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EX-12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Ally Financial Inc.dex12.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A 14(A) - Ally Financial Inc.dex311.htm
EX-10.2 - CAPITAL AND LIQUIDITY MAINTENANCE AGREEMENT - Ally Financial Inc.dex102.htm
EX-10.1 - AUTO FINANCE OPERATING AGREEMENT - Ally Financial Inc.dex101.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A 14(A) - Ally Financial Inc.dex312.htm
EX-32 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER - Ally Financial Inc.dex32.htm
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended September 30, 2010, or

 

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

For the transition period from                          to                         .

Commission file number: 1-3754

ALLY FINANCIAL INC.

(Exact name of registrant as specified in its charter)

 

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

200 Renaissance Center

P.O. Box 200, Detroit, Michigan

48265-2000

(Address of principal executive offices)

(Zip Code)

(866) 710-4623

(Registrant’s telephone number, including area code)

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

Yes þ                    No ¨

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

Yes ¨                    No ¨

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

 

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

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

Yes ¨                    No þ

At November 8, 2010, the number of shares outstanding of the Registrant’s common stock was 799,120 shares.

 

 

 


Table of Contents

ALLY FINANCIAL INC.

INDEX

 

 

        

Page

 
Part I — Financial Information   
Item 1.   Financial Statements      3   
  Condensed Consolidated Statement of Income (unaudited)
for the Three and Nine Months Ended September 30, 2010 and 2009
     3   
  Condensed Consolidated Balance Sheet (unaudited) at September 30, 2010, and December 31, 2009      4   
  Condensed Consolidated Statement of Changes in Equity (unaudited)
for the Nine Months Ended September 30, 2010 and 2009
     6   
  Condensed Consolidated Statement of Cash Flows (unaudited)
for the Nine Months Ended September 30, 2010 and 2009
     8   
  Notes to Condensed Consolidated Financial Statements (unaudited)      10   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      78   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      130   
Item 4.   Controls and Procedures      130   
Part II — Other Information   
Item 1.   Legal Proceedings      131   
Item 1A.   Risk Factors      131   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      133   
Item 3.   Defaults Upon Senior Securities      133   
Item 4.   (Removed and Reserved)      133   
Item 5.   Other Information      133   
Item 6.   Exhibits      133   
Signatures      134   
Index of Exhibits      135   

 

2


Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
($ in millions)        2010             2009             2010             2009      

Financing revenue and other interest income

        

Finance receivables and loans

        

Consumer

   $ 1,149      $ 1,124      $ 3,407      $ 3,532   

Commercial

     470        407        1,361        1,259   

Notes receivable from General Motors

     40        55        135        144   
   

Total finance receivables and loans

     1,659        1,586        4,903        4,935   

Loans held-for-sale

     153        114        524        282   

Interest on trading securities

     5        62        12        119   

Interest and dividends on available-for-sale investment securities

     88        49        279        162   

Interest-bearing cash

     22        19        54        88   

Other interest income, net

            1               56   

Operating leases

     855        1,386        3,029        4,491   
   

Total financing revenue and other interest income

     2,782        3,217        8,801        10,133   

Interest expense

        

Interest on deposits

     172        178        485        535   

Interest on short-term borrowings

     110        121        322        464   

Interest on long-term debt

     1,451        1,449        4,295        4,685   
   

Total interest expense

     1,733        1,748        5,102        5,684   

Depreciation expense on operating lease assets

     454        894        1,636        3,007   
   

Net financing revenue

     595        575        2,063        1,442   

Other revenue

        

Servicing fees

     404        379        1,173        1,176   

Servicing asset valuation and hedge activities, net

     (27     (110     (181     (687
   

Total servicing income, net

     377        269        992        489   

Insurance premiums and service revenue earned

     470        510        1,415        1,501   

Gain on mortgage and automotive loans, net

     326        177        863        666   

(Loss) gain on extinguishment of debt

     (2     10        (123     667   

Other gain on investments, net

     104        216        339        299   

Other income, net of losses

     181        229        456        (94
   

Total other revenue

     1,456        1,411        3,942        3,528   

Total net revenue

     2,051        1,986        6,005        4,970   

Provision for loan losses

     9        680        375        2,543   

Noninterest expense

        

Compensation and benefits expense

     393        416        1,208        1,170   

Insurance losses and loss adjustment expenses

     229        254        664        800   

Other operating expenses

     1,094        1,496        2,805        3,577   
   

Total noninterest expense

     1,716        2,166        4,677        5,547   

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

     326        (860     953        (3,120

Income tax expense (benefit) from continuing operations

     48        (291     117        681   
   

Net income (loss) from continuing operations

     278        (569     836        (3,801
   

(Loss) income from discontinued operations, net of tax

     (9     (198     160        (1,544
   

Net income (loss)

   $ 269      $ (767   $ 996      $ (5,345
   

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

 

3


Table of Contents

 

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

 

($ in millions)    September 30, 2010     December 31, 2009  

Assets

    

Cash and cash equivalents

    

Noninterest-bearing

   $ 1,414      $ 1,840   

Interest-bearing

     11,175        12,948   
   

Total cash and cash equivalents

     12,589        14,788   

Trading securities

     211        739   

Investment securities

    

Available-for-sale

     11,925        12,155   

Held-to-maturity

            3   
   

Total investment securities

     11,925        12,158   

Loans held-for-sale, net ($6,978 and $5,545 fair value elected)

     13,265        20,625   

Finance receivables and loans, net

    

Consumer ($2,948 and $1,303 fair value elected)

     60,185        42,849   

Commercial

     38,050        33,941   

Notes receivable from General Motors

     483        911   

Allowance for loan losses

     (2,054     (2,445
   

Total finance receivables and loans, net

     96,664        75,256   

Investment in operating leases, net

     10,213        15,995   

Mortgage servicing rights

     2,746        3,554   

Premiums receivable and other insurance assets

     2,169        2,720   

Other assets

     21,817        19,887   

Assets of operations held-for-sale

     1,592        6,584   
   

Total assets

   $ 173,191      $ 172,306   
   

Liabilities

    

Deposit liabilities

    

Noninterest-bearing

   $ 2,547      $ 1,755   

Interest-bearing

     35,410        30,001   
   

Total deposit liabilities

     37,957        31,756   

Debt

    

Short-term borrowings

     5,914        10,292   

Long-term debt ($2,793 and $1,293 fair value elected)

     87,547        88,021   
   

Total debt

     93,461        98,313   

Interest payable

     1,824        1,637   

Unearned insurance premiums and service revenue

     2,937        3,192   

Reserves for insurance losses and loss adjustment expenses

     922        1,215   

Accrued expenses and other liabilities

     14,370        10,456   

Liabilities of operations held-for-sale

     743        4,898   
   

Total liabilities

     152,214        151,467   

Equity

    

Common stock and paid-in capital

     13,838        13,829   

Preferred stock held by U.S. Department of Treasury

     10,893        10,893   

Preferred stock

     1,287        1,287   

Accumulated deficit

     (5,480     (5,630

Accumulated other comprehensive income

     439        460   
   

Total equity

     20,977        20,839   
   

Total liabilities and equity

   $ 173,191      $ 172,306   
   

 

4


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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit at September 30, 2010, were as follows.

 

($ in millions)        

Assets

  

Cash and cash equivalents

  

Noninterest-bearing

   $ 3   

Loans held-for-sale, net

     34   

Finance receivables and loans, net

  

Consumer ($2,948 fair value elected)

     19,568   

Commercial

     12,190   

Allowance for loan losses

     (262
   

Total finance receivables and loans, net

     31,496   

Investment in operating leases, net

     1,803   

Other assets

     4,718   

Assets of operations held-for-sale

     86   
   

Total assets

   $ 38,140   
   

Liabilities

  

Debt

  

Short-term borrowings

   $ 1,265   

Long-term debt ($2,793 fair value elected)

     26,976   
   

Total debt

     28,241   

Interest payable

     28   

Accrued expenses and other liabilities

     551   

Liabilities of operations held-for-sale

     48   
   

Total liabilities

   $ 28,868   
   

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

 

5


Table of Contents

 

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Nine Months Ended September 30, 2010 and 2009

 

($ in millions)   Members’
interests
   

Preferred
interests

held by
U.S.
Department
of Treasury

    Preferred
interests
    Retained
earnings
    Accumulated
other
comprehensive
(loss) income
    Total
equity
    Comprehensive
(loss) income
 

Balance at January 1, 2009

  $ 9,670      $ 5,000      $ 1,287      $ 6,286      $ (389   $ 21,854     

Capital contributions (a)

    1,247                1,247     

Net loss

          (4,578       (4,578   $ (4,578

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

          (160       (160  

Preferred interests dividends

          (195       (195  

Dividends to members (a)

          (119       (119  

Issuance of preferred interests held by U.S. Department of Treasury

      7,500              7,500     

Other comprehensive income

            497        497        497   
   

Balance at June 30, 2009, before conversion from limited liability company to a corporation (b)

  $ 10,917      $ 12,500      $ 1,287      $ 1,234      $ 108      $ 26,046      $ (4,081
   

 

($ in millions)   Common
stock and
paid-in
capital
   

Preferred
stock

held by
U.S.
Department
of Treasury

    Preferred
stock
   

Retained
earnings
(accumulated

deficit)

    Accumulated
other
comprehensive
income
    Total
equity
    Comprehensive
(loss) income
 

Balance at June 30, 2009, after conversion from limited liability company to a corporation

  $ 10,917      $ 12,500      $ 1,287      $ 1,234      $ 108      $ 26,046      $ (4,081

Net loss

          (767       (767     (767

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

          (271       (271  

Preferred stock dividends (a)

          (103       (103  

Dividends to shareholders (a)

          (260       (260  

Other comprehensive income

            296        296        296   
   

Balance at September 30, 2009

  $ 10,917      $ 12,500      $ 1,287      $ (167   $ 404      $ 24,941      $ (4,552
   

 

6


Table of Contents

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Nine Months Ended September 30, 2010 and 2009

 

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

Accumulated

deficit

    Accumulated
other
comprehensive
income
    Total
equity
    Comprehensive
income (loss)
 

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

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

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

          (57     4        (53  
   

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

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

Capital contributions

    9                9     

Net income

          996          996      $ 996   

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

          (643       (643  

Preferred stock dividends (a)

          (212       (212  

Dividends to shareholders (a)

          (8       (8  

Other comprehensive loss

            (25     (25     (25

Other (d)

          74          74     
   

Balance at September 30, 2010

  $ 13,838      $ 10,893      $ 1,287      $ (5,480   $ 439      $ 20,977      $ 971   
   
(a) Refer to Note 18 to the Condensed Consolidated Financial Statements for further details.
(b) Effective June 30, 2009, we converted from a Delaware limited liability company into a Delaware corporation. Each unit of each class of common membership interest issued and outstanding immediately prior to the conversion was converted into an equivalent number of shares of common stock with substantially the same and preferences as the common membership interests. Upon conversion, holders of our preferred membership interests also received an equivalent number of preferred stock with substantially the same rights and preferences as the former preferred membership interests.
(c) Cumulative effect of change in accounting principle, net of tax, due to adoption of ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to Note 1 for additional information.
(d) Represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009, through June 30, 2009. Refer to Note 18 to the Condensed Consolidated Financial Statements for further details.

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

 

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Table of Contents

 

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Nine months ended September 30, ($ in millions)    2010     2009  

Operating activities

    

Net income (loss)

   $ 996      $ (5,345

Reconciliation of net income (loss) to net cash provided by operating activities

    

Depreciation and amortization

     3,246        4,746   

Operating lease impairment

            (117

Impairment of goodwill and other intangible assets

            641   

Other impairment

     58        226   

Amortization and valuation adjustments of mortgage servicing rights

     1,466        191   

Provision for loan losses

     397        2,712   

Gain on sale of loans, net

     (861     (43

Net gain on investment securities

     (357     (22

Loss (gain) on extinguishment of debt

     123        (667

Originations and purchases of loans held-for-sale

     (48,828     (47,775

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

     55,046        42,387   

Net change in:

    

Trading securities

     (22     310   

Deferred income taxes

     (186     893   

Interest payable

     176        197   

Other assets

     976        5,738   

Other liabilities

     698        (874

Other, net

     (1,388     (1,246
   

Net cash provided by operating activities

     11,540        1,952   
   

Investing activities

    

Purchases of available-for-sale securities

     (15,902     (17,288

Proceeds from sales of available-for-sale securities

     13,380        6,669   

Proceeds from maturities of available-for-sale securities

     3,646        3,282   

Net (increase) decrease in finance receivables and loans

     (12,423     9,813   

Proceeds from sales of finance receivables and loans

     2,554        457   

Change in notes receivable from GM

     1        751   

Purchases of operating lease assets

     (2,405     (465

Disposals of operating lease assets

     6,719        4,894   

(Purchases) sales of mortgage servicing rights, net

     (45     7   

Sale of business unit, net (a)

     (331     96   

Other, net

     1,203        485   
   

Net cash (used in) provided by investing activities

     (3,603     8,701   
   

 

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Table of Contents

 

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Nine months ended September 30, ($ in millions)    2010     2009  

Financing activities

    

Net change in short-term debt

     (4,856     (919

Net increase in bank deposits

     4,776        8,132   

Proceeds from issuance of long-term debt

     32,235        23,851   

Repayments of long-term debt

     (43,827     (51,000

Proceeds from issuance of preferred stock held by U.S. Department of Treasury

            7,500   

Proceeds from issuance of common stock

            1,247   

Dividends paid

     (862     (1,082

Other, net

     1,255        1,282   
   

Net cash used in financing activities

     (11,279     (10,989

Effect of exchange-rate changes on cash and cash equivalents

     501        (28
   

Net decrease in cash and cash equivalents

     (2,841     (364

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

     642        (562

Cash and cash equivalents at beginning of year

     14,788        15,151   
   

Cash and cash equivalents at September 30,

   $ 12,589      $ 14,225   
   

Supplemental disclosures

    

Cash paid for

    

Interest

   $ 4,055      $ 4,923   

Income taxes

     377        274   

Noncash items

    

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

     17,990          

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

     17,054          

Loans held-for-sale transferred to finance receivables and loans

     37        803   

Finance receivables and loans transferred to loans held-for sale

     596        1,421   

Finance receivables and loans transferred to other assets

     187        406   

Originations of mortgage servicing rights from sold loans

     628        586   

Other disclosures

    

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

     437        697   

Proceeds from sales of repossessed, foreclosed, and owned real estate

     396        923   

Consolidation of loans, net

            1,410   

Consolidation of collateralized borrowings

            1,184   
   
(a) The amounts for the nine months ended September 30, 2010, are net of cash and cash equivalents of $1.1 billion of business units at the time of disposition.
(b) Cash flows of operations held-for-sale are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows. The cash balance of these operations are reported as assets of operations held-for-sale on the Condensed Consolidated Balance Sheet.
(c) Relates to the adoption of ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to Note 1 for additional information.

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

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is one of the world's largest automotive financial services companies. On December 24, 2008, we became a bank holding company under the Bank Holding Company Act of 1956, as amended. Our primary banking subsidiary is Ally Bank, which is an indirect wholly owned subsidiary of Ally Financial Inc.

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

The Condensed Consolidated Financial Statements at September 30, 2010, and for the three months and nine months ended September 30, 2010 and 2009, are unaudited but reflect all adjustments that are, in management's opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related notes) included in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed on February 26, 2010, with the U.S. Securities and Exchange Commission (SEC), as amended by the Current Report on Form 8-K filed with the SEC on October 12, 2010.

Residential Capital, LLC

Residential Capital, LLC (ResCap), one of our mortgage subsidiaries, was negatively impacted by the events and conditions in the mortgage banking industry and the broader economy. The market deterioration led to fewer sources of, and significantly reduced levels of, liquidity available to finance ResCap’s operations. ResCap is highly leveraged relative to its cash flow and previously recognized credit and valuation losses resulting in a significant deterioration in capital. ResCap’s consolidated tangible net worth, as defined, was $859 million at September 30, 2010, and ResCap remained in compliance with all of its consolidated tangible net worth covenants. For this purpose, consolidated tangible net worth is defined as ResCap’s consolidated equity excluding intangible assets. There continues to be a risk that ResCap may not be able to meet its debt service obligations, may default on its financial debt covenants due to insufficient capital, and/or may be in a negative liquidity position in 2010 or future periods.

ResCap actively manages its liquidity and capital positions and is continually working on initiatives to address its debt covenant compliance and liquidity needs including debt maturing in the next twelve months and other risks and uncertainties. ResCap’s initiatives could include, but are not limited to, the following: continuing to work with key credit providers to optimize all available liquidity options; possible further reductions in assets and other restructuring activities; focusing production on government and prime conforming products; exploring strategic alternatives such as alliances, joint ventures, and other transactions with third parties with respect to certain ResCap assets and businesses; and continued exploration of opportunities for funding and capital support from Ally and its affiliates. The outcomes of most of these initiatives are to a great extent outside of ResCap’s control resulting in increased uncertainty as to their successful execution.

During 2010, we performed a strategic review of our mortgage business. As a result of this, we effectively exited the European mortgage market through the sale of our U.K. and continental Europe operations. The sale of these operations was completed on October 1, 2010. Certain components of the sale were completed on September 30, 2010. Refer to Note 2 for additional information on the sale. We also completed the sale of certain higher-risk legacy mortgage assets and settled representation and warranty claims with certain counterparties. The ongoing focus of our Mortgage operations will be predominately the origination and servicing of conforming mortgages. While the opportunities for further risk mitigation remain, the risk in the Mortgage operations has been materially reduced as compared to recent levels.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

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

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

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

Ally has extensive financing and hedging arrangements with ResCap that could be at risk of nonpayment if ResCap were to file for bankruptcy. At September 30, 2010, we had approximately $2.1 billion in secured financing arrangements with ResCap of which approximately $1.3 billion in loans was utilized. Amounts outstanding under the secured financing and hedging arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap’s repayments of its financing facilities, including those with us, could be slower. In addition, we could be an unsecured creditor of ResCap to the extent that the proceeds from the sale of our collateral are insufficient to repay ResCap’s obligations to us. It is possible that other ResCap creditors would seek to recharacterize our loans to ResCap as equity contributions or to seek equitable subordination of our claims so that the claims of other creditors would have priority over our claims. In addition, should ResCap file for bankruptcy, our $859 million investment related to ResCap’s equity position would likely be reduced to zero. If a ResCap bankruptcy were to occur and a substantial amount of our credit exposure is not repaid to us, it would have an adverse impact on our near-term net income and capital position, but we do not believe it would have a materially adverse impact on Ally’s consolidated financial position over the longer term.

Corporate Conversion

Effective June 30, 2009, we converted (the Conversion) from a Delaware limited liability company to a Delaware corporation pursuant to Section 18-216 of the Delaware Limited Liability Company Act and Section 265 of the Delaware General Corporation Law. In connection with the Conversion, each unit of each class of common and preferred membership interests issued and outstanding immediately prior to the Conversion was converted into shares of capital stock with substantially the same rights and preferences as such membership interests. Refer to Note 17 for additional information regarding the tax impact of the conversion.

Recently Adopted Accounting Standards

Accounting for Transfers of Financial Assets (ASU 2009-16)

As of January 1, 2010, we adopted ASU 2009-16 (formerly Statement of Financial Accounting Standards Board (SFAS) No. 166), which amended Accounting Standards Codification (ASC) Topic 860, Transfers and Servicing. This standard removes the concept of a qualifying special-purpose entity (QSPE) and creates more stringent conditions for reporting a sale when a portion of a financial asset is transferred. To determine if a transfer is to be accounted for as a sale, the transferor must assess whether the transferor and all of the entities included in the transferor's consolidated financial statements surrendered

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

control of the assets. For partial asset transfers, the transferred portion must represent a pro rata component of the entire asset with no form of subordination. This standard is applied prospectively for transfers that occur on or after the effective date; however, the elimination of the QSPE concept required us to retrospectively assess all current off-balance sheet QSPE structures for consolidation under ASC Topic 810, Consolidation, and record a cumulative-effect adjustment to retained earnings for any consolidation change. Retrospective application of ASU 2009-16, specifically the QSPE removal, was assessed as part of the analysis required by ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to the section below for further information related to ASU 2009-17.

Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17)

As of January 1, 2010, we adopted ASU 2009-17 (formerly SFAS No. 167), which amended ASC Topic 810, Consolidation. This standard addresses the primary beneficiary assessment criteria for determining whether an entity is required to consolidate a variable interest entity (VIE). This standard requires an entity to determine whether it is the primary beneficiary by performing a qualitative assessment rather than using the quantitative-based model that was required under the previous accounting guidance. The qualitative assessment consists of determining whether the entity has both the power to direct the activities that most significantly impact the VIE’s economic performance and the right to receive benefits or obligation to absorb losses that could potentially be significant to the VIE. As a result of the implementation of ASU 2009-16 and ASU 2009-17, several of our securitization structures previously held off-balance sheet were recognized as consolidated entities resulting in a day-one increase of $17.6 billion to assets and liabilities on our Condensed Consolidated Balance Sheet ($10.1 billion of the increase related to operations classified as held-for-sale). As part of the day-one entry, there was an immaterial adjustment to our opening equity balance.

Expanded Disclosures about Fair Value Measurements (ASU 2010-06)

As of March 31, 2010, we adopted the majority of ASU 2010-06, which amends ASC Topic 820, Fair Value Measurements. The ASU requires fair value disclosures for each asset and liability class, disclosures related to inputs and valuation methods for measurements that use Level 2 or Level 3 inputs, disclosures of significant transfers between Levels 1 and 2, and the gross presentation of significant transfers into or out of Level 3 within the Level 3 rollforward. The ASU also requires the gross presentation of purchases, sales, issuances, and settlements within the Level 3 rollforward; however, this specific requirement will be effective for us during the three months ended March 31, 2011. The disclosure requirement by class is a higher level of disaggregation compared to the previous requirement, which was based on the major asset or liability category. While the adoption of ASU 2010-06 expanded our disclosures related to fair value measurements, it did not modify the accounting treatment or measurement of items at fair value and, as such, did not have a material impact on our financial statements.

Derivatives and Hedging – Scope Exception Related to Embedded Credit Derivatives (ASU 2010-11)

In March 2010, the FASB issued ASU 2010-11, which clarifies that the transfer of credit risk that is only in the form of subordination of one financial instrument to another financial instrument (such as the subordination of one beneficial interest to another tranche of a securitization) is an embedded derivative feature. The embedded derivative feature should not be subject to potential bifurcation or separate accounting under ASC 815, Derivatives and Hedging. In addition, the ASU provides guidance on whether other embedded credit derivatives in financial instruments are subject to bifurcation and separate accounting. ASU 2010-11 was effective for us on July 1, 2010, and the adoption did not have a material impact on our consolidated financial condition or results of operation.

Recently Issued Accounting Standards

Revenue Arrangements with Multiple Deliverables (ASU 2009-13)

In October 2009, the FASB issued ASU 2009-13, which amends ASC Topic 605, Revenue Recognition. The guidance significantly changes the accounting for revenue recognition in arrangements with multiple deliverables and eliminates the residual method, which allocated the discount of a multiple deliverable arrangement among the delivered items. Under the guidance, entities will be required to allocate the total consideration to all deliverables at inception using the relative selling price and to allocate any discount in the arrangement proportionally to each deliverable based on each deliverable’s selling price. ASU 2009-13 is effective for revenue arrangements that we enter into or materially modify on or after January 1, 2011. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operation.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

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

In July 2010, the FASB issued ASU 2010-20, which requires expanded disclosures related to the credit quality of finance receivables and loans. This disclosure will be effective for us during the December 31, 2010, reporting period. The ASU also requires a rollforward of the allowance for loan losses for each reporting period, which will be effective for us during the March 31, 2011, reporting period. Since the guidance relates only to disclosures, adoption will not have a material effect on our consolidated financial condition or results of operation.

 

2. Discontinued and Held-for-sale Operations

Discontinued Operations

During 2009, we committed to sell certain operations of ResCap’s International Business Group (IBG). These operations included residential mortgage loan origination, acquisition, servicing, asset management, sale, and securitizations in the United Kingdom and continental Europe (the Netherlands and Germany). During the three months ended June 30, 2010, we classified the U.K. operations as discontinued. The continental Europe operations met the discontinued operations criteria during the three months ended December 31, 2009. On September 30, 2010, and October 1, 2010, we completed the sale of these operations. The components of the sale that were completed on October 1, 2010, were classified as assets and liabilities of operations held-for-sale on our Condensed Consolidated Balance Sheet at September 30, 2010, and were valued consistently with the proceeds received from the sale.

During 2009, we committed to sell the U.S. consumer property and casualty insurance business of our Insurance operations. These operations provided vehicle and home insurance in the United States through a number of distribution channels including independent agents, affinity groups, and the internet. The sale of our U.S. consumer property and casualty insurance business was completed during the first quarter of 2010. Additionally, during 2009, we committed to sell the U.K. consumer property and casualty insurance business. We are in active negotiations and expect to complete the sale during the first half of 2011.

During the three months ended June 30, 2010, we ceased to operate at our International Automotive Finance operations in Australia and Russia and classified them as discontinued.

During 2009, we committed to sell certain operations of our International Automotive Finance operations including our Argentina, Poland, and Ecuador operations and our Masterlease operations in Australia, Belgium, France, Italy, Mexico, the Netherlands, Poland, and the United Kingdom. Our Masterlease operations provide full-service individual leasing and fleet leasing products including maintenance, fleet, and accident management services as well as fuel programs, short-term vehicle rental, and title and licensing services. During 2009, the sales of the Masterlease operations in Italy, Mexico, and the Netherlands were completed. During the three months ended June 30, 2010, we completed the sale of our Poland operations and our Masterlease operations in Australia, Poland, Belgium, and France. In July 2010, we completed the sale of our Argentina operations. We are in active negotiations to complete the sale of our Masterlease operations in the United Kingdom and are awaiting satisfaction of certain closing conditions involving third parties in order to complete the sale of our Ecuador operations. We expect both to be completed within the next six months.

During 2009, we committed to sell the North American-based factoring business of our Commercial Finance Group. On April 30, 2010, the sale of the North American-based factoring business was completed.

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

The pretax income or loss recognized through September 30, 2010, for the discontinued operations, including the direct costs to transact a sale, could differ from the ultimate sales price due to the fluidity of ongoing negotiations, price volatility, changing interest rates, changing foreign currency rates, and future economic conditions.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

Selected financial information of discontinued operations is summarized below.

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
($ in millions)        2010             2009             2010             2009      

Select Mortgage operations

        

Total net revenue (loss)

   $ 25      $ (29   $ 69      $ (615

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

     (46     (91     56        (861

Tax expense (benefit)

     5        (2     (3     (2

Select Insurance operations

        

Total net revenue

   $ 57      $ 358      $ 357      $ 1,112   

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

     3        (52     (3     (604

Tax (benefit)

            (98     (1     (84

Select International operations

        

Total net revenue

   $ 24      $ 102      $ 97      $ 264   

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

     34        (203     92        (201

Tax (benefit)

     (4     (47     (3     (43

Select Commercial Finance operations

        

Total net revenue

   $      $ 17      $ 11      $ 32   

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

     1        2        8        (6

Tax expense

            1               1   
   
(a) Includes certain income tax activity recognized by Corporate and Other.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

Held-for-sale Operations

The assets and liabilities held-for-sale at September 30, 2010, are summarized below.

 

($ in millions)    Select
Mortgage
operations (a)
    Select
Insurance
operations (b)
    Select
International
operations (c)
    Total
held-for-sale
operations
 

Assets

        

Cash and cash equivalents

        

Noninterest-bearing

   $ 62      $ 11      $ 1      $ 74   

Interest-bearing

     48        4        9        61   
   

Total cash and cash equivalents

     110        15        10        135   

Trading securities

     25                      25   

Investment securities — available-for-sale

            474               474   

Loans held-for-sale, net

     170                      170   

Finance receivables and loans, net

        

Consumer

     314               249        563   

Allowance for loan losses

     (26            (2     (28
   

Total finance receivables and loans, net

     288               247        535   

Investment in operating leases, net

                   354        354   

Premiums receivable and other insurance assets

            163               163   

Other assets

     185        142        23        350   

Impairment on assets of held-for-sale operations

     (307     (206     (101     (614
   

Total assets

   $ 471      $ 588      $ 533      $ 1,592   
   

Liabilities

        

Debt

        

Short-term borrowings

   $      $      $ 44      $ 44   

Long-term debt

                   121        121   
   

Total debt

                   165        165   

Interest payable

                   1        1   

Unearned insurance premiums and service revenue

            127               127   

Reserves for insurance losses and loss adjustment expenses

            372               372   

Accrued expenses and other liabilities

     8        37        33        78   
   

Total liabilities

   $ 8      $ 536      $ 199      $ 743   
   
(a) Includes operations of ResCap's International Business Group in continental Europe and in the United Kingdom. These operations were sold on October 1, 2010.
(b) Includes the U.K. consumer property and casualty insurance business and certain international insurance operations.
(c) Includes the International Automotive Finance operations of Ecuador and Masterlease in the United Kingdom.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

The assets and liabilities of held-for-sale operations at December 31, 2009, are summarized below.

 

($ in millions)   Select
Mortgage
operations (a)
    Select
Insurance
operations (b)
    Select
International
operations (c)
    Select
Commercial
Finance Group
operations (d)
    Total
held-for-sale
operations
 

Assets

         

Cash and cash equivalents

         

Noninterest-bearing

  $ 4      $ 578      $ 33      $      $ 615   

Interest-bearing

    151               11               162   
   

Total cash and cash equivalents

    155        578        44               777   

Trading securities

    36                             36   

Investment securities — available-for-sale

           794                      794   

Loans held-for-sale, net

    214                             214   

Finance receivables and loans, net

         

Consumer

    2,650               400               3,050   

Commercial

                  246        233        479   

Notes receivable from General Motors

                  14               14   

Allowance for loan losses

    (89            (11            (100
   

Total finance receivables and loans, net

    2,561               649        233        3,443   

Investment in operating leases, net

                  885               885   

Mortgage servicing rights

    (26                          (26

Premiums receivable and other insurance assets

           1,126                      1,126   

Other assets

    512        176        135               823   

Impairment on assets of held-for-sale operations

    (903     (231     (324     (30     (1,488
   

Total assets

  $ 2,549      $ 2,443      $ 1,389      $ 203      $ 6,584   
   

Liabilities

         

Debt

         

Short-term borrowings

  $      $ 34      $ 57      $      $ 91   

Long-term debt

    1,749               237               1,986   
   

Total debt

    1,749        34        294               2,077   

Interest payable

    3               1               4   

Unearned insurance premiums and service revenue

           517                      517   

Reserves for insurance losses and loss adjustment expenses

           1,471                      1,471   

Accrued expenses and other liabilities

    430        84        128        187        829   
   

Total liabilities

  $ 2,182      $ 2,106      $ 423      $ 187      $ 4,898   
   
(a) Includes the operations of ResCap's International Business Group in continental Europe and in the United Kingdom.
(b) Includes the U.S. and U.K. consumer property and casualty insurance businesses.
(c) Includes the International Automotive Finance operations of Argentina, Ecuador, and Poland and Masterlease in Australia, Belgium, France, Poland, and the United Kingdom.
(d) Includes the North American-based factoring business of our Commercial Finance Group.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

Recurring Fair Value

The following tables display the assets and liabilities of our held-for-sale operations 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 tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our risk management activities. Refer to Note 19 for descriptions of valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to these models, and significant assumptions used.

 

     Recurring fair value measurements  
September 30, 2010 ($ in millions)    Level 1      Level 2      Level 3      Total  

Assets

           

Trading securities

           

Mortgage-backed

           

Residential

   $       $       $ 25       $ 25   
   

Total trading securities

                     25         25   

Investment securities

           

Available-for-sale securities

           

Debt securities

           

Foreign government

     308                         308   

Other

             166                 166   
   

Total debt securities

     308         166                 474   
   

Total assets

   $ 308       $ 166       $ 25       $ 499   
   

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

     Recurring fair value measurements  
December 31, 2009 ($ in millions)    Level 1      Level 2     Level 3     Total  

Assets

         

Trading securities

         

Mortgage-backed

         

Residential

   $       $      $ 36      $ 36   
   

Total trading securities

                    36        36   

Investment securities

         

Available-for-sale securities

         

Debt securities

         

U.S. Treasury and federal agencies

     243         2               245   

States and political subdivisions

             24               24   

Foreign government

     329                       329   

Corporate debt securities

             7               7   

Other

             189               189   
   

Total debt securities

     572         222               794   

Mortgage servicing rights

                    (26     (26

Other assets

         

Interests retained in financial asset sales

                    153        153   

Fair value of derivative contracts in receivable position

         

Interest rate contracts

             60               60   
   

Total assets

   $ 572       $ 282      $ 163      $ 1,017   
   

Liabilities

         

Accrued expenses and other liabilities

         

Fair value of derivative contracts in liability position

         

Interest rate contracts

   $       $ (40   $      $ (40
   

Total liabilities

   $       $ (40   $      $ (40
   

The following tables present the reconciliation for all Level 3 assets and liabilities of our held-for-sale operations 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  
($ in millions)   Fair value
at
July 1,
2010
   

Net realized/ unrealized
gains (losses)

included
in earnings (a)

    Purchases,
issuances,
and
settlements,
net
    Fair value
at
September 30,
2010
    Net unrealized
gains
included
in earnings
still held at
September 30,
2010 (a)
 

Assets

         

Trading securities

         

Mortgage-backed

         

Residential

  $      $ 3      $ 22      $ 25      $ 3   

Consumer mortgage finance receivables and loans, net (b)

    8,398        7        (8,405              
   

Total assets

  $ 8,398      $ 10      $ (8,383   $ 25      $ 3   
   

Liabilities

         

Secured debt

         

On-balance sheet securitization debt (b)

  $ (7,857   $ (254   $ 8,111      $      $   
   

Total liabilities

  $ (7,857   $ (254   $ 8,111      $      $   
   
(a) Reported as (loss) income from discontinued operations, net of tax, in the Condensed Consolidated Statement of Income.
(b) Carried at fair value due to fair value option elections.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

    Level 3 recurring fair value measurements  
($ in millions)   Fair value
at
January 1,
2010
    Net realized/ unrealized
gains (losses) included
in earnings (a)
    Purchases,
issuances,
and
settlements,
net
    Fair value
at
September 30,
2010
   

Net unrealized
gains

included
in earnings
still held at
September 30,
2010 (a)

 

Assets

         

Trading securities

         

Mortgage-backed

         

Residential

  $ 36      $ 3      $ (14   $ 25      $ 3   
   

Total trading securities

    36        3        (14     25        3   

Consumer mortgage finance receivables and loans, net (b)

           422        (422 ) (c)               

Mortgage servicing rights

    (26            26                 

Other assets

         

Interests retained in financial asset sales

    153               (153              
   

Total assets

  $ 163      $ 425      $ (563   $ 25      $ 3   
   

Liabilities

         

Secured debt

         

On-balance sheet securitization debt (b)

  $      $ (57   $ 57   (c)    $      $   
   

Total liabilities

  $      $ (57   $ 57      $      $   
   
(a) Reported as (loss) income from discontinued operations, net of tax, in the Condensed Consolidated Statement of Income.
(b) Carried at fair value due to fair value option elections.
(c) Includes a $10.1 billion increase due to the adoption of ASU 2009-17 on January 1, 2010. This increase was subsequently offset when the operations were sold on September 30, 2010.

 

3. Other Income, Net of Losses

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

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
($ in millions)        2010             2009             2010             2009      

Mortgage processing fees and other mortgage income

   $ 63      $ 45      $ 157      $ 58   

Remarketing fees

     37        32        104        103   

Late charges and other administrative fees

     35        45        107        117   

Full-service leasing fees

     17        33        58        96   

Other equity method investments

     15        3        40        10   

Real estate services, net

            (5     8        (263

Change due to fair value option elections (a)

     (52     (55     (181     (147

Fair value adjustment on certain derivatives (b)

     (57     (31     (115     (92

Other, net

     123        162        278        24   
   

Total other income, net of losses

   $ 181      $ 229      $ 456      $ (94
   
(a) Refer to Note 19 for a description of fair value option elections.
(b) Refer to Note 16 for a description of derivative instruments and hedging activities.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

4. Other Operating Expenses

Details of other operating expenses were as follows.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
($ in millions)        2010              2009              2010              2009      

Mortgage representation and warranty expense, net

   $ 344       $ 507       $ 490       $ 917   

Insurance commissions

     150         170         446         483   

Technology and communications expense

     118         133         390         434   

Professional services

     82         122         201         327   

Advertising and marketing

     49         50         123         124   

Vehicle remarketing and repossession

     43         46         145         151   

Lease and loan administration

     40         37         107         118   

Regulatory and licensing fees

     32         24         87         72   

State and local non-income taxes

     31         45         92         100   

Premises and equipment depreciation

     24         17         63         61   

Rent and storage

     22         28         73         79   

Full-service leasing vehicle maintenance costs

     14         35         50         99   

Restructuring expenses

     4         9         61         9   

Other

     141         273         477         603   
   

Total other operating expenses

   $ 1,094       $ 1,496       $ 2,805       $ 3,577   
   

 

5. Trading Securities

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

 

($ in millions)    September 30, 2010      December 31, 2009  

Trading securities

     

U.S. Treasury

   $ 75       $   

Mortgage-backed

     

Residential

     46         143   

Asset-backed

     90         596   
   

Total trading securities

   $ 211       $ 739   
   

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

6. Investment Securities

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

 

    September 30, 2010     December 31, 2009  
  Cost     Gross unrealized     Fair
value
    Cost     Gross unrealized     Fair
value
 
($ in millions)     gains     losses         gains     losses    

Available-for-sale securities

               

Debt securities

               

U.S. Treasury and federal agencies

  $ 2,625      $ 44      $      $ 2,669      $ 3,501      $ 15      $ (6   $ 3,510   

States and political subdivisions

    4                      4        779        36        (4     811   

Foreign government

    1,265        36        (2     1,299        1,161        20        (8     1,173   

Mortgage-backed

               

Residential (a)

    3,655        81        (5     3,731        3,404        76        (19     3,461   

Asset-backed

    1,676        20               1,696        1,000        7        (2     1,005   

Corporate debt

    1,339        59        (2     1,396        1,408        74        (9     1,473   

Other

                                47                      47   
   

Total debt securities (b)

    10,564        240        (9     10,795        11,300        228        (48     11,480   

Equity securities

    1,166        30        (66     1,130        631        52        (8     675   
   

Total available-for-sale securities (c)

  $ 11,730      $ 270      $ (75   $ 11,925      $ 11,931      $ 280      $ (56   $ 12,155   
   

Held-to-maturity securities

               

Total held-to-maturity securities

  $      $      $      $      $ 3      $      $      $ 3   
   
(a) Residential mortgage-backed securities include agency-backed bonds totaling $2,242 million and $2,248 million at September 30, 2010, and December 31, 2009, respectively.
(b) In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $165 million and $164 million of primarily U.K. Treasury securities were pledged as collateral at September 30, 2010, and December 31, 2009, respectively.
(c) Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $13 million and $15 million at September 30, 2010, and December 31, 2009, respectively.

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

 

    Total     Due in
one year
or less
    Due after
one year
through
five years
    Due after
five years
through
ten years
    Due after
ten years (a)
 
September 30, 2010 ($ in millions)   Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  

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

                   

U.S. Treasury and federal agencies

  $ 2,669        1.4   $ 384        0.7   $ 2,274        1.5   $ 11        3.7   $       

States and political subdivisions

    4        8.7                                                  4        8.7   

Foreign government

    1,299        2.9        6        1.1        1,132        2.8        161        3.7                 

Mortgage-backed

                   

Residential

    3,731        4.6                      58        3.5        51        4.5        3,622        4.6   

Asset-backed

    1,696        2.4        1               1,219        2.2        298        2.4        178        3.5   

Corporate debt

    1,396        4.3        25        5.4        684        3.8        517        4.5        170        5.2   
                                             

Total available-for-sale debt securities

  $ 10,795        3.2   $ 416        0.9   $ 5,367        2.3   $ 1,038        3.8   $ 3,974        4.6
   

Amortized cost of available-for-sale debt securities

  $ 10,564        $ 417        $ 5,256        $ 992        $ 3,899     
   
(a) Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b) Yields on tax-exempt obligations are computed on a tax-equivalent basis.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

    Total     Due in
one year
or less
    Due after
one year
through
five years
    Due after
five years
through
ten years
    Due after
ten years (a)
 
December 31, 2009 ($ in millions)   Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  

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

                   

U.S. Treasury and federal agencies

  $ 3,510        1.9   $ 103        1.1   $ 3,390        1.9   $ 17        4.1   $       

States and political subdivisions

    811        7.0        9        7.0        175        7.2        147        7.0        480        6.9   

Foreign government

    1,173        3.8        66        1.7        872        3.8        229        4.5        6        5.3   

Mortgage-backed

                   

Residential

    3,461        6.5                      2        6.5        36        13.0        3,423        6.4   

Asset-backed

    1,005        2.5        34        5.2        735        2.3        186        2.6        50        3.9   

Corporate debt

    1,473        5.2        283        3.4        575        5.8        570        5.4        45        6.9   

Other

    47        3.6                      32        3.4        15        4.0                 
                                             

Total available-for-sale debt securities

  $ 11,480        4.3   $ 495        2.8   $ 5,781        2.8   $ 1,200        5.2   $ 4,004        6.5
   

Amortized cost of available-for-sale debt securities

  $ 11,300        $ 473        $ 5,728        $ 1,169        $ 3,930     
   
(a) Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b) Yields on tax-exempt obligations are computed on a tax-equivalent basis.

Certain highly liquid investment securities with maturities of three months or less from the date of purchase are classified as cash equivalents and are composed primarily of money market accounts and short-term securities, including U.S. Treasury bills. The carrying value of cash equivalents approximates fair value. The balance of cash equivalents was $5.8 billion and $1.8 billion at September 30, 2010, and December 31, 2009, respectively.

The following table presents gross gains and losses realized upon the sales of available-for-sale securities and other-than-temporary impairment.

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
($ in millions)    2010     2009     2010     2009  

Gross realized gains

   $ 102      $ 112      $ 381      $ 247   

Gross realized losses

     (2     (28     (25     (86

Other-than-temporary impairment

                   (1     (47
   

Net realized gains

   $ 100      $ 84      $ 355      $ 114   
   

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

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
($ in millions)    2010      2009      2010      2009  

Taxable interest

   $ 83       $ 36       $ 256       $ 129   

Taxable dividends

     5         3         13         6   

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

             10         10         27   
   

Total interest and dividends

   $ 88       $ 49       $ 279       $ 162   
   

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of September 30, 2010, we do not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As of September 30, 2010, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at September 30, 2010.

 

    September 30, 2010     December 31, 2009  
    Less than
12 months
    12 months
or longer
    Less than
12 months
    12 months
or longer
 
($ in millions)   Fair
value
    Unrealized
loss
    Fair
value
    Unrealized
loss
    Fair
value
    Unrealized
loss
    Fair
value
    Unrealized
loss
 

Available-for-sale securities

               

Debt securities

               

U.S. Treasury and federal agencies

  $ 7      $      $      $      $ 1,430      $ (6   $      $   

States and political subdivisions

                                82        (2     8        (2

Foreign government securities

    58        (2                   536        (8              

Mortgage-backed securities

    876        (5     1               811        (14     6        (5

Asset-backed securities

    2               2               202        (1     22        (1

Corporate debt securities

    176        (2                   47        (1     120        (8

Other

                                7                        
   

Total temporarily impaired debt securities

    1,119        (9     3               3,115        (32     156        (16

Temporarily impaired equity securities

    575        (64     19        (2     115        (5     52        (3
   

Total temporarily impaired available-for-sale securities

  $ 1,694      $ (73   $ 22      $ (2   $ 3,230      $ (37   $ 208      $ (19
   

We employ a systematic methodology that considers available evidence in evaluating potential other-than-temporary impairment of our investments 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, the financial health of and business outlook for the issuer, changes to the rating of the security by a rating agency, the performance of the underlying assets for interests in securitized assets, whether we intend to sell the investment, and whether it is more likely than not we will be required to sell the debt security before recovery of its amortized cost basis.

 

7. Loans Held-for-sale, Net

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

 

     September 30, 2010      December 31, 2009  
($ in millions)    Domestic      Foreign      Total      Domestic      Foreign      Total  

Consumer

                 

Automobile

   $ 930       $ 119       $ 1,049       $ 9,417       $ 184       $ 9,601   

1st Mortgage

     11,135         143         11,278         9,269         530         9,799   

Home equity

     938                 938         1,068                 1,068   
   

Total consumer (a)

     13,003         262         13,265         19,754         714         20,468   

Commercial

                 

Commercial and industrial

                 

Other

                                     157         157   
   

Total loans held-for-sale (b)

   $ 13,003       $ 262       $ 13,265       $ 19,754       $ 871       $ 20,625   
   
(a) Fair value option-elected domestic residential mortgages were $7.0 billion and $5.5 billion at September 30, 2010, and December 31, 2009, respectively. Refer to Note 19 for additional information related to these government- and agency-eligible loans.
(b) Totals are net of unamortized premiums and discounts and deferred fees and costs of $148 million and $318 million at September 30, 2010, and December 31, 2009, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

8. Finance Receivables and Loans, Net

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

 

     September 30, 2010      December 31, 2009  
($ in millions)    Domestic      Foreign      Total      Domestic      Foreign      Total  

Consumer

                 

Automobile

   $ 29,888       $ 16,206       $ 46,094       $ 12,514       $ 17,731       $ 30,245   

1st Mortgage

     8,653         911         9,564         7,960         405         8,365   

Home equity

     4,527                 4,527         4,238         1         4,239   
   

Total consumer (a)

     43,068         17,117         60,185         24,712         18,137         42,849   
   

Commercial

                 

Commercial and industrial

                 

Automobile

     23,576         7,529         31,105         19,601         7,035         26,636   

Mortgage

     2,038         75         2,113         1,572         96         1,668   

Resort finance

                             843                 843   

Other

     2,061         375         2,436         1,845         437         2,282   

Commercial real estate

                 

Automobile

     2,055         243         2,298         2,008         221         2,229   

Mortgage

     5         93         98         121         162         283   
   

Total commercial

     29,735         8,315         38,050         25,990         7,951         33,941   
   

Notes receivable from General Motors

             483         483         3         908         911   
   

Total finance receivables and loans (b)

   $ 72,803       $ 25,915       $ 98,718       $ 50,705       $ 26,996       $ 77,701   
   
(a) Fair value option-elected residential mortgages were $2.9 billion and $1.3 billion at September 30, 2010, and December 31, 2009, respectively. Refer to Note 19 for additional information.
(b) Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $2.8 billion and $2.4 billion at September 30, 2010, and December 31, 2009, respectively.

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

 

    2010     2009  

Three months ended September 30, ($ in millions)

  Consumer     Commercial     Total     Consumer     Commercial     Total  

Allowance at July 1,

  $ 1,779      $ 598      $ 2,377      $ 2,307      $ 994      $ 3,301   

Provision for loan losses

    86        (77     9        537        143        680   

Charge-offs

           

Domestic

    (248     (98     (346     (682     (244     (926

Foreign

    (46     (38     (84     (158     (37     (195
   

Total charge-offs

    (294     (136     (430     (840     (281     (1,121
   

Recoveries

           

Domestic

    71        4        75        62        5        67   

Foreign

    19        2        21        20               20   
   

Total recoveries

    90        6        96        82        5        87   
   

Net charge-offs

    (204     (130     (334     (758     (276     (1,034

Discontinued operations

           (1     (1     22        3        25   

Other

    13        (10     3        (2     4        2   
   

Allowance at September 30,

  $ 1,674      $ 380      $ 2,054      $ 2,106      $ 868      $ 2,974   
   

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

    2010     2009  
Nine months ended September 30, ($ in millions)   Consumer     Commercial     Total     Consumer     Commercial     Total  

Allowance at January 1,

  $ 1,664      $ 781      $ 2,445      $ 2,536      $ 897      $ 3,433   

Provision for loan losses

    431        (56     375        1,832        711        2,543   

Charge-offs

           

Domestic

    (795     (250     (1,045     (1,922     (716     (2,638

Foreign

    (157     (91     (248     (773     (55     (828
   

Total charge-offs

    (952     (341     (1,293     (2,695     (771     (3,466
   

Recoveries

           

Domestic

    257        12        269        172        11        183   

Foreign

    54        11        65        49        5        54   
   

Total recoveries

    311        23        334        221        16        237   
   

Net charge-offs

    (641     (318     (959     (2,474     (755     (3,229

Addition of allowance due to change in accounting principle (a)

    222               222                        

Discontinued operations

    (1     (3     (4     160        6        166   

Other

    (1     (24     (25     52        9        61   
   

Allowance at September 30,

  $ 1,674      $ 380      $ 2,054      $ 2,106      $ 868      $ 2,974   
   
(a) Effect of change in accounting principle due to adoption of ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to Note 1 for additional information.

The following tables present information about our impaired finance receivables and loans. These tables exclude loans carried at fair value due to the fair value option elections.

 

    September 30, 2010     December 31, 2009  
($ in millions)   Consumer     Commercial     Total     Consumer     Commercial     Total  

Impaired finance receivables and loans

           

With an allowance

  $ 430      $ 636      $ 1,066      $ 252      $ 1,760      $ 2,012   

Without an allowance

    40        209        249        16        296        312   
   

Total impaired loans

  $ 470      $ 845      $ 1,315      $ 268      $ 2,056      $ 2,324   
   

Allowance for impaired loans

  $ 105      $ 247      $ 352      $ 80      $ 488      $ 568   
   

 

    2010     2009  
Three months ended September 30, ($ in millions)   Consumer     Commercial     Total     Consumer     Commercial     Total  

Average balance of impaired loans

  $ 435      $ 1,318      $ 1,753      $ 769      $ 2,891      $ 3,660   

Interest income recognized on impaired loans

  $ 6      $ 8      $ 14      $ 6      $ 27      $ 33   
   

 

    2010     2009  
Nine months ended September 30, ($ in millions)   Consumer     Commercial     Total     Consumer     Commercial     Total  

Average balance of impaired loans

  $ 363      $ 1,633      $ 1,996      $ 592      $ 3,009      $ 3,601   

Interest income recognized on impaired loans

  $ 13      $ 12      $ 25      $ 22      $ 47      $ 69   
   

At September 30, 2010, and December 31, 2009, commercial commitments to lend additional funds to debtors owing receivables whose terms had been modified in troubled debt restructuring were $16 million and $12 million, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

9. Off-balance Sheet Securitizations

We sell pools of automotive and residential mortgage loans and contracts via securitization transactions, which provide permanent funding and facilitates asset and liability management. In executing the securitization transactions, we typically sell the pools to wholly owned bankruptcy-remote special-purpose entities (SPEs), which then transfer the loans or contracts to a separate, transaction-specific SPE (a securitization trust) for cash, servicing rights, and in some transactions, other retained interests. The securitization trust issues interests and interests are sold to investors. These interests are collateralized by the secured loans or contracts and entitle the investors to specified cash flows generated from the securitized loans or contracts.

Our securitization transactions are accounted for under the requirements of ASC 810, Consolidation, and ASC 860, Transfers and Servicing. ASU 2009-16, Accounting for Transfers of Financial Assets, and ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, amended ASC 810 and ASC 860. These standards became effective on January 1, 2010, and required the prospective consolidation of certain securitization assets and liabilities that were previously held off-balance sheet. We reflected our economic interest in these newly consolidated structures primarily through loans and secured debt rather than as interests held in off-balance sheet securitization trusts. Refer to Note 1 for additional information related to the adoption of ASU 2009-16 and ASU 2009-17. Refer to Note 20 for additional information related to the consolidation of certain securitization trusts due to the adoption of the new standards.

The following discussion and related information is only applicable to the transfers of finance receivables and loans that qualify for off-balance sheet treatment.

Each securitization is governed by various legal documents that limit and specify the activities of the securitization vehicle. The securitization vehicle is generally allowed to acquire the loans or contracts being sold to it, to issue interests to investors to fund the acquisition of the loans or contracts, and to enter into derivatives or other yield maintenance contracts to hedge or mitigate certain risks related to the asset pool or debt securities. Additionally, the securitization vehicle is required to service the assets it holds and the debt or interest it issues. A servicer appointed within the underlying legal documents performs these functions. Servicing functions include, but are not limited to, collecting payments from borrowers, performing escrow functions, monitoring delinquencies, liquidating assets, investing funds until distribution, remitting payments to investors, and accounting for and reporting information to investors. As part of our off-balance sheet securitizations, we typically retain servicing responsibilities and, in some cases, other retained interests. Accordingly, our servicing responsibilities result in continued involvement in the form of servicing the underlying asset (primary servicing) and/or servicing the bonds resulting from the securitization transactions (master servicing) through servicing platforms. Certain securitizations require the servicer to advance scheduled principal and interest payments due on the pool regardless of whether they are received from borrowers. Accordingly, we are required to provide these servicing advances when applicable. Refer to Note 1 to the Condensed Financial Statements in our 2009 Annual Report on Form 10-K regarding the valuation of servicing rights. Subsequent to the adoption of ASU 2009-16 and ASU 2009-17 as of January 1, 2010, we generally do not hold significant or potentially significant retained interests in our securitization trusts that qualify for off-balance sheet treatment under ASU 2009-17.

Generally, the assets initially transferred into the securitization vehicle are the sole repayment source to the investors in the securitization trust and the various other parties that perform services for the transaction, such as the servicer or the trustee. In certain transactions, a liquidity provider or facility may exist to provide temporary liquidity to the structure. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution periods. Bond insurance may also exist to cover certain shortfalls to certain investors. As noted above, in certain securitizations, the servicer is required to advance scheduled principal and interest payments due on the pool regardless of whether they were received from the borrowers. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain securitization transactions may allow for the acquisition of additional loans or contracts subsequent to the initial loan. Principal collections on other loans and/or the issuance of new interests, such as variable funding notes, generally fund these loans; we are often contractually required to invest in these new interests. Lastly, we provide certain guarantees as discussed in Note 30 to the Consolidated Financial Statements in our 2009 Annual Report on Form 10-K.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

The investors and/or securitization trusts have no recourse to us with the exception of market customary representation and warranty repurchase provisions and, in certain transactions, early payment default provisions. Representation and warranty repurchase provisions generally require us to repurchase loans or contracts to the extent it is determined that the loans were ineligible or were otherwise defective at the time of sale. Due to market conditions, early payment default provisions are included in certain securitization transactions that require us to repurchase loans or contracts if the borrower is delinquent in making certain specific payments subsequent to the sale.

We generally hold certain conditional repurchase options that allow us to repurchase assets from the securitization. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining assets or outstanding debt once the asset pool reaches a predefined level, which represents the point where servicing is burdensome rather than beneficial. Such an option is referred to as a clean-up call. As servicer, we are able to exercise this option at our discretion anytime after the asset pool size falls below the predefined level. The repurchase price for the loans or contracts is typically par plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to repurchase the asset if certain events, outside our control, are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan or contract if it exceeds a certain prespecified delinquency level. We have complete discretion regarding when or if we will exercise these options, but generally, we would do so when it is in our best interest.

The loans or contracts sold into off-balance sheet securitization transactions are removed from our balance sheet. The assets obtained from the securitization are primarily reported as cash, servicing rights, or (if retained) retained interests. Typically, we conclude that the fee we are paid for servicing retail automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We elected fair value treatment for our existing mortgage servicing rights (MSRs) portfolio. Liabilities incurred as part of the transaction, such as representation and warranty provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. Upon the sale of the loans or contracts, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction.

The following summarizes the pretax gains and losses recognized on the types of loans or contracts sold into off-balance sheet securitization transactions.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
($ in millions)    2010     2009      2010      2009  

Retail finance receivables

   $      $       $       $   

Automotive wholesale loans

            8                 110   

Mortgage loans

     (1             3         (4
   

Total pretax (loss) gain on off-balance sheet activities

   $ (1   $ 8       $ 3       $ 106   
   

The following summarizes the type and amount of loans held by the securitization trusts in transactions that qualified for off-balance sheet treatment.

 

($ in billions)    September 30, 2010      December 31, 2009  

Retail finance receivables

   $       $ 7.5   

Automotive wholesale loans

               

Mortgage loans (a)

     72.8         99.6   
   

Total off-balance sheet activities

   $ 72.8       $ 107.1   
   
(a) Excludes $148 million and $237 million of delinquent loans held by securitization trusts at September 30, 2010, and December 31, 2009, respectively, that we have the option to repurchase as they are included in consumer finance receivables and loans and mortgage loans held-for-sale.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

10. Investment in Operating Leases, Net

Investments in operating leases were as follows.

 

($ in millions)    September 30, 2010     December 31, 2009  

Vehicles and other equipment, after impairment

   $ 15,483      $ 23,919   

Accumulated depreciation

     (5,270     (7,924
   

Investment in operating leases, net

   $ 10,213      $ 15,995   
   

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

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
($ in millions)      2010         2009         2010          2009    

Depreciation expense on operating lease assets (excluding remarketing gains)

   $ 618      $ 1,056      $ 2,183       $ 3,325   

Gross remarketing gains

     (164     (162     (547      (318
   

Depreciation expense on operating lease assets

   $ 454      $ 894      $ 1,636       $ 3,007   
   

 

11. Mortgage Servicing Rights

The following tables summarize activity related to MSRs carried at fair value. Sufficient market inputs exist to determine the fair value of our recognized servicing assets and servicing liabilities.

 

Three months ended September 30, ($ in millions)        2010             2009      

Estimated fair value at July 1,

   $ 2,983      $ 3,509   

Additions recognized on sale of mortgage loans

     260        206   

Additions from purchases of servicing assets

     24        6   

Changes in fair value

    

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