Form 10-Q
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 September 30, 2011, or

 

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

For the transition period from                          to                         .

Commission file number: 1-3754

ALLY FINANCIAL INC.

(Exact name of registrant as specified in its charter)

 

Delaware   38-0572512

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Renaissance Center

P.O. Box 200, Detroit, Michigan

48265-2000

(Address of principal executive offices)

(Zip Code)

(866) 710-4623

(Registrant’s telephone number, including area code)

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

Yes þ                    No ¨

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

Yes þ                    No ¨

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

 

Large accelerated filer ¨    Accelerated filer ¨    Non-accelerated filer þ   Smaller reporting company ¨
      (Do not check if a smaller reporting company)  

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

Yes ¨                    No þ

At November 3, 2011, the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.

 

 

 


Table of Contents

ALLY FINANCIAL INC.

INDEX

 

 

        

Page

 
Part I — Financial Information   
Item 1.   Financial Statements      3   
  Condensed Consolidated Statement of Income (unaudited)
for the Three and Nine months Ended September 30, 2011 and 2010
     3   
  Condensed Consolidated Balance Sheet (unaudited) at September 30, 2011 and December 31, 2010      5   
  Condensed Consolidated Statement of Changes in Equity (unaudited)
for the Nine months Ended September 30, 2011 and 2010
     7   
  Condensed Consolidated Statement of Cash Flows (unaudited)
for the Nine months Ended September 30, 2011 and 2010
     8   
  Notes to Condensed Consolidated Financial Statements (unaudited)      10   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      91   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      158   
Item 4.   Controls and Procedures      158   
Part II — Other Information      159   
Item 1.   Legal Proceedings      159   
Item 1A.   Risk Factors      160   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      162   
Item 3.   Defaults Upon Senior Securities      162   
Item 4.   (Removed and Reserved)      162   
Item 5.   Other Information      162   
Item 6.   Exhibits      162   
Signatures      163   
Index of Exhibits      164   

 

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Table of Contents

Item 1. Financial Statements

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
($ in millions)        2011             2010             2011             2010      

Financing revenue and other interest income

        

Interest and fees on finance receivables and loans

   $ 1,682      $ 1,656      $ 4,981      $ 4,891   

Interest on loans held-for-sale

     113        153        319        524   

Interest on trading securities

     4        5        10        12   

Interest and dividends on available-for-sale investment securities

     103        86        315        275   

Interest-bearing cash

     14        22        41        54   

Operating leases

     549        855        1,849        3,029   

 

 

Total financing revenue and other interest income

     2,465        2,777        7,515        8,785   

Interest expense

        

Interest on deposits

     184        172        531        485   

Interest on short-term borrowings

     98        110        332        320   

Interest on long-term debt

     1,297        1,451        4,041        4,293   

 

 

Total interest expense

     1,579        1,733        4,904        5,098   

Depreciation expense on operating lease assets

     296        454        773        1,636   

 

 

Net financing revenue

     590        590        1,838        2,051   

Other revenue

        

Servicing fees

     351        404        1,075        1,173   

Servicing asset valuation and hedge activities, net

     (471     (27     (663     (181

 

 

Total servicing income, net

     (120     377        412        992   

Insurance premiums and service revenue earned

     422        470        1,288        1,415   

Gain on mortgage and automotive loans, net

     83        326        290        863   

Loss on extinguishment of debt

            (2     (64     (123

Other gain on investments, net

     75        100        251        355   

Other income, net of losses

     141        186        610        441   

 

 

Total other revenue

     601        1,457        2,787        3,943   

Total net revenue

     1,191        2,047        4,625        5,994   

Provision for loan losses

     49        9        213        371   

Noninterest expense

        

Compensation and benefits expense

     303        392        1,161        1,206   

Insurance losses and loss adjustment expenses

     190        229        620        664   

Other operating expenses

     772        1,092        2,460        2,806   

 

 

Total noninterest expense

     1,265        1,713        4,241        4,676   

(Loss) income from continuing operations before income tax expense

     (123     325        171        947   

Income tax expense from continuing operations

     87        48        101        117   

 

 

Net (loss) income from continuing operations

     (210     277        70        830   

 

 

(Loss) income from discontinued operations, net of tax

            (8     (21     166   

 

 

Net (loss) income

   $ (210   $ 269      $ 49      $ 996   

 

 

Statement continues on the next page.

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

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
($ in millions except per share data)    2011     2010     2011     2010  

Net (loss) income attributable to common shareholders

        

Net (loss) income from continuing operations

   $ (210   $ 277      $ 70      $ 830   

Preferred stock dividends — U.S. Department of Treasury

     (133     (257     (400     (643

Preferred stock dividends

     (67     (70     (194     (212

Impact of preferred stock amendment

                   32          

 

 

Net loss from continuing operations attributable to common shareholders (a)

     (410     (50     (492     (25

 

 

(Loss) income from discontinued operations, net of tax

            (8     (21     166   

 

 

Net (loss) income attributable to common shareholders

   $ (410   $ (58   $ (513   $ 141   

 

 

Basic weighted-average common shares outstanding

     1,330,970        799,120        1,330,970        799,120   

 

 

Diluted weighted-average common shares outstanding (a)

     1,330,970        799,120        1,330,970        799,120   

 

 

Basic earnings per common share

        

Net loss from continuing operations

   $ (308   $ (63   $ (370   $ (31

(Loss) income from discontinued operations, net of tax

            (10     (16     208   

 

 

Net (loss) income

   $ (308   $ (73   $ (386   $ 177   

 

 

Diluted earnings per common share (a)

        

Net loss from continuing operations

   $ (308   $ (63   $ (370   $ (31

(Loss) income from discontinued operations, net of tax

            (10     (16     208   

 

 

Net (loss) income

   $ (308   $ (73   $ (386   $ 177   

 

 
(a) Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss attributable to common shareholders for the three and nine months ended September 30, 2011 and and the three months ended September 30, 2010, income 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.

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

 

($ in millions)    September 30, 2011     December 31, 2010  

Assets

    

Cash and cash equivalents

    

Noninterest-bearing

   $ 1,517      $ 1,714   

Interest-bearing

     14,885        9,956   

 

 

Total cash and cash equivalents

     16,402        11,670   

Trading securities

     503        240   

Investment securities

     13,981        14,846   

Loans held-for-sale, net ($3,204 and $6,424 fair value-elected)

     8,745        11,411   

Finance receivables and loans, net

    

Finance receivables and loans, net ($841 and $1,015 fair value-elected)

     108,712        102,413   

Allowance for loan losses

     (1,621     (1,873

 

 

Total finance receivables and loans, net

     107,091        100,540   

Investment in operating leases, net

     9,052        9,128   

Mortgage servicing rights

     2,663        3,738   

Premiums receivable and other insurance assets

     2,026        2,181   

Other assets

     21,493        18,254   

 

 

Total assets

   $ 181,956      $ 172,008   

 

 

Liabilities

    

Deposit liabilities

    

Noninterest-bearing

   $ 2,704      $ 2,131   

Interest-bearing

     41,622        36,917   

 

 

Total deposit liabilities

     44,326        39,048   

Short-term borrowings

     5,933        7,508   

Long-term debt ($831 and $972 fair value-elected)

     90,546        86,612   

Interest payable

     1,712        1,829   

Unearned insurance premiums and service revenue

     2,757        2,854   

Reserves for insurance losses and loss adjustment expenses

     690        862   

Accrued expenses and other liabilities ($28 and $— fair value-elected)

     16,260        12,806   

 

 

Total liabilities

     162,224        151,519   

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        1,287   

Accumulated deficit

     (6,918     (6,410

Accumulated other comprehensive income

     42        259   

 

 

Total equity

     19,732        20,489   

 

 

Total liabilities and equity

   $ 181,956      $ 172,008   

 

 

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

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.

 

($ in millions)    September 30, 2011     December 31, 2010  

Assets

    

Loans held-for-sale, net

   $ 9      $ 21   

Finance receivables and loans, net

    

Finance receivables and loans, net ($841 and $1,015 fair value-elected)

     38,152        33,483   

Allowance for loan losses

     (245     (238

 

 

Total finance receivables and loans, net

     37,907        33,245   

Investment in operating leases, net

     4,356        1,065   

Other assets

     3,207        3,279   

 

 

Total assets

   $ 45,479      $ 37,610   

 

 

Liabilities

    

Short-term borrowings

   $ 811      $ 964   

Long-term debt ($831 and $972 fair value-elected)

     31,864        24,466   

Interest payable

     14        15   

Accrued expenses and other liabilities

     291        397   

 

 

Total liabilities

   $ 32,980      $ 25,842   

 

 

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

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Nine months Ended September 30, 2011 and 2010

 

($ in millions)   Common
stock and
paid-in
capital
    Mandatorily
convertible
preferred
stock
held by
U.S.
Department
of Treasury
    Preferred
stock
   

Accumulated

deficit

    Accumulated
other
comprehensive
income
    Total
equity
    Comprehensive
income (loss)
 

Balance at January 1, 2010, before cumulative effect of adjustments

  $ 13,829      $ 10,893      $ 1,287      $ (5,630   $ 460      $ 20,839     

Cumulative effect of a change in accounting principle, net of tax (a)

          (57     4        (53  

 

 

Balance at January 1, 2010, after cumulative effect of adjustments

  $ 13,829      $ 10,893      $ 1,287      $ (5,687   $ 464      $ 20,786     

Capital contributions

    9                9     

Net income

          996          996      $ 996   

Preferred stock dividends paid to the U.S. Department of Treasury

          (643       (643  

Preferred stock dividends

          (212       (212  

Dividends to shareholders

          (8       (8  

Other comprehensive loss

            (25     (25     (25

Other (b)

          74          74     

 

 

Balance at September 30, 2010

  $ 13,838      $ 10,893      $ 1,287      $ (5,480   $ 439      $ 20,977      $ 971   

 

 

Balance at January 1, 2011

  $ 19,668      $ 5,685      $ 1,287      $ (6,410   $ 259      $ 20,489     

Net income

          49          49      $ 49   

Preferred stock dividends paid to the U.S. Department of Treasury

          (400       (400  

Preferred stock dividends

          (194       (194  

Series A preferred stock amendment (c)

        (32     32         

Other comprehensive loss

            (217     (217     (217

Other (b)

          5          5     

 

 

Balance at September 30, 2011

  $ 19,668      $ 5,685      $ 1,255      $ (6,918   $ 42      $ 19,732      $ (168

 

 
(a) Cumulative effect of change in accounting principle, net of tax, due to adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
(b) Represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009 through June 30, 2009.
(c) Refer to Note 16 to the Condensed Consolidated Financial Statements for further details.

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

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Nine months ended September 30, ($ in millions)    2011     2010  

Operating activities

    

Net income

   $ 49      $ 996   

Reconciliation of net income to net cash provided by operating activities

    

Depreciation and amortization

     2,100        3,246   

Other impairment

     8        58   

Changes in fair value of mortgage servicing rights

     1,327        1,466   

Provision for loan losses

     211        397   

Gain on sale of loans, net

     (299     (861

Net gain on investment securities

     (275     (357

Loss on extinguishment of debt

     64        123   

Originations and purchases of loans held-for-sale

     (42,467     (48,828

Proceeds from sales and repayments of loans held-for-sale

     44,417        55,046   

Net change in:

    

Trading securities

     (339     (22

Deferred income taxes

     (99     (186

Interest payable

     (99     176   

Other assets

     (324     976   

Other liabilities

     1,374        698   

Other, net

     133        (1,388

 

 

Net cash provided by operating activities

     5,781        11,540   

 

 

Investing activities

    

Purchases of available-for-sale securities

     (15,020     (15,902

Proceeds from sales of available-for-sale securities

     12,093        13,380   

Proceeds from maturities of available-for-sale securities

     3,725        3,646   

Net increase in finance receivables and loans

     (10,705     (12,422

Proceeds from sales of finance receivables and loans

     2,868        2,554   

Purchases of operating lease assets

     (5,332     (2,405

Disposals of operating lease assets

     4,862        6,719   

Proceeds from sale of business units, net (a)

     50        (331

Other, net

     633        1,158   

 

 

Net cash used in investing activities

     (6,826     (3,603

 

 

Statement continues on the next page.

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

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Nine months ended September 30, ($ in millions)    2011     2010  

Financing activities

    

Net change in short-term borrowings

     (1,263     (4,856

Net increase in bank deposits

     4,454        4,776   

Proceeds from issuance of long-term debt

     36,900        32,235   

Repayments of long-term debt

     (34,576     (43,827

Dividends paid

     (619     (862

Other, net

     962        1,255   

 

 

Net cash provided by (used in) financing activities

     5,858        (11,279

Effect of exchange-rate changes on cash and cash equivalents

     (45     501   

 

 

Net increase (decrease) in cash and cash equivalents

     4,768        (2,841

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

     (36     642   

Cash and cash equivalents at beginning of year

     11,670        14,788   

 

 

Cash and cash equivalents at September 30,

   $ 16,402      $ 12,589   

 

 

Supplemental disclosures

    

Cash paid for

    

Interest

   $ 4,303      $ 4,055   

Income taxes

     454        377   

Noncash items

    

Increase in finance receivables and loans due to a change in accounting principle (c)

            17,990   

Increase in long-term debt due to a change in accounting principle (c)

            17,054   

Transfer of mortgage servicing rights into trading securities through certification

     266          

Other disclosures

    

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

     179        437   

 

 
(a) The amounts are net of cash and cash equivalents of $88 million at September 30, 2011, and $1.1 billion at September 30, 2010, of business units at the time of disposition.
(b) Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the 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.
(c) Relates to the adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.

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

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies

Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is a leading, independent, globally diversified, financial services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad array of financial products and services to automotive dealers and their customers. We are also one of the largest residential mortgage companies in the United States. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (online and telephonic) banking market.

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes.

The Condensed Consolidated Financial Statements at September 30, 2011, and for the three months and nine months ended September 30, 2011, and 2010, 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, 2010, as filed on February 25, 2011, with the U.S. Securities and Exchange Commission (SEC).

Residential Capital, LLC

Residential Capital, LLC (ResCap), one of our mortgage subsidiaries, was negatively impacted by the events and conditions in the mortgage banking industry and the broader economy beginning in 2007. The market deterioration led to fewer sources of, and significantly reduced levels of, liquidity available to finance ResCap’s operations. ResCap is highly leveraged relative to its cash flow and previously recognized credit and valuation losses resulting in a significant deterioration in capital. ResCap may also be negatively impacted by exposure to representation and warranty obligations, adverse outcomes with respect to current or future litigation, fines, penalties, or settlements related to our mortgage-related activities and additional expenses to address regulatory requirements. ResCap is required to maintain consolidated tangible net worth, as defined, of $250 million at the end of each month, under the terms of certain of its credit facilities. For this purpose, consolidated tangible net worth is defined as ResCap’s consolidated equity excluding intangible assets. ResCap’s consolidated tangible net worth, as defined, was $331 million at September 30, 2011, and ResCap remained in compliance with all of its consolidated tangible net worth covenants. There continues to be a risk that ResCap may not be able to meet its debt service obligations, may default on its financial debt covenants due to insufficient capital, and/or may be in a negative liquidity position in future periods.

ResCap seeks to manage its liquidity and capital positions and explores initiatives to address its debt covenant compliance and liquidity needs including debt maturing in the next twelve months and other risks and uncertainties. ResCap’s initiatives could include, but are not limited to, the following: continuing to work with key credit providers to optimize all available liquidity options; possible further reductions in assets and other restructuring activities; focusing production on conforming and government-insured residential mortgage loans; and continued exploration of opportunities for funding and capital support from Ally and its affiliates. The outcomes of most of these initiatives are to a great extent outside of ResCap’s control resulting in increased uncertainty as to their successful execution.

During 2009 and 2010, we performed a strategic review of our mortgage business. As a result of this, we effectively exited the European mortgage market through the sale of our U.K. and continental Europe operations. We also completed the sale of certain higher-risk legacy mortgage assets and settled representation and warranty claims with certain counterparties.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The ongoing focus of our Mortgage Origination and Servicing operations will be predominately the origination and sale of conforming and government-insured residential mortgages and mortgage servicing.

In the future, Ally and ResCap may take additional actions with respect to ResCap as each party deems appropriate. These actions may include Ally providing or declining to provide additional liquidity and capital support for ResCap; refinancing or restructuring some or all of ResCap’s existing debt; the purchase or sale of ResCap debt securities in the public or private markets for cash or other consideration; entering into derivative or other hedging or similar transactions with respect to ResCap or its debt securities; Ally purchasing assets from ResCap; or undertaking corporate transactions such as a tender offer or exchange offer for some or all of ResCap’s outstanding debt securities, asset sales, or other business reorganization or similar action with respect to all or part of ResCap and/or its affiliates. In this context, Ally and ResCap each typically consider a number of factors to the extent applicable and appropriate including, without limitation, its financial condition, results of operations, and prospects; ResCap’s ability to obtain third-party financing; tax considerations; the current and anticipated future trading price levels of ResCap’s debt instruments; conditions in the mortgage banking industry and general economic conditions; other investment and business opportunities available to Ally and/or ResCap; and any nonpublic information that ResCap may possess or that Ally receives from ResCap.

ResCap remains heavily dependent on Ally and its affiliates for funding and capital support, and there can be no assurance that Ally or its affiliates will continue such actions or that Ally will choose to execute any further strategic transactions with respect to ResCap or that any transactions undertaken will be successful.

Although our continued actions through various funding and capital initiatives demonstrate support for ResCap, there can be no assurances for future capital support. Consequently, there remains substantial doubt about ResCap’s ability to continue as a going concern. Should we no longer continue to support the capital or liquidity needs of ResCap or should ResCap be unable to successfully execute other initiatives, it would have a material adverse effect on ResCap’s business, results of operations, and financial position.

Ally has extensive financing and hedging arrangements with ResCap that could be at risk of nonpayment if ResCap were to file for bankruptcy. At September 30, 2011, we had $1.9 billion in secured financing arrangements with ResCap of which $1.2 billion in loans was utilized. At September 30, 2011, the hedging arrangements were fully collateralized. Amounts outstanding under the secured financing and hedging arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap’s repayments of its financing facilities, including those with us, could be slower. In addition, we could be an unsecured creditor of ResCap to the extent that the proceeds from the sale of our collateral are insufficient to repay ResCap’s obligations to us. It is possible that other ResCap creditors would seek to recharacterize our loans to ResCap as equity contributions or to seek equitable subordination of our claims so that the claims of other creditors would have priority over our claims. In addition, should ResCap file for bankruptcy, our $331 million investment related to ResCap’s equity position would likely be reduced to zero. If a ResCap bankruptcy were to occur and a substantial amount of our credit exposure is not repaid to us, it could have an adverse impact on our near-term net income and capital position, but we do not believe it would have a materially adverse impact on Ally’s consolidated financial position over the longer term.

Relationship and Transactions with General Motors Company

General Motors Company (GM), GM dealers, and GM-related employees compose a significant portion of our customer base, and our Global Automotive Services operations are highly dependent on GM production and sales volume. As a result, a significant adverse change in GM’s business, including significant adverse changes in GM’s liquidity position and access to the capital markets, the production or sale of GM vehicles, the quality or resale value of GM vehicles, the use of GM marketing incentives, GM’s relationships with its key suppliers, GM’s relationship with the United Auto Workers and other labor unions, and other factors impacting GM or its employees could have a significant adverse effect on our profitability and financial condition.

GM is no longer considered a related party for purposes of applicable disclosure within the Notes to Condensed Consolidated Financial Statements, as it beneficially owns less than 10% of the voting interests in Ally and does not control or have the ability to significantly influence the management and policies of Ally. In addition, the Federal Reserve has determined that GM is no longer considered an “affiliate” of Ally Bank for purposes of Sections 23A and 23B of the Federal Reserve Act, which impose limitations on transactions between banks and their affiliates.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Refer to Note 26 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for a summary of related party transactions with GM during 2010.

Significant Accounting Policies

Earnings per Common Share

We compute earnings (loss) per common share by dividing net income (loss) (after deducting dividends on preferred stock) by the weighted-average number of common shares outstanding during the period. We compute diluted earnings (loss) per common share by dividing net income (loss) (after deducting dividends on preferred stock) by the weighted-average number of common shares outstanding during the period plus the dilution resulting from the conversion of convertible preferred stock, if applicable.

Refer to Note 1 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

Receivables — A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-02)

As of July 1, 2011, we adopted Accounting Standards Update (ASU) 2011-02, which amends Accounting Standards Codification (ASC) 310, Receivables. ASU 2011-02 clarifies which loan modifications constitute a troubled debt restructuring (TDR). It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The ASU must be applied retrospectively to modifications made subsequent to the beginning of the annual period of adoption, which for us is January 1, 2011.

Effective September 30, 2011, ASU 2011-02 also required us to disclose the total amount of receivables and the allowance for credit losses related to those receivables that are newly considered impaired for which impairment was previously measured under ASC 450-20, Contingencies — Loss Contingencies. Refer to Note 8 to the Condensed Consolidated Financial Statements for additional information regarding TDRs.

The adoption did not have a material impact to our consolidated financial condition or results of operations.

Receivables — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20)

Beginning with the three months ended September 30, 2011 and in conjunction with the requirements of ASU 2011-02, ASU 2010-20 required us to expand disclosures related to TDRs. Beginning with the three months ended March 31, 2011, ASU 2010-20 required us to disclose a rollforward of the allowance for loan losses, additional activity-based disclosures for both financing receivables, and the allowance for each reporting period. Refer to Note 8 to the Condensed Consolidated Financial Statements for additional information regarding TDRs. We early adopted the rollforward requirement during the December 31, 2010, reporting period. Since the guidance relates only to disclosures, adoption did not have a material impact on our consolidated financial condition or results of operations.

Revenue Recognition — Multiple-Deliverable Revenue Arrangements (ASU 2009-13)

As of January 1, 2011, we adopted ASU 2009-13, which amends ASC 605, Revenue Recognition. The guidance significantly changed the accounting for revenue recognition in arrangements with multiple deliverables and eliminated the residual method, which allocated the discount of a multiple deliverable arrangement among the delivered items. The guidance requires entities to allocate the total consideration to all deliverables at inception using the relative selling price and to allocate any discount in the arrangement proportionally to each deliverable based on each deliverable’s selling price. The adoption did not have a material impact to our consolidated financial condition or results of operations.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Recently Issued Accounting Standards

Financial Services — Insurance — Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In October 2010, the FASB issued ASU 2010-26, which amends ASC 944, Financial Services — Insurance. The amendments in this ASU specify which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. All other acquisition-related costs should be expensed as incurred. If the initial application of the amendments in this ASU results in the capitalization of acquisition costs that had not been previously capitalized, an entity may elect not to capitalize those types of costs. The ASU will be effective for us on January 1, 2012 and will be applied prospectively. Both retrospective application and early adoption are permitted. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

Fair Value Measurement — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS) (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, which amends ASC 820, Fair Value Measurements. The amendments in this ASU clarify how to measure fair value. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. The ASU will be effective for us on January 1, 2012, and must be applied prospectively. Early adoption is not permitted. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

Comprehensive Income — Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the FASB issued ASU 2011-05, which amends ASC 220, Comprehensive Income. The amendments will increase the prominence of items reported in other comprehensive income and facilitate convergence between GAAP and IFRS. This ASU will require that nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU will be effective for us on January 1, 2012. Early adoption is permitted. Since the guidance relates only to disclosures, the adoption will have no impact to our consolidated financial condition or results of operations.

 

2. Discontinued Operations

We classified certain operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we will not have any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all of the operating results for these operations were removed from continuing operations and are presented separately as discontinued operations, net of tax. The Notes to the Condensed Consolidated Financial Statements were adjusted to exclude discontinued operations unless otherwise noted.

Select Insurance Operations

During the second quarter of 2011, we completed the sale of our U.K. consumer property and casualty insurance business.

Select International Automotive Finance Operations

We completed the sale of our Ecuador operations during the first quarter of 2011. We expect to complete the sale of our Venezuela operations by December 31, 2011.

Select Financial Information

The pretax income or loss recognized for the discontinued operations, including the direct costs to transact a sale, could differ from the ultimate sales price due to the fluidity of ongoing negotiations, price volatility, changing interest rates, changing foreign-currency rates, and future economic conditions.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Selected financial information of discontinued operations is summarized below.

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
($ in millions)        2011              2010             2011             2010      

Select Insurance operations

         

Total net revenue

   $       $ 57      $ 96      $ 357   

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

             3        13        (3

Tax (benefit)

                           (1

Select International operations

         

Total net revenue

   $ 3       $ 28      $ 13      $ 108   

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

             35        (34     98   

Tax (benefit)

             (4            (3

Select Mortgage — Legacy and Other operations

         

Total net revenue

   $       $ 25      $      $ 69   

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

             (46            56   

Tax expense (benefit)

             5               (3

Select Commercial Finance operations

         

Total net revenue

   $       $      $      $ 11   

Pretax income including direct costs to transact a sale (a)

             1               8   

Tax expense

                             

 

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

 

3. Other Income, Net of Losses

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

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
($ in millions)        2011             2010             2011             2010      

Mortgage processing fees and other mortgage income

   $ 53      $ 63      $ 141      $ 157   

Late charges and other administrative fees

     30        35        87        107   

Remarketing fees

     24        37        92        104   

Income from equity-method investments

     21        15        64        40   

Securitization income (loss)

     19        22        168        (25

Real estate services, net

     15               15        8   

Full-service leasing fees

     7        17        32        58   

Change due to fair value option elections (a)

     (44     (52     (83     (181

Fair value adjustment on derivatives (b)

     (55     (57     (134     (115

Other, net

     71        106        228        288   

 

 

Total other income, net of losses

   $ 141      $ 186      $ 610      $ 441   

 

 
(a) Refer to Note 21 for a description of fair value option elections.
(b) Refer to Note 19 for a description of derivative instruments and hedging activities.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

4. Other Operating Expenses

Details of other operating expenses were as follows.

 

     Three months  ended
September 30,
     Nine months  ended
September 30,
 
($ in millions)        2011              2010              2011              2010      

Technology and communications

   $ 128       $ 117       $ 365       $ 390   

Insurance commissions

     119         150         368         446   

Professional services

     85         82         231         201   

Mortgage representation and warranty, net

     70         344         280         490   

Advertising and marketing

     47         49         142         123   

Lease and loan administration

     47         40         136         106   

Vehicle remarketing and repossession

     32         42         105         144   

Regulatory and licensing fees

     32         32         103         87   

State and local non-income taxes

     29         31         95         91   

Occupancy

     26         22         72         73   

Premises and equipment depreciation

     24         24         74         62   

Restructuring

     9         4         12         60   

Full-service leasing vehicle maintenance costs

     8         14         29         50   

Other

     116         141         448         483   

 

 

Total other operating expenses

   $ 772       $ 1,092       $ 2,460       $ 2,806   

 

 

 

5. Trading Securities

The composition of trading securities was as follows.

 

($ in millions)    September 30, 2011      December 31, 2010  

U.S. Treasury

   $       $ 77   

Mortgage-backed residential

     503         69   

Asset-backed

             94   

 

 

Total trading securities

   $ 503       $ 240   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

6. Investment Securities

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

 

     September 30, 2011      December 31, 2010  
    

Cost

     Gross unrealized    

Fair

value

    

Cost

     Gross unrealized    

Fair

value

 
($ in millions)       gains      losses           gains      losses    

Available-for-sale securities

                                                                     

Debt securities

                     

U.S. Treasury and federal agencies

   $ 1,041       $ 6       $ (2   $ 1,045       $ 3,307       $ 22       $ (11   $ 3,318   

States and political subdivisions

     1                        1         3                 (1     2   

Foreign government

     894         33                927         1,231         19         (2     1,248   

Mortgage-backed residential (a)

     6,624         96         (36     6,684         5,844         60         (79     5,825   

Asset-backed

     2,423         36         (6     2,453         1,934         15         (1     1,948   

Corporate debt

     1,210         14         (29     1,195         1,537         34         (13     1,558   

Other

     564         1                565         152                 (1     151   

 

 

Total debt securities (b)

     12,757         186         (73     12,870         14,008         150         (108     14,050   

Equity securities

     1,334         39         (262     1,111         766         60         (30     796   

 

 

Total available-for-sale securities (c)

   $ 14,091       $ 225       $ (335   $ 13,981       $ 14,774       $ 210       $ (138   $ 14,846   

 

 
(a) Residential mortgage-backed securities include agency-backed bonds totaling $5,533 million and $4,503 million at September 30, 2011, and December 31, 2010, respectively.
(b) In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $56 million and $153 million of primarily U.K. Treasury securities were pledged as collateral at September 30, 2011, and December 31, 2010, respectively.
(c) Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million at both September 30, 2011, and December 31, 2010, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause actual maturities to differ from scheduled maturities.

 

    Total     Due in
one year
or less
    Due after
one year
through
five years
    Due after
five years
through
ten years
    Due after
ten years (a)
 
($ in millions)   Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  

September 30, 2011

                   

Fair value of available-for-sale debt securities (b)

                   

U.S. Treasury and federal agencies

  $ 1,045        1.4   $ 219        1.1   $ 824        2.3   $ 2        3.2   $       

States and political subdivisions

    1        5.5                                                  1        5.5   

Foreign government

    927        4.1        49        5.2        633        4.4        234        3.2        11        3.7   

Mortgage-backed residential

    6,684        2.6                      2        6.3        263        1.8        6,419        2.6   

Asset-backed

    2,453        2.1                      1,553        2.1        461        1.3        439        3.0   

Corporate debt

    1,195        5.1        12        5.1        483        4.9        557        5.5        143        4.0   

Other

    565        1.6        554        1.5                      11        4.9                 
   

 

 

     

 

 

     

 

 

     

 

 

   
                                             

Total available-for-sale debt securities

  $ 12,870        2.7      $ 834        1.6      $ 3,495        3.1      $ 1,528        2.6      $ 7,013        2.7   

 

 

Amortized cost of available-for-sale debt securities

  $ 12,757        $ 834        $ 3,461        $ 1,520        $ 6,942     

 

 

December 31, 2010

                   

Fair value of available-for-sale debt securities (b)

                   

U.S. Treasury and federal agencies

  $ 3,318        1.4   $ 124        1.2   $ 3,094        1.3   $ 100        3.7   $       

States and political subdivisions

    2        8.7                                                  2        8.7   

Foreign government

    1,248        3.1        7        2.2        1,092        3.1        149        3.5                 

Mortgage-backed residential

    5,825        3.8                      57        3.2        64        4.4        5,704        3.8   

Asset-backed

    1,948        2.5                      1,146        2.2        500        2.4        302        4.0   

Corporate debt

    1,558        3.9        22        5.7        811        3.5        593        4.3        132        4.0   

Other

    151        1.5        151        1.5                                             
   

 

 

     

 

 

     

 

 

     

 

 

   
                                             

Total available-for-sale debt securities

  $ 14,050        3.0      $ 304        1.7      $ 6,200        2.1      $ 1,406        3.5      $ 6,140        3.8   

 

 

Amortized cost of available-for-sale debt securities

  $ 14,008        $ 305        $ 6,152        $ 1,388        $ 6,163     

 

 
(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 $8.2 billion and $5.3 billion at September 30, 2011, and December 31, 2010, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents gross gains and losses realized upon the sales of available-for-sale securities. During the three months and nine months ended September 30, 2011, we did not recognize other-than-temporary impairment on available-for-sale securities.

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
($ in millions)        2011             2010             2011             2010      

Gross realized gains

   $ 90      $ 102      $ 288      $ 381   

Gross realized losses

     (15     (2     (37     (25

Other-than-temporary impairment

                          (1

 

 

Net realized gains

   $ 75      $ 100      $ 251      $ 355   

 

 

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

 

     Three months  ended
September 30,
     Nine months  ended
September 30,
 
($ in millions)        2011              2010              2011              2010      

Taxable interest

   $ 97       $ 81       $ 298       $ 252   

Taxable dividends

     6         5         17         13   

Interest and dividends exempt from U.S. federal income tax

                             10   

 

 

Total interest and dividends on available-for-sale securities

   $ 103       $ 86       $ 315       $ 275   

 

 

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of September 30, 2011, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As of September 30, 2011, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at September 30, 2011. Refer to Note 1 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.

 

    September 30, 2011     December 31, 2010  
    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

  $ 288      $ (2   $      $      $ 702      $ (11   $      $   

States and political subdivisions

                                2        (1              

Foreign government

    58                             323        (2              

Mortgage-backed residential

    2,005        (35     6        (1     3,159        (77     11        (2

Asset-backed

    463        (6     1               238        (1     2          

Corporate debt

    628        (29     14               653        (13     5          

Other

    57                             80        (1              

 

 

Total temporarily impaired debt securities

    3,499        (72     21        (1     5,157        (106     18        (2

Temporarily impaired equity securities

    964        (262                   250        (27     26        (3

 

 

Total temporarily impaired available-for-sale securities

  $ 4,463      $ (334   $ 21      $ (1   $ 5,407      $ (133   $ 44      $ (5

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

7. Loans Held-for-sale, Net

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

 

     September 30, 2011      December 31, 2010  
($ in millions)    Domestic      Foreign      Total      Domestic      Foreign      Total  

Consumer automobile

   $ 464       $       $ 464       $       $       $   

Consumer mortgage

                 

1st Mortgage

     6,961         528         7,489         10,191         364         10,555   

Home equity

     765                 765         856                 856   

 

 

Total consumer mortgage (a)

     7,726         528         8,254         11,047         364         11,411   

 

 

Commercial and industrial

                 

Other

     27                 27                           

 

 

Total loans held-for-sale (b)

   $ 8,217       $ 528       $ 8,745       $ 11,047       $ 364       $ 11,411   

 

 
(a) Fair value option-elected domestic consumer mortgages were $3.2 billion and $6.4 billion at September 30, 2011, and December 31, 2010, respectively. Refer to Note 21 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 $218 million and $161 million at September 30, 2011, and December 31, 2010, respectively.

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

 

($ in millions)    September 30, 2011      December 31, 2010  

High original loan-to-value (greater than 100%) mortgage loans

   $ 295       $ 331   

Payment-option adjustable-rate mortgage loans

     9         16   

Interest-only mortgage loans

     410         481   

Below-market rate (teaser) mortgages

     145         151   

 

 

Total (a)

   $ 859       $ 979   

 

 
(a) The majority of these loans are held by our Mortgage Legacy Portfolio and Other operations at September 30, 2011, and December 31, 2010.

 

8. Finance Receivables and Loans, Net

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

 

     September 30, 2011      December 31, 2010  
($ in millions)    Domestic      Foreign      Total      Domestic      Foreign      Total  

Consumer automobile

   $ 43,293       $ 16,412       $ 59,705       $ 34,604       $ 16,650       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     6,833         257         7,090         6,917         390         7,307   

Home equity

     3,179                 3,179         3,441                 3,441   

 

 

Total consumer mortgage

     10,012         257         10,269         10,358         390         10,748   

Commercial

                 

Commercial and industrial

                 

Automobile

     24,227         8,163         32,390         24,944         8,398         33,342   

Mortgage

     1,592         24         1,616         1,540         41         1,581   

Other

     1,303         240         1,543         1,795         312         2,107   

Commercial real estate

                 

Automobile

     2,137         185         2,322         2,071         216         2,287   

Mortgage

             26         26         1         78         79   

 

 

Total commercial

     29,259         8,638         37,897         30,351         9,045         39,396   

Loans at fair value (a)

     593         248         841         663         352         1,015   

 

 

Total finance receivables and loans (b)

   $ 83,157       $ 25,555       $ 108,712       $ 75,976       $ 26,437       $ 102,413   

 

 
(a) Includes domestic consumer mortgages at fair value as a result of fair value option election. Refer to Note 21 for additional information.
(b) Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $2.8 billion and $2.9 billion at September 30, 2011, and December 31, 2010, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Three months ended September 30, 2011 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at July 1, 2011

   $ 911      $ 558      $ 270      $ 1,739   

Charge-offs

        

Domestic

     (97     (54     (6     (157

Foreign

     (37     (2     (7     (46

 

 

Total charge-offs

     (134     (56     (13     (203

 

 

Recoveries

        

Domestic

     45        4        4        53   

Foreign

     18        1        8        27   

 

 

Total recoveries

     63        5        12        80   

 

 

Net charge-offs

     (71     (51     (1     (123

Provision for loan losses

     53        25        (29     49   

Other

     (42            (2     (44

 

 

Allowance at September 30, 2011

   $ 851      $ 532      $ 238      $ 1,621   

 

 

 

Three months ended September 30, 2010 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at July 1, 2010

   $ 1,120      $ 659      $ 598      $ 2,377   

Charge-offs

        

Domestic

     (179     (69     (98     (346

Foreign

     (45     (1     (38     (84

 

 

Total charge-offs

     (224     (70     (136     (430

 

 

Recoveries

        

Domestic

     65        6        4        75   

Foreign

     19               2        21   

 

 

Total recoveries

     84        6        6        96   

 

 

Net charge-offs

     (140     (64     (130     (334

Provision for loan losses

     58        28        (77     9   

Discontinued operations

                   (1     (1

Other

     12        1        (10     3   

 

 

Allowance at September 30, 2010

   $ 1,050      $ 624      $ 380      $ 2,054   

 

 

 

20


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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Nine months ended September 30, 2011 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at January 1, 2011

   $ 970      $ 580      $ 323      $ 1,873   

Charge-offs

        

Domestic

     (331     (162     (24     (517

Foreign

     (112     (4     (55     (171

 

 

Total charge-offs

     (443     (166     (79     (688

 

 

Recoveries

        

Domestic

     146        13        16        175   

Foreign

     54        1        25        80   

 

 

Total recoveries

     200        14        41        255   

 

 

Net charge-offs

     (243     (152     (38     (433

Provision for loan losses

     157        104        (48     213   

Other

     (33            1        (32

 

 

Allowance at September 30, 2011

   $ 851      $ 532      $ 238      $ 1,621   

 

 

Allowance for loan losses

        

Individually evaluated for impairment

   $ 2      $ 125      $ 49      $ 176   

Collectively evaluated for impairment

     839        407        189        1,435   

Loans acquired with deteriorated credit quality

     10                      10   

Finance receivables and loans at historical cost

        

Ending balance

     59,705        10,269        37,897        107,871   

Individually evaluated for impairment

     52        600        698        1,350   

Collectively evaluated for impairment

     59,549        9,669        37,199        106,417   

Loans acquired with deteriorated credit quality

     104                      104   

 

 
Nine months ended September 30, 2010 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at January 1, 2010

   $ 1,024      $ 640      $ 781      $ 2,445   

Cumulative effect of change in accounting principles (a)

     222                      222   

Charge-offs

        

Domestic

     (616     (179     (250     (1,045

Foreign

     (154     (3     (91     (248

 

 

Total charge-offs

     (770     (182     (341     (1,293

 

 

Recoveries

        

Domestic

     242        15        12        269   

Foreign

     54               11        65   

 

 

Total recoveries

     296        15        23        334   

 

 

Net charge-offs

     (474     (167     (318     (959

Provision for loan losses

     285        142        (56     371   

Discontinued operations

     5               (3     2   

Other

     (12     9        (24     (27

 

 

Allowance at September 30, 2010

   $ 1,050      $ 624      $ 380      $ 2,054   

 

 

Allowance for loan losses

        

Individually evaluated for impairment

   $      $ 105      $ 175      $ 280   

Collectively evaluated for impairment

     1,023        519        205        1,747   

Loans acquired with deteriorated credit quality

     27                      27   

Finance receivables and loans at historical cost

        

Ending balance

     46,094        11,143        38,533        95,770   

Individually evaluated for impairment

            470        1,429        1,899   

Collectively evaluated for impairment

     45,898        10,673        37,104        93,675   

Loans acquired with deteriorated credit quality

     196                      196   

 

 
(a) Effect of change in accounting principle due to adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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.

 

($ in millions)    Three months ended
September 30, 2011
     Nine months ended
September 30, 2011
 

Consumer automobile

   $ 1,961       $ 3,279   

Consumer mortgage

     7         100   

Commercial

     27         33   

 

 

Total sales and transfers

   $ 1,995       $ 3,412   

 

 

The following table presents an analysis of our past due finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.

 

($ in millions)   

30-59 days

past due

    

60-89 days

past due

    

90 days

or more

past due

    

Total

past due

     Current     

Total

finance receivables

and loans

 

September 30, 2011

                 

Consumer automobile

   $ 733       $ 148       $ 169       $ 1,050       $ 58,655       $ 59,705   

Consumer mortgage

                 

1st Mortgage

     102         39         168         309         6,781         7,090   

Home equity

     23         13         12         48         3,131         3,179   

 

 

Total consumer mortgage

     125         52         180         357         9,912         10,269   

Commercial

                 

Commercial and industrial

                 

Automobile

             12         127         139         32,251         32,390   

Mortgage

                     1         1         1,615         1,616   

Other

                     1         1         1,542         1,543   

Commercial real estate

                 

Automobile

     2         4         35         41         2,281         2,322   

Mortgage

                     23         23         3         26   

 

 

Total commercial

     2         16         187         205         37,692         37,897   

 

 

Total consumer and commercial

   $ 860       $ 216         536       $ 1,612       $ 106,259       $ 107,871   

 

 

December 31, 2010

                 

Consumer automobile

   $ 828       $ 175       $ 197       $ 1,200       $ 50,054       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     115         67         205         387         6,920         7,307   

Home equity

     20         12         13         45         3,396         3,441   

 

 

Total consumer mortgage

     135         79         218         432         10,316         10,748   

Commercial

                 

Commercial and industrial

                 

Automobile

     21         19         85         125         33,217         33,342   

Mortgage

             36         4         40         1,541         1,581   

Other

                     20         20         2,087         2,107   

Commercial real estate

                 

Automobile

             4         78         82         2,205         2,287   

Mortgage

                     71         71         8         79   

 

 

Total commercial

     21         59         258         338         39,058         39,396   

 

 

Total consumer and commercial

   $ 984       $ 313       $ 673       $ 1,970       $ 99,428       $ 101,398   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents the carrying value before allowance for loan losses of our finance receivables and loans recorded at historical cost on nonaccrual status.

 

($ in millions)    September 30, 2011      December 31, 2010  

Consumer automobile

   $ 210       $ 207   

Consumer mortgage

     

1st Mortgage

     305         500   

Home equity

     60         61   

 

 

Total consumer mortgage

     365         561   

Commercial

     

Commercial and industrial

     

Automobile

     225         296   

Mortgage

     25         40   

Other

     49         134   

Commercial real estate

     

Automobile

     80         199   

Mortgage

     23         71   

 

 

Total commercial

     402         740   

 

 

Total consumer and commercial

   $ 977       $ 1,508   

 

 

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

The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.

 

     September 30, 2011      December 31, 2010  
($ in millions)    Performing      Nonperforming      Total      Performing      Nonperforming      Total  

Consumer automobile

   $ 59,495       $ 210       $ 59,705       $ 51,047       $ 207       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     6,785         305         7,090         6,807         500         7,307   

Home equity

     3,119         60         3,179         3,380         61         3,441   

 

 

Total consumer mortgage

   $ 9,904       $ 365       $ 10,269       $ 10,187       $ 561       $ 10,748   

 

 

The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.

 

     September 30, 2011      December 31, 2010  
($ in millions)    Pass      Criticized (a)      Total      Pass      Criticized (a)      Total  

Commercial

                 

Commercial and industrial

                 

Automobile

   $ 30,176       $ 2,214       $ 32,390       $ 31,254       $ 2,088       $ 33,342   

Mortgage

     1,549         67         1,616         1,504         77         1,581   

Other

     1,100         443         1,543         1,041         1,066         2,107   

Commercial real estate

                 

Automobile

     2,084         238         2,322         2,013         274         2,287   

Mortgage

             26         26                 79         79   

 

 

Total commercial

   $ 34,909       $ 2,988       $ 37,897       $ 35,812       $ 3,584       $ 39,396   

 

 
(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.

 

23


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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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 2010 Annual Report on Form 10-K.

The following table presents information about our impaired finance receivables and loans recorded at historical cost.

 

($ in millions)   

Unpaid

principal

balance

     Carrying
value before
allowance
    

Impaired

with no

allowance

    

Impaired

with an

allowance

    

Allowance
for

impaired

loans

 

September 30, 2011 (a)

              

Consumer automobile

   $ 52       $ 52       $       $ 52       $ 2   

Consumer mortgage

              

1st Mortgage

     513         507         81         426         91   

Home equity

     93         93         4         89         34   

 

 

Total consumer mortgage

     606         600         85         515         125   

Commercial

              

Commercial and industrial

              

Automobile

     224         225         78         147         15   

Mortgage

     25         25         1         24         5   

Other

     52         49         30         19         5   

Commercial real estate

              

Automobile

     80         80         42         38         20   

Mortgage

     23         23         3         20         4   

 

 

Total commercial

     404         402         154         248         49   

 

 

Total consumer and commercial

   $ 1,062       $ 1,054       $ 239       $ 815       $ 176   

 

 

December 31, 2010 (a)

              

Consumer automobile

   $       $       $       $       $   

Consumer mortgage

              

1st Mortgage

     410         404                 404         59   

Home equity

     82         83                 83         40   

 

 

Total consumer mortgage

     492         487                 487         99   

Commercial

              

Commercial and industrial

              

Automobile

     340         356         33         323         23   

Mortgage

     44         40                 40         14   

Other

     135         133         20         113         51   

Commercial real estate

              

Automobile

     206         197         108         89         29   

Mortgage

     71         71         28         43         10   

 

 

Total commercial

     796         797         189         608         127   

 

 

Total consumer and commercial

   $ 1,288       $ 1,284       $ 189       $ 1,095       $ 226   

 

 
(a) ASU 2011-02, Receivables: A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, was effective July 1, 2011.

 

24


Table of Contents

ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following tables present average balance and interest income for our impaired finance receivables and loans.

 

     2011 (a)      2010  
Three months ended September 30, ($ in millions)   

Average

balance

    

Interest

income

    

Average

balance

    

Interest

income

 

Consumer automobile

   $ 56       $ 1       $       $   

Consumer mortgage

           

1st Mortgage

     476         5         362         5   

Home equity

     93         1         73         1   

 

 

Total consumer mortgage

     569         6         435         6   

Commercial

           

Commercial and industrial

           

Automobile

     306         6         313         6   

Mortgage

     2         1         48           

Other

     54                 590           

Commercial real estate

           

Automobile

     104         4         263         2   

Mortgage

     31                 104           

 

 

Total commercial

     497         11         1,318         8   

 

 

Total consumer and commercial

   $ 1,122       $ 18       $ 1,753       $ 14   

 

 
(a) ASU 2011-02, Receivables: A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, was effective July 1, 2011.

 

     2011 (a)      2010  
Nine months ended September 30, ($ in millions)   

Average

balance

    

Interest

income

    

Average

balance

    

Interest

income

 

Consumer automobile

   $ 23       $ 1       $       $   

Consumer mortgage

           

1st Mortgage

     449         13         304         10   

Home equity

     89         3         59         3   

 

 

Total consumer mortgage

     538         16         363         13   

Commercial

           

Commercial and industrial

           

Automobile

     321         7         332         7   

Mortgage

     26         6         56           

Other

     95         1         801         1   

Commercial real estate

           

Automobile

     141         4         295         3   

Mortgage

     47         1         149         1   

 

 

Total commercial

     630         19         1,633         12   

 

 

Total consumer and commercial

   $ 1,191       $ 36       $ 1,996       $ 25   

 

 
(a) ASU 2011-02, Receivables: A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, was effective July 1, 2011.

Troubled Debt Restructurings

Troubled debt restructurings are loan modifications where economic concessions are granted to borrowers experiencing financial difficulties. Numerous initiatives are in place to provide support to customers in financial distress, including the Home Affordable Modification Program (HAMP). Additionally for automobile loans, we offer several types of assistance to aid our customers including changing the due date, extending payments, and rewriting the loan terms. Total TDRs recorded at historical cost and reported at carrying value before allowance for loan losses at September 30, 2011, increased $199 million to $709 million from December 31, 2010.

 

25


Table of Contents

ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Three months ended September 30, 2011 ($ in millions)    Number of
loans
     Pre-modification
carrying value before
allowance
     Post-modification
carrying value before
allowance
 

Consumer automobile

     1,629       $ 21       $ 21   

Consumer mortgage

        

1st Mortgage

     80         30         29   

Home equity

     213         12         11   

 

 

Total consumer mortgage

     293         42         40   

Commercial

        

Commercial real estate

        

Automobile

     1         2         2   

Mortgage

     1         3         2   

 

 

Total commercial

     2         5         4   

 

 

Total consumer and commercial

     1,924       $ 68       $ 65   

 

 

 

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

Consumer automobile

     4,407       $ 58       $ 58   

Consumer mortgage

        

1st Mortgage

     309         111         110   

Home equity

     695         39         36   

 

 

Total consumer mortgage

     1,004         150         146   

Commercial

        

Commercial and industrial

        

Automobile

     1         3         3   

Mortgage

     1         38         28   

Other

     2         11         10   

Commercial real estate

        

Automobile

     2         6         4   

Mortgage

     2         4         3   

 

 

Total commercial

     8         62         48   

 

 

Total consumer and commercial

     5,419       $ 270       $ 252   

 

 

The following tables present information about finance receivables and loans recorded at historical cost that have defaulted during the reporting period and were within 12 months or less of being modified as a troubled debt restructuring.

 

<
Three months ended September 30, 2011 ($ in millions)    Number of
loans
    

Carrying value

before allowance

     Charge-off amount  

Consumer automobile

     88       $ 1       $   

Consumer mortgage

        

1st Mortgage

                       

Home equity

     9         1         1   

 

 

Total consumer mortgage

     9         1         1   

Commercial

        

Commercial and industrial

        

Automobile

                       

 

 

Total commercial