ALLY 2014.3.31 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, 2014, or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to                         
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware
 
38-0572512
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
200 Renaissance Center
P.O. Box 200, Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing for the past 90 days.
Yes þ                    No ¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).
Yes þ                    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
  
Accelerated filer o
  
Non-accelerated filer þ
 
Smaller reporting company o
 
  
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                    No þ
At April 30, 2014, the number of shares outstanding of the Registrant’s common stock was 479,767,540 shares.



Table of Contents
INDEX
Ally Financial Inc. Ÿ Form 10-Q

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



 
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)
 
2014
 
2013
Financing revenue and other interest income
 
 
 
 
Interest and fees on finance receivables and loans
 
$
1,107

 
$
1,135

Interest on loans held-for-sale
 

 
16

Interest and dividends on available-for-sale investment securities
 
95

 
68

Interest-bearing cash
 
3

 
3

Operating leases
 
870

 
734

Total financing revenue and other interest income
 
2,075

 
1,956

Interest expense
 
 
 
 
Interest on deposits
 
163

 
164

Interest on short-term borrowings
 
15

 
16

Interest on long-term debt
 
534

 
701

Total interest expense
 
712

 
881

Depreciation expense on operating lease assets
 
542

 
435

Net financing revenue
 
821

 
640

Other revenue
 
 
 
 
Servicing fees
 
9

 
82

Servicing asset valuation and hedge activities, net
 

 
(201
)
Total servicing income (loss), net
 
9

 
(119
)
Insurance premiums and service revenue earned
 
241

 
259

Gain on mortgage and automotive loans, net
 

 
38

Loss on extinguishment of debt
 
(39
)
 

Other gain on investments, net
 
43

 
51

Other income, net of losses
 
67

 
157

Total other revenue
 
321

 
386

Total net revenue
 
1,142

 
1,026

Provision for loan losses
 
137

 
131

Noninterest expense
 
 
 
 
Compensation and benefits expense
 
254

 
285

Insurance losses and loss adjustment expenses
 
68

 
115

Other operating expenses
 
391

 
558

Total noninterest expense
 
713

 
958

Income (loss) from continuing operations before income tax expense (benefit)
 
292

 
(63
)
Income tax expense (benefit) from continuing operations
 
94

 
(123
)
Net income from continuing operations
 
198

 
60

Income from discontinued operations, net of tax
 
29

 
1,033

Net income
 
227

 
1,093

Other comprehensive income (loss), net of tax
 
92

 
(317
)
Comprehensive income
 
$
319

 
$
776

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

3

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



 
 
Three months ended March 31,
($ in millions, except per share data)
 
2014
 
2013
Net income attributable to common shareholders
 
 
 
 
Net income from continuing operations
 
$
198

 
$
60

Preferred stock dividends — U.S. Department of the Treasury
 

 
(133
)
Preferred stock dividends
 
(68
)
 
(67
)
Net income (loss) from continuing operations attributable to common shareholders
 
130

 
(140
)
Income from discontinued operations, net of tax
 
29

 
1,033

Net income attributable to common shareholders
 
$
159

 
$
893

Basic weighted-average common shares outstanding
 
479,767,540

 
412,600,700

Diluted weighted-average common shares outstanding (a)
 
479,767,540

 
412,600,700

Basic earnings per common share
 
 
 
 
Net income (loss) from continuing operations
 
$
0.27

 
$
(0.34
)
Income from discontinued operations, net of tax
 
0.06

 
2.50

Net income
 
$
0.33

 
$
2.16

Diluted earnings per common share (a)
 
 
 
 
Net income (loss) from continuing operations
 
$
0.27

 
$
(0.34
)
Income from discontinued operations, net of tax
 
0.06

 
2.50

Net income
 
$
0.33

 
$
2.16

(a)
Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares for the three months ended March 31, 2013 and the net loss from continuing operations attributable to common shareholders for the three months ended March 31, 2013, net income (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.

4

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

($ in millions, except share data)
 
March 31, 2014
 
December 31, 2013
Assets
 
 
 
 
Cash and cash equivalents
 
 
 
 
Noninterest-bearing
 
$
1,342

 
$
1,315

Interest-bearing
 
4,551

 
4,216

Total cash and cash equivalents
 
5,893

 
5,531

Investment securities
 
16,327

 
17,083

Loans held-for-sale, net ($3 and $16 fair value-elected)
 
43

 
35

Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net ($12 and $1 fair value-elected)
 
99,624

 
100,328

Allowance for loan losses
 
(1,192
)
 
(1,208
)
Total finance receivables and loans, net
 
98,432

 
99,120

Investment in operating leases, net
 
18,187

 
17,680

Premiums receivable and other insurance assets
 
1,639

 
1,613

Other assets
 
7,390

 
9,589

Assets of operations held-for-sale
 
541

 
516

Total assets
 
$
148,452

 
$
151,167

Liabilities
 
 
 
 
Deposit liabilities
 
 
 
 
Noninterest-bearing
 
$
71

 
$
60

Interest-bearing
 
55,296

 
53,290

Total deposit liabilities
 
55,367

 
53,350

Short-term borrowings
 
5,163

 
8,545

Long-term debt
 
68,295

 
69,465

Interest payable
 
893

 
888

Unearned insurance premiums and service revenue
 
2,312

 
2,314

Accrued expenses and other liabilities
 
1,963

 
2,397

Total liabilities
 
133,993

 
136,959

Equity
 
 
 
 
Common stock and paid-in capital ($0.01 par value, shares authorized 479,811,490; issued and outstanding 479,767,540)
 
20,939

 
20,939

Preferred stock
 
1,255

 
1,255

Accumulated deficit
 
(7,551
)
 
(7,710
)
Accumulated other comprehensive loss
 
(184
)
 
(276
)
Total equity
 
14,459

 
14,208

Total liabilities and equity
 
$
148,452

 
$
151,167

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

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

The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
($ in millions)
 
March 31, 2014
 
December 31, 2013
Assets
 
 
 
 
Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net
 
$
31,849

 
$
32,265

Allowance for loan losses
 
(192
)
 
(174
)
Total finance receivables and loans, net
 
31,657

 
32,091

Investment in operating leases, net
 
7,036

 
4,620

Other assets
 
1,857

 
3,436

Total assets
 
$
40,550

 
$
40,147

Liabilities
 
 
 
 
Short-term borrowings
 
$
250

 
$
250

Long-term debt
 
25,160

 
24,147

Accrued expenses and other liabilities
 
39

 
43

Total liabilities
 
$
25,449

 
$
24,440

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

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

($ in millions)
Common
stock and
paid-in
capital
 
Mandatorily
convertible
preferred 
stock held by U.S. 
Department
of the Treasury
 
Preferred
stock
 
Accumulated deficit
 
Accumulated
other
comprehensive
income (loss)
 
Total
equity
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 the Treasury
 
 
 
 
 
 
(133
)
 
 
 
(133
)
Preferred stock dividends
 
 
 
 
 
 
(67
)
 
 
 
(67
)
Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(317
)
 
(317
)
Balance at March 31, 2013
$
19,668

 
$
5,685

 
$
1,255

 
$
(6,128
)
 
$
(6
)
 
$
20,474

Balance at January 1, 2014
$
20,939

 
$

 
$
1,255

 
$
(7,710
)
 
$
(276
)
 
$
14,208

Net income
 
 
 
 
 
 
227

 
 
 
227

Preferred stock dividends
 
 
 
 
 
 
(68
)
 
 
 
(68
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
92

 
92

Balance at March 31, 2014
$
20,939

 
$

 
$
1,255

 
$
(7,551
)
 
$
(184
)
 
$
14,459

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

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

Three months ended March 31, ($ in millions)
 
2014
 
2013
Operating activities
 
 
 
 
Net income
 
$
227

 
$
1,093

Reconciliation of net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
738

 
657

Changes in fair value of mortgage servicing rights
 

 
90

Provision for loan losses
 
137

 
158

Gain on sale of loans, net
 

 
(38
)
Net gain on investment securities
 
(43
)
 
(53
)
Loss on extinguishment of debt
 
39

 

Originations and purchases of loans held-for-sale
 

 
(5,759
)
Proceeds from sales and repayments of loans held-for-sale
 
13

 
7,481

Impairment and settlement related to Residential Capital, LLC
 
(26
)
 

Gain on sale of subsidiaries, net
 

 
(888
)
Net change in
 
 
 
 
Deferred income taxes
 
68

 
(116
)
Interest payable
 
5

 
44

Other assets
 
191

 
1,329

Other liabilities
 
(368
)
 
(1,259
)
Other, net
 
(49
)
 
(485
)
Net cash provided by operating activities
 
932

 
2,254

Investing activities
 
 
 
 
Purchases of available-for-sale securities
 
(907
)
 
(4,626
)
Proceeds from sales of available-for-sale securities
 
1,354

 
1,543

Proceeds from maturities and repayment of available-for-sale securities
 
592

 
1,604

Net decrease (increase) in finance receivables and loans
 
492

 
(42
)
Purchases of operating lease assets
 
(2,360
)
 
(2,352
)
Disposals of operating lease assets
 
1,285

 
641

Proceeds from sale of business units, net (a)
 

 
2,829

Net change in restricted cash
 
1,580

 
1,067

Other, net 
 
111

 
41

Net cash provided by investing activities
 
2,147

 
705

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

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

Three months ended March 31, ($ in millions)
 
2014
 
2013
Financing activities
 
 
 
 
Net change in short-term borrowings
 
(3,384
)
 
518

Net increase in deposits
 
2,017

 
2,360

Proceeds from issuance of long-term debt
 
9,402

 
4,253

Repayments of long-term debt
 
(10,683
)
 
(11,445
)
Dividends paid
 
(68
)
 
(200
)
Net cash used in financing activities
 
(2,716
)
 
(4,514
)
Effect of exchange-rate changes on cash and cash equivalents
 
(1
)
 
67

Net increase (decrease) in cash and cash equivalents
 
362

 
(1,488
)
Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)
 

 
1,412

Cash and cash equivalents at beginning of year
 
5,531

 
7,513

Cash and cash equivalents at March 31,
 
$
5,893

 
$
7,437

Supplemental disclosures
 
 
 
 
Cash paid for
 
 
 
 
Interest
 
$
664

 
$
1,026

Income taxes
 
(6
)
 
37

Other disclosures
 
 
 
 
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale
 
7

 
10

(a)
The amount at March 31, 2013, is net of cash and cash equivalents of $905 million 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.

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



1.    Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (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 of experience, providing a broad array of financial products and services to automotive dealers and their customers. We operate as a financial holding company and a bank holding company. 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.
The Condensed Consolidated Financial Statements at March 31, 2014, and for the three months ended March 31, 2014, and 2013, 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, 2013, as filed on March 3, 2014, with the U.S. Securities and Exchange Commission (SEC).
Initial Public Offering of Common Stock, Stock Split, and Changes in Number of Shares Authorized
In April 2014, we completed an initial public offering (IPO) of 95 million shares of common stock at $25 per share. Proceeds from the offering amounted to $2.4 billion, which were obtained by the U.S. Department of the Treasury (Treasury) as the single selling stockholder. In connection with the IPO, we effected a 310-for-one stock split on shares of our common stock, $0.01 par value per share. Accordingly, all references in the Condensed Consolidated Financial Statements to share and per share amounts relating to common stock have been adjusted, on a retroactive basis, to recognize the 310-for-one stock split. In addition, on April 9, 2014, we increased the number of shares authorized for issuance of common stock to 1.1 billion and decreased the number of shares authorized for issuance of Series A Preferred Stock to approximately 41 million. The changes in the number of shares authorized will be reflected in the Condensed Consolidated Financial Statements in future reporting periods.
Significant Accounting Policies
Income Taxes
In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This method differs from that described in Note 1 to the Consolidated Financial Statements in our 2013 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
Recently Adopted 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)
As of January 1, 2014, we adopted ASU 2013-04. The guidance within the 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. The amendments were effective retrospectively for all arrangements within its scope. It further requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The adoption of this guidance did not 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)
As of January 1, 2014, we adopted ASU 2013-05. The guidance within the ASU closes diversity in practice in this area and 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 further 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 immediately before the acquisition date. Under these circumstances, the CTA should be released into net income upon their occurrence. The amendments are to be applied prospectively for all transactions within its scope. Since the guidance is

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


prospective and we have previously sold or exited substantially all of our international businesses and released the related CTA upon those dispositions, the implementation will not have a material effect on our consolidated financial condition or results of operations.
Income Taxes Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11)
As of January 1, 2014, we adopted ASU 2013-11. The guidance within the ASU closes diversity in practice and requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance further includes an exception that if a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available to settle any additional income taxes that would result from the disallowance of a tax position at the reporting date or the tax law of the applicable jurisdiction does not require the entity to use them and the entity does not intend to use them, the unrecognized tax benefit for such purpose should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments are to be applied prospectively to all unrecognized tax benefits that exist at the effective date. The adoption of this guidance did not have a material effect to our consolidated financial condition or results of operations.
Investments Accounting for Investments in Qualified Affordable Housing Projects (ASU 2014-01)
As of January 1, 2014, we adopted ASU 2014-01. The amendments in this ASU allow an entity to make an accounting policy election to account for investments in qualified affordable housing projects using a proportional amortization method, if certain conditions are met. Under the election, the entity would amortize the initial cost of the investment in proportion to the tax credits and other benefits received while recognizing the net investment performance in the statement of comprehensive income as a component of income tax expense. The amendments are to be applied retrospectively to all periods presented. We have elected to utilize the proportional amortization method for qualifying affordable housing investments and therefore will be presenting the amortization and tax impacts of such investments as a component income tax expense under the proportional amortization method. The adoption of this guidance did not have a material effect to our consolidated financial condition or results of operations.
Recently Issued Accounting Standards
Receivables Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (ASU 2014-04)
In January 2014, the FASB issued ASU 2014-04. The amendments in this ASU clarify the timing for which an entity should reclassify a loan that has been foreclosed or where an in substance repossession has occurred to real estate owned. The guidance requires such reclassification to occur when the entity obtains legal title upon completion of foreclosure or the borrower conveys all interest in the residential real estate property to the entity to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. In addition, the ASU clarifies that redemption rights of the borrower should be ignored for purposes of determining whether legal title has transferred. The amendments are effective for us beginning on January 1, 2015. The amendments can be applied using either a modified retrospective or prospective basis. Under the modified retrospective approach, the entity should record a cumulative-effect adjustment to residential consumer mortgage loans and residential real estate owned as of the beginning of the annual period for which the amendments are effective. Early adoption is permitted. Management is assessing the impact of the adoption of this guidance.
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, 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.
Select Insurance Operations
During the second quarter of 2013, we sold our Mexican insurance business, ABA Seguros. During the first quarter of 2013, we completed the sale of our U.K.-based operations.
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. During the second quarter of 2013, we completed the sale of our operations in Europe and the majority of Latin America. The transaction included European operations in Germany, the United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium, France and the Netherlands, and Latin American operations in Mexico, Chile, and Colombia. On October 1,

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


2013, we completed the sale of the remaining Latin American operations in Brazil. We expect to complete the sale of the joint venture in China during 2014. If required regulatory approvals related to this sale are not received by July 1, 2014, subject to certain limited exceptions, and if this date is not extended, either party would have the right to terminate the sale.
During the first quarter of 2013, we sold our Canadian automotive finance operations, Ally Credit Canada Limited and ResMor Trust.
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.
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)
2014
 
2013
Select Mortgage operations
 
 
 
Total net revenue
$

 
$

Pretax loss including direct costs to transact a sale (a) (b)
(2
)
 
(20
)
Tax expense (c)

 
16

Select Insurance operations
 
 
 
Total net revenue
$

 
$
148

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

 
28

Tax expense (c)

 
1

Select Automotive Finance operations
 
 
 
Total net revenue
$
33

 
$
286

Pretax income including direct costs to transact a sale (a)
30

 
1,042

Tax benefit (c)
(1
)
 
(1
)
Select Corporate and Other operations
 
 
 
Total net revenue
$

 
$

Pretax loss

 
(1
)
Tax expense

 

(a)
Includes certain treasury and other corporate activity recognized by Corporate and Other.
(b)
Includes the results of ResCap.
(c)
Includes certain income tax activity recognized by Corporate and Other.
Held-for-sale Operations
The assets of operations held-for-sale are summarized below.
March 31, 2014 ($ in millions)
Select
Automotive Finance
operations (a)
Assets
 
Other assets
$
541

Total assets
$
541

December 31, 2013
 
Assets
 
Other assets
$
516

Total assets
$
516

(a)
Includes our joint venture in China that is being sold to GM Financial.

12

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)
2014
 
2013
Remarketing fees
$
28

 
$
20

Late charges and other administrative fees
23

 
23

Mortgage processing fees and other mortgage income

 
79

Other, net
16

 
35

Total other income, net of losses
$
67

 
$
157

4.     Other Operating Expenses
Details of other operating expenses were as follows.
 
Three months ended March 31,
($ in millions)
2014
 
2013
Insurance commissions
$
90

 
$
92

Technology and communications
85

 
71

Advertising and marketing
29

 
35

Lease and loan administration
28

 
81

Professional services
28

 
48

Regulatory and licensing fees
27

 
33

Premises and equipment depreciation
19

 
20

Vehicle remarketing and repossession
18

 
14

Occupancy
11

 
11

State and local non-income taxes
10

 
10

Mortgage representation and warranty obligation, net
1

 
83

Other
45

 
60

Total other operating expenses
$
391

 
$
558


13

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


5.     Investment Securities
Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, 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, 2014
 
December 31, 2013
 
 
Amortized cost
 
Gross unrealized
 
Fair
value
 
Amortized cost
 
Gross unrealized
 
Fair
value
($ in millions)
 
gains  
 
losses  
 
gains  
 
losses  
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,293

 
$
1

 
$
(46
)
 
$
1,248

 
$
1,495

 
$
1

 
$
(69
)
 
$
1,427

U.S. States and political subdivisions
 
331

 
7

 

 
338

 
316

 

 
(1
)
 
315

Foreign government
 
275

 
6

 
(1
)
 
280

 
287

 
4

 
(3
)
 
288

Mortgage-backed residential (a)
 
10,475

 
54

 
(285
)
 
10,244

 
11,131

 
49

 
(398
)
 
10,782

Mortgage-backed commercial
 
61

 
1

 

 
62

 
39

 

 

 
39

Asset-backed
 
2,121

 
15

 
(2
)
 
2,134

 
2,207

 
15

 
(3
)
 
2,219

Corporate debt
 
1,055

 
30

 
(2
)
 
1,083

 
1,052

 
23

 
(6
)
 
1,069

Total debt securities 
 
15,611

 
114

 
(336
)
 
15,389

 
16,527

 
92

 
(480
)
 
16,139

Equity securities
 
915

 
46

 
(23
)
 
938

 
898

 
74

 
(28
)
 
944

Total available-for-sale securities (b)
 
$
16,526

 
$
160

 
$
(359
)
 
$
16,327

 
$
17,425

 
$
166

 
$
(508
)
 
$
17,083

(a)
Residential mortgage-backed securities include agency-backed bonds totaling $7,647 million and $8,266 million at March 31, 2014, and December 31, 2013, 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, 2014, and December 31, 2013, respectively.

14

Table of Contents
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, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of available-for-sale debt securities (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,248

 
1.3
%
 
$
9

 
3.0
%
 
$
573

 
1.2
%
 
$
666

 
1.4
%
 
$

 
%
U.S. States and political subdivisions
 
338

 
3.4

 
42

 
1.9

 
10

 
1.2

 
103

 
2.7

 
183

 
4.3

Foreign government
 
280

 
2.8

 
29

 
2.9

 
90

 
2.5

 
160

 
3.0

 
1

 
2.8

Mortgage-backed residential
 
10,244

 
2.7

 

 

 
80

 
2.1

 

 
3.4

 
10,164

 
2.7

Mortgage-backed commercial
 
62

 
1.3

 

 

 

 

 

 

 
62

 
1.3

Asset-backed
 
2,134

 
2.0

 
76

 
2.4

 
1,456

 
1.9

 
432

 
2.0

 
170

 
2.6

Corporate debt
 
1,083

 
4.2

 
27

 
3.2

 
533

 
3.1

 
454

 
5.2

 
69

 
5.8

Total available-for-sale debt securities
 
$
15,389

 
2.6

 
$
183

 
2.5

 
$
2,742

 
1.9

 
$
1,815

 
2.6

 
$
10,649

 
2.7

Amortized cost of available-for-sale debt securities
 
$
15,611

 
 
 
$
182

 
 
 
$
2,729

 
 
 
$
1,828

 
 
 
$
10,872

 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of available-for-sale debt securities (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,427

 
1.3
%
 
$
9

 
3.0
%
 
$
766

 
1.2
%
 
$
652

 
1.3
%
 
$

 
%
U.S. States and political subdivisions
 
315

 
3.3

 
39

 
1.3

 
10

 
0.6

 
102

 
2.6

 
164

 
4.3

Foreign government
 
288

 
2.7

 
18

 
2.7

 
105

 
2.4

 
164

 
2.9

 
1

 
2.7

Mortgage-backed residential
 
10,782

 
2.7

 

 

 
90

 
2.1

 
3

 
4.2

 
10,689

 
2.7

Mortgage-backed commercial
 
39

 
1.3

 

 

 

 

 

 

 
39

 
1.3

Asset-backed
 
2,219

 
2.0

 
76

 
2.4

 
1,483

 
1.9

 
491

 
1.9

 
169

 
2.7

Corporate debt
 
1,069

 
4.1

 
24

 
3.4

 
547

 
3.0

 
430

 
5.3

 
68

 
5.7

Total available-for-sale debt securities
 
$
16,139

 
2.5

 
$
166

 
2.3

 
$
3,001

 
1.9

 
$
1,842

 
2.5

 
$
11,130

 
2.7

Amortized cost of available-for-sale debt securities
 
$
16,527

 
 
 
$
165

 
 
 
$
3,000

 
 
 
$
1,882

 
 
 
$
11,480

 
 
(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 $2.0 billion and $2.4 billion at March 31, 2014, and December 31, 2013, 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)
2014
 
2013
Gross realized gains
$
60

 
$
70

Gross realized losses
(7
)
 
(11
)
Other-than-temporary impairment
(10
)
 
(8
)
Other gain on investments, net
$
43

 
$
51


15

Table of Contents
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)
2014
 
2013
Taxable interest
$
86

 
$
63

Taxable dividends
5

 
5

Interest and dividends exempt from U.S. federal income tax
4

 

Interest and dividends on available-for-sale securities
$
95

 
$
68

Certain available-for-sale securities were sold at a loss in 2014 and 2013 as a result of market conditions within these respective periods (e.g., change in market interest rates or a downgrade in the rating of a debt security). The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of March 31, 2014, 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, 2014, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at March 31, 2014. Refer to Note 1 to the Consolidated Financial Statements in our 2013 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, 2014
 
December 31, 2013
 
 
Less than
12 months
 
12 months
or longer
 
Less than
12 months
 
12 months
or longer
($ in millions)
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,227

 
$
(46
)
 
$

 
$

 
$
1,405

 
$
(69
)
 
$

 
$

U.S. States and political subdivisions
 
24

 

 

 

 
212

 
(1
)
 

 

Foreign government
 
40

 
(1
)
 

 

 
114

 
(3
)
 

 

Mortgage-backed
 
6,886

 
(263
)
 
247

 
(22
)
 
7,503

 
(388
)
 
100

 
(10
)
Asset-backed
 
387

 
(2
)
 

 

 
407

 
(3
)
 
1

 

Corporate debt
 
148

 
(2
)
 
5

 

 
310

 
(6
)
 
3

 

Total temporarily impaired debt securities
 
8,712

 
(314
)
 
252

 
(22
)
 
9,951

 
(470
)
 
104

 
(10
)
Temporarily impaired equity securities
 
280

 
(17
)
 
57

 
(6
)
 
167

 
(12
)
 
100

 
(16
)
Total temporarily impaired available-for-sale securities
 
$
8,992

 
$
(331
)
 
$
309

 
$
(28
)
 
$
10,118

 
$
(482
)
 
$
204

 
$
(26
)

16

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


6.     Finance Receivables and Loans, Net
The composition of finance receivables and loans, net, reported at carrying value before allowance for loan losses was as follows.
($ in millions)
 
March 31, 2014
 
December 31, 2013
Consumer automobile (a)
 
$
56,775

 
$
56,417

Consumer mortgage (b)(c)
 
8,138

 
8,444

Commercial
 
 
 
 
Commercial and industrial
 
 
 
 
Automobile
 
30,062

 
30,948

Other
 
1,727

 
1,664

Commercial Real Estate — Automobile
 
2,922

 
2,855

Total commercial
 
34,711

 
35,467

Total finance receivables and loans (d)
 
$
99,624

 
$
100,328

(a)
Includes $12 million and $1 million of fair value adjustment for loans in hedge accounting relationships at March 31, 2014, and December 31, 2013, respectively. Refer to Note 19 for additional information.
(b)
Includes interest-only mortgage loans of $1.4 billion and $1.5 billion at March 31, 2014, and December 31, 2013, respectively, the majority of which are expected to start principal amortization in 2015 or beyond.
(c)
Includes consumer mortgages at a fair value of $1 million at both March 31, 2014, and December 31, 2013, as a result of fair value option election.
(d)
Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $504 million and $595 million at March 31, 2014, and December 31, 2013, respectively.
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
Three months ended March 31, 2014 ($ in millions)
 
Consumer
automobile
 
Consumer
mortgage
 
Commercial
 
Total
Allowance at January 1, 2014
 
$
673

 
$
389

 
$
146

 
$
1,208

Charge-offs
 
(180
)
 
(15
)
 
(1
)
 
(196
)
Recoveries
 
59

 
3

 
1

 
63

Net charge-offs
 
(121
)
 
(12
)
 

 
(133
)
Provision for loan losses
 
163

 
(23
)
 
(3
)
 
137

Other
 

 
(21
)
 
1

 
(20
)
Allowance at March 31, 2014
 
$
715

 
$
333

 
$
144

 
$
1,192

Allowance for loan losses
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
23

 
$
200

 
$
25

 
$
248

Collectively evaluated for impairment
 
692

 
133

 
119

 
944

Loans acquired with deteriorated credit quality
 

 

 

 

Finance receivables and loans at historical cost
 
 
 
 
 
 
 
 
Ending balance
 
56,775

 
8,137

 
34,711

 
99,623

Individually evaluated for impairment
 
290

 
935

 
173

 
1,398

Collectively evaluated for impairment
 
56,480

 
7,202

 
34,538

 
98,220

Loans acquired with deteriorated credit quality
 
5

 

 

 
5


17

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


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

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)
 
2014
 
2013
Consumer mortgage
 
$
40

 
$

Commercial
 

 
18

Total sales and transfers
 
$
40

 
$
18


18

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, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automobile
 
$
806

 
$
163

 
$
138

 
$
1,107

 
$
55,668

 
$
56,775

Consumer mortgage
 
59

 
26

 
115

 
200

 
7,937

 
8,137

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 

 

 
49

 
49

 
30,013

 
30,062

Other
 

 

 

 

 
1,727

 
1,727

Commercial real estate — Automobile
 

 

 
5

 
5

 
2,917

 
2,922

Total commercial
 




54


54


34,657


34,711

Total consumer and commercial
 
$
865


$
189


$
307


$
1,361


$
98,262


$
99,623

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automobile
 
$
1,145

 
$
255

 
$
157

 
$
1,557

 
$
54,860

 
$
56,417

Consumer mortgage
 
82

 
31

 
124

 
237

 
8,206

 
8,443

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automobile
 

 

 
36

 
36

 
30,912

 
30,948

Other
 

 

 

 

 
1,664

 
1,664

Commercial real estate — Automobile
 

 

 
6

 
6

 
2,849

 
2,855

Total commercial
 




42


42


35,425


35,467

Total consumer and commercial
 
$
1,227


$
286


$
323


$
1,836


$
98,491


$
100,327

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, 2014
 
December 31, 2013
Consumer automobile
 
$
329

 
$
329

Consumer mortgage
 
208

 
192

Commercial
 
 
 
 
Commercial and industrial
 
 
 
 
Automobile
 
92

 
116

Other
 
73

 
74

Commercial real estate — Automobile
 
8

 
14

Total commercial
 
173

 
204

Total consumer and commercial finance receivables and loans
 
$
710


$
725

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 for loan losses 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.

19

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


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 2013 Annual Report on Form 10-K for additional information.