.1.4
4.1.5
4.2
4.2.1
4.2.2
4.3
4.3.1
4.3.2
4.3.3
4.3.4
4.3.5
4.3.6
Bylaws of Ally Financial Inc., dated as of March 25, 2011
Form of Indenture dated as of July 1, 1982, between the
Company and Bank of New York (Successor Trustee to
Morgan Guaranty Trust Company of New York), relating to
Debt Securities
Form of First Supplemental Indenture dated as of
April 1, 1986, supplementing the Indenture designated as
Exhibit 4.1
Form of Second Supplemental Indenture dated as of
June 15, 1987, supplementing the Indenture designated as
Exhibit 4.1
Form of Third Supplemental Indenture dated as of
September 30, 1996, supplementing the Indenture
designated as Exhibit 4.1
Form of Fourth Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.1
Form of Fifth Supplemental Indenture dated as of
September 30, 1998, supplementing the Indenture
designated as Exhibit 4.1
Form of Indenture dated as of September 24, 1996, between
the Company and The Chase Manhattan Bank, Trustee,
relating to SmartNotes
Form of First Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.2
Form of Second Supplemental Indenture dated as of
June 20, 2006, supplementing the Indenture designated as
Exhibit 4.2
Form of Indenture dated as of October 15, 1985, between
the Company and U.S. Bank Trust (Successor Trustee to
Comerica Bank), relating to Demand Notes
Form of First Supplemental Indenture dated as of
April 1, 1986, supplementing the Indenture designated as
Exhibit 4.3
Form of Second Supplemental Indenture dated as of
June 24, 1986, supplementing the Indenture designated as
Exhibit 4.3
Form of Third Supplemental Indenture dated as of
February 15, 1987, supplementing the Indenture designated
as Exhibit 4.3
Form of Fourth Supplemental Indenture dated as of
December 1, 1988, supplementing the Indenture designated
as Exhibit 4.3
Form of Fifth Supplemental Indenture dated as of
October 2, 1989, supplementing the Indenture designated as
Exhibit 4.3
Form of Sixth Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.3
229
Method of Filing
Filed as Exhibit 3.1 to the Company's Current Report on
Form 8-K dated as of March 25, 2011 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 3.2 to the Company's Current Report on
Form 8-K dated as of March 25, 2011, (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 4(a) to the Company's Registration
Statement No. 2-75115, incorporated herein by reference.
Filed as Exhibit 4(g) to the Company's Registration
Statement No. 33-4653, incorporated herein by reference.
Filed as Exhibit 4(h) to the Company's Registration
Statement No. 33-15236, incorporated herein by reference.
Filed as Exhibit 4(i) to the Company's Registration
Statement No. 333-33183, incorporated herein by reference.
Filed as Exhibit 4(j) to the Company's Registration
Statement No. 333-48705, incorporated herein by reference.
Filed as Exhibit 4(k) to the Company's Registration
Statement No. 333-75463, incorporated herein by reference.
Filed as Exhibit 4 to the Company's Registration Statement
No. 333-12023, incorporated herein by reference.
Filed as Exhibit 4(a)(1) to the Company's Registration
Statement No. 333-48207, incorporated herein by reference.
Filed as Exhibit 4(a)(2) to the Company's Registration
Statement No. 33-136021, incorporated herein by reference.
Filed as Exhibit 4 to the Company's Registration Statement
No. 2-99057, incorporated herein by reference.
Filed as Exhibit 4(a) to the Company's Registration
Statement No. 33-4661, incorporated herein by reference.
Filed as Exhibit 4(b) to the Company's Registration
Statement No. 33-6717, incorporated herein by reference.
Filed as Exhibit 4(c) to the Company's Registration
Statement No. 33-12059, incorporated herein by reference.
Filed as Exhibit 4(d) to the Company's Registration
Statement No. 33-26057, incorporated herein by reference.
Filed as Exhibit 4(e) to the Company's Registration
Statement No. 33-31596, incorporated herein by reference.
Filed as Exhibit 4(f) to the Company's Registration
Statement No. 333-56431, incorporated herein by reference.
Table of Contents
Ally Financial Inc. • Form 10-K
Exhibit
4.3.7
Description
Form of Seventh Supplemental Indenture dated as of
June 15, 1998, supplementing the Indenture designated as
Exhibit 4.3
Method of Filing
Filed as Exhibit 4(g) to the Company's Registration
Statement No. 333-56431, incorporated herein by reference.
4.4
4.4.1
4.5
4.6
4.7
4.8
4.9
10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Form of Indenture dated as of December 1, 1993, between
the Company and Citibank, N.A., Trustee, relating to
Medium Term Notes
Form of First Supplemental Indenture dated as of
January 1, 1998, supplementing the Indenture designated as
Exhibit 4.4
Indenture, dated as of December 31, 2008, between the
Company and The Bank of New York Mellon, Trustee
Filed as Exhibit 4 to the Company's Registration Statement
No. 33-51381, incorporated herein by reference.
Filed as Exhibit 4(a)(1) to the Company's Registration
Statement No. 333-59551, incorporated herein by reference.
Filed as Exhibit 4.2 to the Company's Current Report on
Form 8-K dated as of January 2, 2009, (File No. 1-3754),
incorporated herein by reference.
Amended and Restated Indenture, dated March 1, 2011,
between the Company and The Bank of New York Mellon,
Trustee
Filed as Exhibit 4.2 to the Company's Current Report on
Form 8-K dated as of March 4, 2011 (File No. 1-3754),
incorporated herein by reference.
Form of Guarantee Agreement related to Ally Financial Inc.
Senior Unsecured Guaranteed Notes
Second Amended and Restated Declaration of Trust by and
between the trustees of each series of GMAC Capital Trust
I, Ally Financial Inc., as Sponsor, and by the holders, from
time to time, of undivided beneficial interests in the relevant
series of GMAC Capital Trust I, dated as of March 1, 2011
Series 2 Trust Preferred Securities Guarantee Agreement
between Ally Financial Inc. and The Bank of New York
Mellon, dated as of March 1, 2011
Amended and Restated Governance Agreement, dated as of
May 21, 2009, by and between GMAC Inc., FIM Holdings
LLC, GM Finance Co. Holdings LLC and the United States
Department of the Treasury
Letter Agreement, dated as of May 21, 2009, between
GMAC Inc. and the United States Department of the
Treasury (which includes the Securities Purchase Agreement
— Standard Terms attached thereto, with respect to the
issuance and sale of the Convertible Preferred Membership
Interests and the Warrant)
Filed as Exhibit 4.7 to the Company's Annual Report for the
period ended December 31, 2010, on Form 10-K
(File No. 1-3754), incorporated herein by reference.
Filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K dated as of March 4, 2011 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 4.3 to the Company's Current Report on
Form 8-K dated as of March 4, 2011 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 10.2 to the Company's Current Report on
Form 8-K dated as of May 22, 2009 (File No. 1-3754),
incorporated herein by reference.
Filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated as of May 22, 2009 (File No. 1-3754),
incorporated herein by reference.
Securities Purchase and Exchange Agreement, dated as of
December 30, 2009, between GMAC Inc. and the United
States Department of the Treasury*
Filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated as of December 30, 2009,
(File No. 1-3754), incorporated herein by reference.
Master Transaction Agreement, dated May 21, 2009,
between GMAC Inc., Chrysler LLC, U.S. Dealer
Automotive Receivables Transition LLC and the United
States Department of the Treasury
Filed as Exhibit 10.3 to the Company's Quarterly Report for
the period ended June 30, 2009, on Form 10-Q
(File No. 1-3754), incorporated herein by reference.
Amended and Restated United States Consumer Financing
Services Agreement, dated May 22, 2009, between
GMAC Inc. and General Motors Corporation*
Filed as Exhibit 10.4 to the Company's Quarterly Report for
the period ended June 30, 2009, on Form 10-Q/A
(File No. 1-3754), incorporated herein by reference.
Amended and Restated Master Services Agreement, dated
May 22, 2009, between GMAC Inc. and General Motors
Corporation*
Filed as Exhibit 10.5 to the Company's Quarterly Report for
the period ended June 30, 2009, on Form 10-Q/A
(File No. 1-3754), incorporated herein by reference.
Auto Finance Operating Agreement, entered into on
August 6, 2010, between Ally Financial Inc. and Chrysler
Group LLC*
Filed as Exhibit 10.1 to the Company's Quarterly Report for
the period ended September 30, 2010, on Form 10-Q/A
(File No. 1-3754), incorporated herein by reference.
Intellectual Property License Agreement, dated
November 30, 2006, by and between General Motors
Corporation and GMAC LLC
Capital and Liquidity Maintenance Agreement, entered into
on October 29, 2010, between Ally Financial Inc.,
IB Finance Holding Company, LLC, Ally Bank and the
Federal Deposit Insurance Corporation
Filed as Exhibit 10.1 to the Company's Quarterly Report for
the period ended March 31, 2007, on Form 10-Q
(File No. 1-3754), incorporated herein by reference.
Filed as Exhibit 10.2 to the Company's Quarterly Report for
the period ended September 30, 2010, on Form 10-Q
(File No. 1-3754), incorporated herein by reference.
230
Table of Contents
Ally Financial Inc. • Form 10-K
Exhibit
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.2
10.21
10.22
Description
Settlement agreement, dated December 23, 2010, by and
between GMAC Mortgage, LLC, Residential Capital, LLC,
Residential Funding Securities, LLC, Residential Asset
Mortgage Products, Inc., Residential Funding Company
LLC, Residential Funding Mortgage Securities I, Inc.,
Residential Accredit Loans, Inc., Homecomings Financial
LLC, and the Federal National Mortgage Association*
Ally Financial Inc. Long-Term Equity Compensation
Incentive Plan, as amended
Ally Financial Inc. Severance Plan, Plan Document and
Summary Plan Description, as amended
Form of Award Agreement related to the issuance of
Deferred Stock Units
Deferred Stock Unit Award Agreement for Michael A.
Carpenter, dated April 12, 2012
Deferred Stock Unit Award Agreement for Jeffrey J. Brown,
dated April 12, 2012
Deferred Stock Unit Award Agreement for Barbara A.
Yastine, dated April 12, 2012
Deferred Stock Unit Award Agreement for William F. Muir,
dated April 12, 2012
Deferred Stock Unit Award Agreement for James G.
Mackey, dated April 12, 2012
Deferred Stock Unit Award Agreement for Thomas F.
Marano, dated April 12, 2012
Partial Release of Liability Agreement, dated March 17,
2010, by and among Federal Home Loan Mortgage
Corporation, GMAC Mortgage, LLC and Residential
Funding Company, LLC
Purchase and Sale Agreement, by and between Ally
Financial Inc. and Royal Bank of Canada, dated October 23,
2012
Amended and Restated Purchase and Sale Agreement, by
and among Ally Financial Inc., General Motors Financial
Company, Inc., and General Motors Company, dated
November 21, 2012, as amended and restated as of February
22, 2013
Share Transfer Agreement, by and between Ally Financial
Inc. and General Motors Financial Company, Inc., dated
November 21, 2012
Method of Filing
Filed as Exhibit 10.9 to the Company's Annual Report for
the period ended December 31, 2010, on Form 10-K/A
(File No. 1-3754), incorporated herein by reference.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Filed as Exhibit 10.26 to the Company's Annual Report for
the period ended December 31, 2011, on Form 10-K
(File No. 1-3754), incorporated herein by reference.
Filed herewith.
Filed herewith.
Filed herewith.
10.23
Consent Judgment, dated March 12, 2012
Filed as Exhibit 10.1 to the Company's Current Report on
Form 8-K dated as of March 12, 2012 (File No. 1-3754),
incorporated herein by reference.
12
21
23.1
31.1
31.2
32
99
101
*
Computation of Ratio of Earnings to Fixed Charges
Ally Financial Inc. Subsidiaries as of December 31, 2012
Filed herewith.
Filed herewith.
Consent of Independent Registered Public Accounting Firm
Filed herewith.
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350
Certification of Principal Executive Officer and Principal
Financial Officer, as required pursuant to the TARP
Standards for Compensation and Corporate Governance;
31 CFR Part 30, Section 30.15
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Interactive Data File
Filed herewith.
Certain confidential portions have been omitted pursuant to a confidential treatment request which has been separately filed with
the Securities and Exchange Commission.
231
Table of Contents
Signatures
Ally Financial Inc. • Form 10-K
Pursuant to the requirements of Section 133 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, this 1st day of March, 2013.
Ally Financial Inc.
(Registrant)
/S/ MICHAEL A. CARPENTER
Michael A. Carpenter
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated, this 1st day of March, 2013.
/S/ MICHAEL A. CARPENTER
Michael A. Carpenter
Chief Executive Officer
/S/ DAVID J. DEBRUNNER
David J. DeBrunner
Vice President, Chief Accounting Officer, and
Corporate Controller
/S/ JEFFREY J. BROWN
Jeffrey J. Brown
Senior Executive Vice President of Finance and Corporate
Planning
232
Table of Contents
Signatures
Ally Financial Inc. • Form 10-K
/S/ FRANKLIN W. HOBBS
Franklin W. Hobbs
Ally Chairman
/S/ ROBERT T. BLAKELY
Robert T. Blakely
Director
/S/ MICHAEL A. CARPENTER
Michael A. Carpenter
Chief Executive Officer and Director
/S/ MAYREE C. CLARK
Mayree C. Clark
Director
/S/ JOHN D. DURRETT
John D. Durrett
Director
/S/ STEPHEN A. FEINBERG
Stephen A. Feinberg
Director
/S/ KIM S. FENNEBRESQUE
Kim S. Fennebresque
Director
/S/ GERALD GREENWALD
Gerald Greenwald
Director
/S/ MARJORIE MAGNER
Marjorie Magner
Director
/S/ HENRY S. MILLER
Henry S. Miller
Director
/S/ JOHN J. STACK
John J. Stack
Director
233