10-K
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2015 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
 
(I.R.S. Employer
incorporation or organization)
 
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)
Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):
Title of each class
 
 
Common Stock, par value $0.01 per share
 
Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A
8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I
 
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 such shorter period that the registrant was required to submit and post such files). Yes þ  No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§ 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated 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 þ 
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
(Do not check if a smaller reporting)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the Registrant's common stock (Common Stock) held on June 30, 2015 by non-affiliated entities was approximately $9.9 billion (based on the June 30, 2015 closing price of Common Stock of $22.43 per share as reported on the New York Stock Exchange).
At February 23, 2016, the number of shares outstanding of the Registrant’s common stock was 483,067,645 shares.
Documents incorporated by reference: portions of the Registrant's Proxy Statement for the annual meeting of stockholders to be held on May 3, 2016 are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13, and 14 of Part III.



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

 
 
Page
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
 
 
 
 
 
 
 
 
Item 9.
Item 9A.
Item 9B.
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
Item 15.
 



Table of Contents
Part I
Ally Financial Inc. • Form 10-K


Item 1.    Business
General
Ally Financial Inc. is a leading, independent, diversified financial services firm with $158.6 billion in assets as of December 31, 2015. Founded in 1919, we are a leading financial services company with over 95 years of experience providing a broad array of financial products and services, primarily to automotive dealers and their retail customers. We operate as a financial holding company (FHC) and a bank holding company (BHC). Our banking subsidiary, Ally Bank, is an indirect, wholly-owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (internet, telephone, mobile, and mail) banking market, with total assets of $111.3 billion and deposits of $66.2 billion at December 31, 2015. The terms “Ally,” “the Company,” “we,” “our,” and “us” refer to Ally Financial Inc. and its subsidiaries as a consolidated entity, except where it is clear that the terms mean only Ally Financial Inc.
Our Business
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, and Mortgage are our primary lines of business. Our Dealer Financial Services business is centered on our strong and longstanding relationships with automotive dealers and serves the financial needs of over 17,500 dealers in the United States, including nearly 11,000 dealers outside of the General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) channels, and approximately 4.5 million of their retail customers with a wide range of financial services and insurance products. We believe our dealer-focused business model, with a focus on premium service and deep relationships, value added products and services, and full credit spectrum expertise proven over many credit cycles, makes us the preferred automotive finance company for thousands of our automotive dealer customers. We have developed particularly strong relationships with thousands of dealers resulting from our longstanding relationship with GM as well as relationships with other manufacturers, including Chrysler, providing us with an extensive understanding of the operating needs of these dealers relative to other automotive finance companies. In addition, we have established relationships with thousands of Growth channel (non-GM/Chrysler) dealers through our customer-centric approach and specialized incentive programs. Our Growth channel primarily focuses on franchised and larger, well capitalized dealers.
Ally Bank, our direct banking platform, is focused on the continued prudent expansion of assets while growing a stable deposit base and deepening relationships with its 1.1 million primary customers driven by its compelling brand and strong value proposition. Ally Bank raises deposits directly from customers through direct banking via internet, telephone, mobile, and mail channels. Ally Bank offers a full spectrum of deposit product offerings including savings and money market accounts, certificates of deposit, interest-bearing checking accounts, trust accounts, and individual retirement accounts. We continue to expand the deposit product offerings and accessibility in our banking platform in order to meet customer needs. At December 31, 2015, approximately 70% of Ally's total assets were funded at Ally Bank. Additionally, during 2015, the deposit base at Ally Bank grew $8.4 billion, an increase of over 14% from December 31, 2014. Ally Bank's assets and operating results are divided between our Automotive Finance operations, Mortgage operations, and Corporate Finance business based on its underlying business activities.
Our strategy is to extend our leading position in automotive finance in the United States by continuing to provide automotive dealers and their retail customers with premium service, a comprehensive product suite, consistent funding and competitive pricing, reflecting our commitment to the automotive industry. We are focused on expanding profitable dealer relationships, prudent earning asset growth, and acceptable risk-adjusted returns. Our growth strategy continues to focus on diversifying the franchise by expanding into different products as well as strengthening our network of dealer relationships and on the newer online marketplaces. Over the past several years, we have increased our focus on the Growth channel, which has resulted in increased new standard rate and used vehicle financing volume. We also seek to broaden and deepen the Ally Bank franchise, prudently growing stable, quality deposits while extending our foundation of products and providing a high level of customer service.
In addition, as we look ahead, we are well positioned as the marketplace continues to evolve and are working to build on our existing foundation of approximately 5.6 million customers, strong brand, innovative culture, and leading digital platform to expand our products and services and to create an integrated customer experience.
Use of the word "loan" in this document is intended to refer to, as the context suggests, retail installment sales contracts that we have acquired or other financing products. The term "originate" generally refers to our acquisition of retail installment sales contracts, other financing products, or leases as the context suggests.
For further details and information related to our business segments and the products and services they provide, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note 27 to the Consolidated Financial Statements.
Industry and Competition
The markets for automotive and mortgage financing, insurance, and banking are highly competitive. We directly compete in the automotive financing market with banks, credit unions, captive automotive finance, direct to consumer, and independent finance companies. Our insurance business also faces significant competition from automotive manufacturers, captive automotive finance companies, insurance carriers, third-party administrators, brokers, and other insurance-related companies. Some of these competitors have certain exclusivity privileges with automotive manufacturing companies whose customers and dealers compose a significant portion of our customer base. In addition, Ally Bank faces significant competition from commercial banks, savings institutions, and other financial institutions. Many of our competitors have substantial positions nationally or in the markets in which they operate. Some of our competitors have lower cost structures,

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lower costs of capital, and are less reliant on securitization activities, unsecured debt, and other public markets. We face significant competition in most areas, including product offerings, rates, pricing and fees, and customer service.
Certain Regulatory Matters
We are subject to various regulatory, financial, and other requirements of the jurisdictions in which our businesses operate. Regulators have increased their focus on the regulation of the financial services industry. The following is a description of some of the laws and regulations that currently affect our business.
Bank Holding Company and Financial Holding Company Status
Ally and IB Finance Holding Company, LLC (IB Finance) are currently both BHCs under the BHC Act. IB Finance is the direct holding company for Ally's FDIC-insured depository institution, Ally Bank. As a BHC, Ally is subject to supervision, examination and regulation by the Board of Governors of the Federal Reserve System (FRB). Ally must also comply with regulatory risk-based and leverage capital requirements, as well as various safety and soundness standards imposed by the FRB, and is subject to certain statutory restrictions concerning the types of assets or securities it may own and the activities in which it may engage. Ally Bank, our banking subsidiary, is currently not a member of the Federal Reserve System and is subject to supervision, examination and regulation by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (Utah DFI). This regulatory oversight focuses on the protection of depositors, the FDIC's Deposit Insurance Fund, and the banking system as a whole, not security holders, and in some instances may be contrary to their interests. An application has been filed for Ally Bank to become a Federal Reserve member.
Permitted Activities — The Gramm-Leach-Bliley Act of 1999 (GLB Act) amended the BHC Act by providing a new regulatory framework applicable to “financial holding companies,” which are bank holding companies that meet certain qualifications and elect FHC status. FHCs are generally permitted to engage in a broader range of financial and related activities than those that are permissible for BHCs, in particular, securities, insurance, and merchant banking activities. The FRB supervises, examines, and regulates FHCs, as it does all BHCs. However, insurance and securities activities conducted by a FHC or its nonbank subsidiaries are also regulated by functional regulators. Our election to become a FHC under the BHC Act was approved by the FRB and became effective on December 20, 2013. Ally's status as a FHC allows us to continue all existing insurance activities, as well as our SmartAuction vehicle remarketing services for third parties. To maintain its status as a FHC, Ally and its bank subsidiary, Ally Bank, must remain “well-capitalized” and “well-managed,” as defined under applicable law. Refer to Note 21 to the Consolidated Financial Statements for additional information. See also “Basel Capital Frameworks” below. Under the BHC Act, Ally generally may not, directly or indirectly, acquire more than 5% of any class of voting shares of any nonaffiliated bank or BHC without first obtaining FRB approval.
Dodd-Frank Wall Street Reform and Consumer Protection Act — On July 21, 2010, the President of the United States signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act represents a significant overhaul of many aspects of the regulation of the financial services industry, addressing, among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, derivatives, restrictions on an insured bank’s transactions with its affiliates, lending limits, and mortgage-lending practices. A number of provisions in the Dodd-Frank Act have entered into effect while others will become effective at a later date after a rulemaking process is completed. While U.S. regulators have finalized many regulations to implement various provisions of the Dodd-Frank Act, they plan to propose or finalize additional implementing regulations in the future.
The Dodd-Frank Act has had, and will have as its provisions are further implemented, material implications for Ally and the entire financial services industry. Among other things, the Dodd-Frank Act and its implementing regulations:
subject Ally to enhanced prudential standards, oversight, and scrutiny as a result of being a BHC with $50 billion or more in total consolidated assets (a large BHC);
have increased the levels of capital and liquidity with which Ally must operate and affect how it plans capital and liquidity levels;
subject Ally to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance fees paid by Ally Bank to the FDIC;
require Ally to provide to the FRB and FDIC an annual plan for its rapid and orderly resolution in the event of material financial distress;
subject Ally to regulation and examination by the Consumer Financial Protection Bureau (CFPB), which has very broad rule-making, examination, and enforcement authorities; and
subject derivatives that Ally enters into for hedging, risk management and other purposes to a comprehensive new regulatory regime which, when fully implemented, will require central clearing and execution on designated markets or execution facilities for certain standardized derivatives and impose margin, documentation, trade reporting, and other new requirements.

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These and other requirements may, either currently or in the future, impact Ally’s business and risk management strategies and/or restrict the revenue that Ally generates from certain businesses.
Enhanced Prudential Standards — In February 2014, the FRB issued a final rule to implement certain enhanced prudential standards under the Dodd-Frank Act for large bank holding companies such as Ally. The final rule generally became effective on January 1, 2015. Among other things, the final rule requires Ally to maintain a buffer of unencumbered highly liquid assets to meet projected net cash outflows for 30 days over the range of liquidity stress scenarios used in internal stress tests and to comply with a number of risk management and governance requirements, including liquidity risk management standards. The Federal Reserve has stated that it will issue, at a later date, final rules to implement certain other enhanced prudential standards under the Dodd-Frank Act for large bank holding companies, including single counterparty credit limits and an early remediation framework.
Liquidity Coverage Ratio Requirements — To complement the above-mentioned internal liquidity stress testing and liquidity buffer requirements, the FRB and other U.S. banking regulators issued a final rule in September 2014 to implement the Basel III liquidity coverage ratio (LCR) requirements for large bank holding companies. The LCR was developed by the Basel Committee on Banking Supervision (Basel Committee) to ensure banking organizations maintain an amount of high-quality liquid assets that is no less than 100 percent of their total net cash outflows arising from significant stress over a prospective 30 calendar-day period. The U.S. LCR rule is more stringent in certain respects compared to the Basel Committee’s version of the LCR, and includes a generally narrower definition of debt and equity securities that qualify as high-quality liquid assets and a two-year phase-in period that began on January 1, 2015, and ends on January 1, 2017. A simpler, less stringent U.S. LCR requirement (Modified LCR) applies to depository institution holding companies with $50 billion or more in total consolidated assets that are not covered by the LCR. The Modified LCR requires depository institution holding companies to calculate their Modified LCR on a monthly basis beginning January 1, 2016, subject to a transition period (phased-in implementation with a minimum ratio of 90% in 2016 and 100% in 2017 and beyond). Because Ally’s total assets are less than $250 billion but greater than $50 billion, and because it has immaterial foreign exposure, Ally is subject to the requirements of the Modified LCR.
Capital Adequacy Requirements — Ally and Ally Bank are subject to various capital adequacy requirements as established under FRB and FDIC regulations. Refer to Note 21 to the Consolidated Financial Statements for additional information. See also “Basel Capital Frameworks” below.
Capital Planning and Stress Tests — Pursuant to the Dodd-Frank Act, the FRB has adopted capital planning and stress test requirements for large bank holding companies, including Ally, which form part of the FRB's Comprehensive Capital Analysis and Review (CCAR) process. Under the FRB's capital plan rule, Ally must submit an annual capital plan to the FRB, taking into account the results of stress tests conducted by Ally based on scenarios prescribed by the FRB. The capital plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any capital distribution, and any similar action that the FRB determines could have an impact on Ally's consolidated capital. The capital plan must also include a discussion of how Ally will maintain capital above the U.S. Basel III minimum regulatory capital ratios for each period over the nine-quarter planning horizon, and serve as a source of strength to Ally Bank. The FRB will either object to Ally's capital plan, in whole or in part, or provide a notice of non-objection. If the FRB objects to the capital plan, or if certain material events occur after approval of the plan, Ally must submit a revised capital plan within 30 days. In addition, even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution.
Ally received a non-objection to its 2014 and 2015 capital plans. Under a new rule effective for the 2016 capital planning cycle and subsequent cycles, Ally expects to submit its 2016 capital plan by April 5, 2016, with a response expected from the FRB by June 30, 2016.
The FRB final stress test rule requires Ally to conduct semi-annual (annual and mid-cycle) company-run stress tests under baseline, adverse, and severely adverse economic scenarios over a planning horizon that spans nine quarters. The rule also subjects Ally to an annual supervisory stress test conducted by the FRB. For the 2015 stress testing cycle, Ally submitted the results of its semi-annual stress test to the FRB in January and July 2015. Under a new rule effective for the 2016 and subsequent cycles, Ally expects to submit its 2016 company-run stress tests by April 5, 2016 and October 5, 2016. In addition, an FDIC final rule requires Ally Bank to conduct an annual company-run stress test under baseline, adverse, and severely adverse economic scenarios over a planning horizon that spans nine quarters. Ally Bank expects to submit its 2016 company-run stress test by April 5, 2016.
In addition, the FRB publishes summary results of the supervisory stress tests of each large BHC, including Ally, conducted by the FRB pursuant to the Dodd-Frank Act. The supervisory stress tests are intended to provide supervisors with forward-looking information to help identify downside risk and the potential effect of adverse conditions on capital adequacy.
Limitations on Bank and Bank Holding Company Dividends and Capital Distributions — Utah law (and, in certain instances, federal law) places restrictions and limitations on dividends or other distributions payable by our banking subsidiary, Ally Bank, to Ally. Under the FRB’s capital plan rule, an objection to a large BHC's capital plan generally prohibits it from paying dividends or making certain other capital distributions without specific FRB non-objection to such action. Even if a large BHC receives a non-objection to its capital plan, it may not pay a dividend or make certain other capital distributions without FRB approval under certain circumstances (e.g., where the BHC would not meet certain minimum regulatory capital ratios after giving effect to the

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dividend or distribution). In addition, FRB supervisory guidance requires BHCs such as Ally to consult with the FRB prior to increasing dividends, implementing common stock repurchase programs or redeeming or repurchasing capital instruments. The U.S. banking regulators are also authorized to prohibit a banking subsidiary or BHC from engaging in unsafe or unsound banking practices and, depending upon the circumstances, could find that paying a dividend or making a capital distribution would constitute an unsafe or unsound banking practice.
Transactions with Affiliates — Certain transactions between Ally Bank and any of its nonbank “affiliates,” including but not limited to Ally, are subject to federal statutory and regulatory restrictions. Pursuant to these restrictions, unless otherwise exempted, “covered transactions” including Ally Bank's extensions of credit to and asset purchases from its nonbank affiliates, generally (1) are limited to 10% of Ally Bank's capital stock and surplus with respect to transactions with any individual affiliate, with an aggregate limit of 20% of Ally Bank's capital stock and surplus for all affiliates and all such transactions; (2) in the case of certain credit transactions, are subject to stringent collateralization requirements; (3) in the case of asset purchases by Ally Bank, may not involve the purchase of any asset deemed to be a “low quality asset” under federal banking guidelines; and (4) must be conducted in accordance with safe-and-sound banking practices (collectively, the Affiliate Transaction Restrictions). In addition, transactions between Ally Bank and a nonbank affiliate generally must be on market terms and conditions.
Furthermore, there is an “attribution rule” that provides that a transaction between Ally Bank and a third party must be treated as a transaction between Ally Bank and a nonbank affiliate to the extent that the proceeds of the transaction are used for the benefit of or transferred to a nonbank affiliate of Ally Bank. For example, because Ally controls Ally Bank, Ally is an affiliate of Ally Bank for purposes of the Affiliate Transaction Restrictions. Thus, retail financing transactions by Ally Bank involving vehicles for which Ally provided floorplan financing are subject to the Affiliate Transaction Restrictions because the proceeds of the retail financings are deemed to benefit, and are ultimately transferred to, Ally.
Under the Dodd-Frank Act, among other changes to the Affiliate Transaction Restrictions, credit exposures arising from derivatives transactions, securities lending and borrowing transactions, and acceptance of affiliate-issued debt obligations (other than securities) as collateral for a loan or extension of credit will be treated as "covered transactions." The Dodd-Frank Act also expands the scope of covered transactions required to be collateralized, requires that collateral be maintained at all times for covered transactions required to be collateralized, and places limits on acceptable collateral.
Historically, the FRB was authorized to exempt, at its discretion, transactions or relationships from the requirements of these rules if it found such exemptions to be in the public interest and consistent with the purposes of the rules. As a result of the Dodd-Frank Act, exemptions now may be granted by the FDIC if the FDIC and FRB jointly find that the exemption is in the public interest and consistent with the purposes of the rules, and the FDIC finds that the exemption does not present an unacceptable risk to the Deposit Insurance Fund. The FRB granted several such exemptions to Ally Bank in the past. However, the existing exemptions are subject to various conditions and, particularly in light of the statutory changes made by the Dodd-Frank Act, any requests for future exemptions might not be granted. Moreover, these limited exemptions generally do not encompass consumer leasing or used vehicle financing. Since there is no assurance that Ally Bank will be able to obtain future exemptions or waivers with respect to these restrictions, the ability to grow Ally Bank's business will be affected by the Affiliate Transaction Restrictions and the conditions set forth in the existing exemption letters.
Source of Strength — Pursuant to the Federal Deposit Insurance Act, as amended by the Dodd-Frank Act, FRB policy and regulations, and the Parent Company Agreement and the Capital and Liquidity Maintenance Agreement described in Note 21 to the Consolidated Financial Statements, Ally is required to act as a source of financial and managerial strength to Ally Bank and is required to commit necessary capital and liquidity to support Ally Bank. This support may be required at inopportune times for Ally.
Single Point of Entry Resolution Authority — Under the Dodd-Frank Act, certain financial institutions, including BHCs such as Ally, are eligible to be subjected to a new FDIC-administered resolution regime called orderly liquidation authority, an alternative to bankruptcy. The FDIC’s orderly liquidation authority became effective in July 2010, with implementing regulations adopted thereafter in stages, with some rulemakings still to come. If Ally were to become insolvent and be placed into receivership under the orderly liquidation authority, the FDIC would be appointed as receiver, giving the FDIC considerable rights and powers that it must exercise with the goal of liquidating and winding up Ally, including the ability to assign assets and liabilities without the need for creditor consent or prior court review and the ability of the FDIC to differentiate and determine priority among creditors. In December 2013, the FDIC released its proposed Single Point of Entry strategy for resolution of a systemically important financial institution under the orderly liquidation authority. The FDIC’s release outlines how it would use its powers under the orderly liquidation authority to resolve a systemically important financial institution by placing its top-tier U.S. holding company in receivership and keeping its operating subsidiaries open and out of insolvency proceedings by transferring the operating subsidiaries to a new bridge holding company, recapitalizing the operating subsidiaries, and imposing losses on the shareholders and creditors of the holding company in receivership according to their statutory order of priority.
Enforcement Authority — The FDIC and FRB have broad authority to issue orders to banks and bank holding companies to cease and desist from unsafe or unsound banking practices and from violations of laws, rules, regulations, or conditions imposed in writing by the banking agencies. The FDIC and FRB also are empowered to require affirmative actions to correct any violation or practice; issue administrative orders that can be judicially enforced; direct increases in capital; limit dividends and distributions; restrict growth; assess civil money penalties against institutions or individuals who violate any laws, regulations, orders, or written

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agreements with the banking agencies; order termination of certain activities of BHCs or their subsidiaries; remove officers and directors; order divestiture of ownership or control of a nonbanking subsidiary by a BHC (in the case of the FRB); terminate deposit insurance (in the case of the FDIC); and/or place a bank into receivership (in the case of the FDIC).
Basel Capital Frameworks
Until January 1, 2015, the U.S. risk-based and leverage capital standards applicable to Ally and Ally Bank were based on the Basel Committee's Basel I capital accord (Basel I).
In December 2010, the Basel Committee reached an agreement on the Basel III capital framework, which was designed to increase the quality and quantity of regulatory capital by introducing new risk-based and leverage capital standards. In July 2013, the U.S. banking regulators finalized rules implementing the Basel III capital framework and related Dodd-Frank Act provisions (U.S. Basel III). U.S. Basel III represents a substantial revision to the regulatory capital standards for U.S. banking organizations. Ally became subject to U.S. Basel III on January 1, 2015. Certain aspects of the U.S. Basel III final rules, including the new capital buffers and regulatory capital deductions, will be phased in over several years.
U.S. Basel III subjects Ally to a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum Total risk-based capital ratio of 8%. In addition to these minimum requirements, Ally will also be subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in from January 1, 2016 through December 31, 2018. Failure to maintain the full amount of the buffer will result in restrictions on Ally’s ability to make capital distributions, including dividend payments and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. In addition to these new risk-based capital standards, U.S. Basel III subjects all U.S. banking organizations, including Ally, to a minimum Tier 1 leverage ratio of 4%, the denominator of which takes into account only on-balance sheet assets.
In addition to introducing new capital ratios, U.S. Basel III revises the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had previously been recognized as capital but that do not satisfy the new criteria. Subject to certain exceptions (e.g., for certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other “hybrid” securities are no longer included in a BHC’s Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain new items will be deducted from Common Equity Tier 1 capital, and certain other deductions from regulatory capital will be modified. Among other things, U.S. Basel III requires certain deferred tax assets (DTAs) that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revises the U.S. Basel I-based standardized approach for calculating risk-weighted assets by, among other things, modifying certain risk weights and introducing new methods for calculating risk-weighted assets for certain types of assets and exposures. Ally is subject to the U.S. Basel III standardized approach for counterparty credit risk. It is not subject to the U.S. Basel III advanced approaches for counterparty credit risk.
Ally is currently not subject to the U.S. market risk capital rule, which applies only to banking organizations with significant trading assets and liabilities.
At December 31, 2015, Ally was in compliance with its regulatory capital requirements. For an additional discussion of capital adequacy requirements, refer to Note 21 to the Consolidated Financial Statements.
Depository Institutions
Ally Bank's deposits are insured by the FDIC, under applicable rules, and Ally Bank is required to file periodic reports with the FDIC concerning its financial condition. Total assets of Ally Bank were $111.3 billion and $104.4 billion at December 31, 2015, and 2014, respectively. As a commercial nonmember bank chartered by the State of Utah, Ally Bank is subject to various regulatory capital adequacy requirements administered by state and federal banking agencies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), among other things, identifies five capital categories for insured depository institutions ("well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized") and requires the respective federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. Depending on the category in which an institution is classified, FDICIA imposes progressively more restrictive constraints on operations, management, and capital distributions.
Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on Ally Bank's results of operations and financial condition. FDICIA generally prohibits a depository institution from making any capital distribution, including payment of a cash dividend or paying any management fee to its holding company, if the depository institution would become under-capitalized after such payment. Under-capitalized institutions are also subject to growth limitations and are required by the appropriate federal banking agency to submit a capital restoration plan. If any depository institution subsidiary of a holding company is required to submit a capital restoration plan, the holding company would be required to provide a limited guarantee regarding compliance with the plan as a condition of approval of such plan. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements.
At December 31, 2015, Ally Bank was in compliance with its regulatory capital requirements. For an additional discussion of capital adequacy requirements, refer to Note 21 to the Consolidated Financial Statements.

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Consumer Financial Laws
The CFPB has issued various rules to implement consumer financial protection provisions of the Dodd-Frank Act and related requirements. Many of these rules impose new requirements on Ally and its business operations. In addition, as an insured depository institution with total assets of more than $10 billion, Ally Bank is subject to the examination and enforcement authority of the CFPB with respect to its compliance with federal consumer financial protection laws and regulations.
Mortgage Operations — Our mortgage business is subject to extensive federal, state, and local laws, rules, and regulations, in addition to judicial and administrative decisions that impose requirements and restrictions on this business. The mortgage business is also subject to examination by the Federal Housing Commissioner to assure compliance with Federal Housing Administration regulations, policies, and procedures. The federal, state, and local laws, rules, and regulations to which our mortgage business is subject, among other things, impose licensing obligations and financial requirements; limit the interest rates, finance charges, and other fees that can be charged; regulate the use of credit reports and the reporting of credit information; impose underwriting requirements; regulate marketing techniques and practices; require the safeguarding of nonpublic information about customers; and regulate servicing practices, including the assessment, collection, foreclosure, claims handling, and investment and interest payments on escrow accounts.
The future of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Government National Mortgage Association (Ginnie Mae) (collectively, the Government-sponsored Enterprises, or GSEs) and the role of government agencies in the U.S. mortgage markets remain uncertain. The Executive Branch has committed to work with the Federal Housing Finance Agency (FHFA) to develop a plan to responsibly reduce the role of the GSEs in the mortgage market and, ultimately, wind down Fannie Mae and Freddie Mac. In addition, proposals have been introduced in both houses of Congress to reform the role of the GSEs in the U.S. housing sector and move toward a private sector model.
Automotive Lending Business — The CFPB has focused on the area of automotive finance, particularly with respect to indirect financing arrangements and fair lending compliance. In March 2013, the CFPB provided guidance about compliance with the fair lending requirements of the Equal Credit Opportunity Act and its implementing regulations for indirect automotive finance companies that permit dealers to charge annual percentage rates to consumers in excess of buy rates used by the finance company to calculate the price paid to acquire an assignment of the retail installment sale contract. In December 2013, Ally Financial Inc. and Ally Bank entered into Consent Orders issued by the CFPB and the U.S. Department of Justice (DOJ) pertaining to the allegation of disparate impact in the automotive finance business. For further information, refer to Note 30 to the Consolidated Financial Statements.
Asset-backed Securitizations
Section 941 of the Dodd-Frank Act requires securitizers of different types of asset-backed securitizations, including transactions backed by residential mortgages, commercial mortgages, and commercial, credit card, and automotive loans, to retain no less than 5% of the credit risk of the assets being securitized, with an exemption for securitizations that are wholly composed of “qualified residential mortgages” (QRMs). Federal regulators issued final rules implementing this Dodd-Frank Act requirement in October 2014. The final rules aligned the definition of QRMs with the CFPB’s definition of “Qualified Mortgage” and also included an exemption for the GSEs’ mortgage-backed securities (MBS). The regulations took effect on February 23, 2015. Compliance was required with respect to new securitization transactions backed by residential mortgages beginning December 24, 2015, and will be required with respect to new securitization transactions backed by other types of assets beginning December 24, 2016. Ally continues to evaluate the final rules and assess their impact on our securitization activities.
Insurance Companies
Certain of our Insurance operations are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions under applicable state and foreign insurance laws, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies. Under various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus with approvals required from the regulatory authorities for dividends in excess of certain statutory limitations. Our insurance operations are also subject to applicable state laws generally governing insurance companies, as well as laws and regulations for products that are not regulated as insurance, such as vehicle service contracts and guaranteed asset protection waivers.
Investments in Ally
Because Ally Bank is a FDIC-insured bank and Ally and IB Finance are BHCs, acquisitions of our voting stock above certain thresholds may be subject to regulatory approval or notice under federal or state law. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of our stock in excess of the amount that may be acquired without regulatory approval under the Change in Bank Control Act, the BHC Act, and Utah state law.
Further, refer to the Tax Assets Protective Measures section of MD&A for details of certain actions taken by us during January 2014, which are intended to prevent persons from acquiring Ally common stock that exceeds certain ownership thresholds. These measures are intended to protect certain tax benefits that may be significantly limited under an "ownership change" as defined under the applicable tax regulations.

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Other Regulations
Some of the other more significant regulations that we are subject to include:
Privacy — The GLB Act imposes additional obligations on us to safeguard the information we maintain on our customers, requires us to provide notice of our privacy practices, and permits customers to “opt-out” of information sharing with unaffiliated parties. The U.S. banking regulators and the Federal Trade Commission have issued regulations that establish obligations to safeguard information. In addition, several states have enacted even more stringent privacy and safeguarding legislation. If a variety of inconsistent state privacy rules or requirements are enacted, our compliance costs could increase substantially.
Volcker Rule — On December 10, 2013, the U.S. Commodity Futures Trading Commission, FDIC, Federal Reserve Board, Office of the Comptroller of the Currency and the SEC issued final rules to implement the Volcker Rule required by the Dodd-Frank Act. The Volcker Rule prohibits an insured depository institution and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations and also permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of funds under certain conditions. The final rules extend the conformance period to July 21, 2015, and in December of 2014 the Federal Reserve Board issued an order to extend the relevant conformance date for certain covered funds activities to July 21, 2016. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities. The impact of the Volcker Rule will not be material to Ally’s business operations.
Fair Credit Reporting Act — The Fair Credit Reporting Act regulates the use of credit reports and the reporting of information to credit reporting agencies, and also provides a national legal standard for lenders to share information with affiliates and certain third parties and to provide firm offers of credit to consumers. In late 2003, the Fair and Accurate Credit Transactions Act was enacted, making this preemption of conflicting state and local law permanent. The Fair Credit Reporting Act was also amended to place further restrictions on the use of information shared between affiliates, to provide new disclosures to consumers when risk-based pricing is used in the credit decision, and to help protect consumers from identity theft. All of these provisions impose additional regulatory and compliance costs on us and reduce the effectiveness of our marketing programs.
Truth in Lending Act — The Truth in Lending Act (TILA), as amended, and Regulation Z, which implements TILA, requires lenders to provide borrowers with uniform, understandable information concerning terms and conditions in certain credit transactions. These rules apply to Ally and its subsidiaries in transactions in which they extend credit to consumers and require, in the case of certain mortgage and automotive financing transactions, conspicuous disclosure of the finance charge and annual percentage rate, if any. In addition, if an advertisement for credit states specific credit terms, Regulation Z requires that such advertisement state only those terms that actually are or will be arranged or offered by the creditor. The CFPB has recently issued substantial amendments to the mortgage requirements under Regulation Z, and additional changes are likely in the future. Amendments to Regulation Z and Regulation X, which implements the Real Estate Settlement Procedures Act, require new integrated mortgage loan disclosures to be provided for applications received on or after October 3, 2015. Failure to comply with TILA can result in liability for damages as well as criminal and civil penalties.
Sarbanes-Oxley Act — The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance and accounting measures designed to promote honesty and transparency in corporate America. The principal provisions of the act include, among other things, (1) the creation of an independent accounting oversight board; (2) auditor independence provisions that restrict non-audit services that accountants may provide to their audit clients; (3) additional corporate governance and responsibility measures including the requirement that the principal executive and financial officers certify financial statements; (4) the potential forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve-month period following initial publication of any financial statements that later require restatement; (5) an increase in the oversight of and enhancement of certain requirements relating to audit committees and how they interact with the independent auditors; (6) requirements that audit committee members must be independent and are barred from accepting consulting, advisory, or other compensatory fees from the issuer; (7) requirements that companies disclose whether at least one member of the audit committee is a “financial expert” (as defined by the Securities and Exchange Commission (SEC)) and, if not, why the audit committee does not have a financial expert; (8) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions, on nonpreferential terms and in compliance with other bank regulatory requirements; (9) disclosure of a code of ethics; (10) requirements that management assess the effectiveness of internal control over financial reporting and that the Independent Registered Public Accounting firm attest to the assessment; and (11) a range of enhanced penalties for fraud and other violations.
USA PATRIOT Act/Anti-Money-Laundering Requirements — In 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) was signed into law. Title III of the USA PATRIOT Act amends the Bank Secrecy Act and contains provisions designed to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The Bank Secrecy Act, as amended by the USA PATRIOT Act, requires BHCs, banks, and certain other financial companies to undertake activities including maintaining an anti-money-laundering program, verifying the identity of clients, monitoring for and reporting on suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law

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enforcement agencies. We have implemented internal practices, procedures, and controls designed to comply with these anti-money-laundering requirements.
Community Reinvestment Act — Under the Community Reinvestment Act (CRA), a bank has a continuing and affirmative obligation, consistent with the safe-and-sound operation of the institution, to help meet the credit needs of its entire community, including low- and moderate-income persons and neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions. However, institutions are rated on their performance in meeting the needs of their communities. Failure by Ally Bank to maintain a "satisfactory" or better rating under the CRA may adversely affect Ally's ability to make acquisitions and engage in new activities, and in the event of such a rating, the FRB must prohibit the FHC and its subsidiaries from engaging in any additional activities other than those permissible for bank holding companies that are not FHCs.
Employees
We had approximately 7,100 and 6,900 employees at December 31, 2015, and 2014, respectively.
Additional Information
The results of operations for each of our reportable operating segments and the products and services offered are contained in the individual business operations sections of MD&A. Financial information related to reportable operating segments and geographic areas is provided in Note 27 to the Consolidated Financial Statements.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K (and amendments to these reports) are available on our internet website, free of charge, as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. These reports are available at www.ally.com. Choose Investor Relations (under About Us), Financial Information, and then SEC Filings. These reports can also be found on the SEC website at www.sec.gov.
Item 1A.    Risk Factors
Our businesses face many risks and uncertainties, any of which could result in a material adverse effect on our results of operations or financial condition. We believe that the most significant of the risks and uncertainties that we face are described below. This Form 10-K is qualified in its entirety by these risk factors.
Risks Related to Regulation
The regulatory environment in which we operate could have a material adverse effect on our business and earnings.
We are subject to extensive laws and regulations that require significant expense and devotion of resources, which may adversely affect our ability to operate profitably. Ally currently operates as a FHC, which permits us to engage in certain business activities, including securities, insurance, and merchant banking activities. To maintain status as a FHC, Ally and its bank subsidiary, Ally Bank, must remain “well-capitalized” and “well-managed,” as defined under applicable law. If we fail to maintain our status as a FHC, our ability to engage in the broader range of activities permitted to FHCs may be restricted and we may be required to discontinue these activities, or divest our bank subsidiary, Ally Bank.
Ally is subject to ongoing supervision, examination and regulation by the FRB, and Ally Bank by the FDIC and the Utah DFI, in each case, through regular examinations and other means that allow the regulators to gauge management’s ability to identify, assess, and control risk in all areas of operations in a safe-and-sound manner and to ensure compliance with laws and regulations, including those governing resolution planning. In the course of their supervision and examinations, our regulators may require improvements in various functions or areas of our business. Any requirement imposed is generally judicially enforceable, and if we are unable to implement and maintain any required actions in a timely and effective manner, we could become subject to formal supervisory actions that could lead to significant restrictions on our existing business or on our ability to develop any new business. Such forms of supervisory action could include, without limitation, written agreements, cease and desist orders, and consent orders and may, among other things, result in restrictions on our ability to pay dividends, requirements to increase capital, restrictions on our activities, the imposition of civil monetary penalties, and enforcement of such action through injunctions or restraining orders. We could also be required to dispose of certain assets and liabilities within a prescribed period. The terms of any such supervisory action could have a material adverse effect on our business, operating flexibility, financial condition, and results of operations.
Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market with regard to the affected product and on our reputation generally. No assurance can be given that applicable laws or regulations will not be amended or construed differently, that new laws and regulations will not be adopted, or that we will not be prohibited by local laws or regulators from taking desired actions, any of which could materially adversely affect our business, operating flexibility, financial condition, or results of operations.
Changes to any applicable statutes, regulations, rules, or policies including the interpretation or implementation of statutes, regulations, rules, or policies could affect us in substantial and unpredictable ways including limiting the types of financial services and products we may offer, limiting our ability to pursue acquisitions and increasing the ability of third parties to offer competing financial services and products. Further, noncompliance with applicable laws could result in the suspension or revocation of any license or registration at issue as well as the imposition of civil fines and criminal penalties.

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For additional information related to our regulatory requirements, see Business Certain Regulatory Matters.
Ally and its subsidiaries are or may become involved in investigations, examinations, and proceedings by government and self-regulatory agencies, which may lead to material adverse consequences.
Ally and its subsidiaries, including Ally Bank, are or may become involved from time to time in formal and informal reviews, investigations, examinations, proceedings, and information-gathering requests by federal and state government and self-regulatory agencies, including, among others, the DOJ, SEC, CFPB, FRB, FDIC, Utah DFI, and the Federal Trade Commission regarding their respective operations.
Mortgage Matters
We have received subpoenas from the DOJ that include a broad request for documentation and other information relating to residential mortgage-backed securities issued by our former mortgage subsidiary, Residential Capital, LLC and its subsidiaries (ResCap RMBS). In connection with these requests, the DOJ is investigating potential fraud and other potential legal claims related to ResCap RMBS, including its investigation of potential claims under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The DOJ is also investigating potential claims under the False Claims Act (FCA) related to representations made by us in connection with investments in Ally made by the United States Department of the Treasury pursuant to the Troubled Asset Relief Program in 2008 and 2009 regarding certain claims against Residential Capital, LLC or its subsidiaries at that time. We continue to engage in discussions with the DOJ with respect to legal and factual aspects of their investigations and potential claims. As previously disclosed, at the request of the DOJ, we entered into an agreement to voluntarily extend the statutes of limitations related to potential FCA claims. This agreement expired at the end of January 2016.
We have separately received subpoenas and document requests from the SEC that include information covering a wide range of mortgage-related matters.
Automotive Subprime Matters
In October 2014, we received a document request from the SEC in connection with its investigation related to subprime automotive finance and related securitization activities. Separately, in December 2014, we received a subpoena from the DOJ requesting similar information. In May 2015, we received an information request from the New York Department of Financial Services requesting similar information. We have cooperated with each of these agencies with respect to these matters.
CFPB
Further, in December 2013, Ally Financial Inc. and Ally Bank entered into Consent Orders issued by the CFPB and the DOJ pertaining to the allegation of disparate impact in the automotive finance business. The Consent Orders require Ally to create a compliance plan addressing, at a minimum, the communication of Ally’s expectations of Equal Credit Opportunity Act compliance to dealers, maintenance of Ally’s existing limits on dealer finance income for contracts acquired by Ally, and monitoring for potential discrimination both at the dealer level and within our portfolio of contracts acquired across all dealers. Ally formed a compliance committee consisting of certain Ally and Ally Bank directors to oversee Ally’s execution of the Consent Orders’ terms. Ally is required to meet certain stipulations under the Consent Orders, including a requirement to make monetary payments when ongoing remediation targets are not attained.
Each of the matters set forth above may result in material adverse consequences including without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or other actions.
Our ability to execute our business strategy may be affected by regulatory considerations.
Our business strategy for Ally Bank, which is primarily focused on automotive lending, growth of our direct-channel deposit business, bulk purchases of high-quality jumbo mortgage loans, and commercial lending, is subject to regulatory oversight from a safety and soundness perspective. If our banking supervisors raise concerns regarding any aspect of our business strategy for Ally Bank, we may be obliged to alter our strategy, which could include moving certain activities, such as certain types of lending, outside of Ally Bank to one of our nonbanking affiliates. Alternative funding sources outside of Ally Bank, such as unsecured funding in the capital markets, could be more expensive than funding through Ally Bank and could adversely affect our business prospects, results of operations, and financial condition.
We are subject to capital planning and systemic risk regimes, which impose significant restrictions and requirements.
As a BHC with $50 billion or more of consolidated assets, Ally is subject to certain enhanced prudential standards mandated by Section 165 of the Dodd-Frank Act for large bank holding companies such as Ally. As part of these enhanced prudential standards, Ally is required to conduct periodic stress tests and submit a proposed capital action plan to the FRB annually. The proposed capital action plan must include a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any capital distribution, and any similar action that the FRB determines could have an impact on Ally’s consolidated capital. The proposed capital action plan must also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios and serve as a source of strength to Ally Bank. The FRB will either object to a proposed capital plan, in whole or in part, or provide notice of non-objection to Ally. The failure to receive a notice of non-objection from the FRB would prohibit us from paying dividends, repurchasing our common stock, and making other capital distributions. Refer to the section above titled Business Certain Regulatory Matters for further details.

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In addition, the enhanced prudential standards also require Ally to maintain a sufficient quantity of highly liquid assets to survive a projected 30-day liquidity stress event and implement various liquidity-related corporate governance measures and imposes certain requirements, duties and qualifications for Ally’s risk committee and chief risk officer. These enhanced prudential standards could adversely affect our business prospects, results of operations and financial condition. Additionally, the FRB has stated that it will issue, at a later date, final rules to implement certain other enhanced prudential standards mandated by Section 165 of the Dodd-Frank Act, including single counterparty credit limits and an early remediation framework. Once implemented and adopted, these rules could adversely affect our business prospects, results of operations and financial condition.
Our ability to rely on deposits as a part of our funding strategy may be limited.
Ally Bank continues to be a key part of our funding strategy, and we place great reliance on deposits as a source of funding through Ally Bank. Ally Bank does not have a retail branch network. It obtains its deposits through direct banking as well as brokered deposits. Brokered deposits may be more price sensitive than other types of deposits and may become less available if alternative investments offer higher interest rates. Brokered deposits totaled $10.7 billion at December 31, 2015, which represented 16% of Ally Bank total deposits. Our ability to maintain our current level of deposits or grow our deposit base could be affected by regulatory restrictions, including the possible imposition of prior approval requirements, restrictions on deposit growth, or restrictions on our rates offered. In addition, perceptions of our financial strength, rates offered by third parties, and other competitive factors beyond our control, including returns on alternative investments, will also impact the size of our deposit base. In addition, our regulators may impose restrictions on our ability to fund certain types of assets at Ally Bank, potentially raising the cost of funding those activities without the use of Ally Bank deposits. Qualitative and quantitative liquidity requirements imposed by the U.S. banking regulators may also impact our funding strategy.
Financial services legislative and regulatory reforms may have a significant impact on our business and results of operations.
The Dodd-Frank Act, which became law in July 2010, has and will continue to substantially change the legal and regulatory framework under which we operate. Certain portions of the Dodd-Frank Act were effective immediately, and others have become effective since enactment, while others are subject to further rulemaking, transition periods, and the discretion of various regulatory bodies. The Dodd-Frank Act has had, and will continue to have as its provisions are further implemented, material implications for Ally and the entire financial services industry. Among other things, the Dodd-Frank Act and its implementing regulations:
subject Ally to enhanced prudential standards, oversight, and scrutiny as a result of being a BHC with $50 billion or more in total consolidated assets (a large BHC);
have increased the levels of capital and liquidity with which Ally must operate and affect how it plans capital and liquidity levels;
subject Ally to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance fees paid by Ally Bank to the FDIC;
require Ally to provide to the FRB and FDIC an annual plan for its rapid and orderly resolution in the event of material financial distress;
subject Ally to regulation and examination by the CFPB, which has very broad rule-making, examination, and enforcement authorities; and
subject derivatives that Ally enters into for hedging, risk management and other purposes to a comprehensive new regulatory regime which, when fully implemented, will require central clearing and execution on designated markets or execution facilities for certain standardized derivatives and impose margin, documentation, trade reporting and other new requirements.
These and other requirements may, either currently or in the future, impact Ally’s business and risk management strategies and/or restrict the revenue that Ally generates from certain businesses.
While U.S. regulators have finalized many regulations to implement various provisions of the Dodd-Frank Act, they plan to propose or finalize additional regulations for implementation in the future. In light of the further rulemaking required to fully implement the Dodd-Frank Act, as well as the discretion afforded to federal regulators, the full impact of this legislation on Ally, its business strategies, and financial performance cannot be known at this time and may not be known for a number of years. In addition, regulations may impact us differently in comparison to other more established financial institutions. However, these impacts are expected to be substantial and some of them are likely to adversely affect Ally and its financial performance. The extent to which Ally can adjust its strategies to offset such adverse impacts also is not knowable at this time.

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Our business may be adversely affected by the revised capital requirements under the U.S. Basel III final rules.
In December 2010, the Basel Committee reached an agreement on the Basel III capital framework, which was designed to increase the quality and quantity of regulatory capital by introducing new risk-based and leverage capital standards. In July 2013, the U.S. banking regulators finalized rules implementing the U.S. Basel III capital framework and related Dodd-Frank Act provisions. The U.S. Basel III final rules represent substantial revisions to the previously effective regulatory capital standards for U.S. banking organizations. Ally became subject to the U.S. Basel III final rules beginning on January 1, 2015. Certain aspects of the U.S. Basel III final rules, including new capital buffers and regulatory capital deductions, will be phased in over several years. The U.S. Basel III final rules subject Ally to higher minimum risk-based capital ratios and a capital conservation buffer above these minimum ratios. Failure to maintain the full amount of the buffer would result in restrictions on Ally’s ability to make capital distributions, including dividend payments and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers.
The U.S. Basel III final rules will, over time, require more stringent deductions for, among other assets, certain DTAs from Ally’s Common Equity Tier 1 capital and limit Ally’s ability to meet its regulatory capital requirements through the use of trust preferred securities, or other “hybrid” securities (although certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act are grandfathered as Tier 1 capital).
If we or Ally Bank fail to satisfy regulatory capital requirements, we or Ally Bank may be subject to serious regulatory sanctions ranging in severity from being precluded from making acquisitions or engaging in new activities to becoming subject to informal or formal supervisory actions by the FRB and/or FDIC and, potentially, FDIC receivership of Ally Bank. If any of these were to occur, such actions could prevent us from successfully executing our business plan and could have a material adverse effect on our business, results of operations, and financial position. To maintain its status as a FHC, Ally and its bank subsidiary, Ally Bank, must remain “well-capitalized” and “well-managed,” as defined under applicable law.
For the 2016 capital planning and stress testing cycle, the Dodd-Frank company-run stress tests and FRB supervisory stress tests to which Ally is subject, the annual capital plan that Ally must submit and the FRB’s annual post-stress capital analysis under the CCAR must incorporate the more stringent capital requirements in the U.S. Basel III final rules as they are phased in over the nine-quarter forward-looking planning horizon. Under the FRB’s capital plan rule, an objection to a large BHC's capital plan would prohibit it from paying dividends or making certain other capital distributions.
Our business, financial condition, and results of operations could be adversely affected by governmental fiscal and monetary policies.
Our business and earnings are significantly affected by the fiscal and monetary policies of the U.S. government and its agencies. We are particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. The FRB’s policies influence the new and used vehicle financing market, which significantly affects the earnings of our businesses. The FRB’s policies also influence the yield on our interest earning assets and the cost of our interest-bearing liabilities. Changes in those policies are beyond our control and difficult to predict and could adversely affect our revenues, profitability, and financial condition.
Our business, financial position, and results of operations could be adversely affected by the impact of affiliate transaction restrictions imposed in connection with certain financing transactions.
Certain transactions between Ally Bank and any of its nonbank “affiliates,” including but not limited to Ally Financial Inc., are subject to restrictions under Sections 23A and 23B of the Federal Reserve Act and regulations adopted thereunder. Pursuant to these restrictions, unless otherwise exempted, “covered transactions,” including Ally Bank’s extensions of credit to and asset purchases from its nonbank affiliates, generally (1) are limited to 10% of Ally Bank’s capital stock and surplus with respect to transactions with any individual affiliate, with an aggregate limit of 20% of Ally Bank’s capital stock and surplus for all affiliates and all such transactions; (2) in the case of certain credit transactions, are subject to stringent collateralization requirements; (3) in the case of asset purchases by Ally Bank, may not involve the purchase of any asset deemed to be a “low quality asset” under federal banking guidelines; and (4) must be conducted in accordance with safe-and-sound banking practices (collectively, the Affiliate Transaction Restrictions). Furthermore, the Affiliate Transactions Restrictions contain an “attribution rule” that provides that a transaction between Ally Bank and a third party must be treated as a transaction between Ally Bank and a nonbank affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, a nonbank affiliate of Ally Bank.
Under the Dodd-Frank Act, among other changes to Sections 23A and 23B of the Federal Reserve Act, credit exposures resulting from derivatives transactions, securities lending and borrowing transactions, and acceptance of affiliate-issued debt obligations (other than securities) as collateral for a loan or extension of credit will be treated as “covered transactions.” The Dodd-Frank Act also expands the scope of covered transactions required to be collateralized and places limits on acceptable collateral.
The ability to grow Ally Bank’s business in the future could be affected by the Affiliate Transaction Restrictions.

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Ally Financial Inc. may be limited in its ability to receive distributions from its subsidiaries.
Regulatory and other legal restrictions may limit the ability of Ally Financial Inc.’s subsidiaries to transfer funds freely to Ally Financial Inc. In particular, many of Ally Financial Inc.’s subsidiaries are subject to laws, regulations, and rules that authorize regulatory bodies to block or reduce the flow of funds to it or that prohibit such transfers entirely in certain circumstances. These laws, regulations, and rules may hinder Ally Financial Inc.’s ability to access funds that it may need to make payments on its obligations in the future. Furthermore, as a BHC, Ally Financial Inc. may become subject to a prohibition or to limitations on its ability to pay dividends. The bank regulators have the authority and, under certain circumstances, the duty to prohibit or to limit payment of dividends by the banking organizations they supervise, including Ally Financial Inc. and its subsidiaries.
Risks Related to Our Business
We are exposed to consumer credit risk, which could adversely affect our profitability and financial condition.
We are subject to credit risk resulting from defaults in payment or performance by customers for our contracts and loans, as well as contracts and loans that are securitized and in which we retain a residual interest. Furthermore, a weak economic environment and high unemployment rates could exert pressure on our consumer automotive finance customers resulting in higher delinquencies, repossessions, and losses, and could also increase delinquencies and losses related to mortgage loans that we hold for investment. There can be no assurances that our monitoring of our credit risk as it affects the value of these assets and our efforts to mitigate credit risk through our risk-based pricing, appropriate underwriting policies, and loss-mitigation strategies are, or will be, sufficient to prevent an adverse impact in our profitability and financial condition. We have continued to grow our nonprime automotive financing. We define nonprime consumer automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of less than 620. In addition, we have increased our used vehicle financing. Customers that finance used vehicles tend to have lower FICO® Scores as compared to new vehicle customers, and defaults resulting from vehicle breakdowns are more likely to occur with used vehicles as compared to new vehicles that are financed. The carrying value of our Automotive Finance operations nonprime consumer automotive loans before allowance for loan losses was $9.0 billion, or approximately 14.0% of our total consumer automotive loans, at December 31, 2015, as compared to $6.7 billion, or approximately 11.9% of our total consumer automotive loans, at December 31, 2014. Such amounts are expected to continue to increase in 2016. At December 31, 2015, $161 million of nonprime consumer automotive loans were considered nonperforming as they had been placed on nonaccrual status in accordance with our loan policies. Refer to the Nonaccrual Loans section of Note 1 to the Consolidated Financial Statements for additional information. If we continue to grow our nonprime automotive financing loans over time, our credit risk will increase. As part of the underwriting process, we rely heavily upon information supplied by third parties. If any of this information is intentionally or negligently misrepresented and the misrepresentation is not detected before completing the transaction, the credit risk associated with the transaction may be increased.
Our inability to maintain relationships with dealers could have an adverse effect on our business, results of operations, and financial condition.
Our business depends on the continuation of our relationships with our customers, particularly the automotive dealers with whom we do business. While the number of dealers that we have retail relationships with increased during 2015, the number of dealers that we have wholesale relationships with decreased approximately 3% as compared to December 31, 2014. Further, our share of GM and Chrysler commercial wholesale financing could decrease in the future. If we are not able to maintain existing relationships with key automotive dealers or if we are not able to develop new relationships for any reason, including if we are not able to provide services on a timely basis or offer products that meet the needs of the dealers or compete successfully with products of our competitors, our wholesale funding volumes, and the number of dealers with which we have retail funding relationships could decline in the future. If this occurs, our business, results of operations, and financial condition could be adversely affected.
GM and Chrysler dealers and their retail customers comprise a significant portion of our customer base.
While we are continuing to diversify our business, GM and Chrysler dealers and their retail customers continue to compose a significant portion of our customer base. In 2015, 56% of our new vehicle dealer inventory financing and 46% of our vehicle consumer automotive financing volume were for GM franchised dealers and customers, and 31% of our new vehicle dealer inventory financing and 23% of our vehicle consumer automotive financing volume were for Chrysler dealers and customers. It is possible that GM or Chrysler could take actions that negatively impact the amount of business we do with GM and Chrysler dealers and their retail customers. Further, a significant adverse change in GM’s or Chrysler’s business, including, for example, the production or sale of GM or Chrysler vehicles, the quality or resale value of GM or Chrysler vehicles, GM’s or Chrysler’s relationships with its key suppliers, or vehicle recalls, could negatively impact our GM and Chrysler dealer and retail customer bases. Any future reductions in GM and Chrysler business that we are not able to offset could adversely affect our profitability and financial condition.
Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition, and results of operations.
We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expenses, which represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans, all as described in Note 1 to the Consolidated Financial Statements. The allowance is established to reserve for estimated loan losses and risks inherent in the loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity

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and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, accounting rules and related guidance, new information regarding existing loans, identification of additional problem loans, portfolio size, and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, our continued expansion of our originations across a broad risk spectrum will likely increase our allowance for loan losses in the future.
Bank regulatory agencies periodically review our allowance for loan losses, as well as our methodology for calculating our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different than those of management. An increase in the allowance for loan losses results in a decrease in net income and capital and may have a material adverse effect on our capital, financial condition, and results of operations.
Our business and results of operations are dependent upon overall U.S. automotive industry sales volume.
Our business and results of operation can be impacted by sales volume for new and used vehicles. Vehicle sales are impacted by several economic and market conditions, including employment levels, credit availability, fuel costs, and overall economic conditions. For example, new vehicle sales decreased dramatically during the economic crisis that began in 2008, and did not rebound significantly until 2012-13. Any future declines in new and used vehicle sales could have a material adverse effect on our business and profitability.
A failure of or interruption in, as well as, security risks of the communications and information systems on which we rely to conduct our business could adversely affect our revenues and profitability.
We rely heavily upon communications and information systems to conduct our business. Any failure or interruption of our information systems or the third-party information systems on which we rely as a result of inadequate or failed processes or systems, human errors, employee misconduct, catastrophic events, external or internal security breaches, acts of vandalism, computer viruses, malware, misplaced or lost data, or other external events could cause underwriting or other delays and could result in fewer applications being received, slower processing of applications, and reduced efficiency in servicing.
In addition, our communication and information systems may present security risks, and could be susceptible to hacking or identity theft. The access by unauthorized persons to personal, confidential or proprietary information in our possession or our proprietary information, software, methodologies, and business secrets could result in a significant legal and financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products, and services. For example, similar to other large financial institutions, in the past we have been subject to cyber-attacks that briefly resulted in slow performance and unavailability of our website for some customers. Information security risks for large financial institutions like us have increased recently in part because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others. We may not be able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. The occurrence of any of these events could have a material adverse effect on our business.
Our profitability and financial condition could be materially and adversely affected if used vehicle prices decrease in the future, which could result in lower residual values of off-lease vehicles and higher losses on the sale of repossessed vehicles for retail financing.
General economic conditions, the supply of off-lease and other vehicles to be sold, vehicle market prices, perceived vehicle quality, overall price, the vehicle disposition channel, and volatility of gasoline or diesel fuel, among other factors, heavily influence used vehicle prices. Consumer confidence levels and the strength of automotive manufacturers and dealers can also influence the used vehicle market. For example, during 2008, sharp declines in demand and used vehicle sale prices adversely affected our remarketing proceeds and financial results.
Our expectation of the residual value of a vehicle subject to an automotive lease contract is a critical element used to determine the amount of the lease payments under the contract at the time the customer enters into it. As a result, to the extent the actual residual value of the vehicle, as reflected in the sales proceeds received upon remarketing at lease termination, is less than the expected residual value for the vehicle at lease inception, we incur additional depreciation expense and lower actual profit on the lease transaction than our priced expectation. Our expectation of levels of used vehicle values is combined with our estimate of loss frequency to arrive at our projected net average annualized loss rate (NAALR), which is a factor in determining our pricing of new originations. To the extent used vehicle prices are significantly lower than our expectations, our actual profit on new business could be significantly less than our expectations. Our ability to efficiently process and effectively market off-lease vehicles, as well as repossessed vehicles that serve as collateral on the underlying loans, affects the disposal costs and proceeds realized from the vehicle sales.
Our business requires substantial capital and liquidity, and disruption in our funding sources and access to the capital markets would have a material adverse effect on our liquidity, capital positions, and financial condition.
Our liquidity and the long-term viability of Ally depend on many factors, including our ability to successfully raise capital and secure appropriate bank financing.

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We have significant maturities of unsecured debt each year. While we have reduced our reliance on unsecured funding in recent years, it continues to remain an important component of our capital structure and financing plans. At December 31, 2015, approximately $1.9 billion in principal amount of total outstanding consolidated unsecured debt is scheduled to mature in 2016, and approximately $4.4 billion and $3.7 billion in principal amount of consolidated unsecured debt is scheduled to mature in 2017 and 2018, respectively. We also obtain short-term funding from the sale of floating rate demand notes, all of which the holders may elect to have redeemed at any time without restriction. At December 31, 2015, a total of $3.4 billion in principal amount of Demand Notes were outstanding. We also rely substantially on secured funding. At December 31, 2015, approximately $9.4 billion of outstanding consolidated secured debt is scheduled to mature in 2016, approximately $15.2 billion is scheduled to mature in 2017, and approximately $9.1 billion is scheduled to mature in 2018. Furthermore, at December 31, 2015, approximately $16.3 billion in certificates of deposit at Ally Bank are scheduled to mature in 2016, which is not included in the 2016 unsecured maturities provided above. Additional financing will be required to fund a material portion of the debt maturities over these periods. The capital markets can be volatile, and Ally’s access to the debt markets may be significantly reduced during periods of market stress.
We continue to rely on our ability to borrow from other financial institutions, and many of our primary bank facilities are up for renewal on a yearly basis. Any weakness in market conditions and a tightening of credit availability could have a negative effect on our ability to refinance these facilities and increase the costs of bank funding. Ally and Ally Bank also continue to access the securitization markets. While markets have continued to stabilize following the 2008 liquidity crisis, there can be no assurances these sources of liquidity will remain available to us.
Our indebtedness and other obligations are significant and could materially and adversely affect our business.
We have a significant amount of indebtedness. At December 31, 2015, we had approximately $75.6 billion in principal amount of indebtedness outstanding (including $50.0 billion in secured indebtedness). Interest expense on our indebtedness constituted approximately 20% of our total financing revenue and other interest income for the year ended December 31, 2015.
We have the ability to create additional unsecured indebtedness. If our debt service obligations increase, whether due to the increased cost of existing indebtedness or the incurrence of additional indebtedness, we may be required to dedicate a significant portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, which would reduce the funds available for other purposes. Our indebtedness also could limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions.
The market for the automotive financing industry is extremely competitive. If we are unable to compete successfully, if current competitive conditions tighten, or if there is increased competition in the automotive financing and/or insurance markets or generally in the markets for securitizations or asset sales, our business could be negatively affected.
The markets for automotive financing, insurance, and banking are highly competitive. We directly compete in the automotive financing market with banks, credit unions, captive automotive finance, and independent finance companies. Conditions with respect to wholesale financing continue to be competitive. Our insurance business also faces significant competition from automotive manufacturers, captive automotive finance companies, insurance carriers, third-party administrators, brokers, and other insurance-related companies. Some of these competitors have certain exclusivity privileges with automotive manufacturing companies whose customers and dealers compose a significant portion of our customer base. In addition, Ally Bank faces significant competition from commercial banks, savings institutions, and other financial institutions. Many of our competitors have substantial positions nationally or in the markets in which they operate. Some of our competitors have lower cost structures, substantially lower costs of capital, and are much less reliant on securitization activities, unsecured debt, and other public markets. Our competitors may be subject to different, and in some cases, less stringent, legislative and regulatory regimes than we are, thus putting us at a competitive disadvantage to these competitors. We face significant competition in most areas including product offerings, rates, pricing and fees, and customer service. If we are unable to compete effectively in the markets in which we operate, our profitability and financial condition would be negatively affected.
The markets for asset securitizations and whole-loan sales are competitive, and other issuers and originators could increase the amount of their issuances and sales. In addition, lenders and other investors within those markets often establish limits on their credit exposure to particular issuers, originators, and asset classes, or they may require higher returns to increase the amount of their exposure. Increased issuance by other participants in the market or decisions by investors to limit their credit exposure to (or to require a higher yield for) us or to automotive securitizations or whole-loans could negatively affect our ability and that of our subsidiaries to price our securitizations and whole-loan sales at attractive rates. The result would be lower proceeds from these activities and lower profits for our subsidiaries and us.

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Ally Financial Inc. • Form 10-K

General business and economic conditions may significantly and adversely affect our revenues, profitability, and financial condition.
Our business and earnings are sensitive to general business and economic conditions in the United States. A downturn in economic conditions resulting in increased short- and long-term interest rates, inflation, fluctuations in the debt capital markets, unemployment rates, housing prices, consumer and commercial bankruptcy filings, or a decline in the strength of national and local economies and other factors that negatively affect household incomes could decrease demand for our financing products and increase financing delinquency and losses on our customer and dealer financing operations. Further, a significant and sustained increase in fuel prices could lead to diminished new and used vehicle purchases and negatively affect our automotive finance business. Finally, concerns about the pace of economic growth in the U.S. and elsewhere and uncertainty regarding U.S. fiscal and monetary policies and the federal deficit, have resulted in significant volatility in the financial markets, and could impact our ability to obtain, and the pricing with respect to, funding that is collateralized by affected instruments and obtained through the secured and unsecured markets. If these conditions persist or worsen, our business, results of operation, and financial position could be materially adversely affected.
If the rate of inflation were to increase, or if the debt capital markets or the economy of the United States were to weaken, or if home prices or new and used vehicle purchases experience declines, we could be significantly and adversely affected, and it could become more expensive for us to conduct our business. For example, business and economic conditions that negatively affect household incomes, housing prices, and consumer behavior related to our businesses could decrease (1) the demand for our new and used vehicle financing and (2) the value of the collateral underlying our portfolio of held-for-investment assets and new and used vehicle loans and retained interests that continue to be held by us, thus further increasing the number of consumers who become delinquent or default on their loans. In addition, the rate of delinquencies, foreclosures, and losses on our loans could be higher during more severe economic slowdowns.
Any sustained period of increased delinquencies, foreclosures, or losses could further harm our ability to sell our new and used vehicle loans, the prices we receive for our new and used vehicle loans, or the value of our portfolio of mortgage and new and used vehicle loans held-for-investment or retained interests from our securitizations, which could harm our revenues, profitability, and financial condition. Continued adverse business and economic conditions could affect demand for new and used vehicles, housing, the cost of construction, and other related factors that could harm the revenues and profitability of our business.
Acts or threats of terrorism and political or military actions taken by the United States or other governments could adversely affect general economic or industry conditions.
Geopolitical conditions may affect our earnings. Acts or threats of terrorism and political or military actions taken by the United States or other governments in response to terrorism, or similar activity, could adversely affect general economic or industry conditions.
Our borrowing costs and access to the unsecured debt capital markets depend significantly on our credit ratings.
The cost and availability of unsecured financing are materially affected by our short- and long-term credit ratings. Each of Standard & Poor’s Rating Services; Moody’s Investors Service, Inc.; Fitch, Inc.; and Dominion Bond Rating Service rates our debt. Our current ratings as assigned by each of the respective rating agencies are below investment grade, which negatively impacts our access to liquidity and increases our borrowing costs in the unsecured market. Ratings reflect the rating agencies’ opinions of our financial strength, operating performance, strategic position, and ability to meet our obligations. Future downgrades of our credit ratings would increase borrowing costs and further constrain our access to the unsecured debt markets and, as a result, would negatively affect our business. In addition, downgrades of our credit ratings could increase the possibility of additional terms and conditions being added to any new or replacement financing arrangements as well as impact elements of certain existing secured borrowing arrangements.
Agency ratings are not a recommendation to buy, sell, or hold any security and may be revised or withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.
Significant indemnification payments or contract, lease, or loan repurchase activity of retail contracts or leases could harm our profitability and financial condition.
We have repurchase obligations in our capacity as servicer in securitizations and whole-loan sales. If a servicer breaches a representation, warranty, or servicing covenant with respect to an automotive receivable, the servicer may be required by the servicing provisions to repurchase that asset from the purchaser or otherwise compensate one or more classes of investors for losses caused by the breach. If the frequency at which repurchases of assets or other payments occurs increases substantially from its present rate, the result could be a material adverse effect on our financial condition, liquidity, and results of operations.
Our earnings may decrease because of decreases or increases in interest rates.
We are subject to risks from decreasing interest rates. A low interest rate environment or a flat or inverted yield curve may adversely affect certain of our businesses by compressing net interest margins or reducing the amounts we earn on our investment securities portfolio, thereby reducing our net interest income and other revenues.
Rising interest rates could also have an adverse impact on our business as well. For example, rising interest rates:
will increase our cost of funds;

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may reduce our consumer automotive financing volume by influencing customers to pay cash for, as opposed to financing, vehicle purchases or not to buy new vehicles;
may lead to increased consumer delinquencies;
may negatively impact our ability to remarket off-lease vehicles; and
will generally reduce the value of automotive financing and mortgage loans and contracts and retained interests and fixed income securities held in our investment portfolio.
Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates and could affect our profitability and financial condition as could our failure to comply with hedge accounting principles and interpretations.
We employ various economic hedging strategies to mitigate the interest rate and prepayment risk inherent in many of our assets and liabilities. Our hedging strategies rely on assumptions and projections regarding our assets, liabilities, and general market factors. If these assumptions and projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates, we may experience volatility in our earnings that could adversely affect our profitability and financial condition. In addition, we may not be able to find market participants that are willing to act as our hedging counterparties, which could have an adverse effect on the success of our hedging strategies.
In addition, hedge accounting in accordance with accounting principles generally accepted in the United States of America (GAAP) requires the application of significant subjective judgments to a body of accounting concepts that is complex.
We use estimates and assumptions in determining the fair value of certain of our assets. If our estimates or assumptions prove to be incorrect, our cash flow, profitability, financial condition, and business prospects could be materially and adversely affected.
We use estimates and various assumptions in determining the fair value of many of our assets, including, among others, retained interests from securitizations of loans and contracts, loans held-for-sale, and other investments, which do not have an established market value or are not publicly traded. We also use estimates and assumptions in determining the residual values of leased vehicles. In addition, we use estimates and assumptions in determining our reserves for legal matters, insurance losses, and loss adjustment expenses which represent the accumulation of estimates for both reported losses and those incurred, but not reported, including claims adjustment expenses relating to direct insurance and assumed reinsurance agreements. For further discussion related to estimates and assumptions, see MD&A — Critical Accounting Estimates. Our assumptions and estimates may be inaccurate for many reasons, including that they often involve matters that are inherently difficult to predict and that are beyond our control (for example, macro-economic conditions and their impact on our dealers), and that they often involve complex interactions between a number of dependent and independent variables, factors, and other assumptions. As a result, our actual experience may differ materially from these estimates and assumptions. A material difference between our estimates and assumptions and our actual experience may adversely affect our cash flow, profitability, financial condition, and business prospects.
Fluctuations in valuation of investment securities or significant fluctuations in investment market prices could negatively affect revenues.
Investment market prices in general are subject to fluctuation. Consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value and could negatively affect our revenues. Additionally, negative fluctuations in the value of available-for-sale investment securities could result in unrealized losses recorded in equity. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments, national and international events, and general market conditions.
Changes in accounting standards issued by the Financial Accounting Standards Board (FASB) could adversely affect our reported revenues, profitability, and financial condition.
Our financial statements are subject to the application of GAAP, which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC, banking regulators, and our independent registered public accounting firm. Those changes could adversely affect our reported revenues, profitability, or financial condition.
Recently, the FASB has proposed new financial accounting standards, and has many active projects underway, that could materially affect our reported revenues, profitability, or financial condition. These proposed standards or projects include the potential for significant changes in the accounting for financial instruments (including loans, and allowance for loan losses) and the accounting for leases, among others. It is possible that any changes, if enacted, could adversely affect our reported revenues, profitability, or financial condition.
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to different counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty.

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Adverse economic conditions or changes in laws in states in which we have customer concentrations may negatively affect our operating results and financial condition.
We are exposed to consumer loan portfolio concentration in certain states, including California, Texas, and Florida. Factors adversely affecting the economies and applicable laws in these and other states could have an adverse effect on our business, results of operations, and financial position.
Risks Related to Ownership of Our Common Stock
Our ability to pay dividends on our common stock or repurchase shares may be limited.
Any future payment of dividends on our common stock or share repurchases will be determined by our Board of Directors in its sole discretion and will depend on business conditions, our financial condition, earnings and liquidity, and other factors. Any plans to commence payment of dividends on our common stock or share repurchases in the future would be subject to the FRB’s review and non-objection. Refer to the section above titled Business — Certain Regulatory Matters — Bank Holding Company and Financial Holding Company Status for additional information. There is no assurance that, upon the FRB’s review of our future capital plans, we would be permitted to make any planned payments of dividends on our common stock or share repurchases.
So long as any share of our Series A preferred stock remains outstanding, no dividend or distribution may be declared or paid on our common stock unless all accrued and unpaid dividends have been paid on the Series A preferred stock. Further, any indentures and other financing agreements that we enter into in the future may limit our ability to pay cash dividends on our capital stock, including our common stock. In the event that any of our indentures or other financing agreements in the future restrict our ability to pay dividends in cash on our common stock, we may be unable to pay dividends in cash on our common stock unless we can refinance the amounts outstanding under those agreements.
In addition, under Delaware law, our Board of Directors may declare dividends on our capital stock only to the extent of our statutory “surplus” (which is defined as the amount equal to total assets minus total liabilities, in each case at fair market value, minus statutory capital), or if there is no such surplus, out of our net profits for the then current and/or immediately preceding fiscal year. Further, even if we are permitted under our contractual obligations and Delaware law to pay cash dividends on our common stock, we may not have sufficient cash to pay dividends in cash on our common stock.
Anti-takeover provisions contained in our organizational documents and Delaware law could delay or prevent a takeover attempt or change in control of our company, which could adversely affect the price of our common stock.
Our amended and restated certificate of incorporation, our amended and restated bylaws, and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our Board of Directors. Our organizational documents include provisions:
Limiting the liability of our directors, and providing indemnification to our directors and officers; and
Limiting the ability of our stockholders to call and bring business before special meetings.
These provisions, alone or together, could delay hostile takeovers and changes in control of the company or changes in management.
In addition, we are subject to Section 203 of the General Corporation Law of the State of Delaware, which generally prohibits a corporation from engaging in various business combination transactions with any “interested stockholder” (generally defined as a stockholder who owns 15% or more of a corporation’s voting stock) for a period of three years following the time that such stockholder became an interested stockholder, except under certain circumstances including receipt of prior board approval.
Any provision of our Certificate of Incorporation or our Bylaws or Delaware law that has the effect of delaying or deterring a hostile takeover or change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

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An “ownership change” could limit our ability to utilize tax losses and credits carryforwards to offset future taxable income.
As of December 31, 2015, we had deferred tax assets of approximately $950 million related to a U.S. federal net operating loss carryforward, $1.7 billion related to foreign tax credits, and $193 million related to other tax credits (collectively, the tax assets). Our ability to use such tax assets to offset future taxable income and reduce future tax liabilities may be significantly limited if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an ownership change will occur when the percentage of Ally’s ownership (by value) of one or more “5-percent shareholders” (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). A corporation that experiences an ownership change generally will be subject to an annual limitation on the utilization of its pre-ownership change tax assets equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. The limitation on our ability to utilize tax assets arising from an ownership change under Section 382 would depend, in large part, on the value of our equity at the time of any ownership change.
If we were to experience an “ownership change”, it is possible that our ability to fully utilize our tax assets may be delayed or deferred, and that a significant portion of our tax assets could expire before we would be able to use them to offset future taxable income or reduce future tax liabilities.
On January 9, 2014, our Board adopted our Tax Asset Protection Plan (the Plan) to help protect these tax assets. The Plan is designed to reduce the likelihood of an “ownership change” by (i) discouraging any person or group from becoming a 4.99 percent shareholder; and (ii) discouraging any existing 4.99 percent shareholder from acquiring additional shares of Ally common stock, subject to certain exceptions. Unless extended, the Plan expires on January 8, 2017.
In addition, on January 9, 2014, our Board approved a protective amendment to our Amended and Restated Certificate of Incorporation (Protective Amendment), which is designed to prevent certain transfers of Ally common stock that could result in an “ownership change.” The Protective Amendment generally restricts any transfer of Ally common stock that would (i) increase the ownership by any person to 4.99 percent or more of Ally stock then outstanding; or (ii) increase the percentage of Ally stock owned by a Five Percent Stockholder (as defined in the Plan). Unless extended, the Protective Amendment expires on January 8, 2017.
Despite the intentions of the Plan and the Protective Amendment to deter and prevent an “ownership change,” such an event may still occur. In addition, the Plan and the Protective Amendment may make it more difficult and more expensive to acquire us, and may discourage open market purchases of Ally common stock or a non-negotiated tender or exchange offer for Ally common stock. Accordingly, the Plan and the Protective Amendment may limit a shareholder’s ability to realize a premium over the market price of Ally common stock in connection with any stock transaction.
Item 1B.    Unresolved Staff Comments
None.
Item 2.    Properties
Our principal corporate offices are located in Detroit, Michigan; Charlotte, North Carolina; and New York, New York. In Detroit, we lease approximately 264,000 square feet from GM pursuant to a lease agreement expiring in November 2016. In March 2015, we entered into a new agreement to lease approximately 321,000 square feet of office space in Detroit under a lease that expires in December 2028 in which we plan to consolidate our southeastern Michigan locations as our existing Detroit and Southfield, Michigan leases expire. In Charlotte, we lease approximately 187,000 square feet of office space under a lease expiring in June 2021. In New York, we lease approximately 55,000 square feet of office space under a lease that expires in June 2023.
The primary offices for our Dealer Financial Services operations are located in Detroit and Southfield. The primary office for our Automotive Finance operations is located in Detroit, and is included in the totals referenced above. The primary office for our Insurance operations is located in Southfield, where we lease approximately 71,000 square feet of office space under leases expiring in April 2016.
The primary offices for our Mortgage operations are located in Fort Washington, Pennsylvania, and Charlotte. In Fort Washington, we lease approximately 87,000 square feet of office space pursuant to a lease that expires in April 2021. The office space in Charlotte is included in the totals referenced above.
In addition to the properties described above, we lease additional space to conduct our operations. We believe our facilities are adequate for us to conduct our present business activities.
Item 3.    Legal Proceedings
Refer to Note 30 to the Consolidated Financial Statements for a discussion related to our legal proceedings.
Item 4.    Mine Safety Disclosures
Not applicable.

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Part II
Ally Financial Inc. • Form 10-K




Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has been listed on the New York Stock Exchange (NYSE) under the symbol “ALLY” since April 10, 2014. Prior to that time, there was no public market for our stock. The following table sets forth, for the periods indicated, the reported high and low sale prices for our common stock on the NYSE.
($ per share)
 
High
 
Low
Year ended December 31, 2015
 
 
 
 
First Quarter
 
$
24.00

 
$
18.63

Second Quarter
 
$
23.83

 
$
19.90

Third Quarter
 
$
23.24

 
$
19.77

Fourth Quarter
 
$
21.21

 
$
18.19

Year ended December 31, 2014
 
 
 
 
Second Quarter (April 10, 2014, through June 30, 2014)
 
$
25.30

 
$
23.24

Third Quarter
 
$
25.01

 
$
22.42

Fourth Quarter
 
$
24.14

 
$
19.42

Holders
As of February 23, 2016, we had approximately 57 holders of record of our common stock.
Dividends
We have never declared or paid cash dividends on our common stock. Our payment of any dividends on our common stock in the future will be determined by our Board of Directors in its sole discretion and will depend on business conditions, our financial condition, earnings and liquidity, and other factors. Further, so long as any share of our Series A preferred stock remains outstanding, no dividend or distribution may be declared or paid on our common stock unless all accrued and unpaid dividends have been paid on the Series A preferred stock. Any plans to commence payment of dividends on our common stock in the future would be subject to the FRB’s review and absence of objection. Refer to the section above titled Certain Regulatory Matters — Bank Holding Company and Financial Holding Company Status in Item 1 for additional information.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information about the securities authorized for issuance under our equity compensation plans as of December 31, 2015.
Plan Category
(1)
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)
(2)
Weighted-average exercise price of outstanding options, warrants and rights
(3)
Number of securities remaining available for further issuance under equity compensation plans (excluding securities reflected in column (1)) (b)
Equity compensation plans approved by security holders
6,609,067
29,229,001
Total
6,609,067
29,229,001
(a)
Includes deferred stock units and restricted stock units outstanding under the 2015 Incentive Compensation Plan and deferred stock units outstanding under the 2015 Non-Employee Directors Equity Compensation Plan.
(b)
Includes 25,148,267 securities available for issuance under the plans identified in (a) above and 4,080,734 securities available for issuance under Ally's Employee Stock Purchase Plan, of which 6,609,067 securities are subject to purchase during the current purchase period (determined as of December 31, 2015).
Stock Performance Graph
The following graph compares the cumulative total return to shareholders on our common stock relative to the cumulative total returns of the S&P 500 index and the S&P Financials index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on April 10, 2014 (the date our common stock first commenced trading on the NYSE), and its relative performance is tracked through December 31, 2015. The returns shown are based on historical results and are not intended to suggest future performance.

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This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Ally under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Recent Sales of Unregistered Securities
Ally did not have any unregistered sales of its equity securities in fiscal year 2015, except as previously disclosed on Form 8-K.
Use of Proceeds from Registered Securities
April 2014 Initial Public Offering
On April 9, 2014, our Registration Statement on Form S-1, as amended (Reg. No. 333-173198) was declared effective in connection with the initial public offering of our common stock, pursuant to which we registered an aggregate of 102,245,670 shares of our common stock, all of which were sold by the selling stockholder, including the underwriters’ over-allotment, at a price to the public of $25.00 per share. The offering closed on April 15, 2014. We did not receive any proceeds from the sale of shares by the selling stockholder. The managing underwriters of the offering were Citigroup Global Markets Inc., Goldman, Sachs & Co., Morgan Stanley & Co. LLC and Barclays Capital Inc.
We paid $30.3 million of the offering expenses of the selling stockholders in the offering (including the underwriting discounts and commissions). Other than these payments, we made no payments directly or indirectly to (i) any of our officers or directors or their associates; (ii) any persons owning 10% or more of any class of our equity securities; or (iii) any of our affiliates.
December 2014 Follow-On Public Offering
On December 18, 2014, our Registration Statements on Form S-3 (Reg. No. 333-201057) became automatically effective upon filing in connection with the follow-on public offering of our common stock, pursuant to which we registered an aggregate of 54,926,296 shares of our common stock, all of which were sold by the selling stockholder, at a price to the public of $23.25 per share. The offering closed on December 24, 2014. We did not receive any proceeds from the sale of shares by the selling stockholder. The managing underwriters of the offering were Goldman, Sachs & Co. and Morgan Stanley & Co. LLC.
We paid $18.3 million of the offering expenses of the selling stockholder in the offering (including the underwriting discounts and commissions). Other than these payments, we made no payments directly or indirectly to (i) any of our officers or directors or their associates; (ii) any persons owning 10% or more of any class of our equity securities; or (iii) any of our affiliates.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
No shares of common stock were purchased for cash in each of the three months ended December 31, 2015.

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Ally Financial Inc. • Form 10-K

Repurchases Under Share-Based Incentive Plans
The following table presents repurchases of our common stock, by month, for the three months ended December 31, 2015. All repurchases reflected below include only shares of common stock that were withheld to cover income taxes owed by participants in our share-based incentive plans.
Three months ended December 31, 2015
 
Total number of shares repurchased
 
Weighted-average price paid per share
October 2015
 
2,664

 
$
21.68

November 2015
 
1,390

 
19.97

December 2015
 
4,028

 
19.68

Total
 
8,082

 
$
20.39


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Ally Financial Inc. • Form 10-K

Item 6.    Selected Financial Data
The selected historical financial information set forth below should be read in conjunction with MD&A, our Consolidated Financial Statements, and the Notes to Consolidated Financial Statements. The historical financial information presented may not be indicative of our future performance.
The following table presents selected statement of income data.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Total financing revenue and other interest income
$
8,397

 
$
8,391

 
$
8,093

 
$
7,342

 
$
6,671

Interest expense
2,429

 
2,783

 
3,319

 
4,052

 
4,606

Depreciation expense on operating lease assets
2,249

 
2,233

 
1,995

 
1,399

 
941

Net financing revenue
3,719

 
3,375

 
2,779

 
1,891

 
1,124

Total other revenue
1,142

 
1,276

 
1,484

 
2,574

 
2,288

Total net revenue
4,861

 
4,651

 
4,263

 
4,465

 
3,412

Provision for loan losses
707

 
457

 
501

 
329

 
161

Total noninterest expense
2,761

 
2,948

 
3,405

 
3,622

 
3,428

Income (loss) from continuing operations before income tax expense (benefit)
1,393

 
1,246

 
357

 
514

 
(177
)
Income tax expense (benefit) from continuing operations
496

 
321

 
(59
)
 
(856
)
 
42

Net income (loss) from continuing operations
897

 
925

 
416

 
1,370

 
(219
)
Income (loss) from discontinued operations, net of tax
392

 
225

 
(55
)
 
(174
)
 
62

Net income (loss)
$
1,289

 
$
1,150

 
$
361

 
$
1,196

 
$
(157
)
Basic and diluted earnings per common share (a)
 
 
 
 
 
 
 
 
 
Net (loss) income from continuing operations
$
(3.47
)
 
$
1.36

 
$
(1.51
)
 
$
1.38

 
$
(2.38
)
Net (loss) income
(2.66
)
 
1.83

 
(1.64
)
 
0.96

 
(2.23
)
Market price per common share
 
 
 
 
 
 
 
 
 
High closing
$
23.88

 
$
25.21

 
 
 
 
 
 
Low closing
18.33

 
20.12

 
 
 
 
 
 
Period end closing
18.64

 
23.62

 
 
 
 
 
 
(a)
The calculation for basic and diluted earnings per common share for the year ended December 31, 2015, includes preferred stock dividends recognized in connection with the redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional return to preferred shareholders calculated as the excess consideration paid over the carrying amount derecognized. Refer to Note 18 to the Consolidated Financial Statements for additional preferred stock information.

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Ally Financial Inc. • Form 10-K

The following table presents selected balance sheet and ratio data.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Selected period-end balance sheet data:
 
 
 
 
 
 
 
 
 
Total assets
$
158,581

 
$
151,631

 
$
150,908

 
$
181,978

 
$
183,543

Long-term debt
$
66,234

 
$
66,380

 
$
69,230

 
$
74,223

 
$
92,406

Preferred stock
$
696

 
$
1,255

 
$
1,255

 
$
6,940

 
$
6,940

Total equity
$
13,439

 
$
15,399

 
$
14,208

 
$
19,898

 
$
19,280

Financial ratios:
 
 
 
 
 
 
 
 
 
Return on average assets (a)
0.84
 %
 
0.77
%
 
0.23
 %
 
0.65
%
 
(0.09
)%
Return on average equity (a)
8.69
 %
 
7.77
%
 
1.92
 %
 
6.32
%
 
(0.78
)%
Return on average tangible common equity (non-GAAP) (b)
(9.56
)%
 
6.52
%
 
(5.42
)%
 
3.20
%
 
(7.38
)%
Equity to assets (a)
9.65
 %
 
9.86
%
 
12.02
 %
 
10.32
%
 
11.14
 %
Net interest spread (a)(c)
2.45
 %
 
2.28
%
 
1.75
 %
 
1.16
%
 
0.67
 %
Net yield on interest-earning assets (a)(d)
2.57
 %
 
2.41
%
 
2.03
 %
 
1.40
%
 
0.92
 %
(a)
The ratios were based on average assets and average equity using a combination of monthly and daily average methodologies.
(b)
Return on average tangible common equity (ROTCE) is a non-GAAP measure. It is computed as net income available to common shareholders under accounting principles generally accepted in the United States of America (GAAP) and includes preferred dividends and premiums paid, divided by a two-period average of tangible common equity (non-GAAP). Tangible common equity is calculated as average total shareholder's equity, $14,419 million, $14,804 million, $17,053 million, $19,734 million, and $19,930 million at December 31, 2015, 2014, 2013, 2012, and 2011 respectively, less preferred stock, $976 million, $1,255 million, $1,255 million, $1,255 million, and $1,271 million at December 31, 2015, 2014, 2013, 2012, and 2011, respectively, and less goodwill, $27 million, $27 million, $276 million, $521 million, and $522 million at December 31, 2015, 2014, 2013, 2012, and 2011, respectively. Other companies may define or calculate this measure differently. We believe this measure is useful to investors, analysts, and banking regulators because, by removing the effect of preferred stock and goodwill from shareholder’s equity, it allows investors, analysts, and banking regulators to more easily compare our return on equity to other companies in the industry who present a similar measure. We also believe that removing preferred stock and goodwill from shareholder’s equity, and including the impact of preferred dividends and premiums paid in net income is a more relevant measure of the return on our common shareholders' equity.
(c)
Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities, excluding discontinued operations for the periods shown.
(d)
Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.

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Ally Financial Inc. • Form 10-K

As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which reflect new and higher capital requirements, capital buffers, and new regulatory capital definitions, deductions and adjustments. Certain aspects of U.S. Basel III, including the new capital buffers and regulatory capital deductions, will be phased in over several years. To assess our capital adequacy against the full impact of U.S. Basel III, we also present "fully phased-in" information that reflects regulatory capital rules that will take effect as of January 1, 2019. Refer to Note 21 to the Consolidated Financial Statements for further information. The following table presents selected regulatory capital data.
 
Under Basel III (a)
 
Under Basel I (b)
 
Transitional
 
Fully Phased-in
 
December 31,
($ in millions)
December 31, 2015
 
2014
2013
2012
2011
Common Equity Tier 1 capital ratio (c)
9.21
%
 
8.74
%
 
9.64
%
8.84
%
6.98
%
7.51
%
Tier 1 capital ratio
11.10
%
 
11.06
%
 
12.55
%
11.79
%
13.13
%
13.65
%
Total capital ratio
12.52
%
 
12.47
%
 
13.24
%
12.76
%
14.07
%
14.69
%
Tier 1 leverage (to adjusted quarterly average assets) (d)
9.73
%
 
9.73
%
 
10.94
%
10.23
%
11.16
%
11.45
%
Total equity
$
13,439

 
$
13,439

 
$
15,399

$
14,208

$
19,898

$
19,280

Preferred stock
(696
)
 
(696
)
 
(1,255
)
(1,255
)
(6,940
)
(6,940
)
Goodwill and certain other intangibles
(27
)
 
(27
)
 
(27
)
(27
)
(494
)
(493
)
Deferred tax assets arising from net operating loss and tax credit carryforwards (e)
(392
)
 
(980
)
 
(1,310
)
(1,639
)
(1,445
)

Other adjustments
183

 
183

 
(219
)
79

(270
)
(262
)
Common Equity Tier 1 capital (non-GAAP) (c)
12,507

 
11,919

 
12,588

11,366

10,749

11,585

Preferred stock
696

 
696

 
1,255

1,255

6,940

6,940

Trust preferred securities
2,520

 
2,520

 
2,546

2,544

2,543

2,542

Deferred tax assets arising from net operating loss and tax credit carryforwards
(588
)
 

 




Other adjustments
(58
)
 
(58
)
 




Tier 1 capital
15,077

 
15,077

 
16,389

15,165

20,232

21,067

Qualifying subordinated debt and other instruments qualifying as Tier 2
932

 
932

 
237

271

251

235

Qualifying allowance for credit losses
1,054

 
1,054

 
1,054

1,208

1,378

1,505

Other adjustments
(58
)
 
(58
)
 
(386
)
(239
)
(192
)
(143
)
Total capital
$
17,005

 
$
17,005

 
$
17,294

$
16,405

$
21,669

$
22,664

Risk-weighted assets (f)
$
135,844

 
$
136,354

 
$
130,590

$
128,575

$
154,038

$
154,319

(a)
U.S. Basel III became effective for us on January 1, 2015, subject to transitional provisions primarily related to deductions and adjustments impacting Common Equity Tier 1 capital and Tier 1 capital.
(b)
Capital ratios as of and prior to December 31, 2014, are presented under the U.S. Basel I capital framework.
(c)
Common Equity Tier 1 Capital generally consists of common stock (plus any related surplus and net of any treasury stock), retained earnings, accumulated other comprehensive income, and minority interests in the common equity of consolidated subsidiaries, together subject to certain adjustments and deductions. At December 31, 2015, the capital ratio presented reflects the Tier 1 common equity ratio, the closest analogue under U.S. Basel I to the Common Equity Tier 1 capital ratio introduced by U.S. Basel III. We consider various measures when evaluating capital utilization and adequacy, including the Common Equity Tier 1 Capital ratio. Because GAAP does not include capital ratio measures, we believe there are no comparable GAAP financial measures to these ratios. Common Equity Tier 1 Capital is not formally defined by GAAP and, therefore, is considered to be a non-GAAP financial measure. We believe the Common Equity Tier 1 Capital measure is important because we believe investors, analysts, and banking regulators may assess our capital adequacy using this ratio. Additionally, presentation of this measure allows readers to compare certain aspects of our capital adequacy on the same basis to other companies in the industry.
(d)
Tier 1 leverage equals Tier 1 capital divided by adjusted quarterly average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets, and disallowed deferred tax assets).
(e)
Contains disallowed deferred tax assets under Basel I and Basel III as applicable.
(f)
Risk-weighted assets are defined by regulation and are determined by allocating assets and specified off-balance sheet financial instruments into various risk categories.


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


Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operation (MD&A), as well as other portions of this Form 10-K, may contain certain statements that constitute forward-looking statements within the meaning of the federal securities laws. The words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negative of any of these words or similar expressions are intended to identify forward-looking statements. All statements herein, other than statements of historical fact, including without limitation statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties.
Use of the term “loans” describes products associated with direct and indirect lending activities of Ally’s operations. The specific products include retail installment sales contracts, lines of credit, leases or other financing products. The term “originate” refers to Ally’s purchase, acquisition or direct origination of various “loan” products.
You should not place undue reliance on any forward-looking statement and should consider all uncertainties and risks discussed in this report, including those under Item 1A, Risk Factors, as well as those provided in any subsequent Securities and Exchange Commission (SEC) filings. Forward-looking statements apply only as of the date they are made, and Ally undertakes no obligation to update any forward-looking statement to reflect events or circumstances that arise after the date the forward-looking statement are made.
Overview
Ally Financial Inc. is a leading, independent, diversified financial services firm. Founded in 1919, we are a leading financial services company with over 95 years of experience providing a broad array of financial products and services, primarily to automotive dealers and their retail customers. We operate as a financial holding company (FHC) and a bank holding company (BHC). Our banking subsidiary, Ally Bank, is an indirect, wholly-owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (internet, telephone, mobile, and mail) banking market.
Initial Public Offering of Common Stock and Stock Split
In April 2014, we completed an initial public offering (IPO) of 95 million shares of common stock at $25 per share. Proceeds from the offering amounted to $2.4 billion, which were obtained by the U.S. Department of the Treasury (Treasury) as the single selling stockholder. In May 2014, the underwriters on the IPO elected to partially exercise the over-allotment option to purchase an additional 7,245,670 shares of Ally common stock at the IPO price of $25 per share. In connection with the IPO, we effected a 310-for-one stock split on shares of our common stock, $0.01 par value per share. Accordingly, all references in this MD&A and in the Consolidated Financial Statements to share and per share amounts relating to common stock have been adjusted, on a retroactive basis, to recognize the 310-for-one stock split.
Change in Allocation of Costs to Reportable Segments
During the fourth quarter of 2015, we began to allocate additional overhead expenses related to centralized support functions to our Automotive Finance, Insurance, and Mortgage operations as a result of a change in management's view of our operations. These expenses were previously included within our Corporate and Other activities. Amounts for 2014 and 2013 have been reclassified to conform to the current management view.
Our Business
Dealer Financial Services
Dealer Financial Services includes our Automotive Finance operations and Insurance operations. Our primary customers are automotive dealers, which are typically independently owned businesses. As part of the process of selling a vehicle, automotive dealers typically enter into retail installment sales contracts and leases with their retail customers. Dealers then select Ally or another automotive finance provider to which they sell those retail installment sales contracts and leases.
Our Dealer Financial Services operations offer a wide range of financial services and insurance products to over 17,500 automotive dealerships and approximately 4.5 million of their customers. We have deep dealer relationships that have been built throughout our history of over 95 years, and we are leveraging competitive strengths to expand our dealer footprint. Our dealer-focused business model encourages dealers to use our broad range of products through incentive programs like our Ally Dealer Rewards program, which rewards individual dealers based on the depth and breadth of our relationship. Our automotive finance services include providing retail installment sales contracts, loans, and leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, fleet financing, and vehicle remarketing services. We also offer retail vehicle service contracts (VSCs) and commercial insurance primarily covering dealers' wholesale vehicle inventories. We are a leading provider of VSCs, guaranteed asset protection (GAP), and maintenance coverage.
Automotive Finance
Our Automotive Finance operations provide U.S.-based automotive financing services to consumers and automotive dealers. For consumers, we provide retail financing and leasing for new and used vehicles, including recreational vehicles (RVs). In addition, our Commercial Services Group (CSG) provides automotive financing for small businesses. Through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale or floorplan financing. At December 31, 2015, our Automotive Finance operations had $115.6 billion of assets and generated $3.7 billion of total net revenue in 2015. We manage commercial account servicing for approximately 4,200 dealers that utilize our floorplan inventory lending or other commercial loans. We provide

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


consumer asset servicing for an $84.8 billion portfolio at December 31, 2015. The extensive infrastructure and experience of our servicing operations are important to our ability to minimize our loan losses and enable us to deliver favorable customer experience to both our dealers and their retail customers.
Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers who originate loans and leases to their retail customers who are acquiring new and used vehicles. Ally and other automotive finance providers purchase these loans and leases from automotive dealers. As the marketplace evolves, our growth strategy continues to focus on diversifying the franchise by expanding into different products as well as continuing to strengthen our network of relationships outside of General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler). During 2015, we established financing relationships with Mitsubishi Motors North America (MMNA), Aston Martin The Americas, McLaren Automotive North America, and Beepi.
We were previously party to separate agreements with both GM and Chrysler that provided for certain exclusivity privileges related to subvention programs that they offered. Our agreement with Chrysler expired in April 2013. In addition, our agreement with GM expired effective February 28, 2014. These agreements provided Ally with certain preferred provider benefits, including limiting the use of other financing providers by GM and Chrysler for their incentive programs. During 2015, GM determined to provide subvention programs exclusively through a wholly-owned subsidiary.
During 2015, originations in the Growth (non-GM/Chrysler) channel have increased 53% from 2014. Over the past several years, we have continued to focus on the used vehicle segment primarily through franchised dealers, which has resulted in used vehicle financing volume growth. During 2015, our used consumer automotive financing originations increased 27% compared to 2014. The highly fragmented used vehicle financing market, with a total financing opportunity represented by over 250 million vehicles in operation, provides an attractive opportunity that we believe will further expand and support our dealer relationships and increase our volume of retail loan originations. We currently provide financing for approximately 4.5 million vehicles in operation. In addition, at December 31, 2015, our CSG and RV channels had $6.2 billion and $1.5 billion, respectively, of retail loans outstanding.
Automotive dealers desire a full range of financial products, including new and used vehicle inventory financing, inventory insurance, term loans including real estate and working capital loans, and vehicle remarketing services to conduct their respective businesses as well as VSCs and GAP products to offer their customers. We have consistently provided this full suite of products to dealers.
For consumers, we provide retail automotive financing for new and used vehicles and leasing for new vehicles. Retail financing for the purchase of vehicles takes the form of installment sales financing. During 2015, we originated a total of approximately 1.5 million automotive loans and leases totaling approximately $41.0 billion. During 2015, we experienced growth in our consumer retail automotive loan portfolio which offset a significant reduction in lease originations. As a result of this shift, provision expense has increased as leases are not included in the allowance for loan losses, while our residual risk has decreased.
Our consumer automotive financing operations generate revenue through finance charges or lease payments and fees paid by customers on the retail contracts and leases. We also recognize a gain or loss on the remarketing of the vehicles financed through lease contracts at the end of the lease. When the lease contract is originated, we estimate the residual value of the leased vehicle at lease termination. Periodically we revise the projected value of the leased vehicle at lease termination. Our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value.
We continue to diversify our business mix by prudently expanding our product offering across a broad risk spectrum, subject to established internal guardrails and underwriting policies that reflect our risk appetite and applicable regulatory approvals. Our current operating results continue to increasingly reflect our ongoing strategy. The Growth channel has provided volume at lower credit tiers, which to date has provided higher-yielding loans while maintaining credit performance that is aligned with expectations for the portfolio. We seek to be a meaningful lender to a wide spectrum of borrowers and continue to carefully measure risk versus return. We place great emphasis on our risk management policies and practices as well as our risk-based pricing. Additionally, we continue to increase the proportion of our Growth channel business, as we focus on the used vehicle market, as well as maintaining and growing our dealer-customer base through our full suite of products, our dealer relationships, the scale of our platform, and our dealer-based incentive programs.
Our commercial automotive financing operations primarily fund dealer inventory purchases of new and used vehicles, commonly referred to as wholesale or floorplan financing. This represents the largest portion of our commercial automotive financing business. Wholesale floorplan loans are secured by vehicles financed (and all other vehicle inventory), which provide strong collateral protection in the event of dealership default. Additional collateral (e.g., personal guarantees from dealership owners) is often obtained to further manage credit risk. The amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles. Interest on wholesale automotive financing is generally payable monthly and is indexed to a floating rate benchmark. The rate for a particular dealer is based on, among other considerations, competitive factors and the dealer's creditworthiness. During 2015, we financed an average of $30.5 billion of dealer vehicle inventory through wholesale or floorplan financings. We also provide comprehensive automotive remarketing services, including the use of SmartAuction, our online auction platform, which efficiently supports dealer-to-dealer and other commercial wholesale vehicle transactions. In 2015, we and others including dealers, fleet rental companies, and financial institutions, utilized SmartAuction to sell approximately 357,000 vehicles to dealers and other commercial customers. SmartAuction served as the remarketing channel for 49% of Ally's off-lease vehicles.

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


Insurance
Our Insurance operations offer both consumer finance protection and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provide VSCs, maintenance coverage, and GAP products. We also underwrite selected commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventory. Our Insurance operations had $7.1 billion of assets at December 31, 2015, and generated $1.1 billion of total net revenue in 2015.
Our VSCs for retail customers offer owners and lessees mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer's new vehicle warranty. These VSCs are marketed to the public through automotive dealerships and on a direct response basis. The VSCs cover virtually all vehicle makes and models. We also offer GAP products, which allow the recovery of a specified economic loss beyond the covered vehicle's value in the event the vehicle is damaged and declared a total loss.
As part of our continued efforts to diversify, our Insurance operations launched its new flagship vehicle service contract offering, Ally Premier Protection, nationwide for new and used vehicles of virtually all makes and models in June 2015. Ally Premier Protection is replacing the General Motors Protection Plan nameplate which will be discontinued in November 2016.
Wholesale vehicle inventory insurance for dealers provides physical damage protection for dealers' floorplan vehicles. Among dealers to whom we provide wholesale financing, our wholesale insurance product penetration rate is approximately 82%. Dealers who receive wholesale financing from Ally are eligible for wholesale insurance incentives, such as automatic eligibility in our preferred insurance programs and increased financial benefits.
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops investment guidelines and strategies. The guidelines established by this committee reflect our risk tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.
Mortgage
Our Mortgage operations are limited to the management of our held-for-investment mortgage loan portfolio and includes the execution of bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties. We expect this activity to continue in 2016 in support of our treasury asset liability management (ALM) activities and diversification. We also plan to introduce limited direct mortgage originations in late 2016. Our Mortgage operations had $9.8 billion of assets at December 31, 2015, and generated $159 million of total net revenue in 2015.
Our Mortgage operations were historically a significant portion of our operations and were conducted primarily through the Residential Capital, LLC (ResCap) subsidiary. On May 14, 2012, ResCap and certain of its wholly-owned direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (Bankruptcy Court). The Bankruptcy Court entered an order confirming a bankruptcy plan on December 11, 2013, which became effective on December 17, 2013.
During 2013, we sold our business lending operations, completed the sales of agency mortgage servicing rights (MSRs), and exited the correspondent lending channel.
Corporate and Other
Corporate and Other primarily consists of Corporate Finance, centralized corporate treasury activities, such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of the discount associated with debt issuances and bond exchanges, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury ALM activities. Corporate and Other also includes certain equity investments and reclassifications and eliminations between the reportable operating segments. Corporate Finance is a middle market lender that provides senior secured leveraged cash flow and asset based loans primarily to U.S.-based companies.
The net financing revenue of our Automotive Finance and Mortgage operations includes the results of an FTP process that insulates these operations from interest rate volatility by matching assets and liabilities with similar interest rate sensitivity and maturity characteristics. The FTP process assigns charge rates to the assets and credit rates to the liabilities within our Automotive Finance and Mortgage operations, respectively, based on anticipated maturity and a benchmark rate curve plus an assumed credit spread. The assumed credit spread represents the cost of funds for each asset class based on a blend of funding channels available to the enterprise, including unsecured and secured capital markets, private funding facilities, and deposits. In addition, a risk-based methodology, which incorporates each operations credit, market, and operational risk components, is used to allocate equity to these operations.
Ally Bank
Ally Bank, our direct banking platform, is focused on the continued prudent expansion of assets and further growing a stable deposit base through growing and deepening relationships with its 1.1 million primary customers driven by its compelling brand and strong value proposition. Ally Bank raises deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels. Ally Bank has established a strong and growing retail banking franchise that is based on a promise of being straightforward, easy to use, and offering high-quality customer service. Ally Bank's products and services are designed to develop long-term customer relationships and

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


capitalize on the shift in consumer preference for direct banking. At December 31, 2015, approximately 70% of Ally's total assets were funded at Ally Bank. Segment results include cost of funds associated with product offerings. For products originated at Ally Bank, the cost of funds is more beneficial than products originated at other entities as Ally Bank is a deposit gathering organization which helps fund assets at a lower cost. Noninterest costs associated with deposit gathering activities were $256 million during the year ended December 31, 2015, and are also allocated to each segment based on their relative balance sheet.
Ally Bank offers a full spectrum of deposit product offerings, such as checking, savings, and certificates of deposit (CDs), including several raise-your-rate CD terms, IRA deposit products, Popmoney person-to-person transfer service, eCheck remote deposit capture, and mobile banking. In addition, brokered deposits are obtained through third-party intermediaries. At December 31, 2015, Ally Bank had $66.2 billion of deposits, including $55.4 billion of retail deposits. The continued growth of our retail base, combined with favorable capital market conditions and a lower interest rate environment, have contributed to a reduction in our consolidated cost of funds. The growth in deposits is primarily attributable to our retail deposits while our brokered deposits have remained at historical levels. Strong retention rates, reflecting the strength of the franchise, have materially contributed to our growth in retail deposits.
We believe Ally Bank remains well-positioned to continue to benefit from the consumer driven-shift from branch banking to direct banking. According to a 2015 American Bankers Association survey, the percentage of customers who prefer to do their banking via direct channels (internet, mail, phone, and mobile) increased from 21% to 56% since 2007, while those who prefer branch banking declined from 39% to 17% over the same period. Ally Bank has received a positive response to innovative savings and other deposit products, including receiving MONEY® Magazine's "Best Online Bank" designation five consecutive years. Ally Bank's products include savings and money market accounts, CDs, interest-bearing checking accounts, individual retirement accounts, and accounts for trust. Ally Bank's competitive direct banking features include online and mobile banking, electronic bill pay, remote deposit, electronic funds transfer nationwide, and no minimum balance requirements.
In the future, we intend to continue to grow and invest in the Ally Bank direct banking franchise and to further capitalize on the shift in consumer preference for direct banking with expanded digital capabilities and customer centric products. We are focused on growing, deepening, and further leveraging the customer relationships and brand loyalty that exist with Ally Bank and its customers as a catalyst for future loan and deposit growth, as well as revenue opportunities. To that end, we recently announced our upcoming credit card product offering which will be available to customers in 2016. This offering will generate fee revenue for Ally with no credit risk exposure due to the structure of the cobrand relationship.
Funding and Liquidity
Our funding strategy largely focuses on maintaining a diversified mix of retail and brokered deposits, public and private asset-backed securitizations, committed credit facilities, and public unsecured debt. These funding sources are managed across products, markets, and investors to enhance funding flexibility, limit dependence on any one source and result in a more cost-effective long term funding strategy.
As part of our overall transformation from an independent financial services company to a BHC in 2008, we took actions to further diversify and develop more stable funding sources and, in particular, embarked upon initiatives to grow our consumer deposit-taking capabilities within Ally Bank. In addition, we began distinguishing our liquidity management strategies between bank funding and nonbank funding.
Maximizing bank funding continues to be the cornerstone of our long-term liquidity strategy. We have made significant progress in growing the assets and retail deposit base of Ally Bank since becoming a BHC. Retail deposits provide a low-cost source of funds that are less sensitive to interest rate changes, market volatility, or changes in our credit ratings than other funding sources. At December 31, 2015, deposit liabilities totaled $66.5 billion, which constituted 47% of our total liability-based funding. This compares to just 29% at December 31, 2010.
In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance Ally Bank's automotive loan portfolios. During 2015, Ally Bank issued $3.9 billion in secured funding backed by dealer floorplan and retail automotive loans and lease notes of Ally Bank. Secured funding transactions continue to be an attractive source of funding due to continued structural efficiencies in securitizations and a liquid market. Additionally, for retail loans and leases, the term structure of the transaction locks in funding for a specified pool of loans and leases for the life of the underlying assets. Once a pool of retail automotive loans is selected and placed into a securitization, the underlying assets and corresponding debt amortize simultaneously resulting in committed and matched funding for the life of the asset. We manage the execution risk arising from secured funding by maintaining a diverse investor base and maintaining committed secured facilities.
As we have shifted our focus to migrating assets to Ally Bank and growing our bank funding capabilities, our reliance on parent company liquidity has consequently been reduced. Funding sources at the parent company generally consist of longer-term unsecured debt, asset-backed securitizations, and private committed credit facilities. In 2015, we issued $5.4 billion of unsecured debt through several issuances and raised $4.4 billion through public securitization transactions comprised of retail automotive loan collateral and the sale of retained secured notes. At December 31, 2015, we had $1.9 billion and $4.4 billion of principal amount of unsecured long-term debt outstanding with maturities in 2016 and 2017, respectively. To fund these maturities, we expect to use a combination of existing liquidity and new issuances on an opportunistic basis.
The strategies outlined above have allowed us to build and maintain a conservative liquidity position. Total available liquidity at December 31, 2015, for the parent company and Ally Bank was $6.2 billion and $8.7 billion, respectively. Parent company liquidity is defined

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


as our consolidated operations less Ally Bank and the regulated subsidiaries of Ally Insurance's holding company. Absolute levels of liquidity decreased during 2015 as a result of liability and preferred equity management transactions. At the same time, these strategies resulted in a consolidated cost of funds improvement.
Credit Strategy
Within our Automotive Finance operations, we are a full spectrum automotive finance lender with the vast majority of our loan originations underwritten within the prime-lending markets. During 2015, we continued the execution of our underwriting strategy to expand our originations across a broad risk spectrum, including used, nonprime, extended term, Growth, and nonsubvented finance receivables and loans. Our Mortgage operations are limited to the management of our held-for-investment mortgage loan portfolio and include the execution of bulk purchases of high-quality jumbo and LMI mortgage loans originated by third parties. We expect this activity to continue in 2016 in support of our treasury ALM activities and diversification. In late 2016, we plan to introduce limited direct mortgage originations.
During the year ended December 31, 2015, the credit performance of our portfolios remained strong overall as our asset quality trends within our automotive and mortgage portfolios were relatively stable and reflect our ongoing diversification strategy. Nonperforming loans and charge-offs of our consumer automotive assets increased due to portfolio growth and the change in our portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum. Total nonperforming commercial loans decreased and no net charge-offs were realized. Nonperforming loans and charge-offs of our consumer mortgage assets decreased primarily due to the continued runoff and seasoning of our legacy mortgage portfolio despite portfolio growth due to our bulk purchases of high-quality jumbo mortgage loans originated by third parties. Our provision for loan losses increased to $707 million in 2015 from $457 million in 2014. The increase was primarily due to growth in our consumer retail automotive loan portfolio, as our automotive originations have shifted to an increase in loans offsetting a significant reduction in leases which are not included in the allowance, and the continued execution of our underwriting strategy to originate automotive loans across a broad risk spectrum. Credit performance has been in line with expectations for the portfolio. Also contributing to the increase in the provision was growth in our consumer mortgage loan portfolio, as a result of bulk mortgage purchases during 2015, as well as lower reserve releases on mortgage assets, compared to 2014. The increase was partially offset by the continued strong performance of our commercial loan portfolio.
We continue to see signs of economic stabilization as the labor market recovered further during the year, with nonfarm payrolls increasing and the annual unemployment rate falling. Our credit portfolio will continue to be impacted by the overall economy, used vehicle and housing price levels, unemployment levels, and their impact to our borrowers.
U.S. Department of Treasury Investments
During 2008, and continuing into 2009, the credit, capital, and mortgage markets became increasingly disrupted. This disruption led to severe reductions in liquidity and adversely affected our capital position. As a result, Ally sought approval to become a BHC to obtain access to capital at a lower cost to remain competitive in our markets. The U.S. Department of Treasury (Treasury) made an initial preferred stock investment in Ally on December 29, 2008, pursuant to the Troubled Asset Relief Program (TARP), and made additional investments pursuant to TARP thereafter, including investments in additional preferred stock, common stock, and trust preferred securities. On November 20, 2013, Ally completed the repurchase of all remaining outstanding shares of its Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series F-2, which was all of the remaining preferred stock held by Treasury, and elimination of the share adjustment right. In April 2014, we completed our IPO pursuant to which Treasury sold approximately 102 million shares of Ally common stock, after which Treasury continued to hold approximately 11.4% of Ally common stock. In December 2014, Treasury sold all of its remaining shares of Ally common stock, resulting in our exit from TARP.
Tax Assets Protective Measures
In January 2014, the Ally Board of Directors (the Board) implemented measures intended to help protect certain tax benefits primarily associated with Ally’s net operating losses and tax credit carryovers (collectively, Tax Benefits). Ally’s use of the Tax Benefits in the future may be significantly limited if it experiences an “ownership change” (within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the Code)) for U.S. federal income tax purposes. In general, an ownership change will occur when the percentage of Ally’s ownership (by value) of one or more “5-percent shareholders” (as defined in Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis).
On January 9, 2014, the Board approved an amendment (the Protective Amendment) to Ally’s Amended and Restated Certificate of Incorporation that is intended to help protect the Tax Benefits. The Protective Amendment generally restricts any transfer of Ally’s common stock if the effect of the transfer would be to either (i) increase the direct or indirect ownership of any of Ally common stock by any Person (as defined in the Code) to 4.99% or more; or (ii) increase the percentage of Ally Capital Stock owned directly or indirectly by any Person that was a Five Percent Stockholder, subject to certain exceptions. Unless extended, the Protective Amendment expires on January 8, 2017.
In addition, on January 9, 2014, the Board approved the adoption of a Tax Asset Protection Plan (the Plan) and Ally entered into the Plan on January 10, 2014. The Plan is designed to reduce the likelihood that Ally will experience an “ownership change” for U.S. federal income tax purposes (as described above) by (i) discouraging any person or group from becoming a holder of 4.99 percent or more of the outstanding shares of Ally common stock; and (ii) discouraging any existing holder of 4.99 percent or more of Ally common stock from acquiring additional shares of Ally common stock, subject to certain exceptions. Unless extended, the Protective Amendment expires on January 8, 2017.

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


Discontinued Operations
During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. For all periods presented, the operating results for these operations have been removed from continuing operations. Refer to Note 2 to the Consolidated Financial Statements for more details. MD&A has been adjusted to exclude discontinued operations unless otherwise noted.
Primary Lines of Business
Dealer Financial Services, which includes our Automotive Finance and Insurance operations, and Mortgage are our primary lines of business. The following table summarizes the operating results excluding discontinued operations of each line of business. Operating results for each of the lines of business are more fully described in the MD&A sections that follow.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Total net revenue (loss)
 
 
 
 
 
 
 
 
 
 
Dealer Financial Services
 
 
 
 
 
 
 
 
 
 
Automotive Finance operations
 
$
3,664

 
$
3,585

 
$
3,427

 
2
 
5
Insurance operations
 
1,090

 
1,185

 
1,253

 
(8)
 
(5)
Mortgage operations
 
159

 
60

 
76

 
165
 
(21)
Corporate and Other
 
(52
)
 
(179
)
 
(493
)
 
71
 
64
Total
 
$
4,861

 
$
4,651

 
$
4,263

 
5
 
9
Income (loss) from continuing operations before income tax expense (benefit)
 
 
 
 
 
 
 
 
 
 
Dealer Financial Services
 
 
 
 
 
 
 
 
 
 
Automotive Finance operations
 
$
1,335

 
$
1,429

 
$
1,178

 
(7)
 
21
Insurance operations
 
211

 
197

 
254

 
7
 
(22)
Mortgage operations
 
90

 
59

 
(261
)
 
53
 
123
Corporate and Other
 
(243
)
 
(439
)
 
(814
)
 
45
 
46
Total
 
$
1,393

 
$
1,246

 
$
357

 
12
 
n/m
n/m = not meaningful

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


Consolidated Results of Operations
The following table summarizes our consolidated operating results excluding discontinued operations for the periods shown. Refer to the operating segment sections of the MD&A that follows for a more complete discussion of operating results by line of business.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Net financing revenue
 
 
 
 
 
 
 
 
 
 
Total financing revenue and other interest income
 
$
8,397

 
$
8,391

 
$
8,093

 
 
4
Total interest expense
 
2,429

 
2,783

 
3,319

 
13
 
16
Depreciation expense on operating lease assets
 
2,249

 
2,233

 
1,995

 
(1)
 
(12)
Net financing revenue
 
3,719

 
3,375

 
2,779

 
10
 
21
Other revenue
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
45

 
31

 
(87
)
 
45
 
136
Insurance premiums and service revenue earned
 
940

 
979

 
1,012

 
(4)
 
(3)
Gain on mortgage and automotive loans, net
 
45

 
7

 
55

 
n/m
 
(87)
Loss on extinguishment of debt
 
(357
)
 
(202
)
 
(59
)
 
(77)
 
n/m
Other gain on investments, net
 
155

 
181

 
180

 
(14)
 
1
Other income, net of losses
 
314

 
280

 
383

 
12
 
(27)
Total other revenue
 
1,142

 
1,276

 
1,484

 
(11)
 
(14)
Total net revenue
 
4,861

 
4,651

 
4,263

 
5
 
9
Provision for loan losses
 
707

 
457

 
501

 
(55)
 
9
Noninterest expense
 
 
 
 
 
 
 
 
 
 
Compensation and benefits expense
 
963

 
947

 
1,019

 
(2)
 
7
Insurance losses and loss adjustment expenses
 
293

 
410

 
405

 
29
 
(1)
Other operating expenses
 
1,505

 
1,591

 
1,981

 
5
 
20
Total noninterest expense
 
2,761

 
2,948

 
3,405

 
6
 
13
Income from continuing operations before income tax expense (benefit)
 
1,393

 
1,246

 
357

 
12
 
n/m
Income tax expense (benefit) from continuing operations
 
496

 
321

 
(59
)
 
(55)
 
n/m
Net income from continuing operations
 
$
897

 
$
925

 
$
416

 
(3)
 
122
n/m = not meaningful
2015 Compared to 2014
We earned net income from continuing operations of $897 million for the year ended December 31, 2015, compared to $925 million for the year ended December 31, 2014. The decline is attributable to increases in the provision for loan losses, income tax expense from continuing operations, and loss on extinguishment of debt. These unfavorable impacts were partially offset by lower funding costs and a decline in insurance losses and loss adjustment expenses.
Total interest expense decreased 13% for the year ended December 31, 2015, compared to the year ended December 31, 2014, primarily due to lower funding costs as a result of continued deposit growth, the maturity and repayment of higher-cost legacy debt, and a decrease in original issue discount (OID) amortization expense.
Net gain on mortgage and automotive loans increased $38 million, primarily due to the sale of troubled debt restructuring (TDR) loans at our Mortgage operations during year ended December 31, 2015.
We incurred a loss on extinguishment of debt of $357 million for the year ended December 31, 2015, compared to $202 million for the year ended December 31, 2014. The increase was due primarily to the execution of tender offers for legacy, high-cost debt during the first half of 2015.
Other gain on investments, net, was $155 million for the year ended December 31, 2015, compared to $181 million for the year ended December 31, 2014. The decrease was primarily driven by unfavorable market conditions, resulting in decreased gains on the sales of investments.
Other income, net of losses, increased 12% for the year ended December 31, 2015, compared to 2014. The increase was primarily due to an increase in income from certain equity method investments.

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


The provision for loan losses was $707 million for the year ended December 31, 2015, compared to $457 million in 2014. The increase in provision for loan losses is the result of the growth in our consumer retail automotive loan portfolio, as our automotive originations have shifted to an increase in loans offsetting a significant reduction in leases which are not included in the allowance, and the continued execution of our underwriting strategy to originate automotive loans across a broad risk spectrum. Credit performance has been in line with expectations for the portfolio. Also contributing to the increase in the provision was growth in our consumer mortgage loan portfolio, as a result of bulk mortgage purchases during 2015, as well as lower reserve releases on mortgage assets, compared to 2014. The increase was partially offset by the continued strong performance of our commercial loan portfolio.
Total noninterest expense decreased 6% for the year ended December 31, 2015, compared to 2014. The decrease was primarily due to both lower wholesale weather-related losses and lower loss experience of VSC products at our Insurance operations, as well as various continued expense reduction actions across various lines of business.
We recognized consolidated income tax expense from continuing operations of $496 million for the year ended December 31, 2015, compared to $321 million in 2014. The increase in income tax expense for the year ended December 31, 2015, was primarily driven by tax expense attributable to higher pretax earnings for the year, a nonrecurring tax benefit in 2014 related to the reduction in the liability for unrecognized tax benefits as a result of the completion of the U.S. federal audit related to our 2009 through 2011 tax years, and a nonrecurring tax benefit in 2014 for the reinstatement of the active financing exception included in the Tax Increase Prevention Act of 2014.
2014 Compared to 2013
We earned net income from continuing operations of $925 million for the year ended December 31, 2014, compared to $416 million for the year ended December 31, 2013. Net income from continuing operations for the year ended December 31, 2014, was favorably impacted by an increase in operating lease revenue for our Automotive Finance operations resulting from increases in lease remarketing gains, lower funding costs resulting from the maturity and repayment of higher-cost debt, and lower OID amortization expense related to bond maturities and normal monthly amortization. Additional favorability was due to our Mortgage operations, as results in 2013 were unfavorably impacted by the valuation of our MSRs portfolio, which was sold during the second quarter of 2013. These items were partially offset by higher income tax expense primarily attributable to higher pretax earnings, and higher depreciation expense related to higher lease asset balances as a result of strong lease origination volume.
Total financing revenue and other interest income increased $298 million for the year ended December 31, 2014, compared to 2013. The increase resulted primarily from an increase in operating lease revenue for our Automotive Finance operations, which was driven primarily by higher lease asset balances resulting from strong origination volume and higher lease remarketing gains due to increased termination volumes. These increases were partially offset by lower mortgage loan balances as a result of the wind-down of our consumer held-for-sale portfolio and runoff of our held-for-investment portfolio.
Interest expense decreased 16% for the year ended December 31, 2014, compared to 2013, primarily due to lower funding costs as a result of continued deposit growth, the repayment of higher-cost legacy debt, and a decrease in OID amortization expense.
Depreciation expense on operating lease assets increased 12% for the year ended December 31, 2014, compared to 2013, primarily due to higher lease asset balances resulting from strong lease origination volume, partially offset by higher lease remarketing gains due to increased termination volumes.
We earned net servicing income of $31 million for the year ended December 31, 2014, compared to a net servicing loss of $87 million in 2013. The increase was primarily due to the completed sales of our agency MSRs portfolio in the second quarter of 2013, partially offset by lower levels of off-balance sheet automotive retail serviced assets.
Gain on mortgage and automotive loans decreased 87% for the year ended December 31, 2014, compared to 2013. The decrease was primarily related to our decision to cease mortgage-lending production through our direct lending channel in 2013, and margins associated with government-sponsored refinancing programs, partially offset by the completed sale of a $40 million student lending portfolio during the second quarter of 2014.
Loss on extinguishment of debt increased $143 million for the year ended December 31, 2014, compared to 2013. The increase was primarily due to the completion of a tender offer to buy back $750 million of our long-dated high-coupon debt in October 2014. We recorded a loss of $156 million on extinguishment of debt in 2014 related to this transaction. The increase was partially offset by a decrease in the accelerated recognition of issuance expenses related to calls of redeemable debt during 2014.
Other income, net of losses, decreased 27% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to lower fee income and net origination revenue related to our exit from consumer mortgage-lending production associated with government-sponsored refinancing programs, and unfavorable derivative activity as a result of changes in rates and their impact on economic hedge positions. These decreases were partially offset by higher remarketing fee income.
The provision for loan losses was $457 million for the year ended December 31, 2014, compared to $501 million in 2013. The decrease was driven by lower reserve requirements in our Mortgage operations as a result of the continued runoff of legacy mortgage assets, partially offset by the continued execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum and growth in our consumer automotive portfolio.

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Ally Financial Inc. • Form 10-K


Total noninterest expense decreased 13% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to the overall streamlining of the company and increased operating efficiencies. Compensation and benefits expense decreased 7% due in part to headcount reductions in centralized support functions. Further, expenses have benefited from strategic actions, including our exit of all nonstrategic mortgage-related activities that resulted in lower broker fees from consumer mortgage-lending production associated with government-sponsored refinancing programs, and lower representation and warranty expense due to decreased repurchase risk associated with the sale of our agency MSRs portfolio. Further contributing to the decrease were the nonrecurrence of a $98 million charge in the fourth quarter of 2013 relating to the execution of Consent Orders issued by the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (DOJ) pertaining to the allegation of disparate impact in the automotive finance business, as well as a reduction of expenses related to our arrangement with GM that provided for certain exclusivity privileges related to subvention programs that they offered, which expired in February 2014. Refer to Note 30 to the Consolidated Financial Statements for additional details on these matters.
We recognized consolidated income tax expense from continuing operations of $321 million for the year ended December 31, 2014, compared to income tax benefit of $59 million in 2013. The increase in income tax expense for the year ended December 31, 2014, was driven by tax expense primarily attributable to higher pretax earnings.

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


Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance operations.
Automotive Finance Operations
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations excluding discontinued operations for the periods shown. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Net financing revenue
 
 
 
 
 
 
 
 
 
 
Consumer
 
$
3,230

 
$
3,046

 
$
3,004

 
6
 
1
Commercial
 
939

 
1,024

 
1,061

 
(8)
 
(3)
Loans held-for-sale
 
34

 

 

 
n/m
 
Operating leases
 
3,398

 
3,558

 
3,209

 
(4)
 
11
Other interest income
 
8

 
10

 
22

 
(20)
 
(55)
Total financing revenue and other interest income
 
7,609

 
7,638

 
7,296

 
 
5
Interest expense
 
1,931

 
2,084

 
2,142

 
7
 
3
Depreciation expense on operating lease assets
 
2,249

 
2,233

 
1,995

 
(1)
 
(12)
Net financing revenue
 
3,429

 
3,321

 
3,159

 
3
 
5
Other revenue
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
45

 
31

 
58

 
45
 
(47)
(Loss) gain on automotive loans, net
 
(23
)
 
10

 

 
n/m
 
n/m
Other income
 
213

 
223

 
210

 
(4)
 
6
Total other revenue
 
235

 
264

 
268

 
(11)
 
(1)
Total net revenue
 
3,664

 
3,585

 
3,427

 
2
 
5
Provision for loan losses
 
696

 
542

 
494

 
(28)
 
(10)
Noninterest expense
 
 
 
 
 
 
 
 
 
 
Compensation and benefits expense
 
489

 
454

 
450

 
(8)
 
(1)
Other operating expenses
 
1,144

 
1,160

 
1,305

 
1
 
11
Total noninterest expense
 
1,633

 
1,614

 
1,755

 
(1)
 
8
Income from continuing operations before income tax expense
 
$
1,335

 
$
1,429

 
$
1,178

 
(7)
 
21
Total assets
 
$
115,636

 
$
113,188

 
$
109,312

 
2
 
4
n/m = not meaningful
Components of net operating lease revenue, included in amounts above, were as follows.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Net operating lease revenue
 
 
 
 
 
 
 
 
 
 
Operating lease revenue
 
$
3,398

 
$
3,558

 
$
3,209

 
(4)
 
11
Depreciation expense
 
 
 
 
 
 
 
 
 
 
Depreciation expense on operating lease assets (excluding remarketing gains)
 
2,600

 
2,666

 
2,327

 
2
 
(15)
Remarketing gains
 
(351
)
 
(433
)
 
(332
)
 
(19)
 
30
Total depreciation expense on operating lease assets
 
2,249

 
2,233

 
1,995

 
(1)
 
(12)
Total net operating lease revenue
 
$
1,149

 
$
1,325

 
$
1,214

 
(13)
 
9

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


2015 Compared to 2014
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.3 billion for the year ended December 31, 2015, compared to $1.4 billion for the year ended December 31, 2014. Results for the year ended December 31, 2015, were unfavorably impacted by lower net operating lease revenue primarily due to a decrease in lease origination volume resulting from GM's decision to provide subvention programs for their products exclusively through a wholly-owned subsidiary, an increase in provision for loan losses primarily due to continued growth in the consumer portfolio, and a decrease in commercial financing revenue resulting from a continued competitive wholesale marketplace. The unfavorable impacts in our Automotive Finance operations were partially offset by an increase in consumer financing revenue resulting from continued loan origination growth and a decrease in interest expense resulting from continued lower funding costs.
Consumer financing revenue (combined with interest income on consumer loans held-for-sale) increased $218 million for the year ended December 31, 2015, compared to 2014, primarily due to continued loan origination growth across the retail channels. Chrysler and Growth consumer originations increased 41% and 53%, respectively, for the year ended December 31, 2015, compared to 2014. GM new standard rate consumer origination volume increased 34% for the year ended December 31, 2015, compared to 2014.
Commercial financing revenue decreased $85 million for the year ended December 31, 2015, compared to 2014, primarily due to lower yields as a result of a continued competitive wholesale marketplace.
Total net operating lease revenue decreased 13% for the year ended December 31, 2015, compared to 2014. The decrease was primarily due to a decrease in lease origination volume resulting from GM’s decision to provide subvention programs for their products exclusively through a wholly-owned subsidiary. Results for the year ended December 31, 2015, were also unfavorably impacted by lower lease termination volume and a decrease in remarketing gains due to lower gains on a per-unit basis. We recognized remarketing gains of $351 million for the year ended December 31, 2015, compared to $433 million in 2014. For further details on our lease business, refer to the section titled Lease Residual Risk Management within this MD&A.
Interest expense decreased $153 million for the year ended December 31, 2015, respectively, compared to 2014, primarily due to continued lower funding costs as a result of an increase in deposits and company-wide liability management actions that have included the repayment of higher-cost debt.
The provision for loan losses increased $154 million for the year ended December 31, 2015, compared to in 2014. The increase is primarily the result of the growth in our consumer retail automotive loan portfolio, as our automotive originations have shifted to an increase in loans offsetting a significant reduction in leases which are not included in the allowance for loan losses, and the continued execution of our underwriting strategy to originate automotive loans across a broad risk spectrum, with credit performance in line with expectations for the portfolio. The increase for the year ended December 31, 2015, was partially offset by the continued strong performance of our commercial loan portfolio.
2014 Compared to 2013
Our Automotive Finance operations earned income from continuing operations before income tax expense of $1.4 billion for the year ended December 31, 2014, compared to $1.2 billion for the year ended December 31, 2013. Results for the year ended December 31, 2014, were favorably impacted primarily by higher operating lease revenue driven by increases in lease remarketing gains due to increases in termination volumes. Lease terminations totaled 296,393 for the year ended December 31, 2014, compared to 148,587 for the year ended December 31, 2013, reflecting an increase of 99%. The favorability was partially offset by higher depreciation expense on the operating lease portfolio and higher provision for loan losses resulting from consumer portfolio growth.
Consumer financing revenue increased $42 million for the year ended December 31, 2014, compared to 2013, primarily due to continued origination growth. GM and Growth consumer originations increased 7% and 45%, respectively, for the year ended December 31, 2014, compared to 2013. This increase was partially offset by lower yields as a result of higher-quality asset originations and increased competition.
Commercial financing revenue decreased $37 million for the year ended December 31, 2014, compared to 2013, primarily due to lower yields as a result of increased competition in the wholesale marketplace.
Net operating lease revenue increased 9% for the year ended December 31, 2014, compared to 2013. The increase was primarily due to higher lease asset balances resulting from strong origination volume and higher lease remarketing gains due to increased termination volumes. We recognized remarketing gains of $433 million for the year ended December 31, 2014, compared to $332 million in 2013. The increases in revenue and lease remarketing gains were partially offset by an increase in depreciation expense due to higher lease asset balances resulting from strong lease origination volume. For further details on our lease business, refer to the section titled Lease Residual Risk Management within this MD&A.
Servicing fee income decreased 47% for the year ended December 31, 2014, compared to 2013, due to lower levels of off-balance sheet retail serviced assets.
Other income increased $13 million for the year ended December 31, 2014, compared to 2013, primarily due to higher remarketing fee income driven by an increase in lease terminations.

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


The provision for loan losses was $542 million for the year ended December 31, 2014, compared to $494 million in 2013. The increase was primarily due to the continued execution of our underwriting strategy to originate consumer assets across a broad risk spectrum and growth in our consumer loan automotive portfolio.
Total noninterest expense decreased 8% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to the nonrecurrence of a $98 million charge in the fourth quarter of 2013 relating to the execution of Consent Orders issued by the CFPB and the DOJ pertaining to the allegation of disparate impact in the automotive finance business. Also contributing to the overall decrease was a reduction of expenses related to our arrangement with GM that provided for certain exclusivity privileges related to subvention programs that they offered, which expired in February 2014. Refer to Note 30 to the Consolidated Financial Statements for additional details on these matters.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Automotive Finance Operations
Our Automotive Finance operations provide automotive financing services to consumers and automotive dealers. For consumers, we provide retail financing and leasing for new and used vehicles, and through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale or floorplan financing and provide dealer term loans and automotive fleet financing.
Acquisition and Underwriting
Our underwriting process is focused on multidimensional risk factors and data driven risk-adjusted probabilities that are continuously monitored and updated. Each application is placed into an analytical category based on specific aspects of the applicant’s credit profile. We then evaluate the application by applying a proprietary credit scoring algorithm tailored to its applicable category. Inputs into this algorithm include, but are not limited to, FICO® Score, proprietary scores, and deal structure variables such as loan-to-value, new or used vehicle collateral, and term of financing. The output of the algorithm is used to sort applications into various credit tiers (S, A, B, C, D, and E). Credit tiers are used primarily to communicate to the dealer, that submitted the application, our indication of credit quality and pricing. This process is built on long established credit risk fundamentals to determine both the borrower’s ability and willingness to repay the loan. While advances in excess of 100% of the vehicle collateral value at loan origination, not withstanding cash down and/or vehicle trade in value, are typical in the industry (primarily due to additional costs such as mechanical warranty contracts, taxes, license, and title fees), our pricing, risk, and underwriting processes are rooted in statistical analysis to contemplate this risk.
In addition to our empirical approach of assessing risk, a large majority of our applications are manually evaluated by an experienced team of dedicated underwriters prior to the decision being communicated. We have developed an automated process to expedite the review of applications with various combinations of credit factors that we have observed over time to substantially outperform or underperform in terms of net credit losses. As a result, there are many clusters of credit factors that will lead to an automated decision, rather than a small set of benchmark characteristics. Automated approvals are primarily limited to the highest quality credit tiers. However, even in the highest quality credit tier, a large portion of approved applications are manually approved by an underwriter. For higher risk transactions, underwriters often verify details of the application such as borrower income and employment through documentation provided by the borrower or alternative data sources from third parties.
Credit underwriters have a limited ability to approve exceptions to the guidelines contained in our underwriting criteria. Exceptions to our credit policies must be approved by credit underwriters with appropriate credit authority. Approved applicants that do not comply with our credit guidelines must have strong compensating factors that indicate a high willingness and ability of the applicant to repay the loan. For example, underwriting exceptions may include allowing a longer term or a greater ratio of payment-to-income, debt-to-income, or loan-to-value. We monitor exceptions to our underwriting criteria with the goal of limiting exceptions to a small portion of approved applications and rarely permit more than a single exception for any contract.
Consumer Automotive Financing
We provide two basic types of financing for new and used vehicles: retail installment sale contracts (retail contracts) and lease contracts. In most cases, we purchase retail contracts and leases for new and used vehicles from dealers when the vehicles are purchased or leased by consumers. Our consumer automotive financing operations generate revenue through finance charges or lease payments and fees paid by customers on the retail contracts and leases. In connection with lease contracts, we also recognize a gain or loss on the remarketing of the vehicle at the end of the lease.
The amount we pay a dealer for a retail contract is based on the negotiated purchase price of the vehicle and any other products, such as service contracts, less any vehicle trade-in value and any down payment from the consumer. Under the retail contract, the consumer is obligated to make payments in an amount equal to the purchase price of the vehicle (less any trade-in or down payment) plus finance charges at a rate negotiated between the consumer and the dealer. In addition, the consumer is also responsible for charges related to past-due payments. When we purchase the contract, it is normal business practice for the dealer to retain some portion of the finance charge as income for the dealership. Our agreements with dealers place a limit on the amount of the finance charges they are entitled to retain. Although we do not own the vehicles we finance through retail contracts, we hold a perfected security interest in those vehicles.
With respect to consumer leasing, we purchase leases (and the associated vehicles) from dealerships. The purchase price of consumer leases is based on the negotiated price for the vehicle less any vehicle trade-in and any down payment from the consumer. Under the lease, the consumer is obligated to make payments in amounts equal to the amount by which the negotiated purchase price of the vehicle (less any trade-in value or down payment) exceeds the contract residual value (including residual support) of the vehicle at lease termination, plus lease charges. The consumer is also generally responsible for charges related to past due payments, excess mileage, excessive wear and tear, and certain disposal fees where applicable. At contract inception, we determine pricing based on the projected residual value of the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is compared against third party, independent data for reasonableness.
Periodically, we revise the projected value of the lease vehicle at termination based on current market conditions and adjust depreciation expense appropriately over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation expense.
Our standard leasing plan, SmartLease, requires a monthly payment by the consumer. We also offer an alternative leasing plan, SmartLease Plus, that requires one up-front payment of all lease amounts at the time the consumer takes possession of the vehicle.

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


Consumer leases are operating leases; therefore, credit losses on the operating lease portfolio are not as significant as losses on retail contracts because lease credit losses are primarily limited to past due payments and assessed fees. Since some of these fees are not assessed until the vehicle is returned, these losses on the lease portfolio are correlated with lease termination volume. Operating lease accounts past due over 30 days represented 1.00% and 0.75% of the portfolio at December 31, 2015, and 2014, respectively.
With respect to all financed vehicles, whether subject to a retail contract or a lease contract, we require that property damage insurance be obtained by the consumer. In addition, for lease contracts, we require that bodily injury, collision, and comprehensive insurance be obtained by the consumer.
Total consumer financing revenue of our Automotive Finance operations was $3.2 billion, $3.0 billion, and $3.0 billion for the years ended December 31, 2015, 2014, and 2013, respectively. Net operating lease revenue of our Automotive Finance operations was $1.1 billion, $1.3 billion, and $1.2 billion for the years ended December 31, 2015, 2014, and 2013, respectively.
The following tables present retail originations by credit tier, average buy rate and NAALR.
Year ended December 31, 2015
 
 
 
 
 
 
 
 
 
 
Credit Tier (a)
 
Volume
($ in billions)
 
% Share of Volume
 
Average Buy Rate (b)
 
NAALR (c)
 
Average FICO®
S
 
$
12.7

 
35
 
3.24
%
 
(0.14
)%
 
753

A
 
13.8

 
38
 
5.26
%
 
(0.77
)%
 
670

B
 
7.2

 
20
 
8.69
%
 
(2.07
)%
 
636

C
 
2.4

 
6
 
12.27
%
 
(3.45
)%
 
600

D
 
0.2

 
1
 
17.65
%
 
(4.91
)%
 
571

Total
 
$
36.3

 
100
 
5.81
%
 
(1.11
)%
 
687

(a)
Represents Ally's internal credit score, incorporating numerous borrower and structure attributes including: FICO® score; severity and aging of delinquency; number of credit inquiries; loan-to-value ratio; and payment-to-income ratio.
(b)
Simple weighted average rate at which Ally purchases a retail loan contract from a dealer.
(c)
Projected Net Average Annualized Loss Rate.
Year ended December 31, 2014
 
 
 
 
 
 
 
 
 
 
Credit Tier
 
Volume
(
$ in billions)
 
% Share of Volume
 
Average Buy Rate
 
NAALR
 
Average FICO®
S
 
$
9.7

 
33
 
2.66
%
 
(0.11
)%
 
777

A
 
11.0

 
37
 
4.57
%
 
(0.68
)%
 
688

B
 
6.1

 
21
 
8.04
%
 
(1.78
)%
 
647

C
 
2.4

 
8
 
11.88
%
 
(2.61
)%
 
611

D
 
0.4

 
1
 
16.30
%
 
(3.81
)%
 
575

Total
 
$
29.6

 
100
 
5.46
%
 
(1.00
)%
 
700

Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
Credit Tier
 
Volume
(
$ in billions)
 
% Share of Volume
 
Average Buy Rate
 
NAALR
 
Average FICO®
S
 
$
8.8

 
33
 
2.83
%
 
(0.10
)%
 
777

A
 
8.5

 
32
 
4.49
%
 
(0.64
)%
 
694

B
 
6.4

 
24
 
7.67
%
 
(1.60
)%
 
649

C
 
2.6

 
10
 
11.47
%
 
(2.49
)%
 
611

D
 
0.4

 
1
 
16.17
%
 
(3.82
)%
 
574

Total
 
$
26.7

 
100
 
5.64
%
 
(1.00
)%
 
699

For the year ended December 31, 2015, as compared to 2014, the increase in NAALR was 11 basis points, while the Average Buy Rate for retail originations increased by 35 basis points.

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


The following table presents the total consumer origination dollars and percentage mix by product type.
 
Consumer automotive
financing originations
 
% Share of
Ally originations
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
New retail standard
 
$
19,220

 
$
13,913

 
$
12,059

 
47
 
34
 
32
Used
 
14,842

 
11,714

 
9,874

 
36
 
28
 
26
Lease
 
4,702

 
11,332

 
10,591

 
11
 
28
 
29
New retail subvented
 
2,244

 
3,992

 
4,806

 
6
 
10
 
13
Total consumer automotive financing originations (a)(b)
 
$
41,008

 
$
40,951

 
$
37,330

 
100
 
100
 
100
(a)
Includes CSG originations of $3.8 billion, $3.8 billion, and $3.1 billion for the years ended December 31, 2015, 2014, and 2013, respectively, and RV originations of $514 million, $461 million, and $471 million for the years ended December 31, 2015, 2014, and 2013, respectively.
(b)
On September 16, 2015, we entered into agreements with Mitsubishi Motors Credit of America, Inc. (MMCA) affiliates providing us the beneficial interest in MMCA’s consumer loan and lease portfolio, which included $0.6 billion of retail and lease contracts. These assets have been excluded from the amounts presented.
The following table presents the total consumer origination dollars and percentage mix by channel.
 
Consumer automotive
financing originations
 
% Share of
Ally originations
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Growth
 
$
12,748

 
$
8,323

 
$
5,737

 
31
 
20
 
15
GM
 
18,666

 
25,847

 
24,213

 
46
 
63
 
65
Chrysler
 
9,594

 
6,781

 
7,380

 
23
 
17
 
20
Total consumer automotive financing originations (a)
 
$
41,008

 
$
40,951

 
$
37,330

 
100
 
100
 
100
(a)
Excludes consumer loans and leases purchased from MMCA of $0.6 billion.
During the year ended December 31, 2015, total consumer originations increased $57 million compared to 2014. The increase was primarily due to higher volume in the Growth and Chrysler channels, as well as strong GM new retail standard volume. Growth and Chrysler volume increased 53% and 41%, respectively, in 2015, compared to 2014 driven by expanded offerings and new dealer relationships. As expected, the increase in volume was partially offset by lower GM new retail subvented and lease volume.
Below we have included origination metrics by loan term and FICO® Score. However, the proprietary way we evaluate risk is based on multiple inputs as described in the Acquisition and Underwriting section above.
The following table presents the percentage of total retail originations by the loan term in months.
Year ended December 31,
 
2015
 
2014
 
2013
0-71
 
21
%
 
26
%
 
28
%
72-75
 
68

 
72

 
70

76+
 
11

 
2

 
2

Total retail originations (a)
 
100
%
 
100
%
 
100
%
(a)
Excludes RV loans.
Substantially all of the loans originated with a term of 76+ months during the years ended December 31, 2015, 2014, and 2013 were considered to be prime. We define prime retail automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of 620 or greater.

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


The following table presents the percentage of total consumer originations by FICO® Score.
Year ended December 31,
 
2015
 
2014
 
2013
740 +
 
26
%
 
35
%
 
36
%
739-660
 
34

 
34

 
34

659-620
 
22

 
17

 
17

619-540
 
12

 
8

 
8

< 540
 
1

 
1

 
1

Unscored (a)
 
5

 
5

 
4

Total consumer automotive financing originations
 
100
%
 
100
%
 
100
%
(a)
Unscored are primarily CSG contracts with entities that have no FICO® Score.
As we continue the execution of our disciplined underwriting strategy to originate consumer automotive assets across a broad risk spectrum, retail originations with a term over 76 months represented 11% of total retail originations in 2015, compared to 2% in 2014. In addition, originations with a FICO® Score of less than 620 (considered nonprime) represented 13% of total consumer originations in 2015, compared to 9% in 2014. However, consumer loans and leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations each period. For discussion of our credit risk management practices and performance, refer to the section titled Risk Management within this MD&A.
Manufacturer Marketing Incentives
Automotive manufacturers may elect to sponsor incentive programs (on both retail contracts and leases) by supporting finance rates below the standard market rates at which we purchase retail contracts. These marketing incentives are also referred to as rate support or subvention. When automotive manufacturers utilize these marketing incentives, we are compensated at contract inception for the present value of the difference between the customer rate and our standard rates. For retail loans, we defer and recognize this amount as a yield adjustment over the life of the contract. For lease contracts, this payment reduces our cost basis in the underlying lease asset.
Under what we refer to as pull-ahead programs, consumers may be encouraged by the manufacturer to terminate leases early in conjunction with the acquisition of a new vehicle. As part of these programs, we waive all or a portion of the customer's remaining payment obligation. Under most programs, the automotive manufacturer compensates us for a portion of the foregone revenue from the waived payments that are offset partially to the extent that our remarketing sales proceeds are higher than otherwise would be realized if the vehicle had been remarketed at lease contract maturity.
We were previously party to separate agreements with both GM and Chrysler that provided for certain exclusivity privileges related to subvention programs that they offered. Our agreement with Chrysler expired in April 2013. In addition, our agreement with GM expired effective February 28, 2014. These agreements provided Ally with certain preferred provider benefits, including limiting the use of other financing providers by GM and Chrysler for their incentive programs. During 2015, GM determined to provide subvention programs exclusively through a wholly-owned subsidiary.
Servicing
We have historically serviced all retail contracts and leases we originated. On occasion, we have sold a portion of the retail contracts we originated through whole-loan sales and securitizations, but retained the right to service and earn a servicing fee for our servicing functions. Ally Servicing LLC, a wholly-owned subsidiary, performs most servicing activities for retail contracts and consumer automotive leases.
Servicing activities consist largely of collecting and processing customer payments, responding to customer inquiries such as requests for payoff quotes, processing customer requests for account revisions (payment extensions and rewrites), maintaining a perfected security interest in the financed vehicle, monitoring certain vehicle insurance coverages, and disposing of off-lease vehicles. Servicing activities are generally consistent for our Automotive Finance operations; however, certain practices may be influenced by local laws and regulations.
Our customers have the option to receive monthly billing statements and remit payment by mail or through electronic fund transfers, or to establish online web-based account administration through the Ally Account Center. Customer payments are processed by regional third-party processing centers that electronically transfer payment information to customers' accounts.
Collections activity includes initiating contact with customers who fail to comply with the terms of the retail contract or lease agreement by sending reminder notices and/or contacting via telephone generally when an account becomes 3 to 15 days past due. The type of collection treatment and level of intensity increases as the account becomes more delinquent. The nature and timing of these activities depend on the repayment risk of the account.
During the collection process, we may offer a payment extension to a customer experiencing temporary financial difficulty. A payment extension enables the customer to delay monthly payments for 30, 60, or 90 days, thereby deferring the maturity date of the contract by the length of extension. Extensions granted to a customer typically do not exceed 90 days in the aggregate during any 12-month period or 180 days in aggregate over the life of the contract. During the deferral period, we continue to accrue and collect finance charges on the contract as part of the deferral agreement. If the customer's financial difficulty is not temporary and management believes the customer could

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


continue to make payments at a lower payment amount, we may offer to rewrite the remaining obligation, extending the term and lowering the monthly payment obligation. In those cases, the principal balance generally remains unchanged while the interest rate charged to the customer generally increases. The use of extensions and rewrites help mitigate financial loss in those cases where management believes the customer will recover from short-term financial difficulty and resume regularly scheduled payments or can fulfill the obligation with lower payments over a longer period. Before offering an extension or rewrite, collection personnel evaluate and take into account the capacity of the customer to meet the revised payment terms. Generally, we do not consider extensions that fall within our policy guidelines to represent more than an insignificant delay in payment and, therefore, they are not considered TDRs. Although the granting of an extension could delay the eventual charge-off of an account, typically we are able to repossess and sell the related collateral, thereby mitigating the loss. Of the total amount outstanding in the traditional retail portfolio at December 31, 2011, only 5.5% of the extended or rewritten balances were subsequently charged off through December 31, 2015. A four-year period was utilized for this analysis as this approximates the weighted average remaining term of the portfolio. At December 31, 2015, 7.4% of the total amount outstanding in the servicing portfolio had been granted an extension or was rewritten.
Subject to legal considerations, we normally begin repossession activity once an account becomes greater than 70 days past due. Repossession may occur earlier if management determines the customer is unwilling to pay, the vehicle is in danger of being damaged or hidden, or the customer voluntarily surrenders the vehicle. Approved third-party repossession vendors handle the repossession activity. After repossession, the customer is given a period of time to redeem or reinstate the vehicle by paying off the account or bringing the account current, respectively. If the vehicle is not redeemed or reinstated, it is sold at auction. If the proceeds do not cover the unpaid balance, including unpaid earned finance charges and allowable expenses, the resulting deficiency is charged off. Asset recovery centers pursue collections on accounts that have been charged off, including those accounts where the vehicle was repossessed, and skip accounts where the vehicle cannot be located.
At December 31, 2015, and 2014, our total consumer automotive serviced portfolio was $84.8 billion and $81.3 billion, respectively, compared to our consumer automotive on-balance sheet serviced portfolio of $80.0 billion and $77.6 billion. Refer to Note 11 to the Consolidated Financial Statements for further information regarding servicing activities.
Remarketing and Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the vehicle from the dealer. Neither the consumer nor the dealer is responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a leased vehicle upon remarketing is below the expected residual value determined at the time the lease contract is signed. Our ability to efficiently process and effectively market off-lease vehicles affects the disposal costs and the proceeds realized from vehicle sales. Our methods of vehicle sales at lease termination primarily include the following:
Sale to dealer — After the lessee declines an option to purchase the off-lease vehicle, the dealer who accepts the returned off-lease vehicle has the opportunity to purchase the vehicle directly from us at a price we define.
Internet auctions — Once the lessee and dealer decline their options to purchase, we offer off-lease vehicles to dealers and certain other third parties through our proprietary internet site (SmartAuction). This internet sales program maximizes the net sales proceeds from off-lease vehicles by reducing the time between vehicle return and ultimate disposition, reducing holding costs, and broadening the number of prospective buyers. We use the internet auction ourselves, and also maintain the internet auction site and administer the auction process for third party use. We earn a service fee for every third party vehicle sold through SmartAuction. In 2015, approximately 357,000 vehicles were sold through the internet site.
Physical auctions — We dispose of our off-lease vehicles not purchased at termination by the lease consumer or dealer or sold on an internet auction through traditional manufacturer-sponsored auctions. We are responsible for handling decisions at the auction including arranging for inspections, authorizing repairs and reconditioning, and determining whether bids received at auction should be accepted.
Commercial Automotive Financing
Automotive Wholesale Dealer Financing
One of the most important aspects of our dealer relationships is supporting the sale of vehicles through wholesale or floorplan financing. We primarily support automotive finance purchases by dealers of new and used vehicles manufactured or distributed before sale or lease to the retail customer. Wholesale automotive financing represents the largest portion of our commercial financing business and is the primary source of funding for dealers' purchases of new and used vehicles.
Wholesale credit is arranged through lines of credit extended to individual dealers. Wholesale floorplan loans are secured by the vehicles financed (and all other vehicle inventory), which provide strong collateral protection in the event of dealership default. Additional collateral (e.g., blanket lien over all dealership assets) and/or other credit enhancements (e.g., personal guarantees from dealership owners) are oftentimes obtained to further manage credit risk. Furthermore, benefit from automotive manufacturer repurchase arrangements, which serve as an additional layer of protection in the event of repossession of dealership inventory and/or dealership franchise termination. The amount we advance to dealers is equal to 100% of the wholesale invoice price of new vehicles, which includes destination and other miscellaneous charges, and a price rebate, known as a holdback, from the manufacturer to the dealer in varying amounts stated as a percentage of the invoice price. Interest on wholesale automotive financing is generally payable monthly. The majority of wholesale automotive financing is structured

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Ally Financial Inc. • Form 10-K


to yield interest at a floating rate indexed to London interbank offer rate (LIBOR) or the Prime Rate. The rate for a particular dealer is based on, among other things, competitive factors, the size of the account, and the dealer’s creditworthiness. Additionally, we make incentive payments to certain commercial automotive wholesale borrowers under our Ally Dealer Rewards Program and account for these payments as a reduction to interest income in the period they are earned.
Under the terms of the credit agreement with the dealer, we may demand payment of interest and principal on wholesale credit lines at any time. However, unless we terminate the credit line or the dealer defaults or the risk and exposure warrant, we generally require payment of the principal amount financed for a vehicle upon its sale or lease by the dealer to the customer.
Total commercial wholesale floorplan revenue of our Automotive Finance operations was $756 million, $860 million, and $908 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Commercial Wholesale Financing Volume
The following table summarizes the average balances of our commercial wholesale floorplan finance receivables of new and used vehicles and share of dealer inventory.
 
 
Average balance
 
% Share of
manufacturer franchise dealer inventory
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
GM new vehicles (a)
 
$
15,050

 
$
16,736

 
$
15,650

 
63
 
64
 
67
Chrysler new vehicles (a)
 
8,356

 
7,658

 
6,885

 
44
 
45
 
50
Growth new vehicles
 
3,580

 
3,039

 
2,637

 
 
 
 
 
 
Used vehicles
 
3,478

 
3,129

 
3,044

 
 
 
 
 
 
Total commercial wholesale finance receivables
 
$
30,464

 
$
30,562

 
$
28,216

 
 
 
 
 
 
(a)
Share of manufacturer franchise dealer inventory based on a 13-point average of dealer inventory.
Commercial wholesale financing average volume decreased slightly during 2015, compared to 2014. The decrease in GM new receivables was largely offset by increases in Chrysler new, Growth new, and Used commercial wholesale financing volume, including higher balances resulting from the preferred provider agreement with MMNA that was announced on April 27, 2015.
Other Commercial Automotive Financing
We also provide other forms of commercial financing for the automotive industry including automotive dealer term loans and automotive fleet financing. Automotive dealer term loans are loans that we make to dealers to finance other aspects of the dealership business. These loans are usually secured by real estate and/or other dealership assets, and are typically personally guaranteed by the individual owners of the dealership. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others.
Servicing and Monitoring
We service all of the wholesale credit lines in our portfolio and the wholesale automotive finance receivables that we have securitized. A statement setting forth billing and account information is distributed on a monthly basis to each dealer. Interest and other nonprincipal charges are billed in arrears and are required to be paid immediately upon receipt of the monthly billing statement. Generally, dealers remit payments to us through ACH transactions initiated by the dealer through a secure web application.
Dealers are assigned a risk rating based on various factors, including capital sufficiency, operating performance, and credit and payment history. The risk rating affects the amount of the line of credit and the ongoing risk management of the account. We monitor the level of borrowing under each dealer's credit line daily. We may adjust the dealer's credit line if warranted, based on the dealership's vehicle sales rate, and temporarily suspend the granting of additional credit, or take other actions following evaluation and analysis of the dealer's financial condition.
We periodically inspect and verify the existence of dealer vehicle inventories. The timing of these collateral audits varies, and no advance notice is given to the dealer. Among other things, audits are intended to assess dealer compliance with the financing agreement and confirm the status of our collateral.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Insurance Operations
Results of Operations
The following table summarizes the operating results of our Insurance operations excluding discontinued operations for the periods shown. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Insurance premiums and other income
 
 
 
 
 
 
 
 
 
 
Insurance premiums and service revenue earned
 
$
940

 
$
979

 
$
1,012

 
(4)
 
(3)
Investment income, net (a)
 
134

 
194

 
227

 
(31)
 
(15)
Other income
 
16

 
12

 
14

 
33
 
(14)
Total insurance premiums and other income
 
1,090

 
1,185

 
1,253

 
(8)
 
(5)
Expense
 
 
 
 
 
 
 
 
 
 
Insurance losses and loss adjustment expenses
 
293

 
410

 
405

 
29
 
(1)
Acquisition and underwriting expense
 
 
 
 
 
 
 
 
 
 
Compensation and benefits expense
 
68

 
63

 
62

 
(8)
 
(2)
Insurance commissions expense
 
378

 
374

 
370

 
(1)
 
(1)
Other expenses
 
140

 
141

 
162

 
1
 
13
Total acquisition and underwriting expense
 
586

 
578

 
594

 
(1)
 
3
Total expense
 
879

 
988

 
999

 
11
 
1
Income from continuing operations before income tax expense (benefit)
 
$
211

 
$
197

 
$
254

 
7
 
(22)
Total assets
 
$
7,053

 
$
7,190

 
$
7,124

 
(2)
 
1
Insurance premiums and service revenue written
 
$
977

 
$
1,023

 
$
997

 
(4)
 
3
Combined ratio (b)
 
92.8
%
 
100.2
%
 
98.0
%
 
 
 
 
(a)
Includes gain on investments of $85 million, $143 million, and $177 million for the years ended December 31, 2015, 2014, and 2013, respectively; and interest expense of $50 million, $54 million, and $64 million for the years ended December 31, 2015, 2014, and 2013, respectively.
(b)
Management uses a combined ratio as a primary measure of underwriting profitability. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other fee income.
2015 Compared to 2014
Our Insurance operations earned income from continuing operations before income tax expense of $211 million for the year ended December 31, 2015, compared to $197 million for the year ended December 31, 2014. The increase was primarily due to lower weather-related losses, partially offset by lower investment income and insurance premiums and service revenue earned.
Insurance premiums and service revenue earned was $940 million for the year ended December 31, 2015, compared to $979 million in 2014. The decrease was due primarily to lower earned revenue on VSC products as a result of the weakening Canadian dollar related to our continuing Canadian operations and higher dealer reinsurance participation. Additionally, the decrease was due to lower earned revenue from our Smart Lease Protect product as a result of GM's decision to provide lease subvention programs for their products exclusively through a wholly-owned subsidiary.
Net investment income totaled $134 million for the year ended December 31, 2015, compared to $194 million in 2014. The decrease was due primarily to lower realized investment gains.
Insurance losses and loss adjustment expenses totaled $293 million for the year ended December 31, 2015, compared to $410 million for the year ended December 31, 2014. The decrease was primarily due to lower wholesale weather-related losses. Additionally, we incurred lower non-weather-related losses driven by lower loss experience for VSC products. Lower weather-related losses primarily drove the decrease in the combined ratio to 92.8% for the year ended December 31, 2015, compared to 100.2% for the year ended December 31, 2014.
2014 Compared to 2013
Our Insurance operations earned income from continuing operations before income tax expense of $197 million for the year ended December 31, 2014, compared to $254 million for the year ended December 31, 2013. The decrease was primarily due to higher weather-related losses, lower earned revenue, and lower realized investment gains, partially offset by lower non-weather-related losses.
Insurance premiums and service revenue earned was $979 million for the year ended December 31, 2014, compared to $1.0 billion in 2013. The decrease was primarily due to the wind-down of our Canadian personal lines portfolio.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Net investment income totaled $194 million for the year ended December 31, 2014, compared to $227 million in 2013. The decrease was primarily due to lower realized investment gains as well as interest and dividend income, offset by lower other-than-temporary impairments, which totaled $14 million in 2014 as compared to $20 million in 2013.
Insurance losses and loss adjustment expenses totaled $410 million for the year ended December 31, 2014, compared to $405 million for the year ended December 31, 2013. The increase was primarily due to higher weather-related losses from severe hailstorms, particularly in the second quarter of 2014, partially offset by lower non-weather-related losses driven by the wind-down of the Canadian personal lines portfolio and lower loss experience of VSC products. Higher weather-related losses primarily drove the increase in the combined ratio to 100.2% for the year ended December 31, 2014, compared to 98.0% for the year ended December 31, 2013.
Premium and Service Revenue Written
The following table shows premium and service revenue written by insurance product.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Vehicle service contracts
 
 
 
 
 
 
New retail
 
$
436

 
$
422

 
$
421

Used retail
 
485

 
509

 
509

Reinsurance (a)
 
(178
)
 
(152
)
 
(143
)
Total vehicle service contracts (b)
 
743

 
779

 
787

Wholesale
 
169

 
186

 
157

Other finance and insurance (c)
 
65

 
58

 
53

Total
 
$
977

 
$
1,023

 
$
997

(a)
Reinsurance represents the transfer of premiums and risk from an Ally insurance company to a third party insurance company.
(b)
VSC revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern.
(c)
Other finance and insurance includes GAP coverage, excess wear and tear, wind-down of Canadian personal lines, and other ancillary products.
Insurance premiums and service revenue written was $977 million for the year ended December 31, 2015, compared to $1.0 billion in 2014. The decrease was due primarily to higher vehicle service contract dealer reinsurance participation, lower premium written as a result of the weakening Canadian dollar, and lower wholesale premiums due to lower floorplan exposure. The decrease was partially offset by higher premium written from new VSCs and other finance and insurance products.
Insurance premiums and service revenue written was $1.0 billion for the year ended December 31, 2014, compared to $997 million in 2013. The increase in Insurance premiums and service revenue written primarily resulted from higher wholesale premium, partially offset by higher vehicle service contract dealer reinsurance participation.
Cash and Investments
A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk tolerance, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.
December 31, ($ in millions)
 
2015
 
2014
Cash
 
 
 
 
Noninterest-bearing cash
 
$
293

 
$
239

Interest-bearing cash
 
995

 
1,289

Total cash
 
1,288

 
1,528

Available-for-sale securities
 
 
 
 
Debt securities
 
 
 
 
U.S. Treasury and federal agencies
 
269

 
392

U.S. States and political subdivisions
 
698

 
406

Foreign government
 
177

 
232

Mortgage-backed
 
694

 
1,097

Asset-backed
 
6

 
6

Corporate debt
 
1,204

 
746

Total debt securities
 
3,048

 
2,879

Equity securities
 
717

 
906

Total available-for-sale securities
 
3,765

 
3,785

Total cash and securities
 
$
5,053

 
$
5,313


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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Mortgage Operations
Results of Operations
The following table summarizes the operating results for our Mortgage operations excluding discontinued operations for the periods shown. The amounts presented are before the elimination of balances and transactions with our other reportable segments.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Net financing revenue
 
 
 
 
 
 
 
 
 
 
Total financing revenue and other interest income
 
$
302

 
$
282

 
$
378

 
7
 
(25)
Interest expense
 
230

 
239

 
302

 
4
 
21
Net financing revenue
 
72

 
43

 
76

 
67
 
(43)
Servicing fees
 

 

 
68

 
 
(100)
Servicing asset valuation and hedge activities, net
 

 

 
(213
)
 
 
(100)
Total servicing loss, net
 

 

 
(145
)
 
 
(100)
Gain on mortgage loans, net
 
79

 
6

 
55

 
n/m
 
(89)
Other income, net of losses
 
8

 
11

 
90

 
(27)
 
(88)
Total other revenue
 
87

 
17

 

 
n/m
 
n/m
Total net revenue
 
159

 
60

 
76

 
165
 
(21)
Provision for loan losses
 
1

 
(69
)
 
13

 
n/m
 
n/m
Noninterest expense
 
 
 
 
 
 
 
 
 
 
Compensation and benefits expense
 
11

 
11

 
39

 
 
72
Representation and warranty expense
 
(13
)
 
(10
)
 
104

 
30
 
110
Other operating expenses
 
70

 
69

 
181

 
(1)
 
62
Total noninterest expense
 
68

 
70

 
324

 
3
 
78
Income (loss) from continuing operations before income tax expense (benefit)
 
$
90

 
$
59

 
$
(261
)
 
53
 
123
Total assets
 
$
9,768

 
$
7,884

 
$
8,168

 
24
 
(3)
n/m = not meaningful
2015 Compared to 2014
Our Mortgage operations earned income from continuing operations before income tax expense of $90 million for the year ended December 31, 2015, compared to $59 million for the year ended December 31, 2014. The increase was primarily due to net gains on the sales of TDR loans, offset by higher provision for loan losses primarily due to lower reserve releases on mortgage assets, compared to 2014, combined with portfolio growth.
Net financing revenue was $72 million for the year ended December 31, 2015, compared to $43 million in 2014. The increase in net financing revenue was primarily due to loan portfolio growth as a result of bulk acquisitions of mortgage loans and lower interest expense as a result of lower funding costs.
We recognized a net gain on mortgage loans of $79 million for the year ended December 31, 2015, compared to $6 million for the year ended December 31, 2014. The increase was primarily due to the sales of TDR loans, which totaled $677 million of unpaid principal balance for the year ended December 31, 2015.
The provision for loan losses increased $70 million for the year ended December 31, 2015, compared to 2014. The increase was primarily due to lower reserve releases on mortgage assets, compared to 2014, combined with portfolio growth.
2014 Compared to 2013
Our Mortgage operations earned income from continuing operations before income tax expense of $59 million for the year ended December 31, 2014, compared to incurring a loss of $261 million for the year ended December 31, 2013. Favorability during 2014 was primarily the result of lower noninterest expense driven by our exit in 2013 of all nonstrategic mortgage-related activities, including consumer mortgage-lending production associated with government-sponsored refinancing programs, and our agency MSRs portfolio, as well as lower provision for loan losses. In addition, results for 2013 were unfavorably impacted by the valuation of our MSRs portfolio, which was sold during the second quarter of 2013.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Net financing revenue was $43 million for the year ended December 31, 2014, compared to $76 million in 2013. The decrease in net financing revenue was primarily due to the wind-down of our legacy consumer held-for-sale portfolio and lower asset levels in our held-for-investment portfolio, partially offset by lower interest expense as a result of lower funding costs.
We earned no net servicing income for the year ended December 31, 2014, compared to incurring a net servicing loss of $145 million in 2013, primarily due to the completed sales of our agency MSRs portfolio during the second quarter of 2013.
The net gain on mortgage loans decreased $49 million for the year ended December 31, 2014, compared to 2013. The decrease was primarily related to our 2013 decision to cease mortgage-lending production through our direct lending channel. The decrease was partially offset by the completed sale of a $40 million student lending portfolio during the second quarter of 2014.
Other income, net of losses, was $11 million for the year ended December 31, 2014, compared to $90 million in 2013. The decrease was primarily due to lower fee income and net origination revenue related to our exit from consumer mortgage-lending production.
The provision for loan losses decreased $82 million for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to lower reserve requirements as a result of the continued runoff of legacy mortgage assets, lower net charge-offs in 2014, and improvements in home prices.
Total noninterest expense decreased 78% for the year ended December 31, 2014, compared to 2013. The decrease was primarily due to our 2013 exit of all nonstrategic mortgage-related activities. Included in the decrease were lower broker fees from consumer mortgage-lending production associated with government-sponsored refinancing programs, lower compensation and benefits expense as a result of a reduction in the number of employees in our Mortgage operations, and lower representation and warranty expense resulting from decreased repurchase risk associated with the sale of our agency MSRs portfolio.
Mortgage Loan Production and Servicing
Mortgage loan production was $4.1 billion and $857 million for the years ended December 31, 2015, and 2014, respectively. The increase was primarily due to continued purchases of high-quality jumbo and LMI mortgage loans originated by third parties. We expect this activity to continue in 2016 in support of our treasury ALM activities and diversification. We also plan to introduce limited direct mortgage originations in late 2016.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Corporate and Other
The following table summarizes the activities of Corporate and Other excluding discontinued operations for the periods shown. Corporate and Other primarily consists of Corporate Finance, centralized corporate treasury activities, such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of the discount associated with new debt issuances and bond exchanges, and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes certain equity investments and reclassifications and eliminations between the reportable operating segments. Corporate Finance is a middle market lender that provides senior secured leveraged cash flow and asset based loans primarily to U.S.-based companies. Effective May 1, 2014, Corporate Finance was aligned under Ally Bank, allowing this business to have a more stable and competitive source of funding.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Favorable/
(unfavorable)
2015-2014
% change
 
Favorable/
(unfavorable)
2014-2013
% change
Net financing revenue (loss)
 
 
 
 
 
 
 
 
 
 
Total financing revenue and other interest income
 
$
379

 
$
361

 
$
298

 
5
 
21
Interest expense
 
 
 
 
 
 
 
 
 
 
Original issue discount amortization
 
62

 
189

 
262

 
67
 
28
Other interest expense
 
156

 
217

 
549

 
28
 
60
Total interest expense
 
218

 
406

 
811

 
46
 
50
Net financing revenue (loss) (a)
 
161

 
(45
)
 
(513
)
 
n/m
 
91
Other (expense) revenue
 
 
 
 
 
 
 
 
 
 
Loss on extinguishment of debt
 
(357
)
 
(202
)
 
(59
)
 
(77)
 
n/m
Other gain on investments, net
 
70

 
38

 
3

 
84
 
n/m
Other income, net of losses
 
74

 
30

 
76

 
147
 
(61)
Total other (expense) revenue
 
(213
)
 
(134
)
 
20

 
(59)
 
n/m
Total net loss
 
(52
)
 
(179
)
 
(493
)
 
71
 
64
Provision for loan losses
 
10

 
(16
)
 
(6
)
 
(163)
 
n/m
Total noninterest expense (b)
 
181

 
276

 
327

 
34
 
16
Loss from continuing operations before income tax (benefit) expense
 
$
(243
)
 
$
(439
)
 
$
(814
)
 
45
 
46
Total assets
 
$
26,124

 
$
23,369

 
$
26,304

 
12
 
(11)
n/m = not meaningful
(a)
Refer to the table that follows for further details on the components of net financing gain.
(b)
Includes a reduction of $762 million, $777 million, and $828 million for the years ended December 31, 2015, 2014, and 2013, respectively, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table summarizes the components of net financing revenue (loss) for Corporate and Other.
At and for the year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Original issue discount amortization (a)
 
$
(62
)
 
$
(189
)
 
$
(262
)
Net impact of the funds transfer pricing methodology
 
117

 
68

 
(308
)
Other (including Corporate Finance net financing revenue)
 
106

 
76

 
57

Total net financing revenue (loss)
 
$
161

 
$
(45
)
 
$
(513
)
Outstanding original issue discount balance
 
$
1,391

 
$
1,415

 
$
1,589

(a)
Amortization is included as interest on long-term debt in the Consolidated Statement of Income.
The following table presents the scheduled remaining amortization of the original issue discount at December 31, 2015.
Year ended December 31, ($ in millions)
 
2016
 
2017
 
2018
 
2019
 
2020
 
2021 and thereafter (a)
 
Total
Original issue discount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding balance
 
$
1,316

 
$
1,229

 
$
1,131

 
$
1,096

 
$
1,061

 
$

 

Total amortization (b)
 
75

 
87

 
98

 
35

 
35

 
1,061

 
$
1,391

(a)
The maximum annual scheduled amortization for any individual year is $158 million in 2030.
(b)
The amortization is included as interest on long-term debt on the Consolidated Statement of Income.
2015 Compared to 2014
Loss from continuing operations before income tax expense for Corporate and Other was $243 million for the year ended December 31, 2015, compared to $439 million for the year ended December 31, 2014. The decrease in loss for the year ended December 31, 2015, was primarily due to a decrease in interest on long term debt, a decrease in OID amortization due to asset liability management activity, and lower noninterest expense. The decreases were partially offset by an increase in interest on deposits due to deposit growth and an increase in loss on the extinguishment of debt resulting from debt tender offers. During the first half of 2015, we completed two tender offers to buy back a total of $1.8 billion of our high-coupon debt, resulting in a total loss on extinguishment of debt of $345 million related to these transactions.
Corporate and Other also includes the results of Corporate Finance which earned income from continuing operations before income tax expense of $50 million for the year ended December 31, 2015, compared to $64 million for the year ended December 31, 2014. The decrease was primarily driven by lower recoveries of previously charged-off loans compared to 2014, as well as increased reserves due primarily to higher asset levels, and an increase in other operating expenses. This decrease was partially offset by higher net financing revenue due primarily to asset growth.
2014 Compared to 2013
Loss from continuing operations before income tax expense for Corporate and Other was $439 million for the year ended December 31, 2014, compared to $814 million for the year ended December 31, 2013. The improvement in the loss from continuing operations before income tax expense for the year ended December 31, 2014, was primarily due to lower funding costs as a result of maturity and repayment of high-cost debt, decreases in OID amortization expense related to bond maturities and normal monthly amortization, higher investment income, and decreases in noninterest expense. Noninterest expense decreased primarily as a result of the overall streamlining of the company and increased operating efficiencies due in part to headcount reductions in centralized support functions. This improvement was partially offset by an increase in loss on extinguishment of debt related to a tender offer to buy back $750 million of our long-dated high-coupon debt in 2014 and a decrease in other income related to unfavorable derivative activity as a result of changes in rates and their impact on economic hedge positions.
Corporate and Other also includes the results of Corporate Finance. Corporate Finance earned income from continuing operations before income tax expense of $64 million for the year ended December 31, 2014, compared to $44 million for the year ended December 31, 2013. The increase was primarily due to higher net financing revenue primarily resulting from asset growth in the core business, as well as recoveries from previously charged-off loans.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Cash and Securities
The following table summarizes the composition of the cash and securities portfolio held at fair value by Corporate and Other.
December 31, ($ in millions)
 
2015
 
2014
Cash
 
 
 
 
Noninterest-bearing cash
 
$
1,829

 
$
1,083

Interest-bearing cash
 
3,232

 
2,933

Total cash
 
5,061

 
4,016

Available-for-sale securities
 
 
 
 
Debt securities
 
 
 
 
U.S. Treasury and federal agencies
 
1,472

 
786

U.S. states and political subdivisions
 
18

 

Mortgage-backed
 
10,153

 
9,581

Asset-backed
 
1,749

 
1,985

Total debt securities
 
13,392

 
12,352

Total cash and securities
 
$
18,453

 
$
16,368


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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Risk Management
Managing the risk/reward trade-off is a fundamental component of operating our businesses. Our risk management program is overseen by the Board, various risk committees, the executive leadership team, and our associates. The Risk and Compliance Committee of the Board, together with the Board, sets the risk appetite across our company while the risk committees, executive leadership team, and our associates identify and monitor current and emerging risks and manage those risks to be within our risk appetite. Ally's primary types of risk include credit, lease residual, market, operational, insurance/underwriting, and liquidity.
Credit risk — The risk of loss arising from the potential failure to receive payments due from an obligor in accordance with contractual obligations.
Lease Residual risk — The risk of loss arising from the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of the values used in establishing the pricing at lease inception.
Market risk — The risk of loss arising from changes in the fair value of our assets or liabilities (including derivatives) caused by movements in market variables, such as interest rates, foreign-exchange rates, and equity and commodity prices.
Operational risk — The risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events. We consider strategic and reputational risk part of operational risk.
Insurance/Underwriting risk — The risk of loss associated with insured events occurring, the severity of insured events, and the timing of claim payments arising from insured events.
Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet our financial obligations, and to withstand unforeseen liquidity stress events (refer to discussion in the section titled Liquidity Management, Funding, and Regulatory Capital within this MD&A).
While risk oversight is ultimately the responsibility of the Board, our governance structure starts within each line of business, including committees established to oversee risk in their respective areas. The lines of business are responsible for executing on risk strategies, policies, and controls that are fundamentally sound and compliant with enterprise risk management policies and with applicable laws and regulations. The line of business risk committees, which report up to the Risk and Compliance Committee of the Board, monitor the performance within each portfolio and determine whether to amend any risk practices based upon portfolio trends.
The Enterprise Risk Management and Compliance organizations are accountable for independently identifying, monitoring, measuring, and reporting on our various risks, and they are responsible for designing an effective risk management framework and structure. They are also responsible for monitoring that our risks remain within the tolerances established by the Board, developing and maintaining policies, and implementing risk management methodologies. In addition, the Enterprise Risk Management Committee (ERMC) established by the Chief Risk Officer is responsible for oversight of senior management’s responsibility to manage Ally’s risk profile within risk appetite and tolerances set by the Risk and Compliance Committee of the Board and for implementing Ally’s risk and compliance programs.
All lines of business and enterprise functions are subject to full and unrestricted audits by Audit Services. Audit Services reports to the Audit Committee of the Board, and is primarily responsible for assisting the Audit Committee in fulfilling its governance and oversight responsibilities. Audit Services is granted free and unrestricted access to any and all of our records, physical properties, technologies, management, and employees.
In addition, our Loan Review Group provides an independent assessment of the quality of our credit risk portfolios and credit risk management practices, and all lines of business and corporate functions that create or influence credit risk are subject to full and unrestricted reviews by the Loan Review Group. This group also is granted free and unrestricted access to any and all of our records, physical properties, technologies, management, and employees and reports its findings directly to the Risk and Compliance Committee of the Board. The findings of this group help to strengthen our risk management practices and processes throughout the organization.

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Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Loan and Lease Exposure
The following table summarizes the exposures from our loan and lease activities.
December 31, ($ in millions)
 
2015
 
2014
Finance receivables and loans
 
 
 
 
Automotive Finance operations
 
$
99,187

 
$
90,592

Mortgage operations
 
9,773

 
7,474

Corporate and Other
 
2,640

 
1,882

Total finance receivables and loans
 
111,600

 
99,948

Loans held-for-sale
 
 
 
 
Automotive Finance operations
 

 
1,515

Mortgage operations
 

 
452

Corporate and Other
 
105

 
36

Total loans held-for-sale
 
105

 
2,003

Total on-balance sheet loans
 
111,705

 
101,951

Off-balance sheet securitized loans
 
 
 
 
Automotive Finance operations (a)
 
2,529

 
2,801

Total off-balance sheet securitized loans
 
2,529

 
2,801

Operating lease assets
 
 
 
 
Automotive Finance operations
 
16,271

 
19,510

Total operating lease assets
 
16,271

 
19,510

Total loan and lease exposure
 
$
130,505

 
$
124,262

Serviced loans and leases
 
 
 
 
Automotive Finance operations (b)
 
$
119,808

 
$
115,391

Mortgage operations
 
9,773

 
7,926

Corporate and Other
 
2,532

 
1,347

Total serviced loans and leases
 
$
132,113

 
$
124,664

(a)
Represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions.
(b)
Includes $2.3 billion and $887 million of off-balance sheet whole-loan transactions at December 31, 2015, and December 31, 2014, respectively.
The risks inherent in our loan and lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact to our borrowers. The potential financial statement impact of these exposures varies depending on the accounting classification and future expected disposition strategy. We retain the majority of our automotive loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. We ultimately manage the associated risks based on the underlying economics of the exposure. Our lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, is declining with the decrease in the lease portfolio.
Finance receivables and loans — Loans that we have the intent and ability to hold for the foreseeable future or until maturity, or loans associated with an on-balance sheet securitization classified as secured borrowing. Finance receivables and loans are reported at their gross carrying value which includes the principal amount outstanding, net of unamortized deferred fees and costs on originated loans, unamortized premiums and discounts on purchased loans, unamortized basis adjustments arising from the designation of finance receivables and loans as the hedged item in qualifying fair value hedge relationships, and cumulative principal charge-offs. We refer to the gross carrying value less the allowance for loan loss as the net carrying value in finance receivables and loans. We manage the economic risks of these exposures, including credit risk, by adjusting underwriting standards and risk limits, augmenting our servicing and collection activities (including loan modifications and restructurings), and optimizing our product and geographic concentrations. Additionally, we may elect to account for certain mortgage loans at fair value. Changes in the fair value of these loans are recognized in a valuation allowance separate from the allowance for loan losses and were reflected in current period earnings. We use market-based instruments, such as derivatives, to hedge changes in the fair value of these loans.
Loans held-for-sale — Loans that we do not have the intent and ability to hold for the foreseeable future or until maturity. These loans are recorded on our balance sheet at the lower of their net carrying value or fair market value and are evaluated by portfolio and product type. Changes in the recorded value are recognized in a valuation allowance and reflected in current period earnings. We manage the economic risks of these exposures, including market and credit risks, in various ways including the use of market-based instruments, such as derivatives.

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Ally Financial Inc. • Form 10-K


Off-balance sheet securitized loans — Loans that we transfer off-balance sheet to nonconsolidated variable interest entities. We primarily report this exposure as cash or retained interests (if applicable). Similar to finance receivables and loans, we manage the economic risks of these exposures, including credit risk, through activities including servicing and collections.
Operating lease assets — The net book value of the automotive assets we lease includes the expected residual values upon remarketing the vehicles at the end of the lease. We are exposed to fluctuations in the expected residual value upon remarketing the vehicle at the end of the lease, and as such at contract inception, we determine pricing based on the projected residual value of the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is compared against third party, independent data for reasonableness. Periodically, we revise the projected value of the lease vehicle at termination based on current market conditions and adjust depreciation expense appropriately over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation expense. The balance sheet reflects both the lease asset as well as any associated rent receivables. The lease rent receivable is accrued when collection is reasonably assured and presented as a component of other assets. The lease asset is reviewed for impairment in accordance with applicable accounting standards.
Serviced loans and leases — Loans that we service on behalf of our customers or another financial institution. As such, these loans can be on or off our balance sheet. For our serviced consumer automotive loans, we do not recognize servicing assets or liabilities because we receive a fee that adequately compensates us for the servicing costs.
Refer to the section titled Critical Accounting Estimates within this MD&A and Note 1 to the Consolidated Financial Statements for further information.
Credit Risk Management
Credit risk is defined as the potential failure to receive payments due from an obligor in accordance with contractual obligations. Therefore, credit risk is a major source of potential economic loss to us. Credit risk is monitored by several groups and functions throughout the organization, including enterprise and line of business committees and the risk management function. Together, they oversee the credit decisioning and management processes, and monitor credit risk exposures to ensure they are managed in a safe-and-sound manner and are within our risk appetite. In addition, our Loan Review Group provides an independent assessment of the quality of our credit portfolios and credit risk management practices, and directly reports its findings to the Risk and Compliance Committee of the Board on a regular basis.
To mitigate risk, we have implemented specific policies and practices across all lines of business, utilizing both qualitative and quantitative analyses. This reflects our commitment to maintain an independent and ongoing assessment of credit risk and credit quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and lease portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem areas, loans and leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and procedures to monitor compliance with relevant laws and regulations. Our consumer and commercial loan and lease portfolios are subject to regular stress tests that are based on plausible, but unexpected, economic scenarios to ensure that we can weather a severe economic downturn. In addition, we establish and maintain underwriting policies and volume based limits across our portfolios and higher risk segments (e.g., nonprime) in support of our risk appetite.
We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated geographic region or a particular product or industry segment. We perform ongoing analyses of the consumer automotive, consumer mortgage, and commercial portfolios using a range of indicators to assess the adequacy of the allowance based on historical and current trends. Refer to Note 8 to the Consolidated Financial Statements for additional information.
Additionally, we utilize numerous collection strategies to mitigate loss and provide ongoing support to customers in financial distress. For automotive loans, we work with customers when they become delinquent on their monthly payment. In lieu of repossessing their vehicle, we may offer several types of assistance to aid our customers based on their willingness and ability to repay their loan. Loss mitigation may include extension of the loan maturity date and rewriting the loan terms. For mortgage loans, as part of our participation in certain governmental programs, we offer mortgage loan modifications to qualified borrowers. Numerous initiatives are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates.
Furthermore, we manage our counterparty credit exposure based on the risk profile of the counterparty. Within our policies, we have established standards and requirements for managing counterparty risk exposures in a safe-and-sound manner. Counterparty credit risk is derived from multiple exposure types, including derivatives, securities trading, securities financing transactions, financial futures, cash balances (e.g., due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more information on derivative counterparty credit risk, refer to Note 22 to the Consolidated Financial Statements.
During 2015, the U.S. economy continued to expand. The labor market recovered further during the year, with nonfarm payrolls increasing by 2.7 million and the annual unemployment rate falling to 5.0%. Within the U.S. automotive market, new light vehicle sales

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


continued to increase, to 17.4 million for the year ended December 31, 2015. We closely monitor macro-economic trends given the nature of our business and the potential economic impacts on our credit risk. We continue to be cautious with the economic outlook given continued weak global economic growth and potential for higher interest rates later in 2016.
On-balance Sheet Portfolio
Our on-balance sheet portfolio includes both finance receivables and loans and loans held-for-sale. At December 31, 2015, this primarily included $99.2 billion of automotive finance receivables and loans and $9.8 billion of mortgage finance receivables and loans. Within our on-balance sheet portfolio, we may elect to account for certain mortgage loans at fair value. Changes in the fair value of loans are classified as gain on mortgage and automotive loans, net, in the Consolidated Statement of Income. Our Mortgage operations are limited to the management of our held-for-investment mortgage loan portfolio and includes the execution of bulk purchases of high-quality jumbo and LMI mortgage loans originated by third parties. We expect this activity to continue in 2016 in support of our treasury ALM activities and diversification. We also plan to introduce limited direct mortgage originations in late 2016.
The following table presents our total on-balance sheet consumer and commercial finance receivables and loans.
 
 
Outstanding
 
Nonperforming (a)
 
Accruing past due 90 days or more
December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Consumer
 
 
 
 
 
 
 
 
 
 
 
 
Finance receivables and loans
 
 
 
 
 
 
 
 
 
 
 
 
Loans at gross carrying value
 
$
74,065

 
$
64,043

 
$
603

 
$
563

 
$

 
$

Loans at fair value
 

 
1

 

 

 

 

Total finance receivables and loans
 
74,065

 
64,044

 
603

 
563

 

 

Loans held-for-sale
 

 
1,967

 

 
8

 

 

Total consumer loans (b)
 
74,065

 
66,011

 
603

 
571

 

 

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Finance receivables and loans at gross carrying value
 
37,535

 
35,904

 
77

 
82

 

 

Loans held-for-sale
 
105

 
36

 

 

 

 

Total commercial loans
 
37,640

 
35,940

 
77

 
82

 

 

Total on-balance sheet loans
 
$
111,705

 
$
101,951

 
$
680

 
$
653

 
$

 
$

(a)
Includes nonaccrual TDR loans of $277 million and $281 million at December 31, 2015, and December 31, 2014, respectively.
(b)
Includes outstanding CSG loans of $6.2 billion and $5.2 billion at December 31, 2015, and December 31, 2014, respectively, and RV loans of $1.5 billion and $1.2 billion at December 31, 2015, and December 31, 2014, respectively.
Total on-balance sheet loans outstanding at December 31, 2015, increased $9.8 billion to $111.7 billion from December 31, 2014, reflecting an increase of $8.1 billion in the consumer portfolio and an increase of $1.7 billion in the commercial portfolio. The increase in consumer on-balance sheet loans was primarily driven by automotive originations, which outpaced portfolio runoff, partially offset by an off-balance sheet securitization and whole-loan sales totaling $3.6 billion during the year ended December 31, 2015. In addition, we executed bulk purchases of high-quality jumbo mortgage loans originated by third parties totaling $4.1 billion during the year ended December 31, 2015, which outpaced mortgage portfolio runoff. The increase in commercial on-balance sheet loans outstanding was primarily due to the growth of wholesale floorplan finance receivables and automotive dealer term loans.
Total TDRs outstanding at December 31, 2015, decreased $505 million from December 31, 2014, primarily due to sales of consumer mortgage TDR loans from the held-for-sale portfolio during the year ended December 31, 2015. Refer to Note 8 to the Consolidated Financial Statements for additional information.
Total nonperforming loans at December 31, 2015, increased $27 million to $680 million from December 31, 2014, reflecting an increase of $32 million of consumer nonperforming loans, partially offset by a decrease of $5 million of commercial nonperforming loans. The increase in total nonperforming loans from December 31, 2014, was due to growth in the consumer automotive portfolio and the change in our consumer automotive portfolio composition as we continued the execution of our underwriting strategy to expand our originations across a broad risk spectrum. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements for additional information.

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


The following table includes consumer and commercial net charge-offs from finance receivables and loans at gross carrying value and related ratios.
 
 
Net charge-offs (recoveries)
 
Net charge-off ratios (a)
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
Consumer
 
$
609

 
$
544

 
0.9
%
 
0.8
%
Commercial
 

 
(7
)
 

 

Total finance receivables and loans at gross carrying value
 
$
609

 
$
537

 
0.6
%
 
0.5
%
(a)
Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the year for each loan category.
Net charge-offs were $609 million for the year ended December 31, 2015, compared to $537 million for the year ended December 31, 2014. The increase was driven primarily by consumer automotive portfolio growth and the change in our portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum.
The Consumer Credit Portfolio and Commercial Credit Portfolio discussions that follow relate to consumer and commercial finance receivables and loans recorded at gross carrying value. Finance receivables and loans recorded at gross carrying value have an associated allowance for loan losses.
Consumer Credit Portfolio
Our consumer portfolio primarily consists of automotive loans, first mortgages, and home equity loans. Loan losses in our consumer portfolio are influenced by general business and economic conditions including unemployment rates, bankruptcy filings, and home and used vehicle prices. Additionally, our consumer credit exposure is significantly concentrated in automotive lending, largely through GM and Chrysler dealerships; however, due to our continued strategic focus on diversification, the proportion of Growth new and used portfolios has continued to increase.
Credit risk management for the consumer portfolio begins with the initial underwriting and continues throughout a borrower's credit cycle. We manage consumer credit risk through our loan origination and underwriting policies and the credit approval process. We use proprietary credit-scoring models to differentiate the expected default rates of credit applicants enabling us to better evaluate credit applications for approval and to tailor the pricing and financing structure according to this assessment of credit risk. We regularly review the performance of the credit scoring models and update them for historical information and current trends. These and other actions mitigate but do not eliminate credit risk. Improper evaluations of a borrower's creditworthiness, fraud, and/or changes in the applicant's financial condition after approval could negatively affect the quality of our portfolio, resulting in loan losses.
Our servicing activities are another key factor in managing consumer credit risk. Servicing activities consist largely of collecting and processing customer payments, responding to customer inquiries such as requests for payoff quotes, and processing customer requests for account revisions (such as payment extensions and refinancings). Certain servicing practices may be influenced by local laws and regulations.
During the year ended December 31, 2015, the credit performance of the consumer portfolio remained strong and reflects both the continued execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum, including used, nonprime, extended term, Growth, and nonsubvented finance receivables and loans, and our continued execution of bulk purchases of high-quality jumbo mortgage loans originated by third parties. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.
The following table includes consumer finance receivables and loans recorded at gross carrying value.
 
 
Outstanding
 
Nonperforming (a)
 
Accruing past due 90 days or more
December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Consumer automotive (b) (c)
 
$
64,292

 
$
56,570

 
$
475

 
$
386

 
$

 
$

Consumer mortgage
 
9,773

 
7,473

 
128

 
177

 

 

Total consumer finance receivables and loans
 
$
74,065

 
$
64,043

 
$
603

 
$
563

 
$

 
$

(a)
Includes nonaccrual TDR loans of $233 million and $216 million at December 31, 2015, and December 31, 2014, respectively.
(b)
Includes $66 million and $35 million of fair value adjustment for loans in hedge accounting relationships at December 31, 2015, and December 31, 2014, respectively. Refer to Note 22 to the Consolidated Financial Statements for additional information.
(c)
Includes outstanding CSG loans of $6.2 billion and $5.0 billion at December 31, 2015, and December 31, 2014, respectively, and RV loans of $1.5 billion and $1.2 billion at December 31, 2015, and December 31, 2014, respectively.
Total consumer outstanding finance receivables and loans increased $10.0 billion to $74.1 billion from December 31, 2014. The increase in consumer automotive finance receivables and loans was primarily related to our loan originations, which outpaced portfolio runoff and was partially offset by $1.2 billion of loans originated to the held-for-sale portfolio, as well as $1.2 billion of loans transferred to the held-for-sale portfolio and sold during 2015. The increase in consumer mortgage finance receivables and loans was primarily due to growth in the portfolio

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


due to the execution of bulk loan purchases, which outpaced portfolio runoff. Refer to Note 8 to the Consolidated Financial Statements for additional information.
Total consumer nonperforming finance receivables and loans at December 31, 2015, increased $40 million to $603 million from December 31, 2014, reflecting an increase of $89 million of consumer automotive finance receivables and loans and a decrease of $49 million of consumer mortgage nonperforming finance receivables and loans. The increase in nonperforming consumer automotive finance receivables and loans was due to growth in the portfolio and the change in our portfolio composition as we continued the execution of our underwriting strategy to expand our originations across a broad risk spectrum. The decrease in nonperforming consumer mortgage finance receivables and loans was primarily due to fewer accounts deteriorating into nonperforming status due to continued improvement in the macroeconomic environment. Refer to Note 8 to the Consolidated Financial Statements for additional information. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans were 0.8% and 0.9% at December 31, 2015, and December 31, 2014, respectively.
Consumer automotive loans accruing and past due 30 days or more increased $343 million to $1.9 billion at December 31, 2015, compared with December 31, 2014, primarily due to portfolio growth and the change in our portfolio composition as we continued the execution of our underwriting strategy to expand our originations across a broad risk spectrum.
The following table includes consumer net charge-offs from finance receivables and loans at gross carrying value and related ratios.
 
 
Net charge-offs
 
Net charge-off ratios (a)
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
Consumer automotive
 
$
578

 
$
501

 
1.0
%
 
0.9
%
Consumer mortgage
 
31

 
43

 
0.4

 
0.5

Total consumer finance receivables and loans
 
$
609

 
$
544

 
0.9
%
 
0.8
%
(a)
Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the year for each loan category.
Our net charge-offs from total consumer finance receivables and loans were $609 million for the year ended December 31, 2015, compared to $544 million for the year ended December 31, 2014. The increase was driven primarily by consumer automotive portfolio growth and the change in our automotive portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum.
The following table summarizes the unpaid principal balance of total consumer loan originations for the periods shown. Total consumer loan originations include loans classified as finance receivables and loans and loans held-for-sale during the period.
Year ended December 31, ($ in millions)
 
2015
 
2014
Consumer automotive (a)
 
$
36,306

 
$
29,619

Consumer mortgage
 
2

 

Total consumer loan originations
 
$
36,308

 
$
29,619

(a)
Includes $1.2 billion of loans originated as held-for-sale during the first quarter of 2015.
Total automotive-originated loans increased $6.7 billion for the year ended December 31, 2015, compared to 2014. The increase was primarily due to Growth and Chrysler originations.

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


The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state concentration. Total automotive loans were $64.3 billion and $56.6 billion at December 31, 2015, and December 31, 2014, respectively. Total mortgage and home equity loans were $9.8 billion and $7.5 billion at December 31, 2015, and December 31, 2014, respectively.
 
 
2015 (a)
 
2014
December 31,
 
Automotive
 
Mortgage
 
Automotive
 
Mortgage
Texas
 
13.7
%
 
6.2
%
 
13.6
%
 
6.0
%
California
 
7.3

 
33.6

 
6.2

 
30.8

Florida
 
7.7

 
4.1

 
7.3

 
3.7

Pennsylvania
 
5.0

 
1.5

 
5.3

 
1.6

Illinois
 
4.4

 
4.1

 
4.4

 
4.2

Georgia
 
4.4

 
2.2

 
4.2

 
2.1

North Carolina
 
3.6

 
1.8

 
3.5

 
1.9

Ohio
 
3.7

 
0.6

 
3.9

 
0.6

New York
 
3.5

 
1.9

 
4.0

 
1.9

Michigan
 
3.1

 
2.4

 
3.8

 
3.1

Other United States
 
43.6

 
41.6

 
43.8

 
44.1

Total consumer loans
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
(a)
Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2015.
We monitor our consumer loan portfolio for concentration risk across the geographies in which we lend. The highest concentrations of consumer loans are in Texas and California, which represented an aggregate of 23.5% and 21.8% of our total outstanding consumer finance receivables and loans at December 31, 2015, and December 31, 2014, respectively.
Concentrations in our mortgage portfolio are closely monitored given the volatility of the housing market, with special attention given to states with greater declines in real estate values.
Repossessed and Foreclosed Assets
We classify an asset as repossessed or foreclosed (included in Other Assets on the Consolidated Balance Sheet) when physical possession of the collateral is taken, which includes the transfer of title through foreclosure or other similar proceedings. We dispose of the acquired collateral in a timely fashion in accordance with regulatory requirements. For more information on repossessed and foreclosed assets, refer to Note 1 to the Consolidated Financial Statements.
Repossessed consumer automotive loan assets in our Automotive Finance operations at December 31, 2015, increased $32 million to $122 million from December 31, 2014. Foreclosed mortgage assets at December 31, 2015, remained flat at $10 million from December 31, 2014.
Commercial Credit Portfolio
Our commercial portfolio consists primarily of automotive loans (wholesale floorplan, dealer term loans including real estate loans, and automotive fleet financing), as well as commercial finance loans. Wholesale floorplan loans are secured by the vehicles financed (and all other vehicle inventory), which provide strong collateral protection in the event of dealership default. Additional collateral (e.g., blanket lien over all dealership assets) and/or other credit enhancements (e.g., personal guarantees from dealership owners) are oftentimes obtained to further manage credit risk. Furthermore, we benefit from automotive manufacturer repurchase arrangements, which serve as an additional layer of protection in the event of repossession of dealership inventory and/or dealership franchise termination.
Within our commercial portfolio, we utilize an internal credit risk rating system that is fundamental to managing credit risk exposure consistently across various types of commercial borrowers and captures critical risk factors for each borrower. The ratings are used for many areas of credit risk management, including loan origination, portfolio risk monitoring, management reporting, and loan loss reserves analyses. Therefore, the rating system is critical to an effective and consistent credit risk management framework.
During the year ended December 31, 2015, the credit performance of the commercial portfolio remained strong, as nonperforming finance receivables and loans remained low and no net charge-offs were realized. For information on our commercial credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements.

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


The following table includes total commercial finance receivables and loans reported at gross carrying value.
 
 
Outstanding
 
Nonperforming (a)
 
Accruing past due 90 days or more
December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 
$
31,469

 
$
30,871

 
$
25

 
$
32

 
$

 
$

Other (b) 
 
2,640

 
1,882

 
44

 
46

 

 

Commercial real estate — Automotive
 
3,426

 
3,151

 
8

 
4

 

 

Total commercial finance receivables and loans
 
$
37,535

 
$
35,904

 
$
77

 
$
82

 
$

 
$

(a)
Includes nonaccrual troubled-debt-restructured loans of $44 million and $59 million at December 31, 2015, and December 31, 2014, respectively.
(b)
Other commercial primarily includes senior secured commercial lending.
Total commercial finance receivables and loans outstanding increased $1.6 billion to $37.5 billion at December 31, 2015, from December 31, 2014. The increase was primarily due to the growth of wholesale floorplan finance receivables and automotive dealer term loans, as well as continued growth in the Corporate Finance portfolio in line with our business strategy.
Total commercial nonperforming finance receivables and loans were $77 million at December 31, 2015, reflecting a decrease of $5 million when compared to December 31, 2014. The decrease was primarily driven by the successful rehabilitation or liquidation of certain nonperforming accounts and fewer accounts deteriorating into nonperforming status, partially offset by an increase in the commercial real estate automotive portfolio driven by the downgrade of two accounts. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans remained flat at 0.2% at both December 31, 2015, and December 31, 2014.
The following table includes total commercial net charge-offs from finance receivables and loans at gross carrying value and related ratios.
 
 
Net charge-offs (recoveries)
 
Net charge-off ratios (a)
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
Commercial and industrial
 
 
 
 
 
 
 
 
Automotive
 
$
3

 
$
1

 
 %
 
 %
Other
 
(3
)
 
(8
)
 
(0.1
)
 
(0.4
)
Total commercial finance receivables and loans
 
$

 
$
(7
)
 
 %
 
 %
(a)
Net charge-off ratios are calculated as net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the year for each loan category.
Commercial Real Estate
The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real estate finance receivables and loans were $3.4 billion and $3.2 billion at December 31, 2015, and December 31, 2014, respectively.
The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration. These finance receivables and loans are reported at gross carrying value.
December 31,
 
2015
 
2014
Texas
 
17.7
%
 
13.8
%
Florida
 
10.0

 
12.3

Michigan
 
8.9

 
9.9

California
 
8.7

 
9.0

North Carolina
 
3.8

 
3.9

Virginia
 
3.8

 
4.1

Georgia
 
3.6

 
3.7

Pennsylvania
 
3.4

 
3.8

New York
 
3.1

 
3.9

Illinois
 
2.9

 
2.7

Other United States
 
34.1

 
32.9

Total commercial real estate finance receivables and loans
 
100.0
%
 
100.0
%

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Ally Financial Inc. • Form 10-K


Commercial Criticized Exposure
Finance receivables and loans classified as special mention, substandard, or doubtful are deemed criticized. These classifications are based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or have already defaulted. These finance receivables and loans require additional monitoring and review including specific actions to mitigate our potential loss.
The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentrations. These finance receivables and loans within our automotive and corporate finance portfolios are reported at gross carrying value.
December 31,
 
2015
 
2014
Automotive
 
80.5
%
 
87.3
%
Manufacturing
 
7.8

 
0.9

Services
 
5.3

 
2.0

Other
 
6.4

 
9.8

Total commercial criticized finance receivables and loans
 
100.0
%
 
100.0
%
Total criticized exposures increased $305 million from December 31, 2014, to $2.5 billion at December 31, 2015. The increase was primarily related to growth within both the commercial automotive portfolio and the Corporate Finance portfolio.
Selected Loan Maturity and Sensitivity Data
The table below shows the commercial finance receivables and loans portfolio and the distribution between fixed and floating interest rates based on the stated terms of the commercial loan agreements. This portfolio is reported at gross carrying value.
December 31, 2015 ($ in millions)
Within 1 year (a)
 
1-5 years
 
After 5 years
 
Total (b)
Commercial and industrial
$
30,277

 
$
2,803

 
$
1,029

 
$
34,109

Commercial real estate
123

 
1,754

 
1,549

 
3,426

Total commercial finance receivables and loans
$
30,400

 
$
4,557

 
$
2,578

 
$
37,535

Loans at fixed interest rates
 
 
$
1,654

 
$
1,412

 
 
Loans at variable interest rates
 
 
2,903

 
1,166

 
 
Total commercial finance receivables and loans
 
 
$
4,557

 
$
2,578

 
 
(a)
Includes loans (e.g., floorplan) with revolving terms.
(b)
Loan maturities are based on the remaining maturities under contractual terms.

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Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
 
Consumer automotive
 
Consumer mortgage
 
Total consumer
 
Commercial
 
Total
Allowance at January 1, 2015
 
$
685

 
$
152

 
$
837

 
$
140

 
$
977

Charge-offs
 
(840
)
 
(48
)
 
(888
)
 
(4
)
 
(892
)
Recoveries
 
262

 
17

 
279

 
4

 
283

Net charge-offs
 
(578
)
 
(31
)
 
(609
)
 

 
(609
)
Provision for loan losses
 
739

 
1

 
740

 
(33
)
 
707

Other (a)
 
(12
)
 
(8
)
 
(20
)
 
(1
)
 
(21
)
Allowance at December 31, 2015
 
$
834

 
$
114

 
$
948

 
$
106

 
$
1,054

Allowance for loan losses to finance receivables and loans outstanding at December 31, 2015 (b)
 
1.3
%
 
1.2
%
 
1.3
%
 
0.3
%
 
0.9
%
Net charge-offs to average finance receivables and loans outstanding for the year ended December 31, 2015 (b)
 
1.0
%
 
0.4
%
 
0.9
%
 
%
 
0.6
%
Allowance for loan losses to total nonperforming finance receivables and loans at December 31, 2015 (b)
 
175.7
%
 
89.0
%
 
157.2
%
 
137.4
%
 
155.0
%
Ratio of allowance for loans losses to net charge-offs at December 31, 2015
 
1.4

 
3.7

 
1.6

 

 
1.7

(a)
Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
(b)
Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the unpaid principal balance, net of premiums and discounts.
The allowance for consumer loan losses at December 31, 2015, increased $111 million compared to December 31, 2014. The increase was driven by growth in the consumer automotive portfolio and the change in our automotive portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum, offset by lower reserve requirements in Mortgage driven by improved credit quality of the portfolio.
The allowance for commercial loan losses declined $34 million at December 31, 2015, compared to December 31, 2014, primarily due to continued strong performance in the portfolio, partially offset by portfolio growth.
($ in millions)
 
Consumer automotive
 
Consumer mortgage
 
Total consumer
 
Commercial
 
Total
Allowance at January 1, 2014
 
$
673

 
$
389

 
$
1,062

 
$
146

 
$
1,208

Charge-offs
 
(720
)
 
(51
)
 
(771
)
 
(5
)
 
(776
)
Recoveries
 
219

 
8

 
227

 
12

 
239

Net charge-offs
 
(501
)
 
(43
)
 
(544
)
 
7

 
(537
)
Provision for loan losses
 
540

 
(69
)
 
471

 
(14
)
 
457

Other (a)
 
(27
)
 
(125
)
 
(152
)
 
1

 
(151
)
Allowance at December 31, 2014
 
$
685

 
$
152

 
$
837

 
$
140

 
$
977

Allowance for loan losses to finance receivables and loans outstanding at December 31, 2014 (b)
 
1.2
%
 
2.0
%
 
1.3
%
 
0.4
%
 
1.0
%
Net charge-offs to average finance receivables and loans outstanding for the year ended December 31, 2014 (b)
 
0.9
%
 
0.5
%
 
0.8
%
 
%
 
0.5
%
Allowance for loan losses to total nonperforming finance receivables and loans at December 31, 2014 (b)
 
177.3
%
 
86.3
%
 
148.7
%
 
169.9
%
 
151.5
%
Ratio of allowance for loans losses to net charge-offs at December 31, 2014
 
1.4

 
3.6

 
1.5

 
(19.8
)
 
1.8

(a)
Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
(b)
Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the unpaid principal balance, net of premiums and discounts.
The allowance for consumer loan losses at December 31, 2014, declined $225 million compared to December 31, 2013. The decrease was primarily due to the transfer of consumer mortgage assets to held-for-sale as reflected within other, combined with lower reserve requirements within our Mortgage operations as a result of continued runoff of legacy mortgage assets. The decrease was partially offset by the continued execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum, as well as growth in our consumer automotive portfolio.

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Ally Financial Inc. • Form 10-K


The allowance for commercial loan losses declined $6 million at December 31, 2014, compared to December 31, 2013, primarily as a result of improved portfolio performance.
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
 
 
2015
 
2014
December 31, ($ in millions)
 
Allowance for loan losses
 
Allowance as a % of loans outstanding
 
Allowance as a % of total allowance for loan losses
 
Allowance for loan losses
 
Allowance as a % of loans outstanding
 
Allowance as a % of total allowance for loan losses
Consumer
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
$
834

 
1.3
%
 
79.1
%
 
$
685

 
1.2
%
 
70.1
%
Consumer mortgage
 
114

 
1.2

 
10.8

 
152

 
2.0

 
15.6

Total consumer loans
 
948

 
1.3

 
89.9

 
837

 
1.3

 
85.7

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 
29

 
0.1

 
2.8

 
65

 
0.2

 
6.7

Other
 
53

 
2.0

 
5.0

 
42

 
2.2

 
4.2

Commercial real estate — Automotive
 
24

 
0.7

 
2.3

 
33

 
1.0

 
3.4

Total commercial loans
 
106

 
0.3

 
10.1

 
140

 
0.4

 
14.3

Total allowance for loan losses
 
$
1,054

 
0.9

 
100.0
%
 
$
977

 
1.0

 
100.0
%
Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Consumer
 
 
 
 
 
 
Consumer automotive
 
$
739

 
$
540

 
$
490

Consumer mortgage
 
1

 
(69
)
 
13

Total consumer loans
 
740

 
471

 
503

Commercial
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
Automotive
 
(34
)
 
(1
)
 
11

Other
 
10

 
(16
)
 
(6
)
Commercial real estate — Automotive
 
(9
)
 
3

 
(7
)
Total commercial loans
 
(33
)
 
(14
)
 
(2
)
Total provision for loan losses
 
$
707

 
$
457

 
$
501

The provision for consumer loan losses increased $269 million for the year ended December 31, 2015, compared to 2014. The increase in the consumer automotive portfolio was primarily due to portfolio growth and the change in our portfolio composition as we continued the execution of our underwriting strategy to originate consumer automotive assets across a broad risk spectrum. The increase in the consumer mortgage portfolio was primarily due to lower reserve releases on mortgage assets combined with portfolio growth.
The provision for commercial loan losses was a net credit of $33 million for the year ended December 31, 2015, compared to a net credit of $14 million in 2014. This decrease was largely driven by a reduction in the loan loss reserve due to continued strong performance in the portfolio.
Lease Residual Risk Management
We are exposed to residual risk on vehicles in the consumer lease portfolio. This lease residual risk represents the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at lease inception. For information on our valuation of automotive lease residuals including periodic revisions through adjustments to depreciation expense based on current and forecasted market conditions, refer to the section titled Critical Accounting EstimatesValuation of Automotive Lease Assets and Residuals within this MD&A.
Priced residual value projections — At contract inception, we determine pricing based on the projected residual value of the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage,

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


seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and unanticipated shifts in used vehicle supply. This internally-generated data is compared against third party, independent data for reasonableness. Periodically, we revise the projected value of the lease vehicle at termination based on current market conditions and adjust depreciation expense appropriately over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing recorded through depreciation expense.
Remarketing abilities — Our ability to efficiently process and effectively market off-lease vehicles affects the disposal costs and the proceeds realized from vehicle sales. Vehicles can be remarketed through auction (internet and physical), sale to dealer, sale to lessee, and other methods. The results within these channels vary, with physical auction typically resulting in the lowest-priced outcome.
Manufacturer vehicle and marketing programs — Automotive manufacturers influence lease residual results in the following ways:
The brand image of automotive manufacturers and consumer demand for their products affect residual risk.
Automotive manufacturer marketing programs may influence the used vehicle market for those vehicles through programs such as incentives on new vehicles, programs designed to encourage lessees to terminate their leases early in conjunction with the acquisition of a new vehicle (referred to as pull-ahead programs), and special rate used vehicle programs.
Used vehicle market — We have exposure to changes in used vehicle prices. General economic conditions, used vehicle supply and demand, and new vehicle market prices heavily influence used vehicle prices.
Lease Vehicle Terminations and Remarketing
The following table summarizes the volume of Ally lease terminations and average gain per vehicle over recent periods, as well as our methods of vehicle sales at lease termination, stated as a percentage of total lease vehicle disposals. The actual gain per vehicle on lease terminations varies based upon the type of vehicle.
Year ended December 31,
 
2015
 
2014
 
2013
Off-lease vehicles terminated (in units)
 
264,256

 
296,393

 
148,587

Average gain per vehicle ($ per unit)
 
$
1,329

 
$
1,461

 
$
2,237

Method of vehicle sales
 
 
 
 
 
 
Auction
 

 
 
 
 
Internet
 
49
%
 
51
%
 
40
%
Physical
 
12

 
10

 
7

Sale to dealer, lessee, and other
 
39

 
39

 
53

The number of off-lease vehicles remarketed during 2015 decreased 11% as compared to 2014. We experienced significant growth in lease originations from 2010-2012 after curtailing lease originations in 2008-2009 as a result of the economic downturn, which resulted in historically high termination volume during 2014. The decrease in the number of off-lease vehicles remarketed during 2015 further reflects a shift of incentive programs from two-year leases in 2012 towards three-year leases in 2013. We expect termination volumes to increase during 2016 as three-year leases begin to terminate. In 2018 and beyond, we expect our termination volumes to decrease significantly as a direct result of lower GM lease originations.
Average gain per vehicle decreased in 2015, primarily due to lower lifetime depreciation recognized on terminated lease vehicles as a result of higher anticipated proceeds based on recent market conditions. This trend is expected to continue in the near term. For more information on our investment in operating leases, refer to Note 9 and Note 1 to the Consolidated Financial Statements.
Lease Portfolio Mix
We monitor the concentration of our outstanding operating leases. The following table presents the mix of leased vehicles by type, based on volume of units.
Year ended December 31,
 
2015
 
2014
 
2013
Car
 
38
%
 
40
%
 
43
%
Truck
 
14

 
13

 
11

Sport utility vehicle
 
48

 
47

 
46

Market Risk
Our automotive financing, mortgage, and insurance activities give rise to market risk representing the potential loss in the fair value of assets or liabilities and earnings caused by movements in market variables, such as interest rates, foreign-exchange rates, equity prices,

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


market perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases. We are exposed to interest rate risk arising from changes in interest rates related to financing, investing, and cash management activities. More specifically, we have entered into contracts to provide financing and to retain various assets related to securitization activities all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate and other fluctuations. Refer to Note 22 to the Consolidated Financial Statements for further information.
We are also exposed to some foreign-currency risk arising from foreign-currency denominated assets and liabilities, primarily in Canada. We enter into hedges to mitigate foreign exchange risk.
We also have exposure to equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to price risk influenced by capital market movements. We enter into equity options to economically hedge our exposure to the equity markets. Additionally, we have exposure to equity price risk related to certain share-based compensation. We enter into prepaid equity forward contracts to economically hedge a portion of this exposure.
Although the diversity of our activities from our complementary lines of business may partially mitigate market risk, we also actively manage this risk. We maintain risk management control systems to monitor interest rates, foreign-currency exchange rates, equity price risks, and any of their related hedge positions. Positions are monitored using a variety of analytical techniques including market value, sensitivity analysis, and value at risk models.
Fair Value Sensitivity Analysis
The following table and subsequent discussion presents a fair value sensitivity analysis of our assets and liabilities using isolated hypothetical movements in specific market rates. The analysis assumes adverse instantaneous, parallel shifts in market-exchange rates, interest rate yield curves, and equity prices. Additionally, since only adverse fair value impacts are included, the natural offset between asset and liability rate sensitivities that arise within a diversified balance sheet, such as ours, is not considered.
December 31, ($ in millions)
2015
 
2014
Financial instruments exposed to changes in:
 
 
 
Interest rates
 
 
 
Estimated fair value
(a)

 
(a)

Effect of 10% adverse change in rates
(a)

 
(a)

Foreign-currency exchange rates
 
 
 
Estimated fair value
$
359

 
$
476

Effect of 10% adverse change in rates
(56
)
 
(24
)
Equity prices
 
 
 
Estimated fair value
$
710

 
$
902

Effect of 10% decrease in prices
(71
)
 
(95
)
(a)
Refer to the section titled Net Financing Revenue Sensitivity Analysis for information on the interest rate sensitivity of our financial instruments.
Net Financing Revenue Sensitivity Analysis
Interest rate risk represents our most significant exposure to market risk. We actively monitor the level of exposure so that movements in interest rates do not adversely affect future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our financial instruments.
We prepare forward-looking forecasts of net financing revenue, which take into consideration anticipated future business growth, asset/liability positioning, and interest rates based on the implied forward curve. Simulations are used to assess changes in net financing revenue in multiple interest rates scenarios relative to the baseline forecast. The changes in net financing revenue relative to the baseline are defined as the sensitivity. Our simulation incorporates contractual cash flows and repricing characteristics for all assets, liabilities and off-balance sheet exposures and incorporates the effects of changing interest rates on the prepayment and attrition rates of certain assets and liabilities. The analysis is highly dependent upon a variety of assumptions including the repricing characteristics of deposits with noncontractual maturities. Our simulation does not assume any specific future actions are taken to mitigate the impacts of changing interest rates. Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue over the next twelve months would increase by $30 million if interest rates remain unchanged.
The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to both current spot rates and the market forward curve. We also evaluate nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types.

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Ally Financial Inc. • Form 10-K


Our twelve-month pretax net financing revenue sensitivity based on the market forward-curve was as follows.
 
 
2015
 
2014
Year ended December 31, ($ in millions)
 
Instantaneous
 
Gradual (a)
 
Instantaneous
 
Gradual (a)
Change in Interest Rates
 
 
 
 
 
 
 
 
 -100 basis points
 
$
47

 
$
17

 
$
78

 
n/a
 +100 basis points
 
(109
)
 
(37
)
 
(130
)
 
n/a
 +200 basis points
 
(278
)
 
(96
)
 
(215
)
 
n/a
(a)
Gradual changes in interest rates are recognized over 12 months.
We remain moderately liability sensitive as our simulation models assume liabilities will initially re-price faster than assets. A material portion of our interest rate exposure has historically been driven by Prime rate index floors on certain commercial loans that limit interest income increases until the index rises above the level of the floor. Due to market demand for our LIBOR based product and to reduce our exposure to rising interest rates, we migrated more than 95% of our dealer floorplan accounts from Prime to LIBOR indices through 2015. These assets will now re-price directly with changes in short-term interest rates, which is the primary driver of the changes in our interest rate risk profile since December 31, 2014. The migration of dealer floorplan accounts resulted in a material reduction in liability sensitivity, which was partially offset by continued strong growth in non-maturity deposits. The impact of downward rate shocks remains somewhat muted by the current low interest rate environment, which limits absolute declines in short-term rates in a shock scenario. The interest rate sensitivity analysis presented above was completed using a market forward-curve as of December 31, 2015. Market interest rates have materially declined since the beginning of 2016, particularly long-term interest rates.
The future repricing behavior of retail deposit liabilities, particularly non-maturity deposits, remains a significant driver of interest rate sensitivity. The sustained low interest rate environment increases the uncertainty of assumptions for deposit repricing relationships to market interest rates. Our interest rate risk models use dynamic assumptions driven by a number of factors, including the overall level of interest rates and the spread between short-term and long-term interest rates to project changes in our retail deposit offered rates. Ally’s interest rate risk metrics currently assume a long-term retail deposit beta of greater than 80%. We believe our deposits may ultimately be less sensitive to interest rate changes, which will reduce our overall exposure to rising rates. Assuming a long-term retail deposit beta of 50% (vs. current assumption of greater than 80%) would result in a consolidated interest rate risk position that is asset sensitive.
Our pro-forma rate sensitivity assuming a 50% deposit pass-through based on the market forward-curve as of December 31, 2015, was as follows.
 
 
December 31, 2015
Change in Interest Rates ($ in millions)
 
Instantaneous
 
Gradual (a)
 +100 basis points
 
$
13

 
$
4

 +200 basis points
 
(13
)
 
(1
)
(a)
Gradual changes in interest rates are recognized over 12 months.
Our liability sensitive risk position is also driven by receive-fixed interest rate swaps designated as fair value hedges of certain fixed-rate liabilities including legacy unsecured debt. These swaps continue to generate positive financing revenue in the current interest rate environment, but also add to our liability sensitive position. The impact of receive-fixed interest rate swaps is partially offset by pay-fixed interest rate swaps designated as fair value hedges of certain retail automotive assets. The size, maturity and mix of our hedging activities change frequently as we adjust our broader asset and liability management objectives.
Operational Risk
We define operational risk as the risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events. Operational risk is an inherent risk element in each of our businesses and related support activities. Such risk can manifest in various ways, including errors, business interruptions, and inappropriate behavior of employees, and can potentially result in financial losses and other damage to us. We consider the following types of operational risk: business/strategic, model, reputation, compliance, legal, fraud, vendor management, and information technology, which includes the risk of cyber attacks.
To monitor and control such risk, we maintain a system of policies and a control framework designed to provide a sound and well-controlled operational environment. This framework employs practices and tools designed to maintain risk governance, risk and control assessment and testing, risk monitoring, and transparency through risk reporting mechanisms. The goal is to maintain operational risk at appropriate levels based on our financial strength, the characteristics of the businesses and the markets in which we operate, and the related competitive and regulatory environment.
Ally and other financial institutions continue to be the target of various cyber attacks, including malware and denial-of-service, as part of an effort to disrupt the operations of financial institutions or obtain confidential, proprietary, or other information. Cyber security and the continued development of our controls, processes, and systems to protect our networks, computers, and software remain an ongoing priority.

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


Notwithstanding these risk and control initiatives, we may incur losses attributable to operational risks from time to time, and there can be no assurance these losses will not be incurred in the future.
Insurance / Underwriting Risk
The underwriting of our VSCs and insurance policies includes an assessment of the risk to determine acceptability and categorization for appropriate pricing. The acceptability of a particular risk is based on expected losses, expenses and other factors specific to the product in question. With respect to VSCs, considerations include the quality of the vehicles produced, the price of replacement parts, repair labor rates, and new model introductions. Insurance risk also includes event risk, which is synonymous with pure risk, hazard risk, or insurance risk, and presents no chance of gain, only of loss.
We mitigate losses by the active management of claim settlement activities using experienced claims personnel and the evaluation of current period reported claims. Losses for these events may be compared to prior claims experience, expected claims, or loss expenses from similar incidents to assess the reasonableness of incurred losses.
In accordance with industry and accounting practices and applicable insurance laws and regulatory requirements, we maintain reserves for reported losses, losses incurred but not reported, losses expected to be incurred in the future for contracts in force and loss adjustment expenses. The estimated values of our prior reported loss reserves and changes to the estimated values are routinely monitored by credentialed actuaries. Our reserve estimates are regularly reviewed by management; however, since the reserves are based on estimates and numerous assumptions, the ultimate liability may differ from the amount estimated.

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


Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to ensure our ability to meet loan and lease demand, debt maturities, deposit withdrawals, and other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources of funding include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate, and investor profiles. Additional liquidity is available through a pool of unencumbered highly liquid securities, borrowing facilities, repurchase agreements, as well as funding programs supported by the Federal Reserve and the Federal Home Loan Bank of Pittsburgh (FHLB).
We define liquidity risk as the risk that an institution's financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise from a variety of institution specific or market-related events that could have a negative impact on cash flows available to the organization. Effective management of liquidity risk helps ensure an organization's preparedness to meet cash flow obligations caused by unanticipated events. Managing liquidity needs and contingent funding exposures has proven essential to the solvency of financial institutions.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing our liquidity, funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate Treasury is responsible for managing our liquidity positions within prudent operating guidelines and targets approved by ALCO and the Risk and Compliance Committee of the Ally Financial Board of Directors. Liquidity risk is managed for the parent company, Ally Bank, and the consolidated organization. The parent company and Ally Bank prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by the Liquidity Risk group within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in different segments of the capital markets. Our funding strategy largely focuses on the development of diversified funding sources across a broad investor base to meet liquidity needs throughout different market cycles, including periods of financial distress. These funding sources include wholesale and retail unsecured debt, public and private asset-backed securitizations, whole-loan sales, committed credit facilities, FHLB advances, brokered deposits, and retail deposits. We also supplement these funding sources with a modest amount of short-term borrowings, including Demand Notes and repurchase arrangements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one source, and results in a more cost-effective funding strategy over the long term. We evaluate funding markets on an ongoing basis to achieve an appropriate balance of unsecured and secured funding sources and maturity profiles. In addition, we further distinguish our funding strategy between Ally Bank funding and parent company (nonbank) funding.
We diversify Ally Bank's overall funding in order to reduce reliance on any one source of funding and to achieve a well-balanced funding portfolio across a spectrum of risk, duration, and cost of funds characteristics. We optimize our funding sources at Ally Bank by growing retail deposits, maintaining active public and private securitization programs, managing a prudent maturity profile of our brokered deposit portfolio, utilizing repurchase agreements, and continuing to access funds from the FHLB.
Since 2009, a significant portion of asset originations have been directed to Ally Bank in order to reduce parent company exposures and funding requirements, and to utilize our growing consumer deposit-taking capabilities. This has allowed us to use bank funding for a wider array of our automotive finance assets and to provide a sustainable long-term funding channel for the business, while also improving the cost of funds for the enterprise.
Liquidity Risk Management
Multiple metrics are used to frame the level of liquidity risk, manage the liquidity position, and identify related trends. These metrics include coverage ratios and stress tests that measure the sufficiency of the liquidity portfolio, stability ratios that measure longer-term structural liquidity, and concentration ratios that ensure prudent funding diversification. In addition, we have established internal management routines designed to review all aspects of liquidity and funding plans, evaluate the adequacy of liquidity buffers, review stress testing results, and assist senior management in the execution of its funding strategy and risk management accountabilities.

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Ally Financial Inc. • Form 10-K


We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed credit facility capacity that, taken together, would allow us to operate and to meet our contractual and contingent obligations in the event that market-wide disruptions and enterprise-specific events disrupt normal access to funding. The available liquidity is held at various entities and considers regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. The following table summarizes our total available liquidity.
December 31, 2015 ($ in millions)
 
Ally Bank
 
Parent Company (nonbank) (a)
Unencumbered highly liquid U.S. federal government and U.S. agency securities
 
$
5,479

 
$
2,862

Liquid cash and equivalents
 
3,801

 
2,519

Committed funding facilities (b)
 
 
 
 
Outstanding
 
3,757

 
16,914

Unused capacity (c)
 
3

 
251

Total capacity
 
3,760

 
17,165

Intercompany loan (d)
 
(600
)
 
600

Total available liquidity
 
$
8,683

 
$
6,232

(a)
Parent company liquidity is defined as our consolidated operations less Ally Bank and the regulated subsidiaries of Ally Insurance's holding company.
(b)
Committed funding facilities include both consolidated and nonconsolidated facilities.
(c)
Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent incremental collateral is available and contributed to the facilities.
(d)
To optimize cash and secured facility capacity between entities, the parent company lends cash to Ally Bank on occasion under an intercompany loan agreement. Amounts outstanding on this loan are repayable to the parent company upon demand, subject to a five day notice period.
As of December 31, 2015, assuming a long-term capital markets stress, we expect that our available liquidity would allow us to continue to fund all planned loan originations and meet all of our financial obligations for more than 36 months, assuming no issuance of unsecured debt or term securitizations.
In addition, our estimated Modified Liquidity Coverage Ratio at December 31, 2015, exceeded 100%. Refer to the section titled Certain Regulatory Matters in Item 1 for further discussion of our liquidity coverage ratio requirements.
Ally Bank
Ally Bank gathers retail deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels. These retail deposits provide our Automotive Finance, Mortgage, and Corporate Finance operations with a stable and low-cost funding source.
Optimizing bank funding continues to be a key part of our long-term liquidity strategy. We have made significant progress in migrating asset originations to Ally Bank and growing our retail deposit base since becoming a BHC in December 2008. Retail deposit growth is a key driver of optimizing funding costs and reducing reliance on capital markets based funding. We believe deposits provide a stable, low-cost source of funds that are less sensitive to interest rate changes, market volatility, or changes in credit ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts through both direct and indirect marketing channels. Current retail deposit offerings consist of a variety of products including CDs, savings accounts, money market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries.
The following table shows Ally Bank's number of accounts and deposit balances by type as of the end of each quarter since 2014.
($ in millions)
4th Quarter 2015
3rd Quarter 2015
2nd Quarter 2015
1st Quarter 2015
4th Quarter 2014
3rd Quarter 2014
2nd Quarter 2014
1st Quarter 2014
Number of retail accounts
1,969,562

1,931,380

1,874,632

1,818,770

1,731,105

1,698,585

1,641,327

1,589,441

Deposits
 
 
 
 
 
 
 
 
Retail
$
55,437

$
53,502

$
51,750

$
50,633

$
47,954

$
46,718

$
45,934

$
45,193

Brokered
10,723

10,180

9,844

9,835

9,866

9,673

9,665

9,662

Other (a)
89

91

89

79

64

73

75

70

Total deposits
$
66,249

$
63,773

$
61,683

$
60,547

$
57,884

$
56,464

$
55,674

$
54,925

(a)
Other deposits include mortgage escrow and other deposits (excluding intercompany deposits).
During 2015, the deposit base at Ally Bank grew $8.4 billion. The growth in total deposits has been primarily attributable to our retail deposit portfolio, particularly within our savings and money market accounts. Strong retention rates and customer acquisition continue to drive growth in retail deposits. Refer to Note 14 to the Consolidated Financial Statements for a summary of deposit funding by type.

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In addition to building a larger deposit base, we continue to remain active in the securitization markets to finance our Ally Bank automotive loan portfolios. During 2015, Ally Bank raised $3.9 billion through the completion of term securitization transactions backed by dealer floorplan and retail automotive loans and lease notes, which includes $1.0 billion through the completion of an off-balance sheet securitization transaction backed by retail automotive loans. Securitization has proven to be a reliable and cost-effective funding source. Additionally, for retail automotive loans and lease notes, the term structure of the transaction locks in funding for a specified pool of loans and leases for the life of the underlying asset, creating an effective tool for managing interest rate and liquidity risk.
We manage secured funding execution risk by maintaining a diverse investor base and available committed credit facility capacity. Ally Bank has exclusive access to private committed funding facilities of which the largest facility is a $3.25 billion syndicated credit facility comprised of eighteen lenders that can fund automotive retail and dealer floorplan loans, as well as leases. During March 2015, this facility was renewed and increased to $4.5 billion with the maturity extended to March 2017. In June 2015, $1.25 billion of commitment was transferred from Ally Bank to AFI (parent company), which reduced the Ally Bank capacity to $3.25 billion. Our ability to access the unused capacity in the secured facility depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.
Ally Bank also has access to funding through advances with the FHLB. These advances are primarily secured by consumer mortgage and commercial real estate automotive finance receivables and loans. As of December 31, 2015, Ally Bank had pledged $14.9 billion of assets and investment securities to the FHLB resulting in $10.5 billion in total funding capacity with $9.4 billion of debt outstanding.
In addition, Ally Bank has access to repurchase agreements. A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The financial instruments sold in repurchase agreements typically include U.S. government and federal agency obligations. As of December 31, 2015, Ally Bank had no debt outstanding under repurchase agreements.
Additionally, Ally Bank has access to the Federal Reserve Bank Discount Window and can borrow funds to meet short-term liquidity demands. However, the Federal Reserve Bank is not a primary source of funding for day to day business. Instead, it is a liquidity source that can be accessed in stressed environments or periods of market disruption. Ally Bank has assets pledged and restricted as collateral to the Federal Reserve Bank totaling $2.9 billion. Ally Bank had no debt outstanding with the Federal Reserve as of December 31, 2015.
Parent Company (Nonbank) Funding
Funding sources at the parent company generally consist of long-term unsecured debt, unsecured retail term notes, floating rate demand notes, committed credit facilities, asset-backed securitizations, and a modest amount of short-term borrowings. The parent company's ability to access unused capacity in secured facilities depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.
During 2015, we completed several transactions through the unsecured debt capital markets totaling $5.4 billion. In November, Ally Financial Inc. completed two transactions through the unsecured debt capital markets for $1.5 billion. We expect to continue accessing the unsecured debt capital markets as well as reducing our high-cost debt on an opportunistic basis.
In addition, we have short-term and long-term unsecured debt outstanding from retail term note programs. These programs generally consist of callable fixed-rate instruments with fixed-maturity dates. There were $397 million of retail term notes outstanding at December 31, 2015.
We obtain unsecured funding from the sale of floating rate demand notes under our Demand Notes program. The holder has the option to require us to redeem these notes at any time without restriction. Demand Notes outstanding were $3.4 billion at December 31, 2015. Refer to Note 15 and Note 16 to the Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt, respectively.
Secured funding continues to be a significant source of financing at the parent company. The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At December 31, 2015, $16.9 billion of our $17.2 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. Of our total committed funding capacity from revolving facilities, only our largest facility, a $9.25 billion revolving syndicated credit facility secured by automotive receivables, has a remaining tenor greater than 364 days as of December 31, 2015. In March 2015, this facility was renewed by a syndicate of eighteen lenders for $8 billion and extended until March 2017. In June 2015, $1.25 billion of commitment was transferred from Ally Bank to AFI (parent company), which increased the parent company capacity to $9.25 billion. In the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At December 31, 2015, there was $9.2 billion outstanding under this facility. In addition to our syndicated revolving credit facility, we also maintain various bilateral and multilateral secured credit facilities that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool of automotive assets.
During 2015, the parent company raised $4.4 billion through public securitization transactions comprised of retail automotive loan collateral and the sale of retained secured notes.

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At December 31, 2015, the parent company had debt of $648 million outstanding under repurchase agreements.
Recent Funding Developments
During 2015, we accessed the public and private markets to execute secured funding transactions, whole-loan sales, unsecured funding transactions, and funding facility renewals totaling $35.6 billion. Key funding highlights from January 1, 2015, to date were as follows:
Ally Financial Inc. closed, renewed, increased, and/or extended $19.9 billion in credit facilities. The automotive credit facility renewal amount includes the March 2015 refinancing of $12.5 billion in credit facilities at both the parent company and Ally Bank with a syndicate of eighteen lenders. The $12.5 billion capacity is secured by retail, lease, and dealer floorplan automotive assets and is allocated to two separate facilities; one is a $9.25 billion facility which is available to the parent company, while the other is a $3.25 billion facility available to Ally Bank. Both facilities mature in March 2017.
Ally Financial Inc. continued to access the public and private term asset-backed securitization markets raising $8.3 billion, with $3.9 billion and $4.4 billion raised by Ally Bank and the parent company, respectively. Included in Ally Bank's funding for 2015 is one off-balance sheet securitization backed by retail automotive loans, which raised $1.0 billion. In addition, Ally Bank raised $2.5 billion related to three whole-loan sales comprised of retail automotive loans, approximately $500 million of which is considered an off-balance sheet credit facility and included in the total credit facility closures, renewals, increases, and extensions noted above.
Ally Financial Inc. accessed the unsecured debt capital markets during 2015 and raised $5.4 billion.
In January 2016, Ally Bank raised $795 million through a public securitization backed by retail automotive loans.
Funding Sources
The following table summarizes debt and other sources of funding and the amount outstanding under each category for the periods shown.
December 31, ($ in millions)
 
Bank
 
Parent
 
Total
 
%
2015
 
 
 
 
 
 
 
 
Secured financings
 
$
24,790

 
$
25,129

 
$
49,919

 
36
Institutional term debt
 

 
20,235

 
20,235

 
14
Retail debt programs (a)
 

 
3,850

 
3,850

 
3
Total debt (b)
 
24,790

 
49,214

 
74,004

 
53
Deposits (c)
 
66,249

 
229

 
66,478

 
47
Total on-balance sheet funding
 
$
91,039

 
$
49,443

 
$
140,482

 
100
2014
 
 
 
 
 
 
 
 
Secured financings
 
$
27,104

 
$
20,717

 
$
47,821

 
36
Institutional term debt
 

 
21,499

 
21,499

 
17
Retail debt programs (a)
 

 
3,670

 
3,670

 
3
Total debt (b)
 
27,104

 
45,886

 
72,990

 
56
Deposits (c)
 
57,884

 
319

 
58,203

 
44
Total on-balance sheet funding
 
$
84,988

 
$
46,205

 
$
131,193

 
100
(a)
Includes $397 million and $332 million of Retail Term Notes at December 31, 2015, and December 31, 2014, respectively.
(b)
Excludes fair value adjustment as described in Note 25 to the Consolidated Financial Statements.
(c)
Bank deposits include retail, brokered, mortgage escrow, and other deposits. Parent deposits include dealer deposits. Intercompany deposits are not included.
Refer to Note 16 to the Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at December 31, 2015.
Cash Flows
Net cash provided by operating activities was $5.1 billion for the year ended December 31, 2015, compared to $3.4 billion for the year ended December 31, 2014. The increase is primarily due to an increase of cash inflows from other assets and higher levels of operating income, as well as lower cash outflows from other liabilities and interest payable.
Net cash used in investing activities was $9.7 billion for the year ended December 31, 2015, compared to $3.2 billion cash used in the same period in 2014. The increase is primarily due to a $8.2 billion increase in net cash used in finance receivables and loans. Also contributing to the decrease is a $2.6 billion decrease in net cash provided by sales, maturities and repayment of available-for-sale securities, net of purchases, and a $1.4 billion decrease related to changes in restricted cash balances. This was partially offset by a decrease in net cash outflows from operating lease activity of $4.9 billion, and $1.0 billion in proceeds from the sale of a business unit.

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Net cash provided by financing activities for the year ended December 31, 2015, was $5.5 billion, compared to $145 million cash used for the same period in 2014. The increase is due to net cash provided by short-term borrowings of $1.0 billion for the year ended December 31, 2015, compared to net cash used of $1.5 billion for the year ended December 31, 2014. Also contributing to the increase was an increase in deposits of $3.4 billion and cash used for the payment of long-term debt exceeded debt issuances by $2.5 billion for the year ended December 31, 2014. This was partially offset by an increase in dividends paid of $2.3 billion and the repurchase and redemption of preferred stock of $559 million in 2015.
Capital Planning and Stress Tests
As a BHC with $50 billion or more of consolidated assets, Ally is required to conduct periodic company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit an annual capital plan to the FRB. In addition, as an insured state nonmember bank with $50 billion or more in total consolidated assets, Ally Bank is required to conduct annual company-run stress tests.
Ally’s capital plan must include a description of all planned capital actions over a nine-quarter planning horizon. The capital plan must also include a discussion of how Ally will maintain capital above the minimum regulatory capital under baseline, adverse, and severely adverse economic scenarios, and serve as a source of strength to Ally Bank. The FRB must approve Ally's capital plan before Ally may take any capital action. Even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution. In addition to the Series G preferred stock redemptions and Series A preferred stock repurchase that occurred during 2015, as part of the 2015 CCAR process, Ally also received approval to repurchase or redeem the remaining approximately $700 million of Series A preferred stock as well as $500 million of our Trust Preferred Securities, which we expect will occur in the first half of 2016.  Ally expects that, by June 30, 2016 the FRB will either provide a notice of non-objection or object to our 2016 capital plan, which will be submitted to the FRB on April 5, 2016, with planned capital actions.
Regulatory Capital
Refer to Note 21 to the Consolidated Financial Statements and Selected Financial Data within this MD&A.
Credit Ratings
The cost and availability of unsecured financing are influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings result in higher borrowing costs and reduced access to capital markets. This is particularly true for certain institutional investors whose investment guidelines require investment-grade ratings on term debt and the two highest rating categories for short-term debt (particularly money market investors).
Nationally recognized statistical rating organizations rate substantially all our debt. The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies.
Rating agency
 
Short-term
 
Senior unsecured debt
 
Outlook
 
Date of last action
Fitch
 
B
 
BB+
 
Stable
 
April 8, 2015 (a)
Moody’s
 
Not Prime
 
Ba3
 
Stable
 
October 20, 2015 (b)
S&P
 
B
 
BB+
 
Positive
 
October 21, 2015 (c)
DBRS
 
R-4
 
BB (High)
 
Positive
 
May 18, 2015 (d)
(a)
Fitch affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and maintained a Stable outlook on April 8, 2015.
(b)
Moody's upgraded our senior unsecured debt rating to Ba3 from B1, affirmed our short-term rating of Not Prime, and changed the outlook to Stable on October 20, 2015.
(c)
Standard & Poor's affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and changed the outlook from Stable to Positive on October 21, 2015.
(d)
DBRS upgraded our senior unsecured debt rating to BB (High) from BB, confirmed our short-term rating of R-4, and maintained a Positive trend on all ratings on May 18, 2015.
Insurance Financial Strength Ratings
Substantially all of our Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from the A.M. Best Company. The FSR is intended to be an indicator of the ability of the insurance company to meet its senior most obligations to policyholders. Lower ratings generally result in fewer opportunities to write business as insureds, particularly large commercial insureds, and insurance companies purchasing reinsurance have guidelines requiring high FSR ratings. On May 22, 2015, A.M. Best affirmed the FSR of B++ (good) and affirmed the ICR of bbb+.
Off-balance Sheet Arrangements
Refer to Note 10 to the Consolidated Financial Statements.
Securitization
We are involved in several types of securitization and financing transactions that allow us to diversify funding sources by converting assets into cash earlier than what would have occurred in the normal course of business. Securitized assets include consumer and commercial

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automotive loans, and operating leases. Information regarding our securitization activities is further described in Note 10 to the Consolidated Financial Statements.
As part of these securitization activities, we sell assets to various securitization entities. In turn, the securitization entities establish separate trusts to which they transfer the assets in exchange for the proceeds from the sale of securities issued by the trust. The trusts' activities are generally limited to acquiring the assets, issuing securities, making payments on the securities, and periodically reporting to the investors.
These securitization entities are separate legal entities that assume the risks and rewards of ownership of the receivables they hold. The assets of the securitization entities are not available to satisfy our claims or those of our creditors. In addition, the trusts do not invest in our equity or in the equity of any of our affiliates. Our economic exposure related to the securitization trusts is generally limited to cash reserves, retained interests, and customary representation and warranty provisions described in Note 10 to the Consolidated Financial Statements. The trusts have a limited life and generally terminate upon final distribution of amounts owed to investors or upon exercise of a cleanup call option by us, as servicer, when the costs of servicing the contracts becomes burdensome.
Certain of these securitization transactions meet the criteria to be accounted for as off-balance sheet arrangements if we either do not hold a potentially significant economic interest or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Certain of our securitization transactions do not meet the required criteria to be accounted for as off-balance sheet arrangements; therefore, they are accounted for as secured borrowings. As secured borrowings, the underlying automotive finance retail contracts, wholesale loans, and automotive leases remain on our Consolidated Balance Sheet with the corresponding obligation (consisting of the beneficial interests issued by the securitization entity) reflected as debt. We recognize interest income on the finance receivables, automotive leases and loans, and interest expense on the beneficial interests issued by the securitization entity; and we provide for loan losses on the finance receivables and loans as incurred. At December 31, 2015, and 2014, $71.6 billion and $69.2 billion of our total assets, respectively, were related to secured borrowings. Refer to Note 16 to the Consolidated Financial Statements for further discussion.
As part of our securitization activities, we typically agree to service the transferred assets for a fee, and we may also earn other related fees. The amount of the fees earned is disclosed in Note 11 to the Consolidated Financial Statements. We may also retain a portion of senior and subordinated interests issued by the trusts. Subordinate interests typically provide credit support to the more highly rated senior interest in a securitization transaction and may be subject to all or a portion of the first loss position related to the sold assets. For off-balance sheet arrangements, these interests are reported as investment securities or other assets on our Consolidated Balance Sheet and are disclosed in Note 6 and Note 13 to the Consolidated Financial Statements. For secured borrowings, retained interests are not recognized as a separate asset on our Consolidated Balance Sheet.
In October 2014, U.S. regulatory agencies adopted risk retention rules that require sponsors of asset-backed securitizations, such as Ally, to retain not less than five percent of the credit risk of the assets collateralizing asset-backed securitizations. Ally Bank has complied with the FDIC’s Safe Harbor Rule requiring it to retain five percent risk retention in retail automotive loan and lease securitizations. Ally Financial intends to comply with the new risk retention rules for automotive asset-backed securitizations, which become effective on December 24, 2016.
Guarantees
Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based on changes in an underlying agreement that is related to a guaranteed party. Our guarantees include standby letters of credit and certain contract provisions associated with securitizations, sales, and divestitures. Refer to Note 29 to the Consolidated Financial Statements for more information regarding our outstanding guarantees to third parties.

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Aggregate Contractual Obligations
The following table provides aggregated information about our outstanding contractual obligations disclosed elsewhere in our Consolidated Financial Statements.
December 31, 2015 ($ in millions)
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
Contractually obligated payments due by period
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
 
Total (a)
$
67,462

 
$
11,384

 
$
32,451

 
$
13,096

 
$
10,531

Scheduled interest payments for fixed-rate long-term debt
18,930

 
1,782

 
2,883

 
2,031

 
12,234

Estimated interest payments for variable-rate long-term debt (b)
742

 
254

 
339

 
121

 
28

Estimated net payments under interest rate swap agreements (b)
39

 

 

 

 
39

Lease commitments
263

 
39

 
65

 
60

 
99

Purchase obligations
101

 
47

 
51

 
3

 

Bank certificates of deposit
29,796

 
16,317

 
11,886

 
1,593

 

Total contractually obligated payments due by period
$
117,333

 
$
29,823

 
$
47,675

 
$
16,904

 
$
22,931

Total other commitments by expiration period
 
 
 
 
 
 
 
 
 
Lending commitments
$
2,132

 
$
741

 
$
194

 
$
631

 
$
566

(a)
Total long-term debt amount reflects the remaining principal obligation and excludes original issue discount of $1.4 billion and fair value adjustments of $331 million related to fixed-rate debt designated as a hedged item.
(b)
Estimate utilized a forecasted variable interest model, when available, or the applicable variable interest rate as of the most recent reset date prior to December 31, 2015. For additional information on derivative instruments and hedging activities, refer to Note 22.
The foregoing table does not include our reserves for insurance losses and loss adjustment expenses, which total $169 million at December 31, 2015. While payments due on insurance losses are considered contractual obligations because they related to insurance policies issued by us, the ultimate amount to be paid and the timing of payment for an insurance loss is an estimate subject to significant uncertainty. Furthermore, the timing on payment is also uncertain; however, the majority of the balance is expected to be paid out in less than five years.
The following provides a description of the items summarized in the preceding table of contractual obligations.
Long-term Debt
Amounts represent the scheduled maturity of long-term debt at December 31, 2015, assuming that no early redemptions occur. The maturity of secured debt may vary based on the payment activity of the related secured assets. The amounts presented are before the effect of any unamortized discount, debt issuance costs, or fair value adjustment. Refer to Note 16 to the Consolidated Financial Statements for additional information on our debt obligations. We primarily use interest rate swaps to manage interest rate risk associated with our secured and unsecured long term debt portfolio. These derivatives are recorded on the balance sheet at fair value. For additional information on derivatives, refer to Note 22 to the Consolidated Financial Statements.
Lease Commitments
We have obligations under various operating lease arrangements (primarily for real property) with noncancelable lease terms that expire after December 31, 2015. Refer to Note 29 to the Consolidated Financial Statements for additional information.
Purchase Obligations
We enter into multiple contractual arrangements for various services. The arrangements represent fixed payment obligations under our most significant contracts and primarily relate to contracts with information technology providers. Refer to Note 29 to the Consolidated Financial Statements for additional information.
Bank Certificates of Deposit
Refer to Note 14 to the Consolidated Financial Statements for additional information.
Lending Commitments
We have outstanding lending commitments with customers. The amounts presented represent the unused portion of those commitments at December 31, 2015. Refer to Note 29 to the Consolidated Financial Statements for additional information.

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Ally Financial Inc. • Form 10-K


Critical Accounting Estimates
Accounting policies are integral to understanding our Management's Discussion and Analysis of Financial Condition and Results of Operations. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make certain judgments and assumptions, on the basis of information available at the time of the financial statements, in determining accounting estimates used in the preparation of these statements. Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements; critical accounting estimates are described in this section. An accounting estimate is considered critical if the estimate requires management to make assumptions about matters that were highly uncertain at the time the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. Our management has discussed the development, selection, and disclosure of these critical accounting estimates with the Audit Committee of the Board, and the Audit Committee has reviewed our disclosure relating to these estimates.
Allowance for Loan Losses
We maintain an allowance for loan losses (the allowance) to absorb probable loan credit losses inherent in the held-for-investment portfolio, excluding those loans measured at fair value in accordance with applicable accounting standards. The allowance is maintained at a level that management considers to be adequate based upon ongoing quarterly assessments and evaluations of collectability and historical loss experience in our lending portfolio. The allowance is management's estimate of incurred losses in our lending portfolio and involves significant judgment. Management performs quarterly analyses of these portfolios to determine if impairment has occurred and to assess the adequacy of the allowance based on historical and current trends and other factors affecting credit losses. Additions to the allowance are charged to current period earnings through the provision for loan losses; amounts determined to be uncollectible are charged directly against the allowance, while amounts recovered on previously charged-off accounts increase the allowance. Determining the appropriateness of the allowance requires management to exercise significant judgment about matters that are inherently uncertain, including the timing, frequency, and severity of credit losses that could materially affect the provision for loan losses and, therefore, net income. The methodology for determining the amount of the allowance differs between the consumer automotive, consumer mortgage, and commercial portfolio segments. For additional information regarding our portfolio segments and classes, refer to Note 8 to the Consolidated Financial Statements. While we attribute portions of the allowance across our lending portfolios, the entire allowance is available to absorb probable loan losses inherent in our total lending portfolio.
The consumer portfolio segments consist of smaller-balance, homogeneous loans. Excluding certain loans that are identified as individually impaired, the allowance for each consumer portfolio segment (automotive and mortgage) is evaluated collectively. The allowance is based on aggregated portfolio segment evaluations that begin with estimates of incurred losses in each portfolio segment based on various statistical analyses. We leverage proprietary statistical models based on recent loss trends to develop a systematic incurred loss reserve. These statistical loss forecasting models are utilized to estimate incurred losses and consider several credit quality indicators including, but not limited to, historical loss experience, estimated foreclosures or defaults based on observable trends, and general economic and business trends. Management believes these factors are relevant to estimate incurred losses and are updated on a quarterly basis in order to incorporate information reflective of the current economic environment, as changes in these assumptions could have a significant impact. In order to develop our best estimate of probable incurred losses inherent in the loan portfolio, management reviews and analyzes the output from the models and may adjust the reserves to take into consideration environmental, qualitative and other factors that may not be captured in the models. These adjustments are documented and reviewed through our risk management processes. Management reviews, updates, and validates its systematic process and loss assumptions on a periodic basis. This process involves an analysis of loss information, such as a review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other analyses.
The commercial portfolio segment is primarily composed of larger-balance, nonhomogeneous exposures within our Automotive Finance operations and Corporate Finance. These loans are primarily evaluated individually and are risk-rated based on borrower, collateral, and industry-specific information that management believes is relevant in determining the occurrence of a loss event and measuring impairment. A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on current information and events. Management establishes specific allowances for commercial loans determined to be individually impaired based on the present value of expected future cash flows, discounted at the loans' effective interest rate, observable market price or the fair value of collateral, whichever is determined to be the most appropriate. Estimated costs to sell the collateral on a discounted basis are included in the impairment measurement, when appropriate. In addition to the specific allowances for impaired loans, loans that are not identified as individually impaired are grouped into pools based on similar risk characteristics and collectively evaluated. These allowances are based on historical loss experience, concentrations, current economic conditions, and performance trends within specific geographic locations. The commercial historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic environment.
The determination of the allowance is influenced by numerous assumptions and many factors that may materially affect estimates of loss, including volatility of loss given default, probability of default, and rating migration. The critical assumptions underlying the allowance include: (1) segmentation of each portfolio based on common risk characteristics; (2) identification and estimation of portfolio indicators and other factors that management believes are key to estimating incurred credit losses; and (3) evaluation by management of borrower, collateral, and geographic information. Management monitors the adequacy of the allowance and makes adjustments as the assumptions in the underlying analyses change to reflect an estimate of incurred loan losses at the reporting date, based on the best information available at that time. In addition, the allowance related to the commercial portfolio segment is influenced by estimated recoveries from automotive manufacturers relative to guarantees or agreements with them to repurchase vehicles used as collateral to secure the loans. If an automotive

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manufacturer is unable to fully honor its obligations, our ultimate loan losses could be higher. To the extent that actual outcomes differ from our estimates, additional provision for credit losses may be required that would reduce earnings.
Valuation of Automotive Lease Assets and Residuals
We have significant investments in vehicles in our operating lease portfolio. In accounting for operating leases, management must make a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to four years. At contract inception, we determine pricing based on the projected residual value of the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is compared against third party, independent data for reasonableness. The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a finance charge. However, since the customer is not obligated to purchase the vehicle at the end of the contract, we are exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract inception. Management periodically performs a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of lease assets.
To account for residual risk, we depreciate automotive operating lease assets to expected realizable value on a straight-line basis over the lease term. The estimated realizable value is initially based on the residual value established at contract inception. Periodically, we revise the projected value of the lease vehicle at termination based on current market conditions, and other relevant data points, and adjust depreciation expense appropriately over the remaining term of the lease. Impairment of the operating lease asset is assessed upon the occurrence of a triggering event. Triggering events are systemic, observed events impacting the used car market such as shocks to oil and gas prices that may indicate impairment of the operating lease asset. Impairment is determined to exist if the expected undiscounted cash flows generated from the operating lease assets are less than the carrying value of the operating lease assets. If the operating lease assets are impaired, they are written down to their fair value as estimated by discounted cash flows. There were no such impairment charges in 2015, 2014, or 2013.
Our depreciation methodology for operating lease assets considers management's expectation of the value of the vehicles upon lease termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the estimated carrying value of automotive lease assets include: (1) estimated market value information obtained and used by management in estimating residual values, (2) proper identification and estimation of business conditions, (3) our remarketing abilities, and (4) automotive manufacturer vehicle and marketing programs. Changes in these assumptions could have a significant impact on the value of the lease residuals. Expected residual values include estimates of payments from automotive manufacturers related to residual support and risk-sharing agreements, if any. To the extent an automotive manufacturer is not able to fully honor its obligation relative to these agreements, our depreciation expense would be negatively impacted.
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain instruments and to determine fair value disclosures. Refer to Note 25 to the Consolidated Financial Statements for a description of valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized. We follow the fair value hierarchy set forth in Note 25 to the Consolidated Financial Statements in order to prioritize the inputs utilized to measure fair value. We review and modify, as necessary, our fair value hierarchy classifications on a quarterly basis. As such, there may be reclassifications between hierarchy levels.
We have numerous internal controls in place to ensure the appropriateness of fair value measurements. Significant fair value measures are subject to detailed analytics and management review and approval. We have an established model validation policy and program in place that covers all models used to generate fair value measurements. This model validation program ensures a controlled environment is used for the development, implementation, and use of the models and change procedures. Further, this program uses a risk-based approach to select models to be reviewed and validated by an independent internal risk group to ensure the models are consistent with their intended use, the logic within the models is reliable, and the inputs and outputs from these models are appropriate. Additionally, a wide array of operational controls are in place to ensure the fair value measurements are reasonable, including controls over the inputs into and the outputs from the fair value measurement models. For example, we backtest the internal assumptions used within models against actual performance. We also monitor the market for recent trades, market surveys, or other market information that may be used to benchmark model inputs or outputs. Certain valuations will also be benchmarked to market indices when appropriate and available. We have scheduled model and/or input recalibrations that occur on a periodic basis but will recalibrate earlier if significant variances are observed as part of the backtesting or benchmarking noted above.
Considerable judgment is used in forming conclusions from market observable data used to estimate our Level 2 fair value measurements and in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements. Accordingly, our estimates of fair value are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
Legal and Regulatory Reserves
Our legal and regulatory reserves reflect management's best estimate of probable losses on legal and regulatory matters. As a legal or regulatory matter develops, management, in conjunction with internal and external counsel handling the matter, evaluates on an ongoing basis

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


whether the matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency related to a legal or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make the loss contingency both probable and estimable. When the loss contingency related to a legal or regulatory matter is deemed to be both probable and estimable, we will establish a liability with respect to the loss contingency and record a corresponding expense amount. To estimate the probable loss, we evaluate the individual facts and circumstances of the case including information learned through the discovery process, rulings on dispositive motions, settlement discussions, our prior history with similar matters and other rulings by courts, arbitrators or others. The reserves are continuously monitored and updated to reflect the most recent information related to each matter.
Additionally, in matters for which a loss event is not deemed probable, but rather reasonably possible to occur, we would attempt to estimate a loss or range of loss related to that event, if possible. For these matters, we do not record a liability. However, if we are able to estimate a loss or range of loss, we would disclose this loss, if it is material to our financial statements. To estimate a range of probable or reasonably possible loss, we evaluate each individual case in the manner described above. We do not accrue for or disclose matters for which a loss event is deemed remote.
For details regarding the nature of all material contingencies, refer to Note 30 to the Consolidated Financial Statements.
Determination of Provision for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid. We are subject to income taxes predominantly in the United States. Significant judgments and estimates are required in determining consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent results of operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of future state, federal, and foreign pretax operating income. These assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain foreign tax credits, state net operating loss carryforwards, and state capital loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards.
For additional information regarding our provision for income taxes, refer to Note 23 to the Consolidated Financial Statements.
Recently Issued Accounting Standards
Refer to Note 1 to the Consolidated Financial Statements for further information related to recently adopted and recently issued accounting standards.

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


Statistical Table
The accompanying supplemental information should be read in conjunction with the more detailed information, including our Consolidated Financial Statements and the notes thereto, which appears elsewhere in this Annual Report.
Net Interest Margin Table
The following table presents an analysis of net yield on interest-earning assets (or net interest margin) excluding discontinued operations for the periods shown.
 
 
2015
 
2014
 
2013
Year ended December 31, ($ in millions)
 
Average balance (a)
 
Interest income/Interest expense
 
Yield/rate
 
Average balance (a)
 
Interest income/Interest expense
 
Yield/rate
 
Average balance (a)
 
Interest income/Interest expense
 
Yield/rate
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
3,702

 
$
8

 
0.22
%
 
$
4,328

 
$
8

 
0.18
%
 
$
6,412

 
$
10

 
0.16
%
Federal funds sold and securities purchased under resale agreements
 
2

 

 

 

 

 

 

 

 

Investment securities (b)
 
16,702

 
356

 
2.13

 
15,729

 
347

 
2.21

 
15,195

 
300

 
1.97

Loans held-for-sale, net
 
884

 
40

 
4.52

 
16

 
1

 
6.25

 
600

 
20

 
3.33

Finance receivables and loans, net (c) (d)
 
104,294

 
4,570

 
4.38

 
100,148

 
4,457

 
4.45

 
97,467

 
4,529

 
4.65

Investment in operating leases, net (e)
 
18,058

 
1,149

 
6.36

 
18,789

 
1,325

 
7.05

 
16,028

 
1,214

 
7.57

Total interest-earning assets
 
143,642

 
6,123

 
4.26

 
139,010

 
6,138

 
4.42

 
135,702

 
6,073

 
4.48

Noninterest-bearing cash and cash equivalents
 
1,522

 
 
 
 
 
1,610

 
 
 
 
 
1,628

 
 
 
 
Other assets (f)
 
9,508

 
 
 
 
 
10,675

 
 
 
 
 
19,975

 
 
 
 
Allowance for loan losses
 
(985
)
 
 
 
 
 
(1,173
)
 
 
 
 
 
(1,192
)
 
 
 
 
Total assets
 
$
153,687

 
 
 
 
 
$
150,122

 
 
 
 
 
$
156,113

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit liabilities
 
$
62,086

 
$
718

 
1.16
%
 
$
55,838

 
$
664

 
1.19
%
 
$
50,163

 
$
654

 
1.30
%
Short-term borrowings
 
6,289

 
49

 
0.78

 
6,308

 
52

 
0.82

 
4,858

 
63

 
1.30

Long-term debt (d)
 
66,100

 
1,662

 
2.51

 
67,881

 
2,067

 
3.05

 
66,336

 
2,602

 
3.92

Total interest-bearing liabilities
 
134,475

 
2,429

 
1.81

 
130,027

 
2,783

 
2.14

 
121,357

 
3,319

 
2.73

Noninterest-bearing deposit liabilities
 
85

 
 
 
 
 
69

 
 
 
 
 
536

 
 
 
 
Total funding sources (f)
 
134,560

 
2,429

 
1.81

 
130,096

 
2,783

 
2.14

 
121,893

 
3,319

 
2.72

Other liabilities (f)
 
4,302

 
 
 
 
 
5,231

 
 
 
 
 
15,448

 
 
 
 
Total liabilities
 
138,862

 
 
 
 
 
135,327

 
 
 
 
 
137,341

 
 
 
 
Total equity
 
14,825

 
 
 
 
 
14,795

 
 
 
 
 
18,772

 
 
 
 
Total liabilities and equity
 
$
153,687

 
 
 
 
 
$
150,122

 
 
 
 
 
$
156,113

 
 
 
 
Net financing revenue
 
 
 
$
3,694

 
 
 
 
 
$
3,355

 
 
 
 
 
$
2,754

 
 
Net interest spread (g)
 
 
 
 
 
2.45
%
 
 
 
 
 
2.28
%
 
 
 
 
 
1.75
%
Net yield on interest-earning assets (h)
 
 
 
 
 
2.57
%
 
 
 
 
 
2.41
%
 
 
 
 
 
2.03
%
(a)
Average balances are calculated using a combination of monthly and daily average methodologies.
(b)
Excludes equity investments with an average balance of $941 million, $865 million, and $995 million at December 31, 2015, 2014, and 2013, respectively, and related income on equity investments of $25 million, $20 million, and $25 million during the years ended December 31, 2015, 2014, and 2013, respectively. Yields on available-for-sale debt securities are based on fair value as opposed to amortized cost.
(c)
Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements.
(d)
Includes the effects of derivative financial instruments designated as hedges.
(e)
Includes gains on sale of $351 million, $433 million, and $332 million for the years ended December 31, 2015, 2014, and 2013, respectively. Excluding these gains, the annualized yield would be 4.42%, 4.75%, and 5.50% at December 31, 2015, 2014, and 2013, respectively.
(f)
Includes average balances of discontinued operations for the years ended December 31, 2014, and 2013.
(g)
Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
(h)
Net yield on interest-earning assets represents net financing revenue as a percentage of total interest-earning assets.

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


The following table presents an analysis of the changes in net financing revenue, volume and rate.
 
 
2015 vs 2014
Increase (decrease)
due to (a)
 
2014 vs 2013
Increase (decrease)
due to (a)
Year ended December 31, ($ in millions)
 
Volume
 
Yield/rate
 
Total
 
Volume
 
Yield/rate
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$

 
$

 
$

 
$
(4
)
 
$
2

 
$
(2
)
Investment securities
 
20

 
(11
)
 
9

 
11

 
36

 
47

Loans held-for-sale, net
 
39

 

 
39

 
(29
)
 
10

 
(19
)
Finance receivables and loans, net
 
184

 
(71
)
 
113

 
122

 
(194
)
 
(72
)
Investment in operating leases, net
 
(51
)
 
(125
)
 
(176
)
 
199

 
(88
)
 
111

Total interest-earning assets
 
$
192

 
$
(207
)
 
$
(15
)
 
$
299

 
$
(234
)
 
$
65

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit liabilities
 
$
72

 
$
(18
)
 
$
54

 
$
70

 
$
(60
)
 
$
10

Short-term borrowings
 

 
(3
)
 
(3
)
 
16

 
(27
)
 
(11
)
Long-term debt
 
(53
)
 
(352
)
 
(405
)
 
60

 
(595
)
 
(535
)
Total interest-bearing liabilities
 
$
19

 
$
(373
)
 
$
(354
)
 
$
146

 
$
(682
)
 
$
(536
)
Net financing revenue
 
$
173

 
$
166

 
$
339

 
$
153

 
$
448

 
$
601

(a)
Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute dollar amount of change in volume and yield/rate.

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


Outstanding Finance Receivables and Loans
The following table presents the composition of our on-balance sheet finance receivables and loans.
December 31, ($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Consumer
 
 
 
 
 
 
 
 
 
Consumer automotive
$
64,292

 
$
56,570

 
$
56,417

 
$
53,715

 
$
63,459

Consumer mortgage
9,773

 
7,474

 
8,444

 
9,821

 
10,828

Total consumer
74,065

 
64,044

 
64,861

 
63,536

 
74,287

Commercial
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
Automotive (a)
31,469

 
30,871

 
30,948

 
30,270

 
34,817

Mortgage

 

 

 

 
1,911

Other
2,640

 
1,882

 
1,664

 
2,697

 
1,241

Commercial real estate
 
 
 
 
 
 
 
 
 
Automotive
3,426

 
3,151

 
2,855

 
2,552

 
2,485

Mortgage

 

 

 

 
14

Total commercial loans
37,535

 
35,904

 
35,467

 
35,519

 
40,468

Total finance receivables and loans
$
111,600

 
$
99,948

 
$
100,328

 
$
99,055

 
$
114,755

Loans held-for-sale
$
105

 
$
2,003

 
$
35

 
$
2,576

 
$
8,557

(a)
Includes notes receivable from GM of $529 million at December 31, 2011.
Nonperforming Assets
The following table summarizes the nonperforming assets in our on-balance sheet portfolio.
December 31, ($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Consumer
 
 
 
 
 
 
 
 
 
Consumer automotive
$
475

 
$
386

 
$
329

 
$
260

 
$
228

Consumer mortgage
128

 
177

 
192

 
382

 
549

Total consumer (a)
603

 
563

 
521

 
642

 
777

Commercial
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
Automotive
25

 
32

 
116

 
146

 
223

Mortgage

 

 

 

 

Other
44

 
46

 
74

 
33

 
37

Commercial real estate
 
 
 
 
 
 
 
 
 
Automotive
8

 
4

 
14

 
37

 
67

Mortgage

 

 

 

 
12

Total commercial (b)
77

 
82

 
204

 
216

 
339

Total nonperforming finance receivables and loans
680

 
645

 
725

 
858

 
1,116

Foreclosed properties
10

 
10

 
10

 
8

 
82

Repossessed assets (c)
122

 
90

 
101

 
62

 
56

Total nonperforming assets
$
812

 
$
745

 
$
836

 
$
928

 
$
1,254

Loans held-for-sale
$

 
$
8

 
$
9

 
$
25

 
$
2,820

(a)
Interest revenue that would have been accrued on total consumer finance receivables and loans at original contractual rates was $51 million during the year ended December 31, 2015. Interest income recorded for these loans was $19 million during the year ended December 31, 2015.
(b)
Interest revenue that would have been accrued on total commercial finance receivables and loans at original contractual rates was $8 million during the year ended December 31, 2015. Interest income recorded for these loans was $5 million during the year ended December 31, 2015.
(c)
Repossessed assets exclude $8 million, $7 million, $7 million, $3 million, and $3 million of repossessed operating lease assets at December 31, 2015, December 31, 2014, 2013, 2012, and 2011, respectively.

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


Accruing Finance Receivables and Loans Past Due 90 Days or More
The following table presents our on-balance sheet accruing loans past due 90 days or more as to principal and interest.
December 31, ($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Consumer automotive
$

 
$

 
$

 
$

 
$
3

Consumer mortgage

 

 
1

 
1

 
1

Total accruing finance receivables and loans past due 90 days or more (a)
$

 
$

 
$
1

 
$
1

 
$
4

Loans held-for-sale
$

 
$

 
$

 
$

 
$
73

(a)
There were no commercial on-balance sheet accruing loans past due 90 days or more as of December 31, 2015, 2014, 2013, 2012, and 2011.
Allowance for Loan Losses
The following table presents an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
2015
 
2014
 
2013
 
2012
 
2011
Balance at January 1,
$
977

 
$
1,208

 
$
1,170

 
$
1,503

 
$
1,873

Charge-offs
(892
)
 
(776
)
 
(737
)
 
(776
)
 
(880
)
Recoveries
283

 
239

 
265

 
302

 
327

Net charge-offs
(609
)
 
(537
)
 
(472
)
 
(474
)
 
(553
)
Provision for loan losses
707

 
457

 
501

 
329

 
161

Other (a)
(21
)
 
(151
)
 
9

 
(188
)
 
22

Balance at December 31,
$
1,054

 
$
977

 
$
1,208

 
$
1,170

 
$
1,503

(a)
Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale. Also includes provision for loan losses relating to discontinued operations of $65 million and $58 million for the years ended December 31, 2012, and 2011, respectively.
Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses by product type.
 
2015
 
2014
 
2013
 
2012
 
2011
December 31, ($ in millions)
Amount
% of total
 
Amount
% of total
 
Amount
% of total
 
Amount
% of total
 
Amount
% of total
Consumer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automotive
$
834

79.1
 
$
685

70.1
 
$
673

55.7
 
$
575

49.2
 
$
766

51.0
Consumer mortgage
114

10.8
 
152

15.6
 
389

32.2
 
452

38.6
 
516

34.3
Total consumer loans
948

89.9
 
837

85.7
 
1,062

87.9
 
1,027

87.8
 
1,282

85.3
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
29

2.8
 
65

6.7
 
67

5.6
 
55

4.7
 
110

7.3
Mortgage

 

 

 

 
11

0.7
Other
53

5.0
 
42

4.2
 
50

4.1
 
48

4.1
 
53

3.6
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
24

2.3
 
33

3.4
 
29

2.4
 
40

3.4
 
42

2.8
Mortgage

 

 

 

 
5

0.3
Total commercial loans
106

10.1
 
140

14.3
 
146

12.1
 
143

12.2
 
221

14.7
Total allowance for loan losses
$
1,054

100.0
 
$
977

100.0
 
$
1,208

100.0
 
$
1,170

100.0
 
$
1,503

100.0

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


Deposit Liabilities
The following table presents the average balances and interest rates paid for types of domestic deposits.
 
2015
 
2014
 
2013
Year ended December 31, ($ in millions)
Average balance (a)
 
Average deposit rate
 
Average balance (a)
 
Average deposit rate
 
Average balance (a)
 
Average deposit rate
Domestic deposits
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
$
85

 
%
 
$
69

 
%
 
$
536

 
%
Interest-bearing deposits
 
 
 
 
 
 
 
 
 
 
 
Savings and money market checking accounts
31,608

 
0.91

 
24,296

 
0.82

 
18,223

 
0.83

Certificates of deposit
30,212

 
1.39

 
31,153

 
1.44

 
31,266

 
1.53

Dealer deposits
266

 
3.73

 
389

 
3.79

 
674

 
3.74

Total domestic deposit liabilities
$
62,171

 
1.15
%
 
$
55,907

 
1.19
%
 
$
50,699

 
1.29
%
(a)
Average balances are calculated using a combination of monthly and daily average methodologies.
The following table presents the amount of certificates of deposit in denominations of $100 thousand or more segregated by time remaining until maturity.
December 31, 2015 ($ in millions)
Three months or less
 
Over three months through six months
 
Over six months through twelve months
 
Over twelve months
 
Total
Certificates of deposit ($100,000 or more)
$
1,922

 
$
1,849

 
$
3,164

 
$
4,618

 
$
11,553


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


Item 7A.    Quantitative and Qualitative Disclosures about Market Risk
Refer to the Market Risk Management section of Item 7, Management's Discussion and Analysis.

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Management's Report on Internal Control over Financial Reporting
Ally Financial Inc. • Form 10-K

4Item 8.    Financial Statements and Supplementary Data
Ally management is responsible for establishing and maintaining effective internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.
The Company's internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Consolidated Financial Statements in conformity with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted, under the supervision of the Company's Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company's internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria.
Based on the assessment performed, management concluded that at December 31, 2015, Ally's internal control over financial reporting was effective based on the COSO criteria.
The independent registered public accounting firm, Deloitte & Touche LLP, has audited the Consolidated Financial Statements of Ally and has issued an attestation report on our internal control over financial reporting at December 31, 2015, as stated in its report, which is included herein.
/S/ JEFFREY J. BROWN
 
/S/ CHRISTOPHER A. HALMY
Jeffrey J. Brown
  
Christopher A. Halmy
Chief Executive Officer
  
Chief Financial Officer
February 24, 2016
  
February 24, 2016

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Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of Ally Financial Inc.:
We have audited the accompanying Consolidated Balance Sheet of Ally Financial Inc. and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the related Consolidated Statements of Income, Comprehensive Income, Changes in Equity, and Cash Flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
 
Deloitte & Touche LLP
 
 
 
Detroit, Michigan
 
February 24, 2016
 

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Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of Ally Financial Inc.:
We have audited the internal control over financial reporting of Ally Financial Inc. and subsidiaries (the “Company”) as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2015, of the Company and our report dated February 24, 2016, expressed an unqualified opinion on those consolidated financial statements.
/S/ DELOITTE & TOUCHE LLP
 
Deloitte & Touche LLP
 
 
 
Detroit, Michigan
 
February 24, 2016
 

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Consolidated Statement of Income
Ally Financial Inc. • Form 10-K



Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Financing revenue and other interest income
 

 

 

Interest and fees on finance receivables and loans
 
$
4,570

 
$
4,457

 
$
4,529

Interest on loans held-for-sale
 
40

 
1

 
20

Interest and dividends on available-for-sale investment securities
 
381

 
367

 
325

Interest on cash and cash equivalents
 
8

 
8

 
10

Operating leases
 
3,398

 
3,558

 
3,209

Total financing revenue and other interest income
 
8,397

 
8,391

 
8,093

Interest expense
 

 

 

Interest on deposits
 
718

 
664

 
654

Interest on short-term borrowings
 
49

 
52

 
63

Interest on long-term debt
 
1,662

 
2,067

 
2,602

Total interest expense
 
2,429

 
2,783

 
3,319

Net depreciation expense on operating lease assets
 
2,249

 
2,233

 
1,995

Net financing revenue
 
3,719

 
3,375

 
2,779

Other revenue
 

 

 

Servicing fees
 
45

 
31

 
126

Servicing asset valuation and hedge activities, net
 

 

 
(213
)
Total servicing income (loss), net
 
45

 
31

 
(87
)
Insurance premiums and service revenue earned
 
940

 
979

 
1,012

Gain on mortgage and automotive loans, net
 
45

 
7

 
55

Loss on extinguishment of debt
 
(357
)
 
(202
)
 
(59
)
Other gain on investments, net
 
155

 
181

 
180

Other income, net of losses
 
314

 
280

 
383

Total other revenue
 
1,142

 
1,276

 
1,484

Total net revenue
 
4,861

 
4,651

 
4,263

Provision for loan losses
 
707

 
457

 
501

Noninterest expense
 

 

 

Compensation and benefits expense
 
963

 
947

 
1,019

Insurance losses and loss adjustment expenses
 
293

 
410

 
405

Other operating expenses
 
1,505

 
1,591

 
1,981

Total noninterest expense
 
2,761

 
2,948

 
3,405

Income from continuing operations before income tax expense
 
1,393

 
1,246

 
357

Income tax expense (benefit) from continuing operations
 
496

 
321

 
(59
)
Net income from continuing operations
 
897

 
925

 
416

Income (loss) from discontinued operations, net of tax
 
392

 
225

 
(55
)
Net income
 
$
1,289

 
$
1,150

 
$
361

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

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Consolidated Statement of Income
Ally Financial Inc. • Form 10-K



Year ended December 31, (in dollars) (a)
 
2015
 
2014
 
2013
Basic earnings per common share
 
 
 
 
 
 
Net (loss) income from continuing operations
 
$
(3.47
)
 
$
1.36

 
$
(1.51
)
Income (loss) from discontinued operations, net of tax
 
0.81

 
0.47

 
(0.13
)
Net (loss) income
 
$
(2.66
)
 
$
1.83

 
$
(1.64
)
Diluted earnings per common share 
 
 
 
 
 
 
Net (loss) income from continuing operations
 
$
(3.47
)
 
$
1.36

 
$
(1.51
)
Income (loss) from discontinued operations, net of tax
 
0.81

 
0.47

 
(0.13
)
Net (loss) income
 
$
(2.66
)
 
$
1.83

 
$
(1.64
)
(a)
Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.
Refer to Note 20 for additional earnings per share information, including the impact of preferred stock dividends recognized in connection with the redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Consolidated Statement of Comprehensive Income
Ally Financial Inc. • Form 10-K

Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Net income
$
1,289

 
$
1,150

 
$
361

Other comprehensive (loss) income, net of tax
 
 
 
 
 
Unrealized (losses) gains on investment securities
 
 
 
 
 
Net unrealized (losses) gains arising during the period
(39
)
 
415

 
(159
)
Less: Net realized gains reclassified to net income
99

 
167

 
186

Net change
(138
)
 
248

 
(345
)
Translation adjustments
 
 
 
 
 
Net unrealized losses arising during the period
(26
)
 
(17
)
 
(80
)
Less: Net realized gains reclassified to net income
22

 
20

 
429

Net change
(48
)
 
(37
)
 
(509
)
Net investment hedges
 
 
 
 
 
Net unrealized gains arising during the period
18

 
8

 
37

Less: Net realized losses reclassified to net income
(3
)
 

 
(169
)
Net change
21

 
8

 
206

Translation adjustments and net investment hedges, net change
(27
)
 
(29
)
 
(303
)
Cash flow hedges
 
 
 
 
 
Net unrealized gains (losses) arising during the period
1

 
2

 
(1
)
Less: Net realized losses reclassified to net income

 

 
(4
)
Net change
1

 
2

 
3

Defined benefit pension plans
 
 
 
 
 
Net unrealized (losses) gains arising during the period

 
(15
)
 
18

Less: Net realized gains (losses) reclassified to net income
1

 
(4
)
 
(40
)
Net change
(1
)
 
(11
)
 
58

Other comprehensive (loss) income, net of tax
(165
)
 
210

 
(587
)
Comprehensive income (loss)
$
1,124

 
$
1,360

 
$
(226
)
The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Table of Contents
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K

December 31, ($ in millions)
 
2015
 
2014
Assets
 

 

Cash and cash equivalents
 

 

Noninterest-bearing
 
$
2,148

 
$
1,348

Interest-bearing
 
4,232

 
4,228

Total cash and cash equivalents
 
6,380

 
5,576

Investment securities (refer to Note 6 for discussion of investment securities pledged as collateral)
 
17,157

 
16,137

Loans held-for-sale, net
 
105

 
2,003

Finance receivables and loans, net
 

 

Finance receivables and loans, net of unearned income
 
111,600

 
99,948

Allowance for loan losses
 
(1,054
)
 
(977
)
Total finance receivables and loans, net
 
110,546

 
98,971

Investment in operating leases, net
 
16,271

 
19,510

Premiums receivable and other insurance assets
 
1,801

 
1,695

Other assets
 
6,321

 
7,105

Assets of operations held-for-sale
 

 
634

Total assets
 
$
158,581

 
$
151,631

Liabilities
 

 

Deposit liabilities
 

 

Noninterest-bearing
 
$
89

 
$
64

Interest-bearing
 
66,389

 
58,139

Total deposit liabilities
 
66,478

 
58,203

Short-term borrowings
 
8,101

 
7,062

Long-term debt
 
66,234

 
66,380

Interest payable
 
350

 
477

Unearned insurance premiums and service revenue
 
2,434

 
2,375

Accrued expenses and other liabilities
 
1,545

 
1,735

Total liabilities
 
145,142

 
136,232

Commitments and contingencies (refer to Note 29 and Note 30)
 
 
 
 
Equity
 

 

Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 482,790,696 and 480,136,039; and outstanding 481,980,111 and 480,094,891)
 
21,100

 
21,038

Preferred stock
 
696

 
1,255

Accumulated deficit
 
(8,110
)
 
(6,828
)
Accumulated other comprehensive loss
 
(231
)
 
(66
)
Treasury stock, at cost (810,585 shares)
 
(16
)
 

Total equity
 
13,439

 
15,399

Total liabilities and equity
 
$
158,581

 
$
151,631

The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Table of Contents
Consolidated Balance Sheet
Ally Financial Inc. • Form 10-K

The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
December 31, ($ in millions)
 
2015
 
2014
Assets
 

 

Finance receivables and loans, net
 

 

Finance receivables and loans, net of unearned income
 
$
27,929

 
$
30,081

Allowance for loan losses
 
(196
)
 
(179
)
Total finance receivables and loans, net
 
27,733

 
29,902

Investment in operating leases, net
 
4,791

 
5,595

Other assets
 
1,624

 
1,964

Total assets
 
$
34,148

 
$
37,461

Liabilities
 


 


Long-term debt
 
20,267

 
24,297

Accrued expenses and other liabilities
 
22

 
173

Total liabilities
 
$
20,289

 
$
24,470

The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Consolidated Statement of Changes in Equity
Ally Financial Inc. • Form 10-K

($ in millions)
Common stock and paid-in capital
 
Mandatorily convertible preferred stock held by U.S. Department of Treasury
 
Preferred stock
 
Accumulated deficit
 
Accumulated other comprehensive income (loss)
 
Treasury stock
 
Total equity
Balance at January 1, 2013
$
19,668

 
$
5,685

 
$
1,255

 
$
(7,021
)
 
$
311

 
$

 
$
19,898

Net income

 

 

 
361

 

 

 
361

Preferred stock dividends — U.S. Department of Treasury (a)

 

 

 
(543
)
 

 

 
(543
)
Preferred stock dividends

 

 

 
(267
)
 

 

 
(267
)
Other comprehensive loss


 


 

 

 
(587
)
 

 
(587
)
Increase in paid-in capital
1

 


 


 


 


 


 
1

Issuance of common stock
1,270

 


 


 


 


 


 
1,270

Repurchase of mandatorily convertible preferred stock held by U.S. Department of Treasury and elimination of share adjustment right


 
(5,685
)
 


 
(240
)
 


 


 
(5,925
)
Balance at December 31, 2013
$
20,939

 
$

 
$
1,255

 
$
(7,710
)
 
$
(276
)

$

 
$
14,208

Net income

 

 

 
1,150

 

 

 
1,150

Preferred stock dividends

 

 

 
(268
)
 

 

 
(268
)
Share-based compensation
99

 

 

 

 


 


 
99

Other comprehensive income

 

 

 

 
210

 


 
210

Balance at December 31, 2014
$
21,038

 
$

 
$
1,255

 
$
(6,828
)
 
$
(66
)

$

 
$
15,399

Net income

 

 

 
1,289

 

 

 
1,289

Preferred stock dividends

 

 

 
(2,571
)
(b)

 

 
(2,571
)
Series A preferred stock repurchase


 


 
(325
)
 

 

 

 
(325
)
Series G preferred stock redemption


 


 
(234
)
 

 

 

 
(234
)
Share-based compensation
62

 


 

 

 

 

 
62

Other comprehensive loss


 


 

 


 
(165
)
 

 
(165
)
Share repurchases related to employee stock-based compensation awards


 


 

 


 

 
(16
)
 
(16
)
Balance at December 31, 2015
$
21,100

 
$

 
$
696

 
$
(8,110
)
 
$
(231
)

$
(16
)
 
$
13,439

(a)
Includes $8 million of preferred stock dividends paid to the U.S. Department of Treasury related to the period from November 15, 2013, through November 20, 2013.
(b)
Preferred stock dividends include $2,364 million recognized in connection with the redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional return to preferred shareholders calculated as the excess consideration paid over the carrying amount derecognized. Refer to Note 18 for additional preferred stock information.
The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Consolidated Statement of Cash Flows
Ally Financial Inc. • Form 10-K

Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Operating activities
 

 

 

Net income
 
$
1,289

 
$
1,150

 
$
361

Reconciliation of net income to net cash provided by operating activities
 

 

 

Depreciation, amortization and accretion, net
 
2,801

 
2,936

 
2,864

Changes in fair value of mortgage servicing rights
 

 

 
101

Provision for loan losses
 
707

 
457

 
570

Gain on sale of loans, net
 
(45
)
 
(7
)
 
(55
)
Net gain on investment securities
 
(155
)
 
(181
)
 
(182
)
Loss on extinguishment of debt
 
357

 
202

 
59

Originations and purchases of loans originated as held-for-sale
 
(1,770
)
 

 
(6,235
)
Proceeds from sales and repayments of loans held-for-sale
 
1,658

 
62

 
8,696

Impairment and settlement related to Residential Capital, LLC
 

 
(150
)
 
(600
)
(Gain) loss on sale of subsidiaries and joint ventures, net
 
(452
)
 
7

 
(666
)
Net change in
 
 
 
 
 
 
Deferred income taxes
 
565

 
117

 
(671
)
Interest payable
 
(127
)
 
(411
)
 
(39
)
Other assets
 
526

 
(132
)
 
2,592

Other liabilities
 
(247
)
 
(400
)
 
(3,860
)
Other, net
 
(12
)
 
(247
)
 
(434
)
Net cash provided by operating activities
 
5,095

 
3,403

 
2,501

Investing activities
 

 

 

Purchases of available-for-sale securities
 
(12,250
)
 
(5,417
)
 
(12,304
)
Proceeds from sales of available-for-sale securities
 
6,874

 
4,260

 
3,627

Proceeds from maturities and repayment of available-for-sale securities
 
4,255

 
2,657

 
5,509

Net increase in finance receivables and loans
 
(13,845
)
 
(5,024
)
 
(2,479
)
Proceeds from sales of finance receivables and loans originated as held-for-investment
 
3,197

 
2,592

 

Purchases of operating lease assets
 
(4,685
)
 
(9,884
)
 
(9,196
)
Disposals of operating lease assets
 
5,546

 
5,860

 
2,964

Sale of mortgage servicing rights
 

 

 
911

Proceeds from sale of business units, net (a)
 
1,049

 
47

 
7,444

Net change in restricted cash
 
264

 
1,625

 
(70
)
Other, net 
 
(152
)
 
72

 
51

Net cash used in investing activities
 
(9,747
)
 
(3,212
)
 
(3,543
)
Statement continues on the next page.
The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Consolidated Statement of Cash Flows
Ally Financial Inc. • Form 10-K

Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Financing activities
 

 

 

Net change in short-term borrowings
 
1,028

 
(1,494
)
 
1,591

Net increase in deposits

8,247


4,851

 
5,357

Proceeds from issuance of long-term debt
 
30,665

 
27,192

 
27,330

Repayments of long-term debt
 
(31,350
)
 
(30,426
)
 
(31,892
)
Proceeds from issuance of common stock
 

 

 
1,270

Repurchase and redemption of preferred stock

(559
)


 

Repurchase of mandatorily convertible preferred stock held by U.S. Department of Treasury and elimination of share adjustment right




 
(5,925
)
Dividends paid

(2,571
)

(268
)
 
(810
)
Net cash provided by (used in) financing activities
 
5,460

 
(145
)
 
(3,079
)
Effect of exchange-rate changes on cash and cash equivalents
 
(4
)
 
(1
)
 
45

Net increase (decrease) in cash and cash equivalents
 
804

 
45

 
(4,076
)
Adjustment for change in cash and cash equivalents of operations held-for-sale (a) (b)
 

 

 
2,094

Cash and cash equivalents at beginning of year
 
5,576

 
5,531

 
7,513

Cash and cash equivalents at end of year
 
$
6,380

 
$
5,576

 
$
5,531

Supplemental disclosures
 
 
 
 
 
 
Cash paid for
 
 
 
 
 
 
Interest
 
$
2,632

 
$
3,090

 
$
3,827

Income taxes
 
96

 
8

 
75

Noncash items
 
 
 
 
 
 
Finance receivables and loans transferred to loans held-for-sale
 
1,311

 
4,631

 
18

Other disclosures
 
 
 
 
 
 
Proceeds from sales and repayments of mortgage loans held-for-investment originally designated as held-for-sale
 
68

 
38

 
51

(a)
The amounts are net of cash and cash equivalents of $1.6 billion at December 31, 2013, of business units at the time of disposition.
(b)
Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Consolidated Statement of Cash Flows. The cash balance of these operations is reported as assets of operations held-for-sale on the Consolidated Balance Sheet.
The Notes to the Consolidated Financial Statements are an integral part of these statements.

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Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K



1.    Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (referred to herein as Parent, Ally, we, our, or us) is a leading, independent, diversified, financial services firm. Founded in 1919, we are a leading financial services company with over 95 years of experience providing a broad array of financial products and services, primarily to automotive dealers and their retail customers. We operate as a financial holding company (FHC) and a bank holding company (BHC). Our banking subsidiary, Ally Bank, is an indirect, wholly-owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (internet, telephone, mobile, and mail) banking market.
Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Parent and its consolidated subsidiaries, to which it is deemed to possess control, after eliminating intercompany balances and transactions, and include all variable interest entities (VIEs) in which we are the primary beneficiary. Other entities in which we have invested and have the ability to exercise significant influence over operating and financial policies of the investee, but upon which we do not possess control, are accounted for by the equity method of accounting within the financial statements and they are therefore not consolidated. Refer to Note 10 for further details on our VIEs. 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. Certain reclassifications may have been made to the prior periods’ financial statements and notes to conform to the current period’s presentation, which did not have a material impact on our Consolidated Financial Statements.
In the past, we have operated our international subsidiaries in a similar manner as we operate in the United States of America (U.S. or United States), subject to local laws or other circumstances that may cause us to modify our procedures accordingly. The financial statements of subsidiaries that operate outside of the United States generally are measured using the local currency as the functional currency. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive income until the foreign subsidiaries are sold or substantially liquidated at which point the accumulated translation adjustments are recognized directly in earnings as part of the gain or loss on sale or liquidation. Income and expense items are translated at average exchange rates prevailing during the reporting period. The majority of our international operations have ceased and are included in discontinued operations.
Use of Estimates and Assumptions
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 and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. 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. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive lease assets and residuals, fair value of financial instruments, legal and regulatory reserves, and the determination of the provision for income taxes.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash on deposit at other financial institutions, cash items in process of collection, and certain highly liquid investments with maturities of three months or less from the date of purchase. Cash and cash equivalents that have restrictions on our ability to withdraw the funds are included in other assets on our Consolidated Balance Sheet. The book value of cash equivalents approximates fair value because of the short maturities of these instruments and the insignificant risk they present to changes in value with respect to changes in interest rates. Certain securities with original maturities of three months or less from the date of purchase that are held as a portion of longer-term investment portfolios, primarily held by our Insurance operations, are classified as investment securities.
Investments
Our portfolio of investments includes various debt and marketable equity securities and nonmarketable equity investments. Debt and marketable equity securities are classified based on management’s intent to sell or hold the security. Our debt and marketable equity securities include government securities, corporate bonds, asset-backed securities (ABS), mortgage-backed securities (MBS), equity securities and other investments. Our portfolio currently includes securities classified as available-for-sale, which are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss.
We amortize premiums and discounts on debt securities as an adjustment to investment yield generally over the stated maturity of the security. For ABS and MBS where prepayments can be reasonably estimated, amortization is adjusted for expected prepayments.
Additionally, we assess our debt and marketable equity securities for potential other-than-temporary impairment. We employ a methodology that considers available evidence in evaluating potential other-than-temporary impairment of our debt and marketable equity securities classified as available-for-sale. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value. We also evaluate the financial health of and business outlook for the issuer, the performance of the underlying assets for interests in securitized assets, and our intent and ability to hold the investment through recovery of its amortized cost basis.

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Notes to Consolidated Financial Statements
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Once a decline in fair value of a debt security is determined to be other-than-temporary, an impairment charge for the credit component is recorded to other gain (loss) on investments, net, in our Consolidated Statement of Income, and a new cost basis in the investment is established. Noncredit component losses of a debt security are recorded in other comprehensive income (loss) when we do not intend to sell the security and it is not more likely than not that we will have to sell the security prior to the security's anticipated recovery. Unrealized losses that we have determined to be other-than-temporary on equity securities are recorded to other gain (loss) on investments, net in our Consolidated Statement of Income. Subsequent increases and decreases to the fair value of available-for-sale debt and equity securities are included in other comprehensive income (loss), so long as they are not attributable to another other-than-temporary impairment.
Realized gains and losses on investment securities are reported in other gain (loss) on investments, net, and are determined using the specific identification method. For information on our debt and marketable equity securities, refer to Note 6.
In addition to our investment securities, we hold nonmarketable equity investments. Our nonmarketable equity investments are carried at cost less any previously recognized impairment, reported in other assets, and include Federal Home Loan Bank (FHLB) stock held to meet regulatory requirements, certain equity investments in low income housing tax credits, and other equity investments that are not publicly traded and therefore do not have a readily determinable fair value. As conditions warrant, we review our investments carried at cost for impairment and will adjust the carrying value of the investment if it is deemed to be impaired. No impairment was recognized in 2015 or 2014. For more information on our nonmarketable equity investments, refer to Note 25.
Finance Receivables and Loans
Finance receivables and loans are reported at their gross carrying value which includes the principal amount outstanding, net of unamortized deferred fees and costs on originated loans, unamortized premiums and discounts on purchased loans, unamortized basis adjustments arising from the designation of finance receivables and loans as the hedged item in qualifying fair value hedge relationships, and cumulative principal charge-offs. We refer to the gross carrying value less the allowance for loan loss as the net carrying value in finance receivables and loans. Unearned rate support received from an automotive manufacturer on certain automotive loans, deferred origination fees and costs, and premiums and discounts on purchased loans, are amortized over the contractual life of the related finance receivable or loan using the effective interest method. We make various incentive payments for consumer automotive loan originations to automotive dealers and account for these payments as direct loan origination costs. Additionally, we make incentive payments to certain commercial automobile wholesale borrowers and account for these payments as a reduction to interest income in the period they are earned. Loan commitment fees are generally deferred and amortized over the commitment period. For information on finance receivables and loans, refer to Note 8.
We initially classify finance receivables and loans as either loans held-for-sale or loans held-for-investment based on management's assessment of our intent and ability to hold loans for the foreseeable future or until maturity. Management's view of the foreseeable future is based on the longest reasonably reliable net income, liquidity, and capital forecast period. Management's intent and ability with respect to certain loans may change from time to time depending on a number of factors, for example economic, liquidity, and capital conditions. In order to reclassify loans to held-for-sale, management must have the intent to sell the loans and reasonably identify the specific loans to be sold. Loans classified as held-for-sale are carried at the lower of their net carrying value or fair value, unless the fair value option was elected, in which case those loans are carried at fair value. Interest income is recognized based upon the contractual rate of interest on the loan and the unpaid principal balance. We report accrued interest receivable on finance receivables and loans in other assets on the Consolidated Balance Sheet.
Our portfolio segments are based on the level at which we develop and document our methodology for determining the allowance for loan losses. Additionally, the classes of finance receivables are based on several factors including the method for monitoring and assessing credit risk, the method of measuring carrying value, and the risk characteristics of the finance receivable. Based on an evaluation of our process for developing the allowance for loan losses including the nature and extent of exposure to credit risk arising from finance receivables, we have determined our portfolio segments to be consumer automotive, consumer mortgage, and commercial.
Consumer automotive — Consists of retail automotive financing for new and used vehicles.
Consumer mortgage — Consists of first mortgage, subordinate-lien mortgages and home equity loans.
Commercial — Consists of the following classes of finance receivables.
Commercial and Industrial
Automotive — Consists of financing operations to fund dealer purchases of new and used vehicles through wholesale or floorplan financing. Additional commercial offerings include automotive dealer term loans, revolving lines of credit, and dealer fleet financing.
Other — Consists of senior secured leveraged cash flow and asset based loans.
Commercial Real Estate Automotive — Consists of term loans to finance dealership land and buildings.
Nonaccrual Loans
Generally, we recognize loans of all classes as past due when they are 30 days delinquent on making a contractually required payment, and loans are placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full collection is not expected.

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Interest income recognition is suspended when finance receivables and loans are placed on nonaccrual status. Additionally, amortization of premiums and discounts and deferred fees and costs ceases when finance receivables and loans are placed on nonaccrual. Exceptions include commercial real estate loans that are placed on nonaccrual status when delinquent for 60 days or when full collection is not probable, if sooner. Additionally, our policy is to generally place all loans that have been modified in troubled debt restructurings (TDRs) on nonaccrual status until the loan has been brought fully current, the collection of contractual principal and interest is reasonably assured, and six consecutive months of repayment performance is achieved. In certain cases, if a borrower has been current up to the time of the modification and repayment of the debt subsequent to the modification is reasonably assured, we may choose to continue to accrue interest on the loan.
Loans on nonaccrual are reported as nonperforming loans in Note 8. The receivable for interest income that is accrued, but not collected, at the date finance receivables and loans are placed on nonaccrual status is reversed against interest income and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received is applied to reduce the carrying value of such loans. Generally, finance receivables and loans are restored to accrual status only when contractually current and the collection of future payments is reasonably assured.
Impaired Loans
Loans of all classes are considered impaired when we determine it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement.
For all classes of consumer loans, impaired loans include all loans that have been modified in TDRs.
Commercial loans of all classes are considered impaired on an individual basis and reported as 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.
With the exception of certain consumer TDRs that have been returned to accruing status, for all classes of impaired loans, income recognition is consistent with that of nonaccrual loans discussed above. Impaired loans may return to accrual status as discussed in the preceding nonaccrual loan section at which time, the normal accrual of interest income resumes. For collateral dependent loans, if the recorded investment in impaired loans exceeds the fair value of the collateral, a charge-off is recorded consistent with the TDR discussion below.
Troubled Debt Restructurings
When the terms of finance receivables or loans are modified, consideration must be given as to whether or not the modification results in a TDR. A modification is considered to be a TDR when both a) the borrower is experiencing financial difficulty and b) we grant a concession to the borrower. These considerations require significant judgment and vary by portfolio segment. In all cases, the cumulative impacts of all modifications are considered at the time of the most recent modification.
For consumer loans of all classes, various qualitative factors are utilized for assessing the financial difficulty of the borrower. These include, but are not limited to, the borrower's default status on any of its debts, bankruptcy and recent changes in financial circumstances (loss of job, etc.). A concession has been granted when as a result of the modification we do not expect to collect all amounts due, including interest accrued at the original contract rate. Types of modifications that may be considered concessions include, but are not limited to, extensions of terms at a rate that does not constitute a market rate, a reduction, deferral or forgiveness of principal or interest owed and loans that have been discharged in a Chapter 7 Bankruptcy and have not been reaffirmed by the borrower.
In addition to the modifications noted above, in our consumer automotive portfolio segment of loans we also provide extensions or deferrals of payments to borrowers whom we deem to be experiencing only temporary financial difficulty. In these cases, there are limits within our operational policies to minimize the number of times a loan can be extended, as well as limits to the length of each extension, including a cumulative cap over the life of the loan. Before offering an extension or deferral, we evaluate the capacity of the customer to make the scheduled payments after the deferral period. During the deferral period, we continue to accrue and collect interest on the loan as part of the deferral agreement. We grant these extensions or deferrals when we expect to collect all amounts due including interest accrued at the original contract rate.
A restructuring that results in only a delay in payment that is deemed to be insignificant is not a concession and the modification is not considered to be a TDR. In order to assess whether a restructuring that results in a delay in payment is insignificant, we consider the amount of the restructured payments subject to delay in conjunction with the unpaid principal balance or the collateral value of the loan, whether or not the delay is significant with respect to the frequency of payments under the original contract, or the loan's original expected duration. In the cases where payment extensions on our automotive loan portfolio cumulatively extend beyond 90 days and are more than 10% of the original contractual term or where the cumulative payment extension is beyond 180 days, we deem the delay in payment to be more than insignificant, and as such, classify these types of modifications as TDRs. Otherwise, we believe that the modifications do not represent a concessionary modification and accordingly, they are not classified as TDRs.
For commercial loans of all classes, similar qualitative factors are considered when assessing the financial difficulty of the borrower. In addition to the factors noted above, consideration is also given to the borrower's forecasted ability to service the debt in accordance with the contractual terms, possible regulatory actions and other potential business disruptions (e.g., the loss of a significant customer or other revenue stream). Consideration of a concession is also similar for commercial loans. In addition to the factors noted above, consideration is also given to whether additional guarantees or collateral have been provided.

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For all loans, TDR classification typically results from our loss mitigation activities. For loans held-for-investment that are not carried at fair value and are TDRs, impairment is typically measured based on the difference between the gross carrying value of the loan and the present value of the expected future cash flows of the loan. The loan may also be measured for impairment based on the fair value of the underlying collateral less costs to sell for loans that are collateral dependent. We recognize impairment by either establishing a valuation allowance or recording a charge-off.
The financial impacts of modifications that meet the definition of a TDR are reported in the period in which they are identified as TDRs. Additionally, if a loan that is classified as a TDR redefaults within twelve months of the modification, we are required to disclose the instances of redefault. For the purpose of this disclosure, we have determined that a loan is considered to have redefaulted when the loan meets the requirements for evaluation under our charge-off policy except for commercial loans where redefault is defined as 90 days past due. Impaired loans may return to accrual status as discussed in the preceding nonaccrual loan section at which time, the normal accrual of interest income resumes.
Net Charge-offs
We disclose the measurement of net charge-offs as the amount of gross charge-offs recognized less recoveries received. Gross charge-offs reflect the amount of the gross carry value directly written-off. Generally, we recognize recoveries when they are received and record them as a reduction to provision for loan losses. As a general rule, consumer automotive loans are written down to estimated collateral value, less costs to sell, once a loan becomes 120 days past due. In our consumer mortgage portfolio segment, first-lien mortgages and a subset of our home equity portfolio that are secured by real estate in a first-lien position are written down to the estimated fair value of the collateral, less costs to sell, once a mortgage loan becomes 180 days past due. Consumer mortgage loans that represent second-lien positions are charged off at 180 days past due. Consumer mortgage loans within our second-lien portfolio in bankruptcy that are 60 days past due are fully charged off within 60 days of receipt of notification of filing from the bankruptcy court. Consumer automotive and first-lien consumer mortgage loans in bankruptcy that are 60 days past due are written down to the estimated fair value of the collateral, less costs to sell, within 60 days of receipt of notification of filing from the bankruptcy court. Regardless of other timelines noted within this policy, loans are considered collateral dependent once foreclosure or repossession proceedings begin and are charged-off to the estimated fair value of the underlying collateral, less costs to sell at that time.
Commercial loans are individually evaluated and where collectability of the recorded balance is in doubt are written down to the estimated fair value of the collateral less costs to sell. Generally, all commercial loans are charged-off when it becomes unlikely that the borrower is willing or able to repay the remaining balance of the loan and any underlying collateral is not sufficient to recover the outstanding principal. Collateral dependent loans are charged-off to the fair market value of collateral less costs to sell when appropriate and noncollateral dependent loans are fully written-off.
Allowance for Loan Losses
The allowance for loan losses (the allowance) is management's estimate of incurred losses in the lending portfolios. We determine the amount of the allowance required for each of our portfolio segments based on its relative risk characteristics. The evaluation of these factors for both consumer and commercial finance receivables and loans involves quantitative analysis combined with sound management judgment. Additions to the allowance are charged to current period earnings through the provision for loan losses; amounts determined to be uncollectible are charged directly against the allowance, net of amounts recovered on previously charged-off accounts.
The allowance is comprised of two components: specific reserves established for individual loans evaluated as impaired and portfolio-level reserves established for large groups of typically smaller balance homogeneous loans that are collectively evaluated for impairment. We evaluate the adequacy of the allowance based on the combined total of these two components. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.
Measurement of impairment for specific reserves is generally determined on a loan-by-loan basis. Loans determined to be specifically impaired are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, an observable market price, or the estimated fair value of the collateral less estimated costs to sell when appropriate, whichever is determined to be the most appropriate. When these measurement values are lower than the carrying value of that loan, impairment is recognized. Loans that are not identified as individually impaired are pooled with other loans with similar risk characteristics for evaluation of impairment for the portfolio-level allowance.
For the purpose of calculating portfolio-level reserves, we have grouped our loans into three portfolio segments: consumer automotive, consumer mortgage, and commercial. The allowance consists of the combination of a quantitative assessment component based on statistical models, a retrospective evaluation of actual loss information to loss forecasts, and includes a qualitative component based on management judgment. Management takes into consideration relevant qualitative factors, including external and internal trends such as the impacts of changes in underwriting standards, collections and account management effectiveness, geographic concentrations, and economic events, among other factors, that have occurred but are not yet reflected in the quantitative assessment component. Qualitative adjustments are documented, reviewed, and approved through our established risk governance processes.
During 2015, we did not substantively change any material aspect of our overall approach used to determine the allowance for loan losses for our portfolio segments. There were no material changes in criteria or estimation techniques as compared to prior periods that impacted the determination of the current period allowance for loan losses for our portfolio segments.

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Refer to Note 8 for information on the allowance for loan losses.
Consumer Loans
Our consumer automotive and consumer mortgage portfolio segments are reviewed for impairment based on an analysis of loans that are grouped into common risk categories. We perform periodic and systematic detailed reviews of our lending portfolios to identify inherent risks and to assess the overall collectability of those portfolios. Loss models are utilized for these portfolios, which consider a variety of credit quality indicators including, but not limited to, historical loss experience, current economic conditions, anticipated repossessions or foreclosures based on portfolio trends, and credit scores, and expected loss factors by loan type.
Consumer Automotive Portfolio Segment
The allowance for loan losses within the consumer automotive portfolio segment is calculated using proprietary statistical models and other risk indicators applied to pools of loans with similar risk characteristics, including credit bureau score and loan-to-value ratios to arrive at an estimate of incurred losses in the portfolio. These statistical loss forecasting models are utilized to estimate incurred losses and consider a variety of factors including, but not limited to, historical loss experience, estimated defaults based on portfolio trends, and general economic and business trends. These statistical models predict forecasted losses inherent in the portfolio.
The forecasted losses consider historical factors such as frequency (the number of contracts that we expect to default) and loss severity (the loss amount of contracts we expect to default). The loss severity within the consumer automotive portfolio segment is impacted by the market values of vehicles that are repossessed. Vehicle market values are affected by numerous factors including vehicle supply, the condition of the vehicle upon repossession, the overall price and volatility of gasoline or diesel fuel, consumer preference related to specific vehicle segments, and other factors.
The quantitative assessment component may be supplemented with qualitative reserves based on management's determination that such adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external factors that have occurred but are not yet reflected in the forecasted losses and may affect the performance of the portfolio.
Consumer Mortgage Portfolio Segment
The allowance for loan losses within the consumer mortgage portfolio segment is calculated by using proprietary statistical models based on pools of loans with similar risk characteristics, including credit score, loan-to-value, loan age, documentation type, product type, and loan purpose, to arrive at an estimate of incurred losses in the portfolio. These statistical loss forecasting models are utilized to estimate incurred losses and consider a variety of factors including, but not limited to, historical loss experience, estimated foreclosures or defaults based on portfolio trends, delinquencies, and general economic and business trends.
The forecasted losses are statistically derived based on a suite of behavioral based transition models. This transition framework predicts various stages of delinquency, default, and voluntary prepayment over the course of the life of the loan. The transition probability is a function of the loan and borrower characteristics and economic variables and considers historical factors such as frequency and loss severity. When a default event is predicted, a severity model is applied to estimate future loan losses. Loss severity within the consumer mortgage portfolio segment is impacted by the market values of foreclosed properties, which is affected by numerous factors, including geographic considerations and the condition of the foreclosed property.
The quantitative assessment component may be supplemented with qualitative reserves based on management's determination that such adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external factors that have occurred but are not yet reflected in the forecasted losses and may affect the performance of the portfolio.
Commercial Loans
The allowance for loan losses within the commercial portfolio is comprised of reserves established for specific loans evaluated as impaired and portfolio-level reserves based on nonimpaired loans grouped into pools based on similar risk characteristics and collectively evaluated.
A commercial loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on current information and events. These loans are primarily evaluated individually and are risk-rated based on borrower, collateral, and industry-specific information that management believes is relevant in determining the occurrence of a loss event and measuring impairment. Management establishes specific allowances for commercial loans determined to be individually impaired based on the present value of expected future cash flows, discounted at the loan's effective interest rate, observable market price or the fair value of collateral, whichever is determined to be the most appropriate. Estimated costs to sell or realize the value of the collateral on a discounted basis are included in the impairment measurement, when appropriate.
Loans not identified as impaired are grouped into pools based on similar risk characteristics and collectively evaluated. Our risk rating models use historical loss experience, concentrations, current economic conditions, and performance trends. The commercial historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic environment. The determination of the allowance is influenced by numerous assumptions and many factors that may materially affect estimates of loss, including volatility of loss given default, probability of default, and rating migration. In assessing the risk rating of a particular loan, several factors are considered including an evaluation of historical and current information involving subjective assessments and interpretations. In addition, the allowance

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related to the commercial portfolio segment is influenced by estimated recoveries from automotive manufacturers relative to guarantees or agreements with them to repurchase vehicles used as collateral to secure the loans.
The quantitative assessment component may be supplemented with qualitative reserves based on management's determination that such adjustments provide a better estimate of credit losses. This qualitative assessment takes into consideration relevant internal and external factors that have occurred but are not yet reflected in the forecasted losses and may affect the performance of the portfolio.
Securitizations and Variable Interest Entities
We securitize, transfer, and service consumer and commercial automotive loans and operating leases. Securitization transactions typically involve the use of VIEs and are accounted for either as sales or secured borrowings. We may retain economic interests in the securitized and sold assets, which are generally retained in the form of senior or subordinated interests, interest- or principal-only strips, cash reserves, residual interests, and servicing rights.
In order to conclude whether or not a variable interest entity is required to be consolidated, careful consideration and judgment must be given to our continuing involvement with the variable interest entity. In circumstances where we have both the power to direct the activities of the entity that most significantly impact the entity's performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, we would conclude that we would consolidate the entity, which would also preclude us from recording an accounting sale on the transaction. In the case of a consolidated variable interest entity, the accounting is consistent with a secured borrowing, (e.g., we continue to carry the loans and we record the related securitized debt on our Consolidated Balance Sheet).
In transactions where we are not determined to be the primary beneficiary of the VIE, we then must determine whether or not we achieve a sale for accounting purposes. In order to achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond our control. If we were to fail any of the three criteria for sale accounting, the accounting would be consistent with the preceding paragraph (i.e., a secured borrowing). Refer to Note 10 for discussion on VIEs.
Gains or losses on off-balance sheet securitizations take into consideration the fair value of the retained interests including the value of certain servicing assets or liabilities, if any, which are initially recorded at fair value at the date of sale. The estimate of the fair value of the retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows from the interests. Refer to Note 25 for a discussion of fair value estimates.
Gains or losses on off-balance sheet securitizations and sales are reported in gain (loss) on mortgage and automotive loans, net, in our Consolidated Statement of Income. Retained interests, as well as any purchased securities, are generally included in available-for-sale investment securities and follow the accounting as described above or are classified in other assets. Retained interests that are included in other assets are reported at fair value and include cash reserves and certain noncertificated residual interests.
We retain servicing responsibilities for all of our consumer and commercial automotive loan and operating lease securitizations. We may receive servicing fees for off-balance sheet securitizations based on the securitized loan balances and certain ancillary fees, all of which are reported in servicing fees in the Consolidated Statement of Income. Typically, the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability.
Whether on- or off-balance sheet, the investors in the securitization trusts generally have no recourse to our assets outside of customary market representation and warranty repurchase provisions.
Repossessed and Foreclosed Assets
Assets are classified as repossessed and foreclosed and included in other assets when physical possession of the collateral is taken, which includes the transfer of title through foreclosure or other similar proceedings. Repossessed and foreclosed assets are carried at the lower of the outstanding balance at the time of repossession or foreclosure or the fair value of the asset less estimated costs to sell. Losses on the revaluation of repossessed and foreclosed assets are recognized as a charge-off of the allowance for loan losses at the time of repossession. Declines in value after repossession are charged to other operating expenses for loans and depreciation expense for operating lease assets as incurred.
Investment in Operating Leases
Investment in operating leases, net represents the automobiles that are underlying the automotive lease contracts and is reported at cost, less accumulated depreciation and net of impairment charges and origination fees or costs. Depreciation of vehicles is recorded on a straight-line basis to an estimated residual value over the lease term. Manufacturer support payments that we receive upfront are treated as a reduction to the cost-basis in the underlying lease asset, which has the effect of reducing depreciation expense over the life of the contract. We periodically evaluate our depreciation rate for leased vehicles based on expected residual values and adjust depreciation expense over the remaining life of the lease if deemed appropriate. Income from operating lease assets that includes lease origination fees, net of lease origination costs, is recognized as operating lease revenue on a straight-line basis over the scheduled lease term.
We have significant investments in the residual values of the assets in our operating lease portfolio. The residual values represent an estimate of the values of the assets at the end of the lease contracts. At contract inception, we determine pricing based on the projected residual value of the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in

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used vehicle supply. This internally-generated data is compared against third party, independent data for reasonableness and analysis. Realization of the residual values is dependent on our future ability to market the vehicles under the prevailing market conditions. Over the life of the lease, we evaluate the adequacy of our estimate of the residual value and may make adjustments to the depreciation rates to the extent the expected value of the vehicle at lease termination changes. In addition to estimating the residual value at lease termination, we also evaluate the current value of the operating lease asset and test for impairment to the extent necessary based on market considerations and portfolio characteristics. Impairment is determined to exist if fair value of the leased asset is less than carrying value and it is determined that the net carrying value is not recoverable. The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition. No impairment was recognized in 2015, 2014, or 2013. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by discounted cash flows. We accrue rental income on our operating leases when collection is reasonably assured. We generally discontinue the accrual of revenue on operating leases at the time an account is determined to be uncollectible, at the earliest of time of repossession, within 60 days of bankruptcy notification and greater than 60 days past due, or greater than 120 days past due.
When a lease vehicle is returned to us, the asset is reclassified from investment in operating leases, net, to other assets and recorded at the lower-of-cost or estimated fair value, less costs to sell, on our Consolidated Balance Sheet.
Impairment of Long-lived Assets
The net carrying value of long-lived assets (including property and equipment) are evaluated for impairment whenever events or changes in circumstances indicate that their net carrying values may not be recoverable from the estimated undiscounted future cash flows expected to result from their use and eventual disposition. Recoverability of assets to be held and used is measured by a comparison of their net carrying amount to future net undiscounted cash flows expected to be generated by the assets. If these assets are considered to be impaired, the impairment is measured as the amount by which the net carrying amount of the assets exceeds the fair value estimated using a discounted cash flow method. No material impairment was recognized in 2015, 2014, or 2013.
An impairment test on an asset group to be sold or otherwise disposed of is performed upon occurrence of a triggering event or when certain criteria are met (e.g., the asset is planned to be disposed of within twelve months, appropriate levels of authority have approved the sale, there is an active program to locate a buyer, etc.), which cause the disposal group to be classified as held-for-sale. Long-lived assets held-for-sale are recorded at the lower of their carrying amount or estimated fair value less cost to sell. If the net carrying value of the assets held-for-sale exceeds the fair value less cost to sell, we recognize an impairment loss based on the excess of the net carrying amount over the fair value of the assets less cost to sell. Refer to Note 2 for a discussion of discontinued and held-for-sale operations.
Property and Equipment
Property and equipment stated at cost, net of accumulated depreciation and amortization, are reported in other assets on our Consolidated Balance Sheet. Included in property and equipment are certain buildings, furniture and fixtures, leasehold improvements, company vehicles, IT hardware and software, and capitalized software costs. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets, which generally ranges from three to thirty years. Capitalized software is generally amortized on a straight-line basis over its useful life, which generally ranges from three to five years. Capitalized software that is not expected to provide substantive service potential or for which development costs significantly exceed the amount originally expected is considered impaired and written down to fair value. Software expenditures that are considered general, administrative, or of a maintenance nature are expensed as incurred.
Unearned Insurance Premiums and Service Revenue
Insurance premiums, net of premiums ceded to reinsurers, and service revenue are earned over the terms of the policies. The portion of premiums and service revenue written applicable to the unexpired terms of the policies is recorded as unearned insurance premiums or unearned service revenue. For extended service and maintenance contracts, premiums and service revenues are earned on a basis proportionate to the anticipated cost emergence. For other short duration contracts, premiums and unearned service revenue are earned on a pro rata basis. For further information, refer to Note 3.
Deferred Policy Acquisition Costs
Certain commissions, that are primarily related to and vary with the production of business, are deferred and recorded in other assets. Deferred policy acquisition costs are amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue are earned. We group costs incurred for acquiring like contracts and consider anticipated investment income in determining the recoverability of these costs.
Reserves for Insurance Losses and Loss Adjustment Expenses
Reserves for insurance losses and loss adjustment expenses are reported in accrued expenses and other liabilities on our Consolidated Balance Sheet. They are established for the unpaid cost of insured events that have occurred as of a point in time. More specifically, the reserves for insurance losses and loss adjustment expenses represent the accumulation of estimates for both reported losses and those incurred, but not reported, including claims adjustment expenses relating to direct insurance and assumed reinsurance agreements. Estimates for salvage and subrogation recoverable are recognized at the time losses are incurred and netted against the provision for insurance losses and loss adjustment expenses. Reserves are established for each business at the lowest meaningful level of homogeneous data. Since the reserves are based on estimates, the ultimate liability may vary from such estimates. The estimates are regularly reviewed and adjustments, which can potentially be significant, are included in earnings in the period in which they are deemed necessary.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Legal and Regulatory Reserves
Reserves for legal and regulatory matters are established when those matters present loss contingencies that are both probable and estimable, with a corresponding amount recorded to other operating expense. In cases where we have an accrual for losses, it is our policy to include an estimate for probable and estimable legal expenses related to the case. If, at the time of evaluation, the loss contingency related to a legal or regulatory matter is not both probable and estimable, we do not establish an accrued liability. We continue to monitor legal and regulatory matters for further developments that could affect the requirement to establish a liability or that may impact the amount of a previously established liability. There may be exposure to loss in excess of any amounts recognized. For certain other matters where the risk of loss is determined to be reasonably possible, estimable, and material to the financial statements, disclosure regarding details of the matter and an estimated range of loss is required. The estimated range of possible loss does not represent our maximum loss exposure. Financial statement disclosure is also required for matters that are deemed probable or reasonably possible, material to the financial statements, but for which an estimated range of loss is not possible to determine. While we believe our reserves are adequate, the outcome of legal and regulatory proceedings is extremely difficult to predict and we may settle claims or be subject to judgments for amounts that differ from our estimates. For information regarding the nature of all material contingencies, refer to Note 30.
Earnings per Common Share
We compute basic earnings (loss) per common share by dividing net income (loss) from continuing operations attributable to common shareholders 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) from continuing operations after deducting dividends on preferred stock by the weighted-average number of common shares outstanding during the period plus the dilution resulting from incremental shares that would have been outstanding if the dilutive potential common shares had been issued (assuming it does not have the effect of antidilution), if applicable.
Derivative Instruments and Hedging Activities
We primarily use derivative instruments for risk management purposes. Some of our derivative instruments are designated in qualifying hedge accounting relationships; other derivative instruments do not qualify for hedge accounting or are not elected to be designated in a qualifying hedging relationship. In accordance with applicable accounting standards, all derivative instruments, whether designated for hedge accounting or not, are required to be recorded on the balance sheet as assets or liabilities and measured at fair value. Additionally, we have elected to report the fair value amounts recognized for derivative financial instruments, including the fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value executed with the same counterparty under a master netting arrangement, on the Consolidated Balance Sheet on a gross basis where we do not have the intent to offset. For additional information on derivative instruments and hedging activities, refer to Note 22.
At inception of a hedge accounting relationship, we designate each qualifying derivative financial instrument as a hedge of the fair value of a specifically identified asset or liability (fair value hedge); as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); or as a hedge of the foreign-currency exposure of a net investment in a foreign operation (net investment hedge). We formally document all relationships between hedging instruments and hedged items and risk management objectives for undertaking various hedge transactions. Both at the hedge's inception and on an ongoing basis, we formally assess whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in fair values or cash flows of hedged items.
Changes in the fair value of derivative instruments that are designated and qualify as fair value hedges, along with the gain or loss on the hedged asset or liability attributable to the hedged risk, are recorded in the current period earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative financial instruments is recorded in accumulated other comprehensive income, and recognized in the income statement when the hedged cash flows affect earnings. For a qualifying net investment hedge, the gain or loss is reported in accumulated other comprehensive income as part of the cumulative translation adjustment. The ineffective portions of fair value, cash flow, and net investment hedges are immediately recognized in earnings, along with the portion of the change in fair value that is excluded from the assessment of hedge effectiveness, if any.
The hedge accounting treatment described herein is no longer applied if a derivative financial instrument is terminated or the hedge designation is removed or is assessed to be no longer highly effective. For these terminated fair value hedges, any changes to the hedged asset or liability remain as part of the basis of the hedged asset or liability and are recognized into income over the remaining life of the asset or liability. For terminated cash flow hedges, unless it is probable that the forecasted cash flows will not occur within a specified period, any changes in fair value of the derivative financial instrument previously recognized remain in accumulated other comprehensive income, and are reclassified into earnings in the same period that the hedged cash flows affect earnings. The previously recognized gain or loss for a net investment hedge continues to remain in accumulated other comprehensive income until earnings are impacted by sale or liquidation of the associated foreign operation. In all instances, after hedge accounting is no longer applied, any subsequent changes in fair value of the derivative instrument will be recorded into earnings.
Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated for hedge accounting under GAAP are reported in current period earnings.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated future taxes to be paid. We are subject to income taxes predominantly in the United States. Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies.
We recognize the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Also, we recognize accrued interest and penalties related to liabilities for uncertain income tax positions in interest expense and other operating expenses, respectively. For additional information regarding our provision for income taxes, refer to Note 23.
Share-based Compensation
Under accounting guidance for share-based compensation, compensation cost recognized includes the cost of share-based awards. For equity classified share-based awards, compensation cost is ratably charged to expense based on the grant date fair value of the awards over the applicable service periods. For liability classified share-based awards, the associated liability is remeasured quarterly at fair value until they are paid, with changes in fair value charged to compensation expense in the period in which the change occurs. Refer to Note 24 for a discussion of our share-based compensation plans.
Foreign Exchange
Foreign-denominated assets and liabilities resulting from foreign-currency transactions are valued using period-end foreign-exchange rates and the results of operations and cash flows are determined using approximate weighted average exchange rates for the period. Translation adjustments are related to foreign subsidiaries using local currency as their functional currency and are reported as a separate component of accumulated other comprehensive income. We may elect to enter into foreign-currency derivatives to mitigate our exposure to changes in foreign-exchange rates. Refer to the Derivative Instruments and Hedging Activities section above for a discussion of our hedging activities of the foreign-currency exposure of a net investment in a foreign operation.
Recently Adopted Accounting Standards
Receivables — Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (ASU 2014-04)
As of January 1, 2015, we adopted ASU (Accounting Standards Update) 2014-04. The amendments in this ASU clarify the timing for which an entity should reclassify a loan that has been foreclosed or where an in substance repossession has occurred to real estate owned. The guidance requires a reclassification to occur when the entity obtains legal title upon completion of foreclosure or the borrower conveys all interest in the residential real estate property to the entity to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. In addition, the ASU clarifies that redemption rights of the borrower should be ignored for purposes of determining whether legal title has transferred. We adopted the guidance utilizing a modified retrospective approach. The adoption of this guidance did not have a material effect on our consolidated financial condition or results of operations.
Presentation of Financial Statements and Property, Plant, and Equipment — Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity (ASU 2014-08)
As of January 1, 2015, we adopted ASU 2014-08. The amendments in this ASU modify the requirements for the reporting of discontinued operations. In order to qualify as a discontinued operation, the disposal of a component of an entity, a group of components, or a business of an entity must represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The ASU further indicates that the timing for recording a discontinued operation is when one of the following occurs: the component, group of components, or business meets the criteria to be classified as held-for-sale; the component, group of components, or business is disposed of by sale; or the component, group of components, or business is disposed of other than by sale (for example abandonment or spinoff). In addition, the ASU also requires additional disclosure items about an entity’s discontinued operations. The amendments were applied prospectively solely to newly identified disposals that qualify as discontinued operations after the effective date. Items previously reported as discontinued operations maintain their classification based on the prior guidance. The adoption of this guidance did not have a material effect on our consolidated financial condition or results of operations.
Transfers and Servicing — Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures (ASU 2014-11)
As of January 1, 2015, we adopted ASU 2014-11. The amendments in this ASU change the accounting for repurchase-to-maturity transactions and repurchase financing transactions such that both will be reported as secured borrowings. In addition to the changes to how these transactions are reported, the ASU also includes new disclosure requirements. The amendments were applied to all transactions that fall under the guidance as of the date of adoption with a cumulative effect adjustment recorded on the date of initial adoption. The adoption of this guidance did not have a material effect on our consolidated financial condition or results of operations.

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Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Imputation of Interest — Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03) and Imputation of Interest — Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (ASU 2015-15)
As of December 31, 2015, we adopted ASU 2015-03 and ASU 2015-15. The amendments in ASU 2015-03 require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Historically, debt issuance costs were presented as a deferred charge and were therefore presented as an asset. The amendments in ASU 2015-15 codified comments made by the SEC that costs associated with revolving lines of credit may continue to be presented as an asset subsequent to the adoption of the guidance in ASU 2015-03. The amendments were applied retrospectively to all periods presented. The impact of adopting the standard was a reduction to other assets of $190 million and $197 million, a reduction to long-term debt of $168 million and $178 million and a reduction to interest-bearing deposit liabilities of $22 million and $19 million at December 31, 2015, and December 31, 2014, respectively.
Recently Issued Accounting Standards
Revenue from Contracts with Customers (ASU 2014-09) and Revenue from Contracts with Customers — Deferral of the Effective Date (ASU 2015-14)
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial Reporting Standards (IFRS). The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the main principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. As originally issued, the amendments in ASU 2014-09 were to be effective for us beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the guidance for us until January 1, 2018, and permitted early adoption as of the original effective date in ASU 2014-09. The amendments to the revenue recognition principles can be applied on adoption either through a full retrospective application or on a modified basis with a cumulative effect adjustment on the date of initial adoption with certain practical expedients. Management is in the process of completing a scoping assessment in order to determine the impact of the adoption of this guidance.
Consolidation — Amendments to the Consolidation Analysis (ASU 2015-02)
In February 2015, the FASB issued ASU 2015-02. The amendments in this update modify the requirements of consolidation with respect to entities that are or are similar in nature to limited partnerships or are VIEs. For entities that are or are similar to limited partnerships, the guidance clarifies the evaluation of kick-out rights, removes the presumption that the general partner will consolidate and generally states that such entities will be presumed to be VIEs unless proven otherwise. For VIEs, the guidance modifies the analysis related to the evaluation of servicing fees, excludes servicing fees that are deemed commensurate with the level of service required from the determination of the primary beneficiary and clarifies certain considerations related to the consolidation analysis when performing a related party assessment. The amendments are effective for us on January 1, 2016, with early adoption permitted. The amendments can be applied either through a full retrospective application or on a modified retrospective basis with a cumulative effect adjustment on the date of initial adoption. Based on our preliminary assessment within our ongoing implementation efforts, we do not believe this guidance will have a material impact on our consolidated financial condition or results of operations.
Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)
In January 2016, the FASB issued ASU 2016-01. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operation. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Reporting entities may continue to elect to measure equity investments which do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive income and not as a component of net income. The amendments are effective for us on January 1, 2018, with early adoption permitted solely for the instrument-instrument specific credit risk for liabilities measured at fair value. The amendments must be applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Management is currently evaluating the impact of the amendments. However, we do expect additional volatility in our consolidated results of operations as a result of the requirement to measure equity investments at fair value with changes in the fair value recognized in net income upon adoption.
2.     Discontinued and Held-for-sale Operations
Discontinued Operations
Prior to the adoption of ASU 2014-08, which was prospectively applied only to newly identified disposals that qualified as discontinued operations beginning after January 1, 2015, we classified operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we do not expect to retain any significant continuing involvement in their operations after the respective sale or disposal transactions. For all periods presented, the operating results for these discontinued operations have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the Consolidated Statement of Income. The Notes to the Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Select Mortgage Operations
During the first quarter of 2013, the operations of our former subsidiary Residential Capital, LLC (ResCap) were classified as discontinued.
Select Insurance Operations
During the first quarter of 2013, we completed the sale of our U.K.-based operations. During the second quarter of 2013, we sold our Mexican insurance business, ABA Seguros.
Select Automotive Finance Operations
During the fourth quarter of 2012, we committed to sell our operations in Europe and Latin America to General Motors Financial Company, Inc. (GMF). On the same date, we entered into an agreement with GMF to sell our 40% interest in a motor vehicle finance joint venture in China. During the first quarter of 2013, we sold our Canadian automotive finance operations, Ally Credit Canada Limited and ResMor Trust. During the second quarter of 2013, we completed the sale of our operations in Europe and the majority of Latin America. The transaction included European operations in Germany, the United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium, France and the Netherlands, and Latin America operations in Mexico, Chile, and Colombia. During the fourth quarter of 2013, we completed the sale of our Latin American operations in Brazil.
On January 2, 2015, the sale of our interest in the motor vehicle finance joint venture in China was completed and an after-tax gain of approximately $400 million was recorded. The tax expense included in this gain was reduced by the release of the valuation allowance on our capital loss carryforward deferred tax asset that was utilized to offset capital gains stemming from this sale.
Select Corporate and Other Operations
During the second quarter of 2014, we ceased operations of our Corporate Finance Group's Canadian operation, and classified this business as discontinued.
Select Financial Information
Select financial information of discontinued operations is summarized below. The pretax income or loss, including direct costs to transact a sale, includes any impairment recognized to present the operations at the lower-of-cost or fair value. Fair value was based on the estimated sales price, which could differ from the ultimate sales price due to price volatility, changing interest rates, changing foreign-currency rates, and future economic conditions.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
 
Select Mortgage operations
 
 
 
 
 
 
 
Total net revenue
 
$

 
$

 
$

 
Pretax loss including direct costs to transact a sale (a) (b)
 
(7
)
 
(4
)
 
(1,741
)
 
Tax benefit (c)
 
(3
)
 
(87
)
 
(592
)
 
Select Insurance operations
 
 
 
 
 
 
 
Total net revenue
 
$

 
$

 
$
190

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

 
6

 
319

(d)
Tax expense (benefit) (c)
 
1

 
6

 
(14
)
 
Select Automotive Finance operations
 
 
 
 
 
 
 
Total net revenue
 
$

 
$
123

 
$
572

 
Pretax income including direct costs to transact a sale (a)
 
452

 
129

 
660

(e)
Tax expense (benefit) (c)
 
80

 
7

 
(101
)
 
Select Corporate and Other operations
 
 
 
 
 
 
 
Total net revenue
 
$

 
$

 
$

 
Pretax income
 
20

 
23

 

 
Tax (benefit) expense
 
(2
)
 
3

 

 
(a)
Includes certain treasury and other corporate activity recognized by Corporate and Other.
(b)
Includes amounts related to our former ResCap subsidiary.
(c)
Includes certain income tax activity recognized by Corporate and Other.
(d)
Includes recognized pretax gain of $274 million in connection with the sale of our Mexican insurance business, ABA Seguros.
(e)
Includes recognized pretax loss of $488 million in connection with the sale of our European and Latin American automotive finance operations and pretax gain of $888 million in connection with the sale of our Canadian automotive finance operations, Ally Credit Canada Limited and ResMor Trust.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Held-for-sale Operations
Assets of operations held-for-sale consisted of $634 million in other assets at December 31, 2014, related to the joint venture in China that was sold to GMF on January 2, 2015. No held-for-sale operations remain at December 31, 2015.
3.    Insurance Premiums and Service Revenue Earned
The following table is a summary of insurance premiums and service revenue written and earned.
 
2015
 
2014
 
2013
Year ended December 31, ($ in millions)
Written
 
Earned
 
Written
 
Earned
 
Written
 
Earned
Insurance premiums
 
 
 
 
 
 
 
 
 
 
 
Direct
$
313

 
$
296

 
$
294

 
$
282

 
$
270

 
$
305

Assumed
2

 
16

 
43

 
54

 
61

 
58

Gross insurance premiums
315

 
312

 
337

 
336

 
331

 
363

Ceded
(184
)
 
(125
)
 
(156
)
 
(117
)
 
(172
)
 
(120
)
Net insurance premiums
131

 
187

 
181

 
219

 
159

 
243

Service revenue
846

 
753

 
842

 
760

 
838

 
769

Insurance premiums and service revenue written and earned
$
977

 
$
940

 
$
1,023

 
$
979

 
$
997

 
$
1,012

4.     Other Income, Net of Losses
Details of other income, net of losses, were as follows.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Remarketing fees
$
101

 
$
112

 
$
82

Late charges and other administrative fees
90

 
88

 
94

Income from equity-method investments
52

 
18

 
15

Mortgage processing fees and other mortgage income

 

 
81

Fair value adjustment on derivatives (a)
(8
)
 
(31
)
 
24

Other, net
79

 
93

 
87

Total other income, net of losses
$
314

 
$
280

 
$
383

(a)
Refer to Note 22 for a description of derivative instruments and hedging activities.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


5.     Other Operating Expenses
Details of other operating expenses were as follows.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Insurance commissions
$
378

 
$
374

 
$
370

Technology and communications
267

 
334

 
346

Lease and loan administration
126

 
122

 
173

Advertising and marketing
107

 
111

 
136

Professional services
93

 
100

 
176

Premises and equipment depreciation
82

 
81

 
81

Regulatory and licensing fees
79

 
87

 
116

Vehicle remarketing and repossession
78

 
83

 
60

Occupancy
50

 
47

 
44

Provision for legal and regulatory settlements (a)
45

 
4

 
105

Non-income taxes
29

 
40

 
35

Mortgage representation and warranty obligation, net
(13
)
 
(10
)
 
104

Other
184

 
218

 
235

Total other operating expenses
$
1,505

 
$
1,591

 
$
1,981

(a)
Results for the year ended December 31, 2013, include a $98 million settlement charge related to Consent Orders issued by the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (DOJ) pertaining to the allegation of disparate impact in the automotive finance business. Refer to Note 30 for additional details.
6.     Investment Securities
Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.
 
 
2015
 
2014
 
 
Amortized cost
 
Gross unrealized
 
Fair
value
 
Amortized cost
 
Gross unrealized
 
Fair
value
December 31, ($ in millions)
 
gains
 
losses
 
gains
 
losses
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,760

 
$

 
$
(19
)
 
$
1,741

 
$
1,195

 
$
1

 
$
(18
)
 
$
1,178

U.S. States and political subdivisions
 
693

 
24

 
(1
)
 
716

 
389

 
17

 

 
406

Foreign government
 
169

 
8

 

 
177

 
224

 
8

 

 
232

Mortgage-backed residential (a)
 
10,459

 
52

 
(145
)
 
10,366

 
10,431

 
119

 
(125
)
 
10,425

Mortgage-backed commercial
 
486

 

 
(5
)
 
481

 
254

 

 
(1
)
 
253

Asset-backed
 
1,762

 
1

 
(8
)
 
1,755

 
1,989

 
5

 
(3
)
 
1,991

Corporate debt
 
1,213

 
8

 
(17
)
 
1,204

 
734

 
14

 
(2
)
 
746

Total debt securities (b) (c)
 
16,542

 
93

 
(195
)
 
16,440

 
15,216

 
164

 
(149
)
 
15,231

Equity securities
 
808

 
3

 
(94
)
 
717

 
891

 
49

 
(34
)
 
906

Total available-for-sale securities
 
$
17,350

 
$
96

 
$
(289
)
 
$
17,157

 
$
16,107

 
$
213

 
$
(183
)
 
$
16,137

(a)
Residential mortgage-backed securities include agency-backed bonds totaling $7,544 million and $7,557 million at December 31, 2015, and December 31, 2014, respectively.
(b)
Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $14 million and $15 million at December 31, 2015, and December 31, 2014, respectively.
(c)
Investment securities with a fair value of $2,506 million and $801 million at December 31, 2015, and December 31, 2014, were pledged to secure advances from the FHLB, short-term borrowings or repurchase agreements and for other purposes as required by contractual obligation or law. Under these agreements, Ally has granted the counterparty the right to sell or pledge $745 million of the underlying investment securities.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Call or prepayment options may cause actual maturities to differ from contractual 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
($ in millions)
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of available-for-sale debt securities (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,741

 
1.8
%
 
$
6

 
5.1
%
 
$
510

 
1.2
%
 
$
1,225

 
2.1
%
 
$

 
%
U.S. States and political subdivisions
 
716

 
3.2

 
86

 
1.3

 
37

 
2.2

 
141

 
2.8

 
452

 
3.7

Foreign government
 
177

 
2.6

 
9

 
1.9

 
77

 
2.8

 
91

 
2.6

 

 

Mortgage-backed residential
 
10,366

 
2.9

 

 

 
33

 
2.1

 
36

 
2.5

 
10,297

 
2.9

Mortgage-backed commercial
 
481

 
2.0

 

 

 

 

 
3

 
2.7

 
478

 
2.0

Asset-backed
 
1,755

 
2.3

 
6

 
1.4

 
1,027

 
2.1

 
518

 
2.6

 
204

 
2.2

Corporate debt
 
1,204

 
2.9

 
50

 
3.0

 
713

 
2.5

 
410

 
3.4

 
31

 
5.4

Total available-for-sale debt securities
 
$
16,440

 
2.7

 
$
157

 
2.0

 
$
2,397

 
2.1

 
$
2,424

 
2.5

 
$
11,462

 
2.9

Amortized cost of available-for-sale debt securities
 
$
16,542

 
 
 
$
156

 
 
 
$
2,404

 
 
 
$
2,436

 
 
 
$
11,546

 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of available-for-sale debt securities (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
 
$
1,178

 
1.5
%
 
$
7

 
3.0
%
 
$
677

 
1.2
%
 
$
494

 
1.9
%
 
$

 
%
U.S. States and political subdivisions
 
406

 
3.7

 
34

 
1.9

 
12

 
2.1

 
106

 
3.0

 
254

 
4.3

Foreign government
 
232

 
2.7

 

 

 
128

 
2.5

 
104

 
2.9

 

 

Mortgage-backed residential
 
10,425

 
2.6

 
34

 
3.1

 
58

 
2.1

 

 

 
10,333

 
2.6

Mortgage-backed commercial
 
253

 
1.5

 

 

 
30

 
1.8

 

 

 
223

 
1.4

Asset-backed
 
1,991

 
1.9

 

 

 
1,311

 
1.9

 
463

 
2.0

 
217

 
2.2

Corporate debt
 
746

 
3.2

 
33

 
3.1

 
460

 
2.7

 
216

 
3.8

 
37

 
5.6

Total available-for-sale debt securities
 
$
15,231

 
2.5

 
$
108

 
2.7

 
$
2,676

 
1.9

 
$
1,383

 
2.4

 
$
11,064

 
2.6

Amortized cost of available-for-sale debt securities
 
$
15,216

 
 
 
$
108

 
 
 
$
2,674

 
 
 
$
1,374

 
 
 
$
11,060

 
 
(a)
Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the contractual coupon and amortized cost, and excludes expected capital gains and losses.
The balances of cash equivalents were $1.0 billion and $2.0 billion at December 31, 2015, and December 31, 2014, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.
The following table presents interest and dividends on available-for-sale securities.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Taxable interest
$
340

 
$
336

 
$
297

Taxable dividends
23

 
20

 
25

Interest and dividends exempt from U.S. federal income tax
18

 
11

 
3

Interest and dividends on available-for-sale securities
$
381

 
$
367

 
$
325


106

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following table presents gross gains and losses realized upon the sales of available-for-sale securities and other-than-temporary impairment.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Gross realized gains
$
184

 
$
209

 
$
221

Gross realized losses (a)
(15
)
 
(14
)
 
(21
)
Other-than-temporary impairment
(14
)
 
(14
)
 
(20
)
Other gain on investments, net
$
155

 
$
181

 
$
180

(a)
Certain available-for-sale securities were sold at a loss in 2015, 2014, and 2013 as a result of market conditions within these respective periods (e.g., a downgrade in the rating of a debt security), in accordance with our risk management policies and practices.
The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the assessment of whether such loses were deemed to be other than temporary, we believe that the unrealized losses are not indicative of an other-than-temporary impairment of these securities. As of December 31, 2015, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, and we expect to recover the entire amortized cost basis of the securities. As of December 31, 2015, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at December 31, 2015. Refer to Note 1 for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.
 
 
2015
 
2014
 
 
Less than 12 months
 
12 months or longer
 
Less than 12 months
 
12 months or longer
December 31, ($ 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
 
$
1,553

 
$
(17
)
 
$
173

 
$
(2
)
 
$
297

 
$
(3
)
 
$
859

 
$
(15
)
U.S. States and political subdivisions
 
179

 
(1
)
 

 

 
50

 

 

 

Foreign government
 
2

 

 

 

 

 

 

 

Mortgage-backed
 
4,096

 
(43
)
 
2,453

 
(107
)
 
1,172

 
(10
)
 
3,098

 
(116
)
Asset-backed
 
1,402

 
(8
)
 
64

 

 
819

 
(3
)
 
8

 

Corporate debt
 
745

 
(16
)
 
12

 
(1
)
 
132

 
(2
)
 
11

 

Total temporarily impaired debt securities
 
7,977

 
(85
)
 
2,702

 
(110
)
 
2,470

 
(18
)
 
3,976

 
(131
)
Temporarily impaired equity securities
 
534

 
(54
)
 
96

 
(40
)
 
231

 
(24
)
 
40

 
(10
)
Total temporarily impaired available-for-sale securities
 
$
8,511

 
$
(139
)
 
$
2,798

 
$
(150
)
 
$
2,701

 
$
(42
)
 
$
4,016

 
$
(141
)
7.     Loans Held-for-Sale, Net
Loans held-for-sale represent loans that we intend to sell. The composition of loans held-for-sale, net, was as follows.
December 31, ($ in millions)
 
2015
 
2014
Consumer automotive
 
$

 
$
1,515

Consumer mortgage
 

 
452

Commercial and industrial — Other
 
105

 
36

Total loans held-for-sale, net
 
$
105

 
$
2,003


107

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


8.     Finance Receivables and Loans, Net
The composition of finance receivables and loans, net, reported at gross carrying value was as follows.
December 31, ($ in millions)
 
2015
 
2014
Consumer automotive (a)
 
$
64,292

 
$
56,570

Consumer mortgage (b) (c)
 
9,773

 
7,474

Commercial
 
 
 
 
Commercial and industrial
 
 
 
 
Automotive
 
31,469

 
30,871

Other
 
2,640

 
1,882

Commercial real estate — Automotive
 
3,426

 
3,151

Total commercial
 
37,535

 
35,904

Total finance receivables and loans (d)
 
$
111,600

 
$
99,948

(a)
Includes $66 million and $35 million of fair value adjustment for loans in hedge accounting relationships at December 31, 2015, and December 31, 2014, respectively. Refer to Note 22 for additional information.
(b)
Includes loans originated as interest-only mortgage loans of $985 million and $1.2 billion at December 31, 2015, and December 31, 2014, respectively, 34% of which are expected to start principal amortization in 2016, 21% in 2017, 2% in 2018, 2% in 2019, and 3% thereafter.
(c)
Includes consumer mortgages at a fair value of $1 million at December 31, 2014, as a result of fair value option election.
(d)
Totals include a net increase of $110 million at December 31, 2015, compared to a net reduction of $266 million at December 31, 2014, for unearned income, unamortized premiums and discounts, and deferred fees and costs.
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
($ in millions)
 
Consumer automotive
 
Consumer mortgage
 
Commercial
 
Total
Allowance at January 1, 2015
 
$
685

 
$
152

 
$
140

 
$
977

Charge-offs
 
(840
)
 
(48
)
 
(4
)
 
(892
)
Recoveries
 
262

 
17

 
4

 
283

Net charge-offs
 
(578
)
 
(31
)
 

 
(609
)
Provision for loan losses
 
739

 
1

 
(33
)
 
707

Other (a)
 
(12
)
 
(8
)
 
(1
)
 
(21
)
Allowance at December 31, 2015
 
$
834

 
$
114

 
$
106

 
$
1,054

Allowance for loan losses at December 31, 2015
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
22

 
$
44

 
$
20

 
$
86

Collectively evaluated for impairment
 
812

 
70

 
86

 
968

Loans acquired with deteriorated credit quality
 

 

 

 

Finance receivables and loans at gross carrying value
 
 
 
 
 
 
 
 
Ending balance
 
64,292

 
9,773

 
37,535

 
111,600

Individually evaluated for impairment
 
315

 
266

 
77

 
658

Collectively evaluated for impairment
 
63,977

 
9,507

 
37,458

 
110,942

Loans acquired with deteriorated credit quality
 

 

 

 

(a)
Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.

108

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


($ in millions)
 
Consumer automotive
 
Consumer mortgage
 
Commercial
 
Total
Allowance at January 1, 2014
 
$
673

 
$
389

 
$
146

 
$
1,208

Charge-offs
 
(720
)
 
(51
)
 
(5
)
 
(776
)
Recoveries
 
219

 
8

 
12

 
239

Net charge-offs
 
(501
)
 
(43
)
 
7

 
(537
)
Provision for loan losses
 
540

 
(69
)
 
(14
)
 
457

Other (a)
 
(27
)
 
(125
)
 
1

 
(151
)
Allowance at December 31, 2014
 
$
685

 
$
152

 
$
140

 
$
977

Allowance for loan losses
 
 
 
 
 
 
 
 
Individually evaluated for impairment
 
$
23

 
$
62

 
$
21

 
$
106

Collectively evaluated for impairment
 
662

 
90

 
119

 
871

Loans acquired with deteriorated credit quality
 

 

 

 

Finance receivables and loans at gross carrying value
 
 
 
 
 
 
 
 
Ending balance
 
56,570

 
7,473

 
35,904

 
99,947

Individually evaluated for impairment
 
282

 
336

 
82

 
700

Collectively evaluated for impairment
 
56,287

 
7,137

 
35,822

 
99,246

Loans acquired with deteriorated credit quality
 
1

 

 

 
1

(a)
Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.
The following table presents information about significant sales of finance receivables and loans recorded at gross carrying value and transfers of finance receivables and loans from held-for-investment to held-for-sale.
December 31, ($ in millions)
 
2015
 
2014
Consumer automotive
 
$
1,237

 
$
4,106

Consumer mortgage
 
78

 
489

Commercial
 
2

 
36

Total sales and transfers
 
$
1,317

 
$
4,631

The following table presents information about significant purchases of finance receivables and loans.
December 31, ($ in millions)
 
2015
 
2014
Consumer automotive
 
$
272

 
$

Consumer mortgage
 
4,125

 
857

Total purchases
 
$
4,397

 
$
857


109

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following table presents an analysis of our past due finance receivables and loans, net, recorded at gross carrying value.
December 31, ($ 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
2015
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
$
1,618

 
$
369

 
$
222

 
$
2,209

 
$
62,083

 
$
64,292

Consumer mortgage
 
97

 
25

 
83

 
205

 
9,568

 
9,773

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 

 

 

 

 
31,469

 
31,469

Other
 

 

 

 

 
2,640

 
2,640

Commercial real estate — Automotive
 

 

 

 

 
3,426

 
3,426

Total commercial
 

 

 

 

 
37,535

 
37,535

Total consumer and commercial
 
$
1,715

 
$
394

 
$
305

 
$
2,414

 
$
109,186

 
$
111,600

2014
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
$
1,340

 
$
293

 
$
164

 
$
1,797

 
$
54,773

 
$
56,570

Consumer mortgage
 
76

 
25

 
124

 
225

 
7,248

 
7,473

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 

 
9

 

 
9

 
30,862

 
30,871

Other
 

 

 

 

 
1,882

 
1,882

Commercial real estate — Automotive
 

 

 

 

 
3,151

 
3,151

Total commercial
 

 
9

 

 
9

 
35,895

 
35,904

Total consumer and commercial
 
$
1,416

 
$
327

 
$
288

 
$
2,031

 
$
97,916

 
$
99,947

The following table presents the gross carrying value of our finance receivables and loans on nonaccrual status.
December 31, ($ in millions)
 
2015
 
2014
Consumer automotive
 
$
475

 
$
386

Consumer mortgage
 
128

 
177

Commercial
 
 
 
 
Commercial and industrial
 
 
 
 
Automotive
 
25

 
32

Other
 
44

 
46

Commercial real estate — Automotive
 
8

 
4

Total commercial
 
77

 
82

Total consumer and commercial finance receivables and loans
 
$
680

 
$
645

Management performs a quarterly analysis of the consumer automotive, consumer mortgage, and commercial portfolios using a range of credit quality indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. The following tables present the population of loans by quality indicators for our consumer automotive, consumer mortgage, and commercial portfolios.
The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at gross carrying value. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is not expected. Refer to Note 1 for additional information.
 
 
2015
 
2014
December 31, ($ in millions)
 
Performing
 
Nonperforming
 
Total
 
Performing
 
Nonperforming
 
Total
Consumer automotive
 
$
63,817

 
$
475

 
$
64,292

 
$
56,184

 
$
386

 
$
56,570

Consumer mortgage
 
9,645

 
128

 
9,773

 
7,296

 
177

 
7,473


110

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance receivables and loans recorded at gross carrying value.
 
 
2015
 
2014
December 31, ($ in millions)
 
Pass
 
Criticized (a)
 
Total
 
Pass
 
Criticized (a)
 
Total
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 
$
29,613

 
$
1,856

 
$
31,469

 
$
29,150

 
$
1,721

 
$
30,871

Other
 
2,122

 
518

 
2,640

 
1,509

 
373

 
1,882

Commercial real estate — Automotive
 
3,265

 
161

 
3,426

 
3,015

 
136

 
3,151

Total commercial
 
$
35,000

 
$
2,535

 
$
37,535


$
33,674

 
$
2,230

 
$
35,904

(a)
Includes loans classified as special mention, substandard, or doubtful. These classifications are based on regulatory definitions and generally represent loans within our portfolio that have a higher default risk or have already defaulted.
Impaired Loans and Troubled Debt Restructurings
Impaired Loans
Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. For more information on our impaired finance receivables and loans, refer to Note 1.
The following table presents information about our impaired finance receivables and loans recorded at gross carrying value.
December 31, ($ in millions)
 
Unpaid principal balance
 
Gross carrying value
 
Impaired with no allowance
 
Impaired with an allowance
 
Allowance for impaired loans
2015
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
$
315

 
$
315

 
$

 
$
315

 
$
22

Consumer mortgage
 
269

 
266

 
64

 
202

 
44

Commercial
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
Automotive
 
25

 
25

 
4

 
21

 
3

Other
 
44

 
44

 

 
44

 
15

Commercial real estate — Automotive
 
8

 
8

 
1

 
7

 
2

Total commercial
 
77

 
77

 
5

 
72

 
20

Total consumer and commercial finance receivables and loans
 
$
661

 
$
658

 
$
69

 
$
589

 
$
86

2014
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
$
282

 
$
282

 
$

 
$
282

 
$
23

Consumer mortgage
 
340

 
336

 
86

 
250

 
62

Commercial
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
Automotive
 
32

 
32

 
4

 
28

 
5

Other
 
46

 
46

 

 
46

 
15

Commercial real estate — Automotive
 
4

 
4

 
1

 
3

 
1

Total commercial
 
82

 
82

 
5

 
77

 
21

Total consumer and commercial finance receivables and loans
 
$
704

 
$
700

 
$
91

 
$
609

 
$
106


111

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following table presents average balance and interest income for our impaired finance receivables and loans.
 
 
2015
 
2014
 
2013
Year ended December 31, ($ in millions)
 
Average balance
 
Interest income
 
Average balance
 
Interest income
 
Average balance
 
Interest income
Consumer automotive
 
$
295

 
$
16

 
$
317

 
$
20

 
$
278

 
$
18

Consumer mortgage
 
280

 
9

 
873

 
12

 
908

 
29

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 
33

 
1

 
61

 
2

 
152

 
6

Other
 
41

 
3

 
59

 
3

 
72

 
2

Commercial real estate — Automotive
 
5

 

 
6

 

 
29

 
1

Total commercial
 
79

 
4

 
126

 
5

 
253

 
9

Total consumer and commercial finance receivables and loans
 
$
654

 
$
29

 
$
1,316

 
$
37

 
$
1,439

 
$
56

Troubled Debt Restructurings
TDRs are loan modifications where concessions were granted to borrowers experiencing financial difficulties. Numerous initiatives are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates. Additionally for automotive loans, we may offer several types of assistance to aid our customers, including extension of the loan maturity date and rewriting the loan terms. Total TDRs recorded at gross carrying value were $625 million at December 31, 2015, reflecting a decrease of $56 million from December 31, 2014. Refer to Note 1 for additional information.
The following table presents information related to finance receivables and loans recorded at gross carrying value modified in connection with a TDR during the period.
 
 
2015
 
2014
Year ended December 31, ($ in millions)
 
Number of loans
 
Pre-modification gross carrying value
 
Post-modification gross carrying value
 
Number of loans
 
Pre-modification gross carrying value
 
Post-modification gross carrying value
Consumer automotive
 
17,222

 
$
278

 
$
237

 
17,511

 
$
211

 
$
187

Consumer mortgage
 
204

 
46

 
44

 
396

 
80

 
74

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 

 

 

 
3

 
23

 
23

Other
 
1

 
21

 
21

 
3

 
48

 
48

Commercial real estate — Automotive
 
1

 
3

 
3

 

 

 

Total commercial
 
2

 
24

 
24

 
6

 
71

 
71

Total consumer and commercial finance receivables and loans
 
17,428

 
$
348

 
$
305

 
17,913

 
$
362

 
$
332

The following table presents information about finance receivables and loans recorded at gross carrying value that have redefaulted during the reporting period and were within 12 months or less of being modified as a TDR. Redefault is when finance receivables and loans meet the requirements for evaluation under our charge-off policy (Refer to Note 1 for additional information) except for commercial finance receivables and loans, where redefault is defined as 90 days past due.
 
 
2015
 
2014
Year ended December 31, ($ in millions)
 
Number of loans
 
Gross carrying value
 
Charge-off amount
 
Number of loans
 
Gross carrying value
 
Charge-off amount
Consumer automotive
 
6,836

 
$
82

 
$
47

 
7,117

 
$
90

 
$
47

Consumer mortgage
 
10

 
1

 

 
27

 
2

 
1

Total consumer finance receivables and loans
 
6,846

 
$
83

 
$
47

 
7,144

 
$
92

 
$
48

At December 31, 2015, and December 31, 2014, commercial commitments to lend additional funds to borrowers owing receivables whose terms had been modified in a TDR were $2 million and $4 million, respectively.

112

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Concentration Risk
Consumer
We monitor our consumer loan portfolio for concentration risk across the geographies in which we lend. The highest concentrations of loans are in Texas and California, which represent an aggregate of 23.5% of our total outstanding consumer finance receivables and loans at December 31, 2015.
Concentrations in our mortgage portfolio are closely monitored given the volatility of the housing markets, with special attention given to states with greater declines in real estate values.
The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state concentration.
 
2015 (a)
 
2014
December 31,
Automotive
 
Mortgage
 
Automotive
 
Mortgage
Texas
13.7
%
 
6.2
%
 
13.6
%
 
6.0
%
California
7.3

 
33.6

 
6.2

 
30.8

Florida
7.7

 
4.1

 
7.3

 
3.7

Pennsylvania
5.0

 
1.5

 
5.3

 
1.6

Illinois
4.4

 
4.1

 
4.4

 
4.2

Georgia
4.4

 
2.2

 
4.2

 
2.1

North Carolina
3.6

 
1.8

 
3.5

 
1.9

Ohio
3.7

 
0.6

 
3.9

 
0.6

New York
3.5

 
1.9

 
4.0

 
1.9

Michigan
3.1

 
2.4

 
3.8

 
3.1

Other United States
43.6

 
41.6

 
43.8

 
44.1

Total consumer loans
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
(a)
Presentation is in descending order as a percentage of total consumer finance receivables and loans at December 31, 2015.
Commercial Real Estate
The commercial real estate portfolio consists of loans issued primarily to automotive dealers. The following table shows the percentage of total commercial real estate finance receivables and loans reported at gross carrying value by state concentration.
December 31,
2015
 
2014
Texas
17.7
%
 
13.8
%
Florida
10.0

 
12.3

Michigan
8.9

 
9.9

California
8.7

 
9.0

North Carolina
3.8

 
3.9

Virginia
3.8

 
4.1

Georgia
3.6

 
3.7

Pennsylvania
3.4

 
3.8

New York
3.1

 
3.9

Illinois
2.9

 
2.7

Other United States
34.1

 
32.9

Total commercial real estate finance receivables and loans
100.0
%
 
100.0
%

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Ally Financial Inc. • Form 10-K


Commercial Criticized Exposure
Finance receivables and loans classified as special mention, substandard, or doubtful are deemed as criticized. These classifications are based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or have already defaulted. The following table presents the percentage of total commercial criticized finance receivables and loans reported at gross carrying value by industry concentrations.
December 31,
2015
 
2014
Automotive
80.5
%
 
87.3
%
Manufacturing
7.8

 
0.9

Services
5.3

 
2.0

Other
6.4

 
9.8

Total commercial criticized finance receivables and loans
100.0
%
 
100.0
%
9.     Investment in Operating Leases, Net
Investments in operating leases were as follows.
December 31, ($ in millions)
 
2015
 
2014
Vehicles
 
$
20,211

 
$
23,144

Accumulated depreciation
 
(3,940
)
 
(3,634
)
Investment in operating leases, net
 
$
16,271

 
$
19,510

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.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Depreciation expense on operating lease assets (excluding remarketing gains)
$
2,600

 
$
2,666

 
$
2,327

Remarketing gains
(351
)
 
(433
)
 
(332
)
Net depreciation expense on operating lease assets
$
2,249

 
$
2,233

 
$
1,995

The following table presents the future lease nonresidual rental payments due from customers for vehicles on operating leases.
Year ended December 31, ($ in millions)
 
2016
$
2,687

2017
1,445

2018
406

2019
57

2020 and thereafter
1

Total
$
4,596

10.    Securitizations and Variable Interest Entities
Overview
We are involved in several types of securitization and financing transactions that utilize special-purpose entities (SPEs). A SPE is an entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity by securitizing certain of our financial assets and operating lease assets.
The transaction-specific SPEs involved in our securitization and other financing transactions are often considered VIEs. VIEs are entities that have either a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors at risk lack the ability to control the entity's activities.
We no longer securitize consumer mortgage loans through transactions involving the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Government National Mortgage Association (Ginnie Mae) (collectively, the Government-sponsored Enterprises, or GSEs), or through private-label mortgage securitizations. Accordingly, the discussion below represents our current involvement with VIEs as of December 31, 2015, except where otherwise stated or where comparative information is presented.

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Ally Financial Inc. • Form 10-K


Securitizations
We provide a wide range of consumer and commercial automotive loans, operating leases, and commercial loans to a diverse customer base. We securitize consumer and commercial automotive loans, and operating leases through private-label securitizations. We often securitize these loans and notes securitized by operating leases (collectively referred to as financial assets) through the use of securitization entities, which may or may not be consolidated on our Consolidated Balance Sheet.
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 SPE for cash, and typically, 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 financial assets and entitle the investors to specified cash flows generated from the underlying securitized 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.
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 financial assets, to issue beneficial interests to investors to fund the acquisition of the financial assets, and to enter into derivatives or other yield maintenance contracts to hedge or mitigate certain risks related to the financial assets or beneficial interests of the entity. A servicer, who is generally us, is appointed pursuant to the underlying legal documents to service the assets the securitization entity holds and the beneficial interests it issues. Servicing functions include, but are not limited to, general collection activity on current and noncurrent accounts, loss mitigation efforts including repossession and sale of collateral, as well as preparing and furnishing statements summarizing the asset and beneficial interest performance. 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 master servicing (i.e., servicing the beneficial interests that result from the securitization transactions).
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.
We typically hold retained beneficial interests in our securitizations including, but not limited to, senior or subordinated ABS and residuals; and other residual interests. These retained interests may represent a form of significant continuing economic interests. 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 specific to securitizations that allow us to repurchase assets from the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining transferred financial assets or redeem 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 discounted securitization balance of the assets plus accrued interest when applicable. We generally have discretion regarding when or if we will exercise these options, but we would do so only when it is in our best interest.
Other than our customary representation and warranty provisions, these securitizations are nonrecourse to us, thereby transferring the risk of future credit losses to the extent the beneficial interests in the securitization entities are held by third parties. Representation and warranty provisions generally require us to repurchase assets or indemnify the investor or other party for incurred losses to the extent it is determined that the assets were ineligible or were otherwise defective at the time of sale. We did not provide any noncontractual financial support to any of these entities during 2015 or 2014.
Consolidation of Variable Interest Entities
The determination of whether the assets and liabilities of the VIEs are consolidated on our balance sheet (also referred to as on-balance sheet) or not consolidated on our balance sheet (also referred to as off-balance sheet) depends on the terms of the related transaction and our continuing involvement (if any) with the VIE. We are deemed the primary beneficiary and therefore consolidate VIEs for which we have both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE's economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could potentially be significant to the VIE; and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant to the VIE. We determine whether we hold a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on an ongoing basis.
We are generally determined to be the primary beneficiary in VIEs established for our securitization activities when we have a controlling financial interest in the VIE, primarily due to our servicing activities, and we hold a beneficial interest in the VIE that could be potentially significant. The consolidated VIEs included in the 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. 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 limited

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Ally Financial Inc. • Form 10-K


to the carrying value of the consolidated VIE assets. Generally, all assets of consolidated VIEs, presented below based upon the legal transfer of the underlying assets in order to reflect legal ownership, are restricted for the benefit of the beneficial interest holders.
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. We are generally not determined to be the primary beneficiary in VIEs established for our securitization activities when we either do not hold potentially significant variable interests or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Additionally, to qualify for off-balance sheet treatment, transfers of financial assets must meet appropriate sale accounting conditions. 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, or retained interests (if applicable). 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 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.
There were no sales of financial assets into nonconsolidated securitization trusts and similar asset-backed financing entities for consumer mortgage GSEs for the years ended December 31, 2015, and 2014, while there were $112 million of pretax gains on sales for the year ended December 31, 2013. The pretax loss recognized for consumer automotive was $3 million for the year ended December 31, 2015, while there was a pretax gain of $1 million for the year ended December 31, 2014, and no pretax gains or losses for the year ended December 31, 2013.
We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of credit to provide liquidity and minimize our exposure under these contracts. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee and the line of credit.
We have involvement with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital committed to these funds plus any previously recognized low income housing tax credits that are subject to recapture.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Our involvement with consolidated and nonconsolidated VIEs in which we hold variable interests is presented below.
December 31, ($ in millions)
 
Consolidated involvement with VIEs
Assets of nonconsolidated VIEs (a)
Maximum exposure to loss in nonconsolidated VIEs
2015
 
 
 
 
 
 
 
On-balance sheet variable interest entities
 
 
 
 
 
 
 
Consumer automotive
 
$
27,967

(b)
 
 
 
 
Commercial automotive
 
16,763

 
 
 
 
 
Off-balance sheet variable interest entities
 
 
 
 
 
 
 
Consumer automotive
 

 
$
3,034

 
$
3,034

(c)
Commercial other
 
210

(d)

(e)
493

(f)
Total
 
$
44,940

 
$
3,034

 
$
3,527

 
2014
 
 
 
 
 
 
 
On-balance sheet variable interest entities
 
 
 
 
 
 
 
Consumer automotive
 
$
31,966

(b)
 
 
 
 
Commercial automotive
 
18,153

 
 
 
 
 
Off-balance sheet variable interest entities
 
 
 
 
 
 
 
Consumer automotive
 

 
$
2,801

 
$
2,801

(c)
Commercial other
 
146

(d)

(e)
362

(f)
Total
 
$
50,265

 
$
2,801

 
$
3,163

 
(a)
Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.
(b)
Includes $10.6 billion and $12.7 billion of assets which are not encumbered by VIE beneficial interests held by third parties at December 31, 2015, and December 31, 2014, respectively. Ally or consolidated affiliates hold the interests in these assets which eliminate in consolidation.
(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)
Includes $222 million and $164 million classified as other assets, offset by $12 million and $18 million classified as accrued expenses and other liabilities at December 31, 2015, and December 31, 2014, respectively.
(e)
Includes a VIE for which we have no management oversight and therefore we are not able to provide the total assets of the VIEs.
(f)
For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long term guarantee contracts. The amount disclosed is based on the unlikely event that the underlying properties cease generating yield to investors and the yield delivered to investors in the form of low income tax housing credits is recaptured. For nonconsolidated equity investments, maximum exposure to loss represents our outstanding investment, additional committed capital, and low income housing tax credits subject to recapture. The amount disclosed is based on the unlikely event that our committed capital is funded, our investments become worthless, and the tax credits previously delivered to us are recaptured. This required disclosure is not an indication of our expected loss.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


On-balance Sheet Variable Interest Entities
The consolidated VIEs included in the 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. In addition, the cash flows from the assets are restricted only to pay such liabilities. Thus, our economic exposure to loss from outstanding third-party financing related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets. All assets of consolidated VIEs, presented below based upon the legal transfer of the underlying assets in order to reflect legal ownership, are restricted for the benefit of the beneficial interest holders.
December 31, ($ in millions)
2015
 
2014
Assets
 
 
 
Finance receivables and loans, net
 
 
 
Consumer
$
11,682

 
$
12,594

Commercial
16,247

 
17,487

Allowance for loan losses
(196
)
 
(179
)
Total finance receivables and loans, net
27,733

 
29,902

Investment in operating leases, net
4,791

 
5,595

Other assets
1,624

 
1,964

Total assets
$
34,148

 
$
37,461

Liabilities
 
 
 
Long-term debt
20,267

 
24,297

Accrued expenses and other liabilities
22

 
173

Total liabilities
$
20,289

 
$
24,470

Cash Flows with Off-balance Sheet Variable Interest Entities
The following table summarizes cash flows received 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 in 2015, 2014, and 2013. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.
Year ended December 31, ($ in millions)
 
Consumer automotive
 
Consumer mortgage
2015
 
 
 
 
Cash proceeds from transfers completed during the period
 
$
1,551

 
$

Servicing fees
 
28

 

2014
 
 
 

Cash proceeds from transfers completed during the period
 
$
2,594

 
$

Servicing fees
 
11

 

Representations and warranties obligations
 

 
(31
)
2013
 
 
 
 
Cash proceeds from transfers completed during the period
 
$

 
$
8,676

Servicing fees
 
13

 
70

Representations and warranties obligations
 

 
(66
)
Other cash flows
 

 
70


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Delinquencies and Net Credit Losses
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.
 
 
Total Amount
 
Amount 60 days or more past due
 
Net credit losses
December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
On-balance sheet loans
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
$
64,292

 
$
58,085

 
$
591

 
$
457

 
$
578

 
$
501

Consumer mortgage
 
9,773

 
7,926

 
108

 
151

 
31

 
43

Commercial automotive
 
34,895

 
34,022

 

 
9

 
3

 
1

Commercial other
 
2,745

 
1,918

 

 

 
(3
)
 
(8
)
Total on-balance sheet loans
 
111,705

 
101,951

 
699

 
617

 
609

 
537

Off-balance sheet securitization entities
 
 
 
 
 
 
 
 
 
 
 
 
Consumer automotive
 
2,529

 
2,801

 
9

 
5

 
5

 
1

Total off-balance sheet securitization entities
 
2,529

 
2,801

 
9

 
5

 
5

 
1

Whole-loan transactions (a)
 
2,252

 
929

 
13

 
33

 

 
6

Total
 
$
116,486

 
$
105,681

 
$
721

 
$
655

 
$
614

 
$
544

(a)
Whole-loan transactions are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.
11.     Servicing Activities
Automotive Finance Servicing Activities
We service consumer automotive contracts. Historically, we have sold a portion of our consumer automotive contracts. With respect to contracts we sell, we retain the right to service and earn a servicing fee for our servicing function. Typically, we conclude that the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We recognized automotive servicing fee income of $45 million, $31 million, and $58 million during the years ended December 31, 2015, 2014, and 2013, respectively.
Automotive Finance Serviced Assets
The current unpaid principal balance and any related unamortized deferred fees and costs of total serviced automotive finance loans and leases outstanding were as follows.
December 31, ($ in millions)
 
2015
 
2014
On-balance sheet automotive finance loans and leases
 
 
 
 
Consumer automotive
 
$
64,067

 
$
58,085

Commercial automotive
 
34,895

 
34,022

Operating leases
 
15,965

 
19,510

Other
 
72

 
55

Off-balance sheet automotive finance loans
 
 
 
 
Loans sold to third-party investors
 
 
 
 
Securitizations
 
2,550

 
2,832

Whole-loan
 
2,259

 
887

Total serviced automotive finance loans and leases
 
$
119,808

 
$
115,391


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


12.    Premiums Receivable and Other Insurance Assets
Premiums receivable and other insurance assets consisted of the following.
December 31, ($ in millions)
2015
 
2014
Prepaid reinsurance premiums
$
382

 
$
326

Reinsurance recoverable on unpaid losses
120

 
143

Reinsurance recoverable on paid losses
18

 
12

Premiums receivable
82

 
90

Deferred policy acquisition costs
1,199

 
1,124

Total premiums receivable and other insurance assets
$
1,801

 
$
1,695

13.     Other Assets
The components of other assets were as follows.
December 31, ($ in millions)
 
2015
 
2014
Property and equipment at cost
 
$
691

 
$
775

Accumulated depreciation
 
(456
)
 
(550
)
Net property and equipment
 
235

 
225

Restricted cash collections for securitization trusts (a)
 
2,010

 
2,221

Net deferred tax assets
 
1,369

 
1,812

Nonmarketable equity investments
 
418

 
271

Cash reserve deposits held-for-securitization trusts (b)
 
252

 
303

Fair value of derivative contracts in receivable position (c)
 
233

 
263

Other accounts receivable
 
158

 
298

Collateral placed with counterparties
 
125

 
236

Restricted cash and cash equivalents
 
120

 
122

Other assets
 
1,401

 
1,354

Total other assets
 
$
6,321

 
$
7,105

(a)
Represents cash collection from customer payments on securitized receivables. These funds are distributed to investors as payments on the related secured debt.
(b)
Represents credit enhancement in the form of cash reserves for various securitization transactions.
(c)
For additional information on derivative instruments and hedging activities, refer to Note 22.
14.     Deposit Liabilities
Deposit liabilities consisted of the following.
December 31, ($ in millions)
 
2015
 
2014
Noninterest-bearing deposits
 
$
89

 
$
64

Interest-bearing deposits
 
 
 
 
Savings and money market checking accounts
 
36,386

 
26,769

Certificates of deposit
 
29,774

 
31,051

Dealer deposits
 
229

 
319

Total deposit liabilities
 
$
66,478

 
$
58,203

At December 31, 2015, and December 31, 2014, certificates of deposit included $11.5 billion and $13.0 billion, respectively, of certificates of deposit in denominations of $100 thousand or more. At December 31, 2015, and December 31, 2014, certificates of deposit included $3.2 billion and $3.7 billion, respectively, in denominations in excess of $250 thousand federal insurance limits.

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The following table presents the scheduled maturity of total certificates of deposit.
($ in millions)
 
Due in 2016
$
16,313

Due in 2017
8,800

Due in 2018
3,068

Due in 2019
695

Due in 2020
898

Total certificates of deposit
$
29,774

15.    Short-term Borrowings
The following table presents the composition of our short-term borrowings portfolio.
 
 
2015
 
2014
December 31, ($ in millions)
 
Unsecured
 
Secured (a)
 
Total
 
Unsecured
 
Secured (a)
 
Total
Demand notes
 
$
3,369

 
$

 
$
3,369

 
$
3,338

 
$

 
$
3,338

Federal Home Loan Bank
 

 
4,000

 
4,000

 

 
2,950

 
2,950

Securities sold under agreements to repurchase
 

 
648

 
648

 

 
774

 
774

Other
 
84

 

 
84

 

 

 

Total short-term borrowings
 
$
3,453

 
$
4,648

 
$
8,101

 
$
3,338

 
$
3,724

 
$
7,062

Weighted average interest rate (b)
 
 
 
 
 
0.8
%
 
 
 
 
 
0.8
%
(a)
Refer to Note 16 for further details on assets restricted as collateral for payment of the related debt.
(b)
Based on the debt outstanding and the interest rate at December 31 of each year.
We periodically enter into term repurchase agreements, short-term borrowing agreements in which we sell financial instruments to one or more investors while simultaneously committing to repurchase them at a specified future date, at the stated price plus accrued interest. As of December 31, 2015, the financial instruments sold under agreements to repurchase consisted of mortgage-backed residential securities with the following maturities: $403 million within the next 30 days and $245 million within 31 to 60 days. Refer to Note 6 and Note 26 for further details on investment securities sold under agreements to repurchase.
The primary risk associated with these repurchase agreements is that the counterparty will be unable to perform under the terms of the contract. As the borrower, Ally is exposed to the excess market value of the securities pledged over the amount borrowed. Daily mark-to-market collateral management is designed to limit this risk to the initial margin. However, should a counterparty declare bankruptcy or become insolvent, Ally may incur additional delays and costs. As of December 31, 2015, we placed cash collateral totaling $21 million with counterparties under these collateral arrangements associated with our repurchase agreements.

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16.    Long-term Debt
The following tables present the composition of our long-term debt portfolio.
December 31, ($ in millions)
Amount
 
Interest rate
 
Weighted-average interest rate (a)
 
Due date range
2015
 
 
 
 
 
 
 
Unsecured debt
 
 
 
 
 
 
 
Fixed rate (b)
$
17,657

 
 
 
 
 
 
Variable rate
375

 
 
 
 
 
 
Trust preferred securities
2,600

 
 
 
 
 
 
Fair value adjustment (c)
334

 
 
 
 
 
 
Total unsecured debt
20,966

 
0.37 - 8.13%
 
5.40
%
 
2016 - 2049
Secured debt
 
 
 
 
 
 
 
Fixed rate
20,511

 
 
 
 
 
 
Variable rate
24,760

 
 
 
 
 
 
Fair value adjustment (c)
(3
)
 
 
 
 
 
 
Total secured debt (d) (e) (f)
45,268

 
0.48 - 4.06%
 
1.18
%
 
2016 - 2035
Total long-term debt
$
66,234

 
 
 
 
 
 
2014
 
 
 
 
 
 
 
Unsecured debt
 
 
 
 
 
 
 
Fixed rate (b)
$
18,858

 
 
 
 
 
 
Variable rate
374

 
 
 
 
 
 
Trust preferred securities
2,598

 
 
 
 
 
 
Fair value adjustment (c)
452

 
 
 
 
 
 
Total unsecured debt
22,282

 
0.33 - 8.30%
 
5.90
%
 
2015 - 2049
Secured debt
 
 
 
 
 
 
 
Fixed rate
19,793

 
 
 
 
 
 
Variable rate
24,305

 
 
 
 
 
 
Total secured debt (d) (e) (f)
44,098

 
0.21 - 4.59%
 
0.94
%
 
2015 - 2023
Total long-term debt
$
66,380

 
 
 
 
 
 
(a)
Based on the debt outstanding and the interest rate at December 31 of each year.
(b)
Includes subordinated debt of $1.1 billion and $296 million at December 31, 2015, and 2014, respectively.
(c)
Represents the fair value adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to Note 22 for additional information.
(d)
Includes $20.3 billion and $24.3 billion of VIE secured debt outstanding at December 31, 2015, and 2014, respectively.
(e)
Includes $19.9 billion and $17.0 billion of debt outstanding from the Automotive secured revolving credit facilities at December 31, 2015, and 2014, respectively.
(f)
Includes advances from the FHLB of $5.4 billion and $2.8 billion at December 31, 2015, and 2014, respectively.
 
 
2015
 
2014
December 31, ($ in millions)
 
Unsecured
 
Secured
 
Total
 
Unsecured
 
Secured
 
Total
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
Due within one year
 
$
1,829

 
$
9,427

 
$
11,256

 
$
4,780

 
$
12,603

 
$
17,383

Due after one year 
 
18,803

 
35,844

 
54,647

 
17,050

 
31,495

 
48,545

Fair value adjustment
 
334

 
(3
)
 
331

 
452

 

 
452

Total long-term debt 
 
$
20,966

 
$
45,268

 
$
66,234

 
$
22,282

 
$
44,098

 
$
66,380


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following table presents the scheduled remaining maturity of long-term debt, assuming no early redemptions will occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.
Year ended December 31,
($ in millions)
 
2016
 
2017
 
2018
 
2019
 
2020
 
2021 and thereafter
 
Fair value adjustment
 
Total
Unsecured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
$
1,904

 
$
4,371

 
$
3,702

 
$
1,615

 
$
2,228

 
$
8,203

 
$
334

 
$
22,357

Original issue discount
 
(75
)
 
(87
)
 
(98
)
 
(35
)
 
(35
)
 
(1,061
)
 

 
(1,391
)
Total unsecured
 
1,829

 
4,284

 
3,604

 
1,580

 
2,193

 
7,142

 
334

 
20,966

Secured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
9,427

 
15,217

 
9,109

 
5,823

 
3,414

 
2,281

 
(3
)
 
45,268

Total long-term debt
 
$
11,256

 
$
19,501

 
$
12,713

 
$
7,403

 
$
5,607


$
9,423


$
331


$
66,234

To achieve the desired balance between fixed- and variable-rate debt, we utilize interest rate swap agreements. The use of these derivative financial instruments had the effect of synthetically converting $8.3 billion of our fixed-rate debt into variable-rate obligations and $0.9 billion of our variable-rate debt into fixed-rate obligations at December 31, 2015.
The following summarizes assets restricted as collateral for the payment of the related debt obligation primarily arising from securitization transactions accounted for as secured borrowings and repurchase agreements.
 
 
2015
 
2014
December 31, ($ in millions)
 
Total
 
Ally Bank (a)
 
Total
 
Ally Bank (a)
Investment securities (b)
 
$
2,420

 
$
1,761

 
$
786

 
$
786

Mortgage assets held-for-investment and lending receivables
 
9,743

 
9,743

 
7,541

 
7,541

Consumer automotive finance receivables
 
34,324

 
9,167

 
33,438

 
11,263

Commercial automotive finance receivables
 
19,623

 
19,177

 
20,605

 
20,083

Investment in operating leases, net
 
5,539

 
3,205

 
6,820

 
4,672

Total assets restricted as collateral (c) (d)
 
$
71,649

 
$
43,053

 
$
69,190

 
$
44,345

Secured debt
 
$
49,916

(e)
$
24,787

 
$
47,822

(e)
$
27,103

(a)
Ally Bank is a component of the total column.
(b)
Certain investment securities are restricted under repurchase agreements. Refer to Note 15 for information on the repurchase agreements.
(c)
Ally Bank has an advance agreement with the FHLB, and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling $14.9 billion and $10.7 billion at December 31, 2015, and 2014, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans, net and investment securities. Ally Bank has access to the Federal Reserve Bank Discount Window. Ally Bank had assets pledged and restricted as collateral to the Federal Reserve Bank totaling $2.9 billion and $3.2 billion at December 31, 2015, and 2014, respectively. These assets were composed of consumer automotive finance receivables and loans, net and investment in operating leases, net. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of Ally or its subsidiaries.
(d)
Excludes restricted cash and cash reserves for securitization trusts recorded within other assets on the Consolidated Balance Sheet. Refer to Note 13 for additional information.
(e)
Includes $4.6 billion and $3.7 billion of short-term borrowings at December 31, 2015, and 2014, respectively.
Trust Preferred Securities
At December 31, 2015 we have issued and outstanding approximately $2.6 billion in aggregate liquidation preference of 8.125% Fixed Rate / Floating Rate Trust Preferred Securities, Series 2 (Series 2 TRUPS) net of original issue discount and debt issuance costs. Each Series 2 TRUPS security has a liquidation amount of $25. Distributions are cumulative and are payable until redemption at the applicable coupon rate. Distributions are payable at an annual rate of 8.125% payable quarterly in arrears, through but excluding February 15, 2016. From and including February 15, 2016, to but excluding February 15, 2040, distributions will be payable at an annual rate equal to three-month London interbank offer rate plus 5.785% payable quarterly in arrears, beginning May 15, 2016. Ally has the right to defer payments of interest for a period not exceeding 20 consecutive quarters. The Series 2 TRUPS have no stated maturity date, but must be redeemed upon the redemption or maturity of the related debentures (Debentures), which mature on February 15, 2040. Ally at any time on or after February 15, 2016 may redeem the Series 2 TRUPS at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption. The Series 2 TRUPS are generally nonvoting, other than with respect to certain limited matters. During any period in which any Series 2 TRUPS remain outstanding but in which distributions on the Series 2 TRUPS have not been fully paid, none of Ally or its subsidiaries will be permitted to (i) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or otherwise make a liquidation payment with respect to, any of Ally’s capital stock or make any guarantee payment with respect thereto; or (ii) make any payments of principal, interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or junior in interest to the Debentures with certain specified exceptions in each case.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Covenants and Other Requirements
In secured funding transactions, there are trigger events that could cause the debt to be prepaid at an accelerated rate or could cause our usage of the credit facility to be discontinued. The triggers are generally based on the financial health and performance of the servicer as well as performance criteria for the pool of receivables, such as delinquency ratios, loss ratios, and commercial payment rates. During 2015, there were no trigger events that resulted in the repayment of debt at an accelerated rate or impacted the usage of our credit facilities.
Funding Facilities
We utilize both committed credit facilities, and other collateralized funding vehicles. The debt outstanding under our various funding facilities is included on our Consolidated Balance Sheet.
As of December 31, 2015, Ally Bank had exclusive access to $3.25 billion of funding capacity from a committed credit facility. Funding programs supported by the Federal Reserve and the FHLB, together with repurchase agreements, complement Ally Bank’s private collateralized funding vehicles.
The total capacity in our committed funding facilities is provided by banks and other financial institutions through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At December 31, 2015, $20.1 billion of our $20.4 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of December 31, 2015, we had $12.5 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.
Committed Funding Facilities
 
 
Outstanding
 
Unused capacity (a)
 
Total capacity
December 31, ($ in millions)
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Bank funding
 
 
 
 
 
 
 
 
 
 
 
 
Secured (b)
 
$
3,250

 
$
3,250

 
$

 
$
250

 
$
3,250

 
$
3,500

Parent funding
 
 
 
 
 
 
 
 
 
 
 
 
Secured
 
16,914

 
15,030

 
251

 
3,425

 
17,165

 
18,455

Total committed facilities
 
$
20,164

 
$
18,280

 
$
251

 
$
3,675

 
$
20,415

 
$
21,955

(a)
Funding from committed secured facilities is available on request in the event excess collateral resides in certain facilities or is available to the extent incremental collateral is available and contributed to the facilities.
(b)
Excludes off-balance sheet credit facility amounts.
17.    Accrued Expenses and Other Liabilities
The components of accrued expenses and other liabilities were as follows.
December 31, ($ in millions)
 
2015
 
2014
Accounts payable
 
$
391

 
$
298

Employee compensation and benefits
 
242

 
298

Reserves for insurance losses and loss adjustment expenses
 
169

 
208

Fair value of derivative contracts in payable position (a)
 
145

 
252

Deferred revenue
 
108

 
151

Collateral received from counterparties
 
82

 
71

Other liabilities
 
408

 
457

Total accrued expenses and other liabilities
 
$
1,545

 
$
1,735

(a)
For additional information on derivative instruments and hedging activities, refer to Note 22.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


18.    Equity
Common Stock
In April 2014, we completed an initial public offering (IPO) of our common stock. All proceeds from the offering were obtained by the U.S. Department of the Treasury (Treasury) as the single selling stockholder. In connection with the IPO, we effected a 310-for-one stock split on shares of our common stock, $0.01 par value per share. Accordingly, all references in the Consolidated Financial Statements to share and per share amounts relating to common stock have been adjusted, on a retroactive basis, to recognize the 310-for-one stock split. In addition, on April 9, 2014, we increased the number of shares authorized for issuance of common stock to 1.1 billion. The following table presents changes in the number of shares issued and outstanding.
Year ended December 31, (in shares)
2015
 
2014
 
2013
Common stock
 
 
 
 
 
Total issued, January 1,
480,136,039

 
479,767,470

 
412,600,700

New issuances
 
 
 
 
 
Employee benefits and compensation plans
2,654,657

 
368,569

 

Private placement (a)

 

 
67,166,770

Total issued, December 31,
482,790,696

 
480,136,039

 
479,767,470

Total treasury stock, December 31,
(810,585
)
 
(41,148
)
 

Total outstanding, December 31,
481,980,111

 
480,094,891

 
479,767,470

(a)
On November 20, 2013, Ally completed its private placement of its common stock for an aggregate price of $1.3 billion.
Preferred Stock
Series A Preferred Stock
Holders of the Series A Preferred Stock are entitled to receive, when, and if declared by Ally, noncumulative cash dividends. Beginning March 25, 2011, to but excluding May 15, 2016, dividends accrue at a fixed rate of 8.5% per annum. Beginning on May 15, 2016, dividends will accrue at a rate equal to three-month London interbank offer rate (LIBOR) plus 6.243%, commencing on August 15, 2016, in each case on the 15th day of February, May, August, and November. Dividends will be payable to holders of record at the close of business on the preceding February 1, May 1, August 1, or November 1, as the case may be, or on such other date, not more than seventy calendar days prior to the dividend payment date, as will be fixed by the Ally Board of Directors. In the event that dividends with respect to a dividend period have not been paid in full on the dividend payment date, we will be prohibited, subject to certain specified exceptions, from (i) redeeming, purchasing or otherwise acquiring, any stock that ranks on a parity basis with, or junior in interest to, the Series A Preferred Stock; (ii) paying any dividends or making any distributions with respect to any stock that ranks junior in interest to the Series A Preferred Stock, until such time as Ally has paid the dividends payable on shares of the Series A Preferred Stock with respect to a subsequent dividend period; and (iii) declaring or paying any dividend on any stock ranking on a parity basis with the Series A Preferred Stock, subject to certain exceptions.
The holders of the Series A Preferred Stock do not have voting rights other than those set forth in the certificate of designations for the Series A Preferred Stock included in Ally's Certificate of Incorporation. Ally may not redeem the Series A Preferred Stock before May 15, 2016, and after such time the Series A Preferred Stock may be redeemed in certain circumstances. In the event of any liquidation, dissolution or winding up of the affairs of Ally, holders of the Series A Preferred Stock will be entitled to receive the liquidation amount per share of Series A Preferred Stock and an amount equal to all declared, but unpaid dividends declared prior to the date of payment out of assets available for distribution, before any distribution is made for holders of stock that ranks junior in interest to the Series A Preferred Stock, subject to the rights of Ally's creditors.
On April 9, 2014, we decreased the number of shares authorized for issuance of Series A Preferred Stock to 40,870,560. On April 23, 2015, we announced a tender offer to purchase up to 13,000,000 shares of our outstanding Series A preferred stock for $26.65 per Series A share, which included an amount to cover accrued and unpaid dividends through the settlement date. The tender offer expired on May 20, 2015. On May 22, 2015, we repurchased 13,000,000 Series A Preferred Shares with an aggregate liquidation preference of $325 million for $347 million in cash. Upon repurchase of the tendered Series A Preferred shares on May 22, 2015, we derecognized the carrying value of $325 million and recognized the excess consideration paid of $22 million as an additional return to preferred shareholders. The remaining 27,870,560 Series A Preferred Shares following the repurchase were not impacted as a result of this transaction.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Series G Preferred Stock
On March 11, 2015, we issued a Notice of Partial Redemption to the holders of the outstanding Series G Preferred Stock to redeem, on a pro-rata basis, 1,288,300 shares at a redemption price of $1,000 per share plus $10.50 per share of accrued and unpaid dividends through the redemption date. On April 10, 2015, we redeemed 1,288,300 shares of our outstanding Series G Preferred Stock, with an aggregate liquidation preference of approximately $1,288 million for approximately $1,302 million in cash, which included $14 million in accrued and unpaid dividends. Upon redemption of the Series G Preferred shares, we derecognized the carrying value of $117 million and recognized the excess consideration paid of $1,171 million as an additional return to preferred shareholders. On November 12, 2015, we issued a Notice of Redemption to the holders of the remaining outstanding Series G Preferred Stock to redeem, on a pro-rata basis, 1,288,301 shares at a redemption price of $1,000 per share plus $5.64 per share of accrued and unpaid dividends through the redemption date. On December 14, 2015, we redeemed 1,288,301 shares of our outstanding Series G Preferred Stock, with an aggregate liquidation preference of approximately $1,288 million for approximately $1,295 million in cash, which included $7 million in accrued and unpaid dividends. Upon redemption of the Series G Preferred shares, we derecognized the carrying value of $117 million and recognized the excess consideration paid of $1,171 million as an additional return to preferred shareholders. Effective December 14, 2015, the Series G Preferred Stock was retired.
The following table summarizes information about our Series A and Series G preferred stock.
 
 
December 31, 2015
 
December 31, 2014
Series A preferred stock (a)
 
 
 
 
Carrying value ($ in millions)
 
$
696

 
$
1,021

Par value (per share)
 
0.01

 
0.01

Liquidation preference (per share)
 
25

 
25

Number of shares authorized
 
40,870,560

 
40,870,560

Number of shares issued and outstanding
 
27,870,560

 
40,870,560

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

 
Three month
LIBOR + 6.243%

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

 
$
234

Par value (per share)
 

 
0.01

Liquidation preference (per share)
 

 
1,000

Number of shares authorized
 

 
2,576,601

Number of shares issued and outstanding
 

 
2,576,601

Dividend/coupon
 
%
 
7
%
(a)
Nonredeemable prior to May 15, 2016.
19.    Accumulated Other Comprehensive Income (Loss)
The following table presents changes, net of tax, in each component of accumulated other comprehensive (loss) income.
($ in millions)
Unrealized gains (losses) on investment securities (a)
 
Translation adjustments and net investment hedges (b)
 
Cash flow hedges (b)
 
Defined benefit pension plans
 
Accumulated other comprehensive income (loss)
Balance at January 1, 2013
$
76

 
$
368

 
$
2

 
$
(135
)
 
$
311

2013 net change
(345
)
 
(303
)
 
3

 
58

 
(587
)
Balance at December 31, 2013
(269
)
 
65

 
5

 
(77
)
 
(276
)
2014 net change
248

 
(29
)
 
2

 
(11
)
 
210

Balance at December 31, 2014
(21
)
 
36

 
7

 
(88
)
 
(66
)
2015 net change
(138
)
 
(27
)
 
1

 
(1
)
 
(165
)
Balance at December 31, 2015
$
(159
)
 
$
9

 
$
8

 
$
(89
)
 
$
(231
)
(a)
Represents the after-tax difference between the fair value and amortized cost of our available-for-sale securities portfolio.
(b)
For additional information on derivative instruments and hedging activities, refer to Note 22.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following table presents the before- and after-tax changes in each component of accumulated other comprehensive (loss) income.
Year ended December 31, 2015 ($ in millions)
Before Tax
 
Tax Effect
 
After Tax
Unrealized losses on investment securities
 
 
 
 
 
Net unrealized losses arising during the period
$
(65
)
 
$
26

 
$
(39
)
Less: Net realized gains reclassified to income from continuing operations
155

(a)
(56
)
(b)
99

Net change
(220
)
 
82

 
(138
)
Translation adjustments
 
 
 
 
 
Net unrealized losses arising during the period
(39
)
 
13

 
(26
)
Less: Net realized gains reclassified to income from discontinued operations, net of tax
42

 
(20
)
 
22

Net change
(81
)
 
33

 
(48
)
Net investment hedges (c)
 
 
 
 
 
Net unrealized gains arising during the period
29

 
(11
)
 
18

Less: Net realized losses reclassified to income from discontinued operations, net of tax
(4
)
 
1

 
(3
)
Net change
33

 
(12
)
 
21

Cash flow hedges (c)
 
 
 
 
 
Net unrealized gains arising during the period
2

 
(1
)
 
1

Defined benefit pension plans
 
 
 
 


Net unrealized gains (losses) arising during the period

 

 

Less: Net realized gains reclassified to income from continuing operations
1

(d)

(b)
1

Net change
(1
)
 

 
(1
)
Other comprehensive loss
$
(267
)
 
$
102

 
$
(165
)
(a)
Includes gains reclassified to other gain on investments, net in our Consolidated Statement of Income.
(b)
Includes amounts reclassified to income tax expense (benefit) from continuing operations in our Consolidated Statement of Income.
(c)
For additional information on derivative instruments and hedging activities, refer to Note 22.
(d)
Includes gains reclassified to compensation and benefits expense in our Consolidated Statement of Income.
Year ended December 31, 2014 ($ in millions)
Before Tax
 
Tax Effect
 
After Tax
Unrealized gains on investment securities
 
 
 
 
 
Net unrealized gains arising during the period
$
557

 
$
(142
)
 
$
415

Less: Net realized gains reclassified to income from continuing operations
181

(a)
(14
)
(b)
167

Net change
376

 
(128
)
 
248

Translation adjustments
 
 
 
 
 
Net unrealized losses arising during the period
(27
)
 
10

 
(17
)
Less: Net realized gains reclassified to income from discontinued operations, net of tax
23

 
(3
)
 
20

Net change
(50
)
 
13

 
(37
)
Net investment hedges (c)
 
 
 
 
 
Net unrealized gains arising during the period
13

 
(5
)
 
8

Cash flow hedges (c)
 
 
 
 
 
Net unrealized gains arising during the period
2

 

 
2

Defined benefit pension plans
 
 
 
 
 
Net unrealized losses arising during the period
(24
)
 
9

 
(15
)
Less: Net realized losses reclassified to income from continuing operations
(7
)
(d)
3

(b)
(4
)
Net change
(17
)
 
6

 
(11
)
Other comprehensive income
$
324

 
$
(114
)
 
$
210

(a)
Includes gains reclassified to other gain on investments, net in our Consolidated Statement of Income.
(b)
Includes amounts reclassified to income tax (benefit) expense from continuing operations in our Consolidated Statement of Income.
(c)
For additional information on derivative instruments and hedging activities, refer to Note 22.
(d)
Includes losses reclassified to compensation and benefits expense in our Consolidated Statement of Income.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Year ended December 31, 2013 ($ in millions)
Before Tax
 
Tax Effect
 
After Tax
Unrealized losses on investment securities
 
 
 
 
 
Net unrealized losses arising during the period
$
(333
)
 
$
174

 
$
(159
)
Less: Net realized gains reclassified to income from continuing operations
180

(a)
(2
)
(b)
178

Less: Net realized gains reclassified to income from discontinued operations, net of tax
10

 
(2
)
 
8

Net change
(523
)
 
178

 
(345
)
Translation adjustments
 
 
 
 
 
Net unrealized losses arising during the period
(104
)
 
24

 
(80
)
Less: Net realized gains reclassified to income from discontinued operations, net of tax
337

 
92

 
429

Net change
(441
)
 
(68
)
 
(509
)
Net investment hedges (c)
 
 
 
 
 
Net unrealized gains arising during the period
59

 
(22
)
 
37

Less: Net realized losses reclassified to income from discontinued operations, net of tax
(250
)
 
81

 
(169
)
Net change
309

 
(103
)
 
206

Cash flow hedges (c)
 
 
 
 
 
Net unrealized losses arising during the period
(1
)
 

 
(1
)
Less: Net realized losses reclassified to income from continuing operations
(7
)
(d)
3

(b)
(4
)
Net change
6

 
(3
)
 
3

Defined benefit pension plans
 
 
 
 
 
Net unrealized gains arising during the period
26

 
(8
)
 
18

Less: Net realized losses reclassified to income from continuing operations
(2
)
(e)

(b)
(2
)
Less: Net realized losses reclassified to income from discontinued operations, net of tax
(49
)
 
11

 
(38
)
Net change
77

 
(19
)
 
58

Other comprehensive loss
$
(572
)
 
$
(15
)
 
$
(587
)
(a)
Includes gains reclassified to other gain on investments, net in our Consolidated Statement of Income.
(b)
Includes amounts reclassified to income tax expense (benefit) from continuing operations in our Consolidated Statement of Income.
(c)
For additional information on derivative instruments and hedging activities, refer to Note 22.
(d)
Includes losses reclassified to long-term debt in our Consolidated Statement of Income.
(e)
Includes losses reclassified to compensation and benefits expense in our Consolidated Statement of Income

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


20.    Earnings per Common Share
The following table presents the calculation of basic and diluted earnings per common share.
Year ended December 31, ($ in millions except per share data) (a)
 
2015
 
2014
 
2013
Net income from continuing operations
 
$
897

 
$
925

 
$
416

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

 

 
(543
)
Impact of repurchase of mandatorily convertible preferred stock held by U.S. Department of the Treasury and elimination of share adjustment right
 

 

 
(240
)
Preferred stock dividends (b)
 
(2,571
)
 
(268
)
 
(267
)
Net (loss) income from continuing operations attributable to common shareholders 
 
(1,674
)
 
657

 
(634
)
Income (loss) from discontinued operations, net of tax
 
392

 
225

 
(55
)
Net (loss) income attributable to common shareholders
 
$
(1,282
)
 
$
882

 
$
(689
)
Basic weighted-average common shares outstanding (c)
 
482,873,120

 
481,154,609

 
420,166,188

Diluted weighted-average common shares outstanding (c) (d)
 
482,873,120

 
481,933,811

 
420,166,188

Basic earnings per common share
 
 
 
 
 
 
Net (loss) income from continuing operations
 
$
(3.47
)
 
$
1.36

 
$
(1.51
)
Income (loss) from discontinued operations, net of tax
 
0.81

 
0.47

 
(0.13
)
Net (loss) income
 
$
(2.66
)
 
$
1.83

 
$
(1.64
)
Diluted earnings per common share 
 
 
 
 
 
 
Net (loss) income from continuing operations
 
$
(3.47
)
 
$
1.36

 
$
(1.51
)
Income (loss) from discontinued operations, net of tax
 
0.81

 
0.47

 
(0.13
)
Net (loss) income
 
$
(2.66
)
 
$
1.83

 
$
(1.64
)
(a)
Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.
(b)
Preferred stock dividends for the year ended December 31, 2015, include $2,364 million recognized in connection with the redemption of the Series G Preferred Stock and the repurchase of the Series A Preferred Stock. These dividends represent an additional return to preferred shareholders calculated as the excess consideration paid over the carrying amount derecognized. Refer to Note 18 for additional preferred stock information.
(c)
Includes shares related to share-based compensation that vested but were not yet issued for the years ended December 31, 2015, and 2014, respectively.
(d)
Due to antidilutive effect of the net loss from continuing operations attributable to common shareholders for the years ended December 31, 2015, and 2013, respectively, basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.
The effects of converting the outstanding Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares are not included in the diluted earnings per share calculation for the year ended December 31, 2013, as the effects would be antidilutive for the period. As such, 89 million of potential common shares were excluded from the diluted earnings per share calculation for the year ended December 31, 2013.
21.    Regulatory Capital and Other Regulatory Matters
As a BHC, we and our wholly-owned state-chartered banking subsidiary, Ally Bank, are subject to capital requirements issued by U.S. banking regulators that require us to maintain risk-based and leverage capital ratios above minimum levels. A risk-based capital ratio is a ratio of a banking organization’s regulatory capital to its risk-weighted assets. A leverage capital ratio is a ratio of a banking organization’s regulatory capital to a measure of assets or exposures that is not risk-weighted. As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which reflect new and higher capital requirements, capital buffers, and new regulatory capital definitions, deductions and adjustments. Certain aspects of U.S. Basel III, including the new capital buffers and regulatory capital deductions, will be phased in over several years.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements or the results of operations and financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and Ally Bank must meet specific capital guidelines that involve quantitative measures of capital, assets and certain off-balance sheet items. These measures and related classifications, which are used in the calculation of our risk-based and leverage capital ratios and those of Ally Bank, are also subject to qualitative judgments by the regulators about the components of capital, the risk-weightings of assets and other exposures, and other factors. The U.S. banking regulators also use these ratios and guidelines as part of the capital planning and stress testing processes. In addition, in order for Ally to maintain its status as a FHC, Ally and its bank subsidiary, Ally Bank, must remain “well-capitalized” and “well-managed,” as defined under applicable law. Effective January 1, 2015, the “well-capitalized” standard for insured depository institutions, such as Ally Bank, was revised to reflect the new and higher capital requirements under U.S. Basel III.
Under U.S. Basel III, Ally must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum Total risk-based capital ratio of 8%. In addition to these minimum requirements, Ally is also subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in from January 1, 2016 through December 31,

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2018. Failure to maintain the full amount of the buffer will result in restrictions on Ally’s ability to make capital distributions, including dividend payment and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. In addition to these new risk-based capital standards, U.S. Basel III subjects all U.S. banking organizations, including Ally, to a minimum Tier 1 leverage ratio of 4%, the denominator of which takes into account only on-balance sheet assets.
In addition to introducing new capital ratios, U.S. Basel III revises the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had previously been recognized as capital but that do not satisfy the new criteria. Subject to certain exceptions (e.g., for certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other “hybrid” securities are no longer included in a BHC's Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain new items are deducted from Common Equity Tier 1 capital, and certain other deductions from regulatory capital have been modified. Among other things, U.S. Basel III requires significant investments in the common shares of unconsolidated financial institutions, mortgage servicing rights, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revises the standardized approach for calculating risk-weighted assets by, among other things, modifying certain risk weights and introducing new methods for calculating risk-weighted assets for certain types of assets and exposures.
Ally is subject to the U.S. Basel III standardized approach for credit risk. It is not subject to the U.S. Basel III advanced approaches for credit risk. Ally is currently not subject to the U.S. market risk capital rule, which applies only to banking organizations with significant trading assets and liabilities.
During 2010, Ally, IB Finance Holding Company, LLC (IB Finance), Ally Bank, and the Federal Deposit Insurance Corporation (FDIC) entered into a Capital and Liquidity Maintenance Agreement (CLMA). The CLMA was restated on July 13, 2015. The CLMA requires capital at Ally Bank to be maintained at a level such that Ally Bank's Tier 1 leverage ratio is at least 15%. For this purpose, the leverage ratio is determined in accordance with the FDIC's regulations related to capital maintenance.
Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements within the established timeframes.
The following table summarizes our capital ratios under the U.S. Basel III capital framework.
 
Under Basel III
 
Under Basel I
 
 
 
 
 
December 31, 2015 (a)
 
December 31, 2014 (b)
 
Required minimum
 
Well-capitalized minimum
($ in millions)
Amount
 
Ratio
 
Amount
 
Ratio
 
Risk-based capital
 
 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 (to risk-weighted assets) (c)
 
 
 
 
 
 
 
 
 
 
 
Ally Financial Inc.
$
12,507

 
9.21
%
 
$
12,588

 
9.64
%
 
4.50
%
 
(d)

Ally Bank
16,594

 
17.05

 
16,022

 
16.89

 
4.50

 
6.50
%
Tier 1 (to risk-weighted assets)
 
 
 
 
 
 
 
 
 
 
 
Ally Financial Inc.
$
15,077

 
11.10
%
 
$
16,389

 
12.55
%
 
6.00
%
 
6.00
%
Ally Bank
16,594

 
17.05

 
16,022

 
16.89

 
6.00

 
8.00

Total (to risk-weighted assets)
 
 
 
 
 
 
 
 
 
 
 
Ally Financial Inc.
$
17,005

 
12.52
%
 
$
17,294

 
13.24
%
 
8.00
%
 
10.00
%
Ally Bank
17,043

 
17.51

 
16,468

 
17.36

 
8.00

 
10.00

Tier 1 leverage (to adjusted quarterly average assets) (e)
 
 
 
 
 
 
 
 
 
 
 
Ally Financial Inc.
$
15,077

 
9.73
%
 
$
16,389

 
10.94
%
 
4.00
%
 
(d)

Ally Bank
16,594

 
15.38

 
16,022

 
15.44

 
15.00

(f)
5.00
%
(a)
U.S. Basel III became effective for us on January 1, 2015, subject to transitional provisions primarily related to deductions and adjustments impacting Common Equity Tier 1 capital and Tier 1 capital.
(b)
Capital ratios as of December 31, 2014, are presented under the U.S. Basel I capital framework.
(c)
Previously referred to as Tier 1 Common Equity under the U.S. Basel I capital framework.
(d)
Currently, there is no ratio component for determining whether a BHC is "well-capitalized."
(e)
Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology.
(f)
Ally Bank, in accordance with the CLMA, is required to maintain a Tier 1 leverage ratio of at least 15%.
At December 31, 2015, Ally and Ally Bank were “well-capitalized” and met all capital requirements to which each was subject.
Capital Planning and Stress Tests
As a BHC with $50 billion or more of consolidated assets, Ally is required to conduct periodic company-run stress tests, is subject to an annual supervisory stress test conducted by the Board of Governors of the Federal Reserve System (FRB), and must submit an annual capital

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plan to the FRB. In addition, as an insured state nonmember bank with $50 billion or more in total consolidated assets, Ally Bank is required to conduct annual company-run stress tests.
Ally’s capital plan must include a description of all planned capital actions over a nine-quarter planning horizon. The capital plan must also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios under baseline, adverse, and severely adverse economic scenarios, and serve as a source of strength to Ally Bank. The FRB must approve Ally's capital plan before Ally may take any capital action. Even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution.
On January 5, 2015, Ally submitted the results of its semi-annual stress test and its proposed capital actions to the FRB, and Ally Bank submitted the results of its annual company-run stress test to the FDIC. On March 6, 2015, Ally and Ally Bank publicly disclosed summary results of the stress test under the most severe scenario in accordance with regulatory requirements. On March 11, 2015, Ally received a non-objection to its capital plan from the FRB, including the proposed capital actions contained in our submission. As a result, we redeemed $1.3 billion in Series G preferred securities in April 2015, and repurchased $325 million in Series A preferred securities in May 2015, pursuant to a tender offer. In addition, on July 6, 2015, Ally submitted to the FRB the results of our company-run mid-year stress test conducted under multiple macroeconomic scenarios. We disclosed the results of this stress test under the most severe scenario on July 15, 2015, in accordance with regulatory requirements. On November 12, 2015, we received approval from the FRB to redeem the remaining 1,288,301 shares of our outstanding Series G Preferred Stock, which was then redeemed and retired on December 14, 2015. Under a new rule effective for the 2016 capital planning cycle and subsequent cycles, Ally expects to submit its 2016 capital plan by April 5, 2016, with a response expected from the FRB by June 30, 2016.
Depository Institutions
Ally Bank is a state nonmember bank, chartered by the State of Utah, and subject to the supervision of the FDIC and the Utah Department of Financial Institutions (Utah DFI). Ally Bank's deposits are insured by the FDIC, and Ally Bank is required to file periodic reports with the FDIC concerning its financial condition. Total assets of Ally Bank were $111.3 billion and $104.4 billion at December 31, 2015, and 2014, respectively. Ally Bank is subject to Utah law (and, in certain instances, federal law) that places restrictions and limitations on the amount of dividends or other distributions. Dividends or other distributions made by Ally Bank to Ally were $525 million and $1.8 billion in 2015 and 2014, respectively. Ally Bank did not make any dividend or other distributions to Ally in 2013.
The FRB requires banks to maintain minimum average reserve balances. The amount of the required reserve balance for Ally Bank was $216 million and $313 million at December 31, 2015, and 2014, respectively.
Mortgage Operations
Our mortgage business is subject to extensive federal, state, and local laws, rules, and regulations, in addition to judicial and administrative decisions that impose requirements and restrictions on this business. The mortgage business is also subject to examination by the Federal Housing Commissioner to assure compliance with Federal Housing Administration regulations, policies, and procedures. The federal, state, and local laws, rules, and regulations to which our mortgage business is subject, among other things, impose licensing obligations and financial requirements; limit the interest rates, finance charges, and other fees that can be charged; regulate the use of credit reports and the reporting of credit information; impose underwriting requirements; regulate marketing techniques and practices; require the safeguarding of nonpublic information about customers; and regulate servicing practices, including the assessment, collection, foreclosure, claims handling, and investment and interest payments on escrow accounts.
Ally Bank is required to satisfy regulatory net worth requirements. Failure to meet minimum capital requirements can initiate certain mandatory actions by federal, state, and foreign agencies that could have a material effect on our results of operations and financial condition. Ally Bank was in compliance with these requirements at December 31, 2015.
Insurance Companies
Some of our Insurance companies are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions under applicable state and foreign insurance law, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies. Under various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus, with approvals required from the regulatory authorities for dividends in excess of certain statutory limitations. At December 31, 2015, the maximum dividend that could be paid by the U.S. insurance subsidiaries over the next twelve months without prior statutory approval was $93 million.
22.     Derivative Instruments and Hedging Activities
We enter into interest rate, foreign-currency, and equity swaps, futures, forwards, options, and swaptions in connection with our market risk management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, including automotive loan assets and debt. We use foreign exchange contracts to mitigate foreign-currency risk associated with foreign-currency-denominated debt, foreign exchange transactions, and our net investment in foreign subsidiaries. In addition, we also enter into equity option contracts to manage our exposure to the equity markets. Our primary objective for utilizing derivative financial instruments is to manage interest rate risk associated with our fixed- and variable-rate assets and liabilities, foreign exchange risks related to our foreign-

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currency denominated assets and liabilities, and market risks related to our investment portfolio and certain of our executive share-based compensation plans.
Interest Rate Risk
We monitor our mix of fixed- and variable-rate assets and liabilities. When it is cost-effective to do so, we may enter into interest rate swaps, forwards, futures, options, and swaptions to achieve our desired mix of fixed- and variable-rate assets and liabilities. We execute interest rate swaps, forwards, futures, options, and swaptions to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges.
Derivatives qualifying for hedge accounting consist of receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate Federal Home Loan Bank Advances, pay-fixed swaps designated as fair value hedges of specific portfolios of fixed-rate held-for-investment retail automotive loan assets, and pay-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest payments on certain outstanding variable-rate borrowings associated with our secured debt.
We also execute economic hedges, which consist of interest rate swaps and interest rate caps held to mitigate interest rate risk associated with our debt portfolio. We also use interest rate swaps to economically hedge our net fixed-versus-variable interest rate exposure. We enter into economic hedges in the form of short-dated, exchange-traded Eurodollar futures to hedge the interest rate exposure of our fixed-rate automotive loans, as well as forwards, options, and swaptions to economically hedge our net fixed-versus-variable interest rate exposure.
Foreign Exchange Risk
We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to our various foreign-currency exposures.
We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our investments in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive income (loss).
Our remaining foreign subsidiaries in wind-down maintain both assets and liabilities in local currencies. These local currencies are generally the subsidiaries' functional currencies for accounting purposes. Foreign-currency-exchange-rate gains and losses arise when the assets or liabilities of our subsidiaries are denominated in currencies that differ from its functional currency. We enter into economic hedges to mitigate this risk.
We also enter into foreign currency forwards to economically hedge our foreign denominated debt, our centralized lending program, and foreign-denominated third party loans. The hedge of foreign denominated debt was entered into concurrent with the debt issuance with the terms of the derivative matching the terms of the underlying debt. The centralized lending program manages liquidity for our subsidiary businesses, but as of December 31, 2015, this activity is immaterial. Foreign-currency-denominated loan agreements are executed with our foreign subsidiaries in their local currencies. We evaluate our foreign-currency exposure resulting from intercompany lending and manage our currency risk exposure by entering into foreign-currency derivatives with external counterparties. Our remaining foreign-currency derivatives, such as hedges of foreign-denominated third party loans, are recorded at fair value with changes recorded as income offsetting the gains and losses on the associated foreign-currency transactions.
We utilized a cross-currency swap to economically hedge foreign exchange exposure on foreign-currency-denominated debt by converting the funding currency to our functional currency. This swap was entered into concurrent with the debt issuance with the terms of the derivative matching the terms of the underlying debt. This swap matured during the second quarter of 2015.
Market Risk
We enter into equity options to economically hedge our exposure to the equity markets. We purchase options to assume a long position on certain equities and write options to assume a short position.
We also enter into prepaid equity forward contracts to economically hedge the price risk associated with certain of our executive share-based compensation plans. The prepaid equity forward contracts are hybrid instruments containing an embedded forward contract, which is considered a derivative instrument. The embedded derivative instrument is bifurcated from the host contract and is recorded at fair value with changes in fair value recorded in compensation and benefits expense. The balance of the prepaid component of these equity forward contracts was $32 million as of December 31, 2015, and was recorded within other assets on the Consolidated Balance Sheet.
Counterparty Credit Risk
Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the contract completely fail to perform under the terms of those contracts, net of underlying collateral as measured by the market value of the derivative financial instrument.

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To mitigate the risk of counterparty default, we maintain collateral agreements with certain counterparties. The agreements require both parties to post collateral in the event the fair values of the derivative financial instruments meet posting thresholds established under the agreements. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the value of our total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls.
Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit risk-related event. No such specified credit risk related events occurred in 2015.
We placed cash collateral totaling $103 million and securities collateral totaling $86 million at December 31, 2015, and $221 million and $15 million at December 31, 2014, respectively, in accounts maintained by counterparties. This amount primarily relates to collateral posted to support our derivative positions. This amount also excludes cash and securities pledged as collateral under repurchase agreements. At December 31, 2015, we placed cash collateral totaling $21 million with counterparties under collateral arrangements associated with repurchase agreements. Refer to Note 15 for details on the repurchase agreements. The receivables for cash collateral placed are included in our Consolidated Balance Sheet in other assets.
We received cash collateral from counterparties totaling $82 million at December 31, 2015, to support these derivative positions. We received cash collateral from counterparties totaling $71 million at December 31, 2014. The payables for cash collateral received are included on our Consolidated Balance Sheet in accrued expenses and other liabilities. In certain circumstances, we receive or post securities as collateral with counterparties. We do not record such collateral received on our Consolidated Balance Sheet unless certain conditions are met. At December 31, 2015, and 2014, we received noncash collateral of $7 million and $15 million, respectively. Included in these amounts is noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the noncash collateral received under these agreements.

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Balance Sheet Presentation
The following table summarizes the fair value amounts of derivative instruments reported on our Consolidated Balance Sheet. The fair value amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
 
 
2015
 
2014
 
 
Derivative contracts in a
 
Notional amount
 
Derivative contracts in a
 
Notional amount
December 31, ($ in millions)
 
receivable position (a)
 
payable position (b)
 
receivable position (a)
 
payable position (b)
 
Derivatives qualifying for hedge accounting
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
Swaps (c) (d) (e)
 
$
126

 
$
9

 
$
14,151

 
$
118

 
$
7

 
$
18,554

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
Forwards
 

 
1

 
189

 

 

 
210

Total derivatives qualifying for hedge accounting
 
126

 
10

 
14,340

 
118

 
7

 
18,764

Economic hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
 
30

 
51

 
6,101

 
40

 
65

 
11,979

Futures and forwards
 
2

 
2

 
1,905

 
4

 
2

 
18,886

Written options
 

 
72

 
18,220

 

 
94

 
14,823

Purchased options
 
73

 

 
18,240

 
94

 

 
15,159

Total interest rate risk
 
105

 
125

 
44,466

 
138

 
161

 
60,847

Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
Swaps
 

 

 

 

 
74

 
1,210

Futures and forwards
 

 

 
278

 
5

 
4

 
304

Total foreign exchange risk
 

 

 
278

 
5

 
78

 
1,514

Equity contracts
 
 
 
 
 
 
 
 
 
 
 
 
Forwards
 

 
9

 
32

 

 
3

 
74

Written options
 

 
1

 

 

 
3

 
1

Purchased options
 
2

 

 

 
2

 

 

Total equity risk
 
2

 
10

 
32

 
2

 
6

 
75

Total economic hedges
 
107

 
135

 
44,776

 
145

 
245

 
62,436

Total derivatives
 
$
233

 
$
145

 
$
59,116

 
$
263

 
$
252

 
$
81,200

(a)
Derivative contracts in a receivable position are classified as other assets on the Consolidated Balance Sheet, and includes accrued interest of $46 million and $50 million at December 31, 2015, and 2014, respectively.
(b)
Derivative contracts in a liability position are classified as accrued expenses and other liabilities on the Consolidated Balance Sheet, and includes accrued interest of $12 million and $17 million at December 31, 2015, and 2014, respectively.
(c)
Includes fair value hedges consisting of receive-fixed swaps on fixed-rate debt obligations with $112 million and $97 million in a receivable position, $3 million and $1 million in a payable position, and a $6.8 billion and $4.7 billion notional amount at December 31, 2015, and December 31, 2014, respectively. Of the hedge notional amount at December 31, 2015, $2.6 billion is associated with debt maturing in five or more years.
(d)
Other fair value hedges include pay-fixed swaps on portfolios of held-for-investment automotive loan assets with $13 million and $21 million in a receivable position, $3 million and $6 million in a payable position, and a $6.8 billion and $13.9 billion notional amount at December 31, 2015, and December 31, 2014, respectively.
(e)
Fair value hedges were executed during the fourth quarter consisting of receive-fixed swaps on fixed-rate secured debt obligations (FHLB Advances) with $1 million in a receivable position, $2 million in a payable position, and a $500 million notional amount at December 31, 2015.

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Statement of Comprehensive Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments reported in our Consolidated Statement of Income.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Derivatives qualifying for hedge accounting
 
 
 
 
 
 
(Loss) gain recognized in earnings on derivatives
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
Interest and fees on finance receivables and loans (a)
 
$
(9
)
 
$
15

 
$
7

Interest on long-term debt (b) (c)
 
35

 
199

 
(389
)
Gain (loss) recognized in earnings on hedged items
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
Interest and fees on finance receivables and loans (d)
 
39

 
34

 
2

Interest on long-term debt (e)
 
(30
)
 
(185
)
 
402

Total derivatives qualifying for hedge accounting
 
35

 
63

 
22

Economic derivatives
 
 
 
 
 
 
(Loss) gain recognized in earnings on derivatives
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
Servicing asset valuation and hedge activities, net
 

 

 
(112
)
Loss on mortgage and automotive loans, net
 
(2
)
 

 
(37
)
Other income, net of losses
 
(17
)
 
(37
)
 
14

Total interest rate contracts
 
(19
)
 
(37
)
 
(135
)
Foreign exchange contracts (f)
 
 
 
 
 
 
Interest on long-term debt
 
(139
)
 
(172
)
 
94

Other income, net of losses
 
12

 
12

 
24

Total foreign exchange contracts
 
(127
)
 
(160
)
 
118

Equity contracts
 
 
 
 
 
 
Compensation and benefits expense
 
(10
)
 
(5
)
 

Total equity contracts
 
(10
)
 
(5
)
 

(Loss) gain recognized in earnings on derivatives
 
$
(121
)
 
$
(139
)
 
$
5

(a)
Amounts exclude losses related to interest for qualifying accounting hedges of portfolios of retail automotive loans held-for-investment, which are primarily offset by the fixed coupon payments of the loans. The losses were $64 million, $61 million, and $9 million for the years ended December 31, 2015, and 2014, and 2013, respectively.
(b)
Amounts exclude gains related to interest for qualifying accounting hedges of debt, which are primarily offset by the fixed coupon payment on the long-term debt. The gains were $97 million, $112 million, and $131 million for the years ended December 31, 2015, 2014, and 2013, respectively.
(c)
Amounts exclude gains related to interest for qualifying accounting hedges of secured debt (FHLB Advances), which are primarily offset by the fixed coupon payment on the long-term debt. The gains were $1 million for the year ended December 31, 2015.
(d)
Amounts exclude losses related to amortization of deferred loan basis adjustments on the de-designated hedged item of $8 million for the year ended December 31, 2015.
(e)
Amounts exclude gains related to amortization of deferred basis adjustments on the de-designated hedged item of $73 million, $155 million, and $247 million for the years ended December 31, 2015, 2014, and 2013, respectively.
(f)
Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or receivable. Gains of $132 million, and $165 million, and losses of $117 million, were recognized for the years ended December 31, 2015, 2014, and 2013, respectively.

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The following table summarizes derivative instruments used in cash flow and net investment hedge accounting relationships.
Year ended December 31, ($ in millions)
 
2015
 
2014
 
2013
Cash flow hedges
 
 
 
 
 
 
Interest rate contracts
 
 
 
 
 
 
Loss reclassified from accumulated other comprehensive income to interest on long-term debt
 
$

 
$
(2
)
 
$
(7
)
Total interest on long-term debt
 
$

 
$
(2
)
 
$
(7
)
Gain recognized in other comprehensive income
 
$
2

 
$
2

 
$
6

Net investment hedges
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
Loss reclassified from accumulated other comprehensive income to income (loss) from discontinued operations, net
 
$
(4
)
 
$

 
$
(250
)
Total loss from discontinued operations, net
 
$
(4
)
 
$

 
$
(250
)
Gain recognized in other comprehensive income (a)
 
$
33

 
$
13

 
$
309

(a)
The amounts represent the effective portion of net investment hedges. There are offsetting amounts recognized in accumulated other comprehensive income related to the revaluation of the related net investment in foreign operations, including the tax impacts of the hedge and related net investment, as disclosed separately in Note 19. There were losses of $59 million, $41 million, and $582 million for the years ended December 31, 2015, 2014, and 2013, respectively.
23.    Income Taxes
The significant components of income tax expense (benefit) from continuing operations were as follows.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Current income tax expense (benefit)
 
 
 
 
 
U.S. federal
$

 
$
(3
)
 
$

Foreign
6

 
8

 
4

State and local
3

 
5

 

Total current expense
9

 
10

 
4

Deferred income tax expense (benefit)
 
 
 
 
 
U.S. federal
454

 
270

 
(67
)
Foreign
1

 
2

 
(1
)
State and local
32

 
39

 
5

Total deferred expense (benefit)
487

 
311

 
(63
)
Total income tax expense (benefit) from continuing operations
$
496

 
$
321

 
$
(59
)
A reconciliation of income tax expense (benefit) from continuing operations with the amounts at the statutory U.S. federal income tax rate is shown in the following table.
Year ended December 31, ($ in millions)
2015
 
2014
 
2013
Statutory U.S. federal tax expense
$
488

 
$
436

 
$
125

Change in tax resulting from
 
 
 
 
 
State and local income taxes, net of federal income tax benefit
38

 
48

 
16

Effect of valuation allowance change
(26
)
 
(64
)
 
(154
)
Nondeductible expenses
14

 
31

 
26

Tax credits
(12
)
 
(10
)
 
(45
)
Changes in unrecognized tax benefits
(5
)
 
(63
)
 
(10
)
Tax law enactment

 
(39
)
 
(44
)
Other, net
(1
)
 
(18
)
 
27

Total income tax expense (benefit) from continuing operations
$
496

 
$
321

 
$
(59
)
For the year ended December 31, 2015, consolidated income tax expense from continuing operations is largely driven by tax attributable to pretax earnings for the year, offset by tax benefits recognized from the release of our valuation allowance on capital loss carryforwards

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utilized against current year capital gains. For the year ended December 31, 2014, consolidated income tax expense from continuing operations was largely driven by tax attributable to pretax earnings for the year, offset by tax benefits recognized from the release of a portion of our valuation allowance on capital loss carryforwards utilized against 2014 capital gains, a reduction in the liability for unrecognized tax benefits that resulted from the completion of the U.S. federal audit related to our 2009 tax year, and the reinstatement of the active financing exception included in the Tax Increase Prevention Act of 2014. For the year ended December 31, 2013, consolidated income tax benefit from continuing operations was largely driven by a release of a portion of our valuation allowance related to the measurement of foreign tax credit carryforwards anticipated to be utilized in the future and release of our valuation allowance on capital loss carryforwards utilized against 2013 capital gains. Additional benefit was also recognized from a tax law enactment that retroactively reinstated the active financing exception.
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain foreign tax credit, state net operating loss, and state capital loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards.
The sale of our joint venture in China, which was completed in January 2015, resulted in additional capital gains that allowed us to realize our remaining U.S. federal capital loss carryforwards. This resulted in an income tax benefit upon the reversal of the valuation allowance on the related deferred tax asset.
The significant components of deferred tax assets and liabilities are reflected in the following table.
December 31, ($ in millions)
2015
 
2014
Deferred tax assets
 
 
 
Tax credit carryforwards
$
1,941

 
$
1,911

Tax loss carryforwards
950

 
1,158

Adjustments to loan value
311

 
520

State and local taxes
194

 
227

Unearned insurance premiums
141

 
141

Hedging transactions
99

 
139

Other
212

 
210

Gross deferred tax assets
3,848

 
4,306

Valuation allowance
(582
)
 
(734
)
Deferred tax assets, net of valuation allowance
3,266

 
3,572

Deferred tax liabilities
 
 
 
Lease transactions
1,273

 
1,148

Deferred acquisition costs
403

 
378

Debt transactions
162

 
161

Other
69

 
78

Gross deferred tax liabilities
1,907

 
1,765

Net deferred tax assets (a)
$
1,359

 
$
1,807

(a)
Total net deferred tax assets includes $1,369 million of net deferred tax assets included in other assets on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax asset position and $10 million included in accrued expenses and other liabilities on our Consolidated Balance Sheet for tax jurisdictions in a total net deferred tax liability position at December 31, 2015.

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The following table summarizes net deferred tax assets including related valuation allowances at December 31, 2015.
($ in millions)
 
Deferred Tax Asset/(Liability)
 
Valuation Allowance
 
Net Deferred Tax Asset/(Liability)
 
Years of Expiration
Tax credit carryforwards
 
 
 
 
 
 
 
 
Foreign tax credits
 
$
1,748

 
$
(472
)
 
$
1,276

 
2016 - 2025
General business credits
 
173

 

 
173

 
2032 - 2035
AMT credits
 
20

 

 
20

 
n/a
Total tax credit carryforwards
 
1,941

 
(472
)
 
1,469

 
 
Tax loss carryforwards
 
 
 
 
 
 
 
 
Net operating losses — federal
 
950

 

 
950

 
2031 - 2033
Net operating losses — state
 
208

(a)
(77
)
 
131

 
2016 - 2035
Capital losses — state
 
28

(a)
(28
)
 

 
2016 - 2017
Total tax loss carryforwards
 
1,186

 
(105
)
 
1,081

 
 
Other deferred tax assets
 
721

 
(5
)
 
716

 
n/a
Deferred tax assets
 
3,848

 
(582
)
 
3,266

 
 
Deferred tax liabilities
 
(1,907
)
 

 
(1,907
)
 
n/a
Net deferred tax assets
 
$
1,941

 
$
(582
)
 
$
1,359

 
 
(a)
State net operating loss and capital loss carryforwards are included in the state and local taxes total disclosed in our deferred inventory table above.
As of December 31, 2015, we do not assert that any foreign earnings are indefinitely reinvested outside of the United States. As a result, all deferred tax liabilities for incremental U.S. tax that stem from temporary differences related to investments in foreign subsidiaries or foreign corporate joint ventures have been recognized as of December 31, 2015.
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits.
($ in millions)
2015
 
2014
 
2013
Balance at January 1,
$
191

 
$
262

 
$
102

Additions based on tax positions related to the current year

 

 
174

Additions for tax positions of prior years
7

 
9

 
1

Settlements
(10
)
 
(79
)
 
(14
)
Expiration of statute of limitations
(3
)
 
(1
)
 
(1
)
Balance at December 31,
$
185

 
$
191

 
$
262

Included in the unrecognized tax benefits balances are some items, the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences and the portion of gross state unrecognized tax benefits that would be offset by the tax benefit of the associated federal deduction. At December 31, 2015, 2014, and 2013, the balance of unrecognized tax benefits that, if recognized, would affect our effective tax rate is $177 million, $182 million, and $240 million, respectively.
We recognize accrued interest and penalties related to uncertain income tax positions in interest expense and other operating expenses, respectively. For the years ended December 31, 2015, 2014, and 2013, less than $1 million, $1 million, and $2 million, respectively, were accrued for interest and penalties with the cumulative accrued balance totaling $2 million at December 31, 2015, $5 million at December 31, 2014, and $7 million at December 31, 2013.
It is reasonably possible that the unrecognized tax benefits will decrease by up to $180 million over the next twelve months if certain tax matters ultimately settle with the applicable taxing jurisdiction.
We file tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. Our most significant operations remaining following our divestitures of various international operations are the United States and Canada. The oldest tax years that remain subject to examination for those jurisdictions are 2012 and 2011, respectively.
24.    Share-based Compensation Plans
On December 24, 2014, as a result of Treasury completing the sale of all of its remaining shares in Ally's common stock, Ally exited the Troubled Asset Relief Program (TARP), which required us to comply with certain limitations on executive pay as determined by the Special Master of TARP Compensation (Special Master). Under TARP we established stock salary, or Deferred Stock Units (DSUs), and TARP Stock, or Incentive Restricted Stock Units (IRSUs), as forms of compensation to our senior executives, which were approved by the Special Master. During 2015, we discontinued granting DSU and IRSU awards to senior executives. We also grant Restricted Stock Units (RSUs) to

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executives under the Ally Financial 2014 Incentive Compensation Plan, which allows us to grant an array of equity-based and cash incentive awards to our named executive officers and other employees and service providers (other than our non-employee directors). Each of our approved compensation plans and awards were designed to provide our executives with an opportunity to share in the future growth in the value of Ally, which is necessary to attract and retain key executives.
Prior to our IPO in April 2014, all share-based awards were settled in cash and required liability treatment under the accounting guidance. Accounting treatment for liability-classified awards requires compensation expense to be adjusted each period until the awards are settled based on the value of the underlying share price. Prior to IPO, the Ally Board of Directors was required to determine a share price valuation (Share Price Valuation) for share-based compensation awards not less than annually. The Share Price Valuation determined by the Board prior to the IPO, assisted by an independent advisor, considered, among other things, the stock price performance, on an indexed basis, of publicly traded common stock issued by certain comparative companies and considered Ally’s common stock as if it were freely tradable in the public markets. After the IPO, the share price valuation is based on the trading price for our stock. Also, after the IPO, certain awards, both existing and future grants, will be settled in stock and, as a result, will be accounted for as equity awards under the accounting guidance. For equity-classified awards, the compensation expense to be recognized over the vesting and service period is determined on the grant date. Certain awards will continue to require liability treatment and receive the same treatment as previously noted. For valuation purposes, we utilize Ally’s share price as of the grant date and the end of each reporting period for determining the necessary share-based compensation expense, depending on the classification of the awards. The per-share fair value based on market price for purposes of share-based compensation was $18.64 as of December 31, 2015. We had 35,838,068 shares authorized and available for future grants of incentive-based equity awards at December 31, 2015.
During 2015 and 2014, we entered into prepaid equity forward contracts to economically hedge a portion of the price risk driven by fluctuations in the fair value of our DSU and IRSU awards. The prepaid equity forward contracts are hybrid instruments containing an embedded forward contract, which is considered a derivative instrument. The embedded derivative instrument is bifurcated from the host contract and is recorded at fair value with changes in fair value recorded as compensation and benefits expense in our Consolidated Statement of Income. For further information on our derivative instruments, refer to Note 22.
RSU Awards
RSU awards are incentive awards that have been granted to employees as phantom shares of Ally. Prior to our IPO, these awards were paid in cash. As a result, RSU awards required liability treatment and were remeasured quarterly at the Share Price Valuation until they were paid. The compensation costs related to these awards were ratably charged to expense over the applicable service period. Changes in the value related to the portion of the awards that had vested and had not been paid were recognized in earnings in the period in which the changes occurred. After the IPO, the majority of existing RSU awards settle in the form of Ally common stock, which changed the award classification from a liability award to an equity award. As a result of this classification change, a modification to the accounting for the existing awards was required. As part of the modification, the stock closing price on the date of the IPO (April 10, 2014) of $23.98 was used as the modification date value, which resulted in the recording of an increase to additional paid-in capital of $62 million, with a corresponding decrease in the liability. The remaining RSU cost for these awards, based on the modification date value, will be ratably charged to expense over the applicable service periods with an offset to additional paid-in capital. RSU awards granted in 2012 can vest in one of two different methods. The first method allows vesting ratably over a three-year period starting on the date the award was issued, with awards fully vesting in February 2015. The second method allows vesting ratably over a two-year period, starting on the date the award was issued, with awards fully vesting in February 2014. RSU awards granted in 2015, 2014, and 2013 vest using a single method where vesting is ratable over a two-year period starting on the date the award was issued, with the majority of the awards fully vesting in January 2017, 2016, and 2015. At December 31, 2015, there were a total of 6,476,427 RSU award shares outstanding, composed of 254,150 shares awarded during 2013, 1,691,509 shares awarded during 2014, and 4,530,768 shares awarded during 2015. At December 31, 2014, there were a total of 4,293,216 RSU award shares outstanding, composed of 17,571 shares awarded during 2009, 17,219 shares awarded during 2010, 0 shares awarded during 2011, 453,735 shares awarded during 2012, 2,053,271 shares awarded during 2013, and 1,751,420 shares awarded during 2014. We recognized expense related to RSU awards of $49 million, $46 million, and $64 million for the years ended December 31, 2015, 2014, and 2013, respectively. These costs were recorded as compensation and benefits expense in our Consolidated Statement of Income.
DSU Awards
DSU awards were generally granted to senior executives as phantom shares of Ally and were included as part of their base salary. DSU awards were commonly granted ratably each pay period throughout the year, vested immediately upon grant, and paid in cash. DSUs awarded in 2013, 2014, and 2015 will generally be redeemable in three equal installments: the first on the final payroll date of the respective year of grant, the second ratably over the first year following the grant date, and the third ratably over the second year following the grant date. The DSU awards require liability treatment and are remeasured monthly at fair value based on market price until they are paid, with each change in value fully charged to compensation expense in the period in which the change occurs. At December 31, 2015, and December 31, 2014, there were a total of 1,395,105 and 3,009,942 DSU awards outstanding, respectively. We recognized expense related to DSU awards, before economic hedge, of $3 million, $42 million, and $65 million for the years ended December 31, 2015, 2014, and 2013, respectively, for the outstanding awards. These costs were recorded as compensation and benefits expense in our Consolidated Statement of Income. For further information on our derivative instruments, refer to Note 22.

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IRSU Awards
IRSU awards were incentive awards that had been granted to senior executives as phantom shares of Ally and vested based on continued service with Ally. IRSU awards from 2009, 2010, and 2011 have fully vested. There were no IRSU awards granted to senior executives in 2012. IRSU awards from 2013 vest two-thirds after two years from grant date and in full three years from grant date. IRSU awards from 2014 vest in 2016. As of December 31, 2014, Ally had repaid 100% of its TARP obligations, allowing complete payment of the fully vested awards. The vested IRSU awards that were being deferred until repayment of TARP obligations were paid out in January 2015. The remaining unvested IRSU awards are paid in cash after the vesting requirement is met. Payouts are based on fair value of Ally shares at the time of the payout. The awards require liability treatment and are remeasured monthly at fair value based on market price until they are paid. The compensation costs related to these awards are ratably charged to expense over the requisite service period. Changes in value relating to the portion of the awards that have vested and have not been paid are recognized in earnings in the period in which the changes occur. At December 31, 2015, and December 31, 2014, there were a total of 51,103 and 690,355 IRSU award shares outstanding, respectively. We recognized an expense related to IRSU awards, before economic hedge, of $1 million and $8 million for the years ended December 31, 2015, and 2013, respectively, and a reduction of expense, before economic hedge, of $2 million for the year ended December 31, 2014, for the outstanding awards. These costs were recorded as compensation and benefits expense in our Consolidated Statement of Income. For further information on our derivative instruments, refer to Note 22.
25.    Fair Value
Fair Value Measurements
For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability. Additionally, entities are required to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.
GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.
Level 1
Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.
Level 2
Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.
Level 3
Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management's best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.
Transfers
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfer occurred. There were no transfers between any levels for the year ended December 31, 2015.
Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized.
Available-for-sale securities — All classes of available-for-sale securities are carried at fair value based on observable market prices, when available. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (including prepayment speeds, delinquency levels, and credit losses).
Mortgage loans held-for-sale, net — Certain of our mortgage loans held-for-sale are accounted for at fair value because of fair value option elections. Mortgage loans held-for-sale are typically pooled together and sold into certain exit markets depending on underlying attributes of the loan, such as eligibility with the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or the Government National Mortgage Association (Ginnie Mae) (collectively, the Government-sponsored Enterprises, or GSEs), product type, interest rate, and credit quality. Mortgage loans previously classified as Level 2 were mainly GSE-eligible mortgage loans carried at fair value due to fair value option election, which were valued predominantly using published forward agency prices. It also included any domestic loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are available. These mortgage loans were transferred into Level 3 as of December 31, 2014, based on decreased observability of

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significant inputs resulting from no longer being an active seller of mortgage loans to GSEs. As a result, at December 31, 2014, they were valued based on a discounted cash flow basis utilizing cash flow projections from internally developed models that utilized prepayment, default, and discount rate assumptions.
Refer to the section within this note titled Fair Value Option for Financial Assets for further information about the fair value elections.
Interests retained in financial asset sales — The interests retained are in securitization trusts and deferred purchase prices on the sale of whole-loans. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).
Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk management strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures, options of Eurodollar futures, and equity options. To determine the fair value of these instruments, we utilize the quoted market prices for the particular derivative contracts; therefore, we classified these contracts as Level 1.
We also execute over-the-counter (OTC) and centrally-cleared derivative contracts, such as interest rate swaps, a cross-currency swap, swaptions, foreign-currency denominated forward contracts, prepaid equity forward contracts, caps, floors, and agency to-be-announced securities. For OTC contracts, we utilize third-party-developed valuation models that are widely accepted in the market to value these OTC derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves, interpolated volatility assumptions, or equity pricing) are used in the model. We classified these OTC derivative contracts as Level 2 because all significant inputs into these models were market observable. For centrally-cleared contracts, we utilize unadjusted prices obtained from the clearing house as the basis for valuation, and they are also classified as Level 2. We did not have any derivative instruments classified as Level 3 as of December 31, 2015, or December 31, 2014.
We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if warranted. The CVA calculation utilizes the credit default swap spreads of the counterparty.

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Recurring Fair Value
The following tables display the assets and liabilities measured at fair value on a recurring basis including financial instruments elected for the fair value option. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our risk management activities.
 
 
Recurring fair value measurements
December 31, 2015 ($ in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Investment securities
 
 
 
 
 
 
 

Available-for-sale securities
 
 
 
 
 
 
 

Debt securities
 
 
 
 
 
 
 

U.S. Treasury and federal agencies
 
$
1,469

 
$
272

 
$

 
$
1,741

U.S. State and political subdivisions
 

 
716

 

 
716

Foreign government
 
10

 
167

 

 
177

Mortgage-backed residential
 

 
10,366

 

 
10,366

Mortgage-backed commercial
 

 
481

 

 
481

Asset-backed
 

 
1,755

 

 
1,755

Corporate debt securities
 

 
1,204

 

 
1,204

Total debt securities
 
1,479

 
14,961

 

 
16,440

Equity securities (a)
 
717

 

 

 
717

Total available-for-sale securities
 
2,196

 
14,961

 

 
17,157

Other assets
 
 
 
 
 
 
 

Interests retained in financial asset sales
 

 

 
40

 
40

Derivative contracts in a receivable position (b)
 
 
 
 
 
 
 

Interest rate
 
2

 
229

 

 
231

Other
 
2

 

 

 
2

Total derivative contracts in a receivable position
 
4

 
229

 

 
233

Total assets
 
$
2,200

 
$
15,190

 
$
40

 
$
17,430

Liabilities
 
 
 
 
 
 
 

Accrued expenses and other liabilities
 
 
 
 
 
 
 

Derivative contracts in a payable position (b)
 
 
 
 
 
 
 

Interest rate
 
$
(2
)
 
$
(133
)
 
$

 
$
(135
)
Foreign currency
 

 
(1
)
 

 
(1
)
Other
 
(1
)
 
(8
)
 

 
(9
)
Total derivative contracts in a payable position
 
(3
)
 
(142
)
 

 
(145
)
Total liabilities
 
$
(3
)
 
$
(142
)
 
$

 
$
(145
)
(a)
Our investment in any one industry did not exceed 14%.
(b)
For additional information on derivative instruments and hedging activities, refer to Note 22.

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Recurring fair value measurements
December 31, 2014 ($ in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Investment securities
 
 
 
 
 
 
 

Available-for-sale securities
 
 
 
 
 
 
 

Debt securities
 
 
 
 
 
 
 

U.S. Treasury and federal agencies
 
$
217

 
$
961

 
$

 
$
1,178

U.S. State and political subdivisions
 

 
406

 

 
406

Foreign government
 
14

 
218

 

 
232

Mortgage-backed residential
 

 
10,425

 

 
10,425

Mortgage-backed commercial
 

 
253

 

 
253

Asset-backed
 

 
1,991

 

 
1,991

Corporate debt securities
 

 
746

 

 
746

Total debt securities
 
231

 
15,000

 

 
15,231

Equity securities (a)
 
906

 

 

 
906

Total available-for-sale securities
 
1,137

 
15,000

 

 
16,137

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

 

 
3

 
3

Other assets
 
 
 
 
 
 
 

Interests retained in financial asset sales
 

 

 
47

 
47

Derivative contracts in a receivable position (c)
 
 
 
 
 
 
 

Interest rate
 
4

 
252

 

 
256

Foreign currency
 

 
5

 

 
5

Other
 
2

 

 

 
2

Total derivative contracts in a receivable position
 
6

 
257

 

 
263

Collateral placed with counterparties (d)
 

 
15

 

 
15

Total assets
 
$
1,143

 
$
15,272

 
$
50

 
$
16,465

Liabilities
 
 
 
 
 
 
 

Accrued expenses and other liabilities
 
 
 
 
 
 
 

Derivative contracts in a payable position (c)
 
 
 
 
 
 
 

Interest rate
 
$
(2
)
 
$
(166
)
 
$

 
$
(168
)
Foreign currency
 

 
(78
)
 

 
(78
)
Other
 
(2
)
 
(4
)
 

 
(6
)
Total derivative contracts in a payable position
 
(4
)
 
(248
)
 

 
(252
)
Total liabilities
 
$
(4
)
 
$
(248
)
 
$

 
$
(252
)
(a)
Our investment in any one industry did not exceed 16%.
(b)
Carried at fair value due to fair value option elections.
(c)
For additional information on derivative instruments and hedging activities, refer to Note 22.
(d)
Represents collateral in the form of investment securities. Cash collateral was excluded.

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The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk management activities.
 
Level 3 recurring fair value measurements
 
 
Net realized/unrealized gains
 
 
 
 
 
 
Fair value at December 31, 2015
Net unrealized gains included in earnings still held at December 31, 2015
($ in millions)
Fair value at January 1, 2015
included in earnings
 
included in OCI
Purchases
Sales
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
$
3

$
1

 
$

$

$
(4
)
$

$

$

$

$

$

Other assets
 
 
 
 
 
 
 
 
 
 
 
 
Interests retained in financial asset sales
47

9

(a)



26

(42
)


40


Total assets
$
50

$
10

 
$

$

$
(4
)
$
26

$
(42
)
$

$

$
40

$

(a)
Reported as other income, net of losses, in the Consolidated Statement of Income.
 
Level 3 recurring fair value measurements
 
 
Net realized/unrealized gains
 
 
 
 
 
 
Fair value at December 31, 2014
Net unrealized gains included in earnings still held at December 31, 2014
($ in millions)
Fair value at January 1, 2014
included in earnings
 
included in OCI
Purchases
Sales
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
$

$

 
$

$

$

$

$

$
3

$

$
3

$
1

Other assets
 
 
 
 
 
 
 
 
 
 
 
 
Interests retained in financial asset sales
100

13

(a)




(66
)


47


Interest rate derivative contracts, net
(1
)

 




(2
)

3



Total assets
$
99

$
13


$

$

$

$

$
(68
)
$
3

$
3

$
50

$
1

(a)
Reported as other income, net of losses, in the Consolidated Statement of Income.
Nonrecurring Fair Value
We may be required to measure certain assets and liabilities at fair value from time to time. These periodic fair value measures typically result from the application of lower-of-cost or fair value accounting or certain impairment measures. These items would constitute nonrecurring fair value measures.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The following tables display the assets and liabilities measured at fair value on a nonrecurring basis.
 
 
Nonrecurring fair value measurements
 
Lower-of-cost or fair value or valuation reserve allowance
 
Total loss included in earnings for the year ended
 
December 31, 2015 ($ in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
 
$

 
$

 
$
105

 
$
105

 
$

 
n/m
(a)
Commercial finance receivables and loans, net (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
 

 

 
19

 
19

 
(2
)
 
n/m
(a)
Other
 

 

 
29

 
29

 
(15
)
 
n/m
(a)
Commercial real estate — Automotive
 

 

 
4

 
4

 
(3
)
 
n/m
(a)
Total commercial finance receivables and loans, net
 

 

 
52

 
52

 
(20
)
 
n/m
(a)
Other assets
 
 
 
 
 
 
 

 
 
 
 
 
Repossessed and foreclosed assets (c)
 

 

 
9

 
9

 
(3
)
 
n/m
(a)
Other
 

 

 
6

 
6

 
(2
)
 
n/m
(a)
Total assets
 
$

 
$

 
$
172

 
$
172

 
$
(25
)
 
n/m
 
n/m = not meaningful
(a)
We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance.
(b)
Represents the portion of the portfolio specifically impaired during 2015. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.
(c)
The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
 
 
Nonrecurring fair value measurements
 
Lower-of-cost or fair value or valuation reserve allowance
 
Total loss included in earnings for the year ended
 
December 31, 2014 ($ in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
 
$

 
$

 
$
36

 
$
36

 
$

 
n/m
(a)
Commercial finance receivables and loans, net (b)
 
 
 
 
 
 
 

 
 
 
 
 
Automotive
 

 

 
24

 
24

 
(6
)
 
n/m
(a)
Other
 

 

 
32

 
32

 
(15
)
 
n/m
(a)
Total commercial finance receivables and loans, net
 

 

 
56

 
56

 
(21
)
 
n/m
(a)
Other assets
 
 
 
 
 
 
 

 
 
 
 
 
Repossessed and foreclosed assets (c)
 

 

 
8

 
8

 
(2
)
 
n/m
(a)
Other
 

 

 
2

 
2

 

 
n/m
(a)
Total assets
 
$

 
$

 
$
102

 
$
102

 
$
(23
)
 
n/m
 
n/m = not meaningful
(a)
We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance.
(b)
Represents the portion of the portfolio specifically impaired during 2014. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.
(c)
The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.
Fair Value Option for Financial Assets
We elected the fair value option for an insignificant amount of conforming and government-insured mortgage loans held-for-sale. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related hedges. Our intent in electing fair value measurement was to mitigate a divergence between accounting losses and economic exposure for certain assets and liabilities.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Fair Value of Financial Instruments
The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is required in interpreting market data to develop estimates of fair value, so the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions or estimation methodologies could be material to the estimated fair values. Fair value information presented herein was based on information available at December 31, 2015, and 2014.
 
 
 
Estimated fair value
December 31, ($ in millions)
Carrying value
 
Level 1
 
Level 2
 
Level 3
 
Total
2015
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
Loans held-for-sale, net
$
105

 
$

 
$

 
$
105

 
$
105

Finance receivables and loans, net
110,546

 

 

 
110,737

 
110,737

Nonmarketable equity investments
418

 

 
391

 
42

 
433

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposit liabilities
$
66,478

 
$

 
$

 
$
66,889

 
$
66,889

Short-term borrowings
8,101

 

 

 
8,102

 
8,102

Long-term debt
66,234

 

 
23,018

 
45,157

 
68,175

2014
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
Loans held-for-sale, net
$
2,003

 
$

 
$
485

 
$
1,554

 
$
2,039

Finance receivables and loans, net
98,971

 

 

 
99,430

 
99,430

Nonmarketable equity investments
271

 

 
246

 
33

 
279

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposit liabilities
$
58,203

 
$

 
$

 
$
58,777

 
$
58,777

Short-term borrowings
7,062

 

 

 
7,063

 
7,063

Long-term debt 
66,380

 

 
25,224

 
44,084

 
69,308

The following describes the methodologies and assumptions used to determine fair value for the significant classes of financial instruments. In addition to the valuation methods discussed below, we also followed guidelines for determining whether a market was not active and a transaction was not distressed. As such, we assumed the price that would be received in an orderly transaction (including a market-based return) and not in forced liquidation or distressed sale.
Cash and cash equivalents — Included in cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. Classified as Level 1 under the fair value hierarchy, cash and cash equivalents generally expose us to limited credit risk and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates. As such, the carrying value approximates the fair value of these instruments.
Loans held-for-sale, net — Loans held-for-sale classified as Level 3 include all loans valued using internally developed valuation models because observable market prices were not available. We based our valuation of automotive loans held-for-sale on internally developed discounted cash flow models (an income approach). These valuation models estimate the exit price we expect to receive in the loan’s principal market, which, depending on characteristics of the loans, may be the whole-loan market or the securitization market. Although we utilize and give priority to market observable inputs, such as interest rates and market spreads within these models, we are typically required to utilize internal inputs, such as prepayment speeds (absolute prepayment model, or ABS), gross loss range by loan segment (percentage of receivable balance lost in the event of default), and credit spreads (the risk premium component added to observed benchmark rate to determine the discount rate used in the discounted cash flow model). While numerous controls exist to calibrate, corroborate, and validate these internal inputs, these internal inputs require the use of judgment and can have a significant impact on the determination of the loan’s value. Accordingly, we classified all automotive loans held-for-sale as Level 3 as of December 31, 2014. Loans held-for-sale classified as Level 2 as of December 31, 2014, represent mortgage TDR loans valued using quoted prices in active markets for similar assets.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Finance receivables and loans, net — With the exception of mortgage loans held-for-investment, the fair value of finance receivables and loans was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables and loans (an income approach using Level 3 inputs). The carrying value of commercial receivables in certain markets and certain automotive and other receivables for which interest rates reset on a short-term basis with applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest rate adjustment feature. The fair value of commercial receivables in other markets was based on discounted future cash flows using applicable spreads to approximate current rates applicable to similar assets in those markets.
For consumer mortgage loans, we used valuation methods and assumptions similar to those used for mortgage loans held-for-sale. These valuations consider unique attributes of the loans such as geography, delinquency status, product type, and other factors. Refer to the section above titled Mortgage loans held-for-sale, net, for a description of methodologies and assumptions used to determine the fair value of mortgage loans held-for-sale.
Deposit liabilities — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and dealer deposits. The fair value of deposits at Level 3 were estimated by discounting projected cash flows based on discount factors derived from the forward interest rate swap curve.
Short-term borrowings and Long-term debt — Level 2 debt was valued using quoted market prices for similar instruments, when available, or other means for substantiation with observable inputs. Debt valued by discounting projected cash flows using internally derived inputs, such as prepayment speeds and discount rates, was classified as Level 3.
Financial instruments for which carrying value approximates fair value — Certain financial instruments that are not carried at fair value on the consolidated balance sheet are carried at amounts that approximate fair value primarily due to their short term nature and limited credit risk. These instruments include restricted cash, cash collateral, accrued interest receivable, accrued interest payable, trade receivables and payables, and other short term receivables and payables.
26.    Offsetting Assets and Liabilities
Our derivative contracts and repurchase/reverse repurchase transactions are supported by qualifying master netting and master repurchase agreements. These agreements are legally enforceable bilateral agreements that (1) create a single legal obligation for all individual transactions covered by the agreement to the nondefaulting entity upon an event of default of the counterparty, including bankruptcy, insolvency, or similar proceeding, and (2) provide the nondefaulting entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default of the counterparty.
To further mitigate the risk of counterparty default related to derivative instruments, we maintain collateral agreements with certain counterparties. The agreements require both parties to maintain collateral in the event the fair values of the derivative financial instruments meet established thresholds. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the value of our total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls, such that the net replacement cost of the nondefaulting party is covered in the event of counterparty default.
In certain instances as it relates to our derivative instruments, we have the option to report derivative assets and liabilities as well as assets and liabilities associated with cash collateral received or delivered that is governed by a master netting agreement on a net basis as long as certain qualifying criteria are met. Similarly, for our repurchase/reverse repurchase transactions, we have the option to report recognized assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At December 31, 2015, these instruments are reported as gross assets and gross liabilities on the Consolidated Balance Sheet.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.
 
 
Gross Amounts of Recognized Assets/(Liabilities)
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets/(Liabilities) Presented in the Consolidated Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
December 31, 2015 ($ in millions)
 
 
 
 
Financial Instruments
 
Collateral
(a) (b) (c)
 
Net Amount
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets in net asset positions
 
$
224

 
$

 
$
224

 
$
(69
)
 
$
(67
)
 
$
88

Derivative assets in net liability positions
 
9

 

 
9

 
(9
)
 

 

Total assets (d)
 
$
233

 
$

 
$
233

 
$
(78
)
 
$
(67
)
 
$
88

Liabilities
 
 
 
 
 

 
 
 
 
 

Derivative liabilities in net liability positions
 
$
(68
)
 
$

 
$
(68
)
 
$
9

 
$
2

 
$
(57
)
Derivative liabilities in net asset positions
 
(69
)
 

 
(69
)
 
69

 

 

Derivative liabilities with no offsetting arrangements
 
(8
)
 

 
(8
)
 

 

 
(8
)
Total derivative liabilities (d)
 
(145
)
 

 
(145
)
 
78

 
2

 
(65
)
Securities sold under agreements to repurchase (e)
 
(648
)
 

 
(648
)
 

 
648

 

Total liabilities
 
$
(793
)
 
$

 
$
(793
)
 
$
78

 
$
650

 
$
(65
)
(a)
Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty.
(b)
Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash collateral received. $7 million of noncash derivative collateral pledged to us was excluded at December 31, 2015. We do not record such collateral received on our Consolidated Balance Sheet unless certain conditions are met.
(c)
Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $7 million at December 31, 2015. We have not sold or pledged any of the noncash collateral received under these agreements as of December 31, 2015.
(d)
For additional information on derivative instruments and hedging activities, refer to Note 22.
(e)
For additional information on securities sold under agreements to repurchase, refer to Note 15.
 
 
Gross Amounts of Recognized Assets/(Liabilities)
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts of Assets/(Liabilities) Presented in the Consolidated Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
December 31, 2014 ($ in millions)
 
 
 
 
Financial Instruments
 
Collateral (a)
 
Net Amount
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets in net asset positions
 
$
216

 
$

 
$
216

 
$
(60
)
 
$
(68
)
 
$
88

Derivative assets in net liability positions
 
47

 

 
47

 
(47
)
 

 

Total assets (b)
 
$
263

 
$

 
$
263

 
$
(107
)
 
$
(68
)
 
$
88

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities in net liability positions
 
$
(188
)
 
$

 
$
(188
)
 
$
47

 
$
54

 
$
(87
)
Derivative liabilities in net asset positions
 
(60
)
 

 
(60
)
 
60

 

 

Derivative liabilities with no offsetting arrangements
 
(4
)
 

 
(4
)
 

 

 
(4
)
Total derivative liabilities (b)
 
(252
)
 

 
(252
)
 
107


54

 
(91
)
Securities sold under agreements to repurchase (c)
 
(774
)
 

 
(774
)
 

 
774

 

Total liabilities
 
$
(1,026
)
 
$

 
$
(1,026
)
 
$
107

 
$
828

 
$
(91
)
(a)
Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty.
(b)
For additional information on derivative instruments and hedging activities, refer to Note 22.
(c)
For additional information on securities sold under agreements to repurchase, refer to Note 15.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


27.    Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance.
We report our results of operations on a line-of-business basis through three operating segments: Automotive Finance operations, Insurance operations, and Mortgage operations, with the remaining activity reported in Corporate and Other. The operating segments are determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by management. The following is a description of each of our reportable operating segments.
Automotive Finance operations — Provides automotive financing services to consumers and automotive dealers. Our automotive financing services include providing retail installment sales financing, loans, and leases; offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers; fleet financing, and vehicle remarketing services.
Insurance operations — Offers both consumer financial and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provide vehicle service contracts, maintenance coverage, and guaranteed asset protection products. We also underwrite selected commercial insurance coverages, which primarily insure dealers' vehicle inventories.
Mortgage operations — Our Mortgage operations include the management of our held-for-investment mortgage loan portfolio and includes the execution of bulk purchases of high-quality jumbo and low-to-moderate income mortgage loans originated by third parties.
Corporate and Other primarily consists of Corporate Finance, centralized corporate treasury activities, such as management of the cash and corporate investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of the discount associated with debt issuances and bond exchanges, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes certain equity investments and reclassifications and eliminations between the reportable operating segments. Corporate Finance is a middle market lender that provides senior secured leveraged cash flow and asset based loans primarily to U.S.-based companies.
We utilize an FTP methodology for the majority of our business operations. The FTP methodology assigns charge rates and credit rates to classes of assets and liabilities based on expected duration and the benchmark rate curve plus an assumed credit spread. Matching duration allocates interest income and interest expense to these reportable segments so their respective results are insulated from interest rate risk. This methodology is consistent with our ALM practices, which includes managing interest rate risk centrally at a corporate level. The net residual impact of the FTP methodology is included within the results of Corporate and Other.
The information presented in our reportable operating segments and geographic areas tables that follow are based in part on internal allocations, which involve management judgment.
Change in Allocation of Costs to Reportable Segments
During the fourth quarter of 2015, we began to allocate additional overhead expenses related to centralized support functions to our Automotive Finance, Insurance, and Mortgage operations as a result of a change in management's view of our operations. These expenses were previously included within our Corporate and Other activities. Amounts for 2014 and 2013 have been reclassified to conform to the current management view.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Financial information for our reportable operating segments is summarized as follows.
Year ended December 31, ($ in millions)
 
Automotive Finance operations
 
Insurance operations
 
Mortgage operations
 
Corporate and Other (a)
 
Consolidated (b)
2015
 
 
 
 
 
 
 
 
 
 
Net financing revenue
 
$
3,429

 
$
57

 
$
72

 
$
161

 
$
3,719

Other revenue (loss)
 
235

 
1,033

 
87

 
(213
)
 
1,142

Total net revenue (loss)
 
3,664

 
1,090

 
159

 
(52
)
 
4,861

Provision for loan losses
 
696

 

 
1

 
10

 
707

Total noninterest expense
 
1,633

 
879

 
68

 
181

 
2,761

Income (loss) from continuing operations before income tax expense
 
$
1,335

 
$
211

 
$
90

 
$
(243
)
 
$
1,393

Total assets
 
$
115,636

 
$
7,053

 
$
9,768

 
$
26,124

 
$
158,581

2014
 
 
 
 
 
 
 
 
 
 
Net financing revenue (loss)
 
$
3,321

 
$
56

 
$
43

 
$
(45
)
 
$
3,375

Other revenue (loss)
 
264

 
1,129

 
17

 
(134
)
 
1,276

Total net revenue (loss)
 
3,585

 
1,185

 
60

 
(179
)
 
4,651

Provision for loan losses
 
542

 

 
(69
)
 
(16
)
 
457

Total noninterest expense
 
1,614

 
988

 
70

 
276

 
2,948

Income (loss) from continuing operations before income tax expense
 
$
1,429

 
$
197

 
$
59

 
$
(439
)
 
$
1,246

Total assets
 
$
113,188

 
$
7,190

 
$
7,884

 
$
23,369

 
$
151,631

2013
 
 
 
 
 
 
 
 
 
 
Net financing revenue (loss)
 
$
3,159

 
$
57

 
$
76

 
$
(513
)
 
$
2,779

Other revenue
 
268

 
1,196

 

 
20

 
1,484

Total net revenue (loss)
 
3,427

 
1,253

 
76

 
(493
)
 
4,263

Provision for loan losses
 
494

 

 
13

 
(6
)
 
501

Total noninterest expense
 
1,755

 
999

 
324

 
327

 
3,405

Income (loss) from continuing operations before income tax expense
 
$
1,178

 
$
254

 
$
(261
)
 
$
(814
)
 
$
357

Total assets
 
$
109,312

 
$
7,124

 
$
8,168

 
$
26,304

 
$
150,908

(a)
Total assets for Corporate Finance were $2.7 billion, $1.9 billion, and $1.6 billion at December 31, 2015, 2014, and 2013, respectively.
(b)
Net financing revenue after the provision for loan losses totaled $3.0 billion, $2.9 billion, and $2.3 billion for the years ended December 31, 2015, 2014, and 2013, respectively.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Information concerning principal geographic areas were as follows.
Year ended December 31, ($ in millions)
 
Revenue (a)
 
Income (loss) from continuing operations before income tax expense (b)
 
Net income (loss) (b)(c)
 
Identifiable assets (d)
 
Long-lived assets (e)
2015
 
 
 
 
 
 
 
 
 
 
Canada
 
$
98

 
$
47

 
$
35

 
$
514

 
$

Europe
 
1

 
4

 
27

 
325

 

Latin America
 

 

 
(2
)
 
28

 

Asia-Pacific
 

 

 
452

 
2

 

Total foreign (f)
 
99

 
51

 
512

 
869

 

Total domestic (g)
 
4,762

 
1,342

 
777

 
157,685

 
16,506

Total
 
$
4,861

 
$
1,393

 
$
1,289

 
$
158,554

 
$
16,506

2014
 
 
 
 
 
 
 
 
 
 
Canada
 
$
124

 
$
54

 
$
68

 
$
590

 
$

Europe
 
2

 

 
4

 
1,636

 

Latin America
 

 

 
(8
)
 
29

 

Asia-Pacific
 

 

 
122

 
636

 

Total foreign (f)
 
126

 
54

 
186

 
2,891

 

Total domestic (g)
 
4,525

 
1,192

 
964

 
148,713

 
19,735

Total
 
$
4,651

 
$
1,246

 
$
1,150

 
$
151,604

 
$
19,735

2013
 
 
 
 
 
 
 
 
 
 
Canada
 
$
171

 
$
64

 
$
1,266

 
$
704

 
$

Europe (h)
 
(8
)
 
(18
)
 
(88
)
 
1,972

 

Latin America
 

 
7

 
300

 
29

 

Asia-Pacific
 
1

 
(2
)
 
117

 
520

 

Total foreign
 
164

 
51

 
1,595

 
3,225

 

Total domestic (g)
 
4,099

 
306

 
(1,234
)
 
147,656

 
17,916

Total
 
$
4,263

 
$
357

 
$
361

 
$
150,881

 
$
17,916

(a)
Revenue consists of net financing revenue and total other revenue as presented in our Consolidated Statement of Income.
(b)
The domestic amounts include original discount amortization of $62 million, $189 million, and $262 million for the years ended December 31, 2015, 2014, and 2013, respectively.
(c)
Gain (loss) realized on sale of discontinued operations are allocated to the geographic area in which the business operated.
(d)
Identifiable assets consist of total assets excluding goodwill.
(e)
Long-lived assets consist of investment in operating leases, net, and net property and equipment.
(f)
Our foreign operations as of December 31, 2015, and December 31, 2014, consist of our ongoing Insurance operations in Canada, and our remaining international entities in wind-down.
(g)
Amounts include eliminations between our domestic and foreign operations.
(h)
Amounts include eliminations between our foreign operations.
28.    Parent and Guarantor Consolidating Financial Statements
Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of December 31, 2015, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and unconditionally guarantee the senior notes on a joint and several basis.
The following financial statements present condensed consolidating financial data for (i) Ally Financial Inc. (on a parent company-only basis); (ii) the Guarantors; (iii) the nonguarantor subsidiaries (all other subsidiaries); and (iv) an elimination column for adjustments to arrive at (v) the information for the parent company, the Guarantors, and nonguarantors on a consolidated basis.
Investments in subsidiaries are accounted for by the parent company and the Guarantors using the equity-method for this presentation. Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of subsidiaries, investments in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.

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Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Condensed Consolidating Statements of Comprehensive Income
Year ended December 31, 2015 ($ in millions)
 
Parent
 
Guarantors
 
Nonguarantors
 
Consolidating adjustments
 
Ally consolidated
Financing revenue and other interest income
 
 
 
 
 
 
 
 
 
 
Interest and fees on finance receivables and loans
 
$
(83
)
 
$

 
$
4,653

 
$

 
$
4,570

Interest and fees on finance receivables and loans — intercompany
 
17

 

 
24

 
(41
)
 

Interest on loans held-for-sale
 

 

 
40

 

 
40

Interest and dividends on available-for-sale investment securities
 

 

 
381

 

 
381

Interest on cash and cash equivalents
 
1

 

 
7

 

 
8

Interest-bearing cash — intercompany
 

 

 
8

 
(8
)
 

Operating leases
 
9

 

 
3,389

 

 
3,398

Total financing revenue and other interest income
 
(56
)
 

 
8,502

 
(49
)
 
8,397

Interest expense
 
 
 
 
 
 
 
 
 

Interest on deposits
 
10

 

 
708

 

 
718

Interest on short-term borrowings
 
40

 

 
9

 

 
49

Interest on long-term debt
 
1,121

 

 
541

 

 
1,662

Interest on intercompany debt
 
32

 

 
17

 
(49
)
 

Total interest expense
 
1,203

 

 
1,275

 
(49
)
 
2,429

Depreciation expense on operating lease assets
 
7

 

 
2,242

 

 
2,249

Net financing (loss) revenue
 
(1,266
)
 

 
4,985

 

 
3,719

Cash dividends from subsidiaries
 
 
 
 
 
 
 
 
 

Bank subsidiaries
 
525

 
525

 

 
(1,050
)
 

Nonbank subsidiaries
 
1,123

 

 

 
(1,123
)
 

Other revenue
 
 
 
 
 
 
 
 
 

Servicing fees
 
1,137

 

 
834

 
(1,926
)
 
45

Insurance premiums and service revenue earned
 

 

 
940

 

 
940

(Loss) gain on mortgage and automotive loans, net
 
(9
)
 

 
54

 

 
45

Loss on extinguishment of debt
 
(355
)
 

 
(2
)
 

 
(357
)
Other gain on investments, net
 

 

 
155

 

 
155

Other income, net of losses
 
236

 

 
539

 
(461
)
 
314

Total other revenue
 
1,009

 

 
2,520

 
(2,387
)
 
1,142

Total net revenue
 
1,391

 
525

 
7,505

 
(4,560
)
 
4,861

Provision for loan losses
 
157

 

 
550

 

 
707

Noninterest expense
 
 
 
 
 
 
 
 
 

Compensation and benefits expense
 
571

 

 
842

 
(450
)
 
963

Insurance losses and loss adjustment expenses
 

 

 
293

 

 
293

Other operating expenses
 
1,247

 

 
2,195

 
(1,937
)
 
1,505

Total noninterest expense
 
1,818

 

 
3,330

 
(2,387
)
 
2,761

(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries
 
(584
)
 
525

 
3,625

 
(2,173
)
 
1,393

Income tax (benefit) expense from continuing operations
 
(267
)
 

 
763

 

 
496

Net (loss) income from continuing operations
 
(317
)
 
525

 
2,862

 
(2,173
)
 
897

Income from discontinued operations, net of tax
 
356

 

 
36

 

 
392

Undistributed income (loss) of subsidiaries
 
 
 
 
 
 
 
 
 

Bank subsidiary
 
581

 
581

 

 
(1,162
)
 

Nonbank subsidiaries
 
669

 
(1
)
 

 
(668
)
 

Net income
 
1,289

 
1,105

 
2,898

 
(4,003
)
 
1,289

Other comprehensive loss, net of tax
 
(165
)
 
(43
)
 
(172
)
 
215

 
(165
)
Comprehensive income
 
$
1,124

 
$
1,062

 
$
2,726

 
$
(3,788
)
 
$
1,124


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Year ended December 31, 2014 ($ in millions)
 
Parent
 
Guarantors
 
Nonguarantors
 
Consolidating adjustments
 
Ally consolidated
Financing revenue and other interest income
 
 
 
 
 
 
 
 
 
 
Interest and fees on finance receivables and loans
 
$
(14
)
 
$

 
$
4,471

 
$

 
$
4,457

Interest and fees on finance receivables and loans — intercompany
 
37

 

 
82

 
(119
)
 

Interest on loans held-for-sale
 

 

 
1

 

 
1

Interest and dividends on available-for-sale investment securities
 

 

 
367

 

 
367

Interest on cash and cash equivalents
 
1

 

 
7

 

 
8

Interest-bearing cash — intercompany
 

 

 
6

 
(6
)
 

Operating leases
 
269

 

 
3,289

 

 
3,558

Total financing revenue and other interest income
 
293

 

 
8,223

 
(125
)
 
8,391

Interest expense
 
 
 
 
 
 
 
 
 

Interest on deposits
 
15

 

 
649

 

 
664

Interest on short-term borrowings
 
43

 

 
9

 

 
52

Interest on long-term debt
 
1,492

 

 
575

 

 
2,067

Interest on intercompany debt
 
88

 

 
37

 
(125
)
 

Total interest expense
 
1,638

 

 
1,270

 
(125
)
 
2,783

Depreciation expense on operating lease assets
 
161

 

 
2,072

 

 
2,233

Net financing (loss) revenue
 
(1,506
)
 

 
4,881

 

 
3,375

Cash dividends from subsidiaries
 
 
 
 
 
 
 
 
 

Bank subsidiaries
 
1,800

 
1,800

 

 
(3,600
)
 

Nonbank subsidiaries
 
651

 

 

 
(651
)
 

Other revenue
 
 
 
 
 
 
 
 
 

Servicing fees
 
1,071

 

 
792

 
(1,832
)
 
31

Insurance premiums and service revenue earned
 

 

 
979

 

 
979

(Loss) gain on mortgage and automotive loans, net
 
(5
)
 

 
12

 

 
7

Loss on extinguishment of debt
 
(202
)
 

 

 

 
(202
)
Other gain on investments, net
 

 

 
181

 

 
181

Other income, net of losses
 
208

 

 
507

 
(435
)
 
280

Total other revenue
 
1,072

 

 
2,471

 
(2,267
)
 
1,276

Total net revenue
 
2,017

 
1,800

 
7,352

 
(6,518
)
 
4,651

Provision for loan losses
 
250

 

 
207

 

 
457

Noninterest expense
 
 
 
 
 
 
 
 
 

Compensation and benefits expense
 
586

 

 
793

 
(432
)
 
947

Insurance losses and loss adjustment expenses
 

 

 
410

 

 
410

Other operating expenses
 
1,267

 

 
2,159

 
(1,835
)
 
1,591

Total noninterest expense
 
1,853

 

 
3,362

 
(2,267
)
 
2,948

(Loss) income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries
 
(86
)
 
1,800

 
3,783

 
(4,251
)
 
1,246

Income tax (benefit) expense from continuing operations
 
(457
)
 

 
778

 

 
321

Net income from continuing operations
 
371

 
1,800

 
3,005

 
(4,251
)
 
925

Income from discontinued operations, net of tax
 
193

 

 
32

 

 
225

Undistributed (loss) income of subsidiaries
 
 
 
 
 
 
 
 
 

Bank subsidiary
 
(680
)
 
(680
)
 

 
1,360

 

Nonbank subsidiaries
 
1,266

 
(1
)
 

 
(1,265
)
 

Net income
 
1,150

 
1,119

 
3,037

 
(4,156
)
 
1,150

Other comprehensive income, net of tax
 
210

 
188

 
212

 
(400
)
 
210

Comprehensive income
 
$
1,360

 
$
1,307

 
$
3,249

 
$
(4,556
)
 
$
1,360


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Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Year ended December 31, 2013 ($ in millions)
 
Parent
 
Guarantors
 
Nonguarantors
 
Consolidating adjustments
 
Ally consolidated
Financing revenue and other interest income
 
 
 
 
 
 
 
 
 
 
Interest and fees on finance receivables and loans
 
$
771

 
$

 
$
3,758

 
$

 
$
4,529

Interest and fees on finance receivables and loans — intercompany
 
59

 

 
68

 
(127
)
 

Interest on loans held-for-sale
 

 

 
20

 

 
20

Interest and dividends on available-for-sale investment securities
 

 

 
325

 

 
325

Interest on cash and cash equivalents
 
3

 

 
7

 

 
10

Interest-bearing cash — intercompany
 

 

 
7

 
(7
)
 

Operating leases
 
500

 

 
2,709

 

 
3,209

Total financing revenue and other interest income
 
1,333

 

 
6,894

 
(134
)
 
8,093

Interest expense
 
 
 
 
 
 
 
 
 
 
Interest on deposits
 
25

 

 
629

 

 
654

Interest on short-term borrowings
 
46

 

 
17

 

 
63

Interest on long-term debt
 
2,039

 

 
568

 
(5
)
 
2,602

Interest on intercompany debt
 
66

 

 
62

 
(128
)
 

Total interest expense
 
2,176

 

 
1,276

 
(133
)
 
3,319

Depreciation expense on operating lease assets
 
369

 

 
1,626

 

 
1,995

Net financing (loss) revenue
 
(1,212
)
 

 
3,992

 
(1
)
 
2,779

Cash dividends from subsidiaries
 
 
 
 
 
 
 
 
 
 
Nonbank subsidiaries
 
5,732

 
3,659

 

 
(9,391
)
 

Other revenue
 
 
 
 
 
 
 
 
 
 
Servicing fees
 
152

 

 
(26
)
 

 
126

Servicing asset valuation and hedge activities, net
 

 

 
(213
)
 

 
(213
)
Total servicing income (loss), net
 
152

 

 
(239
)
 

 
(87
)
Insurance premiums and service revenue earned
 

 

 
1,012

 

 
1,012

Gain on mortgage and automotive loans, net
 

 

 
55

 

 
55

(Loss) gain on extinguishment of debt
 
(61
)
 

 
2

 

 
(59
)
Other gain on investments, net
 

 

 
180

 

 
180

Other income, net of losses
 
157

 

 
1,438

 
(1,212
)
 
383

Total other revenue
 
248

 

 
2,448

 
(1,212
)
 
1,484

Total net revenue
 
4,768

 
3,659

 
6,440

 
(10,604
)
 
4,263

Provision for loan losses
 
196

 

 
305

 

 
501

Noninterest expense
 
 
 
 
 
 
 
 
 
 
Compensation and benefits expense
 
640

 

 
821

 
(442
)
 
1,019

Insurance losses and loss adjustment expenses
 

 

 
405

 

 
405

Other operating expenses
 
501

 

 
2,250

 
(770
)
 
1,981

Total noninterest expense
 
1,141

 

 
3,476

 
(1,212
)
 
3,405

Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries
 
3,431

 
3,659

 
2,659

 
(9,392
)
 
357

Income tax (benefit) expense from continuing operations
 
(969
)
 

 
910

 

 
(59
)
Net income from continuing operations
 
4,400

 
3,659

 
1,749

 
(9,392
)
 
416

(Loss) income from discontinued operations, net of tax
 
(1,321
)
 
(19
)
 
1,284

 
1

 
(55
)
Undistributed income (loss) of subsidiaries
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
883

 
883

 

 
(1,766
)
 

Nonbank subsidiaries
 
(3,601
)
 
(2,393
)
 

 
5,994

 

Net income
 
361

 
2,130

 
3,033

 
(5,163
)
 
361

Other comprehensive loss, net of tax
 
(587
)
 
(812
)
 
(873
)
 
1,685

 
(587
)
Comprehensive (loss) income
 
$
(226
)
 
$
1,318

 
$
2,160

 
$
(3,478
)
 
$
(226
)

154

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Condensed Consolidating Balance Sheet
December 31, 2015 ($ in millions)
 
Parent (a)
 
Guarantors
 
Nonguarantors (a)
 
Consolidating adjustments
 
Ally consolidated
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing
 
$
1,234

 
$

 
$
914

 
$

 
$
2,148

Interest-bearing
 
401

 

 
3,831

 

 
4,232

Interest-bearing — intercompany
 

 

 
850

 
(850
)
 

Total cash and cash equivalents
 
1,635

 

 
5,595

 
(850
)
 
6,380

Investment securities
 

 

 
17,157

 

 
17,157

Loans held-for-sale, net
 

 

 
105

 

 
105

Finance receivables and loans, net
 
 
 
 
 
 
 
 
 
 
Finance receivables and loans, net
 
2,636

 

 
108,964

 

 
111,600

Intercompany loans to
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
600

 

 

 
(600
)
 

Nonbank subsidiaries
 
3,277

 

 
559

 
(3,836
)
 

Allowance for loan losses
 
(72
)
 

 
(982
)
 

 
(1,054
)
Total finance receivables and loans, net
 
6,441

 

 
108,541

 
(4,436
)
 
110,546

Investment in operating leases, net
 
81

 

 
16,190

 

 
16,271

Intercompany receivables from
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
186

 

 

 
(186
)
 

Nonbank subsidiaries
 
259

 

 
282

 
(541
)
 

Investment in subsidiaries
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
16,496

 
16,496

 

 
(32,992
)
 

Nonbank subsidiaries
 
10,902

 
11

 

 
(10,913
)
 

Premiums receivable and other insurance assets
 

 

 
1,827

 
(26
)
 
1,801

Other assets
 
4,785

 

 
4,488

 
(2,952
)
 
6,321

Total assets
 
$
40,785

 
$
16,507


$
154,185


$
(52,896
)
 
$
158,581

Liabilities
 
 
 
 
 
 
 
 
 
 
Deposit liabilities
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing
 
$

 
$

 
$
89

 
$

 
$
89

Interest-bearing
 
229

 

 
66,160

 

 
66,389

Total deposit liabilities
 
229

 

 
66,249

 

 
66,478

Short-term borrowings
 
3,453

 

 
4,648

 

 
8,101

Long-term debt
 
21,048

 

 
45,186

 

 
66,234

Intercompany debt to
 
 
 
 
 
 
 
 
 
 
Nonbank subsidiaries
 
1,409

 

 
3,877

 
(5,286
)
 

Intercompany payables to
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
142

 

 

 
(142
)
 

Nonbank subsidiaries
 
420

 

 
191

 
(611
)
 

Interest payable
 
258

 

 
92

 

 
350

Unearned insurance premiums and service revenue
 

 

 
2,434

 

 
2,434

Accrued expenses and other liabilities
 
387

 
82

 
4,028

 
(2,952
)
 
1,545

Total liabilities
 
27,346

 
82

 
126,705

 
(8,991
)
 
145,142

Total equity
 
13,439

 
16,425

 
27,480

 
(43,905
)
 
13,439

Total liabilities and equity
 
$
40,785

 
$
16,507

 
$
154,185

 
$
(52,896
)
 
$
158,581

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

155

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


December 31, 2014 ($ in millions)
 
Parent (a)
 
Guarantors
 
Nonguarantors (a)
 
Consolidating adjustments
 
Ally consolidated
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing
 
$
986

 
$

 
$
362

 
$

 
$
1,348

Interest-bearing
 
1,300

 

 
2,928

 

 
4,228

Interest-bearing — intercompany
 

 

 
615

 
(615
)
 

Total cash and cash equivalents
 
2,286

 

 
3,905

 
(615
)
 
5,576

Investment securities
 

 

 
16,137

 

 
16,137

Loans held-for-sale, net
 
3

 

 
2,000

 

 
2,003

Finance receivables and loans, net
 
 
 
 
 
 
 
 
 
 
Finance receivables and loans, net
 
4,225

 

 
95,723

 

 
99,948

Intercompany loans to
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
625

 

 

 
(625
)
 

Nonbank subsidiaries
 
3,500

 

 
1,770

 
(5,270
)
 

Allowance for loan losses
 
(102
)
 

 
(875
)
 

 
(977
)
Total finance receivables and loans, net
 
8,248

 

 
96,618

 
(5,895
)
 
98,971

Investment in operating leases, net
 

 

 
19,510

 

 
19,510

Intercompany receivables from
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
219

 

 

 
(219
)
 

Nonbank subsidiaries
 
267

 

 
393

 
(660
)
 

Investment in subsidiaries
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
15,967

 
15,967

 

 
(31,934
)
 

Nonbank subsidiaries
 
11,559

 
12

 

 
(11,571
)
 

Premiums receivable and other insurance assets
 

 

 
1,717

 
(22
)
 
1,695

Other assets
 
4,757

 

 
4,814

 
(2,466
)
 
7,105

Assets of operations held-for-sale
 
634

 

 

 

 
634

Total assets
 
$
43,940

 
$
15,979

 
$
145,094

 
$
(53,382
)
 
$
151,631

Liabilities
 
 
 
 
 
 
 
 
 
 
Deposit liabilities
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing
 
$

 
$

 
$
64

 
$

 
$
64

Interest-bearing
 
319

 

 
57,820

 

 
58,139

Total deposit liabilities
 
319

 

 
57,884

 

 
58,203

Short-term borrowings
 
3,338

 

 
3,724

 

 
7,062

Long-term debt
 
21,067

 

 
45,313

 

 
66,380

Intercompany debt to
 
 
 
 
 
 
 
 
 
 
Nonbank subsidiaries
 
2,385

 

 
4,125

 
(6,510
)
 

Intercompany payables to
 
 
 
 
 
 
 
 
 
 
Bank subsidiary
 
94

 

 

 
(94
)
 

Nonbank subsidiaries
 
454

 

 
354

 
(808
)
 

Interest payable
 
316

 

 
161

 

 
477

Unearned insurance premiums and service revenue
 

 

 
2,375

 

 
2,375

Accrued expenses and other liabilities
 
568

 
82

 
3,551

 
(2,466
)
 
1,735

Total liabilities
 
28,541

 
82

 
117,487

 
(9,878
)
 
136,232

Total equity
 
15,399

 
15,897

 
27,607

 
(43,504
)
 
15,399

Total liabilities and equity
 
$
43,940

 
$
15,979

 
$
145,094

 
$
(53,382
)
 
$
151,631

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

156

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Condensed Consolidating Statement of Cash Flows
Year ended December 31, 2015 ($ in millions)
 
Parent
 
Guarantors
 
Nonguarantors
 
Consolidating adjustments
 
Ally consolidated
Operating activities
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
354

 
$
525

 
$
6,390

 
$
(2,174
)
 
$
5,095

Investing activities
 
 
 
 
 
 
 
 
 
 
Purchases of available-for-sale securities
 

 

 
(12,250
)
 

 
(12,250
)
Proceeds from sales of available-for-sale securities
 

 

 
6,874

 

 
6,874

Proceeds from maturities and repayments of available-for-sale securities
 

 

 
4,255

 

 
4,255

Net decrease (increase) in finance receivables and loans
 
1,785

 

 
(15,630
)
 

 
(13,845
)
Proceeds from sales of finance receivables and loans originated as held-for investment
 

 

 
3,197

 

 
3,197

Net change in loans — intercompany
 
240

 

 
1,211

 
(1,451
)
 

Purchases of operating lease assets
 
(94
)
 

 
(4,591
)
 

 
(4,685
)
Disposals of operating lease assets
 
7

 

 
5,539

 

 
5,546

Capital contributions to subsidiaries
 
(796
)
 
(1
)
 

 
797

 

Returns of contributed capital
 
1,444

 

 

 
(1,444
)
 

Proceeds from sale of business units, net
 
1,049

 

 

 

 
1,049

Net change in restricted cash
 
(7
)
 

 
271

 

 
264

Other, net
 
(47
)
 

 
(105
)
 

 
(152
)
Net cash provided by (used in) investing activities
 
3,581

 
(1
)
 
(11,229
)
 
(2,098
)
 
(9,747
)
Financing activities
 
 
 
 
 
 
 
 
 
 
Net change in short-term borrowings — third party
 
115

 

 
913

 

 
1,028

Net (decrease) increase in deposits
 
(91
)
 

 
8,338

 

 
8,247

Proceeds from issuance of long-term debt — third party
 
5,428

 

 
25,237

 

 
30,665

Repayments of long-term debt — third party
 
(5,931
)
 

 
(25,419
)
 

 
(31,350
)
Net change in debt — intercompany
 
(977
)
 

 
(240
)
 
1,217

 

Repurchase and redemption of preferred stock
 
(559
)
 

 

 

 
(559
)
Dividends paid — third party
 
(2,571
)
 

 

 

 
(2,571
)
Dividends paid and returns of contributed capital — intercompany
 

 
(525
)
 
(3,092
)
 
3,617

 

Capital contributions from parent
 

 
1

 
796

 
(797
)
 

Net cash (used in) provided by financing activities
 
(4,586
)
 
(524
)
 
6,533

 
4,037

 
5,460

Effect of exchange-rate changes on cash and cash equivalents
 

 

 
(4
)
 

 
(4
)
Net (decrease) increase in cash and cash equivalents
 
(651
)
 

 
1,690

 
(235
)
 
804

Cash and cash equivalents at beginning of year
 
2,286

 

 
3,905

 
(615
)
 
5,576

Cash and cash equivalents at end of year
 
$
1,635

 
$

 
$
5,595

 
$
(850
)
 
$
6,380


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Year ended December 31, 2014 ($ in millions)
 
Parent
 
Guarantors
 
Nonguarantors
 
Consolidating adjustments
 
Ally consolidated
Operating activities
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
330

 
$
1,789

 
$
5,533

 
$
(4,249
)
 
$
3,403

Investing activities
 
 
 
 
 
 
 
 
 

Purchases of available-for-sale securities
 

 

 
(5,417
)
 

 
(5,417
)
Proceeds from sales of available-for-sale securities
 

 

 
4,277

 
(17
)
 
4,260

Proceeds from maturities and repayments of available-for-sale securities
 

 

 
2,657

 

 
2,657

Net decrease (increase) in finance receivables and loans
 
1,900

 

 
(6,941
)
 
17

 
(5,024
)
Proceeds from sales of finance receivables and loans originated as held-for-investment
 

 

 
2,592

 

 
2,592

Net change in loans — intercompany
 
1,428

 

 
154

 
(1,582
)
 

Purchases of operating lease assets
 
(2,337
)
 

 
(7,547
)
 

 
(9,884
)
Disposals of operating lease assets
 
3,053

 

 
2,807

 

 
5,860

Capital contributions to subsidiaries
 
(1,179
)
 

 

 
1,179

 

Returns of contributed capital
 
1,422

 

 

 
(1,422
)
 

Proceeds from sale of business units, net
 
46

 

 
1

 

 
47

Net change in restricted cash
 

 

 
1,625

 

 
1,625

Other, net
 
(29
)
 

 
101

 

 
72

Net cash provided by (used in) investing activities
 
4,304

 

 
(5,691
)
 
(1,825
)
 
(3,212
)
Financing activities
 
 
 
 
 
 
 
 
 

Net change in short-term borrowings — third party
 
113

 

 
(1,607
)
 

 
(1,494
)
Net (decrease) increase in deposits
 
(121
)
 

 
4,972

 

 
4,851

Proceeds from issuance of long-term debt — third party
 
3,132

 

 
24,060

 

 
27,192

Repayments of long-term debt — third party
 
(8,186
)
 

 
(22,240
)
 

 
(30,426
)
Net change in debt — intercompany
 
52

 

 
(1,428
)
 
1,376

 

Dividends paid — third party
 
(268
)
 

 

 

 
(268
)
Dividends paid and returns of contributed capital — intercompany
 

 
(1,826
)
 
(3,846
)
 
5,672

 

Capital contributions from parent
 

 

 
1,179

 
(1,179
)
 

Net cash (used in) provided by financing activities
 
(5,278
)
 
(1,826
)
 
1,090

 
5,869

 
(145
)
Effect of exchange-rate changes on cash and cash equivalents
 

 

 
(1
)
 

 
(1
)
Net (decrease) increase in cash and cash equivalents
 
(644
)
 
(37
)
 
931

 
(205
)
 
45

Cash and cash equivalents at beginning of year
 
2,930

 
37

 
2,974

 
(410
)
 
5,531

Cash and cash equivalents at end of year
 
$
2,286

 
$

 
$
3,905

 
$
(615
)
 
$
5,576


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Year ended December 31, 2013 ($ in millions)
Parent
 
Guarantors
 
Nonguarantors
 
Consolidating
adjustments
 
Ally
consolidated
Operating activities
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
3,015

 
$
3,572

 
$
5,305

 
$
(9,391
)
 
$
2,501

Investing activities
 
 
 
 
 
 
 
 
 
Purchases of available-for-sale securities

 

 
(12,304
)
 

 
(12,304
)
Proceeds from sales of available-for-sale securities

 

 
3,627

 

 
3,627

Proceeds from maturities and repayments of available-for-sale securities

 

 
5,509

 

 
5,509

Net decrease (increase) in finance receivables and loans
4,898

 
79

 
(7,456
)
 

 
(2,479
)
Net change in loans — intercompany
301

 
251

 
(1,503
)
 
951

 

Purchases of operating lease assets
(1,450
)
 

 
(7,746
)
 

 
(9,196
)
Disposals of operating lease assets
130

 

 
2,834

 

 
2,964

Capital contributions to subsidiaries
(477
)
 

 

 
477

 

Returns of contributed capital
1,002

 
150

 

 
(1,152
)
 

Sales of mortgage servicing rights

 

 
911

 

 
911

Proceeds from sale of business unit, net
1,799

 
554

 
5,091

 

 
7,444

Net change in restricted cash

 
(26
)
 
(44
)
 

 
(70
)
Other, net
41

 

 
10

 

 
51

Net cash provided by (used in) investing activities
6,244

 
1,008

 
(11,071
)
 
276

 
(3,543
)
Financing activities
 
 
 
 
 
 
 
 
 
Net change in short-term borrowings — third party
131

 
36

 
1,424

 

 
1,591

Net (decrease) increase in deposits
(543
)
 

 
5,861

 
39

 
5,357

Proceeds from issuance of long-term debt — third party
3,236

 

 
24,094

 

 
27,330

Repayments of long-term debt — third party
(9,468
)
 
(70
)
 
(22,354
)
 

 
(31,892
)
Net change in debt — intercompany
1,803

 
(271
)
 
(624
)
 
(908
)
 

Proceeds from issuance of common stock
1,270

 

 

 

 
1,270

Repurchase of mandatorily convertible preferred stock held by U.S. Department of Treasury and elimination of share adjustment right
(5,925
)
 

 

 

 
(5,925
)
Dividends paid — third party
(810
)
 

 

 

 
(810
)
Dividends paid and returns of contributed capital — intercompany

 
(4,267
)
 
(6,275
)
 
10,542

 

Capital contributions from parent

 
29

 
448

 
(477
)
 

Net cash (used in) provided by financing activities
(10,306
)
 
(4,543
)
 
2,574

 
9,196

 
(3,079
)
Effect of exchange-rate changes on cash and cash equivalents

 

 
45

 

 
45

Net (decrease) increase in cash and cash equivalents
(1,047
)
 
37

 
(3,147
)
 
81

 
(4,076
)
Adjustment for change in cash and cash equivalents of operations held-for-sale

 

 
2,094

 

 
2,094

Cash and cash equivalents at beginning of year
3,977

 

 
4,027

 
(491
)
 
7,513

Cash and cash equivalents at end of year
$
2,930

 
$
37

 
$
2,974

 
$
(410
)
 
$
5,531

29.    Guarantees and Commitments
Guarantees
Guarantees are defined as contracts or indemnification agreements that contingently require us to make payments to third parties based on changes in the underlying agreements with the guaranteed parties. The following summarizes our outstanding guarantees, including those of our discontinued operations, made to third parties on our Consolidated Balance Sheet, for the periods shown.
 
2015
 
2014
December 31, ($ in millions)
Maximum liability
 
Carrying value of liability
 
Maximum liability
 
Carrying value of liability
Standby letters of credit and other guarantees
$
208

 
$
13

 
$
268

 
$
19

Standby Letters of Credit
Corporate Finance has exposure to standby letters of credit that represent irrevocable guarantees of payment of specified financial obligations. Third-party beneficiaries primarily utilize standby letters of credit as insurance in the event of nonperformance by our customers.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Assets of the customers (e.g., trade receivables, inventory, and cash deposits) generally collateralize the letters of credit. Expiration dates on letters of credit range from certain ongoing commitments that will expire during the upcoming year to terms of several years for certain letters of credit.
If nonperformance by a customer occurs for letters of credit, we can be liable for payment of the letter of credit to the beneficiary with our likely recourse being a charge back to the customer or liquidation of the collateral.
Commitments
Financing Commitments
The contractual commitments were as follows.
December 31, ($ in millions)
2015
 
2014
Commitments to provide capital to investees (a)
$
132

 
$
66

Construction-lending commitments (b)
197

 
110

Home equity lines of credit (c)
358

 
371

Unused revolving credit line commitments and other (d)
1,445

 
1,284

(a)
We are committed to contribute capital to certain investees. The fair value of these commitments is considered in the overall valuation of the underlying assets with which they are associated.
(b)
The fair value of these commitments is considered in the overall valuation of the related assets.
(c)
We are committed to fund the remaining unused balances on home equity lines of credit.
(d)
The unused portion of revolving lines of credit reset at prevailing market rates and, as such, approximate market value.
Revolving credit line commitments contain an element of credit risk. Management reduces its credit risk for unused revolving credit line commitments by applying the same credit policies in making commitments as it does for extending loans. We typically require collateral as these commitments are drawn.
Lease Commitments
Future minimum rental payments required under operating leases, primarily for real property, with noncancelable lease terms expiring after December 31, 2015, are as follows.
Year ended December 31, ($ in millions)
 
2016
$
39

2017
34

2018
31

2019
31

2020
29

2021 and thereafter
99

Total minimum payment required
$
263

Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $51 million, $50 million, and $47 million in 2015, 2014, and 2013, respectively.
Contractual Commitments
We have entered into multiple agreements for information technology, voice and communication technology, and related maintenance. Many of the agreements are subject to variable price provisions, fixed or minimum price provisions, and termination or renewal provisions.
Year ended December 31, ($ in millions)
 
2016
$
47

2017 and 2018
51

2019 and thereafter
3

Total future payment obligations
$
101

30.    Contingencies and Other Risks
In the normal course of business, we enter into transactions that expose us to varying degrees of risk.

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


Concentration with GM and Chrysler
While we are continuing to diversify our business, General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) dealers and their retail customers continue to compose a significant portion of our customer base. It is possible that GM or Chrysler could take actions that negatively impact the amount of business we do with GM and Chrysler dealers and their customers. Further, a significant adverse change in GM’s or Chrysler’s business, including, for example, the production or sale of GM or Chrysler vehicles, the quality or resale value of GM or Chrysler vehicles, GM’s or Chrysler’s relationships with its key suppliers, or vehicle recalls, could negatively impact our GM and Chrysler dealer and retail customer bases. Any future reductions in GM and Chrysler business that we are not able to offset could adversely affect our profitability and financial condition. We were previously party to agreements with each of GM and Chrysler that provided for certain exclusivity privileges related to subvention programs that they offered. Our agreement with Chrysler expired in April 2013. In addition, our agreement with GM expired effective February 28, 2014. These agreements provided Ally with certain preferred provider benefits, including limiting the use of other financing providers by GM and Chrysler for their incentive programs. During 2015, GM determined to provide subvention programs exclusively through a wholly-owned subsidiary.
Legal Proceedings
We are or may be subject to potential liability under various governmental proceedings, claims, and legal actions that are pending or otherwise asserted against us. We are named as defendants in a number of legal actions, and we are involved in governmental proceedings arising in connection with our respective businesses. Some of the pending actions purport to be class actions, and certain legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, it is generally very difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be higher or lower than any amounts reserved for the claims.
On the basis of information currently available, advice of counsel, available insurance coverage, and established reserves, it is the opinion of management that the eventual outcome of the current actions against us will not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. However, it is possible that the ultimate resolution of legal matters, if unfavorable, may be material to our consolidated financial condition, results of operations, or cash flows in a particular period.
Regulatory Matters
Ally and its subsidiaries, including Ally Bank, are or may become involved from time to time in formal and informal reviews, investigations, examinations, proceedings, and information-gathering requests by federal and state government and self-regulatory agencies, including, among others, the DOJ, Securities and Exchange Commission (SEC), CFPB, the FRB, the FDIC, the Utah Department of Financial Institutions, and the Federal Trade Commission regarding their respective operations.
Mortgage Matters
We have received subpoenas from the DOJ that include a broad request for documentation and other information relating to residential mortgage-backed securities issued by our former mortgage subsidiary, Residential Capital, LLC and its subsidiaries (ResCap RMBS). In connection with these requests, the DOJ is investigating potential fraud and other potential legal claims related to ResCap RMBS, including its investigation of potential claims under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The DOJ is also investigating potential claims under the False Claims Act (FCA) related to representations made by us in connection with investments in Ally made by the United States Department of the Treasury pursuant to the Troubled Asset Relief Program in 2008 and 2009 regarding certain claims against Residential Capital, LLC or its subsidiaries at that time. We continue to engage in discussions with the DOJ with respect to legal and factual aspects of their investigations and potential claims. As previously disclosed, at the request of the DOJ, we entered into an agreement to voluntarily extend the statutes of limitations related to potential FCA claims. This agreement expired at the end of January 2016.
We have separately received subpoenas and document requests from the SEC that include information covering a wide range of mortgage-related matters.
These matters could result in material adverse consequences including, without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or other actions.
Automotive Subprime Matters
In October 2014, we received a document request from the SEC in connection with its investigation related to subprime automotive finance and related securitization activities. Separately, in December 2014, we received a subpoena from the DOJ requesting similar information. In May 2015, we received an information request from the New York Department of Financial Services requesting similar information. We have cooperated with each of these agencies with respect to these matters. These matters could result in material adverse consequences including, without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or other actions.
CFPB
In December 2013, Ally Financial Inc. and Ally Bank entered into Consent Orders issued by the CFPB and the DOJ pertaining to the allegation of disparate impact in the automotive finance business. The Consent Orders require Ally to create a compliance plan addressing, at a minimum, the communication of Ally’s expectations of Equal Credit Opportunity Act compliance to dealers, maintenance of Ally’s existing

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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


limits on dealer finance income for contracts acquired by Ally, and monitoring for potential discrimination both at the dealer level and within our portfolio of contracts acquired across all dealers. Ally formed a compliance committee consisting of certain Ally and Ally Bank directors to oversee Ally’s execution of the Consent Orders’ terms. Ally is required to meet certain stipulations under the Consent Orders, including a requirement to make monetary payments when ongoing remediation targets are not attained. These matters could result in material adverse consequences including, without limitation, adverse judgments, significant settlements, fines, penalties, injunctions, or other actions.
Other Contingencies
We are subject to potential liability under various other exposures including tax, nonrecourse loans, self-insurance, and other miscellaneous contingencies. We establish reserves for these contingencies when the loss becomes probable and the amount can be reasonably estimated. The actual costs of resolving these items may be substantially higher or lower than the amounts reserved for any one item. Based on information currently available, it is the opinion of management that the eventual outcome of these items will not have a material adverse impact on our results of operations, financial position, or cash flows.
31.    Quarterly Financial Statements (unaudited)
($ in millions)
First quarter
 
Second quarter
 
Third quarter
 
Fourth quarter
2015
 
 
 
 
 
 
 
Net financing revenue
$
850

 
$
916

 
$
970

 
$
983

Other revenue
243

 
211

 
332

 
356

Total net revenue
1,093

 
1,127

 
1,302

 
1,339

Provision for loan losses
116

 
140

 
211

 
240

Total noninterest expense
695

 
724

 
674

 
668

Income from continuing operations before income tax expense
282

 
263

 
417

 
431

Income tax expense from continuing operations
103

 
94

 
144

 
155

Net income from continuing operations
179

 
169

 
273

 
276

Income (loss) from discontinued operations, net of tax
397

 
13

 
(5
)
 
(13
)
Net income
$
576

 
$
182

 
$
268

 
$
263

Basic earnings per common share
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.23

 
$
(2.24
)
 
$
0.49

 
$
(1.94
)
Net income (loss)
1.06

 
(2.22
)
 
0.48

 
(1.97
)
Diluted earnings per common share
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
0.23

 
$
(2.24
)
 
$
0.49

 
$
(1.94
)
Net income (loss)
1.06

 
(2.22
)
 
0.47

 
(1.97
)
2014
 
 
 
 
 
 
 
Net financing revenue
$
821

 
$
866

 
$
889

 
$
799

Other revenue
321

 
365

 
375

 
215

Total net revenue
1,142

 
1,231

 
1,264

 
1,014

Provision for loan losses
137

 
63

 
102

 
155

Total noninterest expense
713

 
821

 
742

 
672

Income from continuing operations before income tax expense
292

 
347

 
420

 
187

Income tax expense from continuing operations
94

 
64

 
127

 
36

Net income from continuing operations
198

 
283

 
293

 
151

Income from discontinued operations, net of tax
29

 
40

 
130

 
26

Net income
$
227

 
$
323

 
$
423

 
$
177

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

 
$
0.45

 
$
0.47

 
$
0.17

Net income
0.33

 
0.54

 
0.74

 
0.23

Diluted earnings per common share
 
 
 
 
 
 
 
Net income from continuing operations
$
0.27

 
$
0.45

 
$
0.47

 
$
0.17

Net income
0.33

 
0.54

 
0.74

 
0.23


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Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K


32.    Subsequent Events
Declaration of Quarterly Dividend Payments
On January 11, 2016, the Ally Board of Directors declared a quarterly dividend payment on certain outstanding preferred stock. This included a cash dividend of $0.53 per share, or a total of $15 million, on Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A. The dividend was paid on February 16, 2016.
Realignment of Operating Segments
As a result of a change in how management views and operates our business, during the first quarter of 2016, we made changes in the composition of our operating segments. Financial information related to our Corporate Finance business will be presented as a separate reportable segment. Currently, all such activity is disclosed in Corporate and Other. Additionally, only the activity of our ongoing bulk acquisitions of mortgage loans and other originations and refinancing will be presented in Mortgage operations. The activity related to the management of our legacy mortgage portfolio will be disclosed in Corporate and Other. Our other operating segments, Automotive Finance operations and Insurance operations, remain unchanged.
Our segment results will be reported under this new structure beginning in the first quarter of 2016, and results from prior periods will be reported in a manner consistent with the new structure.

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Ally Financial Inc. • Form 10-K

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.    Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the specified time periods. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Ally have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Refer to Item 8 for Management's Report on Internal Control over Financial Reporting.
Item 9B.    Other Information
None.

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Part III
Ally Financial Inc. • Form 10-K 


Item 10.    Directors, Executive Officers, and Corporate Governance
Executive Officers and Other Significant Employees
Jeffrey J. Brown — Chief Executive Officer of Ally since February 2015 and a member of the Board since February 2015. Mr. Brown oversees all Ally strategy and operations to focus on strengthening the core businesses, while positioning the Company for long-term growth. Prior to being named Chief Executive Officer, Mr. Brown was president and chief executive officer of Ally’s Dealer Financial Services business since March 2014. In this role, he oversaw the Company’s automotive finance, insurance and auto servicing operations. From June 2011 to March 2014, Mr. Brown served as senior executive vice president of Finance and Corporate Planning. In that role, Mr. Brown oversaw the finance, treasury and corporate strategy activities of the Company. He joined Ally in March 2009 as corporate treasurer with responsibility for global treasury activities, including funding and balance sheet management. Prior to joining Ally, Mr. Brown was the corporate treasurer for Bank of America, where he had responsibility for the core treasury functions, including funding and managing interest rate risk. Mr. Brown spent 10 years at Bank of America, beginning his career in finance and later joining the Balance Sheet Management Division. During his tenure at Bank of America, he also served as the bank’s deputy treasurer and oversaw balance sheet management and the company’s corporate funding division. He was also a member of the company’s Asset/Liability Management Committee. Mr. Brown received a bachelor’s degree in economics from Clemson University and an executive master’s degree in business from Queens University in Charlotte. He serves on the Trevillian Cabinet of the College of Business and Behavioral Sciences at Clemson University and is a Board of Trustees member of Queens University of Charlotte.
Christopher Halmy — Chief Financial Officer of Ally since November 2013. In this role, he is responsible for the oversight of the company’s financial reporting, controls and analysis, accounting, and investor relations, as well as treasury activities, including capital, funding and balance sheet management. Prior to his current position, Halmy served as Ally’s corporate treasurer since June 2011. He joined Ally in 2009 and previously served as structured funding executive with responsibility for the strategy, planning, and execution of securitizations and structured funding globally. In this role, he also was responsible for bank relationships and compliance related to existing transactions in the market. Prior to joining Ally, Halmy was the global funding executive at Bank of America where he was responsible for funding and liquidity activities. During his tenure at Bank of America, he also led the mortgage and automotive securitization group. Prior to joining Bank of America in 1997, Halmy held treasury, finance, and accounting positions at MBNA America, N.A., Merrill Lynch & Co., JP Morgan & Co., and Deloitte & Touche. Halmy holds a bachelor’s degree in accounting and a master’s degree in business administration from Villanova University. In addition, he was an adjunct professor at Wesley College from 1999 to 2006 and Queens University from 2011 to 2013. Halmy currently serves on the board of advisors for the McColl School of Business at Queens University. Halmy is also a certified public accountant.
Diane Morais — Chief Executive Officer and President of Ally Bank since March 2015. In this role, Morais is responsible for the deposits franchise, mortgage and corporate finance businesses, brand management, and digital strategy. She also serves as the chair of the Ally Bank board of directors. Prior to her current role, Morais was deposits and line of business integration executive for Ally Bank. In this position, she was responsible for oversight for the deposit business, ranging from marketing strategies, products and pricing, and the overall customer experience for the bank. Morais joined Ally in 2008 as Deposits and Product Innovation executive. Prior to joining Ally, Morais previously held a variety of senior leadership positions during her twelve years at Bank of America, serving as the deposit and debit products executive, national customer experience executive, card services marketing, and consumer mortgage vendor management executive. Morais also spent nine years at Citibank’s credit card division in a variety of marketing, risk and finance roles. Morais holds a bachelor’s degree from Pennsylvania State University.
William B. Solomon — Group Vice President and General Counsel of Ally since 2004. Solomon is responsible for providing all legal services to Ally through the oversight of outside counsel and a 63-member Legal Staff. He is also responsible for the secretary’s office, the licensing department, and the organization’s record and information management activity. Prior to joining Ally, Solomon was an attorney and practice area manager for GM from 1988 to 1999, where he was responsible for commercial lending activities. He also held the positions of general counsel for Vixen Motor Company from 1985 to 1988 and regional staff attorney at Ford Motor Credit Company from 1980 to 1985. Solomon received his bachelor’s degree in political science at the University of Detroit in 1973 with honors and a master’s degree in political science from McMaster University in Hamilton, Ontario in 1974 with honors. Solomon received his juris doctorate from the University of Notre Dame in 1978. He has also published three articles: Solomon and Mossburg: Co-Signer Requirements Under the FTC Fair Credit Practices Rule, Summer 1982, Consumer Fin. L.Q. Rep.; Solomon, Proposed Consumer Revision to Article 9 of the UCC, 1997 D.C.L. Law Rev., 1087; and Solomon and Nemeroff, Corporate Secretarial, Chapter 46A, Haig 3, Successful Partnering Between Inside and Outside Counsel (ACC 2014). Solomon is a member of the Michigan Bar and American Bar Associations.
David DeBrunner — Vice President, Chief Accounting Officer, and Controller of Ally since September 2007. In this role, DeBrunner is responsible for all accounting, tax, regulatory reporting, internal controls, finance shared services and strategic sourcing services for Ally. DeBrunner joined Ally from Fifth Third Bancorp (Fifth Third) where he was senior vice president, corporate controller, and chief accounting officer from January 2002 to August 2007. Prior to that position, he served as the chief financial officer for the commercial division of Fifth Third. DeBrunner joined Fifth Third in 1992 and held various financial leadership positions throughout the company. Prior to his time at Fifth Third, he held positions at Deloitte and Touche LLP in the Chicago and Cincinnati offices. DeBrunner earned a bachelor's of science in accounting from Indiana University and is a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants.

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David Shevsky — Chief Risk Officer of Ally since December 2015. In this role, Shevsky has overall responsibility for the risk framework, processes and oversight for the company, including achieving an appropriate balance between risk and return, mitigating unnecessary risk and protecting the company’s financial returns. Prior to his current role, Shevsky served as the chief risk officer for Ally Bank beginning in November 2011. Shevsky joined Ally Financial in 1986 with a series of positions supporting the auto finance operation from a credit analysis and risk perspective. During his career, he supported both the domestic and international auto finance operations. He became a senior vice president of enterprise risk for the company in 2004. In this role, Shevsky began to take a company-wide view of commercial credit risk and capital management. In 2006, he played a key role in establishing a more robust risk management function, and in 2008, he was responsible for establishing a loan review function, which he did until becoming the chief risk officer for Ally Bank in 2011. Prior to joining Ally, Shevsky served in the United States Air Force from 1979 until 1984.
Additional Information
Additional information in response to this Item 10 can be found in the Company's 2016 Proxy Statement under "Proposal 1 — Election of Directors," "Board Leadership Structure," and "Review, Approval or Ratification of Transactions with Related Persons and Code of Conduct and Ethics." That information is incorporated into this item by reference.

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Item 11.    Executive Compensation
Items in response to this Item 11 can be found in the Company's 2016 Proxy Statement under "Executive Compensation." That information is incorporated into this item by reference.
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Items in response to this Item 12 can be found in the Company's 2016 Proxy Statement under "Security Ownership of Certain Beneficial Owners," and "Executive Compensation." That information is incorporated into this item by reference.
Item 13.    Certain Relationships and Related Transactions, and Director Independence
Items in response to this Item 13 can be found in the Company's 2016 Proxy Statement under "Review, Approval or Ratification of Transactions with Related Persons and Code of Conduct and Ethics." That information is incorporated into this item by reference.
Item 14.    Principal Accountant Fees and Services
Items in response to this Item 14 can be found in the Company's 2016 Proxy Statement under "Audit Committee Report." That information is incorporated into this item by reference.

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Part IV
Ally Financial Inc. • Form 10-K


Item 15.    Exhibits, Financial Statement Schedules
The exhibits listed on the accompanying Index of Exhibits are filed or incorporated by reference as a part of this report. This Index is incorporated herein by reference. Certain financial statements schedules have been omitted because prescribed information has been incorporated into our Consolidated Financial Statements or notes thereto.
Exhibit
Description
 
Method of Filing
3.1
Form of Amended and Restated Certificate of Incorporation
 
Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated as of March 14, 2014, (File No. 1-3754), incorporated herein by reference.
3.2
Ally Financial Inc. Bylaws, dated October 27, 2015
 
Filed as Exhibit 3.1 to the Company's Quarterly Report for the period ended September 30, 2015, on Form 10-Q (File No. 1-3754), incorporated herein by reference.
4.1
Form of Indenture dated as of July 1, 1982, between the Company and Bank of New York (Successor Trustee to Morgan Guaranty Trust Company of New York), relating to Debt Securities
 
Filed as Exhibit 4(a) to the Company's Registration Statement No. 2-75115, incorporated herein by reference.
4.1.1
Form of First Supplemental Indenture dated as of April 1, 1986, supplementing the Indenture designated as Exhibit 4.1
 
Filed as Exhibit 4(g) to the Company's Registration Statement No. 33-4653, incorporated herein by reference.
4.1.2
Form of Second Supplemental Indenture dated as of June 15, 1987, supplementing the Indenture designated as Exhibit 4.1
 
Filed as Exhibit 4(h) to the Company's Registration Statement No. 33-15236, incorporated herein by reference.
4.1.3
Form of Third Supplemental Indenture dated as of September 30, 1996, supplementing the Indenture designated as Exhibit 4.1
 
Filed as Exhibit 4(i) to the Company's Registration Statement No. 333-33183, incorporated herein by reference.
4.1.4
Form of Fourth Supplemental Indenture dated as of January 1, 1998, supplementing the Indenture designated as Exhibit 4.1
 
Filed as Exhibit 4(j) to the Company's Registration Statement No. 333-48705, incorporated herein by reference.
4.1.5
Form of Fifth Supplemental Indenture dated as of September 30, 1998, supplementing the Indenture designated as Exhibit 4.1
 
Filed as Exhibit 4(k) to the Company's Registration Statement No. 333-75463, incorporated herein by reference.
4.2
Form of Indenture dated as of September 24, 1996, between the Company and The Chase Manhattan Bank, Trustee, relating to Term Notes
 
Filed as Exhibit 4 to the Company's Registration Statement No. 333-12023, incorporated herein by reference.
4.2.1
Form of First Supplemental Indenture dated as of January 1, 1998, supplementing the Indenture designated as Exhibit 4.2
 
Filed as Exhibit 4(a)(1) to the Company's Registration Statement No. 333-48207, incorporated herein by reference.
4.2.2
Form of Second Supplemental Indenture dated as of June 20, 2006, supplementing the Indenture designated as Exhibit 4.2
 
Filed as Exhibit 4(a)(2) to the Company's Registration Statement No. 33-136021, incorporated herein by reference.
4.2.3
Form of Third Supplemental Indenture dated as of August 24, 2012, supplementing the Indenture designated as Exhibit 4.2
 
Filed as Exhibit 4.1.3 to the Company's Registration Statement No. 333-183535, incorporated herein by reference.
4.2.4
Form of Fourth Supplemental Indenture dated as of August 24, 2012, supplementing the Indenture designated as Exhibit 4.2
 
Filed as Exhibit 4.1.4 to the Company's Registration Statement No. 333-183535, incorporated herein by reference.
4.3
Form of Indenture dated as of October 15, 1985, between the Company and U.S. Bank Trust (Successor Trustee to Comerica Bank), relating to Demand Notes
 
Filed as Exhibit 4 to the Company's Registration Statement No. 2-99057, incorporated herein by reference.
4.3.1
Form of First Supplemental Indenture dated as of April 1, 1986, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(a) to the Company's Registration Statement No. 33-4661, incorporated herein by reference.
4.3.2
Form of Second Supplemental Indenture dated as of June 24, 1986, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(b) to the Company's Registration Statement No. 33-6717, incorporated herein by reference.
4.3.3
Form of Third Supplemental Indenture dated as of February 15, 1987, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(c) to the Company's Registration Statement No. 33-12059, incorporated herein by reference.
 
 
 
 

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Exhibit
Description
 
Method of Filing
4.3.4
Form of Fourth Supplemental Indenture dated as of December 1, 1988, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(d) to the Company's Registration Statement No. 33-26057, incorporated herein by reference.
4.3.5
Form of Fifth Supplemental Indenture dated as of October 2, 1989, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(e) to the Company's Registration Statement No. 33-31596, incorporated herein by reference.
4.3.6
Form of Sixth Supplemental Indenture dated as of January 1, 1998, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(f) to the Company's Registration Statement No. 333-56431, incorporated herein by reference.
4.3.7
Form of Seventh Supplemental Indenture dated as of June 15, 1998, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4(g) to the Company's Registration Statement No. 333-56431, incorporated herein by reference.
4.3.8
Form of Eighth Supplemental Indenture dated as of January 4, 2012, supplementing the Indenture designated as Exhibit 4.3
 
Filed as Exhibit 4.1.8 to the Company's Registration Statement No. 333-178919, incorporated herein by reference.
4.4
Form of Indenture dated as of December 1, 1993, between the Company and Citibank, N.A., Trustee, relating to Medium Term Notes
 
Filed as Exhibit 4 to the Company's Registration Statement No. 33-51381, incorporated herein by reference.
4.4.1
Form of First Supplemental Indenture dated as of January 1, 1998, supplementing the Indenture designated as Exhibit 4.4
 
Filed as Exhibit 4(a)(1) to the Company's Registration Statement No. 333-59551, incorporated herein by reference.
4.5
Indenture, dated as of December 31, 2008, between the Company and The Bank of New York Mellon, Trustee
 
Filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of January 2, 2009, (File No. 1-3754), incorporated herein by reference.
4.6
Amended and Restated Indenture, dated March 1, 2011, between the Company and The Bank of New York Mellon, Trustee
 
Filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated as of March 4, 2011 (File No. 1-3754), incorporated herein by reference.
4.7
Form of Guarantee Agreement related to Ally Financial Inc. Senior Unsecured Guaranteed Notes
 
Filed as Exhibit 4.10 to the Company's Registration Statement No. 333-193070, incorporated herein by reference.
4.8
Form of Fixed Rate Senior Unsecured Note
 
Filed as Exhibit 4.8 to the Company's Registration Statement No. 333-193070, incorporated herein by reference.
4.9
Form of Floating Rate Senior Unsecured Note
 
Filed as Exhibit 4.9 to the Company's Registration Statement No. 333-193070, incorporated herein by reference.
4.10
Form of Subordinated Indenture to be entered into between the Company and The Bank of New York Mellon, as Trustee
 
Filed as Exhibit 4.11 to the Company's Registration Statement No. 333-193070, incorporated herein by reference.
4.11
Form of Subordinated Note
 
Included in Exhibit 4.10.
4.12
Second Amended and Restated Declaration of Trust by and between the trustees of each series of GMAC Capital Trust I, Ally Financial Inc., as Sponsor, and by the holders, from time to time, of undivided beneficial interests in the relevant series of GMAC Capital Trust I, dated as of March 1, 2011
 
Filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 4, 2011 (File No. 1-3754), incorporated herein by reference.
4.13
Series 2 Trust Preferred Securities Guarantee Agreement between Ally Financial Inc. and The Bank of New York Mellon, dated as of March 1, 2011
 
Filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated as of March 4, 2011 (File No. 1-3754), incorporated herein by reference.
4.14
Indenture, dated as of November 20, 2015, between the Company and The Bank of New York Mellon, Trustee
 
Filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of November 20, 2015, (File No. 1-3754), incorporated herein by reference
4.15
Form of Subordinated Note
 
Included in Exhibit 4.14
10.1
Capital and Liquidity Maintenance Agreement, entered into on October 29, 2010, between Ally Financial Inc., IB Finance Holding Company, LLC, Ally Bank and the Federal Deposit Insurance Corporation
 
Filed as Exhibit 10.2 to the Company's Quarterly Report for the period ended September 30, 2010, on Form 10-Q (File No. 1-3754), incorporated herein by reference.
 
 
 
 

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Exhibit
Description
 
Method of Filing
10.2
Form of Ally Financial Inc. 2014 Executive Performance Plan
 
Filed as Exhibit 3.5 to the Company's Current Report on Form 8-K dated as of March 14, 2014 (File No. 1-3754), incorporated herein by reference.
10.3
Form of Ally Financial Inc. 2014 Incentive Compensation Plan
 
Filed as Exhibit 3.6 to the Company's Current Report on Form 8-K dated as of March 14, 2014 (File No. 1-3754), incorporated herein by reference.
10.4
Form of Ally Financial Inc. Employee Stock Purchase Plan
 
Filed as Exhibit 3.7 to the Company's Current Report on Form 8-K dated as of March 14, 2014 (File No. 1-3754), incorporated herein by reference.
10.5
Form of Ally Financial Inc. 2014 Non-Employee Directors Equity Compensation Plan
 
Filed as Exhibit 3.8 to the Company's Current Report on Form 8-K dated as of March 14, 2014 (File No. 1-3754), incorporated herein by reference.
10.6
Ally Financial Inc. Severance Plan, Plan Document and Summary Plan Description, as amended
 
Filed herewith.
10.7
Ally Financial Inc. Non-Employee Directors Deferred Compensation Plan
 
Filed herewith.
10.8
Form of Award Agreement related to the issuance of Performance Stock Units
 
Filed herewith.
10.9
Form of Award Agreement related to the issuance of Restricted Stock Units
 
Filed herewith.
10.10
Form of Award Agreement related to the issuance of Key Contributor Stock Units
 
Filed herewith.
10.11
Form of Award Agreement related to the issuance of an Ally Leader Equity Participation Award
 
Filed herewith.
10.12
Tax Asset Protection Plan dated as of January 10, 2014 between Ally Financial Inc. and Computershare Trust Company, N.A., as Rights Agent
 
Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of January 13, 2014 (File No. 1-3754) incorporated herein by reference
10.13
Amendment No. 1 to the Tax Asset Protection Plan, dated February 3, 2015
 
Filed as Exhibit 10.18 to the Company's Annual Report for the period ended December 31, 2014, on Form 10-K (File No. 1-3754), incorporated herein by reference.
10.14
Consent Order, dated December 23, 2013 (Department of Justice)
 
Filed as Exhibit 10.34 to the Company's Annual Report for the period ended December 31, 2013, on Form 10-K (File No. 1-3754), incorporated herein by reference.
10.15
Consent Order, dated December 19, 2013 (Consumer Financial Protection Bureau)
 
Filed as Exhibit 10.35 to the Company's Annual Report for the period ended December 31, 2013, on Form 10-K (File No. 1-3754), incorporated herein by reference.
10.16
Stipulation and Consent to the Issuance of a Consent Order, dated December 19, 2013 (Consumer Financial Protection Bureau)
 
Filed as Exhibit 10.36 to the Company's Annual Report for the period ended December 31, 2013, on Form 10-K (File No. 1-3754), incorporated herein by reference.
12
Computation of Ratio of Earnings to Fixed Charges
 
Filed herewith.
21
Ally Financial Inc. Subsidiaries as of December 31, 2015
 
Filed herewith.
23.1
Consent of Independent Registered Public Accounting Firm
 
Filed herewith.
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
 
Filed herewith.
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
 
Filed herewith.
32
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350
 
Filed herewith.
101
Interactive Data File
 
Filed herewith.
 
 
 
 
*
Certain confidential portions have been omitted pursuant to a confidential treatment request which has been separately filed with the Securities and Exchange Commission.

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Signatures
Ally Financial Inc. • Form 10-K


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 24th day of February, 2016.
 
Ally Financial Inc.
 
(Registrant)
 
 
 
/S/  JEFFREY J. BROWN
 
Jeffrey J. Brown
 
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, this 24th day of February, 2016.
/S/  JEFFREY J. BROWN
  
/S/ CHRISTOPHER A. HALMY
Jeffrey J. Brown
  
Christopher A. Halmy
Chief Executive Officer
  
Chief Financial Officer
 
 
/S/  DAVID J. DEBRUNNER
  
 
David J. DeBrunner
  
 
Vice President, Chief Accounting Officer, and
Corporate Controller
  
 

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/S/  FRANKLIN W. HOBBS
 
Franklin W. Hobbs
Ally Chairman
 
 
 
/S/  KENNETH J. BACON
 
Kenneth J. Bacon
Director
 
 
 
/S/  ROBERT T. BLAKELY
 
Robert T. Blakely
Director
 
 
 
/S/  MAUREEN A. BREAKIRON-EVANS
 
Maureen A. Breakiron-Evans
Director
 
 
 
/S/  JEFFREY J. BROWN
 
Jeffrey J. Brown
Chief Executive Officer and Director
 
 
 
/S/  MAYREE C. CLARK
 
Mayree C. Clark
Director
 
 
 
/S/  STEPHEN A. FEINBERG
 
Stephen A. Feinberg
Director
 
 
 
/S/  KIM S. FENNEBRESQUE
 
Kim S. Fennebresque
Director
 
 
 
/S/  MARJORIE MAGNER
 
Marjorie Magner
Director
 
 
 
/S/  JACK J. STACK
 
John J. Stack
Director
 
 
 
/S/  MICHAEL F. STEIB
 
Michael F. Steib
Director
 

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