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 March 31, 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 ¨                    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 May 5, 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 Months Ended March 31, 2011 and 2010
     3   
  Condensed Consolidated Balance Sheet (unaudited)
at March 31, 2011, and December 31, 2010
     4   
  Condensed Consolidated Statement of Changes in Equity (unaudited)
for the Three Months Ended March 31, 2011 and 2010
     6   
  Condensed Consolidated Statement of Cash Flows (unaudited)
for the Three Months Ended March 31, 2011 and 2010
     7   
  Notes to Condensed Consolidated Financial Statements (unaudited)      9   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      78   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      127   
Item 4.   Controls and Procedures      128   
Part II — Other Information   
Item 1.   Legal Proceedings      129   
Item 1A.   Risk Factors      130   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      132   
Item 3.   Defaults Upon Senior Securities      132   
Item 4.   (Removed and Reserved)      132   
Item 5.   Other Information      132   
Item 6.   Exhibits      132   
Signatures      133   
Index of Exhibits      134   

 

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Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

     Three months ended
March 31,
 
($ in millions except per share data)        2011             2010      

Financing revenue and other interest income

    

Interest and fees on finance receivables and loans

   $ 1,623      $ 1,618   

Interest on loans held-for-sale

     108        215   

Interest on trading securities

     3        1   

Interest and dividends on available-for-sale investment securities

     104        99   

Interest-bearing cash

     12        14   

Operating leases

     680        1,163   
   

Total financing revenue and other interest income

     2,530        3,110   

Interest expense

    

Interest on deposits

     172        158   

Interest on short-term borrowings

     126        111   

Interest on long-term debt

     1,410        1,433   
   

Total interest expense

     1,708        1,702   

Depreciation expense on operating lease assets

     285        656   
   

Net financing revenue

     537        752   

Other revenue

    

Servicing fees

     371        385   

Servicing asset valuation and hedge activities, net

     (87     (133
   

Total servicing income, net

     284        252   

Insurance premiums and service revenue earned

     433        468   

Gain on mortgage and automotive loans, net

     92        271   

Loss on extinguishment of debt

     (39     (118

Other gain on investments, net

     84        143   

Other income, net of losses

     216        82   
   

Total other revenue

     1,070        1,098   

Total net revenue

     1,607        1,850   

Provision for loan losses

     113        144   

Noninterest expense

    

Compensation and benefits expense

     434        426   

Insurance losses and loss adjustment expenses

     186        211   

Other operating expenses

     772        882   
   

Total noninterest expense

     1,392        1,519   

Income from continuing operations before income tax (benefit) expense

     102        187   

Income tax (benefit) expense from continuing operations

     (68     36   
   

Net income from continuing operations

     170        151   
   

(Loss) income from discontinued operations, net of tax

     (24     11   
   

Net income

   $ 146      $ 162   
   

Net loss attributable to common shareholders

   $ (25   $ (340

Basic and diluted earnings per common share (a)

    

Net loss from continuing operations

   $ (1   $ (439

(Loss) income from discontinued operations, net of tax

     (18     13   
   

Net loss

   $ (19   $ (426
   

Weighted-average common shares outstanding

     1,330,970        799,120   
   
(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 months ended March 31, 2011 and 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)    March 31, 2011     December 31, 2010  

Assets

    

Cash and cash equivalents

    

Noninterest-bearing

   $ 1,652      $ 1,714   

Interest-bearing

     11,294        9,956   
   

Total cash and cash equivalents

     12,946        11,670   

Trading securities

     75        240   

Investment securities

     15,401        14,846   

Loans held-for-sale, net ($2,946 and $6,424 fair value-elected)

     7,496        11,411   

Finance receivables and loans, net

    

Finance receivables and loans, net ($971 and $1,015 fair value-elected)

     107,459        102,413   

Allowance for loan losses

     (1,806     (1,873
   

Total finance receivables and loans, net

     105,653        100,540   

Investment in operating leases, net

     8,898        9,128   

Mortgage servicing rights

     3,774        3,738   

Premiums receivable and other insurance assets

     2,175        2,181   

Other assets

     16,763        17,564   

Assets of operations held-for-sale

     523        690   
   

Total assets

   $ 173,704      $ 172,008   
   

Liabilities

    

Deposit liabilities

    

Noninterest-bearing

   $ 2,064      $ 2,131   

Interest-bearing

     38,632        36,917   
   

Total deposit liabilities

     40,696        39,048   

Short-term borrowings

     7,395        7,508   

Long-term debt ($922 and $972 fair value-elected)

     88,139        86,612   

Interest payable

     1,850        1,829   

Unearned insurance premiums and service revenue

     2,842        2,854   

Reserves for insurance losses and loss adjustment expenses

     828        862   

Accrued expenses and other liabilities ($14 and $ — fair value-elected)

     11,001        12,126   

Liabilities of operations held-for-sale

     546        680   
   

Total liabilities

     153,297        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

     (6,435     (6,410

Accumulated other comprehensive income

     234        259   
   

Total equity

     20,407        20,489   
   

Total liabilities and equity

   $ 173,704      $ 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)    March 31, 2011     December 31, 2010  

Assets

    

Loans held-for-sale, net

   $ 14      $ 21   

Finance receivables and loans, net

    

Finance receivables and loans, net ($971 and $1,015 fair value-elected)

     36,801        33,483   

Allowance for loan losses

     (221     (238
   

Total finance receivables and loans, net

     36,580        33,245   

Investment in operating leases, net

     1,481        1,065   

Other assets

     3,352        3,194   

Assets of operations held-for-sale

            85   
   

Total assets

   $ 41,427      $ 37,610   
   

Liabilities

    

Short-term borrowings

   $ 784      $ 964   

Long-term debt ($922 and $972 fair value-elected)

     26,362        24,466   

Interest payable

     18        15   

Accrued expenses and other liabilities

     408        352   

Liabilities of operations held-for-sale

            45   
   

Total liabilities

   $ 27,572      $ 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)

Three Months Ended March 31, 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
 

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     

Net income

          162          162      $ 162   

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

          (386       (386  

Preferred stock dividends

          (116       (116  

Dividends to shareholders

          (5       (5  

Other comprehensive income

            33        33        33   

Other (b)

          74          74     
   

Balance at March 31, 2010

  $ 13,829      $ 10,893      $ 1,287      $ (5,958   $ 497      $ 20,548      $ 195   
   

Balance at January 1, 2011

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

Net income

          146          146      $ 146   

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

          (134       (134  

Preferred stock dividends

          (69       (69  

Series A preferred stock amendment (c)

        (32     32         

Other comprehensive loss

            (25     (25     (25
   

Balance at March 31, 2011

  $ 19,668      $ 5,685      $ 1,255      $ (6,435   $ 234      $ 20,407      $ 121   
   
(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)

 

Three months ended March 31, ($ in millions)    2011     2010  

Operating activities

    

Net income

   $ 146      $ 162   

Reconciliation of net income to net cash provided by operating activities

    

Depreciation and amortization

     717        1,255   

Other impairment

     16        (20

Amortization and valuation adjustments of mortgage servicing rights

     (117     196   

Provision for loan losses

     113        152   

Gain on sale of loans, net

     (94     (298

Net gain on investment securities

     (85     (151

Loss on extinguishment of debt

     39        118   

Originations and purchases of loans held-for-sale

     (12,635     (13,715

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

     15,835        19,314   

Net change in:

    

Trading securities

     77        53   

Deferred income taxes

     69        (47

Interest payable

     16        165   

Other assets

     (120     1,550   

Other liabilities

     (321     (477

Other, net

     (614     (884
   

Net cash provided by operating activities

     3,042        7,373   
   

Investing activities

    

Purchases of available-for-sale securities

     (5,529     (4,735

Proceeds from sales of available-for-sale securities

     4,475        2,664   

Proceeds from maturities of available-for-sale securities

     1,103        2,873   

Net (increase) in finance receivables and loans

     (4,249     (3,571

Proceeds from sales of finance receivables and loans

            1,187   

Purchases of operating lease assets

     (1,933     (845

Disposals of operating lease assets

     1,882        2,278   

Proceeds from sale of business units, net (a)

     46        (526

Other, net

     591        606   
   

Net cash used in investing activities

     (3,614     (69
   

Statement continues on the next page.

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Three months ended March 31, ($ in millions)    2011     2010  

Financing activities

    

Net change in short-term debt

     87        (2,629

Net increase in bank deposits

     1,670        752   

Proceeds from issuance of long-term debt

     13,804        12,187   

Repayments of long-term debt

     (13,211     (18,761

Dividends paid

     (228     (199

Other, net

     83        294   
   

Net cash provided by (used in) financing activities

     2,205        (8,356

Effect of exchange-rate changes on cash and cash equivalents

     (266     378   
   

Net increase (decrease) in cash and cash equivalents

     1,367        (674

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

     (91     556   

Cash and cash equivalents at beginning of year

     11,670        14,788   
   

Cash and cash equivalents at March 31,

   $ 12,946      $ 14,670   
   

Supplemental disclosures

    

Cash paid for

    

Interest

   $ 1,465      $ 1,217   

Income taxes

     305        167   

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

     58        150   
   
(a) The amounts are net of cash and cash equivalents of $7 million at March 31, 2011, and $745 million at March 31, 2010, of business units at the time of dispositon.
(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 are 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 March 31, 2011, and for the three months ended March 31, 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’s consolidated tangible net worth, as defined, was $884 million at March 31, 2011, and ResCap remained in compliance with all of its consolidated tangible net worth covenants. For this purpose, consolidated tangible net worth is defined as ResCap’s consolidated equity excluding intangible assets. 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 actively manages its liquidity and capital positions and is continually working on 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. 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. While the opportunities for further risk mitigation remain, the risk in our Mortgage Legacy Portfolio and Other operations has been materially reduced as compared to recent levels.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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 typically consider a number of factors to the extent applicable and appropriate including, without limitation, the financial condition, results of operations, and prospects of Ally and ResCap; 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 are currently no commitments or 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 March 31, 2011, we had $1.9 billion in secured financing arrangements with ResCap of which $1.3 billion in loans was utilized. At March 31, 2011, there was no net exposure under the hedging arrangement because the 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 $884 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 would 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 (GM)

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.

As a result of the conversion of $5.5 billion of Ally Mandatorily Convertible Preferred (MCP) stock held by the U.S. Department of Treasury (Treasury) into common stock on December 30, 2010, and consequent dilution of the equity interests held by GM and the GM Trust, GM and the GM Trust are no longer considered related parties for purposes of applicable disclosure within the Notes to Condensed Consolidated Financial Statements, as they collectively have less than 10% of the voting interests in Ally and do not control or have the ability to significantly influence the management and policies of Ally. In addition, as a result of the conversion, the Federal Reserve has determined that GM will no longer be 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 — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20)

During the three months ended March 31, 2011, Accounting Standards Update (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. We early adopted the rollforward requirement during the December 31, 2010, reporting period. As of January 19, 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, which effectively defers the disclosure requirements in ASU 2010-20 related to troubled debt restructurings while they deliberate on other potential changes to the accounting for troubled debt restructurings. This deferral ended with the issuance of ASU 2011-02 in April 2011 as discussed in the section in this note titled Recently Issued Accounting Standards. 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 — Revenue Arrangements with Multiple Deliverables (ASU 2009-13)

As of January 1, 2011, we adopted ASU 2009-13, which amends Accounting Standards Codification (ASC) Topic 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.

Intangibles – Goodwill and Other (ASU 2010-28)

As of January 1, 2011, we adopted ASU 2010-28, which amends ASC Topic 350, Intangibles — Goodwill and Other, to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test. Additionally, when determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The adoption did not have a material impact to our consolidated financial condition or results of operations.

Recently Issued Accounting Standards

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

In December 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

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

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

In April 2011, the FASB issued ASU 2011-02, which amends ASC 310, Receivables. The amendments in this ASU clarify which loan modifications constitute a troubled debt restructuring. 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 will be effective for us on July 1, 2011, and must be applied retrospectively to modifications made subsequent to the beginning of the annual period of adoption, which is January 1, 2011, for us.

If, as a result of applying these amendments, we identify receivables that are newly considered impaired, we are required to apply the measurement portion of the amendments to these newly identified impairments at the end of the reporting period of adoption. We will also be required to disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired for which impairment was previously measured under ASC 450-20, Contingencies — Loss Contingencies.

Early adoption is permitted. We have not yet determined the impact upon adoption.

 

2. Discontinued and Held-for-sale Operations

Discontinued Operations

We classified certain operations as discontinued using generally accepted accounting principles in the United States of America, as the associated 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 2009, we committed to sell the U.K. consumer property and casualty insurance business, which provides vehicle and home insurance through a number of distribution channels including independent agents, affinity groups, and the internet. In April 2011, we entered into a definitive sales agreement and expect to complete the sale during the second or third quarter of 2011.

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 during 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 March 31,  
($ in millions)        2011             2010      

Select Insurance operations

    

Total net revenue

   $ 56      $ 239   

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

     7          

Tax expense

            4   

Select International operations

    

Total net revenue

   $ 5      $ 41   

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

     (31     4   

Tax expense

            8   

Select Mortgage — Legacy and Other operations

    

Total net revenue

   $      $ 28   

Pretax income including direct costs to transact a sale

            13   

Tax expense

              

Select Commercial Finance operations

    

Total net revenue

   $      $ 8   

Pretax income including direct costs to transact a sale

            10   

Tax expense

            4   
   
(a) Includes certain income tax activity recognized by Corporate and Other.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Held-for-sale Operations

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

 

March 31, 2011 ($ in millions)    Select
Insurance
operations (a)
    Select
International
operations (b)
    Total
held-for-sale
operations
 

Assets

    

Cash and cash equivalents

      

Noninterest-bearing

   $ 4      $ 58      $ 62   

Interest-bearing

     61        19        80   
   

Total cash and cash equivalents

     65        77        142   

Investment securities

     384               384   

Finance receivables and loans, net

      

Finance receivables and loans, net

            19        19   

Allowance for loan losses

            (1     (1
   

Total finance receivables and loans, net

            18        18   

Premiums receivable and other insurance assets

     190               190   

Other assets

     142        2        144   

Impairment on assets of held-for-sale operations

     (221     (134 )(c)      (355
   

Total assets

   $ 560      $ (37   $ 523   
   

Liabilities

      

Interest-bearing deposit liabilities

   $      $ 5      $ 5   

Unearned insurance premiums and service revenue

     125               125   

Reserves for insurance losses and loss adjustment expenses

     382               382   

Accrued expenses and other liabilities

     33        1        34   
   

Total liabilities

   $ 540      $ 6      $ 546   
   

December 31, 2010

      

Assets

      

Cash and cash equivalents

      

Noninterest-bearing

   $ 5      $ 14      $ 19   

Interest-bearing

            33        33   
   

Total cash and cash equivalents

     5        47        52   

Investment securities

     435               435   

Finance receivables and loans, net

      

Finance receivables and loans, net

            242        242   

Allowance for loan losses

            (3     (3
   

Total finance receivables and loans, net

            239        239   

Premiums receivable and other insurance assets

     169               169   

Other assets

     138        16        154   

Impairment on assets of held-for-sale operations

     (224     (135 ) (c)      (359
   

Total assets

   $ 523      $ 167      $ 690   
   

Liabilities

      

Interest-bearing deposit liabilities

   $      $ 6      $ 6   

Short-term borrowings

            47        47   

Long-term debt

            115        115   

Interest payable

            2        2   

Unearned insurance premiums and service revenue

     115               115   

Reserves for insurance losses and loss adjustment expenses

     362               362   

Accrued expenses and other liabilities

     33               33   
   

Total liabilities

   $ 510      $ 170      $ 680   
   
(a) Includes the U.K. consumer property and casualty insurance business.
(b) The balances at March 31, 2011, include the International Automotive Finance operation of Venezuela. The balances at December 31, 2010, include the International Automotive Finance operations of Ecuador and Venezuela.
(c) Includes $94 million of unfavorable accumulated translation adjustments at both March 31, 2011, and December 31, 2010.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

3. Other Income, Net of Losses

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

 

     Three months ended March 31,  
($ in millions)        2011             2010      

Mortgage processing fees and other mortgage income

   $ 44      $ 54   

Remarketing fees

     37        31   

Late charges and other administrative fees

     33        37   

Income from equity-method investments

     22        12   

Full-service leasing fees

     15        28   

Real estate services, net

            6   

Fair value adjustment on derivatives (a)

     (14     (55

Change due to fair value option elections (b)

     (17     (73

Other, net

     96        42   
   

Total other income, net of losses

   $ 216      $ 82   
   
(a) Refer to Note 19 for a description of derivative instruments and hedging activities.
(b) Refer to Note 21 for a description of fair value option elections.

 

4. Other Operating Expenses

Details of other operating expenses were as follows.

 

     Three months ended March 31,  
($ in millions)        2011             2010      

Insurance commissions

   $ 125      $ 146   

Technology and communications

     120        139   

Professional services

     68        57   

Advertising and marketing

     54        24   

Lease and loan administration

     44        31   

Regulatory and licensing fees

     37        31   

Vehicle remarketing and repossession

     36        55   

State and local non-income taxes

     31        24   

Mortgage representation and warranty, net

     26        49   

Premises and equipment depreciation

     26        18   

Occupancy

     23        26   

Full-service leasing vehicle maintenance costs

     11        29   

Restructuring

     (3     43   

Other

     174        210   
   

Total other operating expenses

   $ 772      $ 882   
   

 

5. Trading Securities

The fair value for our portfolio of trading securities was as follows.

 

($ in millions)    March 31, 2011      December 31, 2010  

U.S. Treasury

   $       $ 77   

Mortgage-backed residential

     75         69   

Asset-backed

             94   
   

Total trading securities

   $ 75       $ 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.

 

     March 31, 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

   $ 2,902       $ 8       $ (20   $ 2,890       $ 3,307       $ 22       $ (11   $ 3,318   

States and political subdivisions

     3                        3         3                 (1     2   

Foreign government

     1,309         14         (6     1,317         1,231         19         (2     1,248   

Mortgage-backed residential (a)

     5,920         49         (108     5,861         5,844         60         (79     5,825   

Asset-backed

     2,262         38         (3     2,297         1,934         15         (1     1,948   

Corporate debt

     1,376         13         (10     1,379         1,537         34         (13     1,558   

Other

     489                        489         152                 (1     151   
   

Total debt securities (b)

     14,261         122         (147     14,236         14,008         150         (108     14,050   

Equity securities

     1,134         69         (38     1,165         766         60         (30     796   
   

Total available-for-sale securities (c)

   $ 15,395       $ 191       $ (185   $ 15,401       $ 14,774       $ 210       $ (138   $ 14,846   
   
(a) Residential mortgage-backed securities include agency-backed bonds totaling $4,208 million and $4,503 million at March 31, 2011, and December 31, 2010, respectively.
(b) In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $57 million and $153 million of primarily U.K. Treasury securities were pledged as collateral at March 31, 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 $15 million and $12 million at March 31, 2011, and December 31, 2010, respectively.

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)
 
March 31, 2011 ($ in millions)   Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  

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

                   

U.S. Treasury and federal agencies

  $ 2,890        1.3   $ 97        0.6   $ 2,693        1.2   $ 100        3.7   $       

States and political subdivisions

    3        8.7                                                  3        8.7   

Foreign government

    1,317        3.4        20        3.2        1,103        3.3        193        3.7        1        4.1   

Mortgage-backed residential

    5,861        3.3                      3        6.3        55        4.5        5,803        3.3   

Asset-backed

    2,297        2.7        87        2.6        1,149        2.2        443        2.5        618        3.8   

Corporate debt

    1,379        4.3        22        5.4        557        3.6        653        5.0        147        4.0   

Other

    489        1.4        489        1.4                                             
                                             

Total available-for-sale debt securities

  $ 14,236        2.9      $ 715        1.6      $ 5,505        2.1      $ 1,444        3.9      $ 6,572        3.4   
   

Amortized cost of available-for-sale debt securities

  $ 14,261        $ 714        $ 5,498        $ 1,438        $ 6,611     
   
(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.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

    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)
 
December 31, 2010 ($ in millions)   Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  

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 $5.4 billion and $5.3 billion at March 31, 2011, and December 31, 2010, 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. During the three months ended March 31, 2011 and 2010, we did not recognize other-than-temporary impairment on available-for-sale securities.

 

     Three months ended March 31,  
($ in millions)        2011             2010      

Gross realized gains

   $ 94      $ 151   

Gross realized losses

     (10     (8
   

Net realized gains

   $ 84      $ 143   
   

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

 

     Three months ended March 31,  
($ in millions)        2011              2010      

Taxable interest

   $ 99       $ 90   

Taxable dividends

     5         3   

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

             6   
   

Total interest and dividends on available-for-sale securities

   $ 104       $ 99   
   

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, 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 March 31, 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

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

comprehensive income are not considered to be other-than-temporarily impaired at March 31, 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.

 

     March 31, 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

   $ 1,647       $ (20   $       $      $ 702       $ (11   $       $   

States and political subdivisions

     2                               2         (1               

Foreign government

     729         (6                    323         (2               

Mortgage-backed residential

     3,623         (107     11         (1     3,159         (77     11         (2

Asset-backed

     336         (3     1                238         (1     2           

Corporate debt

     646         (10     6                653         (13     5           

Other

     83                               80         (1               
   

Total temporarily impaired debt securities

     7,066         (146     18         (1     5,157         (106     18         (2

Temporarily impaired equity securities

     411         (34     44         (4     250         (27     26         (3
   

Total temporarily impaired available-for-sale securities

   $ 7,477       $ (180   $ 62       $ (5   $ 5,407       $ (133   $ 44       $ (5
   

 

7. Loans Held-for-sale, Net

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

 

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

Consumer mortgage

                 

1st Mortgage

   $ 6,605       $ 74       $ 6,679       $ 10,191       $ 364       $ 10,555   

Home equity

     811                 811         856                 856   
   

Total consumer mortgage (a)

     7,416         74         7,490         11,047         364         11,411   

Commercial

                 

Commercial and industrial

                 

Other

     6                 6                           
   

Total commercial

     6                 6                           
   

Total loans held-for-sale (b)

   $ 7,422       $ 74       $ 7,496       $ 11,047       $ 364       $ 11,411   
   
(a) Fair value option-elected domestic consumer mortgages were $2.9 billion and $6.4 billion at March 31, 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 of $243 million and $161 million at March 31, 2011, and December 31, 2010, respectively.

 

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Table of Contents

ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

($ in millions)    March 31, 2011      December 31, 2010  

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

   $ 323       $ 331   

Payment-option adjustable-rate mortgage loans

     16         16   

Interest-only mortgage loans

     430         481   

Below-market rate (teaser) mortgages

     134         151   
   

Total (a)

   $ 903       $ 979   
   
(a) The majority of these loans are held by our Mortgage Legacy Portfolio and Other operations at March 31, 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.

 

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

Consumer automobile

   $ 39,903       $ 16,965       $ 56,868       $ 34,604       $ 16,650       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     6,893         328         7,221         6,917         390         7,307   

Home equity

     3,347                 3,347         3,441                 3,441   
   

Total consumer mortgage

     10,240         328         10,568         10,358         390         10,748   

Commercial

                 

Commercial and industrial

                 

Automobile

     24,716         9,222         33,938         24,944         8,398         33,342   

Mortgage

     820         40         860         1,540         41         1,581   

Other

     1,596         295         1,891         1,795         312         2,107   

Commercial real estate

                 

Automobile

     2,090         220         2,310         2,071         216         2,287   

Mortgage

             53         53         1         78         79   
   

Total commercial

     29,222         9,830         39,052         30,351         9,045         39,396   

Loans at fair value (a)

     645         326         971         663         352         1,015   
   

Total finance receivables and loans (b)

   $ 80,010       $ 27,449       $ 107,459       $ 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 $2.9 billion at both March 31, 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.

 

($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at January 1, 2011

   $ 970      $ 580      $ 323      $ 1,873   

Charge-offs

        

Domestic

     (139     (60     (6     (205

Foreign

     (42            (31     (73
   

Total charge-offs

     (181     (60     (37     (278
   

Recoveries

        

Domestic

     50        3        6        59   

Foreign

     19               11        30   
   

Total recoveries

     69        3        17        89   
   

Net charge-offs

     (112     (57     (20     (189

Provision for loan losses

     53        40        20        113   

Other

     5               4        9   
   

Allowance at March 31, 2011

   $ 916      $ 563      $ 327      $ 1,806   
   

Allowance for loan losses

        

Individually evaluated for impairment

   $      $ 98      $ 103      $ 201   

Collectively evaluated for impairment

     900        465        224        1,589   

Loans acquired with deteriorated credit quality

     16                      16   

Finance receivables and loans at historical cost

        

Ending balance

     56,868        10,568        39,052        106,488   

Individually evaluated for impairment

            529        1,164        1,693   

Collectively evaluated for impairment

     56,724        10,039        37,888        104,651   

Loans acquired with deteriorated credit quality

     144                      144   
   

 

($ 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

     (289     (32     (61     (382

Foreign

     (56     (2     (4     (62
   

Total charge-offs

     (345     (34     (65     (444
   

Recoveries

        

Domestic

     105        4        4        113   

Foreign

     15                      15   
   

Total recoveries

     120        4        4        128   
   

Net charge-offs

     (225     (30     (61     (316

Provision for loan losses

     108        18        18        144   

Discontinued operations

     2        (1            1   

Other

     (11     7        (12     (16
   

Allowance at March 31, 2010

   $ 1,120      $ 634      $ 726      $ 2,480   
   

Allowance for loan losses

        

Individually evaluated for impairment

   $      $ 94      $ 434      $ 528   

Collectively evaluated for impairment

     1,090        540        292        1,922   

Loans acquired with deteriorated credit quality

     30                      30   

Finance receivables and loans at historical cost

        

Ending balance

     38,114        11,242        37,112        86,468   

Individually evaluated for impairment

            336        1,852        2,188   

Collectively evaluated for impairment

     37,865        10,906        35,260        84,031   

Loans acquired with deteriorated credit quality

     249                      249   
   
(a) Effect of change in accounting principle due to adoption of ASU 2009-17.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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.

The following table presents information about our impaired finance receivables and loans.

 

($ in millions)   

Unpaid

principal

balance

     Carrying
value before
allowance
    

Impaired

with no

allowance

    

Impaired

with an

allowance

    

Allowance
for

impaired

loans

 

March 31, 2011

              

Consumer mortgage

              

1st Mortgage

   $ 446       $ 440       $       $ 440       $ 55   

Home equity

     88         89                 89         42   
   

Total consumer mortgage

     534         529                 529         97   

Commercial

              

Commercial and industrial

              

Automobile

     333         333         35         298         16   

Mortgage

     43         43         3         40         15   

Other

     122         119         21         98         39   

Commercial real estate

              

Automobile

     150         150         78         72         31   

Mortgage

     49         49         13         36         2   
   

Total commercial

     697         694         150         544         103   
   

Total consumer and commercial

   $ 1,231       $ 1,223       $ 150       $ 1,073       $ 200   
   

December 31, 2010

              

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   
   

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents average balance and interest income for our impaired finance receivables and loans.

 

     2011      2010  
Three months ended March 31, ($ in millions)   

Average

balance

    

Interest

income

    

Average

balance

    

Interest

income

 

Consumer mortgage

           

1st Mortgage

   $ 423       $ 4       $ 247       $ 2   

Home equity

     85         1         43         1   
   

Total consumer mortgage

     508         5         290         3   

Commercial

           

Commercial and industrial

           

Automobile

     336                 414           

Mortgage

     42         5                   

Other

     128         1         961           

Commercial real estate

           

Automobile

     178                 284           

Mortgage

     63         1         256         1   
   

Total commercial

     747         7         1,915         1   
   

Total consumer and commercial

   $ 1,255       $ 12       $ 2,205       $ 4   
   

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

At March 31, 2011, and December 31, 2010, commercial commitments to lend additional funds to debtors owing receivables whose terms had been modified in a troubled debt restructuring were $11 million and $15 million, respectively.

The following table presents an analysis of our past due finance receivables and loans.

 

($ 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, 2011

                 

Consumer automobile

   $ 688       $ 129       $ 176       $ 993       $ 55,875       $ 56,868   

Consumer mortgage

                 

1st Mortgage

     110         57         185         352         6,869         7,221   

Home equity

     20         9         11         40         3,307         3,347   
   

Total consumer mortgage

     130         66         196         392         10,176         10,568   

Commercial

                 

Commercial and industrial

                 

Automobile

             3         57         60         33,878         33,938   

Mortgage

     3                 40         43         817         860   

Other

                     6         6         1,885         1,891   

Commercial real estate

                 

Automobile

     2                 64         66         2,244         2,310   

Mortgage

                     49         49         4         53   
   

Total commercial

     5         3         216         224         38,828         39,052   
   

Total consumer and commercial

   $ 823       $ 198       $ 588       $ 1,609       $ 104,879       $ 106,488   
   

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 amount of our finance receivables and loans on nonaccrual status.

 

($ in millions)    March 31, 2011      December 31, 2010  

Consumer automobile

   $ 187       $ 207   

Consumer mortgage

     

1st Mortgage

     367         500   

Home equity

     45         61   
   

Total consumer mortgage

     412         561   

Commercial

     

Commercial and industrial

     

Automobile

     284         296   

Mortgage

     43         40   

Other

     119         134   

Commercial real estate

     

Automobile

     150         199   

Mortgage

     49         71   
   

Total commercial

     645         740   
   

Total consumer and commercial

   $ 1,244       $ 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 select credit quality indicators that are used in the determination of allowance 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.

 

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

Consumer automobile

   $ 56,681       $ 187       $ 56,868       $ 51,047       $ 207       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     6,854         367         7,221         6,807         500         7,307   

Home equity

     3,302         45         3,347         3,380         61         3,441   
   

Total consumer mortgage

   $ 10,156       $ 412       $ 10,568       $ 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.

 

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

Commercial

                 

Commercial and industrial

                 

Automobile

   $ 31,602       $ 2,336       $ 33,938       $ 31,254       $ 2,088       $ 33,342   

Mortgage

     804         56         860         1,504         77         1,581   

Other

     959         932         1,891         1,041         1,066         2,107   

Commercial real estate

                 

Automobile

     2,021         289         2,310         2,013         274         2,287   

Mortgage

     1         52         53                 79         79   
   

Total commercial

   $ 35,387       $ 3,665       $ 39,052       $ 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 are of higher default risk.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9. Investment in Operating Leases, Net

Investments in operating leases were as follows.

 

($ in millions)    March 31, 2011     December 31, 2010  

Vehicles and other equipment

   $ 12,355      $ 13,571   

Accumulated depreciation

     (3,457     (4,443
   

Investment in operating leases, net

   $ 8,898      $ 9,128   
   

Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale of operating lease assets. The following summarizes the components of depreciation expense on operating lease assets.

 

     Three months ended March 31,  
($ in millions)            2011                     2010          

Depreciation expense on operating lease assets (excluding remarketing gains)

   $ 403      $ 840   

Gross remarketing gains

     (118     (184
   

Depreciation expense on operating lease assets

   $ 285      $ 656   
   

 

10. Securitizations and Variable Interest Entities

Overview

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

The SPEs involved in securitization and other financing transactions are generally considered VIEs. VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the ability to control the entity’s activities.

Securitizations

We provide a wide range of consumer and commercial automobile loans, operating leases, and mortgage loan products to a diverse customer base. We often securitize these loans and leases (which we collectively describe as loans or financial assets) through the use of securitization entities, which may or may not be consolidated on our Condensed Consolidated Balance Sheet. We securitize consumer and commercial automobile loans through private-label securitizations. We securitize consumer mortgage loans through either the GSEs or nonagency mortgages securitization. During the three months ended March 31, 2011 and 2010, our consumer mortgage loans were primarily securitized through the GSEs.

In executing a securitization transaction, we typically sell pools of financial assets to a wholly owned, bankruptcy-remote SPE, which then transfers the financial assets to a separate, transaction-specific securitization entity for cash, servicing rights, and in some transactions, other retained interests. The securitization entity is funded through the issuance of beneficial interests in the securitized financial assets. The beneficial interests take the form of either notes or trust certificates, which are sold to investors and/or retained by us. These beneficial interests are collateralized by the transferred loans and entitle the investors to specified cash flows generated from the securitized loans. In the aggregate, these beneficial interests have the same average life as the transferred financial assets. In addition to providing a source of liquidity and cost-efficient funding, securitizing these financial assets also reduces our credit exposure to the borrowers beyond any economic interest we may retain. We securitize conforming residential mortgage loans through GSE securitizations and nonconforming mortgage loans through nonagency securitizations.

Each securitization is governed by various legal documents that limit and specify the activities of the securitization entity. The securitization entity is generally allowed to acquire the loans, to issue beneficial interests to investors to fund the

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

acquisition of the loans, and to enter into derivatives or other yield maintenance contracts (e.g., bond insurance) to hedge or mitigate certain risks related to the financial assets or beneficial interests of the entity. Additionally, the securitization entity is required to service the assets it holds and the beneficial interests it issues. A servicer, who is generally us, is appointed pursuant to the underlying legal documents to perform these functions. Servicing functions include, but are not limited to, making certain payments of property taxes and insurance premiums, default and property maintenance payments, as well as advancing principal and interest payments before collecting them from individual borrowers. Our servicing responsibilities, which constitute continued involvement in the transferred financial assets, consist of primary servicing (i.e., servicing the underlying transferred financial assets) and/or master servicing (i.e., servicing the beneficial interests that result from the securitization transactions). Certain securitization entities also require the servicer to advance scheduled principal and interest payments due on the beneficial interests issued by the entity regardless of whether cash payments are received on the underlying transferred financial assets. Accordingly, we are required to provide these servicing advances when applicable. Refer to Note 11 for additional information regarding our servicing rights.

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

We may retain beneficial interests in our nonagency securitizations, which may represent a form of significant continuing economic interest. These retained interests include, but are not limited to, senior or subordinate mortgage- or asset-backed securities, interest-only strips, principal-only strips, and residuals. Certain of these retained interests provide credit enhancement to the trust as they may absorb credit losses or other cash shortfalls. Additionally, the securitization agreements may require cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which may or may not be performance-driven.

We generally hold certain conditional repurchase options that allow us to repurchase assets from the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining transferred financial assets or outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which represents the point where servicing becomes burdensome (a clean-up call option). The repurchase price is typically the par amount of the loans plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase a transferred financial asset if certain events outside our control are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan or contract if it exceeds a certain prespecified delinquency level. We have complete discretion regarding when or if we will exercise these options, but generally, we would do so only when it is in our best interest.

Other than our customary representation and warranty provisions, these securitizations are nonrecourse to us, thereby transferring the risk of future credit losses to the extent the beneficial interests in the securitization entities are held by third parties. Our obligation to provide support is limited to the customary representation and warranty provisions. Representation and warranty provisions generally require us to repurchase loans or indemnify the investor for incurred losses to the extent it is determined that the loans were ineligible or were otherwise defective at the time of sale. Refer to Note 24 for detail on representation and warranty provisions. We did not provide any noncontractual financial support to any of these entities during the three months ended March 31, 2011 and 2010.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Other Variable Interest Entities

Servicer Advance Funding Entity

To assist in the financing of our servicer advance receivables, we formed an SPE that issues term notes to third-party investors that are collateralized by servicer advance receivables. These servicer advance receivables are transferred to the SPE and consist of delinquent principal and interest advances we made as servicer to various investors; property taxes and insurance premiums advanced to taxing authorities and insurance companies on behalf of borrowers; and amounts advanced for mortgages in foreclosure. The SPE funds the purchase of the receivables through financing obtained from the third-party investors and subordinated loans or an equity contribution from our mortgage activities. This SPE is consolidated on our balance sheet at March 31, 2011, and December 31, 2010. The beneficial interest holder of this SPE does not have legal recourse to our general credit. We do not have a contractual obligation to provide any type of financial support in the future, nor have we provided noncontractual financial support to the entity during the three months ended March 31, 2011 and 2010.

Other

In 2010, we sold a portfolio of resort finance-backed receivables to a third party that financed the acquisition through an SPE. We provided seller financing for the purchase of these assets and also hold a contingent value right in the SPE, which were both recorded at fair value. We do not consolidate the SPE because we have no control over the activities of the SPE.

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

We also provide long-term guarantee contracts to certain nonconsolidated affordable housing entities. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee.

Involvement with Variable Interest Entities

The determination of whether financial assets transferred by us to these VIEs (and related liabilities) are consolidated on our balance sheet (also referred to as on-balance sheet) or not consolidated on our balance sheet (also referred to as off-balance sheet) depends on the terms of the related transaction and our continuing involvement (if any) with the SPE. Subsequent to the adoption of ASU 2009-17 on January 1, 2010, we are deemed the primary beneficiary and therefore consolidate VIEs for which we have both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE’s economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could potentially be significant to the VIE and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant to the VIE. We determine whether we hold a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on an ongoing basis.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

($ in millions)    Consolidated
involvement
with VIEs
    Assets of
nonconsolidated
VIEs (a)
   

Maximum exposure to

loss in nonconsolidated
VIEs

 

March 31, 2011

      

On-balance sheet variable interest entities

      

Consumer automobile

   $ 21,257       $      $   

Consumer mortgage — nonagency

     1,308                  

Commercial automobile

     17,886                  

Other

     976                  

Off-balance sheet variable interest entities

      

Consumer mortgage — Ginnie Mae

     2,889  (b)      42,007        42,007  (c) 

Consumer mortgage — CMHC

     103  (b)      4,751        103  (d) 

Consumer mortgage — nonagency

     186  (b)      5,232        5,232  (c) 

Consumer mortgage — other

            —  (e)      —  (e) 

Commercial other

     440  (f)      —  (g)      649    
   

Total

   $ 45,045       $ 51,990      $ 47,991    
   

December 31, 2010

      

On-balance sheet variable interest entities

      

Consumer automobile

   $ 20,064       $      $   

Consumer mortgage — nonagency

     1,397                  

Commercial automobile

     15,114                  

Other

     1,035                  

Off-balance sheet variable interest entities

      

Consumer mortgage — Ginnie Mae

     2,909  (b)      43,595        43,595  (c) 

Consumer mortgage — CMHC

     124  (b)      4,222        124  (d) 

Consumer mortgage — nonagency

     183  (b)      5,371        5,371  (c) 

Commercial other

     483  (f)      —  (g)      698    
   

Total

   $ 41,309       $ 53,188      $ 49,788    
   
(a) Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.
(b) Includes $2.4 billion and $2.5 billion classified as mortgage loans held-for-sale, $138 million and $162 million classified as trading securities or other assets, and $621 million and $569 million classified as MSRs at March 31, 2011, and December 31, 2010, respectively. CMHC is the Canada Mortgage and Housing Corporation.
(c) Maximum exposure to loss represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions. This measure is based on the unlikely event that all of the loans have underwriting defects or other defects that trigger a representation and warranty provision and the collateral supporting the loans are worthless. This required disclosure is not an indication of our expected loss.
(d) Due to combination of the credit loss insurance on the mortgages and the guarantee by CMHC on the issued securities, the maximum exposure to loss would be limited to the amount of the retained interests. Additionally, the maximum loss would occur only in the event that CMHC dismisses ResMor as servicer of the loans due to servicer performance or insolvency.
(e) Includes a VIE for which we have no management oversight and therefore we are not able to provide the total assets of the VIE. However, in March 2011 we sold excess servicing rights valued at $266 million to the VIE. Our maximum exposure to loss in this VIE is a component of servicer advances made that are allocated to the trust. No servicer advances have been made to the trust at March 31, 2011, and the amount of maximum exposure does not consider advances that may be made in future periods, as they cannot be reliably predicted.
(f) Includes $472 million and $515 million classified as finance receivables and loans, net, and $20 million and $20 million classified as other assets, offset by $52 million and $52 million classified as accrued expenses and other liabilities at March 31, 2010, and December 31, 2010, respectively.
(g) Includes VIEs for which we have no management oversight and therefore we are not able to provide the total assets of the VIEs. However, in 2010 we sold loans with an unpaid principal balance of $1.5 billion into these VIEs.

On-balance Sheet Variable Interest Entities

We engage in securitization and other financing transactions that do not qualify for off-balance sheet treatment. In these situations, we hold beneficial interests or other interests in the VIE, which represent a form of significant continuing economic

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

interest. The interests held include, but are not limited to, senior or subordinate mortgage- or asset-backed securities, interest-only strips, principal-only strips, residuals, and servicing rights. Certain of these retained interests provide credit enhancement to the securitization entity as they may absorb credit losses or other cash shortfalls. Additionally, the securitization documents may require cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which may or may not be performance-driven. Because these securitization entities are consolidated, these retained interests and servicing rights are not recognized as separate assets on our Condensed Consolidated Balance Sheet.

Subsequent to adoption of ASU 2009-17 as of January 1, 2010, we consolidated certain of these entities because we had a controlling financial interest in the VIE, primarily due to our servicing activities, and because we hold a significant variable interest in the VIE. Under ASC 810, as amended by ASU 2009-17, we are generally the primary beneficiary of automobile securitization entities, as well as certain mortgage nonagency securitization entities for which we perform servicing activities and have retained a significant variable interest in the form of a beneficial interest. In cases where we did not meet sale accounting under previous guidance, unless we have made modifications to the overall transaction, we do not meet sale accounting under current guidance as we are not permitted to revisit sale accounting guidelines under the current guidance. In cases where substantive modifications are made, we then reassess the transaction under the amended guidance, based on the new circumstances.

The consolidated VIEs included in the Condensed Consolidated Balance Sheet represent separate entities with which we are involved. The third-party investors in the obligations of consolidated VIEs have legal recourse only to the assets of the VIEs and do not have such recourse to us, except for the customary representation and warranty provisions or when we are the counterparty to certain derivative transactions involving the VIE. In addition, the cash flows from the assets are restricted only to pay such liabilities. Thus, our economic exposure to loss from outstanding third-party financing related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets. All assets are restricted for the benefit of the beneficial interest holders. Refer to Note 21 for discussion of the assets and liabilities for which the fair value option has been elected.

Off-balance Sheet Variable Interest Entities

The nature, purpose, and activities of nonconsolidated securitization entities are similar to those of our consolidated securitization entities with the primary difference being the nature and extent of our continuing involvement. The cash flows from the assets of nonconsolidated securitization entities generally are the sole source of payment on the securitization entities’ liabilities. The creditors of these securitization entities have no recourse to us with the exception of market customary representation and warranty provisions as described in Note 24.

Subsequent to the adoption of ASU 2009-17 as of January 1, 2010, nonconsolidated VIEs include entities for which we either do not hold significant variable interests or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Additionally, to qualify for off-balance sheet treatment, transfers of financial assets must meet the sale accounting conditions in ASC 860. Our residential mortgage loan securitizations consist of GSEs and nonagency securitizations. Under ASU 2009-17, we are not the primary beneficiary of any GSE loan securitization transaction because we do not have the power to direct the significant activities of such entities. Additionally, under ASU 2009-17, we do not consolidate certain nonagency mortgage securitizations because we do not have a variable interest that could potentially be significant or we do not have power to direct the activities that most significantly impact the performance of the VIE.

For nonconsolidated securitization entities, the transferred financial assets are removed from our balance sheet provided the conditions for sale accounting are met. The financial assets obtained from the securitization are primarily reported as cash, servicing rights, or retained interests (if applicable). Typically, we conclude that the fee we are paid for servicing consumer automobile finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. As an accounting policy election, we elected fair value treatment for our existing MSR portfolio. Liabilities incurred as part of these securitization transactions, such as representation and warranty provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following summarizes all pretax gains and losses recognized on financial assets sold into nonconsolidated securitization and similar asset-backed financing entities.

 

Three months ended March 31, ($ in millions)      2011       2010  

Consumer mortgage — GSEs

   $(3)   $182

Consumer mortgage — nonagency

     (1)         3
 

Total pretax (loss) gain

   $(4)   $185
 

The following table summarizes cash flows received from and paid related to securitization entities, asset-backed financings, or other similar transfers of financial assets where the transfer is accounted for as a sale and we have a continuing involvement with the transferred assets (e.g., servicing) that were outstanding during the three months ended March 31, 2011 and 2010. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.

 

Three months ended March 31, ($ in millions)   

Consumer mortgage

GSEs

   

Consumer mortgage

nonagency

 

2011

    

Cash proceeds from transfers completed during the period

   $ 15,153      $ 595   

Cash flows received on retained interests in securitization entities

            20   

Servicing fees

     220        43   

Purchases of previously transferred financial assets

     (554     (7

Representations and warranties obligations

     (44       

Other cash flows

     70        62   
   

2010

    

Cash proceeds from transfers completed during the period

   $ 14,497      $ 200   

Cash flows received on retained interests in securitization entities

            17   

Servicing fees

     192        51   

Purchases of previously transferred financial assets

     (407     (8

Representations and warranties obligations

     (148     (1

Other cash flows

     11        (2
   

For consumer mortgage nonagency transactions, the following table summarizes the key economic assumptions and the sensitivity of the fair value of retained interests to immediate 10% and 20% adverse changes in those assumptions.

 

($ in millions)   March 31, 2011 (a)   December 31, 2010 (a)

Carrying value / fair value of retained interests (b)

  $138   $162

Weighted average life (in years)

  1.9–7.8   0.1–11.6

Annual prepayment rate

  2.2–64.8%WAM   2.4–48.1%WAM

Impact of 10% adverse change

  $—   $(2)

Impact of 20% adverse change

    (3)

Loss assumption (c)

  0.0–46.2%   0.0–46.4%

Impact of 10% adverse change

  $—   $—

Impact of 20% adverse change

   

Discount rate

  4.0–80.0%   0.3–80.0%

Impact of 10% adverse change

  $(3)   $(2)

Impact of 20% adverse change

  (5)   (4)

Market interest rate

  0.3–3.2%   0.3–4.1%

Impact of 10% adverse change

  $—   $—

Impact of 20% adverse change

    (1)
 
(a) There were no retained interests in consumer or commercial automobile off-balance sheet securitizations at March 31, 2011, or December 31, 2010.
(b) These amounts are recorded in trading securities or other assets at fair value. Refer to Note 21 for fair value valuation methods.
(c) The range of loss assumptions includes the constant prepayment rate related to balloon resets.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

These sensitivities are hypothetical and should be viewed with caution. Changes in fair value based on a 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses), which may magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rate and prepayment risks associated with these assets. Refer to Note 11 for further detail on sensitivities related to our mortgage servicing rights.The following table represents on-balance sheet loans held-for-sale and finance receivable and loans, off-balance sheet securitizations, and whole-loan sales where we have continuing involvement. The table presents quantitative information about delinquencies and net credit losses. Refer to Note 11 for further detail on total serviced assets.

 

     Total finance
receivables and loans
     Amount 60 days
or more past due
     Net credit losses  
                          Three months ended  
($ in millions)   

March 31,

2011

    

December 31,

2010

    

March 31,

2011

    

December 31,

2010

    

March 31,

2011

    

March 31,

2010

 

On-balance sheet loans

                 

Consumer automobile

   $ 56,868       $ 51,254       $ 305       $ 373       $ 112       $ 239   

Consumer mortgage (a)

     19,029         23,174         3,305         3,437         94         68   

Commercial automobile

     36,248         35,629         124         186         3         17   

Commercial mortgage

     913         1,660         89         110         16         41   

Commercial other

     1,897         2,107         6         20         1         3   
   

Total on-balance sheet loans

     114,955         113,824         3,829         4,126         226         368   
   

Off-balance sheet securitization entities

                 

Consumer mortgage — GSEs (b)

     256,210         253,192         11,524         13,990         n/m         n/m   

Consumer mortgage — nonagency

     73,434         73,638         11,976         12,220         1,289         1,380   
   

Total off-balance sheet securitization entities

     329,644         326,830         23,500         26,210         1,289         1,380   
   

Whole-loan transactions (c)

     36,337         38,212         2,538         2,950         215         349   
   

Total

   $ 480,936       $ 478,866       $ 29,867       $ 33,286       $ 1,730       $ 2,097   
   

n/m = not meaningful

(a) Includes loans subject to conditional repurchase options of $2.3 billion and $2.3 billion guaranteed by the GSEs, and $136 million and $146 million sold to certain nonagency mortgage securitization entities at March 31, 2011, and December 31, 2010, respectively.
(b) Anticipated credit losses are not meaningful due to the GSE guarantees.
(c) Whole-loan transactions are not part of a securitization transaction, but represent consumer automobile and consumer mortgage pools of loans sold to nonagency investors.

Changes in Accounting for Variable Interest Entities

For the three months ended March 31, 2011 and 2010, there were no material changes in the accounting for variable interest entities except the initial adoption of ASU 2009-17 on January 1, 2010. Refer to Note 11 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K regarding this initial adoption.

 

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NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

11. Servicing Activities

Mortgage Servicing Rights

The following table summarizes activity related to MSRs, which are carried at fair value.

 

Three months ended March 31, ($ in millions)    2011     2010  

Estimated fair value at January 1,

   $ 3,738      $ 3,554   

Additions recognized on sale of mortgage loans

     184        202   

Additions from purchases of servicing rights

     2        1   

Subtractions from disposition of servicing assets

     (266       

Changes in fair value

    

Due to changes in valuation inputs or assumptions used in the valuation model

     297        49   

Other changes in fair value

     (181     (244

Decrease due to change in accounting principle

            (19
   

Estimated fair value at March 31,

   $ 3,774      $ 3,543   
   

Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model include all changes due to a revaluation by a model or by a benchmarking exercise. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic runoff of the portfolio. The decrease due to change in accounting principle reflects the effect of the initial adoption of ASU 2009-17.

The key economic assumptions and sensitivity of the fair value of MSRs to immediate 10% and 20% adverse changes in those assumptions were as follows.

 

($ in millions)    March 31, 2011     December 31, 2010  

Weighted average life (in years)

     7.2        7.0   

Weighted average prepayment speed

     9.4     9.8

Impact on fair value of 10% adverse change

   $ (149   $ (155

Impact on fair value of 20% adverse change

     (287     (295
   

Weighted average discount rate

     10.7     12.3

Impact on fair value of 10% adverse change

   $ (57   $ (80

Impact on fair value of 20% adverse change

     (112     (156
   

These sensitivities are hypothetical and should be considered with caution. Changes in fair value based on a 10% and 20% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (e.g., increased market interest rates may result in lower prepayments and increased credit losses) that could magnify or counteract the sensitivities. Further, these sensitivities show only the change in the asset balances and do not show any expected change in the fair value of the instruments used to manage the interest rates and prepayment risks associated with these assets.

Risk Mitigation Activities

The primary risk of our servicing rights is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments that could reduce the value of the MSRs. We economically hedge the impact of these risks with both derivative and nonderivative financial instruments. Refer to Note 19 for additional information regarding the derivative financial instruments used to economically hedge MSRs.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Three months ended March 31, ($ in millions)    2011     2010  

Change in estimated fair value of mortgage servicing rights

   $ 117      $ (196

Change in fair value of derivative financial instruments

     (204     63   
   

Servicing valuation and hedge activities, net

   $ (87   $ (133
   

Mortgage Servicing Fees

The components of mortgage servicing fees were as follows.

 

Three months ended March 31, ($ in millions)    2011      2010  

Contractual servicing fees, net of guarantee fees and including subservicing

   $ 270       $ 257   

Late fees

     21         20   

Ancillary fees

     34         47   
   

Total mortgage servicing fees

   $ 325       $ 324   
   

Mortgage Servicing Advances

In connection with our primary servicing activities (i.e., servicing of mortgage loans), we make certain payments of property taxes and insurance premiums, default and property maintenance payments, as well as advances of principal and interest payments before collecting them from individual borrowers. Servicing advances including contractual interest are priority cash flows in the event of a loan principal reduction or foreclosure and ultimate liquidation of the real estate-owned property, thus making their collection reasonably assured. These servicing advances are included in other assets on the Condensed Consolidated Balance Sheet and totaled $1.8 billion and $1.9 billion at March 31, 2011, and December 31, 2010, respectively. We maintain an allowance for uncollected primary servicing advances of $20 million and $25 million at March 31, 2011, and December 31, 2010, respectively. Our potential obligation is influenced by the loan’s performance and credit quality.

When we act as a subservicer of mortgage loans we perform the responsibilities of a primary servicer but do not own the corresponding primary servicing rights. We receive a fee from the primary servicer for such services. As the subservicer, we would have the same responsibilities of a primary servicer in that we would make certain payments of property taxes and insurance premiums, default and property maintenance, as well as advances of principal and interest payments before collecting them from individual borrowers. At March 31, 2011, and December 31, 2010, outstanding servicer advances related to subserviced loans were $135 million and $140 million, respectively, and we had a reserve for uncollected subservicer advances of $2 million and $1 million, respectively.

In many cases, where we act as master servicer, we also act as primary servicer. In connection with our master-servicing activities, we service the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages sold to investors. As the master servicer, we collect mortgage loan payments from primary servicers and distribute those funds to investors in the mortgage-backed and mortgage-related asset-backed securities and whole-loan packages. As the master servicer, we are required to advance scheduled payments to the securitization trust or whole-loan investors. To the extent the primary servicer does not advance the payments, we are responsible for advancing the payment to the trust or whole-loan investors. Master-servicing advances, including contractual interest, are priority cash flows in the event of a default, thus making their collection reasonably assured. In most cases, we are required to advanc