ALLY 10-Q Quarterly Report March 31, 2013

ALLY 10-Q Quarter ended March 31, 2013

ALLY FINANCIAL INC.

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10-Q 1 gjm201333110q.htm 10-Q GJM 2013.3.31 10Q

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013 , or



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-3754

ALLY FINANCIAL INC.

(Exact name of registrant as specified in its charter)



Delaware		38-0572512
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Renaissance Center

P.O. Box 200, Detroit, Michigan

48265-2000

(Address of principal executive offices)

(Zip Code)

(866) 710-4623

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing for the past 90 days.

Yes þ No ¨

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

At April 30, 2013 , the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.

Table of Contents

INDEX

Ally Financial Inc. Ÿ Form 10-Q



		Page
Part I — Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2013 and 2012	3
	Condensed Consolidated Balance Sheet (unaudited) at March 31, 2013 and December 31, 2012	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three Months Ended March 31, 2013 and 2012	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, 2013 and 2012	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	72
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	114
Item 4.	Controls and Procedures	115
Part II — Other Information		116
Item 1.	Legal Proceedings	116
Item 1A.	Risk Factors	116
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	117
Item 3.	Defaults Upon Senior Securities	117
Item 4.	Mine Safety Disclosures	117
Item 5.	Other Information	117
Item 6.	Exhibits	117
Signatures		118
Index of Exhibits		119



Table of Contents		PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended March 31,
($ in millions)	2013			2012
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,135		$	1,093
Interest on loans held-for-sale	16			31
Interest on trading assets	—			9
Interest and dividends on available-for-sale investment securities	68			74
Interest-bearing cash	3			2
Operating leases	734			507
Total financing revenue and other interest income	1,956			1,716
Interest expense
Interest on deposits	164			163
Interest on short-term borrowings	16			17
Interest on long-term debt	701			880
Total interest expense	881			1,060
Depreciation expense on operating lease assets	435			305
Net financing revenue	640			351
Other revenue
Servicing fees	82			122
Servicing asset valuation and hedge activities, net	(201		)	(106		)
Total servicing income, net	(119		)	16
Insurance premiums and service revenue earned	259			270
Gain on mortgage and automotive loans, net	38			20
Other gain on investments, net	51			89
Other income, net of losses	157			210
Total other revenue	386			605
Total net revenue	1,026			956
Provision for loan losses	131			98
Noninterest expense
Compensation and benefits expense	285			303
Insurance losses and loss adjustment expenses	115			98
Other operating expenses	558			454
Total noninterest expense	958			855
(Loss) income from continuing operations before income tax expense	(63		)	3
Income tax (benefit) expense from continuing operations	(123		)	1
Net income from continuing operations	60			2
Income from discontinued operations, net of tax	1,033			308
Net income	1,093			310
Other comprehensive (loss) income, net of tax	(317		)	187
Comprehensive income	$	776		$	497

Statement continues on the next page.

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

Table of Contents

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended March 31,
($ in millions except per share data)	2013			2012
Net income attributable to common shareholders
Net income from continuing operations	$	60		$	2
Preferred stock dividends — U.S. Department of Treasury	(133		)	(134		)
Preferred stock dividends	(67		)	(67		)
Net loss from continuing operations attributable to common shareholders	(140		)	(199		)
Income from discontinued operations, net of tax	1,033			308
Net income attributable to common shareholders	$	893		$	109
Basic weighted-average common shares outstanding	1,330,970			1,330,970
Diluted weighted-average common shares outstanding (a)	1,330,970			1,330,970
Basic earnings per common share
Net loss from continuing operations	$	(105	)	$	(149	)
Income from discontinued operations, net of tax	776			231
Net income	$	671		$	82
Diluted earnings per common share (a)
Net loss from continuing operations	$	(105	)	$	(149	)
Income from discontinued operations, net of tax	776			231
Net income	$	671		$	82

(a)

Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss from continuing operations attributable to common shareholders for the three months ended March 31, 2013 and 2012 , loss from continuing operations attributable to common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.

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

Table of Contents

Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q



($ in millions)	March 31, 2013			December 31, 2012
Assets
Cash and cash equivalents
Noninterest-bearing	$	1,043		$	1,073
Interest-bearing	6,394			6,440
Total cash and cash equivalents	7,437			7,513
Investment securities	15,752			14,178
Loans held-for-sale, net ($701 and $2,490 fair value-elected)	718			2,576
Finance receivables and loans, net
Finance receivables and loans, net	99,123			99,055
Allowance for loan losses	(1,197		)	(1,170		)
Total finance receivables and loans, net	97,926			97,885
Investment in operating leases, net	14,828			13,550
Mortgage servicing rights	917			952
Premiums receivable and other insurance assets	1,608			1,609
Other assets	7,950			11,908
Assets of operations held-for-sale	19,063			32,176
Total assets	$	166,199		$	182,347
Liabilities
Deposit liabilities
Noninterest-bearing	$	844		$	1,977
Interest-bearing	49,482			45,938
Total deposit liabilities	50,326			47,915
Short-term borrowings	7,618			7,461
Long-term debt	67,621			74,561
Interest payable	972			932
Unearned insurance premiums and service revenue	2,286			2,296
Accrued expenses and other liabilities	3,669			6,585
Liabilities of operations held-for-sale	13,233			22,699
Total liabilities	145,725			162,449
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	(6,128		)	(7,021		)
Accumulated other comprehensive (loss) income	(6		)	311
Total equity	20,474			19,898
Total liabilities and equity	$	166,199		$	182,347

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

Table of Contents

Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q

The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.



($ in millions)	March 31, 2013			December 31, 2012
Assets
Finance receivables and loans, net
Finance receivables and loans, net	$	30,181		$	31,510
Allowance for loan losses	(152		)	(144		)
Total finance receivables and loans, net	30,029			31,366
Investment in operating leases, net	5,276			6,060
Other assets	2,211			2,868
Assets of operations held-for-sale	7,835			12,139
Total assets	$	45,351		$	52,433
Liabilities
Short-term borrowings	$	400		$	400
Long-term debt	25,757			26,461
Interest payable	—			1
Accrued expenses and other liabilities	21			16
Liabilities of operations held-for-sale	5,762			9,686
Total liabilities	$	31,940		$	36,564

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

Table of Contents

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 (loss)			Total equity
Balance at January 1, 2012	$	19,668	$	5,685	$	1,255	$	(7,415	)	$	87		$	19,280
Net income							310						310
Preferred stock dividends — U.S. Department of Treasury							(134		)				(134		)
Preferred stock dividends							(67		)				(67		)
Other comprehensive income										187			187
Balance at March, 2012	$	19,668	$	5,685	$	1,255	$	(7,306	)	$	274		$	19,576
Balance at January 1, 2013	$	19,668	$	5,685	$	1,255	$	(7,021	)	$	311		$	19,898
Net income							1,093						1,093
Preferred stock dividends — U.S. Department of Treasury							(133		)				(133		)
Preferred stock dividends							(67		)				(67		)
Other comprehensive loss										(317		)	(317		)
Balance at March 31, 2013	$	19,668	$	5,685	$	1,255	$	(6,128	)	$	(6	)	$	20,474

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

Table of Contents

Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, ($ in millions)	2013			2012
Operating activities
Net income	$	1,093		$	310
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	657			568
Changes in fair value of mortgage servicing rights	90			(1		)
Provision for loan losses	158			140
Gain on sale of loans, net	(38		)	(131		)
Net gain on investment securities	(53		)	(96		)
Originations and purchases of loans held-for-sale	(5,759		)	(9,626		)
Proceeds from sales and repayments of loans held-for-sale	7,481			11,111
Gain on sale of subsidiaries, net	(888		)	—
Net change in
Trading assets	—			(268		)
Deferred income taxes	(116		)	(31		)
Interest payable	44			86
Other assets	1,329			755
Other liabilities	(1,259		)	(865		)
Other, net	(485		)	190
Net cash provided by operating activities	2,254			2,142
Investing activities
Purchases of available-for-sale securities	(4,626		)	(3,172		)
Proceeds from sales of available-for-sale securities	1,543			2,940
Proceeds from maturities and repayment of available-for-sale securities	1,604			1,222
Net increase in finance receivables and loans	(42		)	(4,409		)
Purchases of operating lease assets	(2,352		)	(1,468		)
Disposals of operating lease assets	641			465
Proceeds from sale of business units, net (a)	2,829			29
Net change in restricted cash	1,067			280
Other, net	41			43
Net cash provided by (used in) investing activities	705			(4,070		)

Statement continues on the next page.

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

Table of Contents

Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, ($ in millions)	2013			2012
Financing activities
Net change in short-term borrowings	518			(546		)
Net increase in deposits	2,360			2,089
Proceeds from issuance of long-term debt	4,253			10,749
Repayments of long-term debt	(11,445		)	(10,024		)
Dividends paid	(200		)	(200		)
Net cash (used in) provided by financing activities	(4,514		)	2,068
Effect of exchange-rate changes on cash and cash equivalents	67			(141		)
Net decrease in cash and cash equivalents	(1,488		)	(1		)
Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)	1,412			45
Cash and cash equivalents at beginning of year	7,513			13,035
Cash and cash equivalents at March 31,	$	7,437		$	13,079
Supplemental disclosures
Cash paid for
Interest	$	1,026		$	1,218
Income taxes	37			178
Other disclosures
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale	10			63


(a)	The amounts are net of cash and cash equivalents of $905 million at March 31, 2013 and $64 million at March 31, 2012 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.

Table of Contents

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, 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 (internet, telephone, mobile, and mail) banking market.

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 March 31, 2013 , and for the three months ended March 31, 2013 , and 2012 , 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, 2012 , as filed on March 1, 2013 , with the U.S. Securities and Exchange Commission (SEC).

Residential Capital, LLC

On May 14, 2012 (the Petition Date), Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors) (collectively, AFI) had reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan). The Plan included a proposed settlement (the Settlement) between AFI and the Debtors, which included, among other things, an obligation of AFI to make a $750 million cash contribution to the Debtor's estate, and a release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of action against AFI held by third parties.

The Settlement contemplated certain milestone requirements that the Debtors failed to satisfy, including the Bankruptcy Court's confirmation of the Plan on or before October 31, 2012. While the failure to meet this October 31 milestone would have resulted in the Settlement's automatic termination, AFI and the Debtors agreed to monthly temporary waivers of this automatic termination through February 28, 2013. This waiver was not extended beyond this date, and therefore the Settlement has terminated.

On November 21, 2012, the Bankruptcy Court entered orders approving the sale of the Debtors' (i) mortgage servicing platform (the Platform Sale) to Ocwen Loan Servicing, LLC and Walter Investment Management Corp. and (ii) “whole-loan” portfolio (the Whole-Loan Sale) to Berkshire Hathaway Inc. under section 363 of the Bankruptcy Code, and not as part of the Plan as originally contemplated. The Whole-Loan Sale closed on February 5, 2013, and the Platform Sale closed on February 15, 2013.

As of the Petition Date, two separate groups of institutional investors in residential mortgage-backed securities (RMBS Investors) issued by ResCap's affiliates and holding more than 25 percent of at least one class in each of 290 securitizations agreed to settle alleged representation and warranty claims against the Debtors' estates in exchange for a total $8.7 billion allowed claim in the Debtors' bankruptcy cases, subject to the applicable securitization trustees' acceptance of the terms of the settlements (the RMBS Settlements). The RMBS Investors also signed separate plan support agreements (PSAs) with the Debtors and AFI in support of the Plan at the time of entering into the RMBS Settlements. To date, RMBS Investors holding more than 25 percent of at least one class in each of 336 securitizations have agreed to the RMBS Settlements. These 336 securitizations have an aggregate original principal balance of approximately $189 billion (out of a total of 392 outstanding securitizations with an original principal balance of $221 billion ). The RMBS Settlements are subject to Bankruptcy Court approval, and the Bankruptcy Court has scheduled a hearing to consider such approval beginning on May 28, 2013. The PSAs are not part of this scheduled Bankruptcy Court hearing. A number of creditors have raised objections to the RMBS Settlements, but the trustees representing the 336 securitization trusts and AFI have filed statements in support of the Debtors' motion to approve the RMBS Settlements. Separately, the Debtors have failed to meet several Plan milestones in their bankruptcy cases, each of which has given the RMBS Investors the right to terminate the PSAs upon three business days advance written notice to the Debtors and AFI. On April 18, 2013, one of the two groups of RMBS Investors represented by Talcott Franklin P.C. sent the Debtors and AFI a notice of termination of its PSA. The other group of RMBS Investors represented by Gibbs and Bruns LLP has not given the Debtors and AFI such a notice to date, but have the right to do so at any time. If the RMBS Settlements were not approved or the RMBS Investors were to decide not to support any proposed plan, it could adversely impact the likelihood that any plan is approved by the Bankruptcy Court. AFI continues to support the RMBS Settlements at this time.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner (the Examiner). On July 27, 2012, the Bankruptcy Court entered an order approving the scope of the Examiner's investigation. The investigation includes, among other things: (a) all material pre-petition transactions between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements, the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally Bank; (c) all state and federal law claims or causes of action the Debtors proposed to release as part of the Plan; and (d) the release of all existing or potential ResCap-related causes of action against AFI held by third parties. In the Examiner's original work plan, the Examiner estimated that his investigation and related report would be completed six months from approximately August 6, 2012. However, on February 7, 2013 the Examiner informed the Bankruptcy Court in the third supplement to the work plan that the investigation and related report will not be completed until early May 2013.

On December 26, 2012, the Bankruptcy Court, in an effort to facilitate plan negotiations, entered an order appointing bankruptcy judge James M. Peck, Esq. as mediator (the Mediator) through and until February 28, 2013, to assist the parties in resolving certain issues relating to the formulation and confirmation of the Plan. On March 5, 2013, the Bankruptcy Court entered an order extending the Mediator's term to and including May 31, 2013, unless the Mediator declares in a written order on an earlier date that the mediation is at an impasse and should be terminated. AFI, the Debtors, the official committee of unsecured creditors appointed in the Debtors' bankruptcy cases (the Creditors' Committee) and certain other creditor constituencies are engaging in ongoing mediation sessions under a Bankruptcy Court order of confidentiality. Given the inherent uncertainty of the bankruptcy process, it is reasonably possible that a settlement could be reached that results in a payment substantially higher than the current $750 million estimate, or that no settlement is reached at all. The ultimate outcome of these settlement discussions will be affected by various factors, including, among others, the highly complex nature of the bankruptcy process, competing interests of various parties, disparate creditor priorities, the uncertainty of obtaining certain non-financial terms being sought, competing jurisdictional claims, uncertain residual estate property value, and the timing and unknown conclusions of the independent examiner's investigation.

On February 26, 2013, the Debtors and the Creditors' Committee entered into an agreement, the terms of which provided that, among other things, the Creditors' Committee would support extending the Debtors' exclusive period to file a Chapter 11 plan through and until April 30, 2013, the Debtors would consent to any motion filed by the Creditors' Committee after April 30, 2013 seeking standing to bring estate causes of action against AFI and the Debtors would allow the Settlement to automatically expire on February 28, 2013.

Thereafter, on March 5, 2013, the Bankruptcy Court entered an order extending the Debtors' exclusive period to file a Chapter 11 plan through and until April 30, 2013. On April 15, 2013, the Bankruptcy court entered an order further extending the Debtors' exclusive period to file a Chapter 11 plan through and until May 7, 2013.

On April 11, 2013, the Creditors' Committee filed a motion seeking standing to assert claims against AFI on behalf of the Debtors' estates. In its motion, the Creditors' Committee alleged, among other things, that AFI stripped the Debtors of valuable assets and exercised domination, control and abuse of the Debtors. The Creditors' Committee's claims against AFI include veil-piercing, fraudulent conveyance, indemnification, preferential transfer, and equitable subordination. The Creditors' Committee asserted that AFI may be liable for billions of dollars on account of these claims. AFI believes that these claims have no merit and is fully prepared to litigate these claims to final resolution. The Bankruptcy Court has scheduled a hearing for May 7, 2013 to consider the Creditors' Committee's motion for standing.

On February 27, 2013, the Debtors filed a motion with the Bankruptcy Court seeking, for purposes of any proposed Chapter 11 plan, that GMAC Mortgage's obligation to conduct and pay for independent file review regarding certain residential foreclosure actions and foreclosure sales prosecuted by GMAC Mortgage and its subsidiaries, as required under the Consent Order, be classified as a general unsecured claim in an amount to be determined, and that the automatic stay under the Bankruptcy Code be applied to prevent the FRB, the FDIC, and other governmental entities from taking any action to enforce the obligation against the Debtors (the Foreclosure Review Motion). The Bankruptcy Court is expected to issue a written opinion on the relief sought in the Foreclosure Review Motion in the near future. If the Bankruptcy Court approves the Foreclosure Review Motion, such governmental entities are likely to seek to enforce the obligation against AFI, and any such obligations ultimately borne by AFI could be material.

We are currently named as defendants in various lawsuits relating to ResCap mortgage-backed securities and certain other mortgage-related matters (the Mortgage Cases), which are described in more detail in Note 26 . We had previously disclosed that several of the Mortgage Cases were subject to orders entered by the Bankruptcy Court staying the matters through April 30, 2013 in connection with the Debtors bankruptcy. On May 1, 2013, all stay orders applicable to the Ally non-Debtor defendants with respect to the Mortgage Cases expired. As a result, all of the Mortgage Cases are proceeding against us.

As a result of the termination of the Settlement, AFI is no longer obligated to make the $750 million cash contribution and neither party is bound by the Settlement. Further, AFI is not entitled to receive any releases from either the Debtors or any third party claimants, as was contemplated under the Plan and Settlement. However, AFI has not withdrawn its offer to provide a $750 million cash contribution to the Debtors' estate if an acceptable settlement can be reached. As a result of the termination of the Settlement, substantial claims could be brought against us, which could have a material adverse impact on our results of operations, financial position or cash flows. We would have strong legal and factual defenses with respect to any such claims, and would vigorously defend them.

As a result of the bankruptcy filing, effective May 14, 2012, we deconsolidated ResCap from our financial statements. During the first quarter of 2013, we discontinued performing certain mortgage activities, which were required as part of the bankruptcy process until the sale

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

of certain assets occurred. As a result of us discontinuing these certain mortgage activities, the operations of ResCap were classified as discontinued.

Based on our assessment of the effect of the deconsolidation of ResCap, obligations under the Plan, and other impacts related to the Chapter 11 filing, we recorded a charge of $1.2 billion during 2012, within our (loss) income from discontinued operations, net of tax. 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 March 31, 2013 , we have $1.1 billion of financing due from 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 March 31, 2013 , our hedging arrangements with ResCap were fully collateralized. Because of the uncertain nature of the bankruptcy proceedings, we cannot predict the ultimate financial impact to Ally. Refer to Note 26 for additional information regarding these bankruptcy proceedings.

Significant Accounting Policies

Income Taxes

In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification 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 is estimated using tax rates specific to that jurisdiction.

Refer to Note 1 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

Balance Sheet - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11 and ASU 2013-01)

As of January 1, 2013, we adopted Accounting Standards Update (ASU) 2011-11, which amends ASC 210, Balance Sheet . This ASU contains new disclosure requirements regarding the nature of an entity's rights of offset and related arrangements associated with its financial instruments and derivative instruments. In addition, we adopted ASU 2013-01, which simply clarified the scope of ASU 2011-11. The new disclosures will give financial statement users information about both gross and net exposures. ASU 2011-11 and ASU 2013-01 were required to be applied retrospectively. Since the guidance relates only to disclosure of information, the adoption did not have an impact to our consolidated financial condition or results of operations.

Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02)

As of January 1, 2013, we adopted ASU 2013-02, which amends ASC 220, Comprehensive Income . The ASU contains new requirements related to the presentation and disclosure of items that are reclassified out of accumulated other comprehensive income. The new requirements provide financial statement users a more comprehensive view of items that are reclassified out of accumulated other comprehensive income. ASU 2013-02 was required to be applied prospectively. Since the guidance relates only to presentation and disclosure of information, the adoption did not have an impact to our consolidated financial condition or results of operations.

Recently Issued Accounting Standards

Liabilities - Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (ASU 2013-04)

In February 2013, the Financial Accounting Standards Board issued ASU 2013-04. This ASU requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following: (a) The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. It further requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. ASU 2013-04 will be effective for us on January 1, 2014, with retrospective application required. The adoption of this guidance is not expected to have a material effect on our consolidated financial condition or results of operations.

Foreign Currency Matters - Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05)

In March 2013, the Financial Accounting Standards Board issued ASU 2013-05. This ASU requires a reporting entity that ceases to have a controlling financial interest, in a subsidiary or group of assets or a business, within a foreign entity to release any related Cumulative Translation Adjustment (CTA) into net income. The CTA should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For an equity method investment that is a foreign entity, a pro rata portion of the CTA should be released into net income upon a partial sale of such an investment. This ASU clarifies that the sale of an investment in a foreign entity includes both events that result in the loss of a controlling financial interest in a foreign entity, irrespective of any retained investment, and events that result in step acquisition under which an acquirer obtains control of an acquiree in which it held an equity interest

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

immediately before the acquisition date. Under these circumstances, the CTA should be released into net income upon their occurrence. ASU 2013-04 will be effective for us prospectively on January 1, 2014. Management is currently assessing the potential impact of the application of this guidance. However, since the guidance is prospective and we are in the process of exiting most of our international operations, it is not expected to have a material effect on our consolidated financial condition or results of operations.

2. Discontinued and Held-for-sale Operations

Discontinued Operations

We classify operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all of the operating results for these discontinued operations have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the 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 first quarter of 2013, the operations of ResCap were classified as discontinued. During the second quarter of 2012, we sold the Canadian mortgage operations of ResMor Trust.

Select Insurance Operations

During the fourth quarter of 2012, we committed to sell our Mexican insurance business, ABA Seguros, to the ACE Group. We expect to complete the ABA Seguros sale during the second quarter of 2013. During the first quarter of 2013, we sold our U.K.-based operations to a wholly owned subsidiary of AmTrust Financial Services, Inc.

Select Automotive Finance Operations

During the fourth quarter of 2012, we committed to sell our automotive finance operations in Europe and Latin America to General Motors Financial Company, Inc. (GM Financial). On the same date, we entered into an agreement with GM Financial to acquire our 40% interest in a motor vehicle finance joint venture in China. On April 1, 2013, we completed the sale of the majority of our operations in Europe and Latin America to GM Financial. The transaction included European operations in Germany, the United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium and the Netherlands, and Latin American operations in Mexico, Chile and Colombia. Refer to Note 27 for further detail. We expect to complete the sale of the remaining operations during 2013 and possibly 2014.

During the first quarter of 2013, we sold our Canadian automotive finance operations, Ally Credit Canada Limited, and ResMor Trust to Royal Bank of Canada. During the first quarter of 2012, we completed the sale of our Venezuela operations.

Select Corporate and Other Operations

During the fourth quarter of 2012, we ceased operations at our Commercial Finance Group's European division and classified it as discontinued.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Select Financial Information

Select financial information of discontinued operations is summarized below. The pretax income or loss, including direct costs to transact a sale, includes any impairment recognized to present the operations at the lower-of-cost or fair value. Fair value was based on the estimated sales price, which could differ from the ultimate sales price due to price volatility, changing interest rates, changing foreign-currency rates, and future economic conditions.



	Three months ended March 31,
($ in millions)	2013				2012
Select Mortgage operations
Total net revenue	$	—			$	403
Pretax (loss) income including direct costs to transact a sale (a)	(20		)		133
Tax expense (b)	16				16
Select Insurance operations
Total net revenue	$	148			$	156
Pretax income including direct costs to transact a sale	28				38
Tax expense	1				9
Select Automotive Finance operations
Total net revenue	$	286			$	387
Pretax income including direct costs to transact a sale (a)	1,042			(c)	196
Tax (benefit) expense (b)	(1		)		39
Select Corporate and Other operations
Total net revenue	$	—			$	2
Pretax (loss) income	(1		)		6
Tax expense	—				1


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


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


(c)	Includes recognized pretax gain of $888 million in connection with the sale of our Canadian automotive finance operations, Ally Credit Canada Limited, and ResMor Trust.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Held-for-sale Operations

The assets and liabilities of operations held-for-sale are summarized below.



March 31, 2013 ($ in millions)	Select Insurance operations (a)		Select Automotive Finance operations (b)			Total held-for-sale operations
Assets
Cash and cash equivalents
Noninterest-bearing	$	4	$	150		$	154
Interest-bearing	66		514			580
Total cash and cash equivalents	70		664			734
Investment securities	418		3			421
Finance receivables and loans, net
Finance receivables and loans, net	—		15,175			15,175
Allowance for loan losses	—		(177		)	(177		)
Total finance receivables and loans, net	—		14,998			14,998
Investment in operating leases, net	—		128			128
Premiums receivable and other insurance assets	257		—			257
Other assets	70		2,455			2,525
Total assets	$	815	$	18,248		$	19,063
Liabilities
Interest-bearing deposit liabilities	$	—	$	17		$	17
Short-term borrowings	—		3,059			3,059
Long-term debt	—		8,092			8,092
Interest payable	—		155			155
Unearned insurance premiums and service revenue	417		—			417
Accrued expenses and other liabilities	221		1,272			1,493
Total liabilities	$	638	$	12,595		$	13,233


(a)	Includes ABA Seguros.


(b)	Includes our international entities being sold to GM Financial.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



December 31, 2012 ($ in millions)	Select Insurance operations (a)			Select Automotive Finance operations (b)			Total held-for-sale operations
Assets
Cash and cash equivalents
Noninterest-bearing	$	8		$	100		$	108
Interest-bearing	119			1,918			2,037
Total cash and cash equivalents	127			2,018			2,145
Investment securities	576			424			1,000
Finance receivables and loans, net
Finance receivables and loans, net	—			25,835			25,835
Allowance for loan losses	—			(208		)	(208		)
Total finance receivables and loans, net	—			25,627			25,627
Investment in operating leases, net	—			144			144
Premiums receivable and other insurance assets	277			—			277
Other assets	94			2,942			3,036
Impairment on assets of held-for-sale operations	(53		)	—			(53		)
Total assets	$	1,021		$	31,155		$	32,176
Liabilities
Interest-bearing deposit liabilities	$	—		$	3,907		$	3,907
Short-term borrowings	—			2,800			2,800
Long-term debt	—			13,514			13,514
Interest payable	—			177			177
Unearned insurance premiums and service revenue	506			—			506
Accrued expenses and other liabilities	297			1,498			1,795
Total liabilities	$	803		$	21,896		$	22,699


(a)	Includes our U.K.-based operations and ABA Seguros.


(b)	Includes our Canadian operations sold to Royal Bank of Canada and international entities being sold to GM Financial.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Recurring Fair Value

The following table displays the assets and liabilities of our held-for-sale operations measured at fair value on a recurring basis. Refer to Note 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
March 31, 2013
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government	$	328	$	—	$	—	$	328
Corporate debt	—		93		—		93
Other assets
Derivative assets:
Interest rate contracts	—		—		7		7
Foreign currency contracts	—		17		—		17
Total assets	$	328	$	110	$	7	$	445
Liabilities
Accrued expenses and other liabilities:
Derivative liabilities
Interest rate contracts	$	—	$	11	$	8	$	19
Total liabilities	$	—	$	11	$	8	$	19
December 31, 2012
Assets
Investment securities
Available-for-sale securities
Debt securities
Foreign government	$	555	$	42	$	—	$	597
Corporate debt	—		76		—		76
Other	—		327		—		327
Other assets
Derivative assets:
Interest rate contracts	—		22		9		31
Total assets	$	555	$	467	$	9	$	1,031
Liabilities
Accrued expenses and other liabilities:
Derivative liabilities
Interest rate contracts	$	—	$	24	$	11	$	35
Foreign currency contracts	—		1		18		19
Total liabilities	$	—	$	25	$	29	$	54

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

3. Other Income, Net of Losses

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



	Three months ended March 31,
($ in millions)	2013		2012
Mortgage processing fees and other mortgage income	$	79	$	122
Late charges and other administrative fees	23		21
Remarketing fees	20		17
Fair value adjustment on derivatives (a)	—		12
Other, net	35		38
Total other income, net of losses	$	157	$	210


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

4. Other Operating Expenses

Details of other operating expenses were as follows.



	Three months ended March 31,
($ in millions)	2013		2012
Insurance commissions	$	92	$	99
Mortgage representation and warranty obligation, net (a)	83		—
Lease and loan administration	81		54
Technology and communications	71		89
Professional services	48		38
Advertising and marketing	35		35
Regulatory and licensing fees	33		33
Premises and equipment depreciation	20		17
Vehicle remarketing and repossession	14		16
Occupancy	11		14
State and local non-income taxes	10		9
Other	60		50
Total other operating expenses	$	558	$	454


(a)	Refer to Note 26 for further details on representation and warranty obligation.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

5. Investment Securities

Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, 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.



	March 31, 2013									December 31, 2012
	Amortized cost		Gross unrealized					Fair value		Amortized cost		Gross unrealized					Fair value
($ in millions)	Amortized cost		gains		losses			Fair value		Amortized cost		gains		losses			Fair value
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	2,097	$	3	$	(1	)	$	2,099	$	2,212	$	3	$	(1	)	$	2,214
Foreign government	297		9		—			306		295		8		—			303
Mortgage-backed residential (a)	8,722		111		(18		)	8,815		6,779		130		(3		)	6,906
Asset-backed	2,191		31		(1		)	2,221		2,309		32		(1		)	2,340
Corporate debt	1,272		56		(2		)	1,326		1,209		57		(3		)	1,263
Total debt securities	14,579		210		(22		)	14,767		12,804		230		(8		)	13,026
Equity securities	986		48		(49		)	985		1,193		32		(73		)	1,152
Total available-for-sale securities (b)	$	15,565	$	258	$	(71	)	$	15,752	$	13,997	$	262	$	(81	)	$	14,178


(a)	Residential mortgage-backed securities include agency-backed bonds totaling $6,217 million and $4,983 million at March 31, 2013 , and December 31, 2012 , 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 $15 million at March 31, 2013 , and December 31, 2012 , respectively.

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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
March 31, 2013
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies	$	2,099	0.9	%	$	584	0.1	%	$	538	1.0	%	$	977	1.4	%	$	—	—	%
Foreign government	306		3.2		3		4.3		139		3.0		164		3.3		—		—
Mortgage-backed residential	8,815		2.4		—		—		—		—		140		2.3		8,675		2.4
Asset-backed	2,221		2.0		7		2.0		1,595		2.0		511		1.8		108		2.6
Corporate debt	1,326		5.1		4		5.8		627		4.1		604		6.0		91		6.0
Total available-for-sale debt securities	$	14,767	2.4		$	598	0.1		$	2,899	2.2		$	2,396	2.6		$	8,874	2.5
Amortized cost of available-for-sale debt securities	$	14,579			$	598			$	2,852			$	2,352			$	8,777
December 31, 2012
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies	$	2,214	0.9	%	$	422	—	%	$	682	0.7	%	$	1,110	1.4	%	$	—	—	%
Foreign government	303		2.5		1		2.2		136		1.8		166		3.0		—		—
Mortgage-backed residential	6,906		2.7		—		—		—		—		35		4.3		6,871		2.7
Asset-backed	2,340		2.1		—		—		1,543		2.0		510		1.7		287		3.3
Corporate debt	1,263		5.1		9		3.2		560		4.0		596		6.0		98		5.8
Total available-for-sale debt securities	$	13,026	2.4		$	432	0.1		$	2,921	2.0		$	2,417	2.6		$	7,256	2.6
Amortized cost of available-for-sale debt securities	$	12,804			$	431			$	2,880			$	2,369			$	7,124


(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 $2.7 billion and $3.4 billion at March 31, 2013 , and December 31, 2012 , 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 March 31,
($ in millions)	2013			2012
Gross realized gains	$	70		$	97
Gross realized losses	(11		)	(8		)
Other-than-temporary impairment	(8		)	—
Net realized gains	$	51		$	89

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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 March 31,
($ in millions)	2013		2012
Taxable interest	$	63	$	69
Taxable dividends	5		5
Interest and dividends on available-for-sale securities	$	68	$	74

Certain available-for-sale securities were sold at a loss in 2013 as a result of market conditions within these respective periods. 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 March 31, 2013 , 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 March 31, 2013 , 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 March 31, 2013 . Refer to Note 1 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.



	March 31, 2013										December 31, 2012
	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	$	724	$	(1	)	$	—	$	—		$	244	$	(1	)	$	—	$	—
Foreign government	—		—			—		—			11		—			—		—
Mortgage-backed residential	2,360		(18		)	11		—			493		(2		)	23		(1		)
Asset-backed	163		(1		)	1		—			143		(1		)	1		—
Corporate debt	110		(2		)	6		—			120		(2		)	15		(1		)
Total temporarily impaired debt securities	3,357		(22		)	18		—			1,011		(6		)	39		(2		)
Temporarily impaired equity securities	217		(27		)	156		(22		)	380		(39		)	218		(34		)
Total temporarily impaired available-for-sale securities	$	3,574	$	(49	)	$	174	$	(22	)	$	1,391	$	(45	)	$	257	$	(36	)

6. Loans Held-for-Sale, Net

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



( $ in millions )	March 31, 2013		December 31, 2012
Consumer mortgage
1st Mortgage	$	701	$	2,490
Total consumer mortgage (a)	701		2,490
Commercial and industrial
Other	17		86
Total loans held-for-sale (b)	$	718	$	2,576


(a)	Fair value option-elected domestic consumer mortgages were $701 million and $2.5 billion at March 31, 2013 , and December 31, 2012 , 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 discounts of $34 million at March 31, 2013 , and net unamortized premiums of $26 million at December 31, 2012 .

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table summarizes held-for-sale mortgage loans reported at carrying value by higher-risk loan type.



( $ in millions )	March 31, 2013		December 31, 2012
High original loan-to-value (greater than 100%) mortgage loans	$	74	$	378
Interest-only mortgage loans	3		10
Total higher-risk mortgage loans held-for-sale	$	77	$	388

7. Finance Receivables and Loans, Net

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



( $ in millions )	March 31, 2013		December 31, 2012
Consumer automobile	$	55,014	$	53,715
Consumer mortgage
1st Mortgage	7,095		7,173
Home equity	2,577		2,648
Total consumer mortgage	9,672		9,821
Commercial
Commercial and industrial
Automobile	29,255		30,270
Mortgage	—		—
Other	2,562		2,697
Commercial real estate
Automobile	2,620		2,552
Mortgage	—		—
Total commercial	34,437		35,519
Total finance receivables and loans (a) (b)	$	99,123	$	99,055


(a)	Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $842 million and $895 million at March 31, 2013 , and December 31, 2012 , respectively.


(b)	Includes $1 million and $2 million of foreign consumer automobile loans, and $15 million and $18 million of foreign commercial other loans at March 31, 2013 , and December 31, 2012 , respectively.

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



Three months ended March 31, 2013 ( $ in millions )	Consumer automobile			Consumer mortgage			Commercial			Total
Allowance at January 1, 2013	$	575		$	452		$	143		$	1,170
Charge-offs	(142		)	(24		)	(1		)	(167		)
Recoveries	49			3			1			53
Net charge-offs	(93		)	(21		)	—			(114		)
Provision for loan losses	107			20			4			131
Other	10			—			—			10
Allowance at March 31, 2013	$	599		$	451		$	147		$	1,197
Allowance for loan losses
Individually evaluated for impairment	$	22		$	209		$	28		$	259
Collectively evaluated for impairment	575			242			119			936
Loans acquired with deteriorated credit quality	2			—			—			2
Finance receivables and loans at historical cost
Ending balance	55,014			9,672			34,437			99,123
Individually evaluated for impairment	270			933			1,397			2,600
Collectively evaluated for impairment	54,722			8,739			33,040			96,501
Loans acquired with deteriorated credit quality	22			—			—			22

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, 2012 ( $ in millions )	Consumer automobile			Consumer mortgage			Commercial			Total
Allowance at January 1, 2012	$	766		$	516		$	221		$	1,503
Charge-offs (a)	(136		)	(45		)	(2		)	(183		)
Recoveries (b)	62			2			12			76
Net charge-offs	(74		)	(43		)	10			(107		)
Provision for loan losses	83			27			(12		)	98
Other (c)	57			1			(6		)	52
Allowance at March 31, 2012	$	832		$	501		$	213		$	1,546
Allowance for loan losses
Individually evaluated for impairment	$	8		$	168		$	47		$	223
Collectively evaluated for impairment	816			333			166			1,315
Loans acquired with deteriorated credit quality	8			—			—			8
Finance receivables and loans at historical cost
Ending balance	67,214			9,958			41,814			118,986
Individually evaluated for impairment	88			619			367			1,074
Collectively evaluated for impairment	67,055			9,339			41,447			117,841
Loans acquired with deteriorated credit quality	71			—			—			71


(a)	Includes foreign consumer automobile charge-offs of $36 million .


(b)	Includes foreign consumer automobile and foreign commercial recoveries of $16 million and $5 million , respectively.


(c)	Includes provision for loan losses relating to discontinued operations of $42 million .

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 March 31,
( $ in millions )	2013		2012
Consumer mortgage	$	—	$	40
Commercial	18		—
Total sales and transfers	$	18	$	40

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents an analysis of our past due finance receivables and loans, 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
March 31, 2013
Consumer automobile	$	743	$	152	$	133	$	1,028	$	53,986	$	55,014
Consumer mortgage
1st Mortgage	76		32		147		255		6,840		7,095
Home equity	16		6		15		37		2,540		2,577
Total consumer mortgage	92		38		162		292		9,380		9,672
Commercial
Commercial and industrial
Automobile	26		—		24		50		29,205		29,255
Mortgage	—		—		—		—		—		—
Other	—		—		—		—		2,562		2,562
Commercial real estate
Automobile	1		—		15		16		2,604		2,620
Mortgage	—		—		—		—		—		—
Total commercial	27		—		39		66		34,371		34,437
Total consumer and commercial	$	862	$	190	$	334	$	1,386	$	97,737	$	99,123
December 31, 2012
Consumer automobile	$	920	$	213	$	138	$	1,271	$	52,444	$	53,715
Consumer mortgage
1st Mortgage	66		37		156		259		6,914		7,173
Home equity	15		6		18		39		2,609		2,648
Total consumer mortgage	81		43		174		298		9,523		9,821
Commercial
Commercial and industrial
Automobile	—		—		16		16		30,254		30,270
Mortgage	—		—		—		—		—		—
Other	—		—		1		1		2,696		2,697
Commercial real estate
Automobile	—		—		8		8		2,544		2,552
Mortgage	—		—		—		—		—		—
Total commercial	—		—		25		25		35,494		35,519
Total consumer and commercial	$	1,001	$	256	$	337	$	1,594	$	97,461	$	99,055

Table of Contents

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 )	March 31, 2013		December 31, 2012
Consumer automobile	$	266	$	260
Consumer mortgage
1st Mortgage	372		342
Home equity	30		40
Total consumer mortgage	402		382
Commercial
Commercial and industrial
Automobile	168		146
Mortgage	—		—
Other	63		33
Commercial real estate
Automobile	39		37
Mortgage	—		—
Total commercial	270		216
Total consumer and commercial finance receivables and loans	$	938	$	858

Management performs a quarterly analysis of the consumer automobile, consumer mortgage, and commercial portfolios using a range of credit quality indicators to assess the adequacy of the allowance based on historical and current trends. The tables below present the population of loans by quality indicators for our consumer automobile, consumer mortgage, and commercial portfolios.

The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Refer to Note 1 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K for additional information.



	March 31, 2013						December 31, 2012
( $ in millions )	Performing		Nonperforming		Total		Performing		Nonperforming		Total
Consumer automobile	$	54,748	$	266	$	55,014	$	53,455	$	260	$	53,715
Consumer mortgage
1st Mortgage	6,723		372		7,095		6,831		342		7,173
Home equity	2,547		30		2,577		2,608		40		2,648
Total consumer mortgage	$	9,270	$	402	$	9,672	$	9,439	$	382	$	9,821

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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.



	March 31, 2013						December 31, 2012
( $ in millions )	Pass		Criticized (a)		Total		Pass		Criticized (a)		Total
Commercial
Commercial and industrial
Automobile	$	27,905	$	1,350	$	29,255	$	28,978	$	1,292	$	30,270
Mortgage	—		—		—		—		—		—
Other	2,296		266		2,562		2,417		280		2,697
Commercial real estate
Automobile	2,502		118		2,620		2,440		112		2,552
Mortgage	—		—		—		—		—		—
Total commercial	$	32,703	$	1,734	$	34,437	$	33,835	$	1,684	$	35,519


(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.

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 2012 Annual Report on Form 10-K for additional information.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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
March 31, 2013
Consumer automobile	$	270	$	270	$	—	$	270	$	22
Consumer mortgage
1st Mortgage	790		784		125		659		149
Home equity	148		149		2		147		60
Total consumer mortgage	938		933		127		806		209
Commercial
Commercial and industrial
Automobile	168		168		54		114		10
Mortgage	—		—		—		—		—
Other	63		63		10		53		7
Commercial real estate
Automobile	39		39		12		27		11
Mortgage	—		—		—		—		—
Total commercial	270		270		76		194		28
Total consumer and commercial finance receivables and loans	$	1,478	$	1,473	$	203	$	1,270	$	259
December 31, 2012
Consumer automobile	$	260	$	260	$	90	$	170	$	16
Consumer mortgage
1st Mortgage	811		725		123		602		137
Home equity	147		148		1		147		49
Total consumer mortgage	958		873		124		749		186
Commercial
Commercial and industrial
Automobile	146		146		54		92		7
Mortgage	—		—		—		—		—
Other	33		33		9		24		7
Commercial real estate
Automobile	37		37		9		28		12
Mortgage	—		—		—		—		—
Total commercial	216		216		72		144		26
Total consumer and commercial finance receivables and loans	$	1,434	$	1,349	$	286	$	1,063	$	228

Table of Contents

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.



	2013				2012
Three months ended March 31, ( $ in millions )	Average balance		Interest income		Average balance		Interest income
Consumer automobile	$	272	$	4	$	83	$	2
Consumer mortgage
1st Mortgage	744		7		512		4
Home equity	135		1		100		1
Total consumer mortgage	879		8		612		5
Commercial
Commercial and industrial
Automobile	157		2		196		2
Mortgage	—		—		7		—
Other	57		—		34		—
Commercial real estate
Automobile	38		—		63		—
Mortgage	—		—		15		—
Total commercial	252		2		315		2
Total consumer and commercial finance receivables and loans	$	1,403	$	14	$	1,010	$	9

Troubled Debt Restructurings (TDRs)

TDRs are loan modifications where concessions were granted to borrowers experiencing financial difficulties. Numerous initiatives 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 extension of the maturity date and rewriting the loan terms. Total TDRs recorded at historical cost and reported at carrying value before allowance for loan losses were $1.3 billion and $1.2 billion at March 31, 2013 , and December 31, 2012 , respectively. Refer to Note 1 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K for additional information.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents information related to finance receivables and loans recorded at historical cost modified in connection with a troubled debt restructuring during the period.



	2013 (a)					2012
Three months ended March 31, ( $ 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	5,285	$	79	$	68	2,792	$	33	$	33
Consumer mortgage
1st Mortgage	474	165		130		77	28		27
Home equity	71	4		4		173	10		9
Total consumer mortgage	545	169		134		250	38		36
Commercial
Commercial and industrial
Automobile	4	25		25		3	3		3
Mortgage	—	—		—		—	—		—
Other	1	33		31		—	—		—
Commercial real estate
Automobile	3	11		11		1	2		2
Mortgage	—	—		—		—	—		—
Total commercial	8	69		67		4	5		5
Total consumer and commercial finance receivables and loans	5,838	$	317	$	269	3,046	$	76	$	74


(a)	Due to recent industry practice, bankruptcy loans that have not been reaffirmed have been included within our TDR population beginning in the fourth quarter of 2012.

The following table presents information about finance receivables and loans recorded at historical cost that have redefaulted during the reporting period and were within 12 months or less of being modified as a troubled debt restructuring. Redefault is when finance receivables and loans meet the requirements for evaluation under our charge-off policy (Refer to Note 1 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K for additional information) except for commercial finance receivables and loans where redefault is defined as 90 days past due.



	2013 (a)					2012
Three months ended March 31, ( $ in millions )	Number of loans	Carrying value before allowance		Charge-off amount		Number of loans	Carrying value before allowance		Charge-off amount
Consumer automobile	1,333	$	16	$	8	208	$	2	$	1
Consumer mortgage
1st Mortgage	8	2		—		5	1		—
Home equity	2	—		—		4	1		1
Total consumer mortgage	10	2		—		9	2		1
Commercial
Commercial and industrial
Automobile	—	—		—		2	2		—
Commercial real estate
Automobile	—	—		—		—	—		—
Total commercial	—	—		—		2	2		—
Total consumer and commercial finance receivables and loans	1,343	$	18	$	8	219	$	6	$	2


(a)	Due to recent industry practice, bankruptcy loans that have not been reaffirmed have been included within our TDR population beginning in the fourth quarter of 2012.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

At March 31, 2013 , and December 31, 2012 , commercial commitments to lend additional funds to debtors owing receivables whose terms had been modified in a troubled debt restructuring were $13 million and $25 million , respectively.

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 )	March 31, 2013		December 31, 2012
Interest-only mortgage loans (a)	$	1,853	$	2,063
Below-market rate (teaser) mortgages	185		192
Total higher-risk mortgage finance receivables and loans	$	2,038	$	2,255


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

8. Investment in Operating Leases, Net

Investments in operating leases were as follows.



($ in millions)	March 31, 2013			December 31, 2012
Vehicles and other equipment	$	17,524		$	16,009
Accumulated depreciation	(2,696		)	(2,459		)
Investment in operating leases, net	$	14,828		$	13,550

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 March 31,
($ in millions)	2013			2012
Depreciation expense on operating lease assets (excluding remarketing gains)	$	499		$	328
Remarketing gains	(64		)	(23		)
Depreciation expense on operating lease assets	$	435		$	305

9. Securitizations and Variable Interest Entities

Overview

We are involved in several types of securitization and financing transactions that utilize special-purpose entities (SPEs). A SPE is an entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity and favorable capital treatment by securitizing certain of our financial assets.

The SPEs involved in securitization and other financing transactions are generally considered variable interest entities (VIEs). VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the ability to control the entity's activities. Due to the deconsolidation of ResCap, our mortgage securitization activity and involvement with certain mortgage-related VIEs has substantially changed. Refer to Note 1 for additional information related to ResCap.

Securitizations

We provide a wide range of consumer and commercial automobile loans, operating leases, other commercial loans, and mortgage loan products to a diverse customer base. We often securitize these loans and leases (which we collectively describe as loans or financial assets) through the use of securitization entities, which may or may not be consolidated on our 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 three months ended March 31, 2013 and 2012 , 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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 10 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 through the GSEs. In private-label securitizations, cash flows from the assets initially transferred into the securitization entity represent the sole source for payment of distributions on the beneficial interests issued by the securitization entity and for payments to the parties that perform services for the securitization entity, such as the servicer or the trustee. In certain private-label securitization transactions, a liquidity facility may exist to provide temporary liquidity to the entity. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution periods. In previous certain private-label securitizations, monoline insurance may have existed to cover certain shortfalls to certain investors in the beneficial interests issued by the securitization entity. As noted above, in certain private-label securitizations, the servicer is required to advance scheduled principal and interest payments due on the beneficial interests regardless of whether cash payments are received on the underlying transferred financial assets. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain private-label securitization transactions may have previously allowed for the acquisition of additional loans subsequent to the initial loan transfer. Principal collections on other loans and/or the issuance of new beneficial interests, such as variable funding notes, generally funded those loans; we were often contractually required to invest in these new interests.

We may have retained beneficial interests in our private-label securitizations, which may have represented a form of significant continuing economic interest. These retained interests included, but were not limited to, senior or subordinate asset-backed securities and residuals, and previously included senior or subordinate mortgage-backed securities, interest-only strips, and principal-only strips. Certain of these retained interests provided credit enhancement to the trust as they may have absorbed credit losses or other cash shortfalls. Additionally, the securitization agreements may have required cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which may or may not have been performance-driven.

We generally hold certain conditional repurchase options specific to private label securitizations that allow us to repurchase assets from the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining transferred financial assets or outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which represents the point where servicing becomes burdensome (a clean-up call option). The repurchase price is typically the par amount of the loans plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase a transferred financial asset if certain events outside our control occur. 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 26 for detail on representation and warranty provisions. We did not provide any noncontractual financial support to any of these entities during the three months ended March 31, 2013 or 2012 .

Other Variable Interest Entities

We have involvements with various other on-balance sheet, immaterial VIEs. Most of these VIEs are used for additional liquidity whereby we sell certain financial assets into the VIE and issue 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Involvement with Variable Interest Entities

The determination of whether financial assets transferred by us to these VIEs (and related liabilities) are consolidated on our balance sheet (also referred to as on-balance sheet) or not consolidated on our balance sheet (also referred to as off-balance sheet) depends on the terms of the related transaction and our continuing involvement (if any) with the VIE. We are deemed the primary beneficiary and therefore consolidate VIEs for which we have both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE's economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could potentially be significant to the VIE and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant to the VIE. We determine whether we hold a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on an ongoing basis.

Our involvement with consolidated and nonconsolidated VIEs in which we hold variable interests is presented below.



($ in millions)	Consolidated involvement with VIEs (a)				Assets of nonconsolidated VIEs (a)			Maximum exposure to loss in nonconsolidated VIEs
March 31, 2013
On-balance sheet variable interest entities
Consumer automobile	$	25,048
Commercial automobile	19,576
Commercial other	727
Off-balance sheet variable interest entities
Consumer automobile	—				$	1,336		$	1,336	(b)
Consumer mortgage — other	—				—		(c)	10		(d)
Commercial other	(27		)	(e)	—		(c)	73
Total	$	45,324			$	1,336		$	1,419
December 31, 2012
On-balance sheet variable interest entities
Consumer automobile	$	28,566
Commercial automobile	23,139
Commercial other	728
Off-balance sheet variable interest entities
Consumer automobile	—				$	1,495		$	1,495	(b)
Consumer mortgage — other	—				—		(c)	12		(d)
Commercial other	(28		)	(e)	—		(c)	85
Total	$	52,405			$	1,495		$	1,592


(a)	Asset values represent the current unpaid principal balance of outstanding consumer and commercial 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.

(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)	Amounts classified as accrued expenses and other liabilities.

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 activities, and because we hold a significant variable interest in the VIE. We are generally the primary beneficiary of automobile securitization

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 of consolidated VIEs, presented below based upon the legal transfer of the underlying assets in order to reflect legal ownership, are restricted for the benefit of the beneficial interest holders. Refer to Note 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 26 .

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 (MSRs) 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 pretax gains recognized on financial assets sold into nonconsolidated securitization and similar asset-backed financing entities for consumer mortgage — GSEs were $ 93 million and $ 28 million at March 31, 2013 and March 31, 2012 , respectively.

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 March 31, 2013 and 2012 . Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.



Three months ended March 31, ( $ in millions )	Consumer automobile		Consumer mortgage GSEs			Consumer mortgage private-label
2013
Cash proceeds from transfers completed during the period	$	—	$	7,580		$	—
Servicing fees	4		119			—
Representations and warranties obligations	—		(23		)	—
Other cash flows	—		3			—
2012
Cash proceeds from transfers completed during the period	$	—	$	10,645		$	—
Cash flows received on retained interests in securitization entities	—		—			14
Servicing fees	—		249			48
Purchases of previously transferred financial assets	—		(580		)	(8		)
Representations and warranties obligations	—		(19		)	(4		)
Other cash flows	—		10			23

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables represent on-balance sheet loans held-for-sale and finance receivables 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 10 for further detail on total serviced assets.



	Total Amount				Amount 60 days or more past due
($ in millions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
On-balance sheet loans
Consumer automobile	$	55,014	$	53,715	$	285	$	351
Consumer mortgage	10,373		12,311		226		241
Commercial automobile	31,875		32,822		39		24
Commercial mortgage	—		—		—		—
Commercial other	2,579		2,783		—		1
Total on-balance sheet loans	99,841		101,631		550		617
Off-balance sheet securitization entities
Consumer automobile	1,336		1,495		3		4
Consumer mortgage - GSEs	117,342		119,384		1,835		1,892
Total off-balance sheet securitization entities	118,678		120,879		1,838		1,896
Whole-loan transactions (a)	5,558		6,756		103		129
Total	$	224,077	$	229,266	$	2,491	$	2,642


(a)	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.



	Net credit losses
	Three months ended March 31,
($ in millions)	2013			2012
On-balance sheet loans
Consumer automobile	$	93		$	74
Consumer mortgage	21			18
Commercial automobile	1			—
Commercial mortgage	n/m			(1		)
Commercial other	(1		)	(8		)
Total on-balance sheet loans	114			83
Off-balance sheet securitization entities
Consumer automobile	1			n/m
Consumer mortgage - GSEs (a)	n/m			n/m
Total off-balance sheet securitization entities	1			—
Whole-loan transactions	n/m			8
Total	$	115		$	91

n/m = not meaningful


(a)	Anticipated credit losses are not meaningful due to the GSE guarantees.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

10. Servicing Activities

Mortgage Servicing Rights

The following table summarizes activity related to MSRs, which are carried at fair value. Management estimates fair value using our transaction data and other market data or, in periods when there are limited MSRs market transactions that are directly observable, internally developed discounted cash flow models (an income approach) are used 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 March 31, ($ in millions)	2013 (a)(b)			2012 (c)
Estimated fair value at January 1,	$	952		$	2,519
Additions recognized on sale of mortgage loans	54			75
Changes in fair value
Due to changes in valuation inputs or assumptions used in the valuation model	(28		)	163
Other changes in fair value	(61		)	(162		)
Estimated fair value at March 31,	$	917		$	2,595


(a)	The remaining balance is at Ally Bank, due to the deconsolidation of ResCap.


(b)	In April 2013, we sold our agency MSRs portfolio. Refer to Note 27 for further details.


(c)	Includes activities of our discontinued operations.

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 2012 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)	March 31, 2013			December 31, 2012
Weighted average life (in years)	5.4			4.6
Weighted average prepayment speed	10.3		%	13.5		%
Impact on fair value of 10% adverse change	$	(64	)	$	(77	)
Impact on fair value of 20% adverse change	(122		)	(144		)
Weighted average discount rate	9.3		%	7.7		%
Impact on fair value of 10% adverse change	$	(42	)	$	(10	)
Impact on fair value of 20% adverse change	(80		)	(19		)

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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The components of servicing valuation and hedge activities, net, were as follows.



	Three months ended March 31,
($ in millions)	2013			2012
Change in estimated fair value of mortgage servicing rights	$	(89	)	$	(10	)
Change in fair value of derivative financial instruments	(112		)	(96		)
Servicing asset valuation and hedge activities, net	$	(201	)	$	(106	)

Mortgage Servicing Fees

The components of mortgage servicing fees were as follows.



	Three months ended March 31,
( $ in millions )	2013		2012
Contractual servicing fees, net of guarantee fees and including subservicing	$	58	$	86
Late fees	1		2
Ancillary fees	4		4
Total mortgage servicing fees	$	63	$	92

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. These servicing advances are included in other assets on the Condensed Consolidated Balance Sheet and totaled $78 million and $82 million at March 31, 2013 and December 31, 2012 , respectively. We maintained an allowance for uncollected primary servicing advances of $1 million and $1 million at March 31, 2013 and December 31, 2012 , respectively. Our potential obligation is influenced by the loan’s performance and credit quality.

Mortgage Serviced Assets

Total serviced mortgage assets consist of primary servicing activities. These include loans owned by Ally Bank, where Ally Bank is the primary servicer, and loans sold to third-party investors, where Ally Bank has retained primary servicing. Loans owned by Ally Bank are categorized as loans held-for-sale or finance receivables and loans, which are discussed in further detail in Note 6 and Note 7 , 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)	March 31, 2013		December 31, 2012
On-balance sheet mortgage loans
Held-for-sale and investment	$	9,208	$	10,938
Off-balance sheet mortgage loans
Loans sold to third-party investors
GSEs	117,675		119,384
Whole-loan	2		2
Total primary serviced mortgage loans (a)	$	126,885	$	130,324


(a)	In April 2013, we sold our agency MSRs portfolio, refer to Note 27 for further details.

Ally Bank is subject to certain net worth requirements associated with its servicing agreements with Fannie Mae and Freddie Mac. The majority of Ally Bank’s serviced mortgage assets are subserviced by GMAC Mortgage, LLC, a subsidiary of ResCap, pursuant to a servicing agreement. At March 31, 2013 , Ally Bank was in compliance with the requirements of the servicing agreements.

Automobile Finance Servicing Activities

We service consumer automobile contracts. Historically, we have sold a portion of our consumer automobile contracts. With respect to contracts we sell, we retain the right to service and earn a servicing fee for our servicing function. Typically, we conclude that the fee we are paid for servicing consumer automobile finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We recognized automobile servicing fees of $ 19 million and $ 30 million , during the three months ended March 31, 2013 and 2012 , respectively.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Automobile Finance Serviced Assets

The total serviced automobile finance loans outstanding were as follows.



($ in millions)	March 31, 2013		December 31, 2012
On-balance sheet automobile finance loans and leases
Consumer automobile	$	55,014	$	53,715
Commercial automobile	31,875		32,822
Operating leases	14,828		13,550
Operations held-for-sale	15,304		25,979
Other	45		41
Off-balance sheet automobile finance loans
Loans sold to third-party investors
Securitizations	1,317		1,474
Whole-loan	5,374		6,541
Other (a)	9,060		—
Total serviced automobile finance loans and leases	$	132,817	$	134,122


(a)	Consists of serviced assets sold in conjunction with the divestiture of our Canadian automotive finance operations.

11. Other Assets

The components of other assets were as follows.



($ in millions)	March 31, 2013			December 31, 2012
Property and equipment at cost	$	696		$	693
Accumulated depreciation	(428		)	(411		)
Net property and equipment	268			282
Restricted cash collections for securitization trusts (a)	2,159			2,983
Deferred tax asset	1,309			1,190
Fair value of derivative contracts in receivable position	668			2,298
Restricted cash and cash equivalents	531			889
Collateral placed with counterparties	447			1,290
Other accounts receivable	445			525
Cash reserve deposits held-for-securitization trusts (b)	429			442
Unamortized debt issuance costs	418			425
Nonmarketable equity securities	283			303
Other assets	993			1,281
Total other assets	$	7,950		$	11,908


(a)	Represents cash collections 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

12. Deposit Liabilities

Deposit liabilities consisted of the following.



( $ in millions )	March 31, 2013		December 31, 2012
Deposits
Noninterest-bearing deposits	$	844	$	1,977
Interest-bearing deposits
Savings and money market checking accounts	17,512		13,871
Certificates of deposit	31,135		31,084
Dealer deposits	835		983
Total deposit liabilities	$	50,326	$	47,915

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 March 31, 2013 , and December 31, 2012 , certificates of deposit included $12.3 billion and $12.0 billion , respectively, of certificates of deposit in denominations of $100 thousand or more.

13. Short-term Borrowings

The following table presents the composition of our short-term borrowings portfolio.



	March 31, 2013						December 31, 2012
($ in millions)	Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total
Demand notes	$	3,229	$	—	$	3,229	$	3,094	$	—	$	3,094
Bank loans and overdrafts	7		—		7		167		—		167
Federal Home Loan Bank	—		3,500		3,500		—		3,800		3,800
Securities sold under agreements to repurchase	—		482		482		—		—		—
Other (b)	—		400		400		—		400		400
Total short-term borrowings	$	3,236	$	4,382	$	7,618	$	3,261	$	4,200	$	7,461


(a)	Refer to Note 14 for further details on assets restricted as collateral for payment of the related debt.


(b)	Other relates to secured borrowings at our Commercial Finance Group at March 31, 2013 and December 31, 2012 .

14. Long-term Debt

The following tables present the composition of our long-term debt portfolio.



	March 31, 2013						December 31, 2012
($ in millions)	Unsecured		Secured		Total		Unsecured		Secured		Total
Long-term debt
Due within one year	$	3,809	$	10,964	$	14,773	$	1,070	$	11,503	$	12,573
Due after one year (a)	28,448		23,444		51,892		31,486		29,408		60,894
Fair value adjustment	956		—		956		1,094		—		1,094
Total long-term debt	$	33,213	$	34,408	$	67,621	$	33,650	$	40,911	$	74,561


(a)	Includes $ 2.6 billion and $ 2.6 billion of trust preferred securities at both March 31, 2013 and December 31, 2012 , respectively.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents the scheduled remaining maturity of long-term debt, assuming no early redemptions will occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.



Year ended December 31, ($ in millions)	2013			2014			2015			2016			2017			2018 and thereafter			Fair value adjustment		Total
Unsecured
Long-term debt	$	1,008		$	5,588		$	5,092		$	1,970		$	3,681		$	16,698		$	956	$	34,993
Original issue discount	(201		)	(188		)	(56		)	(63		)	(75		)	(1,197		)	—		(1,780		)
Total unsecured	807			5,400			5,036			1,907			3,606			15,501			956		33,213
Secured
Long-term debt	7,109			12,005			8,137			3,574			2,722			861			—		34,408
Total long-term debt	$	7,916		$	17,405		$	13,173		$	5,481		$	6,328		$	16,362		$	956	$	67,621

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.



	March 31, 2013				December 31, 2012
($ in millions)	Total		Ally Bank (a)		Total		Ally Bank (a)
Investment securities	$	500	$	500	$	1,911	$	1,911
Mortgage assets held-for-investment and lending receivables	9,715		9,715		9,866		9,866
Consumer automobile finance receivables	23,953		12,673		29,557		14,833
Commercial automobile finance receivables	18,574		18,574		19,606		19,606
Investment in operating leases, net	6,872		2,966		6,058		1,691
Other assets	973		252		999		272
Total assets restricted as collateral (b)	$	60,587	$	44,680	$	67,997	$	48,179
Secured debt (c)	$	38,790	$	25,864	$	45,111	$	29,162


(a)	Ally Bank is a component of the total column.

(b)

Ally Bank has an advance agreement with the Federal Home Loan Bank of Pittsburgh (FHLB) and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling $12.5 billion and $12.6 billion at March 31, 2013 , and December 31, 2012 , respectively. These assets were composed primarily of consumer and commercial mortgage finance receivables and loans, net. Ally Bank has access to the Federal Reserve Bank Discount Window. Ally Bank had assets pledged and restricted as collateral to the Federal Reserve Bank totaling $3.1 billion and $1.9 billion at March 31, 2013 , and December 31, 2012 , respectively. These assets were composed of consumer mortgage finance receivables and loans, net; consumer automobile finance receivables and loans, net; and investment securities. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of Ally or its subsidiaries.


(c)	Includes $4.4 billion and $4.2 billion of short-term borrowings at March 31, 2013 , and December 31, 2012 , 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,

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or junior in interest to the Debentures with certain specified exceptions in each case.

Covenants and Other Requirements

In secured funding transactions, there are trigger events that could cause the debt to be prepaid at an accelerated rate or could cause our usage of the credit facility to be discontinued. The triggers are generally based on the financial health and performance of the servicer as well as performance criteria for the pool of receivables, such as delinquency ratios, loss ratios, commercial payment rates. During 2012, there were no trigger events that resulted in the repayment of debt at an accelerated rate or impacted the usage of our credit facilities.

When we issue debt securities in private offerings, we may be subject to registration rights agreements. Under these agreements, we generally agree to use reasonable efforts to cause the consummation of a registered exchange offer or to file a shelf registration statement within a prescribed period. In the event that we fail to meet these obligations, we may be required to pay additional penalty interest with respect to the covered debt during the period in which we fail to meet our contractual obligations.

Funding Facilities

We utilize both committed and uncommitted credit facilities. The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them. The amounts outstanding under our various funding facilities are included on our Condensed Consolidated Balance Sheet .

As of March 31, 2013 , Ally Bank had exclusive access to $3.5 billion of funding capacity from committed credit facilities. Ally Bank also has access to a $4.1 billion committed facility that is shared with the parent company. Funding programs supported by the Federal Reserve and the FHLB, together with repurchase agreements, complement Ally Bank’s private committed facilities.

The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At March 31, 2013 , $26.1 billion of our $33.4 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of March 31, 2013 , we had $16.9 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)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Bank funding
Secured	$	1.7	$	3.8	$	1.8	$	4.7	$	3.5	$	8.5
Nonbank funding
Unsecured (b)	0.1		0.1		—		—		0.1		0.1
Secured (c) (d) (e)	13.9		22.5		11.8		7.8		25.7		30.3
Total nonbank funding	14.0		22.6		11.8		7.8		25.8		30.4
Shared capacity (f) (g)	1.1		1.1		3.0		3.0		4.1		4.1
Total committed facilities	$	16.8	$	27.5	$	16.6	$	15.5	$	33.4	$	43.0


(a)	Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent incremental collateral is available and contributed to the facilities.


(b)	Total unsecured nonbank funding capacity represents committed funding for our discontinued international automobile financing business.


(c)	Total secured nonbank funding capacity includes committed funding for our discontinued international automobile financing business of $6.9 billion and $12.0 billion as of March 31, 2013 and December 31, 2012 , respectively, with outstanding debt of $5.1 billion and $9.6 billion , respectively.


(d)	Total unused capacity includes $2.1 billion and $2.2 billion as of March 31, 2013 and December 31, 2012 , respectively, from certain committed funding arrangements that are generally reliant upon the origination of future automotive receivables and that are available in 2013.


(e)	Includes the secured facilities of our Commercial Finance Group.


(f)	Funding is generally available for assets originated by Ally Bank or the parent company, Ally Financial Inc.


(g)	Total shared bank facilities includes committed funding for our discontinued international automobile financing business of $0.1 billion and $0.1 billion as of March 31, 2013 and December 31, 2012 , respectively with outstanding debt of $0.1 billion and $0.1 billion , respectively.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Uncommitted Funding Facilities



	Outstanding				Unused Capacity (a)				Total Capacity
($ in billions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Bank funding
Secured
Federal Reserve funding programs	$	—	$	—	$	1.8	$	1.8	$	1.8	$	1.8
FHLB advances	4.5		4.8		0.8		0.4		5.3		5.2
Repurchase agreements	0.5		—		—		—		0.5		—
Total bank funding	5.0		4.8		2.6		2.2		7.6		7.0
Nonbank funding
Unsecured	2.2		2.1		0.4		0.4		2.6		2.5
Secured	—		0.1		0.1		0.1		0.1		0.2
Total nonbank funding (a)	2.2		2.2		0.5		0.5		2.7		2.7
Total uncommitted facilities	$	7.2	$	7.0	$	3.1	$	2.7	$	10.3	$	9.7


(a)	Total nonbank funding capacity represents uncommitted funding for our discontinued international automobile financing business.

15. Accrued Expenses and Other Liabilities

The components of accrued expenses and other liabilities were as follows.



($ in millions)	March 31, 2013		December 31, 2012
Accrual related to ResCap Bankruptcy (a)	$	750	$	750
Collateral received from counterparties	565		941
Accounts payable	475		565
Fair value of derivative contracts in payable position	406		2,468
Employee compensation and benefits	364		494
Reserves for insurance losses and loss adjustment expenses	342		341
Reserve for mortgage representation and warranty obligation	170		105
Deferred revenue	102		97
Other liabilities	495		824
Total accrued expenses and other liabilities	$	3,669	$	6,585


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

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

16. Equity

The following table summarizes information about our Series F-2, Series A, and Series G preferred stock.



	March 31, 2013			December 31, 2012
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 either with consent of Treasury or in the event the Federal Reserve compels a conversion.


(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.

17. Accumulated Other Comprehensive Income (Loss)

The following table presents changes, net of tax, in each component of accumulated other comprehensive income (loss).



($ in millions)	Unrealized gains on investment securities		Translation adjustments and net investment hedges			Cash flow hedges		Defined benefit pension plans			Accumulated other comprehensive income (loss)
Balance at December 31, 2012	$	76	$	368		$	2	$	(135	)	$	311
2013 net change	12		(350		)	4		17			(317		)
Balance at March 31, 2013	$	88	$	18		$	6	$	(118	)	$	(6	)

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents the before- and after-tax changes in each component of accumulated other comprehensive income (loss).



March 31, ($ in millions)	Before Tax				Tax Effect				After Tax
2013
Unrealized gains on investment securities
Net unrealized gains arising during the period	$	69			$	(1	)		$	68
Less: Net realized gains reclassified to net income	51			(a)	(2		)	(b)	49
Less: Net realized gains reclassified to income from discontinued operations, net of tax	8				(1		)		7
Net change	10				2				12
Translation adjustments
Net unrealized losses arising during the period	(49		)		2				(47		)
Less: Net realized gains reclassified to income from discontinued operations, net of tax	432				3				435
Net change	(481		)		(1		)		(482		)
Net investment hedges
Net unrealized gains arising during the period	20				(8		)		12
Less: Net realized losses reclassified to income from discontinued operations, net of tax	(149		)		29				(120		)
Net change	169				(37		)		132
Cash flow hedges
Less: Net realized losses reclassified to net income	(7		)	(c)	3			(b)	(4		)
Defined benefit pension plans
Less: Net losses, prior service costs, and transition obligations reclassified to net income	(2		)	(d)	—			(b)	(2		)
Less: Net losses, prior service costs, and transition obligations reclassified to income from discontinued operations, net of tax	(17		)		2				(15		)
Net change	19				(2		)		17
Other comprehensive income	$	(276	)		$	(41	)		$	(317	)


(a)	Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income .


(b)	Includes amounts reclassified to income tax (benefit) expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income .


(c)	Includes losses reclassified to interest on long-term debt in our Condensed Consolidated Statement of Comprehensive Income .


(d)	Includes losses reclassified to compensation and benefits expense in our Condensed Consolidated Statement of Comprehensive Income .

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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 March 31,
( $ in millions except per share data )	2013			2012
Net income from continuing operations	$	60		$	2
Preferred stock dividends — U.S. Department of Treasury	(133		)	(134		)
Preferred stock dividends	(67		)	(67		)
Net loss from continuing operations attributable to common shareholders	(140		)	(199		)
Income from discontinued operations, net of tax	1,033			308
Net income attributable to common shareholders	$	893		$	109
Basic weighted-average common shares outstanding	1,330,970			1,330,970
Diluted weighted-average common shares outstanding (a)	1,330,970			1,330,970
Basic earnings per common share
Net loss from continuing operations	$	(105	)	$	(149	)
Income from discontinued operations, net of tax	776			231
Net income	$	671		$	82
Diluted earnings per common share (a)
Net loss from continuing operations	$	(105	)	$	(149	)
Income from discontinued operations, net of tax	776			231
Net income	$	671		$	82

(a)

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 ended March 31, 2013 and 2012 , 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 ended March 31, 2013 and 2012 , respectively.

19. Regulatory Capital and Other Regulatory Matters

As a bank holding company, we and our wholly owned state-chartered banking subsidiary, Ally Bank, are subject to risk-based capital and leverage guidelines issued by federal and state banking regulators that require that our capital-to-assets ratios meet certain minimum standards. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements or the results of operations and financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets and certain off-balance sheet items. Our capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

The risk-based capital ratios are determined by allocating assets and specified off-balance sheet financial instruments into several broad risk categories with higher levels of capital being required for the categories that present greater risk. Under the guidelines, total capital is divided into two tiers: Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common equity, minority interests, qualifying noncumulative preferred stock, and the fixed rate cumulative preferred stock sold to Treasury under the Troubled Asset Relief Program (TARP), less goodwill and other adjustments. Tier 2 capital generally consists of perpetual preferred stock not qualifying as Tier 1 capital, limited amounts of subordinated debt and the allowance for loan losses, and other adjustments. The amount of Tier 2 capital may not exceed the amount of Tier 1 capital.

Total risk-based capital is the sum of Tier 1 and Tier 2 capital. Under the guidelines, banking organizations are required to maintain a minimum Total risk-based capital ratio (Total capital to risk-weighted assets) of 8% and a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted assets) of 4% .

The federal banking regulators also have established minimum leverage ratio guidelines. The leverage ratio is defined as Tier 1 capital divided by adjusted quarterly average total assets (which reflect adjustments for disallowed goodwill and certain intangible assets). The minimum Tier 1 leverage ratio is 3% or 4% depending on factors specified in the regulations.

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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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.



	March 31, 2013				December 31, 2012				Required minimum			Well-capitalized minimum
( $ in millions )	Amount		Ratio		Amount		Ratio		Required minimum			Well-capitalized minimum
Risk-based capital
Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	20,663	14.59	%	$	20,232	13.13	%	4.00	%		6.00%
Ally Bank	14,380		16.68		14,136		16.26		4.00			6.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	22,084	15.59	%	$	21,669	14.07	%	8.00	%		10.00%
Ally Bank	15,073		17.48		14,827		17.06		8.00			10.00
Tier 1 leverage (to adjusted quarterly average assets) (a)
Ally Financial Inc.	$	20,663	12.01	%	$	20,232	11.16	%	3.00–4.00%			(b)
Ally Bank	14,380		15.59		14,136		15.30		15.00		(c)	5.00%
Tier 1 common (to risk-weighted assets)
Ally Financial Inc.	$	11,180	7.89	%	$	10,749	6.98	%	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 March 31, 2013 , Ally and Ally Bank were “well-capitalized” and met all capital requirements to which each was subject.

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, and debt. In addition, we use foreign exchange contracts to mitigate foreign-currency risk associated with 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 certain outstanding borrowings associated with Ally Bank's secured debt.

We enter into economic hedges to mitigate exposure for the following categories.


•	MSRs — Our MSRs are generally subject to loss in value when mortgage rates decline. Declining mortgage rates generally result in an increase in refinancing activity that increases prepayments and results in a decline in the value of MSRs. To mitigate the impact of this risk, we maintain a portfolio of financial instruments, primarily derivative instruments that increase in value when interest

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

rates decline. The primary objective is to minimize the overall risk of loss in the value of MSRs due to the change in fair value caused by interest rate changes.

A multitude of derivative instruments have been used to manage the interest rate risk related to MSRs. They include, but are not limited to, interest rate futures contracts, call or put options on U.S. Treasuries, swaptions, forward sales of mortgage-backed securities (MBS), futures, interest rate swaps, interest rate floors, and interest rate caps.

•

Mortgage loan commitments and mortgage 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.

•

Debt — With the exception of a portion of our fixed-rate debt and a portion of our outstanding floating-rate borrowings associated with Ally Bank's secured credit facilities, 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 Exchange Risk

We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to foreign-currency financial instruments. Currency forwards are used to economically hedge foreign exchange exposure on foreign-currency-denominated debt by converting the funding currency to the same currency of the assets being financed. Similar to our interest rate derivatives, the derivatives are generally entered into or traded concurrent with the debt issuance with the terms of the derivative matching the terms of the underlying debt.

We also enter into foreign-currency forwards and option-based contracts with external counterparties to hedge foreign exchange exposure on our net investments in foreign subsidiaries. Our foreign subsidiaries maintain both assets and liabilities in local currencies; these local currencies are generally the subsidiaries' functional currencies for accounting purposes. Foreign-currency exchange-rate gains and losses arise when the assets or liabilities of our subsidiaries are denominated in currencies that differ from its functional currency. In addition, our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive income (loss). 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.

Except for our net investment hedges, 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

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 $447 million and $1.3 billion at March 31, 2013 and December 31, 2012 , respectively, in accounts maintained by counterparties. We received cash collateral from counterparties totaling $565 million and $941 million at March 31, 2013 and December 31, 2012 , 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 March 31, 2013 and December 31, 2012 , we received noncash collateral of $1 million and $0.3 million , respectively.

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 March 31, 2013 and December 31, 2012 , $668 million and $2.3 billion , respectively, of the derivative contracts in a receivable position were classified as other assets on the Condensed Consolidated Balance Sheet . At March 31, 2013 and December 31, 2012 , $406 million and $2.5 billion of derivative contracts in a liability position were classified as accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet .



	March 31, 2013						December 31, 2012
	Derivative contracts in a				Notional amount		Derivative contracts in a				Notional amount
( $ in millions )	receivable position (a)		payable position (b)		Notional amount		receivable position (a)		payable position (b)		Notional amount
Derivatives qualifying for hedge accounting
Interest rate risk
Fair value accounting hedges	$	279	$	—	$	6,910	$	411	$	—	$	7,248
Cash flow accounting hedges	—		1		1,874		—		10		2,580
Total interest rate risk	279		1		8,784		411		10		9,828
Foreign exchange risk
Net investment accounting hedges	21		21		9,737		35		53		8,693
Total derivatives qualifying for hedge accounting	300		22		18,521		446		63		18,521
Economic hedges and trading derivatives
Interest rate risk
MSRs	158		329		7,401		1,616		2,299		146,405
Mortgage loan commitments and mortgage loans held-for-sale	10		5		2,238		49		23		9,617
Debt	28		20		12,150		28		29		17,716
Other (c)	141		28		54,896		154		27		41,514
Total interest rate risk	337		382		76,685		1,847		2,378		215,252
Foreign exchange risk	31		2		2,629		5		27		2,464
Total economic hedges and trading derivatives	368		384		79,314		1,852		2,405		217,716
Total derivatives	$	668	$	406	$	97,835	$	2,298	$	2,468	$	236,237


(a)	Includes accrued interest of $127 million and $175 million at March 31, 2013 and December 31, 2012 , respectively.


(b)	Includes accrued interest of $16 million and $144 million at March 31, 2013 and December 31, 2012 , respectively.


(c)	Primarily consists of exchange-traded Eurodollar futures.

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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 March 31,
( $ in millions )	2013			2012
Derivatives qualifying for hedge accounting
Loss recognized in earnings on derivatives (a)
Interest rate contracts
Interest on long-term debt	$	(98	)	$	(69	)
Gain recognized in earnings on hedged items (b)
Interest rate contracts
Interest on long-term debt	101			51
Total derivatives qualifying for hedge accounting	3			(18		)
Economic and trading derivatives
(Loss) gain recognized in earnings on derivatives
Interest rate contracts
Servicing asset valuation and hedge activities, net	(112		)	(96		)
(Loss) gain on mortgage and automotive loans, net	(32		)	83
Other income, net of losses	(1		)	18
Total interest rate contracts	(145		)	5
Foreign exchange contracts (c)
Interest on long-term debt	39			(9		)
Other income, net of losses	28			(25		)
Total foreign exchange contracts	67			(34		)
Loss recognized in earnings on derivatives	$	(75	)	$	(47	)


(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 $33 million and $26 million for the three months ended March 31, 2013 and 2012 , respectively.


(b)	Amounts exclude gains related to amortization of deferred basis adjustments on the hedged items. The gains were $38 million and $60 million for the three months ended March 31, 2013 and 2012 , respectively.


(c)	Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or receivable. Losses of $65 million and gains of $31 million were recognized for the three months ended March 31, 2013 and 2012 , respectively.

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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 March 31,
( $ in millions )	2013			2012
Cash flow hedges
Interest rate contracts
Loss reclassified from accumulated other comprehensive income to interest on long-term debt (a)	$	(7	)	$	—
Loss recorded directly to interest on long-term debt	—			(5		)
Total interest on long-term debt	$	(7	)	$	(5	)
Gain (loss) recognized in other comprehensive income	$	7		$	(3	)
Net investment hedges
Foreign exchange contracts
Loss reclassified from accumulated other comprehensive income (loss) to discontinued operations, net	$	(149	)	$	—
Total other income, net of losses	$	(149	)	$	—
Gain (loss) recognized in other comprehensive income (b)	$	169		$	(203	)


(a)	The amount represents losses reclassified from other comprehensive income (OCI) into earnings as a result of the discontinuance of hedge accounting because it is probable that the forecasted transaction will not occur.


(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 losses of $519 million and gains of $300 million for the three months ended March 31, 2013 and 2012 , respectively.

21. Income Taxes

We recognized an income tax benefit from continuing operations of $123 million during the three months ended March 31, 2013, compared to income tax expense of $1 million for the same period in 2012. The income tax benefit resulted primarily from the retroactive reinstatement of the active financing exception by the American Taxpayer Relief Act of 2012 and from the release of valuation allowance related to the measurement of foreign tax credit carryforwards anticipated to be utilized in the future.

As of each reporting date, we consider both positive and negative evidence that could impact our view with regard to future realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain state net operating loss, capital loss, and foreign tax credit carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards.

The completed sale of our Canadian operations during the quarter generated capital gain income that reduced our $2.2 billion capital loss carryforward that existed as of December 31, 2012. The tax impact of this utilization also resulted in an offsetting tax benefit associated with the reversal of valuation allowance of approximately $230 million . Furthermore, successful completion during 2013 of additional sales of entities currently held-for-sale may result in additional capital gains that would allow us to realize additional capital loss carryforwards. Any related reversal of valuation allowance on these deferred tax assets would also be recognized as an income tax benefit in discontinued operations upon such utilization.

On May 14, 2012, we deconsolidated ResCap for financial reporting purposes. During the first quarter of 2013, the operations of ResCap were classified as discontinued. However, for U.S. federal tax purposes ResCap will continue to be included in our consolidated return filing until ultimate disposition of our ownership in ResCap.

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 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 three months ended March 31, 2013 .

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.

•

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 fair value because of fair value option elections. 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. Mortgage loans classified as Level 2 are mainly 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 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.

Refer to the section within this note titled Fair Value Option for Financial Assets for further information about the fair value elections.

•

MSRs — MSRs are classified as Level 3, management estimates fair value using our transaction data and other market data or, in periods when there are limited MSRs market transactions that are directly observable, internally developed discounted cash flow models (an income approach) are used 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 have interest rate lock commitments accounted for as derivative instruments at Ally Bank that are classified as Level 3. We have also historically held certain derivative contracts that are structured specifically to meet a particular hedging objective. These derivative contracts often were 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 was often indexed to the hedged item. As a result, we typically were 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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

However, as of the quarter ended March 31, 2013, we no longer hold such positions within continuing operations due to the sales of our international automotive finance operations.

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.

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
March 31, 2013 ($ in millions)	Level 1			Level 2			Level 3		Total
Assets
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	809		$	1,290		$	—	$	2,099
Foreign government	3			303			—		306
Mortgage-backed residential	—			8,815			—		8,815
Asset-backed	—			2,221			—		2,221
Corporate debt securities	—			1,326			—		1,326
Total debt securities	812			13,955			—		14,767
Equity securities (a)	985			—			—		985
Total available-for-sale securities	1,797			13,955			—		15,752
Mortgage loans held-for-sale, net (b)	—			701			—		701
Mortgage servicing rights	—			—			917		917
Other assets
Interests retained in financial asset sales	—			—			139		139
Derivative contracts in a receivable position
Interest rate	31			580			5		616
Foreign currency	—			52			—		52
Total derivative contracts in a receivable position	31			632			5		668
Collateral placed with counterparties (c)	—			308			—		308
Total assets	$	1,828		$	15,596		$	1,061	$	18,485
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate	$	(14	)	$	(369	)	$	—	$	(383	)
Foreign currency	—			(23		)	—		(23		)
Total derivative contracts in a payable position	(14		)	(392		)	—		(406		)
Total liabilities	$	(14	)	$	(392	)	$	—	$	(406	)


(a)	Our investment in any one industry did not exceed 20% .


(b)	Carried at fair value due to fair value option elections.


(c)	Represents collateral in the form of investment securities. Cash collateral was excluded.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Recurring fair value measurements
December 31, 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	$	697		$	1,517		$	—		$	2,214
Foreign government	3			300			—			303
Mortgage-backed residential	—			6,906			—			6,906
Asset-backed	—			2,340			—			2,340
Corporate debt securities	—			1,263			—			1,263
Total debt securities	700			12,326			—			13,026
Equity securities (a)	1,152			—			—			1,152
Total available-for-sale securities	1,852			12,326			—			14,178
Mortgage loans held-for-sale, net (b)	—			2,490			—			2,490
Mortgage servicing rights	—			—			952			952
Other assets
Interests retained in financial asset sales	—			—			154			154
Derivative contracts in a receivable position (c)
Interest rate	40			2,170			48			2,258
Foreign currency	—			40			—			40
Total derivative contracts in a receivable position	40			2,210			48			2,298
Collateral placed with counterparties (d)	103			99			—			202
Total assets	$	1,995		$	17,125		$	1,154		$	20,274
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position (c)
Interest rate	$	(13	)	$	(2,374	)	$	(1	)	$	(2,388	)
Foreign currency	—			(78		)	(2		)	(80		)
Total derivative contracts in a payable position	(13		)	(2,452		)	(3		)	(2,468		)
Total liabilities	$	(13	)	$	(2,452	)	$	(3	)	$	(2,468	)


(a)	Our investment in any one industry did not exceed 21% .


(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.

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.



March 31, 2013 ($ in millions)	Level 3 recurring measurements		Valuation technique	Unobservable input	Range
Assets
Mortgage servicing rights	$	917	(a)	(a)	(a)
Other assets
Interests retained in financial asset sales	139		Discounted cash flow	Discount rate	5.4-6.1%
				Commercial paper rate	0-0.2%


(a)	Refer to Note 10 for information related to MSRs valuation assumptions and sensitivities.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 Mar. 31, 2013		Net unrealized gains (losses) included in earnings still held at Mar. 31, 2013
($ in millions)	Fair value at Jan. 1, 2013			included in earnings				included in OCI		Purchases		Sales		Issuances		Settlements
Assets
Mortgage servicing rights	$	952		$	(89	)	(a)	$	—	$	—	$	—	$	54	$	—		$	917	$	(89	)	(a)
Other assets
Interests retained in financial asset sales	154			2			(b)	—		—		—		—		(17		)	139		—
Derivative contracts, net (c)
Interest rate	47			(46		)	(d)	—		—		—		—		4			5		(9		)	(d)
Foreign currency	(2		)	2			(d)	—		—		—		—		—			—		(1		)	(d)
Total derivative contracts in a receivable position, net	45			(44		)		—		—		—		—		4			5		(10		)
Total assets	$	1,151		$	(131	)		$	—	$	—	$	—	$	54	$	(13	)	$	1,061	$	(99	)


(a)	Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Condensed Consolidated Statement of Comprehensive Income .


(b)	Reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income .


(c)	Includes derivatives classified as trading.


(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 .

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Level 3 recurring fair value measurements
	Fair value at Jan. 1, 2012			Net realized/unrealized gains (losses)						Purchases			Sales		Issuances		Settlements			Fair value at Mar. 31, 2012			Net unrealized gains (losses) included in earnings still held at Mar. 31, 2012
($ in millions)				included in earnings				included in OCI
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities	$	33		$	2		(a)	$	—	$	—		$	—	$	—	$	(3	)	$	32		$	4		(a)
Investment securities
Available-for-sale debt securities
Asset-backed	62			—				1		—			—		—		—			63			—
Mortgage loans held-for-sale, net (b)	30			—				—		9			—		—		(9		)	30			—
Consumer mortgage finance receivables and loans, net (b)	835			87			(b)	—		—			—		—		(90		)	832			35			(b)
Mortgage servicing rights	2,519			1			(c)	—		—			—		11		64			2,595			1			(c)
Other assets
Interests retained in financial asset sales	231			5			(d)	—		—			—		—		(42		)	194			—
Derivative contracts, net (e)
Interest rate	71			(24		)	(f)	—		—			—		—		(3		)	44			(28		)	(f)
Foreign currency	16			(11		)	(f)	—		—			—		—		—			5			(11		)	(f)
Total derivative contracts in a receivable position, net	87			(35		)		—		—			—		—		(3		)	49			(39		)
Total assets	$	3,797		$	60			$	1	$	9		$	—	$	11	$	(83	)	$	3,795		$	1
Liabilities
Long-term debt
On-balance sheet securitization debt (b)	$	(830	)	$	(83	)	(b)	$	—	$	—		$	—	$	—	$	85		$	(828	)	$	(39	)	(b)
Accrued expenses and other liabilities
Loan repurchase liabilities (b)	(29		)	—				—		(9		)	—		—		8			(30		)	—
Total liabilities	$	(859	)	$	(83	)		$	—	$	(9	)	$	—	$	—	$	93		$	(858	)	$	(39	)


(a)	The fair value adjustment and the related interest were reported as income from discontinued operations, net of tax, 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, and income from discontinued operations, net of tax, in the Condensed Consolidated Statement of Comprehensive Income .


(d)	Reported as other income, net of losses, and income from discontinued operations, net of tax, 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 .

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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
March 31, 2013 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Loans held-for-sale	$	—	$	—	$	18	$	18	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Automotive	—		—		121		121		(21		)	n/m	(a)
Other	—		—		46		46		(7		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		167		167		(28		)	n/m	(a)
Other assets
Repossessed and foreclosed assets (c)	—		—		6		6		(4		)	n/m	(a)
Total assets	$	—	$	—	$	191	$	191	$	(32	)	n/m

n/m = not meaningful


(a)	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.


(b)	Represents the portion of the portfolio specifically impaired during 2013 . The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


(c)	The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.



	Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total loss included in earnings for the three months ended
March 31, 2012 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held-for-sale (a)	$	—	$	—	$	580	$	580	$	(57	)	n/m	(b)
Commercial finance receivables and loans, net (c)
Automotive	—		—		122		122		(25		)	n/m	(b)
Mortgage	—		1		15		16		(11		)	n/m	(b)
Other	—		—		20		20		(10		)	n/m	(b)
Total commercial finance receivables and loans, net	—		1		157		158		(46		)	n/m	(b)
Other assets
Repossessed and foreclosed assets (d)	—		62		21		83		(13		)	n/m	(b)
Total assets	$	—	$	63	$	758	$	821	$	(116	)	n/m

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 2012 . 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 2012 . The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


(d)	The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.

Table of Contents

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.



March 31, 2013 ($ in millions)	Level 3 nonrecurring measurements		Valuation technique	Unobservable input	Range
Assets
Commercial finance receivables and loans, net
Automotive	$	121	Fair value of collateral	Adjusted appraisal value	65.0-95.0%

Fair Value Option for Financial Assets

A description of the financial assets 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.


•	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 would not mitigate earning volatility. We repurchase or rerecognize loans due to representation and warranty obligations or conditional repurchase options. Typically, we will be unable to resell these assets through regular channels due to characteristics of the assets. Since the fair value of these assets is influenced by factors that cannot be hedged, we did not elect the fair value option.

We carry the fair value-elected conforming and government-insured loans as loans held-for-sale, net, on the 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.

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 March 31, ($ in millions)		Interest on loans held-for-sale (a)		Gain on mortgage loans, net			Total included in earnings
2013
Assets
Mortgage loans held-for-sale, net		$	16	$	(41	)	$	(25	)	(b)
2012
Assets
Mortgage loans held-for-sale, net		$	26	$	(59	)	$	(33	)	(b)


(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)	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.

Table of Contents

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.



	March 31, 2013				December 31, 2012
($ in millions)	Unpaid principal balance		Fair value (a)		Unpaid principal balance		Fair value (a)
Assets
Mortgage loans held-for-sale, net
Total loans	$	731	$	701	$	2,416	$	2,490
Nonaccrual loans	50		26		47		25
Loans 90+ days past due (b)	41		21		36		19


(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.

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 March 31, 2013 and December 31, 2012 .



			Estimated fair value
($ in millions)	Carrying value		Level 1		Level 2		Level 3		Total
March 31, 2013
Financial assets
Loans held-for-sale, net (a)	$	718	$	—	$	701	$	18	$	719
Finance receivables and loans, net (a)	97,926		—		—		99,039		99,039
Nonmarketable equity investments	283		—		252		35		287
Financial liabilities
Deposit liabilities	$	50,326	$	—	$	—	$	51,146	$	51,146
Short-term borrowings	7,618		5		—		7,613		7,618
Long-term debt (a)(b)	67,951		—		35,847		35,936		71,783
December 31, 2012
Financial assets
Loans held-for-sale, net (a)	$	2,576	$	—	$	2,490	$	86	$	2,576
Finance receivables and loans, net (a)	97,885		—		—		98,907		98,907
Nonmarketable equity investments	303		—		272		34		306
Financial liabilities
Deposit liabilities	$	47,915	$	—	$	—	$	48,752	$	48,752
Short-term borrowings	7,461		6		—		7,454		7,460
Long-term debt (a)(b)	74,882		—		36,018		42,533		78,551


(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 $330 million and $321 million at March 31, 2013 , and December 31, 2012 , 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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

•

Loans held-for-sale, net — Loans held-for-sale classified as Level 2 include all GSE-eligible mortgage loans valued predominantly using published forward agency prices. It also includes any domestic loans and foreign loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are available. Loans held-for-sale classified as Level 3 include all loans valued using internally developed valuation models because observable market prices were not available. The loans are priced on a discounted cash flow basis utilizing cash flow projections from internally developed models that utilize prepayment, default, and discount rate assumptions. To the extent available, we will utilize market observable inputs such as interest rates and market spreads. If market observable inputs are not available, we are required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates.

•

Finance receivables and loans, net — With the exception of mortgage loans held-for-investment, the fair value of finance receivables was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables (an income approach using Level 3 inputs). The carrying value of commercial receivables in certain markets and certain other automotive- and mortgage-lending receivables for which interest rates reset on a short-term basis with applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest rate adjustment feature. The fair value of commercial receivables in other markets was based on discounted future cash flows using applicable spreads to approximate current rates applicable to similar assets in those markets.

For mortgage loans held-for-investment used as collateral for securitization debt, we used a portfolio approach with Level 3 inputs to measure these loans at fair value. The objective in fair valuing these loans (which are legally isolated and beyond the reach of our creditors) and the related collateralized borrowings is to reflect our retained economic position in the securitizations. For mortgage loans held-for-investment that are not securitized, we used valuation methods and assumptions similar to those used for mortgage loans held-for-sale. These valuations consider unique attributes of the loans such as geography, delinquency status, product type, and other factors. Refer to the section above titled Loans held-for-sale, net , for a description of methodologies and assumptions used to determine the fair value of mortgage loans held-for-sale.


•	Deposit liabilities — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and dealer deposits. The fair value of deposits at Level 3 were estimated by discounting projected cash flows based on discount factors derived from the forward interest rate swap curve.


•	Debt — Level 2 debt was valued using quoted market prices, when available, or other means for substantiation with observable inputs. Debt valued using internally derived inputs, such as prepayment speeds and discount rates, was classified as Level 3.

23. Offsetting Assets and Liabilities

Our qualifying master netting agreements are written, legally enforceable bilateral agreements that (1) create a single legal obligation for all individual transactions covered by the agreement to the non-defaulting entity upon an event of default of the counterparty, including bankruptcy, insolvency, or similar proceeding, and (2) provide the non-defaulting entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default of the counterparty. As it relates to derivative instruments, in certain instances we have the option to report derivatives that are subject to a qualifying master netting agreement on a net basis, we have elected to report these instruments as gross assets and liabilities on the Condensed Consolidated Balance Sheet.

To further mitigate the risk of counterparty default related to derivative instruments, 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, such that the net replacement cost of the non-defaulting party is covered in the event of counterparty default.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.



									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
March 31, 2013 ( $ in millions )	Gross Amounts of Recognized Assets/(Liabilities)			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets/(Liabilities) Presented in the Condensed Consolidated Balance Sheet			Financial Instruments			Collateral (a)			Net Amount
Assets
Derivative assets in net asset positions	$	545		$	—	$	545		$	(34	)	$	(469	)	$	42
Derivative assets in net liability positions	37			—		37			(37		)	—			—
Derivative assets with no offsetting arrangements	86			—		86			—			—			86
Total assets	$	668		$	—	$	668		$	(71	)	$	(469	)	$	128
Liabilities
Derivative liabilities in net liability positions	$	(362	)	$	—	$	(362	)	$	37		$	304		$	(21	)
Derivative liabilities in net asset positions	(34		)	—		(34		)	34			—			—
Derivative liabilities with no offsetting arrangements	(10		)	—		(10		)	—			—			(10		)
Total liabilities	$	(406	)	$	—	$	(406	)	$	71		$	304		$	(31	)


(a)	Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty.



									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
December 31, 2012 ( $ in millions )	Gross Amounts of Recognized Assets/(Liabilities)			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets/(Liabilities) Presented in the Condensed Consolidated Balance Sheet			Financial Instruments			Collateral (a)			Net Amount
Assets
Derivative assets in net asset positions	$	1,395		$	—	$	1,395		$	(503	)	$	(841	)	$	51
Derivative assets in net liability positions	788			—		788			(788		)	—			—
Derivative assets with no offsetting arrangements	115			—		115			—			—			115
Total assets	$	2,298		$	—	$	2,298		$	(1,291	)	$	(841	)	$	166
Liabilities
Derivative liabilities in net liability positions	$	(1,929	)	$	—	$	(1,929	)	$	788		$	1,092		$	(49	)
Derivative liabilities in net asset positions	(503		)	—		(503		)	503			—			—
Derivative liabilities with no offsetting arrangements	(36		)	—		(36		)	—			—			(36		)
Total liabilities	$	(2,468	)	$	—	$	(2,468	)	$	1,291		$	1,092		$	(85	)


(a)	Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

24. Segment and Geographic Information

Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance.

We report our results of operations on a line-of-business basis through three operating segments - Automotive Finance operations, Insurance operations, and Mortgage operations, with the remaining activity reported in Corporate and Other. The operating segments are determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by management. The following is a description of each of our reportable operating segments.

Automotive Finance operations — Provides automotive financing services to consumers and automotive dealers. For consumers, we offer retail automotive financing and leasing for new and used vehicles, and through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale or floorplan financing.

Insurance operations — Offers both consumer finance and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer finance and insurance products, we provide vehicle service contracts, maintenance coverage, and GAP products. We also underwrite selected commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventory in the United States.

Mortgage operations — Our ongoing Mortgage operations include the management of our held-for-investment mortgage portfolio. Our Mortgage operations also consist of noncore businesses that are winding down.

Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes our Commercial Finance Group, certain equity investments, overhead that was previously allocated to operations that have since been sold or classified as discontinued operations, and reclassifications and eliminations between the reportable operating segments.

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Financial information for our reportable operating segments is summarized as follows.



Three months ended March 31, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage operations			Corporate and Other (a)			Consolidated (b)
2013
Net financing revenue (loss)	$	773	$	12	$	34		$	(179	)	$	640
Other revenue (loss)	82		308		(19		)	15			386
Total net revenue (loss)	855		320		15			(164		)	1,026
Provision for loan losses	112		—		20			(1		)	131
Total noninterest expense	400		259		199			100			958
Income (loss) from continuing operations before income tax expense	$	343	$	61	$	(204	)	$	(263	)	$	(63	)
Total assets	$	118,882	$	8,331	$	11,284		$	27,702		$	166,199
2012
Net financing revenue (loss)	$	630	$	12	$	37		$	(328	)	$	351
Other revenue	77		338		137			53			605
Total net revenue (loss)	707		350		174			(275		)	956
Provision for loan losses	78		—		27			(7		)	98
Total noninterest expense	388		250		84			133			855
Income (loss) from continuing operations before income tax expense	$	241	$	100	$	63		$	(401	)	$	3
Total assets	$	119,081	$	8,394	$	30,079		$	28,796		$	186,350


(a)	Total assets for the Commercial Finance Group were $1.4 billion and $1.2 billion at March 31, 2013 and 2012 , respectively.


(b)	Net financing revenue after the provision for loan losses totaled $0.5 billion and $0.3 billion for the three months ended 2013 and 2012 , respectively.

Information concerning principal geographic areas were as follows.



Three months ended March 31, ($ in millions)	Revenue (a)			Income (loss) from continuing operations before income tax expense (b)			Net income (loss) (b)(c)
2013
Canada	$	49		$	14		$	1,230
Europe (d)	(10		)	(18		)	60
Latin America	—			(4		)	80
Asia-Pacific	1			(2		)	25
Total foreign	40			(10		)	1,395
Total domestic (e)	986			(53		)	(302		)
Total	$	1,026		$	(63	)	$	1,093
2012
Canada	$	59		$	14		$	83
Europe (d)	(10		)	(10		)	26
Latin America	1			(3		)	46
Asia-Pacific	1			—			27
Total foreign	51			1			182
Total domestic (e)	905			2			128
Total	$	956		$	3		$	310


(a)	Revenue consists of net financing revenue and total other revenue as presented in our Condensed Consolidated Financial Statements .


(b)	The domestic amounts include original discount amortization of $60 million and $111 million or the three months ended March 31, 2013 and 2012 , respectively.


(c)	Gain (loss) realized on sale of discontinued operations are allocated to the geographic area in which the business operated.


(d)	Amounts include eliminations between our foreign operations.


(e)	Amounts include eliminations between our domestic and foreign operations.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

25. Parent and Guarantor Consolidating Financial Statements

Certain of our senior notes are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of March 31, 2013, the Guarantors included, Ally US LLC, IB Finance Holding Company, LLC (IB Finance), and GMAC Continental Corporation (GMAC Continental). In connection with the purchase and sale agreement with General Motors Financial (GMF) described in Note 2 , all of the common stock of GMAC Continental was sold to GMF effective April 1, 2013 and pursuant to the terms of the applicable senior notes, the proceeds from the sale were reinvested in IB Finance. As a result, GMAC Continental ceased to be a subsidiary of Ally and is no longer a Guarantor. As of April 1, 2013, the Guarantors include Ally US LLC and IB Finance, each of which fully and unconditionally guarantee the senior notes on a joint and several basis.

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statements of Comprehensive Income



Three months ended March 31, 2013 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	159		$	—		$	976		$	—		$	1,135
Interest and fees on finance receivables and loans — intercompany	24			—			5			(29		)	—
Interest on loans held-for-sale	—			—			16			—			16
Interest and dividends on available-for-sale investment securities	—			—			68			—			68
Interest-bearing cash	1			—			2			—			3
Interest-bearing cash — intercompany	—			—			2			(2		)	—
Operating leases	96			—			638			—			734
Total financing revenue and other interest income	280			—			1,707			(31		)	1,956
Interest expense
Interest on deposits	9			—			155			—			164
Interest on short-term borrowings	12			—			4			—			16
Interest on long-term debt	560			—			146			(5		)	701
Interest on intercompany debt	(1		)	—			26			(25		)	—
Total interest expense	580			—			331			(30		)	881
Depreciation expense on operating lease assets	62			—			373			—			435
Net financing (loss) revenue	(362		)	—			1,003			(1		)	640
Dividends from subsidiaries
Nonbank subsidiaries	3,299			3,254			—			(6,553		)	—
Other revenue
Servicing fees	44			—			38			—			82
Servicing asset valuation and hedge activities, net	—			—			(201		)	—			(201		)
Total servicing income, net	44			—			(163		)	—			(119		)
Insurance premiums and service revenue earned	—			—			259			—			259
Gain on mortgage and automotive loans, net	—			—			38			—			38
Other gain on investments, net	—			—			51			—			51
Other income, net of losses	51			—			425			(319		)	157
Total other revenue	95			—			610			(319		)	386
Total net revenue	3,032			3,254			1,613			(6,873		)	1,026
Provision for loan losses	124			—			7			—			131
Noninterest expense
Compensation and benefits expense	192			—			223			(130		)	285
Insurance losses and loss adjustment expenses	—			—			115			—			115
Other operating expenses	58			—			688			(188		)	558
Total noninterest expense	250			—			1,026			(318		)	958
Income (loss) from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries	2,658			3,254			580			(6,555		)	(63		)
Income tax (benefit) expense from continuing operations	(329		)	—			206			—			(123		)
Net income from continuing operations	2,987			3,254			374			(6,555		)	60
(Loss) income from discontinued operations, net of tax	(265		)	13			1,284			1			1,033
Undistributed income (loss) of subsidiaries
Bank subsidiary	226			226			—			(452		)	—
Nonbank subsidiaries	(1,855		)	(2,052		)	—			3,907			—
Net income	1,093			1,441			1,658			(3,099		)	1,093
Other comprehensive loss, net of tax	(317		)	(578		)	(601		)	1,179			(317		)
Comprehensive income	$	776		$	863		$	1,057		$	(1,920	)	$	776

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, 2012 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	253		$	—	$	844		$	(4	)	$	1,093
Interest and fees on finance receivables and loans — intercompany	38			1		8			(47		)	—
Interest on loans held-for-sale	5			—		26			—			31
Interest on trading assets	—			—		9			—			9
Interest and dividends on available-for-sale investment securities	—			—		74			—			74
Interest-bearing cash	1			—		1			—			2
Operating leases	52			—		455			—			507
Total financing revenue and other interest income	349			1		1,417			(51		)	1,716
Interest expense
Interest on deposits	17			—		146			—			163
Interest on short-term borrowings	20			—		1			(4		)	17
Interest on long-term debt	723			—		161			(4		)	880
Interest on intercompany debt	(5		)	1		45			(41		)	—
Total interest expense	755			1		353			(49		)	1,060
Depreciation expense on operating lease assets	13			—		292			—			305
Net financing (loss) revenue	(419		)	—		772			(2		)	351
Dividends from subsidiaries
Nonbank subsidiaries	141			—		—			(141		)	—
Other revenue
Servicing fees	52			—		70			—			122
Servicing asset valuation and hedge activities, net	—			—		(106		)	—			(106		)
Total servicing income, net	52			—		(36		)	—			16
Insurance premiums and service revenue earned	—			—		270			—			270
(Loss) gain on mortgage and automotive loans, net	(1		)	—		21			—			20
Other gain on investments, net	—			—		89			—			89
Other income, net of losses	35			144		345			(314		)	210
Total other revenue	86			144		689			(314		)	605
Total net (loss) revenue	(192		)	144		1,461			(457		)	956
Provision for loan losses	78			—		20			—			98
Noninterest expense
Compensation and benefits expense	213			144		90			(144		)	303
Insurance losses and loss adjustment expenses	—			—		98			—			98
Other operating expenses	86			—		538			(170		)	454
Total noninterest expense	299			144		726			(314		)	855
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries	(569		)	—		715			(143		)	3
Income tax (benefit) expense from continuing operations	(268		)	—		269			—			1
Net (loss) income from continuing operations	(301		)	—		446			(143		)	2
Income from discontinued operations, net of tax	10			3		298			(3		)	308
Undistributed income of subsidiaries
Bank subsidiary	223			223		—			(446		)	—
Nonbank subsidiaries	378			85		—			(463		)	—
Net income	310			311		744			(1,055		)	310
Other comprehensive income, net of tax	187			126		388			(514		)	187
Comprehensive income	$	497		$	437	$	1,132		$	(1,569	)	$	497

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Balance Sheet



March 31, 2013 ($ in millions)	Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	554		$	—	$	489		$	—		$	1,043
Noninterest-bearing — intercompany	84			—		—			(84		)	—
Interest-bearing	2,700			—		3,694			—			6,394
Interest-bearing — intercompany	—			—		654			(654		)	—
Total cash and cash equivalents	3,338			—		4,837			(738		)	7,437
Investment securities	—			—		15,752			—			15,752
Loans held-for-sale, net	—			—		718			—			718
Finance receivables and loans, net
Finance receivables and loans, net	16,495			—		82,628			—			99,123
Intercompany loans to
Bank subsidiary	2,200			—		—			(2,200		)	—
Nonbank subsidiaries	3,285			—		109			(3,394		)	—
Allowance for loan losses	(253		)	—		(944		)	—			(1,197		)
Total finance receivables and loans, net	21,727			—		81,793			(5,594		)	97,926
Investment in operating leases, net	2,306			—		12,522			—			14,828
Intercompany receivables from
Bank subsidiary	968			2		—			(970		)	—
Nonbank subsidiaries	202			—		550			(752		)	—
Investment in subsidiaries
Bank subsidiary	14,513			14,513		—			(29,026		)	—
Nonbank subsidiaries	14,589			917		—			(15,506		)	—
Mortgage servicing rights	—			—		917			—			917
Premiums receivable and other insurance assets	—			—		1,617			(9		)	1,608
Other assets	2,567			—		5,762			(379		)	7,950
Assets of operations held-for-sale	900			453		17,725			(15		)	19,063
Total assets	$	61,110		$	15,885	$	142,193		$	(52,989	)	$	166,199
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	844		$	—		$	844
Noninterest-bearing — intercompany	—			—		84			(84		)	—
Interest-bearing	835			—		48,647			—			49,482
Total deposit liabilities	835			—		49,575			(84		)	50,326
Short-term borrowings	3,229			—		4,389			—			7,618
Long-term debt	31,941			—		35,680			—			67,621
Intercompany debt to
Nonbank subsidiaries	691			—		5,557			(6,248		)	—
Intercompany payables to
Bank subsidiary	934			2		—			(936		)	—
Nonbank subsidiaries	466			—		329			(795		)	—
Interest payable	732			—		240			—			972
Unearned insurance premiums and service revenue	—			—		2,286			—			2,286
Accrued expenses and other liabilities	1,775			111		2,163			(380		)	3,669
Liabilities of operations held-for-sale	33			425		12,775			—			13,233
Total liabilities	40,636			538		112,994			(8,443		)	145,725
Total equity	20,474			15,347		29,199			(44,546		)	20,474
Total liabilities and equity	$	61,110		$	15,885	$	142,193		$	(52,989	)	$	166,199


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



December 31, 2012 ($ in millions)	Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	729		$	—	$	344		$	—		$	1,073
Noninterest-bearing — intercompany	39			—		—			(39		)	—
Interest-bearing	3,204			—		3,236			—			6,440
Interest-bearing — intercompany	—			—		452			(452		)	—
Total cash and cash equivalents	3,972			—		4,032			(491		)	7,513
Investment securities	—			—		14,178			—			14,178
Loans held-for-sale, net	—			—		2,576			—			2,576
Finance receivables and loans, net
Finance receivables and loans, net	12,486			—		86,569			—			99,055
Intercompany loans to
Bank subsidiary	1,600			—		—			(1,600		)	—
Nonbank subsidiaries	3,514			—		672			(4,186		)	—
Allowance for loan losses	(170		)	—		(1,000		)	—			(1,170		)
Total finance receivables and loans, net	17,430			—		86,241			(5,786		)	97,885
Investment in operating leases, net	2,003			—		11,547			—			13,550
Intercompany receivables from
Bank subsidiary	677			—		—			(677		)	—
Nonbank subsidiaries	315			334		378			(1,027		)	—
Investment in subsidiaries
Bank subsidiary	14,288			14,288		—			(28,576		)	—
Nonbank subsidiaries	19,180			3,723		—			(22,903		)	—
Mortgage servicing rights	—			—		952			—			952
Premiums receivable and other insurance assets	—			—		1,609			—			1,609
Other assets	2,514			—		9,968			(574		)	11,908
Assets of operations held-for-sale	855			762		30,582			(23		)	32,176
Total assets	$	61,234		$	19,107	$	162,063		$	(60,057	)	$	182,347
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	1,977		$	—		$	1,977
Noninterest-bearing — intercompany	—			—		39			(39		)	—
Interest-bearing	983			—		44,955			—			45,938
Total deposit liabilities	983			—		46,971			(39		)	47,915
Short-term borrowings	3,094			—		4,367			—			7,461
Long-term debt	32,342			—		42,219			—			74,561
Intercompany debt to
Nonbank subsidiaries	530			—		5,708			(6,238		)	—
Intercompany payables to
Bank subsidiary	752			—		—			(752		)	—
Nonbank subsidiaries	674			—		278			(952		)	—
Interest payable	748			—		184			—			932
Unearned insurance premiums and service revenue	—			—		2,296			—			2,296
Accrued expenses and other liabilities	2,187			451		4,517			(570		)	6,585
Liabilities of operations held-for-sale	26			725		21,948			—			22,699
Total liabilities	41,336			1,176		128,488			(8,551		)	162,449
Total equity	19,898			17,931		33,575			(51,506		)	19,898
Total liabilities and equity	$	61,234		$	19,107	$	162,063		$	(60,057	)	$	182,347


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statement of Cash Flows



Three months ended March 31, 2013 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash provided by operating activities	$	5,272		$	3,109		$	426		$	(6,553	)	$	2,254
Investing activities
Purchases of available-for-sale securities	—			—			(4,626		)	—			(4,626		)
Proceeds from sales of available-for-sale securities	—			—			1,543			—			1,543
Proceeds from maturities and repayments of available-for-sale securities	—			—			1,604			—			1,604
Net (increase) decrease in finance receivables and loans	(5,260		)	80			5,138			—			(42		)
Net (increase) decrease in loans — intercompany	(369		)	251			312			(194		)	—
Net increase in operating lease assets	(354		)	—			(1,357		)	—			(1,711		)
Capital contributions to subsidiaries	(126		)	—			—			126			—
Returns of contributed capital	158			149			—			(307		)	—
Proceeds from sale of business units, net	409			—			2,420			—			2,829
Net change in restricted cash	—			(26		)	1,093			—			1,067
Other, net	11			—			30			—			41
Net cash (used in) provided by investing activities	(5,531		)	454			6,157			(375		)	705
Financing activities
Net change in short-term borrowings — third party	135			35			348			—			518
Net (decrease) increase in deposits	(148		)	—			2,553			(45		)	2,360
Proceeds from issuance of long-term debt — third party	24			—			4,229			—			4,253
Repayments of long-term debt — third party	(347		)	(70		)	(11,028		)	—			(11,445		)
Net change in debt — intercompany	161			(271		)	118			(8		)	—
Dividends paid — third party	(200		)	—			—			—			(200		)
Dividends paid and returns of contributed capital — intercompany	—			(3,254		)	(3,606		)	6,860			—
Capital contributions from parent	—			—			126			(126		)	—
Net cash used in financing activities	(375		)	(3,560		)	(7,260		)	6,681			(4,514		)
Effect of exchange-rate changes on cash and cash equivalents	—			—			67			—			67
Net (decrease) increase in cash and cash equivalents	(634		)	3			(610		)	(247		)	(1,488		)
Adjustment for change in cash and cash equivalents of operations held-for-sale	—			(3		)	1,415			—			1,412
Cash and cash equivalents at beginning of year	3,972			—			4,032			(491		)	7,513
Cash and cash equivalents at March 31	$	3,338		$	—		$	4,837		$	(738	)	$	7,437

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, 2012 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash (used in) provided by operating activities	$	(412	)	$	12		$	2,688		$	(146	)	$	2,142
Investing activities
Purchases of available-for-sale securities	—			—			(3,172		)	—			(3,172		)
Proceeds from sales of available-for-sale securities	—			—			2,940			—			2,940
Proceeds from maturities and repayments of available-for-sale securities	—			—			1,222			—			1,222
Net (increase) decrease in finance receivables and loans	(3,691		)	26			(744		)	—			(4,409		)
Net decrease (increase) in loans — intercompany	1,649			(9		)	32			(1,672		)	—
Net decrease (increase) in operating lease assets	216			—			(1,219		)	—			(1,003		)
Capital contributions to subsidiaries	(44		)	—			—			44			—
Returns of contributed capital	366			—			—			(366		)	—
Proceeds from sale of business units, net	29			—			—			—			29
Net change in restricted cash	—			—			280			—			280
Other, net	(48		)	—			91			—			43
Net cash (used in) provided by investing activities	(1,523		)	17			(570		)	(1,994		)	(4,070		)
Financing activities
Net change in short-term borrowings — third party	231			3			(780		)	—			(546		)
Net increase in deposits	92			—			1,997			—			2,089
Proceeds from issuance of long-term debt — third party	859			5			9,885			—			10,749
Repayments of long-term debt — third party	(574		)	—			(9,450		)	—			(10,024		)
Net change in debt — intercompany	390			(8		)	(1,640		)	1,258			—
Dividends paid — third party	(200		)	—			—			—			(200		)
Dividends paid and returns of contributed capital — intercompany	—			(11		)	(501		)	512			—
Capital contributions from parent	—			—			44			(44		)	—
Net cash provided by (used in) by financing activities	798			(11		)	(445		)	1,726			2,068
Effect of exchange-rate changes on cash and cash equivalents	(136		)	—			(5		)	—			(141		)
Net (decrease) increase in cash and cash equivalents	(1,273		)	18			1,668			(414		)	(1		)
Adjustment for change in cash and cash equivalents of operations held-for-sale	—			—			45			—			45
Cash and cash equivalents at beginning of year	6,261			14			7,276			(516		)	13,035
Cash and cash equivalents at March 31	$	4,988		$	32		$	8,989		$	(930	)	$	13,079

26. 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 29 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K.

Mortgage-Related Matters

ResCap Bankruptcy Filing

On May 14, 2012, Residential Capital, LLC (ResCap) and certain of its wholly owned direct and indirect subsidiaries (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court). In connection with the filings, Ally Financial Inc. and its direct and indirect subsidiaries and affiliates (excluding the Debtors) (collectively, AFI) had reached an agreement with the Debtors and certain creditor constituencies on a prearranged Chapter 11 plan (the Plan). The Plan included a proposed settlement (the Settlement) between AFI and the Debtors, which included, among other things, an obligation of AFI to make a $750 million cash contribution to the Debtors' estate, and a release of all existing or potential causes of action between AFI and the Debtors, as well as a release of all existing or potential ResCap-related causes of action against AFI held by third parties.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

As a result of the termination of the Settlement, AFI is no longer obligated to make the $750 million cash contribution and neither party is bound by the Settlement. Further, AFI is not entitled to receive any releases from either the Debtors or any third party claimants, as was contemplated under the Plan and Settlement. However, AFI has not withdrawn its offer to provide a $750 million cash contribution to the Debtors' estate if an acceptable settlement can be reached. As a result of the termination of the Settlement, substantial claims could be brought against us, which could have a material adverse impact on our results of operations, financial position or cash flows. For further information with respect to the bankruptcy, refer to Note 1.

Mortgage Settlements and Consent Order

On February 9, 2012, we announced that we had reached an agreement with respect to investigations into procedures followed by mortgage servicing companies and banks in connection with mortgage origination and servicing activities and foreclosure home sales and evictions (the Mortgage Settlement). Further, as a result of an examination conducted by the FRB and FDIC, on April 13, 2011, we entered into a consent order (the Consent Order) with the FRB and the FDIC, that required, among other things, GMAC Mortgage, LLC (GMAC Mortgage) to retain independent consultants to conduct a risk assessment related to mortgage servicing activities and, separately, to conduct a review of certain past residential mortgage foreclosure actions (the Foreclosure Review). The Debtors are primarily liable for all remaining obligations under both the Mortgage Settlement and Consent Order. AFI is secondarily liable for the specific performance of required actions, and is jointly and severally liable for certain financial obligations. On September 19, 2012, the official committee of unsecured creditors appointed in the Debtors' bankruptcy cases (the Creditors' Committee) filed an objection to the Debtors' motions to compensate the independent consultants for their Foreclosure Review services. In its objection, the Creditors' Committee alleged, among other things, that AFI should be responsible for the costs of the Foreclosure Review. On October 11, 2012, the Bankruptcy Court entered an interim order allowing the Debtors to continue paying the independent consultants on an interim 90 day basis, while reserving all parties' rights with respect to the allocation of costs between the Debtors and AFI for the Foreclosure Review. The Bankruptcy Court has subsequently issued interim orders authorizing the Debtors to continue paying the independent consultants until May 14, 2013.

Legal Proceedings

We are subject to potential liability under various governmental proceedings, claims, and legal actions that are pending or otherwise asserted against us. We are named as defendants in a number of legal actions, and we are involved in governmental proceedings arising in connection with our respective businesses. Some of the pending actions purport to be class actions, and certain legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, it is generally very difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be higher or lower than any amounts reserved for the claims.

Mortgage-backed Securities Litigation

Ally Financial Inc. and certain of its subsidiaries are named as defendants in various cases relating to ResCap mortgage-backed securities (MBS) and certain other mortgage-related matters, which are described in Note 29 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K (collectively, the Mortgage Cases). We had previously disclosed that several of the Mortgage Cases were subject to orders entered by the Bankruptcy Court staying the matters through April 30, 2013 in connection with the Debtors bankruptcy. On May 1, 2013, all stay orders applicable to the Ally non-Debtor defendants with respect to the Mortgage Cases expired. As a result, all of the Mortgage Cases are proceeding against us.

The following supplements the case descriptions provided in Note 29 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K.

FDIC Litigation

The Federal Deposit Insurance Corporation filed four complaints against Ally Securities LLC (Ally Securities) between May 2012 and August 2012 alleging violations of federal and state securities laws, in each alleging that Ally Securities made misleading statements in a registration statement. Plaintiff seeks rescission and money damages in all cases including pre- and post-judgment interest, attorney's fees and costs of court. Ally Securities has motions to dismiss pending in two of the four cases. Of the remaining two cases, one case has been remanded to state court in Texas, and the FDIC is challenging the federal court's jurisdiction in the second case.

FHLB Litigation

The claims against Ally Financial Inc. and GMAC Mortgage Group were dismissed in an order dated March 14, 2013. The negligent misrepresentation claim remains against Ally Securities.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

New Jersey Carpenters Litigation

A class was certified upon Plaintiffs' request for reconsideration. The defendants' application for leave to appeal the class certification was denied on March 26, 2013.

Union Central Life Litigation

The defendants filed motion to dismiss on July 27, 2012, which was granted, and the case was dismissed on March 29, 2013. The plaintiffs have until May 28, 2013 to amend their complaint.

Regulatory Matters

We continue to respond to subpoenas and document requests from the SEC, seeking information covering a wide range of mortgage-related matters, including, among other things, various aspects surrounding securitizations of residential mortgages. We are also responding to subpoenas received from the U.S. Department of Justice, which include broad requests for documentation and other information in connection with its investigation of potential fraud and other potential legal violations related to mortgage backed securities, as well as the origination and/or underwriting of mortgage loans. In addition, the CFPB has recently advised us that they are investigating certain of our retail financing practices. It is possible that this could result in actions against us.

Loan Repurchases and Obligations Related to Loan Sales

Representation and Warranty Obligation Reserve Methodology

The representation and warranty reserve was $170 million at March 31, 2013 with respect to our sold and serviced loans. The 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 following table summarizes the changes in our reserve for representation and warranty obligations.



Three months ended March 31, ( $ in millions )	2013 (a)			2012 (b)
Balance at January 1,	$	105		$	825
Provision for mortgage representation and warranty expenses
Loan sales	4			5
Change in estimate — continuing operations	83			19
Total additions	87			24
Resolved claims (c)	(23		)	(42		)
Recoveries	1			4
Balance at March 31,	$	170		$	811


(a)	The liabilities are held by Ally Bank and a majority of the previous liability was eliminated 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 activities of our discontinued operations.


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

Other Contingencies

We are subject to potential liability under various other exposures including tax, nonrecourse loans, self-insurance, and other miscellaneous contingencies. We establish reserves for these contingencies when the loss becomes probable and the amount can be reasonably estimated. The actual costs of resolving these items may be substantially higher or lower than the amounts reserved for any one item. Based

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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.

27. Subsequent Events

Declaration of Quarterly Dividend Payments

On April 11, 2013 , the Ally Board of Directors declared quarterly dividend payments on certain outstanding preferred stock. This included a cash dividend of $1.125 per share, or a total of $134 million , on Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series F-2; a cash dividend of $17.50 per share, or a total of $45 million , on Fixed Rate Cumulative Perpetual Preferred Stock, Series G; and a cash dividend of $0.53 per share, or a total of $22 million , on Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A. The dividends are payable on May 15, 2013 .

Majority of European and Latin American Operations Sale

On April 1, 2013, we completed the sale of the majority of our operations in Europe and Latin America to General Motors Financial Company, Inc. (GM Financial), a wholly-owned subsidiary of General Motors Co. The transaction included European operations in Germany, the United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium, and the Netherlands; and Latin American operations in Mexico, Chile, and Colombia. We received $2.6 billion for the business, which was composed of a $2.4 billion payment at closing and $190 million of dividends paid by the business to us prior to the closing.

Mortgage Servicing Rights Sale

On April 16, 2013, we completed the sales of approximately $115 billion in unpaid principal balance (UPB) of agency MSRs to Ocwen Financial Corp. and Quicken Loans, Inc. In total, we received approximately $850 million in proceeds for the transactions. Final proceeds for the transactions are subject to adjustment based on the actual UPB on the closing dates. Additionally, the sale of our remaining MSRs is under agreement to close in stages over the coming months.

Table of Contents

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

The following Management's Discussion and Analysis of Financial Condition and Results of Operation (MD&A), as well as other portions of this Form 10-K, may contain certain statements that constitute forward-looking statements within the meaning of the federal securities laws. The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negatives of any of these words or similar expressions are intended to identify forward-looking statements. All statements herein, other than statements of historical fact, including without limitation statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties. You should not place undue reliance on any forward-looking statement and should consider all uncertainties and risks discussed in this report, including those under Item 1A, Risk Factors, as well as those provided in any subsequent SEC filings. Forward-looking statements apply only as of the date they are made, and Ally undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date the forward-looking statement is made.

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 March 31,
( $ in millions )	2013			2012
Total financing revenue and other interest income	$	1,956		$	1,716
Interest expense	881			1,060
Depreciation expense on operating lease assets	435			305
Net financing revenue	640			351
Total other revenue	386			605
Total net revenue	1,026			956
Provision for loan losses	131			98
Total noninterest expense	958			855
(Loss) income from continuing operations before income tax (benefit) expense	(63		)	3
Income tax (benefit) expense from continuing operations	(123		)	1
Net income from continuing operations	60			2
Income from discontinued operations, net of tax	1,033			308
Net income	$	1,093		$	310
Basic and diluted earnings per common share:
Net loss from continuing operations	$	(105	)	$	(149	)
Net income	671			82
Non-GAAP financial measures (a):
Net income	$	1,093		$	310
Add: Original issue discount amortization expense (b)	57			108
Add: Income tax (benefit) expense from continuing operations	(123		)	1
Less: Income from discontinued operations, net of tax	1,033			308
Core pretax (loss) income (a)	$	(6	)	$	111

(a)

Core pretax (loss) income is not a financial measure defined by accounting principles generally accepted in the United States of America (GAAP). We define core pretax income as earnings from continuing operations before income taxes, original issue discount amortization expense primarily associated with our 2008 bond exchange, and the gain on extinguishment of debt related to the 2008 bond exchange. We believe that the presentation of core pretax (loss) income is useful information for the users of our financial statements in understanding the earnings from our core businesses. In addition, core pretax (loss) income is the primary measure that management uses to assess the performance of our operations. We believe that core pretax (loss) income is a useful alternative measure of our ongoing profitability and performance, when viewed in conjunction with GAAP measures. The presentation of this additional information is not a substitute for net income (loss) determined in accordance with GAAP.


(b)	Primarily represents original issue discount amortization expense associated with the 2008 bond exchange that was reported as a loss on extinguishment of debt in the Condensed Consolidated Statement of Comprehensive Income .

Table of Contents

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 March 31,
( $ in millions )	2013			2012
Selected period-end balance sheet data:
Total assets	$	166,199		$	186,350
Long-term debt	$	67,621		$	93,990
Preferred stock/interests	$	6,940		$	6,940
Total equity	$	20,474		$	19,576
Financial ratios
Efficiency ratio (a)	93.37		%	89.44		%
Core efficiency ratio (a)	88.46		%	80.36		%
Return on assets
Net income from continuing operations	0.14		%	—		%
Net income	2.54		%	0.68		%
Core pretax (loss) income	(0.01		)%	0.24		%
Return on equity
Net income from continuing operations	1.20		%	0.04		%
Net income	21.98		%	6.40		%
Core pretax (loss) income	(0.12		)%	2.29		%
Equity to assets	11.57		%	10.56		%
Net interest spread (b)	1.67		%	0.86		%
Net interest spread excluding original issue discount (b)	1.89		%	1.29		%
Net yield on interest-earning assets (c)	1.90		%	1.11		%
Net yield on interest-earning assets excluding original issue discount (c)	2.07		%	1.45		%
Regulatory capital ratios
Tier 1 capital (to risk-weighted assets) (d)	14.59		%	13.45		%
Total risk-based capital (to risk-weighted assets) (e)	15.59		%	14.47		%
Tier 1 leverage (to adjusted quarterly average assets) (f)	12.01		%	11.60		%
Total equity	$	20,474		$	19,576
Goodwill and certain other intangibles	(489		)	(494		)
Unrealized gains and other adjustments	(1,865		)	(317		)
Trust preferred securities	2,543			2,542
Tier 1 capital (d)	20,663			21,307
Preferred equity	(6,940		)	(6,940		)
Trust preferred securities	(2,543		)	(2,542		)
Tier 1 common capital (non-GAAP) (g)	$	11,180		$	11,825
Risk-weighted assets (h)	$	141,623		$	158,468
Tier 1 common (to risk-weighted assets) (g)	7.89		%	7.46		%


(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 and gain on extinguishment of debt related to the 2008 bond exchange.


(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.

Table of Contents

Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Overview

Ally Financial Inc. (formerly GMAC Inc.) is a leading, independent, financial services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad array of financial products and services to automotive dealers and their customers. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (internet, telephone, mobile, and mail) banking market.

Discontinued Operations

During 2013 and 2012, we committed to dispose of certain operations of our Automotive Finance operations, Insurance operations, Mortgage operations, and Commercial Finance Group, and have classified these operations as discontinued. For all periods presented, all of the operating results for these operations have been removed from continuing operations. Refer to Note 2 to the Condensed Consolidated Financial Statements for more details. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.

Sales transactions for our Automotive Finance operations are expected to close in stages throughout 2013 and possibly 2014. It is anticipated that there could be significant gains or losses occurring during interim periods as the various stages close. We believe that when all of the various stages are closed, we will realize a cumulative net gain on the sale of our Automotive Finance discontinued operations.

Primary Lines of Business

Dealer Financial Services, which includes our Automotive Finance and Insurance operations, and Mortgage are our primary lines of business. The following table summarizes the operating results excluding discontinued operations of each line of business. Operating results for each of the lines of business are more fully described in the MD&A sections that follow.



	Three months ended March 31,
($ in millions)	2013			2012			Favorable/ (unfavorable) % change
Total net revenue (loss)
Dealer Financial Services
Automotive Finance operations	$	855		$	707		21
Insurance operations	320			350			(9)
Mortgage operations	15			174			(91)
Corporate and Other	(164		)	(275		)	40
Total	$	1,026		$	956		7
Income (loss) from continuing operations before income tax (benefit) expense
Dealer Financial Services
Automotive Finance operations	$	343		$	241		42
Insurance operations	61			100			(39)
Mortgage operations	(204		)	63			n/m
Corporate and Other	(263		)	(401		)	34
Total	$	(63	)	$	3		n/m

n/m = not meaningful

•

Our Dealer Financial Services operations offer a wide range of financial services and products to retail automotive consumers and automotive dealerships. Our Dealer Financial Services consist of two separate reportable segments — Automotive Finance and Insurance operations. Our automotive finance services include providing retail installment sales financing, loans, and leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, fleet leasing, and vehicle remarketing services.

Our Insurance operations offer both consumer finance and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer finance and insurance products, we provide vehicle service contracts, maintenance coverage, and Guaranteed Automobile Protection (GAP) products. We also underwrite selected commercial insurance coverage, which primarily insures dealers' wholesale vehicle inventory.

•

Our ongoing Mortgage operations include the management of our held-for-investment mortgage portfolio. Our Mortgage operations also consist of noncore businesses that are winding down. On October 26, 2012, we announced that we had begun to explore strategic alternatives for our agency mortgage servicing rights (MSRs) portfolio and our business lending operations. On February 28, 2013, we sold our business lending operations to Walter Investment Management Corp. On April 16, 2013, we completed the

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Ally Financial Inc. • Form 10-Q

sales of agency MSRs to Ocwen Financial Corp. and Quicken Loans, Inc. Refer to Note 27 to the Condensed Consolidated Financial Statements for further information. Also on April 17, 2013, we announced a decision to exit the correspondent lending channel and cease production of any new jumbo mortgage loans.

•

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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. Refer to the operating segment sections of the MD&A that follows for a more complete discussion of operating results by line of business.



	Three months ended March 31,
($ in millions)	2013			2012		Favorable/ (unfavorable) % change
Net financing revenue
Total financing revenue and other interest income	$	1,956		$	1,716	14
Interest expense	881			1,060		17
Depreciation expense on operating lease assets	435			305		(43)
Net financing revenue	640			351		82
Other revenue
Net servicing (loss) income	(119		)	16		n/m
Insurance premiums and service revenue earned	259			270		(4)
Gain on mortgage and automotive loans, net	38			20		90
Other gain on investments, net	51			89		(43)
Other income, net of losses	157			210		(25)
Total other revenue	386			605		(36)
Total net revenue	1,026			956		7
Provision for loan losses	131			98		(34)
Noninterest expense
Compensation and benefits expense	285			303		6
Insurance losses and loss adjustment expenses	115			98		(17)
Other operating expenses	558			454		(23)
Total noninterest expense	958			855		(12)
(Loss) income from continuing operations before income tax (benefit) expense	(63		)	3		n/m
Income tax (benefit) expense from continuing operations	(123		)	1		n/m
Net income from continuing operations	$	60		$	2	n/m

n/m = not meaningful

We earned net income from continuing operations of $60 million for the three months ended March 31, 2013 , compared to $2 million for the three months ended March 31, 2012 . Net income from continuing operations for the three months ended March 31, 2013 , was favorably impacted by our Automotive Finance operations, primarily due to an increase in consumer automotive financing revenue related to growth in the retail loan and operating lease portfolios. Additional favorability for the three months ended March 31, 2013 was primarily the result of lower original issue discount (OID) amortization expense related to bond maturities and normal monthly amortization, and lower funding costs. The increase was partially offset by higher depreciation expense related to higher lease asset balances as a result of strong lease origination volume, higher representation and warranty expense driven by the terms of our MSRs portfolio sales agreements, and an increase in the provision for loan losses primarily resulting from the prudent expansion of our underwriting strategy to originate consumer automotive assets across a broader credit spectrum, which was significantly narrowed during the most recent economic recession.

Total financing revenue and other interest income increased $240 million for the three months ended March 31, 2013 , compared to the same period in 2012 . The increase resulted primarily from an increase in operating lease revenue and consumer financing revenue for our Automotive Finance operations driven primarily by an increase in consumer asset levels as a result of increased used vehicle automotive financing and higher automotive industry sales, as well as limited use of whole-loan sales as a funding source in recent periods. Additionally, we continue to maintain our nonprime origination volume across a broad credit spectrum. This increase was partially offset by lower mortgage loan production as a result of the shutdown of our warehouse lending operations and the wind-down of the consumer held-for-sale portfolio.

Interest expense decreased 17% for the three months ended March 31, 2013 , compared to the same periods in 2012 , primarily due to lower funding costs and a decrease in OID amortization expense. OID amortization expense decreased $51 million for the three months ended March 31, 2013 , compared to the same period in 2012 , due to bond maturities and normal monthly amortization.

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Ally Financial Inc. • Form 10-Q

Depreciation expense on operating lease assets increased 43% for the three months ended March 31, 2013 , compared to the same period in 2012 , primarily due to higher lease asset balances as a result of strong lease origination volume, partially offset by higher lease remarketing gains.

We incurred a net servicing loss of $119 million for the three months ended March 31, 2013 , compared to net servicing income of $16 million for the same period in 2012 . The decrease was primarily due to the valuation of our MSRs portfolio in conjunction with our agreement to sell the portfolio.

Insurance premiums and service revenue earned decreased 4% for the three months ended March 31, 2013 , compared to the same period in 2012 , primarily due to declining U.S. vehicle service contracts written in prior years when the automotive market was depressed.

Gain on mortgage and automotive loans increased $18 million for the three months ended March 31, 2013 , compared to the same period in 2012 . Due to the deconsolidation of ResCap following its bankruptcy filing, we began managing the execution of capital markets transactions, which resulted in us recording gains related to these transactions during the three months ended March 31, 2013.

Other gain on investments, net , was $51 million for the three months ended March 31, 2013 , compared to $89 million for the same period in 2012 . The decrease was primarily due to lower realized investment gains and the recognition of $8 million of other-than-temporary impairment on certain equity securities.

Other income, net of losses , decreased 25% for the three months ended March 31, 2013 , compared to the same period in 2012 . The decrease was primarily due to lower fee income and net origination revenue related to decreased consumer mortgage-lending production associated with government-sponsored refinancing programs.

The provision for loan losses was $131 million for the three months ended March 31, 2013 , compared to $98 million for the same period in 2012 . The increase was primarily due to the prudent expansion of our underwriting strategy to originate consumer automotive assets across a broader credit spectrum, which was significantly narrowed during the most recent economic recession.

Total noninterest expense increased 12% for the three months ended March 31, 2013 , compared to the same period in 2012 . The increase was primarily due to higher representation and warranty expense driven by the terms of our MSRs portfolio sales agreements and unseasonably high early spring hailstorms losses on our dealer inventory insurance products, partially offset by lower compensation and benefits expense primarily related to a decrease in headcount.

We recognized consolidated income tax benefit from continuing operations of $123 million for the three months ended March 31, 2013 , compared to income tax expense of $1 million for the same period in 2012 . The increase in income tax benefit was driven by the retroactive reinstatement of the active financing exception by the American Taxpayer Relief Act of 2012, and the release of valuation allowance related to the measurement of foreign tax credit carryforwards anticipated to be utilized in the future.

In calculating the continuing operations provision for income taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income on an interim basis. Refer to Critical Accounting Estimates within MD&A and Note 1 to the Condensed Consolidated Financial Statements for further details.

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Dealer Financial Services

Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance operations.

Automotive Finance Operations

Results of Operations

The following table summarizes the operating results of our Automotive Finance operations excluding discontinued operations for the periods shown. The amounts presented are before the elimination of balances and transactions with our other reportable segments.



	Three months ended March 31,
($ in millions)	2013		2012		Favorable/ (unfavorable) % change
Net financing revenue
Consumer	$	729	$	661	10
Commercial	281		285		(1)
Loans held-for-sale	—		5		(100)
Operating leases	734		507		45
Other interest income	7		15		(53)
Total financing revenue and other interest income	1,751		1,473		19
Interest expense	543		538		(1)
Depreciation expense on operating lease assets	435		305		(43)
Net financing revenue	773		630		23
Other revenue
Servicing fees	19		30		(37)
Other income	63		47		34
Total other revenue	82		77		6
Total net revenue	855		707		21
Provision for loan losses	112		78		(44)
Noninterest expense
Compensation and benefits expense	113		108		(5)
Other operating expenses	287		280		(3)
Total noninterest expense	400		388		(3)
Income from continuing operations before income tax (benefit) expense	$	343	$	241	42
Total assets	$	118,882	$	119,081	—

Our Automotive Finance operations earned income before income tax expense of $343 million for the three months ended March 31, 2013 , compared to $241 million for the three months ended March 31, 2012 . Results for the three months ended March 31, 2013 were favorably impacted by higher consumer and operating lease revenues driven by growth in the retail loan and operating lease portfolios. These items were partially offset by higher provision for loan losses driven by the prudent expansion of our underwriting strategy to originate assets across a broader credit spectrum, which was significantly narrowed during the most recent economic recession.

Consumer financing revenue increased 10% for the three months ended March 31, 2013 , compared to the same period in 2012 , due to an increase in U.S. consumer asset levels driven by growth in the used vehicle portfolio as well as limited use of whole-loan sales as a funding source in recent periods; however, our GM and Chrysler penetration levels for new retail automotive loans were lower than those in 2012. The increase in consumer revenue from volume was partially offset by lower yields as a result of the competitive market environment for automotive financing.

Operating lease revenue increased 45% for the three months ended March 31, 2013 , compared to the same period in 2012 , primarily due to higher lease asset balances as a result of strong origination volume.

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Ally Financial Inc. • Form 10-Q

Servicing fee income decreased 37% for the three months ended March 31, 2013 , compared to the same period in 2012 , due to lower levels of off-balance sheet retail serviced assets.

Other income increased 34% for the three months ended March 31, 2013 , compared to the same period in 2012 , primarily due to a one-time fee earned from a vendor that did not occur during the three months ended March 31, 2012.

The provision for loan losses was $112 million for the three months ended March 31, 2013 , compared to $78 million for the same period in 2012 . The increase was primarily due to the prudent expansion of our underwriting strategy to originate consumer automotive assets across a broader credit spectrum, which was significantly narrowed during the most recent economic recession.

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Ally Financial Inc. • Form 10-Q

Automotive Financing Volume

Consumer Automotive Financing Volume

The following table summarizes our new and used vehicle consumer financing volume, including lease, and our share of consumer sales in the United States.



	Consumer automotive financing volume		% Share of consumer sales
Three months ended March 31, ( units in thousands )	2013	2012	2013	2012
GM new vehicles	151	141	31	31
Chrysler new vehicles	71	77	24	28
Other non-GM / Chrysler new vehicles	19	20
Used vehicles	126	138
Total consumer automotive financing volume	367	376

Consumer automotive financing decreased slightly during the three months ended March 31, 2013 , compared to the same period in 2012 , primarily due to lower used vehicle origination volume as a result of more competition within the automotive finance market due to the performance of automotive finance assets relative to other asset classes during the 2008 economic downturn. The decrease was partially offset by an increase in GM new vehicle originations resulting from stronger lease volume.

Manufacturer Marketing Incentives

The following table presents the total U.S. consumer origination dollars and percentage mix by product type.



	Consumer automotive financing originations				% Share of originations
Three months ended March 31, ( $ in millions )	2013		2012		2013	2012
GM new vehicles
New retail standard	$	1,496	$	1,597	15	16
New retail subvented	1,291		1,746		13	18
Lease	1,883		1,039		19	11
Total GM new vehicle originations	4,670		4,382
Chrysler new vehicles
New retail standard	1,046		1,078		11	11
New retail subvented	231		506		3	5
Lease	789		561		8	6
Total Chrysler new vehicle originations	2,066		2,145
Other new retail vehicles	508		542		5	5
Other lease	38		20		1	1
Used vehicles	2,450		2,638		25	27
Total consumer automotive financing originations	$	9,732	$	9,727

During the three months ended March 31, 2013 , total new GM vehicle originations increased, compared to the same period in 2012, due to stronger lease volume, partially offset by lower new retail volume. Chrysler new retail contracts decreased primarily as a result of lower retail penetration at Chrysler due to our shift in focus towards non-subvented business. Other lease originations were higher due to the continued strategic focus within the non-GM/non-Chrysler market, and used origination dollars decreased at a lower pace than used vehicle origination volume as a result of strong used vehicle values.

For further discussion of manufacturing marketing incentives, refer to our Annual Report on Form 10-K for the year ended December 31, 2012, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Automotive Finance Operations.

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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 the United States.



	Average balance				% Share of dealer inventory
Three months ended March 31, ( $ in millions )	2013		2012		2013	2012
GM new vehicles (a)	$	16,291	$	14,266	69	72
Chrysler new vehicles (a)	7,211		6,589		54	62
Other non-GM / Chrysler new vehicles	2,541		2,153
Used vehicles	3,052		2,977
Total commercial wholesale finance receivables	$	29,095	$	25,985


(a)	Share of dealer inventory based on a 4 month average of dealer inventory (excludes in-transit units).

Commercial wholesale financing average volume increased during the three months ended March 31, 2013 , compared to the same period in 2012 , primarily due to growing dealer inventories required to support increasing automobile sales. GM and Chrysler wholesale penetration decreased during the three months ended March 31, 2013 , compared to the same period in 2012 , as a result of increased competition in the wholesale marketplace.

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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 March 31,
($ in millions)	2013			2012			Favorable/ (unfavorable) % change
Insurance premiums and other income
Insurance premiums and service revenue earned	$	259		$	270		(4)
Investment income	58			73			(21)
Other income	3			7			(57)
Total insurance premiums and other income	320			350			(9)
Expense
Insurance losses and loss adjustment expenses	115			98			(17)
Acquisition and underwriting expense
Compensation and benefits expense	15			17			12
Insurance commissions expense	92			99			7
Other expenses	37			36			(3)
Total acquisition and underwriting expense	144			152			5
Total expense	259			250			(4)
Income from continuing operations before income tax (benefit) expense	$	61		$	100		(39)
Total assets	$	8,331		$	8,394		(1)
Insurance premiums and service revenue written	$	234		$	251		(7)
Combined ratio (a)	99.7		%	91.4		%

(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 $61 million for the three months ended March 31, 2013 , compared to $100 million for the three months ended March 31, 2012 . The decrease was primarily attributable to unseasonably high early spring hailstorms losses, lower investment income, and lower insurance premiums and service revenue earned from our U.S. vehicle service contracts.

Insurance premiums and service revenue earned was $259 million for the three months ended March 31, 2013 , compared to $270 million for the same period in 2012 . The decrease was primarily due to declining U.S. vehicle service contracts written in prior years when the automotive market was depressed.

Investment income totaled $58 million for the three months ended March 31, 2013 , compared to $73 million for the same period in 2012 . The decrease was primarily due to lower realized investment gains and the recognition of other-than-temporary impairment on certain equity securities of $8 million .

Insurance losses and loss adjustment expenses totaled $115 million for the three months ended March 31, 2013 , compared to $98 million for the same period in 2012 . The increase was driven primarily by unseasonably high early spring hailstorms losses on our dealer inventory insurance products.

Acquisition and underwriting expense decreased 5% for the three months ended March 31, 2013 , compared to the same period in 2012 . The decrease was primarily a result of lower commission expense for our U.S. dealership-related products matching our decrease in earned premiums.

The combined ratio increased from 91.4% for the three months ended March 31, 2012 , to 99.7% for the three months ended March 31, 2013 , primarily due to an increase in weather-related losses. Excluding the impact of the unseasonably higher weather-related losses, expenses decreased in line with the decline in earned premium as expected.

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table shows premium and service revenue written by insurance product.



	Three months ended March 31,
($ in millions)	2013			2012
Vehicle service contracts
New retail	$	98		$	94
Used retail	125			134
Reinsurance	(34		)	(31		)
Total vehicle service contracts	189			197
Wholesale	27			20
Other finance and insurance (a)	18			34
Total	$	234		$	251


(a)	Other finance and insurance includes Guaranteed Automobile Protection (GAP) coverage, excess wear and tear, wind-down of Canadian personal lines, and other ancillary products.

Insurance premiums and service revenue written was $234 million for the three months ended March 31, 2013 , compared to $251 million for the same period in 2012 . Insurance premiums and service revenue written decreased due to the sale of the Canadian personal lines business, which stopped writing new business on November 1, 2012, and lower written premiums in our used retail vehicle service contract insurance products driven by lower used vehicle sales volume. 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 2013 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)	March 31, 2013		December 31, 2012
Cash
Noninterest-bearing cash	$	163	$	129
Interest-bearing cash	664		488
Total cash	827		617
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	1,176		1,090
Foreign government	306		303
Mortgage-backed	886		714
Asset-backed	8		8
Corporate debt	1,326		1,264
Total debt securities	3,702		3,379
Equity securities	981		1,148
Total available-for-sale securities	4,683		4,527
Total cash and securities	$	5,510	$	5,144

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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. The amounts presented are before the elimination of balances and transactions with our other reportable segments.



	Three months ended March 31,
($ in millions)	2013			2012			Favorable/ (unfavorable) % change
Net financing revenue
Total financing revenue and other interest income	$	122		$	166		(27)
Interest expense	88			129			32
Net financing revenue	34			37			(8)
Servicing fees	63			92			(32)
Servicing asset valuation and hedge activities, net	(201		)	(106		)	(90)
Total servicing income, net	(138		)	(14		)	n/m
Gain on mortgage loans, net	38			25			52
Other income, net of losses	81			126			(36)
Total other revenue	(19		)	137			(114)
Total net revenue	15			174			(91)
Provision for loan losses	20			27			26
Noninterest expense
Compensation and benefits expense	25			19			(32)
Representation and warranty expense	83			—			n/m
Other operating expenses	91			65			(40)
Total noninterest expense	199			84			(137)
(Loss) income from continuing operations before income tax (benefit) expense	$	(204	)	$	63		n/m
Total assets	$	11,284		$	30,079		(62)

n/m = not meaningful

Our Mortgage operations incurred a loss from continuing operations before income tax expense of $204 million for the three months ended March 31, 2013 , compared to income from continuing operations before income tax expense of $63 million for the three months ended March 31, 2012 . The decrease was primarily driven by the valuation of our mortgage servicing rights portfolio, the shutdown of our warehouse lending operations, a decrease in consumer mortgage-lending production associated with government-sponsored refinancing programs, and higher representation and warranty expense driven by the terms of our MSRs portfolio sales agreements.

Net financing revenue was $34 million for the three months ended March 31, 2013 , compared to $37 million for the same period in 2012 . The decrease in net financing revenue was primarily due to lower production as a result of the shutdown of our warehouse lending operations and the wind-down of consumer held-for-sale portfolio.

We incurred a net servicing loss of $138 million for the three months ended March 31, 2013 , compared to $14 million for the same period in 2012 , primarily resulting from the valuation of our MSRs portfolio in conjunction with our agreement to sell the portfolio.

The net gain on mortgage loans increased 52% for the three months ended March 31, 2013 , compared to the same period in 2012 . Due to the deconsolidation of ResCap following its bankruptcy filing, we began managing the execution of capital markets transactions, which resulted in us recording gains related to these transactions during the three months ended March 31, 2013.

Other income, net of losses , was $81 million for the three months ended March 31, 2013 , compared to $126 million for the same period in 2012 . The decrease was primarily due to lower fee income and net origination revenue related to decreased consumer mortgage-lending production associated with government-sponsored refinancing programs.

The provision for loan losses was $20 million for the three months ended March 31, 2013 , compared to $27 million for the same period in 2012 . The decrease for the three months ended March 31, 2013 , was primarily due to lower net charge-offs in 2013 due to the continued runoff of legacy mortgage assets and improvements in home prices.

Total noninterest expense increased $115 million for the three months ended March 31, 2013 , compared to the same period in 2012 . The increase was primarily due to higher representation and warranty expense driven by the terms of our MSRs portfolio sales agreements, and increased expenses required to establish separate mortgage-related processes as a result of the ResCap separation.

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Mortgage Loan Production and Servicing

Mortgage loan production was $6.1 billion for the three months ended March 31, 2013 , compared to $8.5 billion for the same period in 2012 . Loan production decreased $2.4 billion , or 28% , for the three months ended March 31, 2013 , compared to the same period in 2012 . The decline in loan production was largely driven by our reduced presence in the correspondent lending and direct lending channels. On April 17, 2013, we announced a decision to exit the correspondent lending channel and cease production of any new jumbo mortgage loans.

The following table summarizes U.S. consumer mortgage loan production.



	2013			2012
Three months ended March 31, ( $ in millions )	Number of loans	Dollar amount of loans		Number of loans	Dollar amount of loans
Production by product type
Prime conforming	27,872	$	5,565	30,750	$	6,587
Prime nonconforming	634	508		578	464
Government	220	43		6,795	1,484
Total U.S. production by product type	28,726	$	6,116	38,123	$	8,535
U.S. production by channel
Direct lending	13,344	$	2,424	17,228	$	3,586
Correspondent lender and secondary market purchases	12,780	2,948		17,286	3,996
Mortgage brokers	2,602	744		3,609	953
Total U.S. production by channel	28,726	$	6,116	38,123	$	8,535

The majority of our serviced mortgage assets are subserviced by GMAC Mortgage, LLC, a subsidiary of ResCap, pursuant to a servicing agreement. During April 2013, we completed the sale of our portfolio of agency mortgage servicing rights to Ocwen Financial Corporation and Quicken Loans Inc. The sale was completed in two stages - loans guaranteed by Fannie Mae were sold on April 1, 2013, and loans guaranteed by Freddie Mac were sold on April 16, 2013. Refer to Note 27 to the Condensed Consolidated Financial Statements for further information.

The following table summarizes our primary consumer mortgage loan-servicing portfolio by product category.



($ in millions)	March 31, 2013		December 31, 2012
U.S. primary servicing portfolio
Prime conforming	$	114,751	$	117,544
Prime nonconforming	11,042		11,628
Prime second-lien	1,082		1,136
Government	10		16
Total primary servicing portfolio	$	126,885	$	130,324

For more information regarding our serviced mortgage assets, refer to Note 10 to the Condensed Consolidated Financial Statements .

Loans Outstanding

Consumer mortgage loans held-for-sale and consumer mortgage loans held-for-investment as of March 31, 2013, represent loans held by Ally Bank.

Consumer mortgage loans held-for-sale were as follows.



($ in millions)	March 31, 2013			December 31, 2012
Prime conforming	$	730		$	2,407
Government	1			8
Total	731			2,415
Net (discounts) premiums	(34		)	26
Fair value option election adjustment	4			49
Total, net	$	701		$	2,490

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Consumer mortgage loans held-for-investment were as follows.



($ in millions)	March 31, 2013			December 31, 2012
Prime conforming	$	248		$	245
Prime nonconforming	8,225			8,322
Prime second-lien	1,083			1,137
Government	1			—
Total	9,557			9,704
Net premiums	44			43
Allowance for loan losses	(430		)	(432		)
Other	5			8
Total, net	$	9,176		$	9,323

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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 activities, such as management of the cash and corporate investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes our Commercial Finance Group, certain equity investments, overhead that was previously allocated to operations that have since been sold or classified as discontinued operations, and reclassifications and eliminations between the reportable operating segments. Our Commercial Finance Group provides senior secured commercial-lending products to primarily U.S.-based middle market companies.



	Three months ended March 31,
($ in millions)	2013			2012			Favorable/ (unfavorable) % change
Net financing loss
Total financing revenue and other interest income	$	53		$	44		20
Interest expense
Original issue discount amortization	60			111			46
Other interest expense	172			261			34
Total interest expense	232			372			38
Net financing loss (a)	(179		)	(328		)	45
Other revenue
Other gain on investments, net	3			24			(88)
Other income, net of losses	12			29			(59)
Total other revenue	15			53			(72)
Total net loss	(164		)	(275		)	40
Provision for loan losses	(1		)	(7		)	(86)
Noninterest expense
Compensation and benefits expense	132			159			17
Other operating expense (b)	(32		)	(26		)	23
Total noninterest expense	100			133			25
Loss from continuing operations before income tax (benefit) expense	$	(263	)	$	(401	)	34
Total assets	$	27,702		$	28,796		(4)


(a)	Refer to the table that follows for further details on the components of net financing loss.


(b)	Includes a reduction of $193 million for the three months ended March 31, 2013 , and $207 million for the three months ended March 31, 2012 , 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.

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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 March 31,
($ in millions)	2013			2012
Original issue discount amortization
2008 bond exchange amortization	$	(56	)	$	(103	)
Other debt issuance discount amortization	(4		)	(8		)
Total original issue discount amortization (a)	(60		)	(111		)
Net impact of the funds transfer pricing methodology
Unallocated liquidity costs (b)	(84		)	(154		)
Funds-transfer pricing / cost of funds mismatch (c)	61			5
Unassigned equity costs (d)	(109		)	(86		)
Total net impact of the funds transfer pricing methodology	(132		)	(235		)
Other (including Commercial Finance Group net financing revenue)	13			18
Total net financing losses for Corporate and Other	$	(179	)	$	(328	)
Outstanding original issue discount balance	$	1,780		$	2,093


(a)	Amortization is included as interest on long-term debt in the Condensed Consolidated Statement of Comprehensive Income .


(b)	Represents the unallocated cost of funding our cash and investment portfolio.

(c)

Represents our methodology to assign funding costs to classes of assets and liabilities based on expected duration and the London interbank offer rate (LIBOR) swap curve plus an assumed credit spread. Matching duration allocates interest income and interest expense to the reportable segments so the respective reportable segments results are insulated from interest rate risk. The balance above is the resulting benefit (loss) due to holding interest rate risk at Corporate and Other.


(d)	Primarily represents the unassigned cost of maintaining required capital positions for certain of our regulated entities, primarily Ally Bank and Ally Insurance.

The following table presents the scheduled remaining amortization of original issue discount at March 31, 2013 .



Year ended December 31, ($ in millions)	2013 (a)		2014		2015		2016		2017		2018 and thereafter	Total
Original issue discount
Outstanding balance	$	1,579	$	1,391	$	1,335	$	1,272	$	1,197	$—
Total amortization (b)	201		188		56		63		75		1,197	$	1,780
2008 bond exchange amortization (c)	186		166		43		53		66		1,059	1,573


(a)	The maximum annual scheduled amortization for any individual year is $158 million in 2030 of which $152 million is related to 2008 bond exchange amortization.


(b)	The amortization is included as interest on long-term debt on the Condensed Consolidated Statement of Comprehensive Income .


(c)	2008 bond exchange amortization is included in total amortization.

Loss from continuing operations before income tax expense for Corporate and Other was $263 million for the three months ended March 31, 2013 , compared to $401 million for the three months ended March 31, 2012 . Corporate and Other’s loss from continuing operations before income tax expense was driven by net financing losses, which primarily represents original issue discount amortization expense and the net impact of our FTP methodology, which includes the unallocated cost of maintaining our liquidity and investment portfolios.

The improvement in the loss from continuing operations before income tax expense for the three months ended March 31, 2013 was primarily due to decreases in OID amortization expense related to bond maturities and normal monthly amortization, and lower funding costs as a result of the early repayment of certain Federal Home Loan Bank debt during the fourth quarter of 2012, and lower compensation and benefits expense primarily related to a decrease in headcount. The improvement was partially offset by a decrease in other income primarily driven by derivative losses and the sale of servicer advance assets during the first quarter of 2013.

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 $18 million for the three months ended March 31, 2013 , compared to $25 million for the three months ended March 31, 2012 . The decrease was primarily related to less favorable provision expense due to higher recoveries on nonperforming exposures in 2012.

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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)	March 31, 2013		December 31, 2012
Cash
Noninterest-bearing cash	$	880	$	944
Interest-bearing cash	5,720		5,942
Total cash	6,600		6,886
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	923		1,124
Mortgage-backed	7,930		6,191
Asset-backed	2,212		2,332
Total debt securities	11,065		9,647
Equity securities	4		4
Total available-for-sale securities	11,069		9,651
Total cash and securities	$	17,669	$	16,537

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Risk Management

Managing the risk/reward trade-off is a fundamental component of operating our businesses. Our risk management program is overseen by the Ally Board of Directors (the Board), various risk committees, and the executive leadership team. The Board sets the risk appetite across our company while the risk committees and executive leadership team identify and monitor potential risks and manage the risk to be within our risk appetite. Ally's primary risks include credit, lease residual, market, operational, insurance/underwriting, country, and liquidity. For more information on our risk management process, refer to the Risk Management MD&A section of our 2012 Annual Report on Form 10-K.

Loan and Lease Exposure

The following table summarizes the exposures from our loan and lease activities.



( $ in millions )	March 31, 2013		December 31, 2012
Finance receivables and loans
Dealer Financial Services	$	86,894	$	86,542
Mortgage operations	9,672		9,821
Corporate and Other	2,557		2,692
Total finance receivables and loans	99,123		99,055
Held-for-sale loans
Dealer Financial Services	—		—
Mortgage operations	701		2,490
Corporate and Other	17		86
Total held-for-sale loans	718		2,576
Total on-balance sheet loans	$	99,841	$	101,631
Off-balance sheet securitized loans
Dealer Financial Services	$	1,336	$	1,495
Mortgage operations	117,342		119,384
Corporate and Other	—		—
Total off-balance sheet securitized loans	$	118,678	$	120,879
Operating lease assets
Dealer Financial Services	$	14,828	$	13,550
Mortgage operations	—		—
Corporate and Other	—		—
Total operating lease assets	$	14,828	$	13,550
Serviced loans and leases
Dealer Financial Services	$	132,817	$	134,122
Mortgage operations	126,885		130,324
Corporate and Other	1,383		1,344
Total serviced loans and leases	$	261,085	$	265,790

The risks inherent in our loan and lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact to our borrowers. The potential financial statement impact of these exposures varies depending on the accounting classification and future expected disposition strategy. We retain the majority of our automobile loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. Historically, we primarily originated mortgage loans with the intent to sell and, as such, retained only a small percentage of the loans that we originated or purchased. Mortgage loans that we did not intend to retain were sold to investors, primarily through securitizations guaranteed by GSEs. However, we may have retained an interest or right to service these loans. We ultimately manage the associated risks based on the underlying economics of the exposure. Due to our recent strategic actions, we are exiting the mortgage correspondent lending channel and ceasing origination of any new jumbo loans.

Credit Risk Management

Credit risk is defined as the potential failure to receive payments when due from a creditor in accordance with contractual obligations. Therefore, credit risk is a major source of potential economic loss to us. Credit risk is monitored by global and line of business committees and the Global Risk Management organization. Together they oversee the credit decisioning and management processes, and monitor credit risk exposures to ensure they are in a safe-and-sound manner and are within our risk appetite. In addition, our Loan Review Group provides

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

an independent assessment of the quality of our credit portfolios and credit risk management practices, and directly reports its findings to the Risk and Compliance Committee of the Board on a regular basis.

To mitigate risk we have implemented specific policies and processes across all lines of business, utilizing both qualitative and quantitative analyses, that reflect our commitment to maintaining an independent and ongoing assessment of credit risk and credit quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and lease portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem areas, loans and leases with potential credit weaknesses, and assessment of the adequacy of internal credit risk policies and procedures to monitor compliance with relevant laws and regulations. In addition, we maintain limits and underwriting guidelines that reflect our risk appetite.

We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated geographic region or a particular product or industry segment. To mitigate risk concentrations, we may take part in loan sales and syndications.

Additionally, we utilize numerous strategies 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. These actions are provided with the intent to provide the borrower with additional options in lieu of repossessing their vehicle. For mortgage loans, as part of our participation in certain governmental programs, we offer mortgage loan modifications to qualified borrowers. Numerous initiatives, such as the Home Affordable Modification Program (HAMP) are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates.

Furthermore, we manage our counterparty credit exposure based on the risk profile of the counterparty. Within our policies, we have established minimum standards and requirements for managing counterparty risk exposures in a safe-and-sound manner. Counterparty credit risk is derived from multiple exposure types, including derivatives, securities trading, securities financing transactions, financial futures, cash balances (e.g. due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more information on Derivative Counterparty Credit Risk, refer to Note 20 to the Condensed Consolidated Financial Statements .

The U.S. economy accelerated in late 2012, and continued to expand during the three months ended March 31, 2013 . The labor market recovered further during the quarter, with nonfarm payrolls increasing by more than 500,000 and the unemployment rate falling to a four year low of 7.6%. Within the U.S. automotive portfolio, encouraging trends include new light vehicle sales that averaged 15.3 million during the quarter, an 8% increase over the same period in 2012. Nonetheless, we continue to be cautious with the economic outlook due to uneven manufacturing activity, slow global economic growth and uncertainty regarding the effects of the sequester mandated cuts to U.S. federal government spending.

On-balance Sheet Portfolio

Our on-balance sheet portfolio includes both finance receivables and loans and held-for-sale loans. At March 31, 2013 , this primarily included $86.9 billion of automobile finance receivables and loans and $10.4 billion of mortgage finance receivables and loans.

During 2012 and 2013, 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)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Consumer
Finance receivables and loans
Loans at historical cost	$	64,686	$	63,536	$	668	$	642	$	1	$	1
Loans at fair value	—		—		—		—		—		—
Total finance receivables and loans	64,686		63,536		668		642		1		1
Loans held-for-sale	701		2,490		26		25		—		—
Total consumer loans	65,387		66,026		694		667		1		1
Commercial
Finance receivables and loans
Loans at historical cost	34,437		35,519		270		216		—		—
Loans at fair value	—		—		—		—		—		—
Total finance receivables and loans	34,437		35,519		270		216		—		—
Loans held-for-sale	17		86		—		—		—		—
Total commercial loans	34,454		35,605		270		216		—		—
Total on-balance sheet loans	$	99,841	$	101,631	$	964	$	883	$	1	$	1


(a)	Includes nonaccrual troubled debt restructured loans (TDRs) of $488 million and $419 million at March 31, 2013 , and December 31, 2012 , respectively.


(b)	Generally, loans that are 90 days past due and still accruing represent loans with government guarantees. There were no troubled debt restructured loans classified as 90 days past due and still accruing at March 31, 2013 and December 31, 2012 .

Total on-balance sheet loans outstanding at March 31, 2013 , decreased $1.8 billion to $99.8 billion from December 31, 2012 reflecting a decrease of $1.2 billion in the commercial portfolio and a decrease of $639 million in the consumer portfolio. The decrease in commercial on-balance sheet loans outstanding was primarily driven by the seasonality of dealer inventories and increased competition across the automotive lending market. The decrease in consumer on-balance sheet loans was primarily driven by the reduction of mortgage originations, partially offset by automobile originations, which outpaced portfolio runoff.

The total TDRs outstanding at March 31, 2013 , increased $97 million to $1.3 billion from December 31, 2012 , primarily due to our loss mitigation procedures and continued foreclosure prevention along with our participation in a variety of government-sponsored refinancing programs. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information.

Total nonperforming loans at March 31, 2013 , increased $81 million to $964 million from December 31, 2012 , reflecting an increase of $54 million of commercial nonperforming loans and an increase of $27 million of consumer nonperforming loans. The increase in total nonperforming loans from December 31, 2012 , was due in part to the reclassification of a small number of commercial loans to nonperforming status within an overall stable commercial portfolio. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Refer to Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 for additional information.

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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 March 31,
	Net charge-offs (recoveries)					Net charge-off ratios (a)
( $ in millions )	2013		2012			2013		2012
Consumer
Finance receivables and loans at historical cost	$	114	$	117		0.7	%	0.6	%
Commercial
Finance receivables and loans at historical cost	—		(10		)	—		(0.1	)
Total finance receivables and loans at historical cost	$	114	$	107		0.5		0.4


(a)	Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the period for each loan category.

Net charge-offs were $114 million for the three months ended March 31, 2013 , compared to $107 million for the three months ended March 31, 2012 . The increase was largely due to recoveries in the commercial portfolio in 2012 that did not repeat in 2013. 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 ended March 31, 2013 , the credit performance of the consumer portfolio remained strong as our nonperforming and net charge-off rates were relatively stable. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 .

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 )	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Consumer automobile (c)	$	55,014	$	53,715	$	266	$	260	$	—	$	—
Consumer mortgage
1st Mortgage	7,095		7,173		372		342		1		1
Home equity	2,577		2,648		30		40		—		—
Total consumer finance receivables and loans	$	64,686	$	63,536	$	668	$	642	$	1	$	1


(a)	Includes nonaccrual troubled debt restructured loans of $403 million and $373 million at March 31, 2013 , and December 31, 2012 , respectively.


(b)	There were no troubled debt restructured loans classified as 90 days past due and still accruing at March 31, 2013 , and December 31, 2012 .


(c)	Includes $1 million and $2 million of foreign consumer automobile loans at March 31, 2013 , and December 31, 2012 , respectively.

Total consumer outstanding finance receivables and loans increased $1.2 billion at March 31, 2013 compared with December 31, 2012 . This increase was related to growth in our U.S. automobile consumer loan originations largely due to higher industry sales, which outpaced portfolio runoff. Additionally, we continued to prudently expand our nonprime and used originations as a percent of our total originations.

Total consumer nonperforming finance receivables and loans at March 31, 2013 increased $26 million to $668 million from December 31, 2012 , reflecting an increase of $20 million of consumer mortgage nonperforming finance receivables and loans and an increase of $6 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 7 to the Condensed Consolidated Financial Statements for additional information. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans remained flat at 1.0% at March 31, 2013 and December 31, 2012 .

Consumer automotive loans accruing and past due 30 days or more decreased $215 million to $930 million at March 31, 2013 , compared with December 31, 2012 . The decrease is primarily related to seasonality.

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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 March 31,
	Net charge-offs				Net charge-off ratios (a)
( $ in millions )	2013		2012		2013		2012
Consumer automobile (b)	$	93	$	74	0.7	%	0.4	%
Consumer mortgage
1st Mortgage	10		23		0.6		1.4
Home equity	11		20		1.6		2.6
Total consumer finance receivables and loans	$	114	$	117	0.7		0.6


(a)	Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the period for each loan category.


(b)	Includes no foreign consumer automobile net charge-offs for the three months ended March 31, 2013 and $20 million for the three months ended March 31, 2012 .

Our net charge-offs from total consumer automobile finance receivables and loans were $93 million for the three months ended March 31, 2013 , compared to $74 million for the three months ended March 31, 2012 . The $19 million increase was driven primarily by higher U.S. outstandings, change in our U.S. portfolio mix as we prudently expand our nonprime and used originations, and seasoning of the U.S. portfolio. This increase was partially offset by the inclusion of foreign net charge-offs in the three months ended March 31, 2012 prior to the reclassification of the foreign automotive business.

Our net charge-offs from total consumer mortgage receivables and loans were $21 million for the three months ended March 31, 2013 , compared to $43 million for the same period in 2012 . The decrease was driven by the improved mix of remaining loans as lower quality legacy loans continued to runoff.

The following table summarizes the unpaid principal balance of total consumer loan originations for the periods shown. Total consumer loan originations include loans classified as finance receivables and loans and loans held-for-sale during the period.



	Three months ended March 31,
( $ in millions )	2013		2012
Consumer automobile (a)	$	7,022	$	10,652
Consumer mortgage
1st Mortgage	6,116		8,596
Home equity	—		—
Total consumer loan originations	$	13,138	$	19,248


(a)	Includes no foreign consumer automobile originations at March 31, 2013 and $2.5 billion at March 31, 2012 .

Total automobile-originated loans decreased $3.6 billion for the three months ended March 31, 2013 , compared to the same period in 2012 . The decrease was primarily due to the reclassification of our foreign automotive business to discontinued operations at the end of 2012 as well as lower new vehicle originations primarily as a result of more competition within the automotive finance market. Total mortgage-originated loans decreased $2.5 billion for the three months ended March 31, 2013 . The decline in loan production was largely driven by our reduced presence in the correspondent lending and direct lending channels.

Consumer loan originations retained on-balance sheet as held-for-investment were $7.5 billion at March 31, 2013 , compared to $11.1 billion at March 31, 2012 . The decrease was primarily due to the reclassification of our foreign automotive business to discontinued operations at the end of 2012 as well as lower new vehicle originations as a result of more competition within the automotive finance market.

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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 $55.0 billion and $53.7 billion at March 31, 2013 , and December 31, 2012 , respectively. Total mortgage and home equity loans were $9.7 billion and $9.8 billion at March 31, 2013 , and December 31, 2012 , respectively.



	March 31, 2013 (a)				December 31, 2012
	Automobile		1st Mortgage and home equity		Automobile		1st Mortgage and home equity
Texas	12.9	%	5.8	%	12.9	%	5.8	%
California	5.6		30.0		5.6		29.2
Florida	6.8		3.5		6.7		3.6
Pennsylvania	5.2		1.6		5.2		1.6
Michigan	4.8		3.9		5.0		4.1
Illinois	4.4		4.6		4.3		4.8
New York	4.5		2.0		4.6		2.0
Ohio	4.0		0.8		4.0		0.8
Georgia	3.8		2.0		3.7		1.9
North Carolina	3.3		2.0		3.3		2.0
Other United States	44.7		43.8		44.7		44.2
Total consumer loans (b)	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 March 31, 2013 .


(b)	Includes $1 million and $2 million of foreign consumer finance receivables and loans as of March 31, 2013 , and December 31, 2012 , respectively. These remaining foreign balances are within Finland and the Czech Republic.

We monitor our consumer loan portfolio for concentration risk across the geographies in which we lend. The highest concentrations of loans in the United States are in Texas and California, which represented an aggregate of 21.1% and 21.0% of our total outstanding consumer finance receivables and loans at March 31, 2013 , and December 31, 2012 , 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 included in our Annual Report on Form 10-K for the year ended December 31, 2012 .

Repossessed assets in our Automotive Finance operations at March 31, 2013 remained flat at $62 million from December 31, 2012 . Foreclosed mortgage assets at March 31, 2013 , increased $1 million to $7 million from December 31, 2012 .

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 production and prime nonconforming or nonprime for international production), and below-market rate (teaser) mortgages (prime or nonprime).

In circumstances when a loan has features such that it falls into multiple categories, it is classified to a category only once based on the following hierarchy: (1) high original loan-to-value (LTV) mortgage loans, (2) payment-option adjustable-rate mortgage loans, (3) interest-only mortgage loans, and (4) below-market rate (teaser) mortgages. Given the recent 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 )	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Interest-only mortgage loans (a)	$	1,853	$	2,063	$	111	$	125	$	—	$	—
Below-market rate (teaser) mortgages	185		192		4		3		—		—
Total higher-risk mortgage loans	$	2,038	$	2,255	$	115	$	128	$	—	$	—


(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 at March 31, 2013 remained flat at $1 million from December 31, 2012 and payment-option adjustable-rate mortgage finance receivables and loans at March 31, 2013 decreased $1 million to $2 million from December 31, 2012 . 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 March 31, 2013 and December 31, 2012 .

The allowance for loan losses was $98 million, or 4.8%, of total higher-risk held-for-investment mortgage loans recorded at historical cost based on carrying value outstanding before allowance for loan losses at March 31, 2013 .

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
March 31, 2013
California	$	451	$	58	$	509
Virginia	204		8		212
Maryland	154		5		159
Illinois	94		6		100
Florida	79		9		88
Other United States	871		99		970
Total higher-risk mortgage loans	$	1,853	$	185	$	2,038
December 31, 2012
California	$	500	$	60	$	560
Virginia	216		9		225
Maryland	166		5		171
Illinois	107		6		113
Florida	90		9		99
Other United States	984		103		1,087
Total higher-risk mortgage loans	$	2,063	$	192	$	2,255

Commercial Credit Portfolio

During the three months ended March 31, 2013 , the credit performance of the commercial portfolio remained strong as nonperforming finance receivables and loans and net charge-offs remained relatively stable. 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 included in our Annual Report on Form 10-K for the year ended December 31, 2012 .

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Management's Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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 )	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Commercial and industrial
Automobile	$	29,255	$	30,270	$	168	$	146	$	—	$	—
Mortgage	—		—		—		—		—		—
Other (c)(d)	2,562		2,697		63		33		—		—
Commercial real estate
Automobile	2,620		2,552		39		37		—		—
Mortgage	—		—		—		—		—		—
Total commercial finance receivables and loans	$	34,437	$	35,519	$	270	$	216	$	—	$	—


(a)	Includes nonaccrual troubled debt restructured loans of $85 million and $29 million at March 31, 2013 , and December 31, 2012 , respectively.


(b)	There were no troubled debt restructured loans classified as 90 days past due and still accruing at March 31, 2013 and December 31, 2012 .


(c)	Includes foreign commercial and industrial other outstanding loans of $15 million and $18 million and no nonperforming loans at March 31, 2013 , and December 31, 2012 , respectively.


(d)	Other commercial primarily includes senior secured commercial lending.

Total commercial finance receivables and loans outstanding decreased $1.1 billion to $34.4 billion at March 31, 2013 , from December 31, 2012 . The commercial and industrial outstandings decreased $1.1 billion primarily due to seasonality of dealer inventories and increased competition across the automotive lending market.

Total commercial nonperforming finance receivables and loans were $270 million at March 31, 2013 , an increase of $54 million compared to December 31, 2012 . The increase was primarily due to the reclassification of a small number of commercial loans to nonperforming status within the overall stable commercial portfolio. Total nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans increased to 0.8% as of March 31, 2013 from 0.6% as of December 31, 2012 .

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 March 31,
	Net charge-offs (recoveries)						Net charge-off ratios (a)
( $ in millions )	2013			2012			2013		2012
Commercial and industrial
Automobile	$	—		$	—		—	%	—	%
Mortgage	—			—			—		—
Other (b)	(1		)	(9		)	(0.2	)	(2.7	)
Commercial real estate
Automobile	1			—			0.1		—
Mortgage (c)	—			(1		)	—		(23.4	)
Total commercial finance receivables and loans	$	—		$	(10	)	—		(0.1	)


(a)	Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the period for each loan category.


(b)	Includes no foreign net charge-offs for the three months ended March 31, 2013 , and $4 million of foreign recoveries for the three months ended March 31, 2012 .


(c)	Includes no foreign net charge-offs for the three months ended March 31, 2013 , and $1 million of foreign recoveries for the three months ended March 31, 2012 .

Our net charge-offs from commercial finance receivables and loans resulted in no net charge-offs for the three months ended March 31, 2013 , compared to recoveries of $10 million for the same period in 2012 . The change in net charge-offs was largely driven by strong recoveries in certain wind-down portfolios in three months ended March 31, 2012 that did not repeat for the same period in 2013.

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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 remained flat at $2.6 billion at March 31, 2013 and December 31, 2012 .

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.



	March 31, 2013		December 31, 2012
Geographic region
Florida	13.6	%	11.7	%
Michigan	12.5		12.6
Texas	12.5		13.0
California	9.2		9.3
New York	4.7		4.9
North Carolina	3.9		3.9
Virginia	3.8		3.9
Pennsylvania	3.4		3.3
Georgia	3.1		3.0
Louisiana	2.2		2.2
Other United States	31.1		32.2
Total commercial real estate finance receivables and loans	100.0	%	100.0	%
Property type
Automotive dealers	100.0	%	100.0	%
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.



	March 31, 2013		December 31, 2012
Industry
Automotive	90.2	%	85.7	%
Electronics	3.7		1.2
Services	3.6		4.9
Other	2.5		8.2
Total commercial criticized finance receivables and loans	100.0	%	100.0	%

Total criticized exposures increased $50 million to $1.7 billion at March 31, 2013 from December 31, 2012 .

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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 March 31, 2013 ( $ in millions )	Consumer automobile			Consumer mortgage			Total consumer			Commercial			Total
Allowance at January 1, 2013	$	575		$	452		$	1,027		$	143		$	1,170
Charge-offs	(142		)	(24		)	(166		)	(1		)	(167		)
Recoveries	49			3			52			1			53
Net charge-offs	(93		)	(21		)	(114		)	—			(114		)
Provision for loan losses	107			20			127			4			131
Other	10			—			10			—			10
Allowance at March 31, 2013	$	599		$	451		$	1,050		$	147		$	1,197
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2013 (a)	1.1		%	4.7		%	1.6		%	0.4		%	1.2		%
Net charge-offs to average finance receivables and loans outstanding at March 31, 2013 (a)	0.7		%	0.9		%	0.7		%	—		%	0.5		%
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2013 (a)	225.1		%	112.2		%	157.1		%	54.5		%	127.6		%
Ratio of allowance for loan losses to net charge-offs at March 31, 2013	1.6			5.4			2.3			—			2.6


(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 March 31, 2013 , declined $283 million compared to March 31, 2012 . The decline was primarily due to the reclassification of our foreign automotive business to discontinued operations at the end of 2012 and run-off of legacy mortgage assets.

The allowance for commercial loan losses declined $66 million at March 31, 2013 , compared to March 31, 2012 , primarily related to continued wind-down of non-core commercial assets which were partially offset by higher core commercial assets.



Three months ended March 31, 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 (a)	(136		)	(45		)	(181		)	(2		)	(183		)
Recoveries (b)	62			2			64			12			76
Net charge-offs	(74		)	(43		)	(117		)	10			(107		)
Provision for loan losses	83			27			110			(12		)	98
Other (c)	57			1			58			(6		)	52
Allowance at March 31, 2012	$	832		$	501		$	1,333		$	213		$	1,546
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2012 (d)	1.2		%	5.0		%	1.7		%	0.5		%	1.3		%
Net charge-offs to average finance receivables and loans outstanding at March 31, 2012 (d)	0.5		%	1.7		%	0.6		%	(0.1		)%	0.4		%
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2012 (d)	339.2		%	168.2		%	245.4		%	70.5		%	182.9		%
Ratio of allowance for loan losses to net charge-offs at March 31, 2012	2.8			2.9			2.9			(5.4		)	3.6


(a)	Includes foreign consumer automobile charge-offs of $36 million .


(b)	Includes foreign consumer automobile and foreign commercial recoveries of $16 million and $5 million , respectively.


(c)	Includes provision for loan losses relating to discontinued operations of $42 million .


(d)	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.

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Allowance for Loan Losses by Type

The following table summarizes the allocation of the allowance for loan losses by product type.



	2013						2012
March 31, ( $ 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
Consumer automobile (a)	$	599	1.1	%	50.0	%	$	832	1.2	%	53.8	%
Consumer mortgage
1st Mortgage (b)	254		3.6		21.2		265		3.8		17.1
Home equity	197		7.6		16.5		236		7.8		15.3
Total consumer loans	1,050		1.6		87.7		1,333		1.7		86.2
Commercial
Commercial and industrial
Automobile (c)	61		0.2		5.1		108		0.3		7.0
Mortgage (d)	—		—		—		12		0.9		0.8
Other (e)	48		1.9		4.0		50		4.0		3.2
Commercial real estate
Automobile (f)	38		1.5		3.2		38		1.5		2.5
Mortgage (g)	—		—		—		5		34.3		0.3
Total commercial loans	147		0.4		12.3		213		0.5		13.8
Total allowance for loan losses	$	1,197	1.2		100.0	%	$	1,546	1.3		100.0	%


(a)	Includes no foreign consumer automobile allowance for loan losses and $204 million at March 31, 2013 and March 31, 2012 , respectively.


(b)	Includes no foreign consumer mortgage allowance for loan losses and $3 million at March 31, 2013 and March 31, 2012 , respectively.


(c)	Includes no foreign commercial and industrial automobile allowance for loan losses and $46 million at March 31, 2013 and March 31, 2012 , respectively.


(d)	Includes no foreign commercial and industrial mortgage allowance for loan losses and $11 million at March 31, 2013 and March 31, 2012 , respectively.


(e)	Includes no foreign commercial and industrial other allowance for loan losses and $1 million at March 31, 2013 and March 31, 2012 , respectively.


(f)	Includes no foreign commercial real estate automobile allowance for loan losses and $3 million at March 31, 2013 and March 31, 2012 , respectively.


(g)	Includes no foreign commercial real estate mortgage allowance for loan losses and $5 million at March 31, 2013 and March 31, 2012 , respectively.

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Provision for Loan Losses

The following table summarizes the provision for loan losses by product type.



	Three months ended March 31,
( $ in millions )	2013			2012
Consumer
Consumer automobile	$	107		$	83
Consumer mortgage
1st Mortgage	19			10
Home equity	1			17
Total consumer loans	127			110
Commercial
Commercial and industrial
Automobile	5			—
Mortgage	—			—
Other	(1		)	(7		)
Commercial real estate
Automobile	—			(5		)
Mortgage	—			—
Total commercial loans	4			(12		)
Total provision for loan losses	$	131		$	98

Market Risk

Our automotive financing, mortgage, and insurance activities give rise to market risk representing the potential loss in the fair value of assets or liabilities and earnings caused by movements in market variables, such as interest rates, foreign-exchange rates, equity prices, market perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases. We are exposed to interest rate risk arising from changes in interest rates related to financing, investing, and cash management activities. More specifically, we have entered into contracts to provide financing, to retain mortgage servicing rights, and to retain various assets related to securitization activities all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate and other fluctuations. Refer to Note 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, 2012 , 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, 2012 , there have been no material changes in these market risks.

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Liquidity Management, Funding, and Regulatory Capital

Overview

The purpose of liquidity management is to ensure our ability to meet changes in loan and lease demand, debt maturities, deposit withdrawals, and other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources of liquidity include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate, and investor profiles. Further liquidity is available through a pool of unencumbered highly liquid securities, borrowing facilities, repurchase agreements, as well as funding programs supported by the Federal Reserve and the Federal Home Loan Bank of Pittsburgh (FHLB).

We define liquidity risk as the risk that an institution's financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise from a variety of institution specific or market-related events that could have a negative impact on cash flows available to the organization. Effective management of liquidity risk helps ensure an organization's preparedness to meet uncertain cash flow obligations caused by unanticipated events. The ability of financial institutions to manage liquidity needs and contingent funding exposures has proven essential to their solvency.

The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for monitoring Ally's liquidity position, funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate Treasury is responsible for managing the liquidity positions of Ally within prudent operating guidelines and targets approved by ALCO and the Risk and Compliance Committee of the Ally Financial Board of Directors. We manage liquidity risk at the business segment, legal entity, and consolidated levels. Each business segment, along with Ally Bank, prepares periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by Corporate Treasury. Corporate Treasury manages liquidity under baseline economic projections as well as more severe economic stressed environments. Corporate Treasury, in turn, plans, and executes our funding strategies.

Ally uses multiple measures to frame the level of liquidity risk, manage the liquidity position, or identify related trends as early warning indicators. These measures include coverage ratios that measure the sufficiency of the liquidity portfolio and stability ratios that measure longer-term structural liquidity. In addition, we have established several internal management routines designed to review all aspects of liquidity and funding plans, evaluate the adequacy of liquidity buffers, review stress testing results, and assist senior management in the execution of its structured funding strategy and risk management accountabilities.

We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available credit facility capacity that, taken together, allows us to operate and to meet our contractual and contingent obligations in the event of market-wide disruptions and enterprise-specific events. We maintain available liquidity at various entities and consider regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. At March 31, 2013 , we maintained $19.5 billion of total available parent company liquidity and $10.4 billion of total available liquidity at Ally Bank. Parent company liquidity is defined as our consolidated operations less Ally Bank and the subsidiaries of Ally Insurance's holding company. To optimize cash and secured facility capacity between entities, the parent company lends cash to Ally Bank on occasion under an intercompany loan agreement. At March 31, 2013 , $2.2 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.

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. Our funding strategy largely focuses on the development of diversified funding sources across a global investor base to meet all our liquidity needs throughout different market cycles, including periods of financial distress. These funding sources include unsecured debt capital markets, unsecured retail term notes, public and private asset-backed securitizations, committed and uncommitted credit facilities, brokered certificates of deposits, and retail deposits. We also supplement these sources with a modest amount of short-term borrowings, including Demand Notes, 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.

We diversify Ally Bank's overall funding in order to reduce reliance on any one source of funding and to achieve a well-balanced funding portfolio across a spectrum of risk, duration, and cost of funds characteristics. Over the past few years, we have been focused on diversifying our funding sources, in particular at Ally Bank by growing retail deposits, expanding public and private securitization programs, maintaining the maturity profile of our brokered deposit portfolio while not exceeding a $10.0 billion portfolio, establishing repurchase agreements, and continuing to access funds from the Federal Home Loan Banks.

Since 2009, we have been directing new bank-eligible assets in the United States to Ally Bank in order to reduce and minimize our nonbanking exposures and funding requirements and to 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.

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Ally Bank

Ally Bank raises deposits directly from customers through the direct banking channel via the internet and over the telephone. These deposits provide our Automotive Finance and Mortgage operations with a stable and low-cost funding source. At March 31, 2013 , Ally Bank had $49.5 billion of total external deposits, including $38.8 billion of retail deposits.

At March 31, 2013 , Ally Bank maintained cash liquidity of $3.1 billion and unencumbered highly liquid U.S. federal government and U.S. agency securities of $6.2 billion . In addition, at March 31, 2013 , Ally Bank had unused capacity in committed secured funding facilities of $3.3 billion , including an equal allocation of shared unused capacity of $3.0 billion from a facility also available to the parent company. Our ability to access this unused capacity depends on having eligible assets to collateralize the incremental funding and, in some instances, the execution of interest rate hedges. To optimize use of cash and secured facility capacity between entities, Ally Financial lends cash to Ally Bank from time to time under an intercompany agreement. Amounts outstanding on this loan are repayable to Ally Financial at any time. Ally Bank has total available liquidity of $10.4 billion at March 31, 2013 , which excludes the intercompany loan of $2.2 billion

Maximizing bank funding continues to be a key part of our long-term liquidity strategy. We have made significant progress in migrating assets to Ally Bank and growing our retail deposit base since becoming a bank holding company in December 2008. Retail deposit growth is key to further reducing our cost of funds and decreasing our reliance on the capital markets. We believe deposits provide a stable, low-cost source of funds that are less sensitive to interest rate changes, market volatility, or changes in our credit ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts through our direct and indirect marketing channels. Current retail product offerings consist of a variety of products including certificates of deposits (CDs), savings accounts, money market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries. In the first three months of 2013 the deposit base at Ally Bank grew $2.6 billion , ending the quarter at $49.5 billion from $46.9 billion at December 31, 2012 . The growth in deposits has been primarily attributable to our retail deposit portfolio, particularly within our savings and money market checking accounts, and our CDs. Strong retention rates continue to materially contribute to our growth in retail deposits. In the first quarter of 2013 we retained 93% of maturing CD balances up for renewal in the same period. In addition to retail and brokered deposits, Ally Bank had access to funding through a variety of other sources including FHLB advances, public securitizations, private secured funding arrangements, and the Federal Reserve's Discount Window. At March 31, 2013 , debt outstanding from the FHLB totaled $4.5 billion with no debt outstanding from the Federal Reserve. Also, as part of our liquidity and funding plans, Ally Bank utilizes certain securities as collateral to access funding from repurchase agreements with third parties. Repurchase agreements are generally short-term. At March 31, 2013 , Ally Bank had $0.5 billion outstanding under repurchase agreements. Refer to Note 12 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 2012.



($ in millions)	1st Quarter 2013		4th Quarter 2012		3rd Quarter 2012		2nd Quarter 2012		1st Quarter 2012
Number of retail accounts	1,334,483		1,219,791		1,142,837		1,082,753		1,036,468
Deposits
Retail	$	38,770	$	35,041	$	32,139	$	30,403	$	29,323
Brokered	9,877		9,914		9,882		9,905		9,884
Other (a)	844		1,977		2,487		2,411		2,314
Total deposits	$	49,491	$	46,932	$	44,508	$	42,719	$	41,521


(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 first quarter of 2013 , Ally Bank completed one term securitization transaction backed by dealer floorplan loans raising $1.0 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 March 31, 2013 , Ally Bank had exclusive access to $3.5 billion from committed credit facilities including a $2.5 billion syndicated facility that can fund automotive retail and dealer floorplan loans, as well as leases. In March 2013, this facility was renewed by a syndicate of nineteen lenders and extended until June 2014. Ally Bank also had access to a $4.1 billion committed facility that is shared with the parent company.

Nonbank Funding

At March 31, 2013 , the parent company maintained liquid cash in the amount of $3.5 billion and unencumbered highly liquid U.S. federal government and U.S. agency securities of $0.9 billion . In addition, at March 31, 2013 , the parent company had available liquidity from unused capacity in committed credit facilities of $11.3 billion , including an equal allocation of shared unused capacity of $3.0 billion from a facility also available to Ally Bank. Parent company funding is defined as our consolidated operations less our Insurance operations and Ally Bank. Our ability to access unused capacity in secured facilities depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, the funding also relies on the execution of interest rate hedges. Funding sources at the parent company generally consist of longer-term unsecured debt, unsecured retail term notes, committed credit facilities, asset-backed

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securitizations, and a modest amount of short-term borrowings. To optimize use of cash and secured facility capacity between entities, Ally Financial lends cash to Ally Bank from time to time under an intercompany agreement. Amounts outstanding on this loan are repayable to Ally Financial at any time. The parent company has total available liquidity of $19.5 billion at March 31, 2013 , which includes the intercompany loan of $2.2 billion . The total available liquidity amount at March 31, 2013 also includes $1.6 billion of availability that is sourced from certain committed funding arrangements generally reliant upon the origination of future automotive receivables over the next nine months.

We will access the unsecured debt capital markets on an opportunistic basis to help pre-fund upcoming debt maturities. In addition, we have short-term and long-term unsecured debt outstanding from a legacy retail term note program known as SmartNotes. This program generally consisted of fixed-rate instruments with fixed-maturity dates ranging from 9 months to 30 years that were issued through a network of participating broker-dealers. During 2012, we launched a new retail term note program known as Ally Term Notes. There were $7.6 billion and $7.9 billion of combined retail term notes outstanding at March 31, 2013 , and December 31, 2012 , 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 $3.2 billion at March 31, 2013 , compared to $3.1 billion at December 31, 2012 . Refer to Note 13 and Note 14 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 January 2013 Ally Financial completed a non-prime retail public securitization using the Capital Auto Receivables Asset Trust (CARAT) platform, our first since 2008, raising more than $1.5 billion. We continue to maintain significant funding capacity at the parent company to fund automotive-related assets, including a $8.5 billion syndicated facility that can fund automotive retail and dealer floorplan loans, as well as leases. In March 2013, this facility was renewed by a syndicate of nineteen lenders and extended until March 2015. At March 31, 2013 , the parent company had $15.6 billion of exclusive commitments in the U.S. in various facilities secured by automotive and commercial finance assets. The parent company also had access to a $4.1 billion committed facility that is shared with Ally Bank.

Recent Funding Developments

During the first three months of 2013 , we completed U.S. funding transactions totaling almost $2.6 billion and renewed key existing funding facilities as we realized access to both the public and private markets. Key funding highlights from 2013 to date were as follows:

•

In March 2013, $11.0 billion in credit facilities were renewed at both the parent company and Ally Bank with a syndicate of nineteen lenders. The $11.0 billion capacity is secured by retail, lease and dealer floorplan automotive assets and is allocated to two separate facilities, one is a $8.5 billion facility maturing in March 2015, which is available to the parent company while the other is a $2.5 billion facility available to Ally Bank maturing in June 2014.


•	In January 2013, Ally Financial issued a non-prime retail public securitization, the first since 2008 using its existing CARAT platform. This transaction raised more than $1.5 billion.


•	In February 2013, Ally Bank issued a public dealer floorplan securitization. This transaction raised $1.0 billion.


•	In April 2013, Ally Bank issued a public retail securitization. This transaction raised over $900 million.


•	In April 2013, Ally Bank issued a public dealer floorplan securitization. This transaction raised approximately $550 million.

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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 2013 from 2012 levels. In addition, deposits represent a larger portion of the overall funding mix.



($ in millions)	Bank		Nonbank		Total		%
March 31, 2013
Secured financings	$	25,864	$	12,926	$	38,790	31
Institutional term debt	—		22,212		22,212		18
Retail debt programs (a)	—		13,274		13,274		11
Bank loans and other	2		5		7		—
Total debt (b)	25,866		48,417		74,283		60
Deposits (c)	49,491		835		50,326		40
Total on-balance sheet funding	$	75,357	$	49,252	$	124,609	100
December 31, 2012
Secured financings	$	29,161	$	15,950	$	45,111	35
Institutional term debt	—		22,200		22,200		17
Retail debt programs (a)	—		13,451		13,451		10
Bank loans and other	2		164		166		—
Total debt (b)	29,163		51,765		80,928		62
Deposits (c)	46,932		983		47,915		38
Total on-balance sheet funding	$	76,095	$	52,748	$	128,843	100


(a)	Primarily includes $7.6 billion and $7.9 billion of Retail Term Notes at March 31, 2013 and December 31, 2012 , respectively.


(b)	Excludes fair value adjustment as described in Note 22 to the Condensed Consolidated Financial Statements .


(c)	Bank deposits include retail, brokered, mortgage escrow, and other deposits. Nonbank deposits include dealer deposits. Intercompany deposits are not included.

Refer to Note 14 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at March 31, 2013 .

Funding Facilities

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Committed Funding Facilities



	Outstanding				Unused Capacity (a)				Total Capacity
($ in billions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Bank funding
Secured	$	1.7	$	3.8	$	1.8	$	4.7	$	3.5	$	8.5
Nonbank funding
Unsecured (b)	0.1		0.1		—		—		0.1		0.1
Secured (c) (d) (e)	13.9		22.5		11.8		7.8		25.7		30.3
Total nonbank funding	14.0		22.6		11.8		7.8		25.8		30.4
Shared capacity (f) (g)	1.1		1.1		3.0		3.0		4.1		4.1
Total committed facilities	$	16.8	$	27.5	$	16.6	$	15.5	$	33.4	$	43.0


(a)	Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent incremental collateral is available and contributed to the facilities.


(b)	Total unsecured nonbank funding capacity represents committed funding for our discontinued international automobile financing business.


(c)	Total secured nonbank funding capacity includes committed funding for our discontinued international automobile financing business of $6.9 billion and $12.0 billion as of March 31, 2013 and December 31, 2012 , respectively, with outstanding debt of $5.1 billion and $9.6 billion , respectively.


(d)	Total unused capacity includes $2.1 billion and $2.2 billion as of March 31, 2013 and December 31, 2012 , respectively, from certain committed funding arrangements that are generally reliant upon the origination of future automotive receivables and that are available in 2013.


(e)	Includes the secured facilities of our Commercial Finance Group.


(f)	Funding is generally available for assets originated by Ally Bank or the parent company, Ally Financial Inc.


(g)	Total shared bank facilities includes committed funding for our discontinued international automobile financing business of $0.1 billion and $0.1 billion as of March 31, 2013 and December 31, 2012 , respectively with outstanding debt of $0.1 billion and $0.1 billion , respectively.

Uncommitted Funding Facilities



	Outstanding				Unused Capacity (a)				Total Capacity
($ in billions)	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Bank funding
Secured
Federal Reserve funding programs	$	—	$	—	$	1.8	$	1.8	$	1.8	$	1.8
FHLB advances	4.5		4.8		0.8		0.4		5.3		5.2
Repurchase agreements	0.5		—		—		—		0.5		—
Total bank funding	5.0		4.8		2.6		2.2		7.6		7.0
Nonbank funding
Unsecured	2.2		2.1		0.4		0.4		2.6		2.5
Secured	—		0.1		0.1		0.1		0.1		0.2
Total nonbank funding (a)	2.2		2.2		0.5		0.5		2.7		2.7
Total uncommitted facilities	$	7.2	$	7.0	$	3.1	$	2.7	$	10.3	$	9.7


(a)	Total nonbank funding capacity represents uncommitted funding for our discontinued international automobile financing business.

Ally Bank Funding Facilities

Facilities for Automotive Finance Operations — Secured

At March 31, 2013 , Ally Bank had exclusive access to $3.5 billion from committed credit facilities. Ally Bank's largest facility is a $2.5 billion revolving syndicated credit facility secured by automotive receivables. In March 2013, we reduced and renewed this facility until June 2014. At March 31, 2013 , the amount outstanding under this facility was $1.7 billion. Ally Bank also had access to a $4.1 billion committed facility that is shared with the parent company. In the event these facilities are not renewed in the future, the outstanding debt will be repaid over time as the underlying collateral amortizes.

Nonbank Funding Facilities

Facilities for Automotive Finance Operations — Secured

The parent company's largest facility is a $8.5 billion revolving syndicated credit facility secured by automotive receivables. In March 2013, we increased and renewed this facility until March 2015. In the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At March 31, 2013 , there was $3.8 billion outstanding under this facility.

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In addition to our syndicated revolving credit facility, we also maintain various bilateral and multilateral secured credit facilities 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 March 31, 2013 , the parent company maintained exclusive access to $18.8 billion of committed secured credit facilities and forward purchase commitments to fund automotive assets, and also had access to a $4.1 billion committed facility that is shared with Ally Bank.

Cash Flows

Net cash provided by operating activities was $2.3 billion for the three months ended March 31, 2013 , compared to $2.1 billion for the same period in 2012 . During the three months ended March 31, 2013 , 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 $1.7 billion . During the three months ended March 31, 2012 , this activity resulted in a net cash inflow of $1.5 billion .

Net cash provided by investing activities was $0.7 billion for the three months ended March 31, 2013 , compared to a net cash outflow from investing activities of $4.1 billion for the same period in 2012 . The increase in net cash provided from investing activities was primarily attributable to $2.8 billion of net cash proceeds resulting from the sale of international businesses in the first quarter of 2013 and a $4.4 billion decrease in net cash outflow from finance receivables and loans for the three months ended March 31, 2013 , compared to 2012 . Cash used to purchase available-for-sale securities, net of proceeds from sales, maturities, and repayments, increased $2.5 billion during the three months ended March 31, 2013 , compared to 2012 . The cash outflow to purchase operating lease assets exceeded cash inflows from disposals of such assets by $1.7 billion for the three months ended March 31, 2013 , compared to a net cash outflow of $1.0 billion for the three months ended March 31, 2012 . The increase in net cash outflows associated with leasing activities compared to the prior year was primarily due to an increase in cash used to acquire leased assets.

Net cash used in financing activities for the three months ended March 31, 2013 , totaled $4.5 billion , compared to net cash provided by financing of $2.1 billion in the same period in 2012 . Cash used to repay long-term debt exceeded cash generated from long-term debt issuances by $7.2 billion for the three months ended March 31, 2013 . In three months ended March 31, 2012 , cash from issuances of long-term debt exceed repayments by $0.7 billion . Cash provided by short-term debt increased $1.1 billion in the three months ended March 31, 2013 , compared to 2012 , while cash provided by deposits increased by $0.2 billion.

Capital Planning and Stress Tests

As a bank holding company with $50 billion or more of consolidated assets, Ally is required to conduct periodic stress tests and submit a proposed capital action plan to the FRB every January, which the FRB must take action on by the following March. The proposed capital action plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any capital distribution, and any similar action that the FRB determines could have an impact on Ally's consolidated capital. The proposed capital action plan must also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios and above a Tier 1 common equity-to-total risk-weighted assets ratio of 5 percent, and serve as a source of strength to Ally Bank. The FRB must approve Ally's proposed capital action plan before Ally may take any proposed capital action covered by the new regime.

Ally submitted the required 2013 capital plan in January 2013. In March 2013, the FRB objected to our capital plan both on quantitative and qualitative grounds. In their published results, the FRB estimated our stressed tier 1 common ratio with adjusted planned capital actions to be 1.52 for the nine-quarter planning period. Also, the FRB estimated our stressed tier 1 capital ratio to be 11.02 and our tier 1 leverage ratio to be 9.42. The FRB noted that the post-stress capital ratios assumed that Ally remains subject to contingent liabilities associated with ResCap. In connection with its reviews, the FRB continues to provide their approval for dividend and interest payments on preferred equity and debt instruments included in regulatory capital, including preferred stock, trust preferred securities, and subordinated debt that were outstanding as of December 31, 2012. We continue to have active, frequent and constructive dialogue with the FRB related to our capital plan.

Regulatory Capital

Refer to Note 19 to the Condensed Consolidated Financial Statements .

Credit Ratings

The cost and availability of unsecured financing are influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings result in higher borrowing costs and reduced access to capital markets. This is particularly true for certain institutional investors whose investment guidelines require investment-grade ratings on term debt and the two highest rating categories for short-term debt (particularly money market investors).

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Ally Financial Inc. • Form 10-Q

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	Positive	February 25, 2013 (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 confirmed our senior debt rating of B1 and changed the outlook to Positive on February 25, 2013.


(c)	Standard & Poor’s affirmed our senior debt rating of B+ and the short-term rating of C, and changed the outlook to Positive on May 17, 2012.


(d)	DBRS placed our ratings Under Review - Developing on May 15, 2012.

Off-balance Sheet Arrangements

Refer to Note 9 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 Note 1 and Note 26 to the Condensed Consolidated Financial Statements , on May 14, 2012, Residential Capital, LLC and certain of its wholly owned direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. As a result of the deconsolidation of ResCap, a significant portion of our representation and warranty reserve was eliminated. Our representation and warranty reserve was $170 million at March 31, 2013 with respect to Ally Bank's sold and serviced loans. Further, on April 16, 2013, we completed the sale of a portfolio of agency MSRs to Ocwen Financial Corporation and the sale included the transfer of the representation and warranty liabilities associated with the majority of the loans sold. Refer to Note 27 to the Condensed Consolidated Financial Statements for further information related to the MSRs sale.

Overview

Ally Bank, within our Mortgage operations, sells loans that take the form of securitizations guaranteed by Fannie Mae and Freddie Mac. In connection with securitizations and loan sales, the trustee, for the benefit of the related security holders, is provided various representations and warranties related to the loans sold. The specific representations and warranties typically relate to, among other things, the ownership of the loan, the validity of the lien securing the loan, the loan's compliance with the criteria for inclusion in the transaction, including compliance with underwriting standards or loan criteria established by the buyer, the ability to deliver required documentation and compliance with applicable laws. In general, the representations and warranties described above may be enforced against Ally Bank at any time unless a sunset provision is in place. Upon discovery of a breach of a representation or warranty, the breach is corrected in a manner conforming to the provisions of the sale agreement. This may require Ally Bank to repurchase the loan, indemnify the investor for incurred losses, or otherwise make the investor whole. See Repurchase Process below.

Originations

Representation and warranty risk-mitigation strategies include, but are not limited to, pursuing settlements with investors where economically beneficial in order to resolve a pipeline of demands in lieu of loan-by-loan assessments that could result in repurchasing loans, aggressively contesting claims we do not consider valid (rescinding claims), or seeking recourse against correspondent lenders from whom we purchased loans wherever appropriate.

The following table summarizes domestic mortgage loans sold by ResCap where Ally Bank maintained the mortgage servicing rights; and following the deconsolidation of ResCap, the loans that were sold by Ally Bank. The following table presents domestic mortgage loans sold categorized by GSE (original unpaid principal balance).



	Three months ended March 31,		Year ended December 31,
( $ in billions )	2013		2012		2011		2010		2009		2008		2007
Fannie Mae	$	5.4	$	21.5	$	33.8	$	35.2	$	21.1	$	17.7	$	6.7
Freddie Mac	1.8		6.9		15.8		15.7		8.5		8.6		2.3
Total sales (a)	$	7.2	$	28.4	$	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.

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Representation and Warranty Obligation Reserve Methodology

The 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 .

On April 16, 2013, we completed the sales of agency MSRs to Ocwen Financial Corporation and Quicken Loans, Inc. The sale to Ocwen Financial Corporation included the transfer of the representation and warranty liabilities associated with the majority of the MSRs sold at a specified price. The repurchase reserve at March 31, 2013 also reflects losses associated with this contractual obligation. Pursuant to that obligation, we recognized additional provision expense in the period to reflect the terms of the sale of the MSRs asset. Refer to Note 27 to the Condensed Consolidated Financial Statements for further information related to the MSRs sale. Ally Bank experienced a decrease in new claims for the three months ended March 31, 2013 compared to the same period in 2012 . The decrease in repurchase claims was driven by significantly fewer new claims during the first quarter of 2013. The following table presents Ally Bank's new claims by GSEs (original unpaid principal balance).



Three months ended March 31, ( $ in millions )	2013		2012
Fannie Mae	$	54	$	45
Freddie Mac	16		42
Total claims	$	70	$	87

The following table presents the total number and original unpaid principal balance (UPB) of loans related to unresolved representation and warranty demands (indemnification claims or repurchase demands). The table includes demands that we have requested be rescinded but have not been agreed to by the investor. Total unresolved representation and warranty demands where Ally Bank has requested the investor to rescind decreased to $4 million or 9% of outstanding claims at March 31, 2013 , compared to $23 million or 40% of outstanding claims at December 31, 2012 .



	March 31, 2013			December 31, 2012
( $ in millions )	Number of Loans	Original UPB of Loans		Number of Loans	Original UPB of Loans
Fannie Mae	148	$	37	187	$	41
Freddie Mac	47	10		72	17
Total number of loans and unpaid principal balance	195	$	47	259	$	58

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 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.

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The following table presents Ally Bank's new claims by vintage (original unpaid principal balance).



	Three months ended March 31,
( $ in millions )	2013		2012
Pre 2008	$	12	$	15
2008	38		38
Post 2008	20		34
Total claims	$	70	$	87

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


•	Legal and regulatory reserves


•	Loan repurchase and obligations related to loan sales


•	Determination of provision for income taxes

As part of our quarterly 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 2012 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 2012 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 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.

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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)	March 31, 2013			December 31, 2012
Assets at fair value	$	18,676		$	20,408
As a percentage of total assets	11		%	11		%
Liabilities at fair value	$	406		$	2,468
As a percentage of total liabilities	n/m			2		%
Assets at fair value using Level 3 inputs	$	1,252		$	1,288
As a percentage of assets at fair value	7		%	6		%
Liabilities at fair value using Level 3 inputs	$	—		$	3
As a percentage of liabilities at fair value	n/m			n/m

n/m = not meaningful

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.

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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.



	2013							2012							Increase (decrease) due to (a)
Three months ended March 31, ( $ 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	$	6,565		$	3	0.19	%	$	8,724		$	2	0.09	%	$	(1	)	$	2		$	1
Trading assets	—			—		—		958			9		3.78		(9		)	—			(9		)
Investment securities (c)	13,921			63		1.84		12,633			69		2.20		8			(14		)	(6		)
Loans held-for-sale, net	2,027			16		3.20		3,463			31		3.60		(12		)	(3		)	(15		)
Finance receivables and loans, net (d) (e)	98,595			1,135		4.67		90,445			1,093		4.86		95			(53		)	42
Investment in operating leases, net (f)	14,205			299		8.54		9,345			202		8.69		102			(5		)	97
Total interest-earning assets	135,313			1,516		4.54		125,568			1,406		4.50		183			(73		)	110
Noninterest-bearing cash and cash equivalents	1,967							1,682
Other assets (g)	38,257							58,516
Allowance for loan losses	(1,172		)					(1,274		)
Total assets	$	174,365						$	184,492
Liabilities
Interest-bearing deposit liabilities	$	47,985		$	164	1.39	%	$	41,128		$	163	1.59	%	$	25		$	(24	)	$	1
Short-term borrowings	4,585			16		1.42		3,436			17		1.99		5			(6		)	(1		)
Long-term debt (h) (i) (j)	71,957			701		3.95		72,719			880		4.87		(9		)	(170		)	(179		)
Total interest-bearing liabilities (h) (i) (k)	124,527			881		2.87		117,283			1,060		3.64		21			(200		)	(179		)
Noninterest-bearing deposit liabilities	1,579							2,141
Total funding sources (i) (l)	126,106			881		2.83		119,424			1,060		3.57
Other liabilities (m)	28,087							45,588
Total liabilities	154,193							165,012
Total equity	20,172							19,480
Total liabilities and equity	$	174,365						$	184,492
Net financing revenue				$	635						$	346			$	162		$	127		$	289
Net interest spread (n)						1.67	%						0.86	%
Net interest spread excluding original issue discount (n)						1.89	%						1.29	%
Net interest spread excluding original issue discount and including noninterest-bearing deposit liabilities (n)						1.93	%						1.35	%
Net yield on interest-earning assets (o)						1.90	%						1.11	%
Net yield on interest-earning assets excluding original issue discount (o)						2.07	%						1.45	%


(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 $5 million during the three months ended March 31, 2013 and 2012 , 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 2012 Annual Report on Form 10-K.


(e)	Includes other interest income of $2 million during the three months ended March 31, 2012 .


(f)	Includes gains on sale of $64 million and $23 million during the three months ended March 31, 2013 and 2012 , respectively. Excluding these gains on sale, the annualized yield would be 6.72% and 7.70% at March 31, 2013 and 2012 , respectively.


(g)	Includes average balances of assets of discontinued operations.


(h)	Includes the effects of derivative financial instruments designated as hedges.


(i)	Average balance includes $1,753 million and $2,062 million related to original issue discount at March 31, 2013 and 2012 , respectively. Interest expense includes original issue discount amortization of $57 million and $108 million during the three months ended March 31, 2013 and 2012 , respectively.


(j)	Excluding original issue discount the rate on long-term debt was 3.54% and 4.15% at March 31, 2013 and 2012 , respectively.


(k)	Excluding original issue discount the rate on total interest-bearing liabilities was 2.65% and 3.21% at March 31, 2013 and 2012 , respectively.


(l)	Excluding original issue discount the rate on total funding sources was 2.61% and 3.15% at March 31, 2013 and 2012 , respectively.


(m)	Includes average balances of liabilities of discontinued operations.


(n)	Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.


(o)	Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.

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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; resolution of 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.

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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 sections of Item 2, Management's Discussion and Analysis.

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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 26 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 29 to our 2012 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 2012 Annual Report on Form 10-K.

Risks Related to Our Business

The previously contemplated settlement related to the ResCap bankruptcy has been allowed to lapse by ResCap and, as a result, there is substantial uncertainty related to resolution of the bankruptcy and substantial claims could be brought against us.

As of the Petition Date, two separate groups of institutional investors in residential mortgage-backed securities (RMBS Investors) issued by ResCap's affiliates and holding more than 25 percent of at least one class in each of 290 securitizations agreed to settle alleged representation and warranty claims against the Debtors' estates in exchange for a total $8.7 billion allowed claim in the Debtors' bankruptcy cases, subject to the applicable securitization trustees' acceptance of the terms of the settlements (the RMBS Settlements). The RMBS Investors also signed separate plan support agreements (PSAs) with the Debtors and AFI in support of the Plan at the time of entering into the RMBS Settlements. To date, RMBS Investors holding more than 25 percent of at least one class in each of 336 securitizations have agreed to the RMBS Settlements. These 336 securitizations have an aggregate original principal balance of approximately $189 billion (out of a total of 392 outstanding securitizations with an original principal balance of $221 billion). The RMBS Settlements are subject to Bankruptcy Court approval, and the Bankruptcy Court has scheduled a hearing to consider such approval beginning on May 28, 2013. The PSAs are not part of this scheduled Bankruptcy Court hearing. A number of creditors have raised objections to the RMBS Settlements, but the trustees representing the 336 securitization trusts and AFI have filed statements in support of the Debtors' motion to approve the RMBS Settlements. Separately, the Debtors have failed to meet several Plan milestones in their bankruptcy cases, each of which has given the RMBS Investors the right to terminate the PSAs upon three business days advance written notice to the Debtors and AFI. On April 18, 2013, one of the two groups of RMBS Investors represented by Talcott Franklin P.C. sent the Debtors and AFI a notice of termination of its PSA. The other group of RMBS Investors represented by Gibbs and Bruns LLP has not given the Debtors and AFI such a notice to date, but have the right to do so at any time. If the RMBS Settlements were not approved or the RMBS Investors were to decide not to support any proposed plan, it could adversely impact the likelihood that any plan is approved by the Bankruptcy Court. AFI continues to support the RMBS Settlements at this time.

On June 4, 2012, Berkshire Hathaway Inc. filed a motion in the Bankruptcy Court for the appointment of an independent examiner to investigate, among other things, certain of the Debtors' transactions with AFI occurring prior to the Petition Date, any claims the Debtors may hold against AFI's officers and directors, and any claims the Debtors proposed to release under the Plan. On June 20, 2012, the Bankruptcy Court approved the appointment of an examiner and, subsequently, the United States Trustee for the Southern District of New York appointed former bankruptcy judge Arthur J. Gonzalez, Esq. as the examiner (the Examiner). On July 27, 2012, the Bankruptcy Court entered an order approving the scope of the Examiner's investigation. The investigation includes, among other things: (a) all material pre-petition transactions between or among the Debtors and AFI, Cerberus Capital Management, L.P. and its subsidiaries and affiliates, and/or Ally Bank; (b) certain post-petition negotiations and transactions with the Debtors, including with respect to plan sponsor, plan support, and settlement agreements, the debtor-in-possession financing with AFI, the stalking horse asset purchase agreement with AFI, and the servicing agreement with Ally Bank; (c) all state and federal law claims or causes of action the Debtors proposed to release as part of the Plan; and (d) the release of all existing or potential ResCap-related causes of action against AFI held by third parties. In the Examiner's original work plan, the Examiner estimated that his investigation and related report would be completed six months from approximately August 6, 2012. However, on February 7, 2013 the Examiner informed the Bankruptcy Court in the third supplement to the work plan that the investigation and related report will not be completed until early May 2013.

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Ally Financial Inc. • Form 10-Q

the formulation and confirmation of the Plan. On March 5, 2013, the Bankruptcy Court entered an order extending the Mediator's term to and including May 31, 2013, unless the Mediator declares in a written order on an earlier date that the mediation is at an impasse and should be terminated. AFI, the Debtors, the official committee of unsecured creditors appointed in the Debtors' bankruptcy cases (the Creditors' Committee) and certain other creditor constituencies are engaging in ongoing mediation sessions under a Bankruptcy Court order of confidentiality. Given the inherent uncertainty of the bankruptcy process, it is reasonably possible that a settlement could be reached that results in a payment substantially higher than the current $750 million estimate, or that no settlement is reached at all. The ultimate outcome of these settlement discussions will be affected by various factors, including, among others, the highly complex nature of the bankruptcy process, competing interests of various parties, disparate creditor priorities, the uncertainty of obtaining certain non-financial terms being sought, competing jurisdictional claims, uncertain residual estate property value, and the timing and unknown conclusions of the independent examiner's investigation.

On February 27, 2013, the Debtors filed a motion with the Bankruptcy Court seeking, for purposes of any proposed Chapter 11 plan, that GMAC Mortgage's obligation to conduct and pay for independent file review regarding certain residential foreclosure actions and foreclosure sales prosecuted by GMAC Mortgage and its subsidiaries, as required under the Consent Order, be classified as a general unsecured claim in an amount to be determined, and that the automatic stay under the Bankruptcy Code be applied to prevent the FRB, the FDIC, and other governmental entities from taking any action to enforce the obligation against the Debtors (the Foreclosure Review Motion). The Bankruptcy Court is expected to issue a written opinion on relief sought in the Foreclosure Review Motion in the near future. If the Bankruptcy Court approves the Foreclosure Review Motion, such governmental entities are likely to seek to enforce the obligation against AFI, and any such obligations ultimately borne by AFI could be material.

We are currently named as defendants in various lawsuits relating to ResCap mortgage-backed securities and certain other mortgage-related matters (the Mortgage Cases), which are described in more detail in Note 26 to the Condensed Consolidated Financial Statements . We had previously disclosed that several of the Mortgage Cases were subject to orders entered by the Bankruptcy Court staying the matters through April 30, 2013 in connection with the Debtors bankruptcy. On May 1, 2013, all stay orders applicable to the Ally non-Debtor defendants with respect to the Mortgage Cases expired. As a result, all of the Mortgage Cases are proceeding against us.

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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Signatures

Ally Financial Inc. • Form 10-Q

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 1st day of May, 2013 .




	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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Item 1. Financial Statements Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

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