ALLY 10-Q Quarterly Report Sept. 30, 2012 | Alphaminr
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ALLY 10-Q Quarter ended Sept. 30, 2012

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Income Statement
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10-Q 1 gjm2012093010q.htm 10-Q GJM 2012.09.30 10Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012 , or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware
38-0572512
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
200 Renaissance Center
P.O. Box 200, Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing for the past 90 days.
Yes þ No ¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
At November 2, 2012 , the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.

INDEX
Ally Financial Inc. Ÿ Form 10-Q

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

Table of Contents PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q

4
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
1,651

$
1,680

$
5,020

$
4,976

Interest on loans held-for-sale
22

86

131

256

Interest on trading assets
—

4

13

10

Interest and dividends on available-for-sale investment securities
73

102

243

311

Interest-bearing cash
22

14

54

41

Operating leases
639

530

1,758

1,783

Total financing revenue and other interest income
2,407

2,416

7,219

7,377

Interest expense
Interest on deposits
185

179

555

516

Interest on short-term borrowings
46

61

181

240

Interest on long-term debt
1,041

1,293

3,286

4,030

Total interest expense
1,272

1,533

4,022

4,786

Depreciation expense on operating lease assets
358

276

969

722

Net financing revenue
777

607

2,228

1,869

Other revenue
Servicing fees
91

335

617

1,033

Servicing asset valuation and hedge activities, net
134

(471
)
70

(663
)
Total servicing income, net
225

(136
)
687

370

Insurance premiums and service revenue earned
364

390

1,098

1,188

Gain on mortgage and automotive loans, net
141

95

401

301

Loss on extinguishment of debt
—

—

—

(64
)
Other (loss) gain on investments, net
(19
)
75

137

251

Other income, net of losses
225

130

728

573

Total other revenue
936

554

3,051

2,619

Total net revenue
1,713

1,161

5,279

4,488

Provision for loan losses
116

50

285

213

Noninterest expense
Compensation and benefits expense
344

293

1,208

1,132

Insurance losses and loss adjustment expenses
151

170

518

567

Other operating expenses
619

754

3,268

2,392

Total noninterest expense
1,114

1,217

4,994

4,091

Income (loss) from continuing operations before income tax expense
483

(106
)
—

184

Income tax expense from continuing operations
93

93

172

106

Net income (loss) from continuing operations
390

(199
)
(172
)
78

Loss from discontinued operations, net of tax
(6
)
(11
)
(32
)
(29
)
Net income (loss)
384

(210
)
(204
)
49

Other comprehensive income (loss), net of tax
218

(281
)
199

(217
)
Comprehensive income (loss)
$
602

$
(491
)
$
(5
)
$
(168
)
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

3
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q

Three months ended September 30,
Nine months ended September 30,
($ in millions except per share data)
2012
2011
2012
2011
Net income (loss) attributable to common shareholders
Net income (loss) from continuing operations
$
390

$
(199
)
$
(172
)
$
78

Preferred stock dividends — U.S. Department of Treasury
(134
)
(133
)
(401
)
(400
)
Preferred stock dividends
(67
)
(66
)
(200
)
(194
)
Impact of preferred stock amendment (a)
—

—

—

32

Net income (loss) from continuing operations attributable to common shareholders (b)
189

(398
)
(773
)
(484
)
Loss from discontinued operations, net of tax
(6
)
(11
)
(32
)
(29
)
Net income (loss) attributable to common shareholders
$
183

$
(409
)
$
(805
)
$
(513
)
Basic weighted-average common shares outstanding
1,330,970

1,330,970

1,330,970

1,330,970

Diluted weighted-average common shares outstanding (b)
1,330,970

1,330,970

1,330,970

1,330,970

Basic earnings per common share
Net income (loss) from continuing operations
$
142

$
(299
)
$
(581
)
$
(364
)
Loss from discontinued operations, net of tax
(5
)
(8
)
(24
)
(22
)
Net income (loss)
$
137

$
(307
)
$
(605
)
$
(386
)
Diluted earnings per common share (b)
Net income (loss) from continuing operations
$
142

$
(299
)
$
(581
)
$
(364
)
Loss from discontinued operations, net of tax
(5
)
(8
)
(24
)
(22
)
Net income (loss)
$
137

$
(307
)
$
(605
)
$
(386
)
(a)
Refer to Note 20 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for further detail.
(b)
Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss attributable to common shareholders for the nine months ended September 30, 2012 , and the three months and nine months ended September 30, 2011 , respectively, income (loss) attributable to common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

4
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q


($ in millions)
September 30, 2012
December 31, 2011
Assets
Cash and cash equivalents
Noninterest-bearing
$
1,305

$
2,475

Interest-bearing
15,852

10,560

Total cash and cash equivalents
17,157

13,035

Trading assets
—

622

Investment securities
13,770

15,135

Loans held-for-sale, net ($1,927 and $3,919 fair value-elected)
1,937

8,557

Finance receivables and loans, net
Finance receivables and loans, net ($— and $835 fair value-elected)
121,259

114,755

Allowance for loan losses
(1,423
)
(1,503
)
Total finance receivables and loans, net
119,836

113,252

Investment in operating leases, net
12,708

9,275

Mortgage servicing rights
902

2,519

Premiums receivable and other insurance assets
1,861

1,853

Other assets
13,936

18,741

Assets of operations held-for-sale
375

1,070

Total assets
$
182,482

$
184,059

Liabilities
Deposit liabilities
Noninterest-bearing
$
2,487

$
2,029

Interest-bearing
47,385

43,021

Total deposit liabilities
49,872

45,050

Short-term borrowings
5,877

7,680

Long-term debt ($— and $830 fair value-elected)
93,028

92,794

Interest payable
1,590

1,587

Unearned insurance premiums and service revenue
2,693

2,576

Reserves for insurance losses and loss adjustment expenses
441

580

Accrued expenses and other liabilities ($— and $29 fair value-elected)
9,962

14,084

Liabilities of operations held-for-sale
254

337

Total liabilities
163,717

164,688

Equity
Common stock and paid-in capital
19,668

19,668

Mandatorily convertible preferred stock held by U.S. Department of Treasury
5,685

5,685

Preferred stock
1,255

1,255

Accumulated deficit
(8,129
)
(7,324
)
Accumulated other comprehensive income
286

87

Total equity
18,765

19,371

Total liabilities and equity
$
182,482

$
184,059

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

5
Condensed Consolidated Balance Sheet (unaudited)
Ally Financial Inc. • Form 10-Q


The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
($ in millions)
September 30, 2012
December 31, 2011
Assets
Loans held-for-sale, net
$
—

$
9

Finance receivables and loans, net
Finance receivables and loans, net ($— and $835 fair value-elected)
40,822

40,935

Allowance for loan losses
(192
)
(210
)
Total finance receivables and loans, net
40,630

40,725

Investment in operating leases, net
5,835

4,389

Other assets
2,063

3,029

Total assets
$
48,528

$
48,152

Liabilities
Short-term borrowings
$
1,483

$
795

Long-term debt ($— and $830 fair value-elected)
34,665

33,143

Interest payable
7

14

Accrued expenses and other liabilities
119

405

Total liabilities
$
36,274

$
34,357

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

6
Condensed Consolidated Statement of Changes in Equity (unaudited)
Ally Financial Inc. • Form 10-Q

($ in millions)
Common stock and
paid-in capital
Mandatorily convertible preferred
stock held by U.S.
Department of Treasury
Preferred
stock
Accumulated deficit
Accumulated other
comprehensive income
Total
equity
Balance at January 1, 2011
$
19,668

$
5,685

$
1,287

$
(6,410
)
$
259

$
20,489

Net income
49

49

Preferred stock dividends — U.S. Department of Treasury
(400
)
(400
)
Preferred stock dividends
(194
)
(194
)
Series A preferred stock amendment (a)
(32
)
32

—

Other comprehensive loss, net of tax
(217
)
(217
)
Other (b)
5

5

Balance at September 30, 2011
$
19,668

$
5,685

$
1,255

$
(6,918
)
$
42

$
19,732

Balance at January 1, 2012
$
19,668

$
5,685

$
1,255

$
(7,324
)
$
87

$
19,371

Net loss
(204
)
(204
)
Preferred stock dividends — U.S. Department of Treasury
(401
)
(401
)
Preferred stock dividends
(200
)
(200
)
Other comprehensive income, net of tax
199

199

Balance at September 30, 2012
$
19,668

$
5,685

$
1,255

$
(8,129
)
$
286

$
18,765

(a)
Refer to Note 20 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for further detail.
(b)
Represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009 through June 30, 2009.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

7
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q

Nine months ended September 30, ($ in millions)
2012
2011
Operating activities
Net (loss) income
$
(204
)
$
49

Reconciliation of net (loss) income to net cash provided by operating activities
Depreciation and amortization
1,758

2,100

Other impairment
31

8

Changes in fair value of mortgage servicing rights
654

1,327

Provision for loan losses
285

211

Gain on sale of loans, net
(396
)
(299
)
Net gain on investment securities
(144
)
(275
)
Loss on extinguishment of debt
—

64

Originations and purchases of loans held-for-sale
(23,670
)
(42,467
)
Proceeds from sales and repayments of loans held-for-sale
25,295

44,417

Impairment and accruals related to Residential Capital, LLC deconsolidation
1,192

—

Net change in
Trading securities
595

(339
)
Deferred income taxes
(199
)
(99
)
Interest payable
168

(99
)
Other assets
475

(324
)
Other liabilities
(761
)
1,374

Other, net
(234
)
133

Net cash provided by operating activities
4,845

5,781

Investing activities
Purchases of available-for-sale securities
(9,592
)
(15,020
)
Proceeds from sales of available-for-sale securities
6,774

12,093

Proceeds from maturities of available-for-sale securities
4,940

3,725

Net increase in finance receivables and loans
(7,925
)
(10,705
)
Proceeds from sales of finance receivables and loans
2,329

2,868

Purchases of operating lease assets
(5,612
)
(5,332
)
Disposals of operating lease assets
1,303

4,862

Proceeds from sale of business units, net (a)
516

50

Net cash effect from deconsolidation of Residential Capital, LLC
(539
)
—

Other, net
75

633

Net cash used in investing activities
(7,731
)
(6,826
)
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

8
Condensed Consolidated Statement of Cash Flows (unaudited)
Ally Financial Inc. • Form 10-Q

Nine months ended September 30, ($ in millions)
2012
2011
Financing activities
Net change in short-term borrowings
(1,673
)
(1,263
)
Net increase in bank deposits
4,673

4,454

Proceeds from issuance of long-term debt
27,520

36,900

Repayments of long-term debt
(22,908
)
(34,576
)
Dividends paid
(601
)
(619
)
Other, net
(26
)
962

Net cash provided by financing activities
6,985

5,858

Effect of exchange-rate changes on cash and cash equivalents
(1
)
(45
)
Net increase in cash and cash equivalents
4,098

4,768

Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)
24

(36
)
Cash and cash equivalents at beginning of year
13,035

11,670

Cash and cash equivalents at September 30,
$
17,157

$
16,402

Supplemental disclosures
Cash paid for
Interest
$
3,705

$
4,303

Income taxes
291

454

Noncash items
Transfer of mortgage servicing rights into trading securities through certification
—

266

Other disclosures
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale
116

179

(a)
The amounts are net of cash and cash equivalents of $147 million at September 30, 2012 , and $88 million at September 30, 2011 , of business units at the time of disposition.
(b)
Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows. The cash balance of these operations is reported as assets of operations held-for-sale on the Condensed Consolidated Balance Sheet.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

9
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



1.    Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is a leading, independent, globally diversified, financial services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad array of financial products and services to automotive dealers and their customers. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (online and telephonic) banking market.
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes.
The Condensed Consolidated Financial Statements at September 30, 2012 , and for the three months and nine months ended September 30, 2012 , and 2011 , are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related notes) included in our Annual Report on Form 10-K for the year ended December 31, 2011 , as filed on February 28, 2012 , with the U.S. Securities and Exchange Commission (SEC), as amended by the Current Report on Form 8-K filed with the SEC on August 3, 2012.
Residential Capital, LLC
On May 14, 2012 (the Petition Date), Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors and their direct and indirect subsidiaries) (collectively, AFI) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan).
In connection with the Plan, the Debtors expect to sell certain of their assets, consisting of the Debtors' mortgage origination and servicing business and certain other mortgage-related assets, under section 363 of the Bankruptcy Code. The Bankruptcy Court entered an order on June 28, 2012, approving Nationstar Mortgage LLC as stalking horse bidder for the Debtors' mortgage origination and servicing platform (the Platform), and Berkshire Hathaway Inc. as stalking horse bidder for the Debtors' held-for-sale loan portfolio (the Loan Portfolio). The bid provided by Berkshire Hathaway Inc. supplanted the stalking horse bid provided by AFI that is described below. On October 19, 2012, the Debtors collected bids from qualified bidders for the Platform and the Loan Portfolio. On October 24, 2012, following a competitive auction for the Platform, the Debtors determined that the bid submitted by Ocwen Loan Servicing LLC was the highest and best bid for the Platform. On October 25, 2012, following a competitive auction for the Loan Portfolio, the Debtors determined that the bid submitted by Berkshire Hathaway Inc. was the highest and best bid for the Loan Portfolio. The hearing for the Bankruptcy Court to approve the sales of the Platform and the Loan Portfolio is currently set for November 19, 2012. The Debtors' remaining assets are expected to be sold, wound down, or otherwise liquidated over time.
The Plan, a draft of which has been submitted to the Bankruptcy Court, is subject to negotiation with certain of the Debtors' creditors (as directed by the Bankruptcy Court) and Bankruptcy Court approval. The Debtors' exclusive period under the Bankruptcy Code to file the Plan, which may be extended by the Bankruptcy Court, ends on December 20, 2012. The Plan is based on a settlement (the Settlement) between AFI and the Debtors under which, in exchange for the releases described below, AFI, among other things: (a) agreed to serve as the stalking horse bidder for the Debtors' held-for-sale loan portfolio, with a purchase price of approximately $1.6 billion (which, as noted above, was supplanted by Berkshire Hathaway Inc. pursuant to an order entered by the Bankruptcy Court on June 28, 2012); (b) will make a cash contribution to the Debtors' estates of $750 million that will enable certain recoveries to creditors of the Debtors' estates under the Plan; (c) provided the Debtors with a $220 million post-petition debtor-in-possession financing facility; (d) consented to the Debtors' use of cash collateral pledged to Ally-funded, pre-petition senior secured credit facilities; (e) agreed to enter into and perform a shared services agreement with the Debtors to enable the Debtors to continue to operate their businesses during their bankruptcy cases; (f) agreed to enter into and perform a transition services agreement with the purchaser of the Debtors' mortgage origination and servicing business to facilitate the sale of such assets; (g) continues to provide the Debtors with consumer lending origination support during their bankruptcy cases, including to allow implementation of the aforementioned asset sales; (h) provides the support necessary for the Debtors to satisfy certain regulatory obligations; and (i) agreed to provide indemnification of ResCap's current directors and officers.
The Settlement, which is subject to Bankruptcy Court approval, provides for the release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of action against AFI held by third parties. The Debtors have failed to satisfy certain milestone requirements in the Plan support agreement with AFI (the Plan Support Agreement), including the Bankruptcy Court's entry of the Confirmation Order on or before October 31, 2012, which relieves AFI of its obligations to perform under the Plan Support Agreement. Notwithstanding this, to date, AFI has continued to comply with the Plan Support Agreement. Pursuant to the terms of the Settlement, the failure to meet the October 31 milestone results in the Settlement's automatic termination. However, AFI and the Debtors have agreed to temporarily waive the automatic termination, but, each of AFI and the Debtors have preserved

10
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


the right to rescind such waiver at any point in the future. The waiver will terminate on December 31, 2012 unless AFI and the Debtors otherwise agree in writing.
As of the Petition Date, ResCap had support for the Plan from the ad hoc steering committee representing ResCap's junior secured notes (Ad Hoc Committee) and, certain other noteholders together holding $791 million out of a total of approximately $2.1 billion of these notes. The Debtors have failed to satisfy certain milestone requirements in the Plan support agreement with the Ad Hoc Committee (Ad Hoc Committee PSA); and, on September 24, 2012, the official committee of unsecured creditors (the Committee) appointed in the Debtors' bankruptcy cases filed a motion seeking standing to challenge the validity of the liens on certain assets securing the junior secured notes, which are the liens that secure certain of AFI's loans to ResCap. On or about September 25, 2012, the junior secured noteholders terminated the Ad Hoc Committee PSA.
Additionally, institutional investors in residential mortgage-backed securities issued by ResCap's affiliates and holding more than 25 percent of at least one class in each of 290 securitizations agreed to support the Plan as of the Petition Date. To date, institutional investors holding more than 25 percent of at least one class in each of 336 securitizations have agreed to support the Plan. These 336 securitizations have an aggregate original principal balance of approximately $189 billion (out of a total of 392 outstanding securitizations with an original principal balance of $221 billion ). The settlements reached are subject to Bankruptcy Court approval. AFI anticipates the hearing for approval of the settlements to occur in early 2013. The Committee and certain other parties are presently engaged in discovery with respect to the settlements, including AFI's role, and are expected to contest the settlements at the hearing for the settlements' approval.
On June 4, 2012, Berkshire Hathaway Inc. filed a motion in the Bankruptcy Court for the appointment of an independent examiner to investigate, among other things, certain of the Debtors' transactions with AFI occurring prior to the Petition Date, any claims the Debtors may hold against AFI's officers and directors, and any claims the Debtors propose to release under the Plan, including under the Settlement. On June 18, 2012, the Bankruptcy Court approved the appointment of an examiner and, subsequently, the United States Trustee for the Southern District of New York appointed former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner. On July 27, 2012, the Bankruptcy Court entered an order approving the scope of the examiner's investigation. The investigation will include, among other things: (a) all material pre-petition transactions between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements, the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally Bank; (c) all state and federal law claims or causes of action the Debtors propose to release as part of the Plan; and (d) the release of all existing or potential ResCap-related causes of action against AFI held by third parties. As of September 30, 2012, the examiner's preliminary estimate regarding the time necessary for the examiner to complete his investigation and related report was at least six months from approximately August 6, 2012. Counsel to the examiner recently informed parties in interest that it would be requesting from the Bankruptcy Court an extended target date for issuance of the examiner’s report based upon completion of document production and witness interviews, rather than an approximation date. The examiner’s request may result in a delay for issuing the examiner’s report. The Bankruptcy Court is scheduled to hold a conference on November 5, 2012 to address the examiner’s request.
As a result of the bankruptcy filing, effective May 14, 2012, we have deconsolidated ResCap from our financial statements and ResCap is prospectively accounted for using the cost method. Furthermore, circumstances indicated to us that as of May 14, 2012, our investment in ResCap would not be recoverable, and accordingly we recorded a full impairment of such investment. ResCap's results of operations have been removed from our Condensed Consolidated Financial Statements since May 14, 2012. As of September 30, 2012 , ResCap does not meet the requirements of a discontinued operation; and as such, ResCap's results of operations continue to be included in our Condensed Consolidated Statement of Comprehensive Income for periods prior to May 14, 2012. Our Condensed Consolidated Statements of Comprehensive Income include the following for ResCap's results of operations (amounts presented are before the elimination of balances and transactions with Ally).
($ in millions)
Three months ended September 30, 2012
Three months ended September 30, 2011
Nine months ended September 30, 2012
Nine months ended September 30, 2011
Total net (loss) revenue
$
—

$
(164
)
$
476

$
412

Provision for loan losses
—

1

—

8

Total noninterest expense
—

273

437

905

(Loss) income from continuing operations before income tax expense
—

(438
)
39

(501
)
Income tax expense from continuing operations
—

4

7

13

Net (loss) income from continuing operations
$
—

$
(442
)
$
32

$
(514
)
Based on our assessment of the effect of the deconsolidation of ResCap, obligations under the Plan, and other impacts related to the Chapter 11 filing, we recorded a charge of $1.2 billion during the nine months ended September 30, 2012, within our other operating expenses. This charge primarily consists of the impairment of Ally's $442 million equity investment in ResCap and the $750 million cash contribution to be made by us to the Debtors' estate described above. As of September 30, 2012 , we have $1.2 billion of financing due from

11
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


ResCap, which is classified as Finance Receivables and Loans, net on our Condensed Consolidated Balance Sheet . We maintain no allowance or impairment against these receivables because management considers them to be fully collectible. At September 30, 2012 , our hedging arrangements with ResCap were fully collateralized. Additionally, under a shared services agreement (SSA), each entity agreed to provide services to the other for a period of one year. The SSA will automatically renew each year unless either entity provides written notice of nonrenewal to the other party at least three months prior to the expiration. The SSA fees received by Ally and the expenses paid to the ResCap will be reflected within the Condensed Consolidated Statement of Comprehensive Income as a reduction or increase of noninterest expense. Because of the uncertain nature of the bankruptcy proceedings, we cannot predict the ultimate financial impact to Ally. Refer to Note 25 to the Condensed Consolidated Financial Statements for additional information regarding these bankruptcy proceedings.
International Businesses
In the second quarter of 2012, we began exploring strategic alternatives for our international operations. These international operations include automotive finance, insurance, and banking and deposit operations outside of the United States. Since then, we have conducted multiple processes for various parts of our international operations, and have received interest from a number of potential purchasers. As part of this initiative, on October 18, 2012 we announced that we reached an agreement to sell our Mexican insurance business, ABA Seguros, to the ACE Group. Further, on October 23, 2012, we announced that we reached an agreement to sell our Canadian auto finance operation, Ally Credit Canada Limited, and ResMor Trust to Royal Bank of Canada. Refer to Note 26 for further information. We expect to continue to explore strategic alternatives for our remaining international operations. However, we can provide no assurances that we will enter into strategic transactions with respect to all or any portion of the balance of our international operations.
Ally Bank Mortgage Servicing Rights Portfolio and Business Lending Operations
On October 26, 2012, Ally Bank announced that it has begun to explore strategic alternatives for its agency mortgage servicing rights (MSR) portfolio and its business lending operations. Ally Bank expects to continue originating a modest level of high-quality residential jumbo mortgages for its own portfolio through correspondents and wholesale brokers.
Significant Accounting Policies
Income Taxes
In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes , we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. We exclude and record discretely the tax effect of unusual or infrequently occurring items, including, for example, changes in judgment about valuation allowances and effects of changes in tax law or rates. The provision for income taxes in tax jurisdictions with a projected full year or year-to-date loss for which a tax benefit cannot be realized are estimated using tax rates specific to that jurisdiction.
Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K regarding additional significant accounting policies.
Recently Adopted Accounting Standards
Financial Services - Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)
As of January 1, 2012, we adopted Accounting Standards Update (ASU) 2010-26, which amends ASC 944, Financial Services - Insurance . The amendments in this ASU specify which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. All other acquisition-related costs should be expensed as incurred. If the initial application of the amendments in this ASU results in the capitalization of acquisition costs that had not been previously capitalized, an entity may elect not to capitalize those types of costs. Both retrospective application and early adoption was permitted. We elected prospective application and did not early adopt the ASU. The adoption did not have a material impact to our consolidated financial condition or results of operations.
Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04)
As of January 1, 2012, we adopted ASU 2011-04, which amends ASC 820, Fair Value Measurements . The amendments in this ASU clarify how to measure fair value and it contains new disclosure requirements to provide more transparency into Level 3 fair value measurements. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (IFRS). The ASU must be applied prospectively. The adoption did not have a material impact to our consolidated financial condition or results of operations.
Intangibles-Goodwill and Other - Testing Goodwill for Impairment (ASU 2011-08)
As of January 1, 2012, we adopted ASU 2011-08, which amends ASC 350, Intangibles-Goodwill and Other . This ASU permits the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not more than the carrying amount, the two-step impairment test would not be required. Otherwise, further evaluation under the existing two-step framework would be required. The adoption did not have a material impact to our consolidated financial condition or results of operations.

12
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Recently Issued Accounting Standards
Balance Sheet - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11)
In December 2011, the Financial Accounting Standards Board issued ASU 2011-11, which amends ASC 210, Balance Sheet . This ASU contains new disclosure requirements regarding the nature of an entity's rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The new disclosures will give financial statement users information about both gross and net exposures. ASU 2011-11 is effective for us on January 1, 2013, and retrospective application is required. Since the guidance relates only to disclosures, adoption is not expected to have a material effect on our consolidated financial condition or results of operations.
2.     Discontinued and Held-for-sale Operations
We classify operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all of the operating results for these discontinued operations have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the Condensed Consolidated Statement of Comprehensive Income . The Notes to the Condensed Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.
Select Mortgage Operations
During the second quarter of 2012, we sold the Canadian mortgage operations of ResMor Trust.
Select Global Automotive Services — Insurance Operations
During the fourth quarter of 2011, we committed to sell our U.K.-based operations that provide vehicle service contracts and insurance products in Europe and Latin America. During the second quarter of 2011, we completed the sale of our U.K. consumer property and casualty insurance business.
Select Global Automotive Services — International Automotive Finance Operations
During the fourth quarter of 2011, we committed to sell our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain. During the first quarter of 2012, we completed the sale of our Venezuela operations.
Select Financial Information
Select financial information of discontinued operations is summarized below. The pretax income or loss, including direct costs to transact, includes any impairment recognized to present the operations at the lower-of-cost or fair value. Fair value was based on the estimated sales price, which could differ from the ultimate sales price due to the fluidity of ongoing negotiations, price volatility, changing interest rates, changing foreign-currency rates, and future economic conditions.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Select Mortgage operations
Total net (loss) revenue
$
—

$
(8
)
$
8

$
(5
)
Pretax loss including direct costs to transact a sale
—

(14
)
(10
)
(25
)
Tax benefit
(7
)
(4
)
(7
)
(7
)
Select Global Automotive Services — Insurance operations
Total net revenue
$
38

$
35

$
110

$
201

Pretax (loss) income including direct costs to transact a sale
(12
)
3

(36
)
21

Tax expense
—

1

3

3

Select Global Automotive Services — International operations
Total net revenue
$
1

$
7

$
9

$
50

Pretax (loss) income including direct costs to transact a sale (a)
(4
)
(5
)
11

(30
)
Tax (benefit) expense
(3
)
(2
)
1

(1
)
(a)
Includes certain income tax activity recognized by Corporate and Other.

13
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Held-for-sale Operations
The assets and liabilities of operations held-for-sale are summarized below.
September 30, 2012 ($ in millions)
Select
Global Automotive Services –Insurance
operations (a)
Select
Global Automotive Services – International
operations (b)
Total
held-for-sale
operations
Assets
Cash and cash equivalents
Noninterest-bearing
$
4

$
28

$
32

Interest-bearing
87

8

95

Total cash and cash equivalents
91

36

127

Investment securities
182

—

182

Finance receivables and loans, net
—

2

2

Investment in operating leases, net
—

25

25

Premiums receivable and other insurance assets
79

—

79

Other assets
20

11

31

Impairment on assets of held-for-sale operations
(51
)
(20
)
(71
)
Total assets
$
321

$
54

$
375

Liabilities
Unearned insurance premiums and service revenue
$
137

$
—

$
137

Reserves for insurance losses and loss adjustment expenses
14

—

14

Accrued expenses and other liabilities
97

6

103

Total liabilities
$
248

$
6

$
254

(a)
Includes our U.K.-based operations that provide vehicle service contracts and insurance products.
(b)
Includes our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain.

14
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


December 31, 2011 ($ in millions)
Select
Mortgage
operations (a)
Select
Global Automotive Services –Insurance
operations (b)
Select
Global Automotive Services – International
operations (c)
Total
held-for-sale
operations
Assets
Cash and cash equivalents
Noninterest-bearing
$
—

$
4

$
55

$
59

Interest-bearing
—

54

38

92

Total cash and cash equivalents
—

58

93

151

Investment securities
—

186

—

186

Loans held-for-sale, net
260

—

—

260

Finance receivables and loans, net
Finance receivables and loans, net
285

—

11

296

Allowance for loan losses
—

—

(1
)
(1
)
Total finance receivables and loans, net
285

—

10

295

Investment in operating leases, net
—

—

91

91

Premiums receivable and other insurance assets
—

77

—

77

Other assets
140

14

30

184

Impairment on assets of held-for-sale operations
—

—

(174
)
(174
)
Total assets
$
685

$
335

$
50

$
1,070

Liabilities
Unearned insurance premiums and service revenue
$
—

$
130

$
—

$
130

Reserves for insurance losses and loss adjustment expenses
—

17

—

17

Accrued expenses and other liabilities
80

82

28

190

Total liabilities
$
80

$
229

$
28

$
337

(a)
Includes the Canadian mortgage operations of ResMor Trust.
(b)
Includes our U.K.-based operations that provide vehicle service contracts and insurance products.
(c)
Includes the operations of Venezuela and our full-service leasing operations in Austria, Germany, Greece, Portugal, and Spain.

15
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Recurring Fair Value
The following tables display the assets and liabilities of our held-for-sale operations measured at fair value on a recurring basis. Refer to Note 22 for descriptions of valuation methodologies used to measure material assets at fair value and details of the valuation models, key inputs to these models, and significant assumptions used.
Recurring fair value measurements
($ in millions)
Level 1
Level 2
Level 3
Total
September 30, 2012
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government
$
182

$
—

$
—

$
182

Total assets
$
182

$
—

$
—

$
182

December 31, 2011
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government
$
171

$
15

$
—

$
186

Other assets
Interest retained in financial asset sales
—

—

66

66

Total assets
$
171

$
15

$
66

$
252

3.     Other Income, Net of Losses
Details of other income, net of losses, were as follows.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Mortgage processing fees and other mortgage income
$
105

$
53

$
342

$
141

Late charges and other administrative fees
33

30

96

86

Income from equity-method investments
22

21

69

63

Remarketing fees
16

24

54

92

Securitization income
10

18

33

169

Fair value adjustment on derivatives (a)
(3
)
(55
)
(35
)
(134
)
Change due to fair value option elections (b)
—

(44
)
(19
)
(83
)
Other, net
42

83

188

239

Total other income, net of losses
$
225

$
130

$
728

$
573

(a)
Refer to Note 20 for a description of derivative instruments and hedging activities.
(b)
Refer to Note 22 for a description of fair value option elections.

16
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


4.     Other Operating Expenses
Details of other operating expenses were as follows.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Insurance commissions
$
106

$
116

$
325

$
350

Lease and loan administration
94

47

204

136

Technology and communications
86

127

321

361

Professional services
69

83

278

226

Advertising and marketing
38

46

114

141

Regulatory and licensing fees
33

32

101

102

Mortgage representation and warranty obligation, net
30

70

67

280

Premises and equipment depreciation
24

24

73

73

Vehicle remarketing and repossession
20

32

65

104

State and local non-income taxes
23

29

52

95

Occupancy
17

25

62

69

Impairment and accruals related to ResCap deconsolidation
—

—

1,192

(a)
—

Other
79

123

414

455

Total other operating expenses
$
619

$
754

$
3,268

$
2,392

(a)
This charge consists of the $442 million total impairment of our investment in ResCap and a $750 million cash contribution to be made by us to the Debtors' estate. Refer to Note 1 for more information regarding the Debtors' bankruptcy, deconsolidation, and this charge.
5.     Trading Assets
The composition of trading assets was as follows.
($ in millions)
September 30, 2012
December 31, 2011
Mortgage-backed residential trading securities
$
—

$
608

Trading derivatives
—

14

Total trading assets
$
—

$
622


17
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


6.     Investment Securities
Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, interests in securitization trusts, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.
September 30, 2012
December 31, 2011
Amortized cost
Gross unrealized
Fair
value
Amortized cost
Gross unrealized
Fair
value
($ in millions)
gains
losses
gains
losses
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
$
1,354

$
4

$
—

$
1,358

$
1,535

$
13

$
(2
)
$
1,546

U.S. states and political subdivisions
—

—

—

—

1

—

—

1

Foreign government
803

17

—

820

765

20

(1
)
784

Mortgage-backed residential (a)
6,269

114

(9
)
6,374

7,266

87

(41
)
7,312

Asset-backed
2,365

47

(1
)
2,411

2,600

28

(13
)
2,615

Corporate debt
1,349

59

(4
)
1,404

1,486

23

(18
)
1,491

Other
333

—

—

333

326

1

—

327

Total debt securities
12,473

241

(14
)
12,700

13,979

172

(75
)
14,076

Equity securities
1,114

28

(72
)
1,070

1,188

25

(154
)
1,059

Total available-for-sale securities (b)
$
13,587

$
269

$
(86
)
$
13,770

$
15,167

$
197

$
(229
)
$
15,135

(a)
Residential mortgage-backed securities include agency-backed bonds totaling $4,580 million and $6,114 million at September 30, 2012 , and December 31, 2011 , respectively.
(b)
Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $15 million and $16 million at September 30, 2012 , and December 31, 2011 , respectively.

18
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause actual maturities to differ from scheduled maturities.
Total
Due in
one year
or less
Due after
one year
through
five years
Due after
five years
through
ten years
Due after
ten years (a)
($ in millions)
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
September 30, 2012
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies
$
1,358

0.5
%
$
428

—
%
$
731

0.7
%
$
199

1.1
%
$
—

—
%
Foreign government
820

3.6

134

3.9

433

3.8

249

3.1

4

6.3

Mortgage-backed residential
6,374

2.7

—

—

4

5.3

182

2.3

6,188

2.7

Asset-backed
2,411

2.2

5

3.9

1,583

2.1

486

2.0

337

3.2

Corporate debt
1,404

5.2

18

3.9

637

4.2

621

6.2

128

5.7

Other
333

1.4

332

1.4

—

—

1

4.4

—

—

Total available-for-sale debt securities
$
12,700

2.6

$
917

1.2

$
3,388

2.3

$
1,738

3.3

$
6,657

2.7

Amortized cost of available-for-sale debt securities
$
12,473

$
916

$
3,339

$
1,682

$
6,536

December 31, 2011
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies
$
1,546

0.9
%
$
231

—
%
$
1,202

0.9
%
$
113

2.2
%
$
—

—
%
U.S. states and political subdivisions
1

5.4

—

—

—

—

—

—

1

5.4

Foreign government
784

4.4

77

7.7

506

4.3

201

3.3

—

—

Mortgage-backed residential
7,312

2.5

3

4.8

2

6.3

189

2.6

7,118

2.5

Asset-backed
2,615

2.1

—

—

1,599

1.9

574

1.9

442

3.2

Corporate debt
1,491

4.9

19

4.9

741

4.4

606

5.6

125

4.7

Other
327

1.4

316

1.3

—

—

11

4.6

—

—

Total available-for-sale debt securities
$
14,076

2.6

$
646

1.7

$
4,050

2.4

$
1,694

3.5

$
7,686

2.6

Amortized cost of available-for-sale debt securities
$
13,979

$
644

$
4,026

$
1,678

$
7,631

(a)
Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b)
Yields on tax-exempt obligations are computed on a tax-equivalent basis.
The balances of cash equivalents were $7.3 billion and $5.6 billion at September 30, 2012 , and December 31, 2011 , respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents gross gains and losses realized upon the sales of available-for-sale securities and other-than-temporary impairment.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Gross realized gains
$
55

$
90

$
224

$
288

Gross realized losses
(18
)
(15
)
(31
)
(37
)
Other-than-temporary impairment
(56
)
—

(56
)
—

Net realized (losses) gains
$
(19
)
$
75

$
137

$
251


19
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following table presents interest and dividends on available-for-sale securities.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Taxable interest
$
67

$
96

$
225

$
294

Taxable dividends
6

6

18

17

Interest and dividends on available-for-sale securities
$
73

$
102

$
243

$
311

Certain available for sale securities were sold at a loss in 2012 and 2011 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 September 30, 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 September 30, 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 September 30, 2012 . Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.
September 30, 2012
December 31, 2011
Less than
12 months
12 months
or longer
Less than
12 months
12 months
or longer
($ in millions)
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
$
22

$
—

$
—

$
—

$
179

$
(2
)
$
—

$
—

Foreign government
129

—

—

—

197

(1
)
—

—

Mortgage-backed residential
650

(7
)
86

(2
)
2,302

(39
)
45

(2
)
Asset-backed
130

(1
)
1

—

994

(13
)
1

—

Corporate debt
101

(2
)
19

(2
)
444

(16
)
30

(2
)
Total temporarily impaired debt securities
1,032

(10
)
106

(4
)
4,116

(71
)
76

(4
)
Temporarily impaired equity securities
299

(26
)
303

(46
)
770

(148
)
18

(6
)
Total temporarily impaired available-for-sale securities
$
1,331

$
(36
)
$
409

$
(50
)
$
4,886

$
(219
)
$
94

$
(10
)

20
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



7.     Loans Held-for-Sale, Net
The composition of loans held-for-sale, net, was as follows.
September 30, 2012
December 31, 2011
($ in millions)
Domestic
Foreign
Total
Domestic
Foreign
Total
Consumer automobile
$
—

$
—

$
—

$
425

$
—

$
425

Consumer mortgage




1st Mortgage
1,927

—

1,927

7,360

12

7,372

Home equity
—

—

—

740

—

740

Total consumer mortgage (a)
1,927

—

1,927

8,100

12

8,112

Commercial and industrial
Other
10

—

10

20

—

20

Total loans held-for-sale (b)
$
1,937

$
—

$
1,937

$
8,545

$
12

$
8,557

(a)
Fair value option-elected domestic consumer mortgages were $1.9 billion and $3.9 billion at September 30, 2012 , and December 31, 2011 , respectively. Refer to Note 22 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 $21 million at September 30, 2012 , and net unamortized discounts of $221 million at December 31, 2011 .
The following table summarizes held-for-sale mortgage loans reported at carrying value by higher-risk loan type.
($ in millions)
September 30, 2012
December 31, 2011
High original loan-to-value (greater than 100%) mortgage loans
$
336

$
423

Payment-option adjustable-rate mortgage loans
—

12

Interest-only mortgage loans
9

298

Below-market rate (teaser) mortgages
—

169

Total higher-risk mortgage loans held-for-sale
$
345

$
902


21
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



8.     Finance Receivables and Loans, Net
The composition of finance receivables and loans, net, reported at carrying value before allowance for loan losses was as follows.
September 30, 2012
December 31, 2011
($ in millions)
Domestic
Foreign
Total
Domestic
Foreign
Total
Consumer automobile
$
52,434

$
18,413

$
70,847

$
46,576

$
16,883

$
63,459

Consumer mortgage
1st Mortgage
7,070

—

7,070

6,867

24

6,891

Home equity
2,717

—

2,717

3,102

—

3,102

Total consumer mortgage
9,787

—

9,787

9,969

24

9,993

Commercial
Commercial and industrial
Automobile
27,523

7,279

34,802

26,552

8,265

34,817

Mortgage
686

—

686

1,887

24

1,911

Other
2,552

6

2,558

1,178

63

1,241

Commercial real estate
Automobile
2,446

133

2,579

2,331

154

2,485

Mortgage
—

—

—

—

14

14

Total commercial
33,207

7,418

40,625

31,948

8,520

40,468

Loans at fair value (a)
—

—

—

603

232

835

Total finance receivables and loans (b)
$
95,428

$
25,831

$
121,259

$
89,096

$
25,659

$
114,755

(a)
Includes domestic consumer mortgages at fair value as a result of fair value option election. Refer to Note 22 for additional information.
(b)
Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $3.0 billion and $2.9 billion at September 30, 2012 , and December 31, 2011 , respectively.

22
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
Three months ended September 30, 2012 ($ in millions)
Consumer
automobile
Consumer
mortgage
Commercial
Total
Allowance at July 1, 2012
$
778

$
472

$
177

$
1,427

Charge-offs
Domestic
(111
)
(33
)
(3
)
(147
)
Foreign
(47
)
—

—

(47
)
Total charge-offs
(158
)
(33
)
(3
)
(194
)
Recoveries
Domestic
41

2

1

44

Foreign
21

—

4

25

Total recoveries
62

2

5

69

Net charge-offs
(96
)
(31
)
2

(125
)
Provision for loan losses
117

6

(7
)
116

Other
4

—

1

5

Allowance at September 30, 2012
$
803

$
447

$
173

$
1,423

Three months ended September 30, 2011 ($ in millions)
Consumer
automobile
Consumer
mortgage
Commercial
Total
Allowance at July 1, 2011
$
911

$
558

$
270

$
1,739

Charge-offs
Domestic
(97
)
(54
)
(6
)
(157
)
Foreign
(37
)
(2
)
(7
)
(46
)
Total charge-offs
(134
)
(56
)
(13
)
(203
)
Recoveries
Domestic
45

4

4

53

Foreign
18

1

8

27

Total recoveries
63

5

12

80

Net charge-offs
(71
)
(51
)
(1
)
(123
)
Provision for loan losses
53

26

(29
)
50

Discontinued operations
—

(1
)
—

(1
)
Other
(42
)
—

(2
)
(44
)
Allowance at September 30, 2011
$
851

$
532

$
238

$
1,621


23
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Nine months ended September 30, 2012 ( $ in millions )
Consumer
automobile
Consumer
mortgage
Commercial
Total
Allowance at January 1, 2012
$
766

$
516

$
221

$
1,503

Charge-offs
Domestic
(296
)
(119
)
(6
)
(421
)
Foreign
(128
)
—

(2
)
(130
)
Total charge-offs
(424
)
(119
)
(8
)
(551
)
Recoveries
Domestic
129

8

10

147

Foreign
55

—

29

84

Total recoveries
184

8

39

231

Net charge-offs
(240
)
(111
)
31

(320
)
Provision for loan losses
295

54

(64
)
285

Deconsolidation of ResCap
—

(9
)
—

(9
)
Other
(18
)
(3
)
(15
)
(36
)
Allowance at September 30, 2012
$
803

$
447

$
173

$
1,423

Allowance for loan losses
Individually evaluated for impairment
$
10

$
172

$
38

$
220

Collectively evaluated for impairment
789

275

135

1,199

Loans acquired with deteriorated credit quality
4

—

—

4

Finance receivables and loans at historical cost
Ending balance
70,847

9,787

40,625

121,259

Individually evaluated for impairment
97

738

1,662

2,497

Collectively evaluated for impairment
70,710

9,049

38,963

118,722

Loans acquired with deteriorated credit quality
40

—

—

40

Nine months ended September 30, 2011 ( $ in millions )
Consumer
automobile
Consumer
mortgage
Commercial
Total
Allowance at January 1, 2011
$
970

$
580

$
323

$
1,873

Charge-offs
Domestic
(331
)
(162
)
(24
)
(517
)
Foreign
(112
)
(4
)
(55
)
(171
)
Total charge-offs
(443
)
(166
)
(79
)
(688
)
Recoveries
Domestic
146

13

16

175

Foreign
54

1

25

80

Total recoveries
200

14

41

255

Net charge-offs
(243
)
(152
)
(38
)
(433
)
Provision for loan losses
157

104

(48
)
213

Other
(33
)
—

1

(32
)
Allowance at September 30, 2011
$
851

$
532

$
238

$
1,621

Allowance for loan losses
Individually evaluated for impairment
$
2

$
125

$
49

$
176

Collectively evaluated for impairment
839

407

189

1,435

Loans acquired with deteriorated credit quality
10

—

—

10

Finance receivables and loans at historical cost
Ending balance
59,705

10,269

37,897

107,871

Individually evaluated for impairment
52

600

698

1,350

Collectively evaluated for impairment
59,549

9,669

37,199

106,417

Loans acquired with deteriorated credit quality
104

—

—

104


24
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Consumer automobile
$
—

$
1,961

$
1,960

$
3,279

Consumer mortgage
—

7

40

100

Commercial
10

27

10

33

Total sales and transfers
$
10

$
1,995

$
2,010

$
3,412

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.
($ in millions)
30-59 days
past due
60-89 days
past due
90 days
or more
past due
Total
past due
Current
Total finance
receivables and loans
September 30, 2012
Consumer automobile
$
848

$
197

$
191

$
1,236

$
69,611

$
70,847

Consumer mortgage
1st Mortgage
76

38

161

275

6,795

7,070

Home equity
17

12

13

42

2,675

2,717

Total consumer mortgage
93

50

174

317

9,470

9,787

Commercial
Commercial and industrial
Automobile
7

2

58

67

34,735

34,802

Mortgage
—

—

—

—

686

686

Other
—

—

1

1

2,557

2,558

Commercial real estate
Automobile
2

—

18

20

2,559

2,579

Mortgage
—

—

—

—

—

—

Total commercial
9

2

77

88

40,537

40,625

Total consumer and commercial
$
950

$
249

$
442

$
1,641

$
119,618

$
121,259

December 31, 2011
Consumer automobile
$
802

$
162

$
179

$
1,143

$
62,316

$
63,459

Consumer mortgage
1st Mortgage
91

35

162

288

6,603

6,891

Home equity
21

11

18

50

3,052

3,102

Total consumer mortgage
112

46

180

338

9,655

9,993

Commercial
Commercial and industrial
Automobile
—

1

126

127

34,690

34,817

Mortgage
—

—

—

—

1,911

1,911

Other
—

—

1

1

1,240

1,241

Commercial real estate
Automobile
2

1

34

37

2,448

2,485

Mortgage
—

2

12

14

—

14

Total commercial
2

4

173

179

40,289

40,468

Total consumer and commercial
$
916

$
212

$
532

$
1,660

$
112,260

$
113,920


25
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
($ in millions)
September 30, 2012
December 31, 2011
Consumer automobile
$
304

$
228

Consumer mortgage
1st Mortgage
444

281

Home equity
36

58

Total consumer mortgage
480

339

Commercial
Commercial and industrial
Automobile
257

223

Mortgage
—

—

Other
36

37

Commercial real estate
Automobile
53

67

Mortgage
—

12

Total commercial
346

339

Total consumer and commercial finance receivables and loans
$
1,130

$
906

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.
September 30, 2012
December 31, 2011
($ in millions)
Performing
Nonperforming
Total
Performing
Nonperforming
Total
Consumer automobile
$
70,543

$
304

$
70,847

$
63,231

$
228

$
63,459

Consumer mortgage
1st Mortgage
6,626

444

7,070

6,610

281

6,891

Home equity
2,681

36

2,717

3,044

58

3,102

Total consumer mortgage
$
9,307

$
480

$
9,787

$
9,654

$
339

$
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.
September 30, 2012
December 31, 2011
($ in millions)
Pass
Criticized (a)
Total
Pass
Criticized (a)
Total
Commercial
Commercial and industrial
Automobile
$
32,766

$
2,036

$
34,802

$
32,464

$
2,353

$
34,817

Mortgage
667

19

686

1,760

151

1,911

Other
2,306

252

2,558

883

358

1,241

Commercial real estate
Automobile
2,471

108

2,579

2,305

180

2,485

Mortgage
—

—

—

—

14

14

Total commercial
$
38,210

$
2,415

$
40,625


$
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.

26
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K.
The following table presents information about our impaired finance receivables and loans recorded at historical cost.
($ in millions)
Unpaid principal balance
Carrying value before allowance
Impaired with no allowance
Impaired with an allowance
Allowance for impaired loans
September 30, 2012
Consumer automobile
$
97

$
97

$
—

$
97

$
10

Consumer mortgage
1st Mortgage
728

646

101

545

133

Home equity
91

92

—

92

39

Total consumer mortgage
819

738

101

637

172

Commercial
Commercial and industrial
Automobile
257

257

93

164

15

Mortgage
—

—

—

—

—

Other
36

36

10

26

7

Commercial real estate
Automobile
53

53

14

39

16

Mortgage
—

—

—

—

—

Total commercial
346

346

117

229

38

Total consumer and commercial finance receivables and loans
$
1,262

$
1,181

$
218

$
963

$
220

December 31, 2011
Consumer automobile
$
69

$
69

$
—

$
69

$
7

Consumer mortgage
1st Mortgage
516

508

83

425

126

Home equity
97

98

—

98

46

Total consumer mortgage
613

606

83

523

172

Commercial
Commercial and industrial
Automobile
222

222

64

158

22

Mortgage
—

—

—

—

—

Other
37

37

25

12

5

Commercial real estate
Automobile
68

68

32

36

18

Mortgage
12

12

1

11

5

Total commercial
339

339

122

217

50

Total consumer and commercial finance receivables and loans
$
1,021

$
1,014

$
205

$
809

$
229


27
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following tables present average balance and interest income for our impaired finance receivables and loans.
2012
2011
Three months ended September 30, ( $ in millions )
Average
balance
Interest
income
Average
balance
Interest
income
Consumer automobile
$
97

$
2

$
56

$
1

Consumer mortgage
1st Mortgage
628

10

476

5

Home equity
91

1

93

1

Total consumer mortgage
719

11

569

6

Commercial
Commercial and industrial
Automobile
229

4

306

6

Mortgage
—

—

2

1

Other
37

—

54

—

Commercial real estate
Automobile
51

1

104

4

Mortgage
—

—

31

—

Total commercial
317

5

497

11

Total consumer and commercial finance receivables and loans
$
1,133

$
18

$
1,122

$
18

2012
2011
Nine months ended September 30, ( $ in millions )
Average
balance
Interest
income
Average
balance
Interest
income
Consumer automobile
$
91

$
7

$
23

$
1

Consumer mortgage
1st Mortgage
574

21

449

13

Home equity
95

3

89

3

Total consumer mortgage
669

24

538

16

Commercial
Commercial and industrial
Automobile
212

9

321

7

Mortgage
6

—

26

6

Other
32

5

95

1

Commercial real estate
Automobile
57

2

141

4

Mortgage
7

—

47

1

Total commercial
314

16

630

19

Total consumer and commercial finance receivables and loans
$
1,074

$
47

$
1,191

$
36

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 $885 million at September 30, 2012 , reflecting an increase of $151 million from December 31, 2011 . Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information.

28
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following tables present information related to finance receivables and loans recorded at historical cost modified in connection with a troubled debt restructuring during the period.
2012
2011
Three months ended September 30,
( $ in millions )
Number of
loans
Pre-modification
carrying value before
allowance
Post-modification
carrying value before
allowance
Number of
loans
Pre-modification
carrying value before
allowance
Post-modification
carrying value before
allowance
Consumer automobile
1,207

$
14

$
14

1,629

$
21

$
21

Consumer mortgage
1st Mortgage
218

74

59

80

30

29

Home equity
85

5

5

213

12

11

Total consumer mortgage
303

79

64

293

42

40

Commercial
Commercial and industrial
Automobile
3

7

7

—

—

—

Mortgage
—

—

—

—

—

—

Other
—

—

—

—

—

—

Commercial real estate
Automobile
1

2

2

1

2

2

Mortgage
—

—

—

1

3

2

Total commercial
4

9

9

2

5

4

Total consumer and commercial finance receivables and loans
1,514

$
102

$
87

1,924

$
68

$
65

2012
2011
Nine months ended September 30,
( $ in millions )
Number of
loans
Pre-modification
carrying value before
allowance
Post-modification
carrying value before
allowance
Number of
loans
Pre-modification
carrying value before
allowance
Post-modification
carrying value before
allowance
Consumer automobile
5,979

$
72

$
72

4,407

$
58

$
58

Consumer mortgage
1st Mortgage
1,140

333

247

309

111

110

Home equity
312

18

17

695

39

36

Total consumer mortgage
1,452

351

264

1,004

150

146

Commercial
Commercial and industrial
Automobile
9

15

15

1

3

3

Mortgage
—

—

—

1

38

28

Other
—

—

—

2

11

10

Commercial real estate
Automobile
5

11

10

2

6

4

Mortgage
—

—

—

2

4

3

Total commercial
14

26

25

8

62

48

Total consumer and commercial finance receivables and loans
7,445

$
449

$
361

5,419

$
270

$
252


29
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following tables present 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 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information) except for commercial finance receivables and loans where default is defined as 90 days past due.
2012
2011
Three months ended September 30, ( $ in millions )
Number of
loans
Carrying value
before allowance
Charge-off amount
Number of
loans
Carrying value
before allowance
Charge-off amount
Consumer automobile
145

$
2

$
—

88

$
1

$
—

Consumer mortgage
1st Mortgage
5

1

—

—

—

—

Home equity
12

1

1

9

1

1

Total consumer mortgage
17

2

1

9

1

1

Commercial
Commercial and industrial
Automobile
—

—

—

—

—

—

Commercial real estate
Automobile
—

—

—

—

—

—

Total commercial
—

—

—

—

—

—

Total consumer and commercial finance receivables and loans
162

$
4

$
1

97

$
2

$
1

2012
2011
Nine months ended September 30, ( $ in millions )
Number of
loans
Carrying value
before allowance
Charge-off amount
Number of
loans
Carrying value
before allowance
Charge-off amount
Consumer automobile
514

$
5

$
2

176

$
2

$
1

Consumer mortgage
1st Mortgage
17

4

1

5

1

—

Home equity
25

2

2

18

1

1

Total consumer mortgage
42

6

3

23

2

1

Commercial
Commercial and industrial
Automobile
4

3

—

1

3

—

Commercial real estate
Automobile
1

2

—

—

—

—

Total commercial
5

5

—

1

3

—

Total consumer and commercial finance receivables and loans
561

$
16

$
5

200

$
7

$
2

At September 30, 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 $26 million and $45 million , respectively.

30
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Higher-Risk Mortgage Concentration Risk
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.
($ in millions)
September 30, 2012
December 31, 2011
Interest-only mortgage loans (a)
$
2,262

$
2,947

Below-market rate (teaser) mortgages
197

248

Total higher-risk mortgage finance receivables and loans
$
2,459

$
3,195

(a)
The majority of the interest-only mortgage loans are expected to start principal amortization in 2015 or beyond.

9.     Investment in Operating Leases, Net
Investments in operating leases were as follows.
($ in millions)
September 30, 2012
December 31, 2011
Vehicles and other equipment
$
14,969

$
11,160

Accumulated depreciation
(2,261
)
(1,885
)
Investment in operating leases, net
$
12,708

$
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.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Depreciation expense on operating lease assets (excluding remarketing gains)
$
405

$
352

$
1,124

$
1,083

Remarketing gains
(47
)
(76
)
(155
)
(361
)
Depreciation expense on operating lease assets
$
358

$
276

$
969

$
722


31
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


10.    Securitizations and Variable Interest Entities
Overview
We are involved in several types of securitization and financing transactions that utilize special purpose entities (SPEs). An 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 Condensed Consolidated Balance Sheet. We securitize consumer 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 the nine months ended September 30, 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 retain beneficial interests in our private-label securitizations, which may 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 trust as they may absorb credit losses or other cash shortfalls. Additionally, the securitization agreements may require cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which

32
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


may or may not be performance-driven.
We generally hold certain conditional repurchase options 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 25 for detail on representation and warranty provisions. We did not provide any noncontractual financial support to any of these entities during the nine months ended September 30, 2012 and 2011 .
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 September 30, 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 the nine months ended September 30, 2012 and 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 SPE. 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.

33
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Our involvement with consolidated and nonconsolidated VIEs in which we hold variable interests is presented below.
($ in millions)
Consolidated
involvement
with VIEs
Assets of
nonconsolidated
VIEs (a)
Maximum exposure to
loss in nonconsolidated
VIEs
September 30, 2012



On-balance sheet variable interest entities



Consumer automobile
$
29,131

$
—

$
—

Commercial automobile
18,741

—

—

Commercial other
656

—

—

Off-balance sheet variable interest entities



Consumer automobile
—

1,659

1,659

(b)
Consumer mortgage — other
—

—

(c)
13

(d)
Commercial other
(28
)
(e)
—

(f)
92

Total
$
48,500

$
1,659

$
1,764

December 31, 2011



On-balance sheet variable interest entities



Consumer automobile
$
26,504

$
—

$
—

Consumer mortgage — private-label
1,098

—

—

Commercial automobile
19,594

—

—

Other
956

—

—

Off-balance sheet variable interest entities



Consumer mortgage — Ginnie Mae
2,652

(g)
44,127

44,127

(b)
Consumer mortgage — CMHC
66

(g)
3,222

66

(h)
Consumer mortgage — private-label
141

(g)
4,408

4,408

(b)
Consumer mortgage — other
—

—

(c)
17

(d)
Commercial other
83

(e)
—

(f)
242

Total
$
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.
(c)
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.
(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 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.
(e)
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 September 30, 2012 , and December 31, 2011 , respectively.
(f)
Includes VIEs for which we have no management oversight and therefore we are not able to provide the total assets of the VIEs.
(g)
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 September 30, 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 Condensed Consolidated Balance Sheet.
We consolidated certain of these entities because we had a controlling financial interest in the VIE, primarily due to our servicing

34
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 Condensed 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 are restricted for the benefit of the beneficial interest holders. Refer to Note 22 for discussion of the assets and liabilities for which the fair value option has been elected.
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 25 .
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 Condensed 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.
The following summarizes all pretax gains and losses recognized on financial assets sold into nonconsolidated securitization and similar asset-backed financing entities.
Three months ended September 30,
Nine months ended September 30,
($ in millions )
2012
2011
2012
2011
Consumer automobile
$
—

$
—

$
6

$
—

Consumer mortgage — GSEs
19

332

384

597

Consumer mortgage — private-label
—

—

—

1

Total pretax gain
$
19

$
332

$
390

$
598


35
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 during the three months ended September 30, 2012 and 2011 . Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.
Nine months ended September 30, ( $ in millions )
Consumer automobile
Consumer
mortgage GSEs
Consumer mortgage
private-label
2012
Cash proceeds from transfers completed during the period
$
1,978

$
23,779

$
5

Cash flows received on retained interests in securitization entities
—

—

71

Servicing fees
8

560

63

Purchases of previously transferred financial assets
—

(876
)
(12
)
Representations and warranties obligations
—

(105
)
(7
)
Other cash flows
—

(91
)
255

2011


Cash proceeds from transfers completed during the period
$
—

$
43,877

$
722

Cash flows received on retained interests in securitization entities
—

—

53

Servicing fees
—

747

152

Purchases of previously transferred financial assets
—

(1,744
)
(17
)
Representations and warranties obligations
—

(101
)
(29
)
Other cash flows
—

60

135

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
($ in millions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
On-balance sheet loans
Consumer automobile
$
70,847

$
63,884

$
388

$
341

Consumer mortgage (a)
11,714

18,940

240

3,242

Commercial automobile
37,381

37,302

78

162

Commercial mortgage
686

1,925

—

14

Commercial other
2,568

1,261

1

1

Total on-balance sheet loans
123,196

123,312

707

3,760

Off-balance sheet securitization entities
Consumer automobile
1,659

—

2

—

Consumer mortgage — GSEs
122,892

262,984

1,903

9,456

Consumer mortgage — private-label
—

63,991

—

11,301

Total off-balance sheet securitization entities
124,551

326,975

1,905

20,757

Whole-loan transactions (b)
8,112

33,961

36

2,901

Total
$
255,859

$
484,248

$
2,648

$
27,418

(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 September 30, 2012 , and December 31, 2011 , respectively.
(b)
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.

36
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Net credit losses
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
On-balance sheet loans
Consumer automobile
$
96

$
71

$
240

$
243

Consumer mortgage
2

47

20

130

Commercial automobile
2

—

1

11

Commercial mortgage
—

1

(1
)
26

Commercial other
(4
)
—

(31
)
1

Total on-balance sheet loans
96

119

229

411

Off-balance sheet securitization entities
Consumer automobile
1

—

1

—

Consumer mortgage — GSEs (a)
n/m

n/m

n/m

n/m

Consumer mortgage — private-label
—

910

1,234

3,209

Total off-balance sheet securitization entities
1

910

1,235

3,209

Whole-loan transactions
1

182

238

626

Total
$
98

$
1,211

$
1,702

$
4,246

n/m = not meaningful
(a)
Anticipated credit losses are not meaningful due to the GSE guarantees.
11.     Servicing Activities
Mortgage Servicing Rights
The following tables summarize activity related to MSRs, which are carried at fair value. As MSRs do not trade in an active market with observable prices, 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.
Three months ended September 30, ($ in millions)
2012 (a)

2011
Estimated fair value at July 1,
$
1,105

$
3,701

Additions recognized on sale of mortgage loans
50

159

Additions from purchases of servicing rights
—

15

Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model
(192
)
(1,106
)
Other changes in fair value
(61
)
(106
)
Estimated fair value at September 30,
$
902

$
2,663

(a)
The balance is at Ally Bank. Ally Bank announced that it has begun to explore strategic alternatives for its agency MSR portfolio. Refer to Note 1 for more information.

Nine months ended September 30, ($ in millions)
2012 (a)

2011
Estimated fair value at January 1,
$
2,519

$
3,738

Additions recognized on sale of mortgage loans
167

487

Additions from purchases of servicing rights
—

31

Subtractions from sales of servicing assets
—

(266
)
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model
(330
)
(943
)
Other changes in fair value
(324
)
(384
)
Deconsolidation of ResCap
(1,130
)
—

Estimated fair value at September 30,
$
902

$
2,663

(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. Refer to Note 1 for more information.
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 . Refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for additional information regarding our significant assumptions and valuation techniques used in the valuation of mortgage servicing rights.
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.
($ in millions)
September 30, 2012
December 31, 2011
Weighted average life (in years)
4.1

4.7

Weighted average prepayment speed
17.0
%
15.7
%
Impact on fair value of 10% adverse change
$
(81
)
$
(135
)
Impact on fair value of 20% adverse change
(152
)
(257
)
Weighted average discount rate
5.9
%
10.2
%
Impact on fair value of 10% adverse change
$
(7
)
$
(59
)
Impact on fair value of 20% adverse change
(12
)
(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 20 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.
Three months ended September 30,
Nine months ended September 30,
( $ in millions )
2012
2011
2012
2011
Change in estimated fair value of mortgage servicing rights
$
(253
)
$
(1,212
)
$
(654
)
$
(1,327
)
Change in fair value of derivative financial instruments
387

741

724

664

Servicing asset valuation and hedge activities, net
$
134

$
(471
)
$
70

$
(663
)
Mortgage Servicing Fees
The components of mortgage servicing fees were as follows.
Three months ended September 30,
Nine months ended September 30,
( $ in millions )
2012
2011
2012
2011
Contractual servicing fees, net of guarantee fees and including subservicing
$
59

$
241

$
446

$
743

Late fees
3

11

28

49

Ancillary fees
3

44

57

115

Total mortgage servicing fees
$
65

$
296

$
531

$
907

Mortgage Servicing Advances
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, thus making their collection reasonably assured. These servicing advances are included in other assets on the Condensed Consolidated Balance Sheet and totaled $76 million and $1.9 billion at September 30, 2012 , and December 31, 2011 , respectively. We maintain an allowance for uncollected primary servicing advances of $1 million and $43 million at September 30, 2012 , and December 31, 2011 , respectively. Our potential obligation is influenced by the loan’s performance and credit quality.
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 taxes and insurance premiums, default and property maintenance, as well as advances of principal and interest payments before collecting them from individual borrowers. At September 30, 2012 , and December 31, 2011 , outstanding servicer advances related to subserviced loans were $0 million and $125 million , respectively, and we had a reserve for uncollected subservicer advances of $0 million and $1 million , respectively.
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. We had outstanding master-servicing advances of $0 million and $158 million at September 30, 2012 , and December 31, 2011 , respectively. We had no reserve for uncollected master-servicing advances at September 30, 2012 , or December 31, 2011 .
Serviced Mortgage Assets
Total serviced mortgage assets consist of primary servicing activities. These include loans owned by Ally Bank, where Ally Bank is the primary servicer, and loans sold to third-party investors, where Ally Bank has retained primary servicing. Loans owned by Ally Bank are categorized as loans held-for-sale or consumer finance receivables and loans which are discussed in further detail in Note 7 and Note 8 , respectively. The loans sold to third-party investors were sold through off-balance sheet GSE securitization transactions.
The unpaid principal balance of our serviced mortgage assets were as follows.
($ in millions)
September 30, 2012 (a)
December 31, 2011
On-balance sheet mortgage loans
Held-for-sale and investment
$
10,208

$
18,871

Operations held-for-sale
—

541

Off-balance sheet mortgage loans
Loans sold to third-party investors
Private-label
—

50,886

GSEs
122,892

262,868

Whole-loan
8

15,105

Purchased servicing rights
—

3,247

Operations held-for-sale
—

4,912

Total primary serviced mortgage loans
133,108

356,430

Subserviced mortgage loans
—

26,358

Subserviced operations held-for-sale
—

4

Total subserviced mortgage loans
—

26,362

Master-servicing-only mortgage loans
—

8,557

Total serviced mortgage loans
$
133,108

$
391,349

(a)
The remaining balances were 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. Refer to Note 1 for more information.
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 (GMACM), a subsidiary of ResCap, pursuant to a servicing agreement. GMACM is required to maintain certain servicer ratings in accordance with master agreements with the GSEs, which are highly correlated with GMACM’s consolidated tangible net worth and overall financial strength. At September 30, 2012 , Ally Bank was in compliance with the requirements of the servicing agreements.
Automobile 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 fees of $26 million and $86 million during the three months and nine months ended September 30, 2012 , respectively, compared to $39 million and $126 million for three months and nine months ended September 30, 2011 , respectively.
Automobile Serviced Assets
The total serviced automobile loans outstanding were as follows.
($ in millions)
September 30, 2012
December 31, 2011
On-balance sheet automobile loans and leases
Consumer automobile
$
70,847

$
63,884

Commercial automobile
37,381

37,302

Operating leases
12,708

9,275

Operations held-for-sale
27

102

Off-balance sheet automobile loans
Loans sold to third-party investors
Securitizations
1,639

—

Whole-loan
7,864

12,318

Total serviced automobile loans and leases
$
130,466

$
122,881


12.     Other Assets
The components of other assets were as follows.
($ in millions)
September 30, 2012
December 31, 2011
Property and equipment at cost
$
956

$
1,152

Accumulated depreciation
(618
)
(787
)
Net property and equipment
338

365

Fair value of derivative contracts in receivable position
4,608

5,687

Restricted cash collections for securitization trusts (a)
1,755

1,596

Collateral placed with counterparties
1,387

1,448

Restricted cash and cash equivalents
812

1,381

Cash reserve deposits held-for-securitization trusts (b)
756

838

Goodwill
520

518

Unamortized debt issuance costs
499

612

Other accounts receivable
494

1,110

Prepaid expenses and deposits
467

568

Real estate and other investments
453

385

Nonmarketable equity securities
342

419

Accrued interest and rent receivable
197

232

Interests retained in financial asset sales
165

231

Servicer advances
98

2,142

Other assets
1,045

1,209

Total other assets
$
13,936

$
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)
Represents credit enhancement in the form of cash reserves for various securitization transactions.
13.     Deposit Liabilities
Deposit liabilities consisted of the following.
($ in millions)
September 30, 2012
December 31, 2011
Domestic deposits
Noninterest-bearing deposits
$
2,487

$
2,029

Interest-bearing deposits
Savings and money market checking accounts
11,249

9,035

Certificates of deposit
30,773

28,540

Dealer deposits
1,333

1,769

Total domestic deposit liabilities
45,842

41,373

Foreign deposits
Interest-bearing deposits
Savings and money market checking accounts
1,537

1,408

Certificates of deposit
2,219

1,958

Dealer deposits
274

311

Total foreign deposit liabilities
4,030

3,677

Total deposit liabilities
$
49,872

$
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 September 30, 2012 , and December 31, 2011 , certificates of deposit included $11.5 billion and $10.0 billion , respectively, of domestic certificates of deposit in denominations of $100 thousand or more.

37
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


14.    Short-term Borrowings
The following table presents the composition of our short-term borrowings portfolio.
September 30, 2012
December 31, 2011
($ in millions)
Unsecured
Secured
Total
Unsecured
Secured
Total
Demand notes
$
3,092

$
—

$
3,092

$
2,756

$
—

$
2,756

Bank loans and overdrafts
718

—

718

1,613

—

1,613

Federal Home Loan Bank
—

—

—

—

1,400

1,400

Other (a)
153

1,914

2,067

146

1,765

1,911

Total short-term borrowings
$
3,963

$
1,914

$
5,877

$
4,515

$
3,165

$
7,680

(a)
Other primarily includes nonbank secured borrowings at our International Automotive Finance operations.
15.    Long-term Debt
The following tables present the composition of our long-term debt portfolio.
September 30, 2012
December 31, 2011
($ in millions)
Unsecured
Secured
Total
Unsecured
Secured
Total
Long-term debt
Due within one year (a)
$
8,886

$
17,052

$
25,938

$
11,664

$
14,521

$
26,185

Due after one year (b)
32,429

33,559

65,988

30,272

35,279

65,551

Fair value adjustment
1,102

—

1,102

1,058

—

1,058

Total long-term debt (c)
$
42,417

$
50,611

$
93,028

$
42,994

$
49,800

$
92,794

(a)
Includes $7.4 billion and $7.4 billion guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP) at September 30, 2012 , and December 31, 2011 , respectively.
(b)
Includes $2.6 billion and $2.6 billion of trust preferred securities at September 30, 2012 , and December 31, 2011 , respectively.
(c)
Includes fair value option-elected secured long-term debt of $0 million and $830 million at September 30, 2012 , and December 31, 2011 , respectively. Refer to Note 22 for additional information.
The following table presents the scheduled remaining maturity of long-term debt at September 30, 2012 , assuming no early redemptions will occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.
Year ended December 31,
($ in millions)
2012
2013
2014
2015
2016
2017 and
thereafter
Fair value
adjustment
Total
Unsecured
Long-term debt
$
7,895

$
2,373

$
5,927

$
5,117

$
1,513

$
20,386

$
1,102

$
44,313

Original issue discount
(59
)
(260
)
(187
)
(55
)
(63
)
(1,272
)
—

(1,896
)
Total unsecured
7,836

2,113

5,740

5,062

1,450

19,114

1,102

42,417

Secured
Long-term debt
4,261

17,899

15,098

8,205

2,816

2,332

—

50,611

Total long-term debt
$
12,097

$
20,012

$
20,838

$
13,267

$
4,266


$
21,446


$
1,102


$
93,028


38
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
September 30, 2012
December 31, 2011
($ in millions)
Total
Ally Bank (a)
Total
Ally Bank (a)
Trading assets
$
—

$
—

$
27

$
—

Investment securities
401

401

780

780

Loans held-for-sale
—

—

805

—

Mortgage assets held-for-investment and lending receivables
10,025

10,025

12,197

11,188

Consumer automobile finance receivables
36,488

16,970

33,888

17,320

Commercial automobile finance receivables
21,710

16,616

20,355

14,881

Investment in operating leases, net
5,909

1,818

4,555

431

Mortgage servicing rights
902

902

1,920

1,286

Other assets
2,719

2,068

3,973

1,816

Total assets restricted as collateral (b)
$
78,154

$
48,800

$
78,500

$
47,702

Secured debt (c)
$
52,525

$
27,882

$
52,965

$
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 access to the Federal Reserve Bank Discount Window. Ally Bank had assets pledged and restricted as collateral to the FHLB and Federal Reserve Bank totaling $9.3 billion and $11.8 billion at September 30, 2012 , and December 31, 2011 , respectively. These assets were composed of consumer and commercial mortgage finance receivables and loans, net; consumer automobile finance receivables and loans, net; and investment securities. Under the agreement with the FHLB, Ally Bank also had assets pledged as collateral under a blanket-lien totaling $8.4 billion and $7.3 billion at September 30, 2012 , and December 31, 2011 , respectively. These assets were primarily composed of mortgage servicing rights; consumer and commercial mortgage finance receivables and loans, net; and other assets. Availability under these programs is generally only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of Ally or its subsidiaries.
(c)
Includes $1.9 billion and $3.2 billion of short-term borrowings at September 30, 2012 , and December 31, 2011 , respectively.
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 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.
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 Condensed Consolidated Balance Sheet.
As of September 30, 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

39
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 September 30, 2012 , $33.6 billion of our $43.2 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of September 30, 2012 , we had $13.3 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.
Committed Funding Facilities
Outstanding
Unused capacity (a)
Total capacity
($ in billions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Bank funding
Secured - U.S.
$
3.8

$
5.8

$
4.7

$
3.7

$
8.5

$
9.5

Nonbank funding
Unsecured
Automotive Finance operations — U.S.
—

—

—

0.5

—

0.5

Automotive — International
0.1

0.3

0.1

—

0.2

0.3

Secured
Automotive — U.S. (b) (c)
8.5

4.2

8.9

10.2

17.4

14.4

Automotive — International (b)
10.2

10.1

2.8

3.0

13.0

13.1

Mortgage operations
—

0.7

—

0.5

—

1.2

Total nonbank funding
18.8

15.3

11.8

14.2

30.6

29.5

Shared capacity (d)
U.S.
—

1.5

4.0

2.5

4.0

4.0

International
0.1

0.1

—

—

0.1

0.1

Total committed facilities
$
22.7

$
22.7

$
20.5

$
20.4

$
43.2

$
43.1

(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 $3.1 billion as of September 30, 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 2012 and 2013.
(c)
Includes the secured facilities of Ally Commercial Finance, LLC.
(d)
Funding is generally available for assets originated by Ally Bank or the parent company, Ally Financial Inc.

40
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Uncommitted Funding Facilities
Outstanding
Unused capacity
Total capacity
($ in billions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Bank funding
Secured — U.S.
Federal Reserve funding programs
$
—

$
—

$
2.0

$
3.2

$
2.0

$
3.2

FHLB advances
4.3

5.4

0.8

—

5.1

5.4

Total bank funding
4.3

5.4

2.8

3.2

7.1

8.6

Nonbank funding
Unsecured
Automotive Finance operations — International
1.7

1.9

0.8

0.5

2.5

2.4

Secured
Automotive Finance operations — International
0.1

0.1

0.1

0.1

0.2

0.2

Mortgage operations
—

—

—

0.1

—

0.1

Total nonbank funding
1.8

2.0

0.9

0.7

2.7

2.7

Total uncommitted facilities
$
6.1

$
7.4

$
3.7

$
3.9

$
9.8

$
11.3

16.    Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities were as follows.
($ in millions)
September 30, 2012
December 31, 2011
Fair value of derivative contracts in payable position
$
4,711

$
5,367

Collateral received from counterparties
942

1,410

Accounts payable
876

1,178

ResCap settlement accrual (a)
750

—

Employee compensation and benefits
607

649

GM payable, net
368

228

Non-income tax payable
283

296

Current income tax payable
235

200

Reserve for mortgage representation and warranty obligation
127

825

Deferred revenue
119

86

Deferred income tax liability
95

111

Loan repurchase liabilities
—

2,387

Other liabilities
849

1,347

Total accrued expenses and other liabilities
$
9,962

$
14,084

(a)
Refer to Note 1 for more information regarding the Debtors' bankruptcy, deconsolidation, and this accrual.


41
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



17.    Equity
The following table summarizes information about our Series F-2, Series A, and Series G preferred stock.
September 30, 2012
December 31, 2011
Mandatorily convertible preferred stock held by U.S. Department of Treasury
Series F-2 preferred stock (a)
Carrying value ($ in millions)
$
5,685

$
5,685

Par value (per share)
0.01

0.01

Liquidation preference (per share)
50

50

Number of shares authorized
228,750,000

228,750,000

Number of shares issued and outstanding
118,750,000

118,750,000

Dividend/coupon
9
%
9
%
Redemption/call feature
Perpetual (b)

Perpetual (b)

Preferred stock
Series A preferred stock
Carrying value ($ in millions)
$
1,021

$
1,021

Par value (per share)
0.01

0.01

Liquidation preference (per share)
25

25

Number of shares authorized
160,870,560

160,870,560

Number of shares issued and outstanding
40,870,560

40,870,560

Dividend/coupon
Prior to May 15, 2016
8.5
%
8.5
%
On and after May 15, 2016
three month LIBOR + 6.243%

three month LIBOR + 6.243%

Redemption/call feature
Perpetual (c)

Perpetual (c)

Series G preferred stock (d)
Carrying value ($ in millions)
$
234

$
234

Par value (per share)
0.01

0.01

Liquidation preference (per share)
1,000

1,000

Number of shares authorized
2,576,601

2,576,601

Number of shares issued and outstanding
2,576,601

2,576,601

Dividend/coupon
7
%
7
%
Redemption/call feature
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.

42
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



18.    Earnings per Common Share
The following table presents the calculation of basic and diluted earnings per common share.
Three months ended September 30,
Nine months ended September 30,
($ in millions except per share data)
2012
2011
2012
2011
Net income (loss) from continuing operations
$
390

$
(199
)
$
(172
)
$
78

Preferred stock dividends — U.S. Department of Treasury
(134
)
(133
)
(401
)
(400
)
Preferred stock dividends
(67
)
(66
)
(200
)
(194
)
Impact of preferred stock amendment (a)
—

—

—

32

Net income (loss) from continuing operations attributable to common shareholders (b)
189

(398
)
(773
)
(484
)
Loss from discontinued operations, net of tax
(6
)
(11
)
(32
)
(29
)
Net income (loss) attributable to common shareholders
$
183

$
(409
)
$
(805
)
$
(513
)
Basic weighted-average common shares outstanding
1,330,970

1,330,970

1,330,970

1,330,970

Diluted weighted-average common shares outstanding (b)
1,330,970

1,330,970

1,330,970

1,330,970

Basic earnings per common share
Net income (loss) from continuing operations
$
142

$
(299
)
$
(581
)
$
(364
)
Loss from discontinued operations, net of tax
(5
)
(8
)
(24
)
(22
)
Net income (loss)
$
137

$
(307
)
$
(605
)
$
(386
)
Diluted earnings per common share (b)
Net income (loss) from continuing operations
$
142

$
(299
)
$
(581
)
$
(364
)
Loss from discontinued operations, net of tax
(5
)
(8
)
(24
)
(22
)
Net income (loss)
$
137

$
(307
)
$
(605
)
$
(386
)
(a)
Refer to Note 20 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K for further detail.
(b)
Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss attributable to common shareholders for the nine months ended September 30, 2012 , and the three months and nine months ended September 30, 2011 , respectively, income (loss) attributable to common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
The 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 three months and nine months ended September 30, 2012 and 2011 , 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 three months and nine months ended September 30, 2012 , and 2011 , respectively.
19.    Regulatory Capital
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

43
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
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 $50 billion or more, such as Ally, must develop and maintain a capital plan annually, and among other elements, the capital plan must include a discussion of how we will maintain a pro forma Tier 1 common ratio (Tier 1 common to risk-weighted assets) above 5% under expected conditions and certain stressed scenarios.
On October 29, 2010, Ally, IB Finance Holding Company, LLC, Ally Bank, and the FDIC entered into a Capital and Liquidity Maintenance Agreement (CLMA). The CLMA requires capital at Ally Bank to be maintained at a level such that Ally Bank's leverage ratio is at least 15% . For this purpose, the leverage ratio is determined in accordance with the FDIC's regulations related to capital maintenance.
The following table summarizes our capital ratios.
September 30, 2012
December 31, 2011
Required
minimum
Well-capitalized
minimum
($ in millions)
Amount
Ratio
Amount
Ratio
Risk-based capital
Tier 1 (to risk-weighted assets)
Ally Financial Inc.
$
20,503

13.64
%
$
21,158

13.71
%
4.00
%
6.00%
Ally Bank
13,812

16.98

12,953

17.42

4.00

6.00
Total (to risk-weighted assets)
Ally Financial Inc.
$
21,994

14.63
%
$
22,755

14.75
%
8.00
%
10.00%
Ally Bank
14,640

18.00

13,675

18.40

8.00

10.00
Tier 1 leverage (to adjusted quarterly average assets) (a)
Ally Financial Inc.
$
20,503

11.29
%
$
21,158

11.50
%
3.00–4.00%
(b)
Ally Bank
13,812

15.47

12,953

15.50

15.00

(c)
5.00%
Tier 1 common (to risk-weighted assets)
Ally Financial Inc.
$
11,020

7.33
%
$
11,676

7.57
%
n/a
n/a
Ally Bank
n/a

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 September 30, 2012 , Ally and Ally Bank were “well-capitalized” and met all capital requirements to which each was subject.
Basel Capital Accord
In June 2012, the U.S. federal banking agencies released three notices of proposed rulemaking (NPRs) and a Market Risk Final Rule. 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.
The Market Risk Final Rule that amends the calculation of market risk capital only applies to banking organizations with significant trading assets and liabilities. We do not currently meet the qualifications; accordingly, this rule is not currently applicable to us.

44
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.

20.    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, debt, and deposits. 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.
We enter into economic hedges to mitigate exposure for the following categories.
•
MSRs and retained interests — Our MSRs and retained interest portfolios 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 and retained interests. 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 and retained interests 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 and retained interests. 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, U.S. Treasury 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 swaps and 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 swaps are generally entered into or traded concurrent with the debt issuance with the terms of the swap 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

45
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 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 $1.4 billion and $1.4 billion at September 30, 2012 , and December 31, 2011 , respectively, in accounts maintained by counterparties. We received cash collateral from counterparties totaling $942 million and $1.4 billion at September 30, 2012 , and December 31, 2011 , respectively. The receivables for collateral placed and the payables for collateral received are included on our Condensed 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 Condensed Consolidated Balance Sheet unless certain conditions are met. At September 30, 2012 , and December 31, 2011 , we received noncash collateral of $54 million and $43 million , respectively.

46
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Balance Sheet Presentation
The following table summarizes the fair value amounts of derivative instruments reported on our Condensed 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 September 30, 2012 , $4.6 billion of the derivative contracts in a receivable position were classified as other assets on the Condensed 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 Condensed Consolidated Balance Sheet . At September 30, 2012 , $4.7 billion of derivative contracts in a liability position were classified as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet . At December 31, 2011 , $5.4 billion of derivative contracts in a liability position and $12 million of trading derivatives were both classified as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet .
September 30, 2012
December 31, 2011
Derivative contracts in a
Notional
amount
Derivative contracts in a
Notional
amount
($ in millions)
receivable
position (a)
payable
position (b)
receivable position (a)
payable
position (b)
Derivatives qualifying for hedge accounting
Interest rate risk
Fair value accounting hedges
$
457

$
—

$
7,218

$
289

$
4

$
8,398

Cash flow accounting hedges
—

13

2,580

4

—

3,000

Total interest rate risk
457

13

9,798

293

4

11,398

Foreign exchange risk
Net investment accounting hedges
14

119

7,529

123

54

8,208

Total derivatives qualifying for hedge accounting
471

132

17,327

416

58

19,606

Economic hedges and trading derivatives
Interest rate risk
MSRs and retained interests
3,801

4,268

308,658

4,812

5,012

523,037

Mortgage loan commitments and mortgage loans held-for-sale
150

119

14,370

95

107

24,950

Debt
52

74

23,777

81

54

25,934

Other
131

44

38,741

160

101

42,142

Total interest rate risk
4,134

4,505

385,546

5,148

5,274

616,063

Foreign exchange risk
3

74

4,381

137

47

7,569

Total economic hedges and trading derivatives
4,137

4,579

389,927

5,285

5,321

623,632

Total derivatives
$
4,608

$
4,711

$
407,254

$
5,701

$
5,379

$
643,238

(a)
Includes accrued interest of $248 million and $459 million at September 30, 2012 , and December 31, 2011 , respectively.
(b)
Includes accrued interest of $271 million and $458 million at September 30, 2012 , and December 31, 2011 , respectively.

47
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Statement of Comprehensive Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments reported in our Condensed Consolidated Statement of Comprehensive Income .
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Derivatives qualifying for hedge accounting
Gain recognized in earnings on derivatives (a)
Interest rate contracts
Interest on long-term debt
$
17

$
706

$
214

$
821

Loss recognized in earnings on hedged items (b)
Interest rate contracts
Interest on long-term debt
(33
)
(677
)
(238
)
(786
)
Total derivatives qualifying for hedge accounting
(16
)
29

(24
)
35

Economic and trading derivatives
(Loss) gain recognized in earnings on derivatives
Interest rate contracts
Interest on long-term debt
—

—

(3
)
(1
)
Servicing asset valuation and hedge activities, net
387

741

725

664

Gain (loss) on mortgage and automotive loans, net
28

(425
)
(68
)
(646
)
Other gain on investments, net
—

—

—

—

Other income, net of losses
(7
)
(41
)
(38
)
(74
)
Other operating expenses
—

—

—

—

Total interest rate contracts
408

275

616

(57
)
Foreign exchange contracts (c)
Interest on long-term debt
(37
)
41

(49
)
103

Other income, net of losses
(53
)
111

(28
)
(11
)
Other operating expenses
—

(6
)
2

(16
)
Total foreign exchange contracts
(90
)
146

(75
)
76

Gain recognized in earnings on derivatives
$
302

$
450

$
517

$
54

(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 $29 million and $64 million for the three months ended September 30, 2012 and 2011 , respectively, and $88 million and $231 million for the nine months ended September 30, 2012 and 2011 , respectively.
(b)
Amounts exclude gains related to amortization of deferred basis adjustments on the hedged items. The gains were $57 million and $49 million for the three months ended September 30, 2012 and 2011 , respectively, and $181 million and $162 million for the nine months ended September 30, 2012 and 2011 , respectively.
(c)
Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or receivable. Gains of $92 million and losses of $157 million were recognized for the three months ended September 30, 2012 and 2011 , respectively. Gains of $66 million and losses of $105 million were recognized for the nine months ended September 30, 2012 and 2011 , respectively.

48
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


The following table summarizes derivative instruments used in cash flow and net investment hedge accounting relationships.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Cash flow hedges
Interest rate contracts
Gain reclassified from accumulated other comprehensive income to interest on long-term debt
$
1

$
—

$
1

$
—

Loss recorded directly to interest on long-term debt
(1
)
(1
)
(6
)
—

Total interest on long-term debt
$
—

$
(1
)
$
(5
)
$
—

Loss recognized in other comprehensive income
$
(6
)
$
(7
)
$
(8
)
$
(4
)
Net investment hedges
Foreign exchange contracts
Loss reclassified from accumulated other comprehensive income to other income, net of losses
$
—

$
(3
)
$
(1
)
$
(8
)
Loss recorded directly to other income, net of losses (a)
—

—

—

(3
)
Total other income, net of losses
$
—

$
(3
)
$
(1
)
$
(11
)
(Loss) gain recognized in other comprehensive income (b)
$
(327
)
$
432

$
(281
)
$
206

(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 $317 million and losses of $446 million for the three months ended September 30, 2012 and 2011 , respectively. There were gains of $269 million and losses of $237 million for the nine months ended September 30, 2012 and 2011 , respectively.
21.    Income Taxes
We recognized total income tax expense from continuing operations of $93 million and $172 million during the three months and nine months ended September 30, 2012 , respectively, compared to $93 million and $106 million for the same periods in 2011 . Income tax expense resulted primarily from tax expense attributable to profitable foreign entities.
Our U.S. net deferred tax assets continue to be offset fully by a valuation allowance, and as such, we continue to experience a significant variation in the customary relationship between income tax expense and pretax accounting income. As discussed in Note 1 , during the nine months ended September 30, 2012 , we incurred material U.S. pretax charges related to the Debtors' Bankruptcy filing. No net tax benefit was currently recognized on these charges due to an offsetting increase in the valuation allowance. This was partially offset by a $23 million reversal of a valuation allowance on net deferred tax assets in our Italian subsidiary.
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. Under the proposed Bankruptcy Plan and given that the Debtors are disregarded entities for U.S. tax purposes, we do not anticipate a reduction to our net deferred tax assets as a result of the Bankruptcy filing.
We assessed by tax jurisdiction the available positive and negative evidence to estimate if sufficient future taxable income of the appropriate character will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated for certain tax jurisdictions that have legal entities with net deferred tax assets was the cumulative loss incurred over the three-year period ended September 30, 2012. The weight of the negative evidence stemming from U.S. cumulative losses in recent years continues to decrease as losses incurred during 2009 become more distant, and our more recent profitability in the United States continues. Furthermore, based on current projections, we expect to be in a cumulative profit position in the United States for the three-year period ending December 31, 2012. This would represent a significant change in the available evidence in the United States as compared to September 30, 2012. As a result, it is likely we will reverse a material portion of our U.S. valuation allowance in the fourth quarter of 2012, which would favorably affect net income and equity in that period. The portion of the U.S. valuation allowance that likely will be retained relates primarily to deferred tax assets associated with capital loss and foreign tax credit carry forwards.
22.    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

49
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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
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.
Level 2
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.
Level 3
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 nine months ended September 30, 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 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

50
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 they currently do not trade in an active market with observable prices; 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, 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.

51
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
Recurring fair value measurements
September 30, 2012 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Investment securities

Available-for-sale securities

Debt securities

U.S. Treasury and federal agencies
$
690

$
668

$
—

$
1,358

Foreign government
453

367

—

820

Mortgage-backed residential
—

6,374

—

6,374

Asset-backed
—

2,354

57

2,411

Corporate debt securities
—

1,404

—

1,404

Other debt securities
—

333

—

333

Total debt securities
1,143

11,500

57

12,700

Equity securities (a)
1,070

—

—

1,070

Total available-for-sale securities
2,213

11,500

57

13,770

Mortgage loans held-for-sale, net (b)
—

1,927

—

1,927

Mortgage servicing rights
—

—

902

902

Other assets

Interests retained in financial asset sales
—

—

165

165

Derivative contracts in a receivable position

Interest rate
40

4,393

158

4,591

Foreign currency
—

17

—

17

Total derivative contracts in a receivable position
40

4,410

158

4,608

Collateral placed with counterparties (c)
103

—

—

103

Total assets
$
2,356

$
17,837

$
1,282

$
21,475

Liabilities

Accrued expenses and other liabilities

Derivative contracts in a payable position

Interest rate
$
(22
)
$
(4,482
)
$
(14
)
$
(4,518
)
Foreign currency
—

(173
)
(20
)
(193
)
Total derivative contracts in a payable position
(22
)
(4,655
)
(34
)
(4,711
)
Total liabilities
$
(22
)
$
(4,655
)
$
(34
)
$
(4,711
)
(a)
Our investment in any one industry did not exceed 22% .
(b)
Carried at fair value due to fair value option elections.
(c)
Represents collateral in the form of investment securities. Cash collateral was excluded.

52
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Recurring fair value measurements
December 31, 2011 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities
$
—

$
575

$
33

$
608

Investment securities

Available-for-sale securities

Debt securities

U.S. Treasury and federal agencies
903

643

—

1,546

U.S. states and political subdivisions
—

1

—

1

Foreign government
427

357

—

784

Mortgage-backed residential
—

7,312

—

7,312

Asset-backed
—

2,553

62

2,615

Corporate debt securities
—

1,491

—

1,491

Other debt securities
—

327

—

327

Total debt securities
1,330

12,684

62

14,076

Equity securities (a)
1,059

—

—

1,059

Total available-for-sale securities
2,389

12,684

62

15,135

Mortgage loans held-for-sale, net (b)
—

3,889

30

3,919

Consumer mortgage finance receivables and loans, net (b)
—

—

835

835

Mortgage servicing rights
—

—

2,519

2,519

Other assets

Interests retained in financial asset sales
—

—

231

231

Derivative contracts in a receivable position (c)

Interest rate
79

5,274

88

5,441

Foreign currency
—

242

18

260

Total derivative contracts in a receivable position
79

5,516

106

5,701

Collateral placed with counterparties (d)
328

—

—

328

Total assets
$
2,796

$
22,664

$
3,816

$
29,276

Liabilities

Long-term debt

On-balance sheet securitization debt (b)
$
—

$
—

$
(830
)
$
(830
)
Accrued expenses and other liabilities

Derivative contracts in a payable position (c)

Interest rate
(32
)
(5,229
)
(17
)
(5,278
)
Foreign currency
—

(99
)
(2
)
(101
)
Total derivative contracts in a payable position
(32
)
(5,328
)
(19
)
(5,379
)
Loan repurchase liabilities (b)
—

—

(29
)
(29
)
Trading liabilities (excluding derivatives)
(61
)
—

—

(61
)
Total liabilities
$
(93
)
$
(5,328
)
$
(878
)
$
(6,299
)
(a)
Our investment in any one industry did not exceed 18% .
(b)
Carried at fair value due to fair value option elections.
(c)
Includes derivatives classified as trading.
(d)
Represents collateral in the form of investment securities. Cash collateral was excluded.

53
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
September 30, 2012 ($ in millions)
Level 3 recurring measurements
Valuation technique
Unobservable input
Range
Assets
Mortgage servicing rights
$
902

(a)
(a)
(a)
Other assets
Interests retained in financial asset sales
165

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.
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.
Level 3 recurring fair value measurements
Net realized/unrealized
gains (losses)
Fair value at September 30, 2012
Net unrealized gains
(losses) included in earnings still held at September 30, 2012
($ in millions)
Fair value at July 1, 2012
included
in earnings
included
in OCI
Purchases
Sales
Issuances
Settlements
Assets
Investment securities
Available-for-sale debt securities


Asset-backed
$
63

$
4

(a)
$
1

$
—

$
(11
)
$
—

$
—

$
57

$
—

Mortgage servicing rights
1,105

(253
)
(b)
—

—

—

50

—

902

(253
)
(b)
Other assets
Interests retained in financial asset sales
193

11

(c)
—

—

—

—

(39
)
165

—

Derivative contracts, net
Interest rate
93

53

(d)
—

—

—

—

(2
)
144

16

(d)
Foreign currency
7

(27
)
(d)
—

—

—

—

—

(20
)
(27
)
(d)
Total derivative contracts in a receivable position, net
100

26

—

—

—

—

(2
)
124

(11
)
Total assets
$
1,461

$
(212
)
$
1

$
—

$
(11
)
$
50

$
(41
)
$
1,248

$
(264
)
(a)
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 Condensed Consolidated Statement of Comprehensive Income .
(b)
Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Comprehensive Income .
(c)
Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income .
(d)
Refer to Note 20 for information related to the location of the gains and losses on derivative instruments in the Condensed Consolidated Statement of Comprehensive Income .

54
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Level 3 recurring fair value measurements
Fair value
at
July 1, 2011
Net realized/unrealized
gains (losses)
Purchases

Sales
Issuances
Settlements
Fair
value
at
September 30,
2011
Net
unrealized
gains
(losses)
included  in
earnings still
held at
September 30, 2011
($ in millions)
included
in
earnings
included in
OCI
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities
$
39

$
(2
)
(a)
$
—

$
—

$
—

$
—

$
(3
)
$
34

$
—

Investment securities
Available-for-sale debt securities
Mortgage-backed residential
1

—

—

—

—

—

—

1

—

Asset-backed
67

—

(3
)
—

—

—

—

64

—

Total debt securities
68

—

(3
)
—

—

—

—

65

—

Mortgage loans held-for-sale, net (b)
22

(1
)
(b)
—

14

—

—

(5
)
30

(1
)
(b)
Consumer mortgage finance receivables and loans, net (b)
946

57

(b)
—

—

—

—

(162
)
841

4

(b)
Mortgage servicing rights
3,701

(1,212
)
(c)
—

15

—

159

—

2,663

(1,212
)
(c)
Other assets
Interests retained in financial asset sales
307

10

(d)
—

—

—

2

(22
)
297

(6
)
(d)
Derivative contracts, net (e)
Interest rate
87

59

(f)
—

—

—

—

(6
)
140

115

(f)
Foreign currency
—

2

(f)
—

—

—

—

—

2

2

(f)
Total derivative contracts in a receivable position, net
87

61

—

—

—

—

(6
)
142

117

Total assets
$
5,170

$
(1,087
)
$
(3
)
$
29

$
—

$
161

$
(198
)
$
4,072

$
(1,098
)
Liabilities
Long-term debt
On-balance sheet securitization debt (b)
$
(899
)
$
(82
)
(b)
$
—

$
—

$
—

$
—

$
150

$
(831
)
$
(50
)
(b)
Accrued expenses and other liabilities
Loan repurchase liabilities (b)
(19
)
1

—

(14
)
—

—

4

(28
)
1

Total liabilities
$
(918
)
$
(81
)
$
—

$
(14
)
$
—

$
—

$
154

$
(859
)
$
(49
)
(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 Condensed Consolidated Statement of Comprehensive Income .
(b)
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 Condensed Consolidated Statement of Comprehensive Income .
(c)
Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Comprehensive Income .
(d)
Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income .
(e)
Includes derivatives classified as trading.
(f)
Refer to Note 20 for information related to the location of the gains and losses on derivative instruments in the Condensed Consolidated Statement of Comprehensive Income .

55
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Level 3 recurring fair value measurements
Net realized/unrealized
gains (losses)
Fair value at September 30, 2012
Net unrealized gains (losses) included in earnings still held at September 30, 2012
($ in millions)
Fair value at Jan. 1, 2012
included
in earnings
included
in OCI
Purchases
Sales
Issuances
Settlements
Transfers out due to deconsolidation (a)
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities
$
33

$
2

(b)
$
—

$
—

$
—

$
—

$
(4
)
$
(31
)
$
—

$
4

(b)
Investment securities
Available-for-sale debt securities
Asset-backed
62

4

2

—

(11
)
—

—

—

57

—

Mortgage loans held-for-sale, net (c)
30

—

—

12

—

—

(11
)
(31
)
—

—

Consumer mortgage finance receivables and loans, net (c)
835

121

(c)
—

—

(245
)
(d)
—

(124
)
(587
)
—

51

(c)
Mortgage servicing rights
2,519

(654
)
(e)
—

—

—

167

—

(1,130
)
902

(654
)
(e)
Other assets
Interests retained in financial asset sales
231

38

(f)
—

—

—

—

(104
)
—

165

—

Derivative contracts, net (g)
Interest rate
71

326

(h)
—

—

—

—

(252
)
(1
)
144

10

(h)
Foreign currency
16

(36
)
(h)
—

—

—

—

—

—

(20
)
(49
)
(h)
Total derivative contracts in a receivable position, net
87

290

—

—

—

—

(252
)
(1
)
124

(39
)
Total assets
$
3,797

$
(199
)
$
2

$
12

$
(256
)
$
167

$
(495
)
$
(1,780
)
$
1,248

$
(638
)
Liabilities
Long-term debt
On-balance sheet securitization debt (c)
$
(830
)
$
(115
)
(c)
$
—

$
—

$
—

$
—

$
389

$
556

$
—

$
(62
)
(c)
Accrued expenses and other liabilities
Loan repurchase liabilities (c)
(29
)
—

—

(11
)
—

—

10

30

—

—

Total liabilities
$
(859
)
$
(115
)
$
—

$
(11
)
$
—

$
—

$
399

$
586

$
—

$
(62
)
(a)
Represents the amounts transferred out of Level 3 due to the deconsolidation of ResCap. Refer to Note 1 for additional information related to ResCap.
(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 Condensed Consolidated Statement of Comprehensive 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 Condensed Consolidated Statement of Comprehensive 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)
Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Comprehensive Income .
(f)
Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income .
(g)
Includes derivatives classified as trading.
(h)
Refer to Note 20 for information related to the location of the gains and losses on derivative instruments in the Condensed Consolidated Statement of Comprehensive Income .

56
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Level 3 recurring fair value measurements
Fair value
at
Jan. 1, 2011
Net realized/unrealized
gains (losses)
Purchases

Sales
Issuances
Settlements
Fair
value
at
September 30, 2011
Net
unrealized
gains
(losses)
included  in
earnings still
held at
September 30, 2011
($ in millions)
included
in
earnings
included in
OCI
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities
$
44

$
1

(a)
$
—

$
—

$
—

$
—

$
(11
)
$
34

$
8

(a)
Asset-backed securities
94

—

—

—

(94
)
—

—

—

—

Total trading assets
138

1

—

—

(94
)
—

(11
)
34

8

Investment securities
Available-for-sale debt securities
Mortgage-backed residential
1

—

—

—

—

—

—

1

—

Asset-backed
—

20

(b)
14

94

(64
)
—

—

64

—

Total debt securities
1

20

14

94

(64
)
—

—

65

—

Mortgage loans held-for-sale, net (c)
4

(1
)
(c)
—

37

(1
)
—

(9
)
30

(1
)
(c)
Consumer mortgage finance receivables and loans, net (c)
1,015

231

(c)
1

—

—

—

(406
)
841

70

(c)
Mortgage servicing rights
3,738

(1,327
)
(d)
—

31

(266
)
(e)
487

—

2,663

(1,327
)
(d)
Other assets
Interests retained in financial asset sales
568

167

(f)
—

—

—

3

(441
)
297

(14
)
(f)
Derivative contracts, net (g)
Interest rate
(13
)
188

(g)
—

—

—

—

(35
)
140

213

(g)
Foreign currency
—

2

(g)
—

—

—

—

—

2

2

(g)
Total derivative contracts in a (payable) receivable position, net
(13
)
190

—

—

—

—

(35
)
142

215


Total assets
$
5,451

$
(719
)

$
15

$
162

$
(425
)

$
490

$
(902
)
$
4,072

$
(1,049
)
Liabilities
Long-term debt
On-balance sheet securitization debt (c)
$
(972
)
$
(249
)
(c)
$
1

$
—

$
—

$
—

$
389

$
(831
)
$
(89
)
(c)
Accrued expenses and other liabilities
Loan repurchase liabilities (c)
—

1

—

(37
)
—

—

8

(28
)
1

Total liabilities
$
(972
)
$
(248
)
$
1

$
(37
)
$
—

$
—

$
397

$
(859
)
$
(88
)
(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 Condensed Consolidated Statement of Comprehensive 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 Condensed Consolidated Statement of Comprehensive 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 Condensed Consolidated Statement of Comprehensive Income .
(d)
Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Comprehensive Income .
(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 .
(f)
Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income .
(g)
Refer to Note 20 for information related to the location of the gains and losses on derivative instruments in the Condensed Consolidated Statement of Comprehensive Income .

57
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
Nonrecurring
fair value measurements
Lower-of-cost
or
fair value
or valuation
reserve
allowance
Total loss
included in
earnings for
the three
months ended
Total loss
included in
earnings for
the nine
months ended
September 30, 2012 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Commercial finance receivables and loans, net (a)
Automotive
$
—

$
—

$
172

$
172

$
(31
)
n/m (b)

n/m (b)

Other
—

—

26

26

(7
)
n/m (b)

n/m (b)

Total commercial finance receivables and loans, net
—

—

198

198

(38
)
n/m (b)

n/m (b)

Other assets

Repossessed and foreclosed assets (c)
—

—

7

7

(1
)
n/m (b)

n/m (b)

Cost basis investment in ResCap (d)
—

—

—

—

—

—

(442
)
Total assets
$
—

$
—

$
205

$
205

$
(39
)
$
—

$
(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.

58
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Nonrecurring
fair value measurements
Lower-of-cost
or
fair value
or valuation
reserve
allowance
Total loss included in
earnings for
the three
months ended
Total loss included in
earnings for
the nine
months ended
September 30, 2011 ($ in millions)
Level 1
Level 2
Level 3
Total
Assets
Mortgage loans held-for-sale (a)
$
—

$
—

$
507

$
507

$
(58
)
n/m (b)

n/m (b)

Commercial finance receivables and loans, net (c)

Automotive
—

—

272

272

(33
)
n/m (b)

n/m (b)

Mortgage
—

3

24

27

(5
)
n/m (b)

n/m (b)

Other
—

—

37

37

(10
)
n/m (b)

n/m (b)

Total commercial finance receivables and loans, net
—

3

333

336

(48
)
n/m (b)

n/m (b)

Other assets

Property and equipment
—

13

—

13

n/m (d)

$
—

$
(8
)
Repossessed and foreclosed assets (e)
—

35

29

64

(10
)
n/m (b)

n/m (b)

Total assets
$
—

$
51

$
869

$
920

$
(116
)
$
—

$
(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.

59
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
September 30, 2012 ($ in millions)
Level 3 nonrecurring measurements
Valuation technique
Unobservable input
Range
Assets
Commercial finance receivables and loans, net
Automotive
$
172

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 Condensed 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 Condensed Consolidated Statement of Comprehensive Income .
We continued to record the fair value-elected debt balances as long-term debt on the Condensed 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 Condensed Consolidated Statement of Comprehensive Income . We classified the fair value adjustment recorded for this fair value-elected debt as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive 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.
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 will 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 Condensed 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 Condensed Consolidated Statement of Comprehensive 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 Condensed Consolidated Balance Sheet. The fair value adjustment recorded for these loans was classified as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income . We carried the fair value-elected corresponding liability as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet. The fair value adjustment recorded for these liabilities were classified as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income .

60
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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
Condensed Consolidated Statement of Comprehensive Income
Three months ended September 30,
($ in millions)
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)
2012
Assets
Mortgage loans held-for-sale, net
$
—

$
18

$
—

$
33

$
—

$
51

$
—

(d)
2011
Assets
Mortgage loans held-for-sale, net
$
—

$
49

$
—

$
382

$
—

$
431

$
—

(d)
Consumer mortgage finance receivables and loans, net
48

—

—

—

9

57

(54
)
(e)
Liabilities
Long-term debt
On-balance sheet securitization debt
—

—

(29
)
—

(54
)
(83
)
37

(f)
Accrued expenses and other liabilities
Loan repurchase liabilities
—

—

—

—

1

1

—

Total
$
406

(a)
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.
(b)
Interest expense is measured by multiplying bond principal by the coupon rate and the number of days of interest due to the investor.
(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.

61
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Changes included in the
Condensed Consolidated Statement of Comprehensive Income
Nine months ended September 30,
($ in millions)
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)
2012
Assets
Mortgage loans held-for-sale, net
$
—

$
58

$
—

$
280

$
—

$
338

$
—

(d)
Consumer mortgage finance receivables and loans, net
59

—

—

—

62

121

(24
)
(e)
Liabilities
Long-term debt
On-balance sheet securitization debt
—

—

(34
)
—

(81
)
(115
)
(8
)
(f)
Total
$
344

2011
Assets
Mortgage loans held-for-sale, net
$
—

$
128

$
—

$
666

$
—

$
794

$
—

(d)
Consumer mortgage finance receivables and loans, net
154

—

—

—

77

231

(49
)
(e)
Liabilities
Long-term debt
On-balance sheet securitization debt
—

—

(89
)
—

(161
)
(250
)
14

(f)
Accrued expenses and other liabilities
Loan repurchase liabilities
—

—

—

—

1

1

—

Total
$
776

(a)
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.
(b)
Interest expense is measured by multiplying bond principal by the coupon rate and the number of days of interest due to the investor.
(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.

62
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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.
September 30, 2012
December 31, 2011
($ in millions)
Unpaid
principal
balance
Fair
value (a)
Unpaid
principal
balance
Fair
value (a)
Assets
Mortgage loans held-for-sale, net
Total loans
$
1,834

$
1,927

$
3,766

$
3,919

Nonaccrual loans
32

17

54

27

Loans 90+ days past due (b)
28

15

53

27

Consumer mortgage finance receivables and loans, net
Total loans
—

—

2,436

835

Nonaccrual loans (c)
—

—

506

209

Loans 90+ days past due (b) (c)
—

—

362

163

Liabilities
Long-term debt
On-balance sheet securitization debt
$
—

$
—

$
(2,559
)
$
(830
)
Accrued expenses and other liabilities
Loan repurchase liabilities
—

—

(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.

63
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 September 30, 2012 , and December 31, 2011 .
September 30, 2012
December 31, 2011
Estimated fair value
($ in millions)
Carrying
value
Level 1
Level 2
Level 3
Total
Carrying
value
Estimated
fair value
Financial assets
Loans held-for-sale, net (a)
$
1,937

$
—

$
1,927

$
10

$
1,937

$
8,557

$
8,674

Finance receivables and loans, net (a)
119,836

—

—

121,200

121,200

113,252

113,576

Nonmarketable equity investments
342

—

313

31

344

419

423

Financial liabilities
Deposit liabilities
$
49,872

$
—

$
3,811

$
46,922

$
50,733

$
45,050

$
45,696

Short-term borrowings
5,877

5

—

5,863

5,868

7,680

7,622

Long-term debt (a)(b)
93,726

—

42,881

53,909

96,790

93,434

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 $698 million and $640 million at September 30, 2012 , and December 31, 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 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. Deposits classified as Level 2 were valued using quoted market prices from active markets for similar instruments. 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.

64
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


•
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.
23.    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 four operating segments - North American Automotive Finance operations, International 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 geographic considerations, 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.
North American Automotive Finance operations — Provides automotive financing services to consumers and automotive dealers in the United States and Canada and includes the automotive activities of Ally Bank and ResMor Trust. 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.
International Automotive Finance operations — Provides automotive financing and full-service leasing to consumers and dealers outside of the United States and Canada. Our International Automotive Finance operations will focus the majority of new originations in five core international markets: Germany, the United Kingdom, Brazil, Mexico, and China through our joint venture.
Insurance operations — Offers consumer finance and insurance products, and commercial insurance products sold primarily through the dealer channel including vehicle service contracts, commercial insurance coverage in the United States (primarily covering dealers' wholesale vehicle inventory), and personal automobile insurance in certain countries outside the United States.
Mortgage operations —The principal ongoing activities include originating, purchasing, selling, and securitizing conforming and government-insured residential mortgage loans in the United States through Ally Bank; and servicing residential mortgage loans for ourselves and others. We also originate high-quality prime jumbo mortgage loans in the United States. 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; our mortgage reinsurance business; and providing collateralized lines of credit to other mortgage originators, which we refer to as warehouse lending.
Corporate and Other primarily consists of our centralized corporate treasury and deposit gathering 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, 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
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 are presenting our mortgage business activities under one reportable operating segment, Mortgage operations. Previously our Mortgage operations were 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.

65
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Financial information for our reportable operating segments is summarized as follows.
Global Automotive Services
Three months ended September 30,
($ in millions)
North
American
Automotive
Finance
operations
International
Automotive
Finance
operations (a)
Insurance
operations
Mortgage operations (b)
Corporate
and
Other (c)
Consolidated (d)
2012
Net financing revenue (loss)
$
856

$
166

$
22

$
53

$
(320
)
$
777

Other revenue
75

53

343

446

19

936

Total net revenue (loss)
931

219

365

499

(301
)
1,713

Provision for loan losses
102

13

—

6

(5
)
116

Total noninterest expense
319

137

332

139

187

1,114

Income (loss) from continuing operations before income tax expense
$
510

$
69

$
33

$
354

$
(483
)
$
483

Total assets
$
106,909

$
16,211

$
8,461

$
17,004

$
33,897

$
182,482

2011
Net financing revenue (loss)
$
755

$
167

$
21

$
75

$
(411
)
$
607

Other revenue (loss)
126

61

426

(99
)
40

554

Total net revenue (loss)
881

228

447

(24
)
(371
)
1,161

Provision for loan losses
25

(2
)
—

31

(4
)
50

Total noninterest expense
305

141

336

354

81

1,217

Income (loss) from continuing operations before income tax expense
$
551

$
89

$
111

$
(409
)
$
(448
)
$
(106
)
Total assets
$
90,532

$
15,314

$
8,215

$
35,502

$
32,393

$
181,956

(a)
Amounts include intrasegment eliminations between our North American Automotive Finance operations, International Automotive Finance operations, and Insurance operations.
(b)
Represents the mortgage activities of Ally Bank.
(c)
Total assets for the Commercial Finance Group were $1.3 billion and $1.3 billion at September 30, 2012 and 2011 , respectively.
(d)
Net financing revenue (loss) after the provision for loan losses totaled $661 million and $557 million for the three months ended September 30, 2012 and 2011 , respectively.

66
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Global Automotive Services
Nine months ended September 30,
($ in millions)
North
American
Automotive
Finance
operations
International
Automotive
Finance
operations (a)
Insurance
operations
Mortgage operations (b)
Corporate
and
Other (c)
Consolidated (d)
2012
Net financing revenue (loss)
$
2,468

$
501

$
65

$
143

$
(949
)
$
2,228

Other revenue
268

178

1,199

1,361

45

3,051

Total net revenue (loss)
2,736

679

1,264

1,504

(904
)
5,279

Provision for loan losses
196

75

—

54

(40
)
285

Total noninterest expense
957

418

1,064

881

1,674

4,994

Income (loss) from continuing operations before income tax expense
$
1,583

$
186

$
200

$
569

$
(2,538
)
$
—

Total assets
$
106,909

$
16,211

$
8,461

$
17,004

$
33,897

$
182,482

2011
Net financing revenue (loss)
$
2,451

$
505

$
68

$
204

$
(1,359
)
$
1,869

Other revenue
349

175

1,347

576

172

2,619

Total net revenue (loss)
2,800

680

1,415

780

(1,187
)
4,488

Provision for loan losses
126

42

—

115

(70
)
213

Total noninterest expense
1,046

449

1,101

1,156

339

4,091

Income (loss) from continuing operations before income tax expense
$
1,628

$
189

$
314

$
(491
)
$
(1,456
)
$
184

Total assets
$
90,532

$
15,314

$
8,215

$
35,502

$
32,393

$
181,956

(a)
Amounts include intrasegment eliminations between our North American Automotive Finance operations, International Automotive Finance operations, and Insurance operations.
(b)
Represents the ResCap legal entity (prior to its deconsolidation from Ally as of May 14, 2012) and the mortgage activities of Ally Bank.
(c)
Total assets for the Commercial Finance Group were $1.3 billion and $1.3 billion at September 30, 2012 and 2011 , respectively.
(d)
Net financing revenue (loss) after the provision for loan losses totaled $1.9 billion and $1.7 billion for the nine months ended September 30, 2012 and 2011 , respectively.

67
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Information concerning principal geographic areas were as follows.
Three months ended September 30, ($ in millions)
Revenue (a)(b)
Income (loss)
from continuing
operations
before income
tax expense (a)(c)
Net income
(loss) (a)(c)
2012
Canada
$
158

$
74

$
62

Europe (d)
80

29

9

Latin America
258

83

62

Asia-Pacific
22

21

21

Total foreign
518

207

154

Total domestic (e)
1,195

276

230

Total
$
1,713

$
483

$
384

2011
Canada
$
225

$
138

$
78

Europe (d)
106

75

55

Latin America
212

42

30

Asia-Pacific
21

20

10

Total foreign
564

275

173

Total domestic (e)
597

(381
)
(383
)
Total
$
1,161

$
(106
)
$
(210
)
(a)
The 2011 balances for Asia-Pacific and domestic were reclassified to conform with the 2012 presentation. These reclassifications have no impact to our condensed consolidated results of operations.
(b)
Revenue consists of net financing revenue and total other revenue as presented in our Condensed Consolidated Statement of Comprehensive Income .
(c)
The domestic amounts include original discount amortization of $79 million and $228 million for the three months ended September 30, 2012 and 2011 , respectively.
(d)
Amounts include eliminations between our foreign operations.
(e)
Amounts include eliminations between our domestic and foreign operations.

68
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Nine months ended September 30, ($ in millions)
Revenue (a)(b)
Income (loss)
from continuing
operations
before income
tax expense (a)(c)
Net income
(loss) (a)(c)
2012
Canada
$
528

$
290

$
227

Europe (d)
312

171

124

Latin America
766

216

171

Asia-Pacific
73

71

71

Total foreign
1,679

748

593

Total domestic (e)
3,600

(748
)
(797
)
Total
$
5,279

$
—

$
(204
)
2011
Canada
$
659

$
360

$
353

Europe (d)
320

183

153

Latin America
700

188

124

Asia-Pacific
60

58

48

Total foreign
1,739

789

678

Total domestic (e)
2,749

(605
)
(629
)
Total
$
4,488

$
184

$
49

(a)
The 2011 balances for Asia-Pacific and domestic were reclassified to conform with the 2012 presentation. These reclassifications have no impact to our condensed consolidated results of operations.
(b)
Revenue consists of net financing revenue and total other revenue as presented in our Condensed Consolidated Statement of Comprehensive Income .
(c)
The domestic amounts include original discount amortization of $291 million and $784 million for the nine months ended September 30, 2012 and 2011 , respectively.
(d)
Amounts include eliminations between our foreign operations.
(e)
Amounts include eliminations between our domestic and foreign operations.
24.    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. The Guarantors fully and unconditionally guarantee the senior notes on a joint and several basis. In order to simplify our note guarantor structure and to provide additional flexibility with respect to potential strategic transactions relating to our international operations, Ally has begun a series of transactions in which our note guarantors will be merged with and into, or otherwise consolidated with, IB Finance. To date, GMAC Latin America Holdings LLC and GMAC International Holdings B.V., each of which was a subsidiary guarantor with respect to our same senior notes, have been merged or otherwise consolidated with and into IB Finance. Ally is also taking steps to merge Ally US LLC and GMAC Continental Corporation with and into IB Finance in the near future. Following the completion of these transactions, IB Finance will remain a Guarantor and will continue to fully and unconditionally guarantee our senior notes.
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.

69
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Condensed Consolidating Statement of Comprehensive Income
Three months ended September 30, 2012 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
228

$
5

$
1,418

$
—

$
1,651

Interest and fees on finance receivables and loans — intercompany
29

2

4

(35
)
—

Interest on loans held-for-sale
4

—

18

—

22

Interest and dividends on available-for-sale investment securities
—

—

73

—

73

Interest-bearing cash
7

—

15

—

22

Interest-bearing cash — intercompany
—

—

4

(4
)
—

Operating leases
50

—

589

—

639

Total financing revenue and other interest income
318

7

2,121

(39
)
2,407

Interest expense

Interest on deposits
14

—

171

—

185

Interest on short-term borrowings
15

1

30

—

46

Interest on long-term debt
686

2

353

—

1,041

Interest on intercompany debt
1

3

36

(40
)
—

Total interest expense
716

6

590

(40
)
1,272

Depreciation expense on operating lease assets
29

—

329

—

358

Net financing (loss) revenue
(427
)
1

1,202

1

777

Dividends from subsidiaries

Nonbank subsidiaries
99

—

—

(99
)
—

Other revenue

Servicing fees
46

—

45

—

91

Servicing asset valuation and hedge activities, net
—

—

134

—

134

Total servicing income, net
46

—

179

—

225

Insurance premiums and service revenue earned
—

—

364

—

364

Gain on mortgage and automotive loans, net
2

—

139

—

141

Other gain on investments, net
—

—

(19
)
—

(19
)
Other income, net of losses
70

120

339

(304
)
225

Total other revenue
118

120

1,002

(304
)
936

Total net (loss) revenue
(210
)
121

2,204

(402
)
1,713

Provision for loan losses
55

—

61

—

116

Noninterest expense

Compensation and benefits expense
198

122

145

(121
)
344

Insurance losses and loss adjustment expenses
—

—

151

—

151

Other operating expenses
105

1

696

(183
)
619

Total noninterest expense
303

123

992

(304
)
1,114

(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries
(568
)
(2
)
1,151

(98
)
483

Income tax (benefit) expense from continuing operations
(305
)
—

398

—

93

Net (loss) income from continuing operations
(263
)
(2
)
753

(98
)
390

Income (loss) from discontinued operations, net of tax
2

—

(8
)
—

(6
)
Undistributed income of subsidiaries

Bank subsidiary
231

231

—

(462
)
—

Nonbank subsidiaries
414

62

—

(476
)
—

Net income
384

291

745

(1,036
)
384

Other comprehensive income, net of tax
218

241

539

(780
)
218

Comprehensive income
$
602

$
532

$
1,284

$
(1,816
)
$
602



70
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Three months ended September 30, 2011 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
297

$
7

$
1,379

$
(3
)
$
1,680

Interest and fees on finance receivables and loans — intercompany
61

6

7

(74
)
—

Interest on loans held-for-sale
—

—

86

—

86

Interest on trading assets
—

—

4

—

4

Interest and dividends on available-for-sale investment securities
—

—

102

—

102

Interest-bearing cash
1

—

13

—

14

Operating leases
48

—

482

—

530

Total financing revenue and other interest income
407

13

2,073

(77
)
2,416

Interest expense

Interest on deposits
17

—

162

—

179

Interest on short-term borrowings
15

1

45

—

61

Interest on long-term debt
843

3

447

—

1,293

Interest on intercompany debt
(4
)
7

74

(77
)
—

Total interest expense
871

11

728

(77
)
1,533

Depreciation expense on operating lease assets
18

—

258

—

276

Net financing (loss) revenue
(482
)
2

1,087

—

607

Dividends from subsidiaries

Nonbank subsidiaries
696

—

—

(696
)
—

Other revenue

Servicing fees
69

—

266

—

335

Servicing asset valuation and hedge activities, net
—

—

(471
)
—

(471
)
Total servicing income, net
69

—

(205
)
—

(136
)
Insurance premiums and service revenue earned
—

—

390

—

390

Gain on mortgage and automotive loans, net
—

—

95

—

95

Other gain on investments, net
—

—

75

—

75

Other income, net of losses
(79
)
—

369

(160
)
130

Total other (loss) revenue
(10
)
—

724

(160
)
554

Total net revenue
204

2

1,811

(856
)
1,161

Provision for loan losses
40

—

10

—

50

Noninterest expense

Compensation and benefits expense
95

3

195

—

293

Insurance losses and loss adjustment expenses
—

—

170

—

170

Other operating expenses
141

1

771

(159
)
754

Total noninterest expense
236

4

1,136

(159
)
1,217

(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries
(72
)
(2
)
665

(697
)
(106
)
Income tax (benefit) expense from continuing operations
(146
)
(2
)
241

—

93

Net income (loss) from continuing operations
74

—

424

(697
)
(199
)
Loss from discontinued operations, net of tax
(2
)
—

(9
)
—

(11
)
Undistributed income (loss) of subsidiaries

Bank subsidiary
366

366

—

(732
)
—

Nonbank subsidiaries
(648
)
78

—

570

—

Net (loss) income
(210
)
444

415

(859
)
(210
)
Other comprehensive loss, net of tax
(281
)
(216
)
(715
)
931

(281
)
Comprehensive (loss) income
$
(491
)
$
228

$
(300
)
$
72

$
(491
)


71
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



Nine months ended September 30, 2012 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
679

$
20

$
4,321

$
—

$
5,020

Interest and fees on finance receivables and loans — intercompany
102

10

17

(129
)
—

Interest on loans held-for-sale
15

—

116

—

131

Interest on trading assets
—

—

13

—

13

Interest and dividends on available-for-sale investment securities
—

—

243

—

243

Interest-bearing cash
14

—

40

—

54

Interest-bearing cash — intercompany
—

—

13

(13
)
—

Operating leases
137

—

1,621

—

1,758

Total financing revenue and other interest income
947

30

6,384

(142
)
7,219

Interest expense
Interest on deposits
47

—

508

—

555

Interest on short-term borrowings
48

2

131

—

181

Interest on long-term debt
2,089

7

1,190

—

3,286

Interest on intercompany debt
—

14

128

(142
)
—

Total interest expense
2,184

23

1,957

(142
)
4,022

Depreciation expense on operating lease assets
60

—

909

—

969

Net financing (loss) revenue
(1,297
)
7

3,518

—

2,228

Dividends from subsidiaries
Nonbank subsidiaries
419

5

—

(424
)
—

Other revenue
Servicing fees
148

—

469

—

617

Servicing asset valuation and hedge activities, net
—

—

70

—

70

Total servicing income, net
148

—

539

—

687

Insurance premiums and service revenue earned
—

—

1,098

—

1,098

(Loss) gain on mortgage and automotive loans, net
(2
)
—

403

—

401

Other gain on investments, net
—

—

137

—

137

Other income, net of losses
215

375

1,042

(904
)
728

Total other revenue
361

375

3,219

(904
)
3,051

Total net (loss) revenue
(517
)
387

6,737

(1,328
)
5,279

Provision for loan losses
108

—

177

—

285

Noninterest expense
Compensation and benefits expense
598

381

604

(375
)
1,208

Insurance losses and loss adjustment expenses
—

—

518

—

518

Other operating expenses
1,016

2

2,779

(529
)
3,268

Total noninterest expense
1,614

383

3,901

(904
)
4,994

(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries
(2,239
)
4

2,659

(424
)
—

Income tax (benefit) expense from continuing operations
(826
)
—

998

—

172

Net (loss) income from continuing operations
(1,413
)
4

1,661

(424
)
(172
)
Income (loss) from discontinued operations, net of tax
19

—

(51
)
—

(32
)
Undistributed income of subsidiaries
Bank subsidiary
729

729

—

(1,458
)
—

Nonbank subsidiaries
461

261

—

(722
)
—

Net (loss) income
(204
)
994

1,610

(2,604
)
(204
)
Other comprehensive income, net of tax
199

212

502

(714
)
199

Comprehensive (loss) income
$
(5
)
$
1,206

$
2,112

$
(3,318
)
$
(5
)


72
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q



Nine months ended September 30, 2011 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating adjustments
Ally
consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans
$
818

$
21

$
4,144

$
(7
)
$
4,976

Interest and fees on finance receivables and loans — intercompany
235

17

19

(271
)
—

Interest on loans held-for-sale
—

—

256

—

256

Interest on trading assets
—

—

10

—

10

Interest and dividends on available-for-sale investment securities
3

—

308

—

311

Interest-bearing cash
5

—

36

—

41

Operating leases
663

—

1,120

—

1,783

Total financing revenue and other interest income
1,724

38

5,893

(278
)
7,377

Interest expense
Interest on deposits
48

—

468

—

516

Interest on short-term borrowings
41

2

197

—

240

Interest on long-term debt
2,746

8

1,276

—

4,030

Interest on intercompany debt
(12
)
20

270

(278
)
—

Total interest expense
2,823

30

2,211

(278
)
4,786

Depreciation expense on operating lease assets
218

—

504

—

722

Net financing (loss) revenue
(1,317
)
8

3,178

—

1,869

Dividends from subsidiaries
Nonbank subsidiaries
1,207

—

—

(1,207
)
—

Other revenue
Servicing fees
208

—

825

—

1,033

Servicing asset valuation and hedge activities, net
—

—

(663
)
—

(663
)
Total servicing income, net
208

—

162

—

370

Insurance premiums and service revenue earned
—

—

1,188

—

1,188

Gain on mortgage and automotive loans, net
20

—

281

—

301

Loss on extinguishment of debt
(64
)
—

—

—

(64
)
Other gain on investments, net
9

—

242

—

251

Other income, net of losses
(124
)
1

1,159

(463
)
573

Total other revenue
49

1

3,032

(463
)
2,619

Total net (loss) revenue
(61
)
9

6,210

(1,670
)
4,488

Provision for loan losses
118

—

95

—

213

Noninterest expense
Compensation and benefits expense
485

8

639

—

1,132

Insurance losses and loss adjustment expenses
—

—

567

—

567

Other operating expenses
376

3

2,475

(462
)
2,392

Total noninterest expense
861

11

3,681

(462
)
4,091

(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries
(1,040
)
(2
)
2,434

(1,208
)
184

Income tax (benefit) expense from continuing operations
(435
)
3

538

—

106

Net (loss) income from continuing operations
(605
)
(5
)
1,896

(1,208
)
78

Loss from discontinued operations, net of tax
(12
)
—

(17
)
—

(29
)
Undistributed income (loss) of subsidiaries
Bank subsidiary
862

862

—

(1,724
)
—

Nonbank subsidiaries
(196
)
391

—

(195
)
—

Net income
49

1,248

1,879

(3,127
)
49

Other comprehensive loss, net of tax
(217
)
(45
)
(398
)
443

(217
)
Comprehensive (loss) income
$
(168
)
$
1,203

$
1,481

$
(2,684
)
$
(168
)

73
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


September 30, 2012 ($ in millions)
Parent (a)
Guarantors
Nonguarantors (a)
Consolidating
adjustments
Ally
consolidated
Assets
Cash and cash equivalents
Noninterest-bearing
$
830

$
—

$
475

$
—

$
1,305

Noninterest-bearing — intercompany
33

—

—

(33
)
—

Interest-bearing
6,014

2

9,836

—

15,852

Interest-bearing — intercompany
—

—

990

(990
)
—

Total cash and cash equivalents
6,877

2

11,301

(1,023
)
17,157

Investment securities
—

—

13,770

—

13,770

Loans held-for-sale, net
—

—

1,937

—

1,937

Finance receivables and loans, net
Finance receivables and loans, net
18,073

392

102,794

—

121,259

Intercompany loans to
Bank subsidiary
3,400

—

—

(3,400
)
—

Nonbank subsidiaries
3,604

129

270

(4,003
)
—

Allowance for loan losses
(266
)
(1
)
(1,156
)
—

(1,423
)
Total finance receivables and loans, net
24,811

520

101,908

(7,403
)
119,836

Investment in operating leases, net
1,443

—

11,265

—

12,708

Intercompany receivables from
Bank subsidiary
491

—

—

(491
)
—

Nonbank subsidiaries
221

339

146

(706
)
—

Investment in subsidiaries
Bank subsidiary
13,953

13,953

—

(27,906
)
—

Nonbank subsidiaries
16,404

4,222

—

(20,626
)
—

Mortgage servicing rights
—

—

902

—

902

Premiums receivable and other insurance assets
—

—

1,861

—

1,861

Other assets
2,638

22

11,988

(712
)
13,936

Assets of operations held-for-sale
(20
)
—

395

—

375

Total assets
$
66,818

$
19,058


$
155,473


$
(58,867
)
$
182,482

Liabilities
Deposit liabilities
Noninterest-bearing
$
—

$
—

$
2,487

$
—

$
2,487

Noninterest-bearing — intercompany
—

—

33

(33
)
—

Interest-bearing
1,333

—

46,052

—

47,385

Total deposit liabilities
1,333

—

48,572

(33
)
49,872

Short-term borrowings
3,093

137

2,647

—

5,877

Long-term debt
39,612

168

53,248

—

93,028

Intercompany debt to
Nonbank subsidiaries
1,048

211

7,134

(8,393
)
—

Intercompany payables to
Bank subsidiary
497

—

—

(497
)
—

Nonbank subsidiaries
447

2

252

(701
)
—

Interest payable
1,151

5

434

—

1,590

Unearned insurance premiums and service revenue
—

—

2,693

—

2,693

Reserves for insurance losses and loss adjustment expenses
—

—

441

—

441

Accrued expenses and other liabilities
872

344

9,458

(712
)
9,962

Liabilities of operations held-for-sale
—

—

254

—

254

Total liabilities
48,053

867

125,133

(10,336
)
163,717

Total equity
18,765

18,191

30,340

(48,531
)
18,765

Total liabilities and equity
$
66,818

$
19,058

$
155,473

$
(58,867
)
$
182,482

(a)
Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership .

74
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


December 31, 2011 ($ in millions)
Parent (a)
Guarantors
Nonguarantors (a)
Consolidating
adjustments
Ally
consolidated
Assets
Cash and cash equivalents
Noninterest-bearing
$
1,413

$
—

$
1,062

$
—

$
2,475

Interest-bearing
4,848

14

5,698

—

10,560

Interest-bearing — intercompany
—

—

516

(516
)
—

Total cash and cash equivalents
6,261

14

7,276

(516
)
13,035

Trading assets
—

—

622

—

622

Investment securities
—

—

15,135

—

15,135

Loans held-for-sale, net
425

—

8,132

—

8,557

Finance receivables and loans, net
Finance receivables and loans, net
15,151

476

99,128

—

114,755

Intercompany loans to
Bank subsidiary
4,920

—

—

(4,920
)
—

Nonbank subsidiaries
5,448

356

550

(6,354
)
—

Allowance for loan losses
(245
)
(2
)
(1,256
)
—

(1,503
)
Total finance receivables and loans, net
25,274

830

98,422

(11,274
)
113,252

Investment in operating leases, net
928

—

8,347

—

9,275

Intercompany receivables from
Bank subsidiary
82

—

—

(82
)
—

Nonbank subsidiaries
1,070

327

577

(1,974
)
—

Investment in subsidiaries
Bank subsidiary
13,061

13,061

—

(26,122
)
—

Nonbank subsidiaries
17,433

3,809

—

(21,242
)
—

Mortgage servicing rights
—

—

2,519

—

2,519

Premiums receivable and other insurance assets
—

—

1,853

—

1,853

Other assets
2,664

3

16,712

(638
)
18,741

Assets of operations held-for-sale
(174
)
—

1,244

—

1,070

Total assets
$
67,024

$
18,044

$
160,839

$
(61,848
)
$
184,059

Liabilities
Deposit liabilities
Noninterest-bearing
$
—

$
—

$
2,029

$
—

$
2,029

Interest-bearing
1,768

—

41,253

—

43,021

Total deposit liabilities
1,768

—

43,282

—

45,050

Short-term borrowings
2,756

136

4,788

—

7,680

Long-term debt
39,524

214

53,056

—

92,794

Intercompany debt to
Nonbank subsidiaries
574

492

10,724

(11,790
)
—

Intercompany payables to
Bank subsidiary
39

—

—

(39
)
—

Nonbank subsidiaries
1,266

1

750

(2,017
)
—

Interest payable
1,167

3

417

—

1,587

Unearned insurance premiums and service revenue
—

—

2,576

—

2,576

Reserves for insurance losses and loss adjustment expenses
—

—

580

—

580

Accrued expenses and other liabilities
559

323

13,839

(637
)
14,084

Liabilities of operations held-for-sale
—

—

337

—

337

Total liabilities
47,653

1,169

130,349

(14,483
)
164,688

Total equity
19,371

16,875

30,490

(47,365
)
19,371

Total liabilities and equity
$
67,024

$
18,044

$
160,839

$
(61,848
)
$
184,059

(a)
Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership .


75
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2012 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash (used in) provided by operating activities
$
(104
)
$
34

$
5,339

$
(424
)
$
4,845

Investing activities
Purchases of available-for-sale securities
—

—

(9,592
)
—

(9,592
)
Proceeds from sales of available-for-sale securities
—

—

6,774

—

6,774

Proceeds from maturities of available-for-sale securities
—

—

4,940

—

4,940

Net (increase) decrease in finance receivables and loans
(1,857
)
84

(6,152
)
—

(7,925
)
Proceeds from sales of finance receivables and loans
352

—

1,977

—

2,329

Net decrease (increase) in loans — intercompany
1,989

227

281

(2,497
)
—

Net increase in operating lease assets
(928
)
—

(3,381
)
—

(4,309
)
Capital contributions to subsidiaries
(56
)
—

—

56

—

Returns of contributed capital
1,926

—

—

(1,926
)
—

Net cash effect from deconsolidation of ResCap
—

—

(539
)
—

(539
)
Proceeds from sale of business units, net
29

—

487

—

516

Other, net
(155
)
(20
)
250

—

75

Net cash provided by (used in) investing activities
1,300

291

(4,955
)
(4,367
)
(7,731
)
Financing activities
Net change in short-term borrowings — third party
336

1

(2,010
)
—

(1,673
)
Net increase in bank deposits
—

—

4,706

(33
)
4,673

Proceeds from issuance of long-term debt — third party
3,092

—

24,428

—

27,520

Repayments of long-term debt — third party
(3,392
)
(46
)
(19,470
)
—

(22,908
)
Net change in debt — intercompany
474

(281
)
(2,216
)
2,023

—

Dividends paid — third party
(601
)
—

—

—

(601
)
Dividends paid and returns of contributed capital — intercompany
—

(11
)
(2,339
)
2,350

—

Capital contributions from parent
—

—

56

(56
)
—

Other, net
(436
)
—

410

—

(26
)
Net cash (used in) provided by financing activities
(527
)
(337
)
3,565

4,284

6,985

Effect of exchange-rate changes on cash and cash equivalents
(53
)
—

52

—

(1
)
Net increase (decrease) in cash and cash equivalents
616

(12
)
4,001

(507
)
4,098

Adjustment for change in cash and cash equivalents of operations held-for-sale
—

—

24

—

24

Cash and cash equivalents at beginning of year
6,261

14

7,276

(516
)
13,035

Cash and cash equivalents at September 30,
$
6,877

$
2

$
11,301

$
(1,023
)
$
17,157


76
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Nine months ended September 30, 2011 ($ in millions)
Parent
Guarantors
Nonguarantors
Consolidating
adjustments
Ally
consolidated
Operating activities
Net cash provided by operating activities
$
2,767

$
220

$
4,002

$
(1,208
)
$
5,781

Investing activities

Purchases of available-for-sale securities
—

—

(15,020
)
—

(15,020
)
Proceeds from sales of available-for-sale securities
1,494

—

10,599

—

12,093

Proceeds from maturities of available-for-sale securities
1

—

3,724

—

3,725

Net (increase) decrease in finance receivables and loans
(3,030
)
57

(7,732
)
—

(10,705
)
Proceeds from sales of finance receivables and loans
1,346

—

1,522

—

2,868

Net decrease (increase) in loans — intercompany
4,225

(7
)
25

(4,243
)
—

Net decrease (increase) in operating lease assets
3,028

—

(3,498
)
—

(470
)
Capital contributions to subsidiaries
(1,339
)
(855
)
—

2,194

—

Returns of contributed capital
1,072

—

—

(1,072
)
—

Proceeds from sale of business units, net
—

—

50

—

50

Other, net
(251
)
—

884

—

633

Net cash provided by (used in) investing activities
6,546

(805
)
(9,446
)
(3,121
)
(6,826
)
Financing activities

Net change in short-term borrowings — third party
129

36

(1,428
)
—

(1,263
)
Net increase in bank deposits
—

—

4,454

—

4,454

Proceeds from issuance of long-term debt — third party
3,228

70

33,602

—

36,900

Repayments of long-term debt — third party
(8,415
)
(133
)
(26,028
)
—

(34,576
)
Net change in debt — intercompany
260

(25
)
(4,218
)
3,983

—

Dividends paid — third party
(619
)
—

—

—

(619
)
Dividends paid and returns of contributed capital — intercompany
—

(207
)
(2,073
)
2,280

—

Capital contributions from parent
—

855

1,339

(2,194
)
—

Other, net
363

—

599

—

962

Net cash (used in) provided by financing activities
(5,054
)
596

6,247

4,069

5,858

Effect of exchange-rate changes on cash and cash equivalents
—

—

(45
)
—

(45
)
Net increase in cash and cash equivalents
4,259

11

758

(260
)
4,768

Adjustment for change in cash and cash equivalents of operations held-for-sale
—

—

(36
)
—

(36
)
Cash and cash equivalents at beginning of year
4,665

1

7,508

(504
)
11,670

Cash and cash equivalents at September 30,
$
8,924

$
12

$
8,230

$
(764
)
$
16,402

25.    Contingencies and Other Risks
In the normal course of business, we enter into transactions that expose us to varying degrees of risk. For additional information on contingencies and other risks arising from such transactions, refer to Note 31 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K.
Mortgage-Related Matters
ResCap Bankruptcy Filing
As described in Note 1 to the Condensed 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 (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors and their direct and indirect subsidiaries) (collectively, AFI) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan).
The contemplated Plan, a draft of which has been submitted to the Bankruptcy Court, is subject to negotiation with certain of the Debtors’ creditors (as directed by the Bankruptcy Court) and Bankruptcy Court approval. It is based on a settlement (the Settlement) that provides for the release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of action against AFI held by third parties .
There can be no assurances that the Bankruptcy Court will confirm the Settlement or the Plan, and even if confirmed, the Settlement and Plan are each subject to several conditions, which may not occur. In particular, the Bankruptcy Court may not approve the proposed release of

77
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


all existing or potential ResCap-related causes of action against AFI held by third parties. The failure of the Plan being confirmed would result in modifications to the Plan, or the pursuit of an alternative form of reorganization or liquidation. This could result in delay and significant expense, and any modifications to the Plan or other alternative may be less favorable to AFI. If AFI does not receive the releases contemplated by the Plan, the Debtors and/or third party creditors are likely to assert substantial claims directly against AFI, which could have a material adverse impact on our results of operations, financial position or cash flows.
Based on our assessment of the effect of the deconsolidation of ResCap, obligations under the Plan, and other impacts related to the bankruptcy filing, we recorded a charge of $1.2 billion during the nine months ended September 30, 2012 . Given the inherent uncertainty of the bankruptcy process, it is possible that this amount could be modified in the future.
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 (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 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. As of September 30, 2012, the official committee of unsecured creditors appointed in the Debtors' bankruptcy cases has filed objections to motions challenging the allocation of liability between AFI and the Debtors with respect to certain obligations under the Mortgage Settlement and the Consent Order.
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. Related to the deconsolidation of ResCap, we allocated a representation and warranty reserve to Ally Bank, which was $127 million at September 30, 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 Condensed Consolidated Balance Sheet and recorded as a component of gain (loss) on mortgage and automotive loans, net, in our Condensed 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 Condensed Consolidated Statement of Comprehensive Income . The repurchase reserve at September 30, 2012 , relates exclusively to GSE exposure.
The following tables summarize the changes in our reserve for representation and warranty obligations.
Three months ended September 30, ( $ in millions )
2012 (a)
2011
Balance at July 1,
$
124

$
829

Provision for mortgage representation and warranty expenses
Loan sales
3

5

Change in estimate — continuing operations
30

70

Total additions
33

75

Resolved claims (b)
(30
)
(78
)
Recoveries
—

3

Balance at September 30,
$
127

$
829

(a)
The 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.
(b)
Includes principal losses and accrued interest on repurchased loans, indemnification payments, and settlements with counterparties.

78
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


Nine months ended September 30, ( $ in millions )
2012 (a)
2011
Balance at January 1,
$
825

$
830

Provision for mortgage representation and warranty expenses
Loan sales
11

16

Change in estimate — continuing operations
67

280

Total additions
78

296

Resolved claims (b)
(117
)
(306
)
Recoveries
6

9

Deconsolidation of ResCap
(665
)
—

Balance at September 30,
$
127

$
829

(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.
(b)
Includes principal losses and accrued interest on repurchased loans, indemnification payments, and settlements with counterparties.
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.
We have previously disclosed various litigation matters where certain of Ally's subsidiaries (including 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 other Ally subsidiaries (excluding the Debtors) are also named as defendants in various cases relating to mortgage-backed securities and certain other mortgage-related matters. These cases include litigation with, among others, the following: Allstate; Assured Guaranty; the Federal Deposit Insurance Corporation; the Federal Housing Finance Agency (FHFA); the Federal Home Loan Banks of Indianapolis, Boston and Chicago; Huntington Bancshares; John Hancock; Massachusetts Mutual Life Insurance; MBIA; New Jersey Carpenters Health Fund; and the Financial Guaranty Insurance Company (collectively, the Remaining Cases). All but five of the Remaining Cases have been stayed through January 31, 2013, subject to permitting certain limited proceedings in some of the Remaining Cases. Pending cases that have not been stayed by the bankruptcy court include cases with the FDIC (three cases), FHFA (one case), and MBIA (one case). We believe that we have strong legal and factual defenses with respect to the Remaining Cases. As described earlier, the proposed bankruptcy Plan provides for a release of all existing and potential causes of action against Ally held by ResCap, and existing and potential ResCap-related causes of action against Ally held by third parties. These releases, if approved by the Bankruptcy Court, would result in Ally being released from any and all potential liability with respect to the Remaining Cases. If the Plan is not approved, or if a Plan is approved that does not include third-party releases, the Remaining Cases would proceed against the Ally defendants. If this occurred, we would vigorously defend them.
Regulatory Matters
We continue to respond to subpoenas and document requests from the U.S. Securities and Exchange Commission covering a wide range of mortgage related matters, including, among other things, various aspects of the process surrounding securitizations of residential mortgages.  It is possible that this could result in actions against us.
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 item becomes probable and the costs 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.
26.    Subsequent Events
Declaration of Quarterly Dividend Payments
On October 4, 2012 , 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,

79
Notes to Condensed Consolidated Financial Statements (unaudited)
Ally Financial Inc. • Form 10-Q


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 are payable on November 15, 2012 .

Defined Benefit Pension Plan Actions
GMAC Mortgage Group LLC, our wholly owned subsidiary, sponsors a defined benefit pension plan (the Pension Plan) for which the accrual of additional benefits were previously frozen. The 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 Pension Plan purchased a group annuity contract from a third-party insurance company that requires the insurance company to pay and administer all future annuity payments to the current retiree population of the Pension Plan (retired as of September 1, 2012) beginning on January 1, 2013. Additionally, during the fourth quarter the Pension Plan is commencing a program to offer voluntary lump-sum distributions to terminated employees with vested benefits in the Pension Plan. We expect that all lump-sum distributions from the Pension Plan will be completed by December 31, 2012. In connection with these combined actions we expect to record a settlement loss of approximately $90 million to $120 million during the fourth quarter of 2012 due primarily to the immediate recognition of amounts currently classified as the defined benefit pension plan net actuarial losses component of Accumulated other comprehensive income. Accordingly, we do not expect the fourth quarter settlement loss to result in a material change to consolidated total equity. The ultimate amount of the settlement loss could differ from currently estimated amounts due to several factors including, for example, the lump-sum distribution election rate, a change in the discount rate, or significant gains or losses in trust assets prior to the date of accounting recognition.
Mexican Insurance Business Sale Agreement
On October 18, 2012, we announced that we had reached an agreement to sell our Mexican insurance business, ABA Seguros, to the ACE Group. The purchase price of $865 million in cash is at a premium to our book value. The book value of ABA Seguros was $429 million at September 30, 2012. Any gain on sale will be determined and recognized when the transaction closes. Completion of the transaction is subject to regulatory approvals and the satisfaction of other customary closing conditions. The transaction is expected to close during the first half of next year.
Canadian Auto Finance Operation Sale Agreement
On October 23, 2012, we announced that we had reached an agreement to sell our Canadian auto finance operation, Ally Credit Canada Limited, and ResMor Trust to Royal Bank of Canada. Based on the third quarter total equity of the Canadian auto finance operation, Ally would receive approximately $4.1 billion in proceeds, which would be a premium to our book value. The book value of our Canadian auto finance operation was $3.5 billion at September 30, 2012. Any gain on sale will be determined and recognized when the transaction closes. The transaction is subject to regulatory approval and the satisfaction of other customary closing conditions. The transaction is expected to close in the first quarter of 2013.

80
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
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 Condensed Consolidated Financial Statements , and the Notes to Condensed 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.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Total financing revenue and other interest income
$
2,407

$
2,416

$
7,219

$
7,377

Interest expense
1,272

1,533

4,022

4,786

Depreciation expense on operating lease assets
358

276

969

722

Net financing revenue
777

607

2,228

1,869

Total other revenue
936

554

3,051

2,619

Total net revenue
1,713

1,161

5,279

4,488

Provision for loan losses
116

50

285

213

Total noninterest expense
1,114

1,217

4,994

4,091

Income (loss) from continuing operations before income tax expense
483

(106
)
—

184

Income tax expense from continuing operations
93

93

172

106

Net income (loss) from continuing operations
390

(199
)
(172
)
78

Loss from discontinued operations, net of tax
(6
)
(11
)
(32
)
(29
)
Net income (loss)
$
384

$
(210
)
$
(204
)
$
49

Basic and diluted earnings per common share:
Net income (loss) from continuing operations
$
142

$
(299
)
$
(581
)
$
(364
)
Net income (loss)
137

(307
)
(605
)
(386
)
Non-GAAP financial measures (a):
Net income (loss)
$
384

$
(210
)
$
(204
)
$
49

Add: Original issue discount amortization expense (b)
76

225

280

825

Add: Income tax expense from continuing operations
93

93

172

106

Less: Loss from discontinued operations, net of tax
(6
)
(11
)
(32
)
(29
)
Core pretax income (a)
$
559

$
119

$
280

$
1,009

(a)
Core pretax 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 income is useful information for the users of our financial statements in understanding the earnings from our core businesses. In addition, core pretax income is the primary measure that management uses to assess the performance of our operations. We believe that core pretax 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 determined in accordance with GAAP.
(b)
Primarily represents original issue discount amortization expense associated with the 2008 bond exchange, including accelerated amortization of $0 million and $50 million for the three months and nine months ended September 30, 2011 , respectively, that was reported as a loss on extinguishment of debt in the Condensed Consolidated Statement of Comprehensive Income .

81
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

The following table presents selected balance sheet and ratio data.
At and for the
three months ended
September 30,
At and for the
nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Selected period-end balance sheet data:
Total assets
$
182,482

$
181,956

$
182,482

$
181,956

Long-term debt
$
93,028

$
90,546

$
93,028

$
90,546

Preferred stock/interests
$
6,940

$
6,940

$
6,940

$
6,940

Total equity
$
18,765

$
19,732

$
18,765

$
19,732

Financial ratios
Efficiency ratio (a)
65.03
%
104.82
%
94.60
%
91.15
%
Core efficiency ratio (a)
62.27
%
87.81
%
89.84
%
77.00
%
Return on assets
Net income (loss) from continuing operations
0.85
%
(0.43
)%
(0.13
)%
0.06
%
Net income (loss)
0.84
%
(0.45
)%
(0.15
)%
0.04
%
Core pretax income
1.22
%
0.25
%
0.20
%
0.75
%
Return on equity
Net income (loss) from continuing operations
8.38
%
(3.94
)%
(1.21
)%
0.51
%
Net income (loss)
8.25
%
(4.15
)%
(1.43
)%
0.32
%
Core pretax income
12.01
%
2.35
%
1.97
%
6.61
%
Equity to assets
10.15
%
10.79
%
10.32
%
11.37
%
Net interest spread (b)
1.46
%
1.04
%
1.42
%
1.09
%
Net interest spread excluding original issue discount (b)
1.71
%
1.73
%
1.73
%
1.91
%
Net yield on interest-earning assets (c)
1.88
%
1.50
%
1.82
%
1.60
%
Net yield on interest-earning assets excluding original issue discount (c)
2.06
%
2.06
%
2.05
%
2.27
%
Regulatory capital ratios
Tier 1 capital (to risk-weighted assets) (d)
13.64
%
14.34
%
13.64
%
14.34
%
Total risk-based capital (to risk-weighted assets) (e)
14.63
%
15.50
%
14.63
%
15.50
%
Tier 1 leverage (to adjusted quarterly average assets) (f)
11.29
%
11.61
%
11.29
%
11.61
%
Total equity
$
18,765

$
19,732

$
18,765

$
19,732

Goodwill and certain other intangibles
(497
)
(507
)
(497
)
(507
)
Unrealized gains and other adjustments
(308
)
(292
)
(308
)
(292
)
Trust preferred securities
2,543

2,542

2,543

2,542

Tier 1 capital (d)
20,503

21,475

20,503

21,475

Preferred equity
(6,940
)
(6,940
)
(6,940
)
(6,940
)
Trust preferred securities
(2,543
)
(2,542
)
(2,543
)
(2,542
)
Tier 1 common capital (non-GAAP) (g)
$
11,020

$
11,993

$
11,020

$
11,993

Risk-weighted assets (h)
$
150,295

$
149,713

$
150,295

$
149,713

Tier 1 common (to risk-weighted assets) (g)
7.33
%
8.01
%
7.33
%
8.01
%
(a)
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.
(b)
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.
(c)
Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.
(d)
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.
(e)
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 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.
(f)
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.
(g)
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.
(h)
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.

82
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Overview
Ally Financial Inc. (formerly GMAC Inc.) is a leading, independent, globally diversified, financial services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad array of financial products and services to automotive dealers and their customers. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (online and telephonic) banking market.
Discontinued Operations
During 2011, we committed to sell certain operations of our International Automotive Finance operations, Insurance operations, and Mortgage operations, and have classified certain of these operations as discontinued. For all periods presented, all of the operating results for these operations were removed from continuing operations. Refer to Note 2 to the Condensed Consolidated Financial Statements for additional information regarding our discontinued operations.
Primary Lines of Business
Our primary lines of business are Global Automotive Services and Mortgage operations. The following table summarizes the operating results excluding discontinued operations of each line of business for the three months and nine months ended September 30, 2012 and 2011 . Operating results for each of the lines of business are more fully described in the MD&A sections that follow.
Three months ended
September 30,
Nine months ended
September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable)
% change
2012
2011
Favorable/
(unfavorable)
% change
Total net revenue (loss)
Global Automotive Services
North American Automotive Finance operations
$
931

$
881

6
$
2,736

$
2,800

(2)
International Automotive Finance operations
219

228

(4)
679

680

—
Insurance operations
365

447

(18)
1,264

1,415

(11)
Mortgage operations
499

(24
)
n/m
1,504

780

93
Corporate and Other
(301
)
(371
)
19
(904
)
(1,187
)
24
Total
$
1,713

$
1,161

48
$
5,279

$
4,488

18
Income (loss) from continuing operations before income tax expense
Global Automotive Services
North American Automotive Finance operations
$
510

$
551

(7)
$
1,583

$
1,628

(3)
International Automotive Finance operations
69

89

(22)
186

189

(2)
Insurance operations
33

111

(70)
200

314

(36)
Mortgage operations
354

(409
)
187
569

(491
)
n/m
Corporate and Other
(483
)
(448
)
(8)
(2,538
)
(1,456
)
(74)
Total
$
483

$
(106
)
n/m
$
—

$
184

(100)
n/m = not meaningful
•
Our Global Automotive Services operations offer a wide range of financial services and products to retail automotive consumers and automotive dealerships. Our Global Automotive Services consist of three separate reportable segments — North American Automotive Finance operations, International Automotive Finance operations, and Insurance operations. On May 14, 2012, we announced that we have determined to explore strategic alternatives for all of our international operations. These international operations include automotive finance, insurance, and banking and deposit operations that operate within our North American Automotive Finance operations, International Automotive Finance operations, and Insurance operations operating segments. Since then, we have marketed and have received interest from a number of potential purchasers. As part of this initiative, on October 18, 2012 we announced that we reached an agreement to sell our Mexican insurance business, ABA Seguros, to the ACE Group. Further, on October 23, 2012, we announced that we reached an agreement to sell our Canadian auto finance operation, Ally Credit Canada Limited, and ResMor Trust to Royal Bank of Canada. Refer to Note 26 to the Condensed Consolidated Financial Statements for further information. We expect to continue to explore strategic alternatives for our remaining international operations. However, we can provide no assurances that we will enter into strategic transactions with respect to all or any portion of the balance of our international operations.
Our North American Automotive Finance operations include the automotive activities of Ally Bank and ResMor Trust. Our automotive finance services include acquiring or providing retail installment sales contracts, loans, and leases, offering term loans

83
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

to dealers, financing dealer floorplans and other lines of credit to dealers, fleet leasing, and vehicle remarketing services.
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, and maintenance coverage.
Our International Automotive Finance operations primarily consist of entities that are under strategic review and non-core business activities including portfolios in run-off. These operations exist in Asia, Latin America and Europe.
On June 27, 2012, we announced that Mitsubishi Motors North America, Inc. has selected Ally as a preferred provider of leasing and financing.
On May 22, 2012, we announced that Forest River, Inc., a leading RV manufacturer, has selected Ally Financial as an additional provider for dealer inventory financing in the U.S. In addition, we will also offer dealer real estate and commercial loans, inventory insurance, remarketing services for RV trade-ins, and consumer financing to support new and used RV sales.
On April 25, 2012, Chrysler provided us with notification of nonrenewal for the existing agreement governing the exclusivity privileges related to certain of its retail financing subvention programs (for further discussion on our agreement, refer to our Annual Report on Form 10-K for the year ended December 31, 2011, Item 1, Business - Manufacturer Relationships). As a result of this notification, the agreement will expire on April 30, 2013. The nonrenewal of the existing contract does not preclude the two companies from continuing to work together in the future.
On March 22, 2012, we announced that MG Motor UK selected Ally as the preferred wholesale provider for dealerships in the United Kingdom. This agreement expands on the existing preferred retail financing relationship established in 2011.
•
Our remaining Mortgage operations are conducted through the mortgage operations of Ally Bank. Ally Bank holds and originates its held-for-investment mortgage loan portfolio (jumbo and prime conforming loans). In July 2012, Ally Bank decided to exit the warehouse lending business; and accordingly, is not taking on new warehouse lending clients. Ally Bank expects an orderly wind-down of these existing activities to conclude by the end of the year.
On October 26, 2012, Ally Bank announced that it has begun to explore strategic alternatives for its agency mortgage servicing rights (MSR) portfolio and its business lending operations. Refer to Note 1 to the Condensed Consolidated Financial Statements for more information regarding the announcement.
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 and their direct and indirect subsidiaries) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan, at which point we deconsolidated ResCap. Refer to Note 1 to the Condensed Consolidated Financial Statements for more information regarding the Bankruptcy.
•
Corporate and Other primarily consists of our centralized corporate treasury and deposit gathering 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, 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.

84
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Consolidated Results of Operations
The following table summarizes our consolidated operating results excluding discontinued operations for the periods shown.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable)
% change
2012
2011
Favorable/
(unfavorable)
% change
Net financing revenue
Total financing revenue and other interest income
$
2,407

$
2,416

—
$
7,219

$
7,377

(2)
Interest expense
1,272

1,533

17
4,022

4,786

16
Depreciation expense on operating lease assets
358

276

(30)
969

722

(34)
Net financing revenue
777

607

28
2,228

1,869

19
Other revenue
Net servicing income (loss)
225

(136
)
n/m
687

370

86
Insurance premiums and service revenue earned
364

390

(7)
1,098

1,188

(8)
Gain on mortgage and automotive loans, net
141

95

48
401

301

33
Loss on extinguishment of debt
—

—

—
—

(64
)
100
Other (loss) gain on investments, net
(19
)
75

(125)
137

251

(45)
Other income, net of losses
225

130

73
728

573

27
Total other revenue
936

554

69
3,051

2,619

16
Total net revenue
1,713

1,161

48
5,279

4,488

18
Provision for loan losses
116

50

(132)
285

213

(34)
Noninterest expense
Compensation and benefits expense
344

293

(17)
1,208

1,132

(7)
Insurance losses and loss adjustment expenses
151

170

11
518

567

9
Other operating expenses
619

754

18
3,268

2,392

(37)
Total noninterest expense
1,114

1,217

8
4,994

4,091

(22)
Income from continuing operations before income tax expense
483

(106
)
n/m
—

184

(100)
Income tax expense from continuing operations
93

93

—
172

106

(62)
Net income (loss) from continuing operations
$
390

$
(199
)
n/m
$
(172
)
$
78

n/m
n/m = not meaningful
We earned net income from continuing operations of $390 million for the three months ended September 30, 2012 , compared to a net loss from continuing operations of $199 million for the three months ended September 30, 2011 , and a net loss from continuing operations of $172 million for the nine months ended September 30, 2012 , compared to net income from continuing operations of $78 million for the nine months ended September 30, 2011 . Net income from continuing operations for the three months ended September 30, 2012 , was favorably impacted by our Mortgage Operations, primarily as a 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, and higher net gains on the sale of mortgage loans. The increases were partially offset by lower gains on the sale of automotive loans and lower investment income due to impairment related to certain investment securities that we do not plan on holding to recovery. Net income from continuing operations for the nine months ended September 30, 2012 , continue to be unfavorably impacted by a $1.2 billion charge related to the Debtors' Chapter 11 filing. Refer to Note 1 to the Condensed Consolidated Financial Statements for additional information related to ResCap. This charge was partially offset by lower original issue discount (OID) amortization expense related to bond maturities and normal monthly amortization and an increase in consumer automotive financing revenue related to strong loan origination volume.
Total financing revenue and other interest income decreased $9 million and $158 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases resulted primarily from 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. These declines were partially offset by an increase in consumer financing revenue at our North American Automotive 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.

85
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Interest expense decreased 17% and 16% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . OID amortization expense decreased $149 million and $493 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 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.
Depreciation expense on operating lease assets increased 30% and 34% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to higher leasing volume and lower lease remarketing gains as a result of lower lease termination volume.
Net servicing income was $225 million and $687 million for the three months and nine months ended September 30, 2012 , respectively, compared to a net servicing loss of $136 million and net servicing income of $370 million for the same periods in 2011 . The increases were primarily due to strong performance of the derivative servicing hedge as compared to a less favorable hedge performance in 2011. These increases in 2012 were partially offset by lower servicing fees due to the deconsolidation of ResCap.
Insurance premiums and service revenue earned decreased 7% and 8% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to declining U.S. vehicle service contracts written between 2007 and 2009.
Gain on mortgage and automotive loans increased 48% and 33% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The increases were primarily due to higher consumer mortgage lending-production 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 loans.
Loss on extinguishment of debt decreased $64 million for the nine months ended September 30, 2012 , compared to the same period in 2011 . The activity in 2011 included $50 million of accelerated amortization of original issue discount related to the extinguishment of certain Ally debt for the nine months ended September 30, 2011 .
Other (loss) gain on investments, net , decreased 125% and 45% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to the recognition of other than temporary impairment on certain equity securities and lower realized investment gains.
Other income, net of losses , increased 73% and 27% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The increases were 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 North American Automotive Finance operations driven by lower remarketing volumes through our proprietary SmartAuction platform.
The provision for loan losses was $116 million and $285 million for the three months and nine months ended September 30, 2012 , respectively, compared to $50 million and $213 million for the same periods in 2011 . The increase for the three months and nine months ended September 30, 2012 , was driven primarily by higher receivables in the consumer and commercial automotive portfolios.
Compensation and benefits expense increased 17% and 7% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The increases were primarily related to a decrease in incentive compensation in 2011 that did not recur in 2012, coupled with certain increases in incentive compensation in the current period. Additionally, the nine months ended September 30, 2012 expense increased due to a revaluation adjustment of our share-based compensation awards.
Insurance losses and loss adjustment expenses decreased 11% and 9% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases were driven primarily by lower weather-related losses in the United States on our dealer inventory insurance products and lower non-weather related losses from our international businesses.
Other operating expenses decreased 18% and increased 37% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decrease for the three months ended September 30, 2012, was primarily driven by lower representation and warranty expense and compensation and benefits expense resulting from the deconsolidation of ResCap. The increase for the nine months ended September 30, 2012, was primarily due to a $1.2 billion charge related to the Debtors' Chapter 11 filing, regulatory penalties imposed in foreclosure-related matters of $90 million 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 and lower state and local non-income taxes.
Income tax expense from continuing operations was $93 million and $172 million for the three months and nine months ended September 30, 2012 , respectively, compared to income tax expense of $93 million and $106 million for the same periods in 2011 . The increase in income tax expense for the nine months ended September 30, 2012 , compared to the same period in 2011 , was due to a non-recurring 2011 benefit of $101 million stemming from the reversal of the valuation allowance on net deferred tax assets in one of our Canadian subsidiaries.
In calculating the provision for income taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. We have a full valuation allowance against our domestic net deferred tax assets and certain international net deferred tax assets. Accordingly, income tax expense is driven by foreign income taxes on pretax profits within our foreign operations and U.S. state income taxes in states where

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

profitable subsidiaries are required to file separately from other loss companies in the group or where the use of prior losses is restricted.
In October 2012, we entered into an agreement under which our defined benefit pension plan (the Pension Plan), primarily covering former employees of certain discontinued or non-core businesses of our Mortgage and Insurance operations, purchased a group annuity contract from a third-party insurance company that requires the insurance company to pay and administer all future annuity payments to the current retiree population of the Pension Plan (retired as of September 1, 2012) beginning on January 1, 2013. Additionally, during the fourth quarter the Pension Plan is commencing a program to offer voluntary lump-sum distributions to terminated employees with vested benefits in the Pension Plan. We expect that all lump-sum distributions from the Pension Plan will be completed by December 31, 2012. In connection with these combined actions we expect to record a settlement loss of approximately $90 million to $120 million during the fourth quarter of 2012. Refer to Note 26 to the Condensed Consolidated Financial Statements for more information.

87
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Global Automotive Services
Results for Global Automotive Services are presented by reportable segment, which includes our North American Automotive Finance operations, our International Automotive Finance operations, and our Insurance operations.
Our Global Automotive Services operations offer a wide range of financial services and insurance products to retail automotive consumers and automotive dealerships. Our automotive finance services include acquiring or 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 are a leading provider of vehicle service contracts with mechanical breakdown and maintenance coverages, and we provide commercial insurance primarily covering dealers’ wholesale vehicle inventory.
North American Automotive Finance Operations
Results of Operations
The following table summarizes the operating results of our North American Automotive Finance operations for the periods shown. North American Automotive Finance operations consist of automotive financing in the United States and Canada and include the automotive activities of Ally Bank and ResMor Trust. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable)
% change
2012
2011
Favorable/
(unfavorable)
% change
Net financing revenue
Consumer
$
825

$
718

15
$
2,398

$
2,092

15
Commercial
317

346

(8)
969

1,001

(3)
Loans held-for-sale
4

—

n/m
15

—

n/m
Operating leases
633

527

20
1,743

1,772

(2)
Other interest income
14

29

(52)
49

75

(35)
Total financing revenue and other interest income
1,793

1,620

11
5,174

4,940

5
Interest expense
582

590

1
1,745

1,776

2
Depreciation expense on operating lease assets
355

275

(29)
961

713

(35)
Net financing revenue
856

755

13
2,468

2,451

1
Other revenue
Servicing fees
26

39

(33)
86

126

(32)
Gain on automotive loans, net
2

33

(94)
41

48

(15)
Other income
47

54

(13)
141

175

(19)
Total other revenue
75

126

(40)
268

349

(23)
Total net revenue
931

881

6
2,736

2,800

(2)
Provision for loan losses
102

25

n/m
196

126

(56)
Noninterest expense
Compensation and benefits expense
112

92

(22)
339

319

(6)
Other operating expenses
207

213

3
618

727

15
Total noninterest expense
319

305

(5)
957

1,046

9
Income before income tax expense
$
510

$
551

(7)
$
1,583

$
1,628

(3)
Total assets
$
106,909

$
90,532

18
$
106,909

$
90,532

18
Operating data
Retail originations
$
7,992

$
9,411

(15)
$
26,536

$
27,745

(4)
Lease originations
2,584

1,691

53
6,256

5,980

5
n/m = not meaningful
Our North American Automotive Finance operations earned income before income tax expense of $510 million and $1.6 billion for the three months and nine months ended September 30, 2012 , respectively, compared to $551 million and $1.6 billion for the three months and nine months ended September 30, 2011 , respectively. The decrease for the three months ended September 30, 2012 was primarily due to higher provision for loan losses, lower gains on the sale of automotive loans, and lower operating lease remarketing gains primarily due to lower lease terminations. These decreases were partially offset by higher consumer and lease revenue driven by growth in our retail

88
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

automotive loan and lease portfolios. The decrease for the nine months ended September 30, 2012 was primarily due to higher provision for loan losses, lower operating lease remarketing gains primarily due to lower remarketing volume, lower servicing fees, and lower lease remarketing income. These decreases were partially offset by higher consumer revenue as a result of growth in the consumer portfolio due to increased automotive sales, and lower operating expenses.
Consumer financing revenue increased 15% for both the three months and nine months ended September 30, 2012 , compared to the same periods in 2011 . The increases were due to an increase in consumer asset levels as a result of strong used vehicle automotive financing volumes 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 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 decreased 8% and 3% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to lower yields as a result of competitive markets for automotive commercial financing, partially offset by higher commercial loan balances due to growth in our wholesale dealer floor plan and dealer loan portfolios.
Operating lease revenue increased 20% and decreased 2% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The increase for the three months ended September 30, 2012 was primarily due to increased leasing volume.
Depreciation expense on operating lease assets increased 29% and 35% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to higher leasing volume and lower lease remarketing gains as a result of lower lease termination volume.
Servicing fee income decreased 33% and 32% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to lower levels of off-balance sheet serviced retail automotive loans.
Gains on the sale of automotive loans decreased $31 million and $7 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases were driven by the sale of approximately $0.5 billion and $2.5 billion of retail automotive loans during the three months and nine months ended September 30, 2012 , respectively, compared to approximately $1.5 billion and $2.8 billion for the same periods in 2011. While we continue to opportunistically utilize whole-loan and full securitization sales as a source of funding, we have primarily focused on securitization and deposit-based funding sources.
Other income decreased 13% and 19% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to lower remarketing fee income driven by lower remarketing volumes through our proprietary SmartAuction platform.
The provision for loan losses was $102 million and $196 million for the three months and nine months ended September 30, 2012 , respectively, compared to $25 million and $126 million for the same periods in 2011 . The increases for the three months and nine months ended September 30, 2012 , were primarily due to continued growth in the consumer and commercial portfolios.
Other operating expenses decreased 3% and 15% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases were primarily driven by favorable state and local tax expense, lower expense related to automotive manufacturer exclusivity arrangements, and lower costs associated with reduced lease termination volumes, including lower vehicle remarketing expenses.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

International Automotive Finance Operations
Results of Operations
The following table summarizes the operating results of our International Automotive Finance operations excluding discontinued operations for the periods shown. The amounts presented are before the elimination of balances and transactions with our other reportable segments and include eliminations of balances and transactions among our North American Automotive Finance operations and Insurance operations.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable) % change
2012
2011
Favorable/
(unfavorable) % change
Net financing revenue
Consumer
$
293

$
301

(3)
$
895

$
902

(1)
Commercial
77

111

(31)
260

326

(20)
Operating leases
6

3

100
15

11

36
Other interest income
20

23

(13)
52

72

(28)
Total financing revenue and other interest income
396

438

(10)
1,222

1,311

(7)
Interest expense
227

270

16
713

797

11
Depreciation expense on operating lease assets
3

1

n/m
8

9

11
Net financing revenue
166

167

(1)
501

505

(1)
Other revenue
Other income
53

61

(13)
178

175

2
Total other revenue
53

61

(13)
178

175

2
Total net revenue
219

228

(4)
679

680

—
Provision for loan losses
13

(2
)
n/m
75

42

(79)
Noninterest expense
Compensation and benefits expense
42

44

5
129

132

2
Other operating expenses
95

97

2
289

317

9
Total noninterest expense
137

141

3
418

449

7
Income from continuing operations before
income tax expense
$
69

$
89

(22)
$
186

$
189

(2)
Total assets
$
16,211

$
15,314

6
$
16,211

$
15,314

6
Operating data
Consumer originations (a) (b)
$
2,215

$
2,638

(16)
$
6,815

$
6,803

—
(a)
Represents consumer originations for continuing operations only.
(b)
Includes vehicles financed through our joint venture GMAC-SAIC, which is recorded as other income. We own 40% of GMAC-SAIC alongside Shanghai Automotive Group Finance Company LTD and Shanghai General Motors Corporation LTD.
Our International Automotive Finance operations earned income from continuing operations before income tax expense of $69 million and $186 million for the three months and nine months ended September 30, 2012 , respectively, compared to $89 million and $189 million for the three months and nine months ended September 30, 2011 , respectively. The decreases were primarily due to higher provision for loan losses resulting from less favorable credit performance and unfavorable movements in foreign-currency exchange rates, partially offset by higher earning asset levels.
Total financing revenue and other interest income decreased $42 million and $89 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases were primarily due to unfavorable movements in foreign-currency exchange rates, which were partially offset by stronger consumer originations, primarily in Brazil.
Interest expense decreased $43 million and $84 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to movements in foreign-currency exchange rates.
Other income decreased 13% for the three months ended September 30, 2012, compared to the same period in 2011, primarily due to a reduction in income on restricted cash in our Latin American operations.
The provision for loan losses increased $15 million and $33 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The increase is related to favorable one-time reserve benefits in 2011, and economic

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

stresses within certain areas of Latin America in 2012.
Other operating expenses decreased 2% and 9% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to movements in foreign-currency exchange rates.

91
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Automotive Financing Volume
Consumer Automotive Financing Volume
The following tables summarize our new and used vehicle consumer financing volume and our share of consumer sales.
Ally consumer automotive
financing volume
% Share of
consumer sales
Three months ended September 30, ( units in thousands )
2012
2011
2012
2011
GM new vehicles
North America
165

172

30
33
International (excluding China) (a)
87

98

26
30
China (b)
43

37

13
12
Total GM new units financed
295

307

Chrysler new vehicles
North America
85

104

23
32
International (excluding China)
—

—

Total Chrysler new units financed
85

104

Other non-GM / Chrysler new vehicles
North America
21

17

International (excluding China)
1

1

China (b)
33

26

Total other non-GM / Chrysler new units financed
55

44

Used vehicles
North America
117

119

International (excluding China)
12

11

China (b)
1

—

Total used units financed
130

130

Total consumer automotive financing volume
565

585

(a)
Excludes financing volume and GM consumer sales of discontinued operations, as well as GM consumer sales for other countries in which GM operates and in which we have no financing volume.
(b)
Represents vehicles financed through our joint venture GMAC-SAIC. We own 40% of GMAC-SAIC alongside Shanghai Automotive Group Finance Company LTD and Shanghai General Motors Corporation LTD.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Ally consumer automotive
financing volume
% Share of
consumer sales
Nine months ended September 30, ( units in thousands )
2012
2011
2012
2011
GM new vehicles
North America
502

621

32
40
International (excluding China) (a)
286

257

29
27
China (b)
101

92

11
11
Total GM new units financed
889

970

Chrysler new vehicles
North America
263

257

25
30
International (excluding China)
—

1

Total Chrysler new units financed
263

258

Other non-GM / Chrysler new vehicles
North America
66

52

International (excluding China)
3

2

China (b)
80

72

Total other non-GM / Chrysler new units financed
149

126

Used vehicles
North America
388

357

International (excluding China)
33

30

China (b)
1

—

Total used units financed
422

387

Total consumer automotive financing volume
1,723

1,741

(a)
Excludes financing volume and GM consumer sales of discontinued operations, as well as GM consumer sales for other countries in which GM operates and in which we have no financing volume.
(b)
Represents vehicles financed through our joint venture GMAC-SAIC. We own 40% of GMAC-SAIC alongside Shanghai Automotive Group Finance Company LTD and Shanghai General Motors Corporation LTD.
Consumer automotive financing decreased during the three months and nine months ended September 30, 2012 , compared to the same periods in 2011 , primarily due to lower retail penetration at both GM and Chrysler in North America. The decreases were partially offset by higher GM International retail penetration during the nine months ended September 30, 2012. Additionally, increased non-GM/Chrysler and used volume during the nine months ended September 30, 2012, was the result of our continued strategic focus in these markets. The decrease in North American GM and Chrysler penetration was primarily due to increased competition as a result of improved economics of automotive financing products. The increases and favorable penetration levels in our International operations were primarily due to aggressive manufacturer marketing incentive programs coupled with existing Ally campaigns.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Manufacturer Marketing Incentives
The following table presents the percentage of retail and lease contracts acquired by us that included rate support from GM.
Nine months ended September 30,
2012
2011
GM subvented volume in North America
As % of GM North American new retail and lease volume acquired by Ally
65
%
51
%
As % of total North American new and used retail and lease volume acquired by Ally
27
%
25
%
GM subvented International (excluding China) volume (a)
As % of GM International new retail and lease volume acquired by Ally
70
%
67
%
As % of total International new and used retail and lease volume acquired by Ally
62
%
60
%
GM subvented volume in China (b)
As % of GM China new retail and lease volume acquired by Ally
3
%
10
%
As % of total China new and used retail and lease volume acquired by Ally
2
%
6
%
(a)
Represents subvention for continuing operations only.
(b)
Represents vehicles financed through our joint venture GMAC-SAIC. We own 40% of GMAC-SAIC alongside Shanghai Automotive Group Finance Company LTD and Shanghai General Motors Corporation LTD.
The following table presents the percentage of Chrysler subvented retail and lease volume acquired by Ally.
Nine months ended September 30,
2012
2011
Chrysler subvented volume in North America
As % of Chrysler North American new retail and lease volume acquired by Ally
51
%
53
%
As % of total North American new and used retail and lease volume acquired by Ally
11
%
11
%
During the nine months ended September 30, 2012 , North American retail contracts acquired that included rate subvention from GM and Chrysler increased as a percentage of total new retail contracts acquired as compared to the same period in 2011 due to a change in the mix of manufacturer marketing incentives, with a shift to rate-based programs. International (excluding China) retail contracts acquired that included rate subvention increased as a result of aggressive GM campaigns in various international markets. Chinese retail contracts acquired that included rate subvention decreased as a result of GM providing less subvention to consumers, instead relying on dealers to do so.
For further discussion of manufacturing marketing incentives, refer to our Annual Report on Form 10-K for the year ended December 31, 2011 , Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Automotive Finance Operations.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 markets where we operate.
Average balance
% Share of dealer inventory
Three months ended September 30, ( $ in millions )
2012
2011
2012
2011
GM new vehicles
North America (a)
$
16,992

$
15,725

70
76
International (excluding China) (b) (c)
3,615

3,960

94
92
China (b) (d)
1,988

1,513

81
81
Total GM new vehicles financed
22,595

21,198

Chrysler new vehicles
North America (a)
7,633

7,735

55
64
International (excluding China)
15

24

Total Chrysler new vehicles financed
7,648

7,759

Other non-GM / Chrysler new vehicles
North America
2,439

1,920

International (excluding China)
57

121

China (d)
8

—

Total other non-GM / Chrysler new vehicles financed
2,504

2,041

Used vehicles
North America
3,146

3,194

International (excluding China)
185

164

Total used vehicles financed
3,331

3,358

Total commercial wholesale finance receivables
$
36,078

$
34,356

(a)
Share of dealer inventory based on a 4 month average of dealer inventory (excludes in-transit units).
(b)
Share of dealer inventory based on wholesale financing share of GM shipments.
(c)
Excludes commercial wholesale finance receivables and dealer inventory of discontinued and wind-down operations as well as dealer inventory for other countries in which GM operates and we had no commercial wholesale finance receivables.
(d)
Represents vehicles financed through our joint venture GMAC-SAIC. We own 40% of GMAC-SAIC alongside Shanghai Automotive Group Finance Company LTD and Shanghai General Motors Corporation LTD.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Average balance
% Share of dealer inventory
Nine months ended September 30, ( $ in millions )
2012
2011
2012
2011
GM new vehicles
North America (a)
$
16,820

$
15,777

71
80
International (excluding China) (b) (c)
3,931

3,939

94
93
China (b) (d)
1,731

1,235

81
81
Total GM new vehicles financed
22,482

20,951

Chrysler new vehicles
North America (a)
7,727

7,623

58
66
International (excluding China)
19

23

Total Chrysler new vehicles financed
7,746

7,646

Other non-GM / Chrysler new vehicles
North America
2,417

2,070

International (excluding China)
63

132

China (d)
7

—

Total other non-GM / Chrysler new vehicles financed
2,487

2,202

Used vehicles
North America
3,194

3,141

International (excluding China)
179

157

Total used vehicles financed
3,373

3,298

Total commercial wholesale finance receivables
$
36,088

$
34,097

(a)
Share of dealer inventory based on a 10 month average of dealer inventory (excludes in-transit units).
(b)
Share of dealer inventory based on wholesale financing share of GM shipments.
(c)
Excludes commercial wholesale finance receivables and dealer inventory of discontinued and wind-down operations as well as dealer inventory for other countries in which GM operates and we had no commercial wholesale finance receivables.
(d)
Represents vehicles financed through our joint venture GMAC-SAIC. We own 40% of GMAC-SAIC alongside Shanghai Automotive Group Finance Company LTD and Shanghai General Motors Corporation LTD.
Commercial wholesale financing average volume increased for the three months and nine months ended September 30, 2012 , compared to the same periods in 2011 , primarily due to growing dealer inventories required to support increasing global automobile sales. GM and Chrysler wholesale penetration in North America decreased for the three months and nine months ended September 30, 2012 , compared to the same periods in 2011 , due to increased competition in the wholesale marketplace.

96
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable)
% change
2012
2011
Favorable/
(unfavorable)
% change
Insurance premiums and other income
Insurance premiums and service revenue earned
$
364

$
387

(6)
$
1,094

$
1,175

(7)
Investment (loss) income
(12
)
44

(127)
117

193

(39)
Other income
13

16

(19)
53

47

13
Total insurance premiums and other income
365

447

(18)
1,264

1,415

(11)
Expense
Insurance losses and loss adjustment expenses
151

162

7
511

540

5
Acquisition and underwriting expense
Compensation and benefits expense
23

19

(21)
72

70

(3)
Insurance commissions expense
111

120

8
338

365

7
Other expenses
47

35

(34)
143

126

(13)
Total acquisition and underwriting expense
181

174

(4)
553

561

1
Total expense
332

336

1
1,064

1,101

3
Income from continuing operations before income tax expense
$
33

$
111

(70)
$
200

$
314

(36)
Total assets
$
8,461

$
8,215

3
$
8,461

$
8,215

3
Insurance premiums and service revenue written
$
377

$
380

(1)
$
1,136

$
1,151

(1)
Combined ratio (a)
89.3
%
84.0
%
94.1
%
91.1
%
(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.
Our Insurance operations earned income from continuing operations before income tax expense of $33 million and $200 million for the three months and nine months ended September 30, 2012 , respectively, compared to $111 million and $314 million for the three months and nine months ended September 30, 2011 , respectively. The decreases were primarily attributable to lower insurance premiums and service revenue earned from our U.S. vehicle service contracts and lower investment income primarily as a result of the recognition of other than temporary impairment of $56 million.
Insurance premiums and service revenue earned decreased 6% and 7% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 , primarily due to declining U.S. vehicle service contracts written between 2007 and 2009.
Investment income decreased $56 million and $76 million for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases were primarily due to the recognition of other than temporary impairment of $56 million on certain equity securities and lower realized investment gains.
Other income totaled $13 million and $53 million for the three months and nine months ended September 30, 2012 , respectively, compared to $16 million and $47 million for the three months and nine months ended September 30, 2011 , respectively. The increase for the nine months ended September 30, 2012, 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 $151 million and $511 million for the three months and nine months ended September 30, 2012 , respectively, compared to $162 million and $540 million for the three months and nine months ended September 30, 2011 , respectively. The decreases were driven primarily by lower weather-related losses in the United States on our dealer inventory insurance products and lower non-weather related losses from our international businesses.
Acquisition and underwriting expense increased 4% for the three months ended September 30, 2012, and decreased 1% for the nine months ended September 30, 2012 , compared to the same periods in 2011 . The increase for the three months ended September 30, 2012 was primarily due to a favorable foreign exchange impact in 2011 that did not recur in 2012. The decrease for the nine months ended September

97
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

30, 2012 was primarily a result of lower commission expense in our U.S. dealership-related products matching our decrease in earned premiums, primarily offset by a favorable foreign exchange impact in 2011 that did not recur in 2012, and increased technology expense.
The following table shows premium and service revenue written by insurance product.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Vehicle service contracts
New retail
$
106

$
101

$
309

$
284

Used retail
131

130

398

396

Reinsurance
(31
)
(24
)
(93
)
(73
)
Total vehicle service contracts
206

207

614

607

Wholesale
41

32

92

84

Other finance and insurance (a)
38

41

112

112

North American operations
285

280

818

803

International operations
92

100

318

348

Total
$
377

$
380

$
1,136

$
1,151

(a)
Other finance and insurance includes Guaranteed Automobile Protection (GAP) coverage, excess wear and tear, and other ancillary products.
Insurance premiums and service revenue written was $377 million and $1.1 billion for the three months and nine months ended September 30, 2012 , respectively, compared to $380 million and $1.2 billion for the same periods in 2011 . Insurance premiums and service revenue written decreased slightly due to lower volume in our international business partially offset by higher written premiums in our U.S. vehicle service contract products. Vehicle service contract revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern. Accordingly, the majority of earnings from vehicle service contracts written during the three months and nine months ended September 30, 2012 , will be recognized as income in future periods.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
($ in millions)
September 30, 2012
December 31, 2011
Cash
Noninterest-bearing cash
$
161

$
211

Interest-bearing cash
1,139

629

Total cash
1,300

840

Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
483

496

Foreign government
721

678

Mortgage-backed
686

590

Asset-backed
8

95

Corporate debt
1,405

1,491

Other debt
1

23

Total debt securities
3,304

3,373

Equity securities
1,066

1,054

Total available-for-sale securities
4,370

4,427

Total cash and securities
$
5,670

$
5,267


98
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 Condensed Consolidated Financial Statements for further details on ResCap. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable)
% change
2012
2011
Favorable/
(unfavorable)
% change
Net financing revenue
Total financing revenue and other interest income
$
158

$
289

(45)
$
598

$
879

(32)
Interest expense
105

214

51
455

675

33
Net financing revenue
53

75

(29)
143

204

(30)
Servicing fees
65

296

(78)
531

907

(41)
Servicing asset valuation and hedge activities, net
134

(471
)
128
70

(663
)
111
Total servicing income, net
199

(175
)
n/m
601

244

146
Gain on mortgage loans, net
139

57

144
398

244

63
Other income, net of losses
108

19

n/m
362

88

n/m
Total other revenue (loss)
446

(99
)
n/m
1,361

576

136
Total net revenue (loss)
499

(24
)
n/m
1,504

780

93
Provision for loan losses
6

31

81
54

115

53
Noninterest expense
Compensation and benefits expense
24

87

72
223

288

23
Representation and warranty expense
30

70

57
67

280

76
Other operating expenses
85

197

57
591

588

(1)
Total noninterest expense
139

354

61
881

1,156

24
Income (loss) from continuing operations before income tax expense
$
354

$
(409
)
187
$
569

$
(491
)
n/m
Total assets
$
17,004

$
35,502

(52)
$
17,004

$
35,502

(52)
n/m = not meaningful
Our Mortgage operations earned income from continuing operations before income tax expense of $354 million and $569 million for the three months and nine months ended September 30, 2012 , respectively, compared to losses from continuing operations before income tax expense of $409 million and $491 million for the three months and nine months ended September 30, 2011 , respectively. 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. Additionally, 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 Condensed Consolidated Financial Statements for further information regarding ResCap.
Net financing revenue was $53 million and $143 million for the three months and nine months ended September 30, 2012 , respectively, compared to $75 million and $204 million for the same periods in 2011 . The decreases in net financing revenue were primarily due to the deconsolidation of ResCap during the second quarter of 2012. Additionally, total financing revenue and other interest income decreased during both periods due to lower average yield mix as higher rate Ally Bank mortgage loans run off. Partially offsetting the decreases was lower interest expense related to lower funding costs.
Total servicing income, net was $199 million and $601 million for the three months and nine months ended September 30, 2012 , respectively, compared to $(175) million and $244 million for the same periods in 2011 . The increases were primarily due to strong performance of the derivative servicing hedge as compared to a less favorable hedge performance in 2011. The increases were partially offset by lower servicing fees due to the deconsolidation of ResCap.
The net gain on mortgage loans increased 144% and 63% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The increases were primarily due to higher consumer mortgage lending-production 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 loans.

99
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Other income, net of losses , was $108 million and $362 million for the three months and nine months ended September 30, 2012 , respectively, compared to $19 million and $88 million for the same periods in 2011 . The increases were 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 $6 million and $54 million for the three months and nine months ended September 30, 2012 , respectively, compared to $31 million and $115 million for the same periods in 2011 . The decreases for the three months and nine months ended September 30, 2012 , were 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 61% and 24% for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decreases were primarily driven by lower representation and warranty expense and compensation and benefits expense resulting from the deconsolidation of ResCap. The decrease for the nine months ended September 30, 2012 was partially offset by regulatory penalties imposed in foreclosure-related matters of $90 million during the three months ended June 30, 2012.

100
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Mortgage Loan Production and Servicing
Mortgage loan production was $8.2 billion and $22.7 billion for the three months and nine months ended September 30, 2012 , compared to $16.0 billion and $40.7 billion for the same periods in 2011 , respectively. Loan production decreased $7.8 billion , or 49% , and $18.0 billion , or 44% , for the three months and nine months ended September 30, 2012 , compared to the same periods in 2011 , respectively. The declines in loan production were largely driven by our reduced presence in the correspondent lending channel, partially offset by increased volume in our direct channels associated with government-sponsored refinancing programs.
The following tables summarize consumer mortgage loan production.
2012
2011
Three months ended September 30, ($ in millions)
Number of loans
Dollar amount of loans
Number of loans
Dollar amount of loans
Production by product type
Prime conforming
34,329

$
7,349

57,454

$
13,345

Prime nonconforming
651

533

560

468

Prime second-lien
—

—

—

—

Government
1,318

279

9,077

1,774

Nonprime
—

—

—

—

Total U.S. production by product type
36,298

8,161

67,091

15,587

International production
—

—

1,830

374

Total production by product type
36,298

$
8,161

68,921

$
15,961

U.S. production by channel
Direct lending
17,198

$
3,319

9,831

$
1,933

Correspondent lender and secondary market purchases
15,831

3,917

53,648

12,529

Mortgage brokers
3,269

925

3,612

1,125

Total U.S. production by channel
36,298

$
8,161

67,091

$
15,587

2012
2011
Nine months ended September 30, ($ in millions)
Number of loans
Dollar amount of loans
Number of loans
Dollar amount of loans
Production by product type
Prime conforming
89,016

$
18,869

149,526

$
33,858

Prime nonconforming
1,945

1,577

1,350

1,143

Prime second-lien
—

—

—

—

Government
10,373

2,254

24,317

4,777

Nonprime
—

—

—

—

Total U.S. production by product type
101,334

22,700

175,193

39,778

International production
—

—

4,668

969

Total production by product type
101,334

$
22,700

179,861

$
40,747

U.S. production by channel
Direct lending
50,963

$
10,212

24,620

$
4,763

Correspondent lender and secondary market purchases
41,258

9,998

143,893

33,017

Mortgage brokers
9,113

2,490

6,680

1,998

Total U.S. production by channel
101,334

$
22,700

175,193

$
39,778


101
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

As of September 30, 2012 , all serviced mortgage assets are held by Ally Bank. ResCap was deconsolidated from Ally as of May 14, 2012. Refer to Note 1 to the Condensed Consolidated Financial Statements for further details on ResCap. The following table summarizes the primary mortgage loan-servicing portfolio.
($ in millions)
September 30, 2012
December 31, 2011
U.S. primary servicing portfolio
Prime conforming
$
119,947

$
226,239

Prime nonconforming
11,948

47,767

Prime second-lien
1,188

6,871

Government
25

49,027

Nonprime
—

20,753

International primary servicing portfolio
—

5,773

Total primary servicing portfolio (a)
$
133,108

$
356,430

(a)
Excludes loans for which we acted as a subservicer. Subserviced loans totaled $0 billion and $26.4 billion at September 30, 2012 , and December 31, 2011 , respectively.
For more information regarding our serviced mortgage assets, refer to Note 11 to the Condensed Consolidated Financial Statements.

102
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Loans Outstanding
Consumer mortgage loans held-for-sale and consumer mortgage loans held-for-investment as of September 30, 2012 , represent loans held by Ally Bank. ResCap was deconsolidated from Ally Financial as of May 14, 2012. Refer to Note 1 to the Condensed Consolidated Financial Statements for further details on ResCap.
Consumer mortgage loans held-for-sale were as follows.
($ in millions)
September 30, 2012
December 31, 2011
Prime conforming
$
1,816

$
3,345

Prime nonconforming
—

571

Prime second-lien
—

545

Government (a)
17

3,294

Nonprime
—

561

International
—

17

Total (b)
1,833

8,333

Net premiums (discounts)
22

(221
)
Fair value option election adjustment
72

60

Lower-of-cost or fair value adjustment
—

(60
)
Total, net (c)
$
1,927

$
8,112

(a)
Includes loans subject to conditional repurchase options of $0 million and $2.3 billion sold to Ginnie Mae-guaranteed securitizations at September 30, 2012 , and December 31, 2011 , respectively. The corresponding liability is recorded in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet.
(b)
Includes unpaid principal write-down of $0 million and $1.5 billion at September 30, 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.
(c)
Includes loans subject to conditional repurchase options of $0 million and $106 million sold to off-balance sheet private-label securitizations at September 30, 2012 , and December 31, 2011 , respectively. The corresponding liability is recorded in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet.
Consumer mortgage loans held-for-investment were as follows.
($ in millions)
September 30, 2012
December 31, 2011
Prime conforming
$
249

$
278

Prime nonconforming
8,305

8,069

Prime second-lien
1,188

2,200

Government
—

—

Nonprime
—

1,349

International
—

422

Total
9,742

12,318

Net premiums
47

38

Fair value option election adjustment
(3
)
(1,601
)
Allowance for loan losses
(447
)
(495
)
Total, net (a)
$
9,339

$
10,260

(a)
At September 30, 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 Related Matters
Refer to Note 25 to the Condensed Consolidated Financial Statements for information related to these matters.

103
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 and deposit gathering 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 and treasury ALM activities. Corporate and Other also includes our Commercial Finance Group, certain equity investments, and reclassifications and eliminations between the reportable operating segments.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
Favorable/
(unfavorable)
% change
2012
2011
Favorable/
(unfavorable)
% change
Net financing loss
Total financing revenue and other interest income
$
20

$
26

(23)
$
101

$
114

(11)
Interest expense
Original issue discount amortization
79

228

65
291

784

63
Other interest expense
261

209

(25)
759

689

(10)
Total interest expense
340

437

22
1,050

1,473

29
Net financing loss
(320
)
(411
)
22
(949
)
(1,359
)
30
Other revenue
Loss on extinguishment of debt
—

—

—
—

(64
)
100
Other gain on investments, net
11

48

(77)
71

113

(37)
Other income, net of losses
8

(8
)
n/m
(26
)
123

(121)
Total other revenue
19

40

(53)
45

172

(74)
Total net loss
(301
)
(371
)
19
(904
)
(1,187
)
24
Provision for loan losses
(5
)
(4
)
25
(40
)
(70
)
(43)
Noninterest expense
Compensation and benefits expense
143

51

(180)
445

323

(38)
Other operating expense (a)
44

30

(47)
1,229

16

n/m
Total noninterest expense
187

81

(131)
1,674

339

n/m
Loss from continuing operations before income tax expense
$
(483
)
$
(448
)
(8)
$
(2,538
)
$
(1,456
)
(74)
Total assets
$
33,897

$
32,393

5
$
33,897

$
32,393

5
n/m = not meaningful
(a)
Includes a reduction of $148 million and $534 million for the three months and nine months ended September 30, 2012 , respectively, and $172 million and $580 million for the three months and nine months ended September 30, 2011 , respectively, 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.

104
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

The following table summarizes the components of net financing losses for Corporate and Other.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Original issue discount amortization
2008 bond exchange amortization
$
(72
)
$
(219
)
$
(267
)
$
(753
)
Other debt issuance discount amortization
(7
)
(9
)
(24
)
(31
)
Total original issue discount amortization (a)
(79
)
(228
)
(291
)
(784
)
Net impact of the funds transfer pricing methodology
Cost of liquidity
(180
)
(180
)
(506
)
(531
)
Funds-transfer pricing / cost of funds mismatch
(132
)
(70
)
(376
)
(255
)
Benefit of net non-earning assets
55

45

170

132

Total net impact of the funds transfer pricing methodology
(257
)
(205
)
(712
)
(654
)
Other (including Commercial Finance Group net financing revenue)
16

22

54

79

Total net financing losses for Corporate and Other
$
(320
)
$
(411
)
$
(949
)
$
(1,359
)
Outstanding original issue discount balance
$
1,896

$
2,334

$
1,896

$
2,334

(a)
Amortization is included as interest on long-term debt in the Condensed Consolidated Statement of Comprehensive Income .
The following table presents the scheduled remaining amortization of the original issue discount at September 30, 2012 .
Year ended December 31, ($ in millions)
2012 (a)
2013
2014
2015
2016
2017 and
thereafter (b)
Total
Original issue discount
Outstanding balance
$
1,837

$
1,577

$
1,390

$
1,335

$
1,272

$
—

Total amortization (c)
59

260

187

55

63

1,272

$
1,896

2008 bond exchange amortization (d)
53

241

166

43

53

1,125

1,681

(a)
Represents the remaining future original issue discount amortization expense to be recorded during 2012 .
(b)
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.
(c)
The amortization is included as interest on long-term debt on the Condensed Consolidated Statement of Comprehensive Income .
(d)
2008 bond exchange amortization is included in total amortization.
Loss from continuing operations before income tax expense for Corporate and Other was $483 million and $2.5 billion for the three months and nine months ended September 30, 2012 , respectively, compared to $448 million and $1.5 billion for the three months and nine months ended September 30, 2011 , respectively. Corporate and Other’s loss from continuing operations before income tax expense is 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 and other unassigned funding costs and unassigned equity.
The higher loss from continuing operations before income tax expense for the three months ended September 30, 2012 was primarily due to an increase in compensation and benefits expense relating primarily to a decrease in incentive compensation in 2011 that did not recur in 2012, coupled with certain increases in incentive compensation in the current period. T he higher loss from continuing operations before income tax expense for the nine months ended September 30, 2012 was primarily due to a $1.2 billion charge related to the Debtors' Chapter 11 filing. Refer to Note 1 to the Condensed Consolidated Financial Statements for additional information related to ResCap. Additionally, the higher losses for the nine months ended September 30, 2012, were impacted by 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. Partially offsetting the higher losses for the three months and nine months ended September 30, 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 nine months ended September 30, 2012 , compared to $50 million for the nine months ended September 30, 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 $7 million and $71 million for the three months and nine months ended September 30, 2012 , respectively, compared to $24 million and $157 million for the three months and nine months ended September 30, 2011 , respectively. The decrease was primarily related to several non-recurring items in 2011, as well as higher reserve recapture during 2011.

105
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Cash and Securities
The following table summarizes the composition of the cash and securities portfolio held at fair value by Corporate and Other.
($ in millions)
September 30, 2012
December 31, 2011
Cash
Noninterest-bearing cash
$
1,139

$
1,768

Interest-bearing cash
14,688

9,781

Total cash
15,827

11,549

Trading securities
Mortgage-backed
—

589

Total trading securities
—

589

Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies
875

1,051

U.S. states and political subdivisions
—

1

Foreign government
99

106

Mortgage-backed
5,688

6,722

Asset-backed
2,403

2,520

Other debt (a)
331

305

Total debt securities
9,396

10,705

Equity securities
4

4

Total available-for-sale securities
9,400

10,709

Total cash and securities
$
25,227

$
22,847

(a)
Includes intersegment eliminations.

106
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Risk Management
Managing the risk to reward trade-off is a fundamental component of operating our businesses. Our risk management process 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, market, lease residual, operational, liquidity, country, and legal and compliance risk. For more information on our risk management process, refer to the Risk Management MD&A section of our 2011 Annual Report on Form 10-K.
Loan and Lease Exposure
The following table summarizes the exposures from our loan and lease activities.
($ in millions)
September 30, 2012
December 31, 2011
Finance receivables and loans
Global Automotive Services
$
108,200

$
100,734

Mortgage operations
10,473

12,753

Corporate and Other
2,586

1,268

Total finance receivables and loans
121,259

114,755

Held-for-sale loans
Global Automotive Services
—

425

Mortgage operations
1,927

8,112

Corporate and Other
10

20

Total held-for-sale loans
1,937

8,557

Total on-balance sheet loans
$
123,196

$
123,312

Off-balance sheet securitized loans
Global Automotive Services
$
1,659

$
—

Mortgage operations
122,892

326,975

Corporate and Other
—

—

Total off-balance sheet securitized loans
$
124,551

$
326,975

Operating lease assets
Global Automotive Services
$
12,708

$
9,275

Mortgage operations
—

—

Corporate and Other
—

—

Total operating lease assets
$
12,708

$
9,275

Serviced loans and leases
Global Automotive Services
$
130,466

$
122,881

Mortgage operations (a)
133,108

356,430

Corporate and Other
1,486

1,762

Total serviced loans and leases
$
265,060

$
481,073

(a)
Includes primary mortgage loan-servicing portfolio only.
The risks inherent in our loan and lease exposures are largely driven by changes in the overall economy, used vehicle and housing pricing, 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. Loans that we do not intend to retain are sold to investors, primarily 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.
Credit Risk Management
Credit risk is defined as the potential failure to receive payments when due from a borrower 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 Risk organization. Together they oversee aspects of 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

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 of the Board on a recurring basis.
We have policies and practices that reflect our commitment to maintain an independent and ongoing assessment of credit risk and 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. Our business is primarily focused on consumer automobile loans and leases and mortgage loans in addition to automobile-related commercial lending. 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.
During the first nine months of 2012, the U.S. economy continued to expand and the labor market recovered further, but at a slow pace. Within the U.S. automotive portfolio, encouraging trends include seasonally adjusted and annualized industry new vehicle sales above 14 million and strong used vehicles sales. Additionally, the housing market continues to show signs of a recovery with home prices increasing on a year-to-year basis and sales increasing at the fastest pace since before the recession. However, we continue to be cautious with the outlook due to weak global economic growth and pending changes in the U.S. tax policy and federal government spending set to potentially take effect in 2013.
On-balance Sheet Portfolio
Our on-balance sheet portfolio includes both finance receivables and loans and held-for-sale loans. At September 30, 2012 , this primarily included $108.2 billion of automobile finance receivables and loans and $12.4 billion of mortgage finance receivables and loans. Within our on-balance sheet portfolio, we sometimes elect to account for certain mortgage loans 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 Condensed Consolidated Statement of Comprehensive Income .
During the nine months ended September 30, 2012 , we further executed on our strategy of discontinuing and selling or liquidating nonstrategic operations. Refer to Note 2 to the Condensed Consolidated Financial Statements for additional information.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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.
Outstanding
Nonperforming (a)
Accruing past due 90 days or more (b)
($ in millions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Consumer
Finance receivables and loans
Loans at historical cost
$
80,634

$
73,452

$
784

$
567

$
3

$
4

Loans at fair value
—

835

—

210

—

—

Total finance receivables and loans
80,634

74,287

784

777

3

4

Loans held-for-sale
1,927

8,537

17

2,820

—

73

Total consumer loans
82,561

82,824

801

3,597

3

77

Commercial
Finance receivables and loans
Loans at historical cost
40,625

40,468

346

339

—

—

Loans at fair value
—

—

—

—

—

—

Total finance receivables and loans
40,625

40,468

346

339

—

—

Loans held-for-sale
10

20

—

—

—

—

Total commercial loans
40,635

40,488

346

339

—

—

Total on-balance sheet loans
$
123,196

$
123,312

$
1,147

$
3,936

$
3

$
77

(a)
Includes nonaccrual troubled debt restructured loans of $388 million and $934 million at September 30, 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 September 30, 2012 and $42 million at December 31, 2011 .
Total on-balance sheet loans outstanding at September 30, 2012 , decreased $116 million to $123.2 billion from December 31, 2011 reflecting a decrease of $263 million in the consumer portfolio and an increase of $147 million in the commercial portfolio. The decrease in total on-balance sheet loans outstanding was primarily driven by the deconsolidation of ResCap, partially offset by automobile originations which outpaced portfolio runoff. Refer to Note 1 to the Condensed Consolidated Financial Statements for additional information related to ResCap.
The total TDRs outstanding at September 30, 2012 , decreased $1.0 billion to $900 million 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 similar guidance. It is expected that all of the banking regulators will be evaluating this issue in the fourth quarter of 2012, and as a result, it is possible that we may have to classify loans that meet this criteria as TDRs, write down those assets, and show increased charge offs and provision for loan and lease losses during the fourth quarter of 2012. The potential write down to the collateral value for a portion of these assets has already been considered in our allowance for loan and lease losses recorded at September 30, 2012. The impact of any potential change is not expected to have a material adverse affect on our consolidated financial condition or results of operations.
Total nonperforming loans at September 30, 2012 , decreased $2.8 billion to $1.1 billion from December 31, 2011 , reflecting a decrease of $2.8 billion of consumer nonperforming loans and an increase of $7 million of commercial nonperforming loans. The decrease in total nonperforming loans from December 31, 2011 , was primarily due to the deconsolidation of ResCap.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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.
Three months ended September 30,
Nine months ended September 30,
Net charge-offs (recoveries)
Net charge-off ratios (a)
Net charge-offs (recoveries)
Net charge-off ratios (a)
( $ in millions )
2012
2011
2012
2011
2012
2011
2012
2011
Consumer
Finance receivables and loans at historical cost
$
127

$
122

0.6
%
0.7
%
$
351

$
395

0.6
%
0.8
%
Commercial
Finance receivables and loans at historical cost
(2
)
1

—

—

(31
)
38

(0.1
)
0.1

Total finance receivables and loans at historical cost
$
125

$
123

0.4

0.5

$
320

$
433

0.4

0.5

(a)
Net charge-off ratios are calculated as annualized 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 $125 million and $320 million for the three months and nine months ended September 30, 2012 , respectively, compared to $123 million and $433 million for the three months and nine months ended September 30, 2011 , respectively. The increase in net charge-offs for the three months ended September 30, 2012, was primarily due to higher outstandings in the consumer portfolio as the net charge-off rate remained flat. The decrease in net charge-offs for the nine months ended September 30, 2012, was largely due to recoveries in the commercial portfolio. Loans held-for-sale are accounted for at the lower-of-cost or fair value, and therefore we do not record charge-offs.
The Consumer Credit Portfolio and Commercial Credit Portfolio discussions that follow relate to consumer and commercial finance receivables and loans recorded at historical cost. Finance receivables and loans recorded at historical cost have an associated allowance for loan losses. Finance receivables and loans measured at fair value were excluded from these discussions since those exposures are not accounted for within our allowance for loan losses.
Consumer Credit Portfolio
During the three months and nine months ended September 30, 2012 , the credit performance of the consumer portfolio remained strong as our charge-off rate moderately improved. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K.
The following table includes consumer finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.
Outstanding
Nonperforming (a)
Accruing past due 90 days or more (b)
($ in millions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Domestic
Consumer automobile
$
52,434

$
46,576

$
196

$
139

$
—

$
—

Consumer mortgage
1st Mortgage
7,070

6,867

444

258

1

1

Home equity
2,717

3,102

36

58

—

—

Total domestic
62,221

56,545

676

455

1

1

Foreign
Consumer automobile
18,413

16,883

108

89

2

3

Consumer mortgage
1st Mortgage
—

24

—

23

—

—

Home equity
—

—

—

—

—

—

Total foreign
18,413

16,907

108

112

2

3

Total consumer finance receivables and loans
$
80,634

$
73,452

$
784

$
567

$
3

$
4

(a)
Includes nonaccrual troubled debt restructured loans of $341 million and $180 million at September 30, 2012 , and December 31, 2011 , respectively.
(b)
There were no troubled debt restructured loans classified as 90 days past due and still accruing at September 30, 2012 , and December 31, 2011 .
Total consumer outstanding finance receivables and loans increased $7.2 billion at September 30, 2012 compared with December 31, 2011 . This increase was driven by automobile consumer loan originations, which outpaced portfolio runoff, primarily due to increased

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 September 30, 2012 , increased $217 million to $784 million from December 31, 2011 , reflecting an increase of $141 million of consumer mortgage nonperforming finance receivables and loans and an increase of $76 million of consumer automobile nonperforming finance receivables and loans. Nonperforming consumer 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 Condensed Consolidated Financial Statements for additional information. Nonperforming consumer automotive finance receivables and loans increased due in part to higher outstandings within the domestic portfolio and economic stresses in certain areas in Latin America. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans were 1.0% and 0.8% at September 30, 2012 and December 31, 2011 , respectively.
Consumer domestic automotive loans accruing and past due 30 days or more increased $53 million to $836 million at September 30, 2012 , compared with December 31, 2011 . The increase is largely due to higher outstandings as the consumer domestic automotive loans accruing and past due 30 days or more as a percentage of total consumer domestic automotive loans decreased to 1.6% at September 30, 2012 compared to 1.7% at December 31, 2011.
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.
Three months ended September 30,
Nine months ended September 30,
Net charge-offs
Net charge-off ratios (a)
Net charge-offs
Net charge-off ratios (a)
( $ in millions )
2012
2011
2012
2011
2012
2011
2012
2011
Domestic
Consumer automobile
$
70

$
52

0.5
%
0.5
%
$
167

$
185

0.4
%
0.6
%
Consumer mortgage
1st Mortgage
18

29

1.0

1.7

65

90

1.2

1.7

Home equity
13

21

1.9

2.5

46

59

2.1

2.4

Total domestic
101

102

0.7

0.8

278

334

0.6

0.9

Foreign
Consumer automobile
26

19

0.6

0.4

73

58

0.6

0.5

Consumer mortgage
1st Mortgage
—

1

—

1.2

—

3

—

1.3

Home equity
—

—

—

—

—

—

—

—

Total foreign
26

20

0.6

0.4

73

61

0.6

0.5

Total consumer finance receivables and loans
$
127

$
122

0.6

0.7

$
351

$
395

0.6

0.8

(a)
Net charge-off ratios are calculated as annualized 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 $96 million and $240 million for the three months and nine months ended September 30, 2012, respectively, compared to $71 million and $243 million for the three months and nine months ended September 30, 2011, respectively. The $18 million increase in net charge-offs from the domestic automobile finance receivables and loans for the three months ended September 30, 2012, was driven primarily by higher outstandings as the net charge-off rate remained flat. The $7 million increase in the net charge-offs from the foreign automobile finance receivables and loans for the three months ended September 30, 2012, was primarily due to economic stresses in certain areas of Latin America. The $3 million decrease in net charge offs from the total consumer automobile finance receivables and loans for the nine months ended September 30, 2012, was primarily due to lower loss frequency reflecting the modest U.S. economic improvements.
Our net charge-offs from total consumer mortgage receivables and loans were $31 million and $111 million for the three months and nine months ended September 30, 2012 , respectively, compared to $51 million and $152 million for the same periods in 2011 . The decreases were driven by the improved mix of remaining loans as the lower quality legacy loans continued to runoff.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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.
Three months ended September 30,
Nine months ended September 30,
( $ in millions )
2012
2011
2012
2011
Domestic
Consumer automobile
$
6,994

$
8,344

$
23,591

$
25,112

Consumer mortgage
1st Mortgage
8,161

15,587

22,700

39,778

Home equity
—

—

—

—

Total domestic
15,155

23,931

46,291

64,890

Foreign
Consumer automobile
2,378

2,866

7,690

7,288

Consumer mortgage
1st Mortgage
—

374

—

970

Home equity
—

—

—

—

Total foreign
2,378

3,240

7,690

8,258

Total consumer loan originations
$
17,533

$
27,171

$
53,981

$
73,148

Total automobile-originated loans decreased $1.8 billion and $1.1 billion for the three months and nine months ended September 30, 2012 , respectively, compared to the same periods in 2011 . The decrease was primarily due to lower retail penetration at both GM and Chrysler. The decrease was partially offset by higher GM International retail penetration during the nine months ended September 30, 2012.
Total mortgage-originated loans decreased $7.8 billion and $18.0 billion for the three months and nine months ended September 30, 2012 , respectively. 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 $9.9 billion and $32.9 billion for the three months and nine months ended September 30, 2012 , respectively, and $11.7 billion and $33.5 billion for the three months and nine months ended September 30, 2011 , respectively. The decrease was primarily due to lower retail penetration at both GM and Chrysler. The decrease was partially offset by higher GM International retail penetration during the nine months ended September 30, 2012.
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 $70.8 billion and $63.5 billion at September 30, 2012 , and December 31, 2011 , respectively. Total mortgage and home equity loans were $9.8 billion and $10.0 billion at September 30, 2012 , and December 31, 2011 , respectively.

112
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

September 30, 2012 (a)
December 31, 2011
Automobile
1st Mortgage and home equity
Automobile
1st Mortgage and home equity
Texas
9.6
%
5.8
%
9.5
%
5.5
%
California
4.1

28.2

4.6

25.7

Florida
4.9

3.7

4.8

4.0

Michigan
3.7

4.2

4.0

4.8

Pennsylvania
3.8

1.6

3.6

1.6

Illinois
3.2

4.9

3.1

5.0

New York
3.5

2.0

3.5

2.3

Ohio
3.0

0.8

2.9

1.0

Georgia
2.7

1.9

2.5

1.8

North Carolina
2.4

2.0

2.2

2.1

Other United States
33.1

44.9

32.9

45.9

Canada
11.5

—

11.8

0.2

Brazil
4.5

—

4.7

—

Germany
3.9

—

4.3

—

Other foreign
6.1

—

5.6

0.1

Total consumer loans
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 September 30, 2012 .
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 16.2% and 16.4% of our total outstanding consumer finance receivables and loans at September 30, 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 Condensed 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 in our 2011 Annual Report on Form 10-K.
Repossessed assets in our Automotive Finance operations at September 30, 2012 , increased $8 million to $64 million from December 31, 2011 . Foreclosed mortgage assets at September 30, 2012 , decreased $72 million to $5 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 teaser-rate 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.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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.
Outstanding
Nonperforming
Accruing past due
90 days or more
($ in millions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Interest-only mortgage loans (a)
$
2,262

$
2,947

$
142

$
147

$
—

$
—

Below-market rate (teaser) mortgages
197

248

3

6

—

—

Total higher-risk mortgage loans
$
2,459

$
3,195

$
145

$
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 September 30, 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 September 30, 2012 and December 31, 2011 .
The allowance for loan losses was $108 million or 4.39% of total higher-risk held-for-investment mortgage loans recorded at historical cost based on carrying value outstanding before allowance for loans losses at September 30, 2012 .
The following table includes our five largest state concentrations based on our higher-risk mortgage finance receivables and loans recorded at historical cost and reported at carrying value before allowance for loan losses.
($ in millions)
Interest-only
mortgage loans
Below-market
rate (teaser)
mortgages
Total
higher-risk
mortgage loans
September 30, 2012
California
$
552

$
61

$
613

Virginia
229

9

238

Maryland
177

5

182

Michigan
121

6

127

Illinois
118

6

124

Other United States
1,065

110

1,175

Total higher-risk mortgage loans
$
2,262

$
197

$
2,459

December 31, 2011
California
$
748

$
78

$
826

Virginia
274

10

284

Maryland
217

6

223

Michigan
199

9

208

Illinois
153

8

161

Other United States
1,356

137

1,493

Total higher-risk mortgage loans
$
2,947

$
248

$
3,195


114
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Commercial Credit Portfolio
During the three months and nine months ended September 30, 2012 , the credit performance of the commercial portfolio remained strong as nonperforming finance receivables and loans were relatively stable 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 in our 2011 Annual Report on Form 10-K.
The following table includes total commercial finance receivables and loans reported at carrying value before allowance for loan losses.
Outstanding
Nonperforming (a)
Accruing past due
90 days or more (b)
($ in millions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Domestic
Commercial and industrial
Automobile
$
27,523

$
26,552

$
198

$
105

$
—

$
—

Mortgage
686

1,887

—

—

—

—

Other (c)
2,552

1,178

36

22

—

—

Commercial real estate
Automobile
2,446

2,331

41

56

—

—

Mortgage
—

—

—

—

—

—

Total domestic
33,207

31,948

275

183

—

—

Foreign
Commercial and industrial
Automobile
7,279

8,265

59

118

—

—

Mortgage
—

24

—

—

—

—

Other (c)
6

63

—

15

—

—

Commercial real estate
Automobile
133

154

12

11

—

—

Mortgage
—

14

—

12

—

—

Total foreign
7,418

8,520

71

156

—

—

Total commercial finance receivables and loans
$
40,625

$
40,468

$
346

$
339

$
—

$
—

(a)
Includes nonaccrual troubled debt restructured loans of $38 million and $21 million at September 30, 2012 , and December 31, 2011 , respectively.
(b)
There were no troubled debt restructured loans classified as 90 days past due and still accruing at September 30, 2012 and December 31, 2011 .
(c)
Other commercial primarily includes senior secured commercial lending.
Total commercial finance receivables and loans outstanding increased $157 million to $40.6 billion at September 30, 2012 , from December 31, 2011 . The domestic commercial and industrial outstandings increased $1.1 billion primarily due to ResCap financing as well as increased automotive industry sales and corresponding rise in inventories, partially offset by the decline in mortgage warehouse lending's runoff portfolio. The foreign commercial and industrial outstandings decreased $1.1 billion primarily due to weakened economic growth in Europe.
Total commercial nonperforming finance receivables and loans were $346 million at September 30, 2012 , an increase of $7 million compared to December 31, 2011 . The increase was primarily due to the reclassification of a small number of domestic automobile dealerships to nonperforming status within the overall stable automobile portfolio. The increase was mostly offset by a decrease in the foreign automobile portfolio and continued wind-down on non-core commercial assets. Total nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans were 0.9% and 0.8% at September 30, 2012 , and December 31, 2011 , respectively.


115
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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.
Three months ended September 30,
Nine months ended September 30,
Net charge-offs (recoveries)
Net charge-off ratios (a)
Net charge-offs (recoveries)
Net charge-off ratios (a)
( $ in millions )
2012
2011
2012
2011
2012
2011
2012
2011
Domestic
Commercial and industrial
Automobile
$
2

$
2

—
%
—
%
$
2

$
7

—
%
—
%
Mortgage
(1
)
(3
)
(0.2
)
(0.8
)
(1
)
(1
)
(0.1
)
(0.2
)
Other
1

2

0.1

0.4

(3
)
(1
)
(0.2
)
(0.1
)
Commercial real estate
Automobile
—

1

—

0.2

(2
)
4

(0.1
)
0.2

Mortgage
—

—

—

—

—

(1
)
—

n/m

Total domestic
2

2

—

—

(4
)
8

—

—

Foreign
Commercial and industrial
Automobile
—

(3
)
—

(0.2
)
1

—

—

—

Mortgage
—

—

—

—

—

8

—

30.7

Other
(4
)
(2
)
(62.2
)
(2.7
)
(27
)
2

(85.2
)
1.1

Commercial real estate
Automobile
—

—

—

—

—

—

—

—

Mortgage
—

4

—

46.8

(1
)
20

(10.8
)
52.0

Total foreign
(4
)
(1
)
(0.2
)
—

(27
)
30

(0.4
)
0.4

Total commercial finance receivables and loans
$
(2
)
$
1

—

—

$
(31
)
$
38

(0.1
)
0.1

n/m = not meaningful
(a)
Net charge-off ratios are calculated as annualized 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 $2 million and $31 million for the three months and nine months ended September 30, 2012 , respectively, compared to net charge-offs of $1 million and $38 million for the same periods in 2011 . The decrease in net charge-offs in the nine months period was largely driven by strong recoveries in certain wind-down portfolios and an improved mix of loans in the existing portfolio.

116
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 September 30, 2012 , and December 31, 2011 , respectively.
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.
September 30, 2012
December 31, 2011
Geographic region
Michigan
12.9
%
14.1
%
Texas
12.1

12.4

Florida
11.8

12.4

California
9.1

9.3

New York
4.9

3.5

Virginia
3.9

4.1

Georgia
2.8

2.5

Pennsylvania
2.6

2.9

North Carolina
2.4

2.1

Alabama
2.2

2.6

Other United States
30.1

27.5

Canada
2.7

3.5

United Kingdom
1.6

1.8

Mexico
0.6

1.0

Other foreign
0.3

0.3

Total commercial real estate finance receivables and loans
100.0
%
100.0
%
Property type
Automotive dealers
100.0
%
99.4
%
Other
—

0.6

Total commercial real estate finance receivables and loans
100.0
%
100.0
%
Commercial Criticized Exposure
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.
September 30, 2012
December 31, 2011
Industry
Automotive
90.4
%
82.9
%
Manufacturing
4.9

1.8

Services
1.1

1.9

Other
3.6

13.4

Total commercial criticized finance receivables and loans
100.0
%
100.0
%
Total criticized exposures declined $641 million to $2.4 billion at September 30, 2012 from December 31, 2011 , primarily due to improvements in the automotive industry as well as the continued wind-down of commercial assets in the real estate industry. The increase in our automotive criticized concentration rate was driven primarily by the decrease in overall criticized outstandings.

117
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
Three months ended September 30, 2012 ( $ in millions )
Consumer
automobile
Consumer
mortgage
Total
consumer
Commercial
Total
Allowance at July 1, 2012
$
778

$
472

$
1,250

$
177

$
1,427

Charge-offs
Domestic
(111
)
(33
)
(144
)
(3
)
(147
)
Foreign
(47
)
—

(47
)
—

(47
)
Total charge-offs
(158
)
(33
)
(191
)
(3
)
(194
)
Recoveries
Domestic
41

2

43

1

44

Foreign
21

—

21

4

25

Total recoveries
62

2

64

5

69

Net charge-offs
(96
)
(31
)
(127
)
2

(125
)
Provision for loan losses
117

6

123

(7
)
116

Deconsolidation of ResCap
—

—

—

—

—

Other
4

—

4

1

5

Allowance at September 30, 2012
$
803

$
447

$
1,250

$
173

$
1,423

Allowance for loan losses to finance receivables and loans outstanding at September 30, 2012 (a)
1.1
%
4.6
%
1.5
%
0.4
%
1.2
%
Net charge-offs to average finance receivables and loans outstanding at September 30, 2012 (a)
0.6
%
1.3
%
0.6
%
—
%
0.4
%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2012 (a)
263.8
%
93.2
%
159.4
%
50.0
%
125.9
%
Ratio of allowance for loans losses to net charge-offs at September 30, 2012
2.1

3.6

2.5

(17.4
)
2.9

(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.

118
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Three months ended September 30, 2011 ( $ in millions )
Consumer
automobile
Consumer
mortgage
Total
consumer
Commercial
Total
Allowance at July 1, 2011
$
911

$
558

$
1,469

$
270

$
1,739

Charge-offs
Domestic
(97
)
(54
)
(151
)
(6
)
(157
)
Foreign
(37
)
(2
)
(39
)
(7
)
(46
)
Total charge-offs
(134
)
(56
)
(190
)
(13
)
(203
)
Recoveries
Domestic
45

4

49

4

53

Foreign
18

1

19

8

27

Total recoveries
63

5

68

12

80

Net charge-offs
(71
)
(51
)
(122
)
(1
)
(123
)
Provision for loan losses
53

26

79

(29
)
50

Discontinued operations
—

(1
)
(1
)
—

(1
)
Other
(42
)
—

(42
)
(2
)
(44
)
Allowance at September 30, 2011
$
851

$
532

$
1,383

$
238

$
1,621

Allowance for loan losses to finance receivables and loans outstanding at September 30, 2011 (a)
1.4
%
5.2
%
2.0
%
0.6
%
1.5
%
Net charge-offs to average finance receivables and loans outstanding at September 30, 2011 (a)
0.5
%
2.0
%
0.7
%
—
%
0.5
%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2011 (a)
404.5
%
145.7
%
240.3
%
59.2
%
165.8
%
Ratio of allowance for loans losses to net charge-offs at September 30, 2011
3.0

2.6

2.8

58.0

3.3

(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.

119
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Nine months ended September 30, 2012 ( $ 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
(296
)
(119
)
(415
)
(6
)
(421
)
Foreign
(128
)
—

(128
)
(2
)
(130
)
Total charge-offs
(424
)
(119
)
(543
)
(8
)
(551
)
Recoveries
Domestic
129

8

137

10

147

Foreign
55

—

55

29

84

Total recoveries
184

8

192

39

231

Net charge-offs
(240
)
(111
)
(351
)
31

(320
)
Provision for loan losses
295

54

349

(64
)
285

Deconsolidation of ResCap
—

(9
)
(9
)
—

(9
)
Other
(18
)
(3
)
(21
)
(15
)
(36
)
Allowance at September 30, 2012
$
803

$
447

$
1,250

$
173

$
1,423

Allowance for loan losses to finance receivables and loans outstanding at September 30, 2012 (a)
1.1
%
4.6
%
1.5
%
0.4
%
1.2
%
Net charge-offs to average finance receivables and loans outstanding at September 30, 2012 (a)
0.5
%
1.5
%
0.6
%
(0.1
)%
0.4
%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2012 (a)
263.8
%
93.2
%
159.4
%
50.0
%
125.9
%
Ratio of allowance for loans losses to net charge-offs at September 30, 2012
2.5

3.0

2.7

(4.2
)
3.3

(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.

120
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Nine months ended September 30, 2011 ( $ 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
(331
)
(162
)
(493
)
(24
)
(517
)
Foreign
(112
)
(4
)
(116
)
(55
)
(171
)
Total charge-offs
(443
)
(166
)
(609
)
(79
)
(688
)
Recoveries
Domestic
146

13

159

16

175

Foreign
54

1

55

25

80

Total recoveries
200

14

214

41

255

Net charge-offs
(243
)
(152
)
(395
)
(38
)
(433
)
Provision for loan losses
157

104

261

(48
)
213

Discontinued operations
—

—

—

—

—

Other
(33
)
—

(33
)
1

(32
)
Allowance at September 30, 2011
$
851

$
532

$
1,383

$
238

$
1,621

Allowance for loan losses to finance receivables and loans outstanding at September 30, 2011 (a)
1.4
%
5.2
%
2.0
%
0.6
%
1.5
%
Net charge-offs to average finance receivables and loans outstanding at September 30, 2011 (a)
0.6
%
1.9
%
0.8
%
0.1
%
0.5
%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2011 (a)
404.5
%
145.7
%
240.3
%
59.2
%
165.8
%
Ratio of allowance for loans losses to net charge-offs at September 30, 2011
2.6

2.6

2.6

4.7

2.8

(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 at September 30, 2012 , declined $133 million compared to September 30, 2011 . The decline continues to reflect the favorable dynamics of the auto marketplace combined with the run-off of legacy portfolios, which was partially offset by an increase in loans outstanding.
The allowance for commercial loan losses declined $65 million at September 30, 2012 , compared to September 30, 2011 , primarily related to the ongoing strength in dealer performance, wind-down on non-core commercial assets, and general overall improvement in the Commercial Finance Group's portfolio.

121
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
2012
2011
September 30, ( $ in millions )
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
Consumer
Domestic
Consumer automobile
$
618

1.2
%
43.4
%
$
687

1.6
%
42.4
%
Consumer mortgage
1st Mortgage
243

3.4

17.1

275

4.0

17.0

Home equity
204

7.5

14.3

256

8.0

15.8

Total domestic
1,065

1.7

74.8

1,218

2.3

75.2

Foreign
Consumer automobile
185

1.0

13.0

164

1.0

10.1

Consumer mortgage
1st Mortgage
—

—

—

1

0.4

0.1

Home equity
—

—

—

—

—

—

Total foreign
185

1.0

13.0

165

1.0

10.2

Total consumer loans
1,250

1.5

87.8

1,383

2.0

85.4

Commercial
Domestic
Commercial and industrial
Automobile
108

0.4

7.6

54

0.2

3.3

Mortgage
—

—

—

1

—

—

Other
45

1.8

3.1

66

5.1

4.1

Commercial real estate
Automobile
(12
)
(0.5
)
(0.8
)
53

2.5

3.3

Mortgage
—

—

—

—

—

—

Total domestic
141

0.4

9.9

174

0.6

10.7

Foreign
Commercial and industrial
Automobile
31

0.4

2.2

51

0.6

3.1

Mortgage
—

—

—

5

22.6

0.3

Other
—

—

—

1

0.4

0.1

Commercial real estate
Automobile
1

1.0

0.1

2

1.1

0.1

Mortgage
—

—

—

5

17.3

0.3

Total foreign
32

0.4

2.3

64

0.7

3.9

Total commercial loans
173

0.4

12.2

238

0.6

14.6

Total allowance for loan losses
$
1,423

1.2

100.0
%
$
1,621

1.5

100.0
%

122
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
Three months ended September 30,
Nine months ended September 30,
($ in millions)
2012
2011
2012
2011
Consumer
Domestic
Consumer automobile
$
99

$
39

$
200

$
125

Consumer mortgage
1st Mortgage
9

10

34

44

Home equity
(3
)
15

20

57

Total domestic
105

64

254

226

Foreign
Consumer automobile
18

14

95

32

Consumer mortgage
1st Mortgage
—

1

—

3

Home equity
—

—

—

—

Total foreign
18

15

95

35

Total consumer loans
123

79

349

261

Commercial
Domestic
Commercial and industrial
Automobile
51

(21
)
47

(10
)
Mortgage
(1
)
(2
)
(1
)
(1
)
Other
(1
)
(1
)
(11
)
(32
)
Commercial real estate
Automobile
(50
)
10

(53
)
3

Mortgage
—

(1
)
—

(1
)
Total domestic
(1
)
(15
)
(18
)
(41
)
Foreign
Commercial and industrial
Automobile
(1
)
(19
)
(16
)
18

Mortgage
—

—

—

(1
)
Other
(4
)
(3
)
(29
)
(38
)
Commercial real estate
Automobile
(1
)
—

(1
)
—

Mortgage
—

8

—

14

Total foreign
(6
)
(14
)
(46
)
(7
)
Total commercial loans
(7
)
(29
)
(64
)
(48
)
Total provision for loan losses
$
116

$
50

$
285

$
213


123
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 and assets held-for-sale. We are primarily 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 fluctuations. Refer to Note 20 to the Condensed 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.
Refer to our Annual Report on Form 10-K for the year ended December 31, 2011 , Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for further discussion on value at risk and sensitivity analysis. Since December 31, 2011 , there have been no material changes in these market risks.

124
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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, whole-loan asset sales, 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. We manage liquidity risk at the business segment, legal entity, and consolidated levels. Each business segment, along with Ally Bank and ResMor Trust, 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 that 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 September 30, 2012 , we maintained $26 billion of total available parent company liquidity and $15.8 billion of total available liquidity at Ally Bank. Parent company liquidity is defined as our consolidated operations less our Insurance operations and Ally Bank. To optimize cash and secured facility capacity between entities, the parent company lends cash to Ally Bank from time to time under an intercompany loan agreement. At September 30, 2012 , $3.4 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. The Basel Committee on Banking Supervision expects the LCR to be implemented beginning in January 2015 and the NSFR beginning in 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, whole-loan asset sales, domestic and international 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 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.
The FDIC indicated that it expected us to 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,

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we have been focused on diversifying our funding sources, in particular at Ally Bank by growing retail deposits, expanding public and private securitization programs, extending the maturity profile of our brokered deposit portfolio while not exceeding a $10 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 loan operations with a stable and low-cost funding source. At September 30, 2012 , Ally Bank had $44.5 billion of total external deposits, including $32.1 billion of retail deposits.
At September 30, 2012 , Ally Bank maintained cash liquidity of $7.1 billion and unencumbered highly liquid U.S. federal government and U.S. agency securities of $5.4 billion. In addition, at September 30, 2012 , Ally Bank had unused capacity in committed secured funding facilities of $6.7 billion, including an equal allocation of shared unused capacity of $4 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.
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. In the first nine months of 2012 , the deposit base at Ally Bank grew $4.9 billion , ending the quarter at $44.5 billion from $39.6 billion at December 31, 2011 . The growth in deposits has been primarily attributable to our retail deposit portfolio. Strong retention rates continue to materially contribute to our growth in retail deposits. In the third quarter of 2012 , we retained 91% 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 September 30, 2012 , debt outstanding from the FHLB totaled $4.3 billion with no debt outstanding from the Federal Reserve. Also, as part of our liquidity and funding plans, Ally Bank utilizes certain securities as collateral to access funding from repurchase agreements with third parties. Repurchase agreements are generally short-term. Funding from repurchase agreements is accounted for as debt on our Condensed Consolidated Balance Sheet . At September 30, 2012 , Ally Bank had no debt outstanding under repurchase agreements.
Refer to Note 13 to the Condensed Consolidated Financial Statements for a summary of deposit funding by type.
The following table shows Ally Bank's number of accounts and deposit balances by type as of the end of each quarter since 2011.
($ in millions)
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
1,142,837

1,082,753

1,036,468

976,877

919,670

851,991

798,622

Deposits
Retail
$
32,139

$
30,403

$
29,323

$
27,685

$
26,254

$
24,562

$
23,469

Brokered
9,882

9,905

9,884

9,890

9,911

9,903

9,836

Other (a)
2,487

2,411

2,314

2,029

2,704

2,405

2,064

Total deposits
$
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 the third quarter of 2012 , Ally Bank completed four term securitization transactions backed by retail and dealer floorplan automotive loans and lease notes raising $3.4 billion. As part of the quarterly securitizations, Ally Bank successfully completed its first public lease transaction which raised $1.3 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 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 September 30, 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.

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Nonbank Funding
At September 30, 2012 , the parent company maintained liquid cash in the amount of $8.8 billion and available liquidity from unused capacity in committed credit facilities of $13.8 billion, including an equal allocation of shared unused capacity of $4 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. The unused capacity amount at September 30, 2012 also includes $3.1 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. 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.
In the third quarter of 2012 , we completed one transaction totaling $600 million in funding through the 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 the third quarter of 2012, we launched a new retail term note program know as Ally Term Notes. There were $8.2 billion and $9.0 billion of combined retail term notes outstanding at September 30, 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 September 30, 2012 , compared to $2.8 billion at December 31, 2011 . Unsecured short-term bank loans also provide short-term funding. At September 30, 2012 , we had $4.0 billion in short-term unsecured debt outstanding, a decrease of $0.6 billion from December 31, 2011 . Refer to Note 14 and Note 15 to the Condensed 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. In the third quarter, the parent company completed automotive-related transactions that included the renewal and extension of $5.6 billion of committed secured funding capacity, the creation of incremental private secured funding capacity totaling $1.1 billion, and a $469 million public term securitization in Europe. 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 U.S. and Canadian automotive retail and commercial loans, as well as leases. On March 19, 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 September 30, 2012 , the parent company had $30.4 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 the Ally Bank.
Recent Funding Developments
During the first nine months of 2012 , we completed funding transactions totaling nearly $23 billion and we renewed key existing funding facilities as we realized access to both the public and private markets. Key funding highlights from 2012 were as follows:
•
We accessed the unsecured debt capital markets in February, June, and August and raised $3.1 billion.
•
In the first nine months of 2012, we have continued to access the public asset-backed securitization markets completing nine U.S. transactions that raised $9.5 billion. Included with 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 $1.1 billion and $516 million, respectively.
•
We created $5.5 billion of new private capacity to fund automotive assets.
•
We renewed and extended $22 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. After the refinancing, half of the capacity matures in March 2013 and the other half matures in March 2014.
On October 30, 2012, we repaid $2.9 billion in debt issued under the FDIC's Temporary Liquidity Guarantee Program. We issued this debt on October 30, 2009 with a maturity date of October 30, 2012. The final Ally debt issuance guaranteed under the TLGP is scheduled to be repaid in December 2012 and totals $4.5 billion.


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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.
($ in millions)
Bank
Nonbank
Total
%
September 30, 2012
Secured financings
$
27,882

$
24,643

$
52,525

36
Institutional term debt
—

22,075

22,075

15
Retail debt programs (a)
—

13,735

13,735

10
Temporary Liquidity Guarantee Program (b)
—

7,400

7,400

5
Bank loans and other
1

2,067

2,068

1
Total debt (c)
27,883

69,920

97,803

67
Deposits (d)
44,508

5,364

49,872

33
Total on-balance sheet funding
$
72,391

$
75,284

$
147,675

100
December 31, 2011
Secured financings
$
25,533

$
27,432

$
52,965

37
Institutional term debt
—

22,456

22,456

15
Retail debt programs (a)
—

14,148

14,148

10
Temporary Liquidity Guarantee Program (b)
—

7,400

7,400

5
Bank loans and other
1

2,446

2,447

2
Total debt (c)
25,534

73,882

99,416

69
Deposits (d)
39,604

5,446

45,050

31
Total on-balance sheet funding
$
65,138

$
79,328

$
144,466

100
Off-balance sheet securitizations
Mortgage loans
$
—

$
60,630

$
60,630

Total off-balance sheet securitizations
$
—

$
60,630

$
60,630

(a)
Primarily includes $8.2 billion and $9.0 billion of Retail Term Notes at September 30, 2012 and December 31, 2011 , respectively.
(b)
This will mature in the fourth quarter of 2012.
(c)
Excludes fair value adjustment as described in Note 15 to the Condensed Consolidated Financial Statements.
(d)
Bank deposits include retail, brokered, mortgage escrow, and other deposits. Nonbank deposits include dealer wholesale deposits and deposits at ResMor Trust. Intercompany deposits are not included.
Refer to Note 15 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at September 30, 2012 . We have significant maturities of debt each year. Additional funding will be required to fund a material portion of the debt maturities over these periods.
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 Condensed 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 do not allow for any further funding after the closing date. At September 30, 2012 , $33.6 billion of our $43.2 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of September 30, 2012 , we had $13.3 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.

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Committed Funding Facilities
Outstanding
Unused capacity (a)
Total capacity
($ in billions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Bank funding
Secured - U.S.
$
3.8

$
5.8

$
4.7

$
3.7

$
8.5

$
9.5

Nonbank funding
Unsecured
Automotive Finance operations — U.S.
—

—

—

0.5

—

0.5

Automotive — International
0.1

0.3

0.1

—

0.2

0.3

Secured
Automotive — U.S. (b) (c)
8.5

4.2

8.9

10.2

17.4

14.4

Automotive — International (b)
10.2

10.1

2.8

3.0

13.0

13.1

Mortgage operations
—

0.7

—

0.5

—

1.2

Total nonbank funding
18.8

15.3

11.8

14.2

30.6

29.5

Shared capacity (d)
U.S.
—

1.5

4.0

2.5

4.0

4.0

International
0.1

0.1

—

—

0.1

0.1

Total committed facilities
$
22.7

$
22.7

$
20.5

$
20.4

$
43.2

$
43.1

(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 $3.1 billion as of September 30, 2012 , and $4.9 billion as of December 31, 2011 , from certain committed funding arrangements that are generally reliant upon the origination of future automotive receivables and that are available in 2012 and 2013.
(c)
Includes the secured facilities of Ally Commercial Finance, LLC.
(d)
Funding is generally available for assets originated by Ally Bank or the parent company, Ally Financial Inc.
Uncommitted Funding Facilities
Outstanding
Unused capacity
Total capacity
($ in billions)
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
September 30, 2012
December 31, 2011
Bank funding
Secured — U.S.
Federal Reserve funding programs
$
—

$
—

$
2.0

$
3.2

$
2.0

$
3.2

FHLB advances
4.3

5.4

0.8

—

5.1

5.4

Total bank funding
4.3

5.4


2.8


3.2


7.1


8.6

Nonbank funding
Unsecured
Automotive Finance operations — International
1.7

1.9

0.8

0.5

2.5

2.4

Secured
Automotive Finance operations — International
0.1

0.1

0.1

0.1

0.2

0.2

Mortgage operations
—

—

—

0.1

—

0.1

Total nonbank funding
1.8

2.0

0.9

0.7

2.7

2.7

Total uncommitted facilities
$
6.1

$
7.4

$
3.7

$
3.9

$
9.8

$
11.3

Ally Bank Funding Facilities
Facilities for Automotive Finance Operations — Secured
At September 30, 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 September 30, 2012 , the amount outstanding

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Ally Financial Inc. • Form 10-Q

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, which was renewed and increased at the end of September 2012. In the event these facilities are not renewed in the future, the outstanding debt will be repaid over time as the underlying collateral amortizes.
Nonbank Funding Facilities
Facilities for Automotive Finance Operations — Unsecured
Revolving credit facilities —  We maintain $155 million in 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 U.S. and Canadian 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 September 30, 2012 , there was $3.8 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 September 30, 2012 , the parent company maintained exclusive access to $30.4 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 which was increased and renewed at the end of September 2012.
Cash Flows
Net cash provided by operating activities was $4.8 billion for the nine months ended September 30, 2012 , compared to $5.8 billion for the same period in 2011. During the nine months ended September 30, 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 $1.6 billion . During the nine months ended September 30, 2011 , this activity resulted in a net cash inflow of $2.0 billion .
Net cash used in investing activities was $7.7 billion for the nine months ended September 30, 2012 , compared to $6.8 billion for the same period in 2011 . The net cash outflow from finance receivables and loans decreased $2.2 billion for the nine months ended September 30, 2012 , compared to the same period in 2011. The cash outflow to purchase operating lease assets exceeded cash inflows from disposals of such assets by $4.3 billion for the nine months ended September 30, 2012 , compared to a net cash outflow of $0.5 billion for the nine months ended September 30, 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 and maturities of available-for-sale investment securities, net of purchases, increased $1.3 billion during the nine months ended September 30, 2012 , compared to the same period in 2011.
Net cash provided by financing activities for the nine months ended September 30, 2012 , totaled $7.0 billion , compared to $5.9 billion in the same period in 2011 . Cash used to repay short-term debt increased $0.4 billion in the nine months ended September 30, 2012 , compared to the same period in 2011. Cash generated from long-term debt issuances exceeded cash used to repay such debt by $4.6 billion for the nine months ended September 30, 2012 , compared to $2.3 billion for the same period in 2011.
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 expect to submit our next official annual capital plan in January 2013.
Regulatory Capital
Refer to Note 19 to the Condensed Consolidated Financial Statements .

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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).
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
B
BB-
Rating Watch Negative
April 18, 2012 (a)
Moody’s
Not-Prime
B1
Stable
February 7, 2011 (b)
S&P
C
B+
Positive
May 17, 2012 (c)
DBRS
R-4
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 upgraded our senior debt rating to B1 from B3, affirmed the short-term rating of Not-Prime, and affirmed the outlook of Stable on February 7, 2011.
(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.
Off-balance Sheet Arrangements
Refer to Note 10 to the Condensed Consolidated Financial Statements .
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 Notes 1 and 25 to the Condensed 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 (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors and their direct and indirect subsidiaries) (collectively, AFI) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan).
The contemplated Plan, a draft of which has been submitted to the Bankruptcy Court, is subject to negotiation with certain of the Debtors’ creditors (as directed by the Bankruptcy Court) and Bankruptcy Court approval. It is based on a settlement (the Settlement) that provides for the release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of action against AFI held by third parties . A significant portion of our representation and warranty reserve was eliminated. Related to the deconsolidation of ResCap, Ally Bank was allocated a representation and warranty reserve, which was $127 million at September 30, 2012 with respect to Ally Bank's sold and serviced loans. No other representation and warranty exposure would exist if the Bankruptcy Court were to approve the Plan and the Settlement and they became effective.
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
Since 2009, we have focused primarily on originating domestic prime conforming and government-insured mortgages. 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

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Ally Financial Inc. • Form 10-Q

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 sold by Ally Bank. The following table presents domestic mortgage loans sold categorized by GSE (original unpaid principal balance).
Nine months ended September 30,
Year ended December 31,
($ in billions)
2012
2011
2010
2009
2008
2007
Fannie Mae
$
15.1

$
33.8

$
35.2

$
21.1

$
17.7

$
6.7

Freddie Mac
4.8

15.8

15.7

8.5

8.6

2.3

Total sales (a)
$
19.9

$
49.6

$
50.9

$
29.6

$
26.3

$
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 Condensed Consolidated Balance Sheet and recorded as a component of gain (loss) on mortgage and automotive loans, net, in our Condensed 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 Condensed Consolidated Statement of Comprehensive Income . The repurchase reserve at September 30, 2012 , relates exclusively to GSE exposure.
Ally Bank experienced an increase in new claims for the three months and nine months ended September 30, 2012 compared to the same periods in 2011 . The increase in repurchase claims from Fannie Mae was primarily for loans originated in 2007 and 2008 prior to enhanced underwriting standards. A material portion of new claim activity continues to be driven by claims associated with missing documents, which have historically had high rescission rates. The following tables present Ally Bank's new claims by GSEs (original unpaid principal balance).
Three months ended September 30, ( $ in millions )
2012
2011
Fannie Mae
$
91

$
61

Freddie Mac
22

36

Total claims
$
113

$
97


Nine months ended September 30, ( $ in millions )
2012
2011
Fannie Mae
$
221

$
160

Freddie Mac
86

145

Total claims
$
307

$
305

The following table presents the total number and original unpaid principal balance 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 $39 million or 40% of outstanding claims at September 30, 2012 , compared to $11 million or 24% of outstanding claims at December 31, 2011.
September 30, 2012
December 31, 2011
( $ in millions )
Number of Loans
Original UPB of Loans
Number of Loans
Original UPB of Loans
Fannie Mae
364
$
81

72
$
15

Freddie Mac
74
17

138
31

Total number of loans and unpaid principal balance
438
$
98

210
$
46


132
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Repurchase Process
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 the 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).
Three months ended September 30,
Nine months ended September 30,
( $ in millions )
2012
2011
2012
2011
Pre 2008
$
25

$
10

$
59

$
33

2008
55

44

154

115

Post 2008
33

43

94

157

Total claims
$
113

$
97

$
307

$
305

Private Mortgage Insurance
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 September 30, 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.

133
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Critical Accounting Estimates
We identified critical accounting estimates that, as a result of judgments, uncertainties, uniqueness, and complexities of the underlying accounting standards and operations involved could result in material changes to our financial condition, results of operations, or cash flows under different conditions or using different assumptions.
Our most critical accounting estimates are as follows.
•
Fair value measurements
•
Allowance for loan losses
•
Valuation of automobile lease assets and residuals
•
Valuation of mortgage servicing rights
•
Goodwill
•
Determination of reserves for insurance losses and loss adjustment expenses
•
Legal and regulatory reserves
•
Loan repurchase and obligations related to loan sales
•
Determination of provision for income taxes
Based on events that occurred during the third quarter, we made the following update to our determination of provision for income taxes critical accounting estimates disclosed in our 2011 Annual Report on Form 10-K.
•
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 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 tax 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. These assumptions require significant judgment about the forecasts of future taxable income 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). Our cumulative pretax losses in the three-year period ending with the current quarter are significant objectively verifiable negative evidence regarding future profitability. Consistent with the accounting guidance, we give significant weight to cumulative losses in recent years in our evaluation of the need for a full valuation allowance.

The weight of the negative evidence stemming from U.S. cumulative losses in recent years continues to decrease as losses incurred during 2009 become more distant, and our more recent profitability in the United States continues. Furthermore, based on current projections, we expect to be in a cumulative profit position in the United States for the three year-period ending December 31, 2012. This would represent a significant change in available evidence in the United States as compared to September 30, 2012. As a result, it is likely that we will reverse approximately $1.1 billion to $1.4 billion of our U.S. valuation allowance in the fourth quarter of 2012, which would favorably affect net income and equity in that period. The portion of the U.S. valuation allowance that likely will be retained relates primarily to deferred tax assets associated with capital loss and foreign tax credit carry forwards.
During the first quarter as part of our assessment of critical accounting estimates, we concluded that in accordance with Accounting Standards Codification 740, Income Taxes , there was a change in the methodologies and processes used in developing the provision for income taxes from what was described in our 2011 Annual Report on Form 10-K. Refer to Note 1 to the Condensed Consolidated Financial Statements for further discussion regarding the methodology and process used in the determination of provision for income taxes. There have been no other significant changes in the methodologies and processes used in developing these estimates from what was described in our 2011 Annual Report on Form 10-K.
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 22 to the Condensed Consolidated Financial Statements for description of valuation methodologies used to measure material assets and

134
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

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 22 to the Condensed 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.
($ in millions)
September 30, 2012
December 31, 2011
Assets at fair value
$
21,680

$
30,172

As a percentage of total assets
12
%
16
%
Liabilities at fair value
$
4,711

$
6,299

As a percentage of total liabilities
3
%
4
%
Assets at fair value using Level 3 inputs
$
1,487

$
4,666

As a percentage of assets at fair value
7
%
15
%
Liabilities at fair value using Level 3 inputs
$
34

$
878

As a percentage of liabilities at fair value
1
%
14
%
Level 3 assets declined 68% or $3.2 billion primarily due to the deconsolidation of ResCap during the nine months ended September 30, 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 Condensed Consolidated Financial Statements . As the value of the consumer mortgage finance receivables and loan, net, declined, the value of the related on-balance sheet securitization debt also declined, which was the primary reason Level 3 liabilities declined by 96% or $844 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 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.

135
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Statistical Table
The accompanying supplemental information should be read in conjunction with the more detailed information, including our Condensed Consolidated Financial Statements and the notes thereto, which appears elsewhere in this Quarterly Report.
Net Interest Margin Table
The following table presents an analysis of net interest margin excluding discontinued operations for the periods shown.
2012
2011
Increase (decrease)
due to (a)
Three months ended September 30,
( $ in millions )
Average
balance (b)
Interest
income/
interest
expense
Yield/
rate
Average
balance (b)
Interest
income/
interest
expense
Yield/
rate
Volume
Yield/rate
Total
Assets
Interest-bearing cash and cash equivalents
$
15,648

$
22

0.56
%
$
13,373

$
14

0.42
%
$
3

$
5

$
8

Trading assets
—

—

—

351

4

4.52

(4
)
—

(4
)
Investment securities (c)
12,395

67

2.15

13,814

96

2.76

(9
)
(20
)
(29
)
Loans held-for-sale, net
2,731

22

3.20

9,654

86

3.53

(56
)
(8
)
(64
)
Finance receivables and loans, net (d)
120,634

1,651

5.44

112,478

1,680

5.93

117

(146
)
(29
)
Investment in operating leases, net (e)
11,943

281

9.36

9,040

254

11.15

73

(46
)
27

Total interest-earning assets
163,351

2,043

4.98

158,710

2,134

5.33

124

(215
)
(91
)
Noninterest-bearing cash and cash equivalents
1,582

1,321

Other assets
18,923

27,565

Allowance for loan losses
(1,428
)
(1,737
)
Total assets
$
182,428

$
185,859

Liabilities
Interest-bearing deposit liabilities
$
46,378

$
185

1.59
%
$
42,131

$
179

1.69
%
$
17

$
(11
)
$
6

Short-term borrowings
5,935

46

3.08

7,320

61

3.31

(11
)
(4
)
(15
)
Long-term debt (f) (g) (h)
91,477

1,041

4.53

92,313

1,293

5.56

(12
)
(240
)
(252
)
Total interest-bearing liabilities (f) (g) (i)
143,790

1,272

3.52

141,764

1,533

4.29

(6
)
(255
)
(261
)
Noninterest-bearing deposit liabilities
2,504

2,509

Total funding sources (g) (j)
146,294

1,272

3.46

144,273

1,533

4.22

Other liabilities
17,615

21,529

Total liabilities
163,909

165,802

Total equity
18,519

20,057

Total liabilities and equity
$
182,428

$
185,859

Net financing revenue
$
771

$
601

$
130

$
40

$
170

Net interest spread (k)
1.46
%
1.04
%
Net interest spread excluding original issue discount (k)
1.71

1.73

Net interest spread excluding original issue discount and including noninterest bearing deposit liabilities (k)
1.77

1.79

Net yield on interest-earning assets (l)
1.88

1.50

Net yield on interest-earning assets excluding original issue discount (l)
2.06

2.06

(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.
(b)
Average balances are calculated using a combination of monthly and daily average methodologies.
(c)
Excludes income on equity investments of $6 million during both the three months ended September 30, 2012 and 2011 . Yields on available-for-sale debt securities are based on fair value as opposed to historical cost.
(d)
Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K.
(e)
Includes gains on sale of $47 million and $76 million during the three months ended September 30, 2012 and 2011 , respectively. Excluding these gains on sale, the annualized yield would be 7.79% and 7.81% at September 30, 2012 and 2011 , respectively.
(f)
Includes the effects of derivative financial instruments designated as hedges.
(g)
Average balance includes $1,873 million and $2,363 million related to original issue discount at September 30, 2012 and 2011 , respectively. Interest expense includes original issue discount amortization of $76 million and $225 million during the three months ended September 30, 2012 and 2011 , respectively.
(h)
Excluding original issue discount the rate on long-term debt was 4.11% and 4.48% at September 30, 2012 and 2011 , respectively.
(i)
Excluding original issue discount the rate on total interest-bearing liabilities was 3.27% and 3.60% at September 30, 2012 and 2011 , respectively.
(j)
Excluding original issue discount the rate on total funding sources was 3.21% and 3.54% at September 30, 2012 and 2011 , respectively.
(k)
Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
(l)
Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.

136
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

2012
2011
Increase (decrease)
due to (a)
Nine months ended September 30,
( $ in millions )
Average
balance (b)
Interest
income/
interest
expense
Yield/
rate
Average
balance (b)
Interest
income/
interest
expense
Yield/
rate
Volume
Yield/rate
Total
Assets
Interest-bearing cash and cash equivalents
$
12,978

$
54

0.56
%
$
12,776

$
41

0.43
%
$
1

$
12

$
13

Trading assets
364

13

4.77

272

10

4.92

3

—

3

Investment securities (c)
13,108

225

2.29

14,236

294

2.76

(22
)
(47
)
(69
)
Loans held-for-sale, net
4,913

131

3.56

8,953

256

3.82

(109
)
(16
)
(125
)
Finance receivables and loans, net (d)
119,995

5,020

5.59

109,498

4,976

6.08

456

(412
)
44

Investment in operating leases, net (e)
10,746

789

9.81

8,997

1,061

15.77

180

(452
)
(272
)
Total interest-earning assets
162,104

6,232

5.14

154,732

6,638

5.74

509

(915
)
(406
)
Noninterest-bearing cash and cash equivalents
2,092

1,125

Other assets
21,114

25,486

Allowance for loan losses
(1,484
)
(1,805
)
Total assets
$
183,826

$
179,538

Liabilities
Interest-bearing deposit liabilities
$
45,501

$
555

1.63
%
$
40,233

$
516

1.71
%
$
65

$
(26
)
$
39

Short-term borrowings
6,735

181

3.59

7,233

240

4.44

(16
)
(43
)
(59
)
Long-term debt (f) (g) (h)
92,376

3,286

4.75

90,012

4,030

5.99

103

(847
)
(744
)
Total interest-bearing liabilities (f) (g) (i)
144,612

4,022

3.72

137,478

4,786

4.65

152

(916
)
(764
)
Noninterest-bearing deposit liabilities
2,297

2,232

Total funding sources (g) (j)
146,909

4,022

3.66

139,710

4,786

4.58

Other liabilities
17,937

19,414

Total liabilities
164,846

159,124

Total equity
18,980

20,414

Total liabilities and equity
$
183,826

$
179,538

Net financing revenue
$
2,210

$
1,852

$
357

$
1

$
358

Net interest spread (k)
1.42
%
1.09
%
Net interest spread excluding original issue discount (k)
1.73

1.91

Net interest spread excluding original issue discount and including noninterest bearing deposit liabilities (k)
1.78

1.97

Net yield on interest-earning assets (l)
1.82

1.60

Net yield on interest-earning assets excluding original issue discount (l)
2.05

2.27

(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.
(b)
Average balances are calculated using a combination of monthly and daily average methodologies.
(c)
Excludes income on equity investments of $18 million and $17 million during the nine months ended September 30, 2012 and 2011 , respectively. Yields on available-for-sale debt securities are based on fair value as opposed to historical cost.
(d)
Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 2011 Annual Report on Form 10-K.
(e)
Includes gains on sale of $155 million and $361 million during the nine months ended September 30, 2012 and 2011 , respectively. Excluding these gains on sale, the annualized yield would be 7.88% and 10.40% at September 30, 2012 and 2011 , respectively.
(f)
Includes the effects of derivative financial instruments designated as hedges.
(g)
Average balance includes $1,966 million and $2,630 million related to original issue discount at September 30, 2012 and 2011 , respectively. Interest expense includes original issue discount amortization of $280 million and $775 million during the nine months ended September 30, 2012 and 2011 , respectively.
(h)
Excluding original issue discount the rate on long-term debt was 4.26% and 4.70% at September 30, 2012 and 2011 , respectively.
(i)
Excluding original issue discount the rate on total interest-bearing liabilities was 3.41% and 3.83% at September 30, 2012 and 2011 , respectively.
(j)
Excluding original issue discount the rate on total funding sources was 3.36% and 3.77% at September 30, 2012 and 2011 , respectively.
(k)
Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
(l)
Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.

137
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-Q

Recently Issued Accounting Standards
Refer to Note 1 to the Condensed Consolidated Financial Statements.
Forward-looking Statements
The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this Form 10-Q contain various forward-looking statements within the meaning of applicable federal securities laws, including the Private Securities Litigation Reform Act of 1995, that are based upon our current expectations and assumptions concerning future events that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.
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 negative of any of these words or similar expressions is 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.
While these statements represent our current judgment on what the future may hold and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and Ally’s actual results may differ materially due to numerous important factors that are described in the most recent reports on Forms 10-K and 10-Q for Ally, each of which may be revised or supplemented in subsequent reports on Forms 10-Q and 8-K. Such factors include, among others, the following: maintaining the mutually beneficial relationship between Ally and General Motors (“GM”), and Ally and Chrysler Group LLC (“Chrysler”); the profitability and financial condition of GM and Chrysler; bankruptcy court approval of the plan and settlement related to the bankruptcy filings by Residential Capital, LLC and certain of its subsidiaries; our ability to realize the anticipated benefits associated with being a bank holding company, and the increased regulation and restrictions that we are now subject to; the potential for deterioration in the residual value of off-lease vehicles; disruptions in the market in which we fund our operations, with resulting negative impact on our liquidity; changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; changes in the credit ratings of Ally, Chrysler, or GM; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations (including as a result of the Dodd-Frank Act and Basel III).
Use of the term “loans” describes products associated with direct and indirect lending activities of Ally’s global operations. The specific products include retail installment sales contracts, loans, lines of credit, leases or other financing products. The term “originate” refers to Ally’s purchase, acquisition, or direct origination of various “loan” products.

138
Quantitative and Qualitative Disclosures about Market Risk
Ally Financial Inc. • Form 10-Q

Item 3.     Quantitative and Qualitative Disclosures about Market Risk
Refer to the Market Risk section of Item 2, Management’s Discussion and Analysis.

139
Controls and Procedures
Ally Financial Inc. • Form 10-Q

Item 4.     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.

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PART II — OTHER INFORMATION
Ally Financial Inc. • Form 10-Q



Item 1.     Legal Proceedings
Refer to Note 25 to the Condensed Consolidated Financial Statements (incorporated herein by reference) for a discussion related to our legal proceedings, which supplements the discussion of legal proceedings set forth in Note 31 to our 2011 Annual Report on Form 10-K.
Item 1A.     Risk Factors
Other than with respect to the risk factor provided below, there have been no material changes to the Risk Factors described in our 2011 Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q for the three months ended March 31, 2012 and June 30, 2012.
Risks Related to Our Business
The Bankruptcy Court may not approve the Settlement or the Plan, and, even if the Settlement and Plan are approved, each may not be consummated if certain conditions are not met or if delays occur. If the Settlement and Plan are not approved and consummated, we will not be entitled to any release from claims of the Debtors or third parties.
On May 14, 2012 (the Petition Date), Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors and their direct and indirect subsidiaries) (collectively, AFI) reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan). The Plan includes a proposed settlement (the Settlement) between AFI and the Debtors, which includes 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.
There can be no assurance that the Bankruptcy Court will approve the Settlement. In particular, the Bankruptcy Court may not approve the proposed release of all existing or potential ResCap related causes of action against AFI held by third parties. The Plan and the Settlement are currently the subject of investigations by the Examiner and the Creditors' Committee, as described more fully below. Even if the Settlement is approved, there can be no assurance that the conditions to effectiveness of the Settlement will be satisfied. These conditions include, among other things, that the Plan and the order that confirms the Plan (the Confirmation Order) must incorporate the terms and conditions of the Settlement.
There can also be no assurance that the Bankruptcy Court will confirm the Plan, and, even if the Plan is confirmed, the consummation of the Plan is subject to several conditions, and there can be no assurance that the required conditions will be satisfied. The failure to do so would result in modifications to the Plan, or the pursuit of an alternative form of reorganization or liquidation. This could result in delay and significant expense, and any modifications to the Plan or other alternative may well be less favorable to AFI. Even if substantial elements of the Plan are confirmed by the Bankruptcy Court and all required conditions are satisfied, there could be significant litigation against AFI for any claims not released under the Plan. At the Bankruptcy Court's direction, the Plan is subject to negotiation with the Debtors' significant creditor constituents, including the Creditors' Committee, the Ad Hoc Group and AFI. Failure to obtain significant creditor support for the Plan may result in material modifications to the Plan and/or Settlement.
The Debtors currently expect to sell their mortgage origination and servicing business and certain other mortgage-related assets under section 363 of the Bankruptcy Code, and not as part of the Plan as was previously contemplated. If these asset sales occur outside of the Plan, as expected, it could have an adverse impact on the likelihood that the Bankruptcy Court would confirm the Plan as submitted.
ResCap has obtained debtor-in-possession financing, including from AFI. The proceeds from the asset sales contemplated by the Debtors will be used to repay this financing. If the asset sales do not occur, or if there otherwise is an event of default under either of ResCap's debtor-in-possession financing facilities and the lenders thereto accelerated repayment, it is unlikely that the Plan would be consummated.
The Settlement currently contemplates certain milestone requirements that the Debtors have failed to satisfy, including the Bankruptcy Court's entry of the Confirmation Order on or before October 31, 2012. Notwithstanding this, to date, AFI has continued to comply with the Plan Support Agreement. Pursuant to the terms of the Settlement, the failure to meet the October 31 milestone results in the Settlement's automatic termination. However, AFI and the Debtors have agreed to temporarily waive the automatic termination, but, each of AFI and the Debtors have preserved the right to rescind such waiver at any point in the future. The waiver will terminate on December 31, 2012 unless AFI and the Debtors otherwise agree in writing. If the Settlement were terminated on account of the Debtors' failure to satisfy these milestone requirements, except in limited circumstances, AFI would still be required to perform all of its obligations described above with respect to the Settlement, except that AFI would not make the $750 million cash contribution and would not be entitled to receive any releases from either the Debtors or any third party claimants. In addition, ResCap has the ability to terminate the Settlement and not seek confirmation of the Plan, in which case AFI would not be entitled to receive the releases. If AFI does not receive the releases described in Note 1, the Debtors and/or third party creditors are likely to assert substantial claims directly against AFI, which could have a material adverse impact on our results of operations, financial position or cash flows.
As of the Petition Date, ResCap had support for the Plan from the ad hoc steering committee representing ResCap's junior secured notes (Ad Hoc Committee) and, certain other noteholders together holding $791 million out of a total of approximately $2.1 billion of these notes. The Debtors have failed to satisfy certain milestone requirements in the Plan support agreement with the Ad Hoc Committee (Ad Hoc Committee PSA); and, on September 24, 2012, the official committee of unsecured creditors (the Committee) appointed in the Debtors' bankruptcy cases filed a motion seeking standing to challenge the validity of the liens on certain assets securing the junior secured notes,

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which are the liens that secure certain of AFI's loans to ResCap. On or about September 25, 2012, the junior secured noteholders terminated the Ad Hoc Committee PSA.
On June 4, 2012, Berkshire Hathaway Inc. filed a motion in the Bankruptcy Court for the appointment of an independent examiner to investigate, among other things, certain of the Debtors' transactions with AFI occurring prior to the Petition Date, any claims the Debtors may hold against AFI's officers and directors, and any claims the Debtors propose to release under the Plan. On June 18, 2012, the Bankruptcy Court approved the appointment of an examiner and, subsequently, the United States Trustee for the Southern District of New York appointed former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner. On July 27, 2012, the Bankruptcy Court entered an order approving the scope of the examiner's investigation. The investigation will include, among other things: (a) all material pre-petition transactions between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements, the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally Bank; (c) all state and federal law claims or causes of action the Debtors propose to release as part of the Plan; and (d) the release of all existing or potential ResCap-related causes of action against AFI held by third parties. As of September 30, 2012, the examiner's preliminary estimate regarding the time necessary for the examiner to complete his investigation and related report was at least six months from approximately August 6, 2012. Counsel to the examiner recently informed parties in interest that it would be requesting from the Bankruptcy Court an extended target date for issuance of the examiner’s report based upon completion of document production and witness interviews, rather than an approximation date. The examiner’s request may result in a delay for issuing the examiner’s report. The Bankruptcy Court is scheduled to hold a conference on November 5, 2012 to address the examiner's request. As a result of this, the Bankruptcy Court did not enter the Confirmation Order by the required October 31 deadline described above. While AFI and the Debtors have agreed to temporarily waive the automatic termination as described above, each of AFI and the Debtors have preserved the right to rescind such waiver at any point in the future, and the waiver will terminate on December 31, 2012 unless AFI and the Debtors otherwise agree in writing. If the waiver is rescinded or terminates, the Plan and the Settlement will terminate.
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, or 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.
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.     Defaults upon Senior Securities
None.
Item 4.     Mine Safety Disclosures
Not applicable.
Item 5.     Other Information
None.
Item 6.     Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as a part of this report. This Index is incorporated herein by reference.

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Ally Financial Inc. • Form 10-Q

Signatures
Pursuant to the requirements 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 2nd day of November, 2012 .
Ally Financial Inc.
(Registrant)
/s/    JEFFREY J. BROWN
Jeffrey J. Brown
Senior Executive Vice President of
Finance and Corporate Planning
/s/    DAVID J. DEBRUNNER
David J. DeBrunner
Vice President, Chief Accounting Officer, and
Corporate Controller

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Ally Financial Inc. • Form 10-Q

INDEX OF EXHIBITS
Exhibit
Description
Method of Filing
12
Computation of Ratio of Earnings to Fixed Charges
Filed herewith.
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
Filed herewith.
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
Filed herewith.
32
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350
Filed herewith.
101
Interactive Data File
Filed herewith.

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