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Ally Financial Inc. - Quarter Report: 2019 September (Form 10-Q)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019, 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.)
Ally Detroit Center
500 Woodward Ave.
Floor 10, Detroit, Michigan
48226
(Address of principal executive offices)
(Zip Code)
(866710-4623
(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
Trading symbols
Common Stock, par value $0.01 per share
ALLY
8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I
ALLY PRA
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                    Yes                     No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).                            Yes                     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  
Accelerated filer
  
Non-accelerated filer
 
Smaller reporting company
 
 
  
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes                     No
At November 1, 2019, the number of shares outstanding of the Registrant’s common stock was 380,068,995 shares.



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

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



 
PART I — FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Ally Financial Inc. • Form 10-Q



 
 
Three months ended September 30,
 
Nine months ended September 30,
($ in millions)
 
2019
 
2018
 
2019
 
2018
Financing revenue and other interest income
 
 
 
 
 
 
 
 
Interest and fees on finance receivables and loans
 
$
1,859

 
$
1,708

 
$
5,526

 
$
4,898

Interest on loans held-for-sale
 
8

 
4

 
13

 
10

Interest and dividends on investment securities and other earning assets
 
237

 
198

 
721

 
562

Interest on cash and cash equivalents
 
19

 
18

 
63

 
50

Operating leases
 
368

 
368

 
1,092

 
1,124

Total financing revenue and other interest income
 
2,491

 
2,296

 
7,415


6,644

Interest expense
 
 
 
 
 
 
 
 
Interest on deposits
 
658

 
462

 
1,901

 
1,212

Interest on short-term borrowings
 
33

 
29

 
114

 
101

Interest on long-term debt
 
378

 
451

 
1,204

 
1,296

Total interest expense
 
1,069

 
942

 
3,219

 
2,609

Net depreciation expense on operating lease assets
 
234

 
247

 
719

 
785

Net financing revenue and other interest income
 
1,188

 
1,107

 
3,477


3,250

Other revenue
 
 
 
 
 
 
 
 
Insurance premiums and service revenue earned
 
280

 
258

 
802

 
753

Gain on mortgage and automotive loans, net
 
10

 
17

 
22

 
19

Other gain on investments, net
 
27

 
22

 
174

 
37

Other income, net of losses
 
96

 
101

 
276

 
307

Total other revenue
 
413


398

 
1,274


1,116

Total net revenue
 
1,601

 
1,505

 
4,751


4,366

Provision for loan losses
 
263

 
233

 
722

 
652

Noninterest expense
 
 
 
 
 
 
 
 
Compensation and benefits expense
 
296

 
274

 
910

 
872

Insurance losses and loss adjustment expenses
 
74

 
77

 
260

 
241

Other operating expenses
 
468

 
456

 
1,379

 
1,347

Total noninterest expense
 
838

 
807

 
2,549

 
2,460

Income from continuing operations before income tax expense
 
500

 
465

 
1,480


1,254

Income tax expense from continuing operations
 
119

 
91

 
140

 
280

Net income from continuing operations
 
381

 
374

 
1,340


974

Loss from discontinued operations, net of tax
 

 

 
(3
)
 
(1
)
Net income
 
381

 
374

 
1,337


973

Other comprehensive income (loss), net of tax
 
106

 
(133
)
 
721

 
(531
)
Comprehensive income
 
$
487


$
241


$
2,058


$
442

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

3

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

 
 
Three months ended September 30,
 
Nine months ended September 30,
(in dollars) (a)
 
2019
 
2018
 
2019
 
2018
Basic earnings per common share
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
0.98

 
$
0.89

 
$
3.37

 
$
2.27

Loss from discontinued operations, net of tax
 

 

 
(0.01
)
 

Net income
 
$
0.97

 
$
0.89

 
$
3.36

 
$
2.26

Diluted earnings per common share
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
0.97

 
$
0.88

 
$
3.35

 
$
2.25

Loss from discontinued operations, net of tax
 

 

 
(0.01
)
 

Net income
 
$
0.97

 
$
0.88

 
$
3.35

 
$
2.25

Cash dividends declared per common share
 
$
0.17

 
$
0.15

 
$
0.51

 
$
0.41

(a)
Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.
Refer to Note 15 for additional earnings per share information. The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

4

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

($ in millions, except share data)
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
 
Cash and cash equivalents
 
 
 
 
Noninterest-bearing
 
$
723

 
$
810

Interest-bearing
 
2,894

 
3,727

Total cash and cash equivalents
 
3,617

 
4,537

Equity securities
 
570

 
773

Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral)
 
29,384

 
25,303

Held-to-maturity securities (fair value of $2,687 and $2,307)
 
2,618

 
2,362

Loans held-for-sale, net
 
1,000

 
314

Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net of unearned income
 
128,609

 
129,926

Allowance for loan losses
 
(1,277
)
 
(1,242
)
Total finance receivables and loans, net
 
127,332

 
128,684

Investment in operating leases, net
 
8,653

 
8,417

Premiums receivable and other insurance assets
 
2,521

 
2,326

Other assets
 
5,790

 
6,153

Total assets
 
$
181,485

 
$
178,869

Liabilities
 
 
 
 
Deposit liabilities
 
 
 
 
Noninterest-bearing
 
$
156

 
$
142

Interest-bearing
 
119,074


106,036

Total deposit liabilities
 
119,230

 
106,178

Short-term borrowings
 
5,335

 
9,987

Long-term debt
 
35,730

 
44,193

Interest payable
 
894

 
523

Unearned insurance premiums and service revenue
 
3,246

 
3,044

Accrued expenses and other liabilities
 
2,600

 
1,676

Total liabilities
 
167,035

 
165,601

Contingencies (refer to Note 23)
 
 
 
 
Equity
 
 
 
 
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 496,595,277 and 492,797,409; and outstanding 383,523,357 and 404,899,599)
 
21,417

 
21,345

Accumulated deficit
 
(4,368
)
 
(5,489
)
Accumulated other comprehensive income (loss)
 
190

 
(539
)
Treasury stock, at cost (113,071,920 and 87,897,810 shares)
 
(2,789
)
 
(2,049
)
Total equity
 
14,450

 
13,268

Total liabilities and equity
 
$
181,485

 
$
178,869

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

5

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

The assets of consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to our general credit were as follows.
($ in millions)
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 
 
Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net of unearned income
 
$
17,816

 
$
18,086

Allowance for loan losses
 
(129
)
 
(114
)
Total finance receivables and loans, net
 
17,687

 
17,972

Investment in operating leases, net
 
63

 
164

Other assets
 
713

 
767

Total assets
 
$
18,463

 
$
18,903

Liabilities
 
 
 
 
Long-term debt
 
$
8,906

 
$
10,482

Accrued expenses and other liabilities
 
13

 
12

Total liabilities
 
$
8,919

 
$
10,494

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

6

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

 
 
Three months ended September 30,
($ in millions)
 
Common stock and paid-in capital
 
Accumulated deficit
 
Accumulated other comprehensive (loss) income
 
Treasury stock
 
Total equity
Balance at July 1, 2018
 
$
21,303

 
$
(6,026
)
 
$
(648
)
 
$
(1,490
)
 
$
13,139

Net income
 
 
 
374

 
 
 
 
 
374

Share-based compensation
 
19

 
 
 
 
 
 
 
19

Other comprehensive loss
 
 
 
 
 
(133
)
 
 
 
(133
)
Common stock repurchases
 
 
 
 
 
 
 
(250
)
 
(250
)
Common stock dividends ($0.15 per share)
 
 
 
(64
)
 
 
 
 
 
(64
)
Balance at September 30, 2018
 
$
21,322

 
$
(5,716
)
 
$
(781
)
 
$
(1,740
)
 
$
13,085

Balance at July 1, 2019
 
$
21,403

 
$
(4,682
)
 
$
84

 
$
(2,489
)
 
$
14,316

Net income
 
 
 
381

 
 
 
 
 
381

Share-based compensation
 
14

 
 
 
 
 
 
 
14

Other comprehensive income
 
 
 
 
 
106

 
 
 
106

Common stock repurchases
 
 
 
 
 
 
 
(300
)
 
(300
)
Common stock dividends ($0.17 per share)
 
 
 
(67
)
 
 
 
 
 
(67
)
Balance at September 30, 2019
 
$
21,417

 
$
(4,368
)
 
$
190

 
$
(2,789
)
 
$
14,450

 
 
Nine months ended September 30,
($ in millions)
 
Common stock and paid-in capital
 
Accumulated deficit
 
Accumulated other comprehensive (loss) income
 
Treasury stock
 
Total equity
Balance at December 31, 2017
 
$
21,245

 
$
(6,406
)
 
$
(235
)
 
$
(1,110
)
 
$
13,494

Cumulative effect of changes in accounting principles, net of tax
 
 
 
 
 
 
 
 
 
 
Adoption of Accounting Standards Update 2014-09
 
 
 
(126
)
 
 
 
 
 
(126
)
Adoption of Accounting Standards Update 2016-01
 
 
 
(20
)
 
27

 
 
 
7

Adoption of Accounting Standards Update 2018-02
 
 
 
42

 
(42
)
 
 
 

Balance at January 1, 2018
 
$
21,245

 
$
(6,510
)
 
$
(250
)
 
$
(1,110
)
 
$
13,375

Net income
 
 
 
973

 
 
 
 
 
973

Share-based compensation
 
77

 
 
 
 
 
 
 
77

Other comprehensive loss
 
 
 
 
 
(531
)
 
 
 
(531
)
Common stock repurchases
 
 
 
 
 
 
 
(630
)
 
(630
)
Common stock dividends ($0.41 per share)
 
 
 
(179
)
 
 
 
 
 
(179
)
Balance at September 30, 2018
 
$
21,322

 
$
(5,716
)
 
$
(781
)
 
$
(1,740
)
 
$
13,085

Balance at December 31, 2018
 
$
21,345

 
$
(5,489
)
 
$
(539
)
 
$
(2,049
)
 
$
13,268

Cumulative effect of changes in accounting principles, net of tax (a)
 
 
 
 
 
 
 
 
 
 
Adoption of Accounting Standards Update 2017-08
 
 
 
(10
)
 
8

 
 
 
(2
)
Balance at January 1, 2019
 
$
21,345

 
$
(5,499
)
 
$
(531
)
 
$
(2,049
)
 
$
13,266

Net income
 
 
 
1,337

 
 
 
 
 
1,337

Share-based compensation
 
72

 
 
 
 
 
 
 
72

Other comprehensive income
 
 
 
 
 
721

 
 
 
721

Common stock repurchases
 
 
 
 
 
 
 
(740
)
 
(740
)
Common stock dividends ($0.51 per share)
 
 
 
(206
)
 
 
 
 
 
(206
)
Balance at September 30, 2019
 
$
21,417

 
$
(4,368
)
 
$
190

 
$
(2,789
)
 
$
14,450

(a)
Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

7

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

Nine months ended September 30, ($ in millions)
 
2019
 
2018
Operating activities




Net income

$
1,337


$
973

Reconciliation of net income to net cash provided by operating activities

 

 
Depreciation and amortization

1,136


1,280

Provision for loan losses

722


652

Gain on mortgage and automotive loans, net

(22
)

(19
)
Other gain on investments, net

(174
)

(37
)
Originations and purchases of loans held-for-sale

(952
)

(889
)
Proceeds from sales and repayments of loans held-for-sale

788


830

Net change in

 

 
Deferred income taxes

86


272

Interest payable

371


338

Other assets

(25
)

(136
)
Other liabilities

(98
)

(9
)
Other, net

(36
)

89

Net cash provided by operating activities

3,133


3,344

Investing activities




Purchases of equity securities
 
(301
)
 
(652
)
Proceeds from sales of equity securities
 
615

 
715

Purchases of available-for-sale securities

(11,214
)

(5,669
)
Proceeds from sales of available-for-sale securities

5,699


637

Proceeds from repayments of available-for-sale securities

3,246


2,509

Purchases of held-to-maturity securities

(514
)

(436
)
Proceeds from repayments of held-to-maturity securities

195


107

Purchases of finance receivables and loans held-for-investment

(3,322
)

(4,778
)
Proceeds from sales of finance receivables and loans initially held-for-investment

427


53

Originations and repayments of finance receivables and loans held-for-investment and other, net
 
3,069

 
(558
)
Purchases of operating lease assets

(2,937
)

(2,991
)
Disposals of operating lease assets

2,016


2,461

Net change in nonmarketable equity investments

179


(3
)
Other, net

(306
)

(241
)
Net cash used in investing activities

(3,148
)

(8,846
)
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

8

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

Nine months ended September 30, ($ in millions)
 
2019
 
2018
Financing activities




Net change in short-term borrowings

(4,652
)

(4,074
)
Net increase in deposits

13,032


8,063

Proceeds from issuance of long-term debt

5,438


14,756

Repayments of long-term debt

(14,114
)

(12,994
)
Repurchase of common stock
 
(740
)
 
(630
)
Dividends paid

(206
)

(179
)
Net cash (used in) provided by financing activities

(1,242
)

4,942

Effect of exchange-rate changes on cash and cash equivalents and restricted cash

2


(2
)
Net decrease in cash and cash equivalents and restricted cash

(1,255
)

(562
)
Cash and cash equivalents and restricted cash at beginning of year

5,626


5,269

Cash and cash equivalents and restricted cash at September 30,

$
4,371


$
4,707

Supplemental disclosures

 
 
 
Cash paid for

 
 
 
Interest

$
2,781


$
2,242

Income taxes

31


21

Noncash items

 
 
 
Held-to-maturity securities received in consideration for loans sold
 

 
26

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

125



Finance receivables and loans held-for-investment transferred to loans held-for-sale
 
964

 
815


The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance Sheet to the Condensed Consolidated Statement of Cash Flows.
September 30, ($ in millions)
 
2019
 
2018
Cash and cash equivalents on the Condensed Consolidated Balance Sheet
 
$
3,617

 
$
3,772

Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)
 
754

 
935

Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows
 
$
4,371

 
$
4,707

(a)
Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 10 for additional details describing the nature of restricted cash balances.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

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


1.    Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services and insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member Federal Deposit Insurance Corporation and Equal Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956, as amended, and a financial holding company (FHC) under the Gramm-Leach-Bliley Act of 1999, as amended.
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 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, and the determination of the provision for income taxes.
The Condensed Consolidated Financial Statements at September 30, 2019, and for the three months and nine months ended September 30, 2019, and 2018, 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, 2018, as filed on February 20, 2019, with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies
Lease Accounting
At contract inception, we determine whether the contract is or contains a lease based on the terms and conditions of the contract. Lease contracts are recognized on our Condensed Consolidated Balance Sheet as right-of-use (ROU) assets and lease liabilities; however, we have elected not to recognize ROU assets and lease liabilities on real estate leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded based on the present value of the future lease payments over the expected lease term. As the interest rate implicit in the lease contract is typically not readily determinable, we utilize our incremental borrowing rate, which is the rate we would incur to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. The ROU asset also includes initial direct costs paid less lease incentives received from the lessor. Our lease contracts are generally classified as operating and, as a result, we recognize a single lease cost within other operating expenses on the income statement on a straight-line basis over the lease term. This update to our accounting policy resulted from our adoption of Accounting Standards Update (ASU) 2016-02 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.
Investments
Premiums on debt securities that have noncontingent call features that are callable at fixed prices on preset dates are amortized to the earliest call date as an adjustment to investment yield. All other premiums and discounts on debt securities are amortized over the stated maturity of the security as an adjustment to investment yield. This method of amortization differs from that described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, which describes our full accounting policy for Investments. This update to our amortization methodology resulted from the adoption of ASU 2017-08 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.
Income Taxes
In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) Topic 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This method differs from that described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K regarding additional significant accounting policies.

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

Recently Adopted Accounting Standards
Leases (ASU 2016-02)
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02. The amendments in this update primarily replaced the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases (previously referred to as capital leases) and lessor accounting requirements for operating leases and sales type and direct financing leases were largely unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a ROU asset and lease liability equal to the present value of the lease payments. The ROU asset and lease liability should be derecognized in a manner that effectively yields a straight line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also changed the types of costs that can be capitalized related to a lease agreement for both lessees and lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The FASB issued additional ASUs to clarify the guidance and provide certain practical expedients and an additional transition option. We adopted ASU 2016-02 and the subsequent ASUs that modified ASU 2016-02 (collectively, the amendments) on January 1, 2019. This includes the early adoption of ASU 2019-01, which was issued in March 2019 to amend certain provisions included in ASU 2016-02.
We adopted this guidance using the modified retrospective approach on January 1, 2019, and have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous lease accounting guidance. We have elected certain practical expedients permitted within the amendments that allowed us to not reassess (i) current lease classifications, (ii) whether existing contracts meet the definition of a lease under the amendments to the lease guidance, and (iii) whether current initial direct costs meet the new criteria for capitalization, for all existing leases as of the adoption date. We made an accounting policy election to calculate the impact of adoption using the remaining minimum lease payments and remaining lease term for each contract that was identified as a lease, discounted at our incremental borrowing rate as of the adoption date. The adoption of the amendments resulted in a ROU asset of approximately $161 million from operating leases for our various corporate facilities, a $29 million reduction to accrued expenses and other liabilities for accrued rent and unamortized tenant improvement allowances, and a lease liability of approximately $190 million. The adoption did not change our previously reported Condensed Consolidated Statements of Comprehensive Income and did not result in a cumulative catch-up adjustment to opening retained earnings.
Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)
In March 2017, the FASB issued ASU 2017-08. The amendments in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. We adopted the amendments on January 1, 2019, on a modified retrospective basis, which resulted in an increase to our accumulated deficit of $10 million, net of income taxes, partially offset by an $8 million decrease to accumulated other comprehensive loss, net of income taxes.
Recently Issued Accounting Standards
Financial Instruments—Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (CECL). The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. The FASB has also issued additional ASUs to clarify the scope and provide additional guidance for ASU 2016-13. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be recorded under the current incurred loss model for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. The amendments are effective on January 1, 2020, and must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption as required. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our loan portfolios.
Management has continued to utilize a cross-functional working group to govern the implementation of these amendments, including consideration of model development, data integrity, technology, reporting and disclosure requirements, key accounting interpretations, control environment, and corporate governance. We are in the process of finalizing the allowance for credit loss models, implementing changes to our internal processes and internal control structure, and updating our policies and documentation related to the allowance for credit losses. During the third quarter of 2019, we performed parallel testing, which included enhanced analytics, continued refinement of our qualitative allowance framework, and the execution of parallel processes for governance and documentation, and we expect to complete our implementation efforts by December 31, 2019. Based on forecasted economic conditions and portfolio balances as of September 30, 2019, preliminary assessments indicate that the adoption of CECL could result in an overall increase to our allowance for loan losses on finance receivables and loans of between 105% to 115%. The increase is driven by our consumer automotive loan portfolio and is primarily related to the difference between loss emergence periods currently utilized, as compared to estimating lifetime credit losses as required by the CECL standard. Additionally, there was no material impact to the allowance for loan losses from our other loan portfolios. Our estimation techniques

11

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

under CECL are impacted by forecasted economic conditions. Our modeling processes utilize a 12 month reasonable and supportable forecast period for all portfolio segments. After the forecast period, we revert to a longer term historical mean over a 24 month period. Additionally, the adoption of CECL is not expected to result in a material impact to our held-to-maturity securities portfolio, which is primarily composed of agency-backed mortgage securities, and is also not expected to have a material impact on our available-for-sale debt securities portfolio.
The actual impact of adopting this standard will depend upon a number of factors at the adoption date, including the composition and credit quality of our financing receivables and loan portfolios and investment securities portfolios, economic conditions and forecasts, the allowance for credit loss models that are used, the data that is included in the models, the associated qualitative allowance framework, and our estimation techniques. Additionally, under CECL, changes in these factors after the adoption date may lead to increased volatility in our future provisions for loan losses. The impact of the adoption will be reflected as an adjustment to beginning retained earnings, net of income taxes. Additionally, we currently expect to phase in the day-one impact of CECL into regulatory capital as prescribed by regulatory capital rules which permit us to phase in 25 percent of the capital impact of CECL in 2020 and an additional 25 percent each subsequent year until fully-phased in by the first quarter of 2023.
2.    Revenue from Contracts with Customers
Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. As part of our Insurance operations, we recognize revenue from insurance contracts, which are addressed by other GAAP and are not included in the scope of this standard. Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of this standard. All revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the anticipated cost emergence. Further, commissions and sales expense incurred to obtain these contracts are amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue are earned, and all advertising costs are recognized as expense when incurred.

12

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

The following tables present a disaggregated view of our revenue from contracts with customers included in other revenue that falls within the scope of the revenue recognition principles of ASC Topic 606, Revenue from Contracts with Customers. For further information regarding our revenue recognition policies and details about the nature of our respective revenue streams, refer to Note 1 and Note 3 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.
Three months ended September 30, ($ in millions)
 
Automotive Finance operations
 
Insurance operations
 
Mortgage Finance operations
 
Corporate Finance operations
 
Corporate and Other
 
Consolidated
2019
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
Noninsurance contracts (a) (b) (c)
 
$

 
$
138

 
$

 
$

 
$

 
$
138

Remarketing fee income
 
19

 

 

 

 

 
19

Brokerage commissions and other revenue
 

 

 

 

 
16

 
16

Deposit account and other banking fees
 

 

 

 

 
3

 
3

Brokered/agent commissions
 

 
3

 

 

 

 
3

Other
 
5

 

 

 

 

 
5

Total revenue from contracts with customers
 
24

 
141

 

 

 
19

 
184

All other revenue
 
35

 
148

 
10

 
9

 
27

 
229

Total other revenue (d)
 
$
59

 
$
289

 
$
10

 
$
9

 
$
46

 
$
413

2018
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
Noninsurance contracts (a) (b) (c)
 
$

 
$
129

 
$

 
$

 
$

 
$
129

Remarketing fee income
 
19

 

 

 

 

 
19

Brokerage commissions and other revenue
 

 

 

 

 
15

 
15

Brokered/agent commissions
 

 
3

 

 

 

 
3

Deposit account and other banking fees
 

 

 

 

 
3

 
3

Other
 
4

 

 

 

 

 
4

Total revenue from contracts with customers
 
23

 
132

 

 

 
18

 
173

All other revenue
 
57

 
150

 
2

 
14

 
2

 
225

Total other revenue (d)
 
$
80

 
$
282

 
$
2

 
$
14

 
$
20

 
$
398

(a)
We had opening balances of $2.8 billion and $2.6 billion in unearned revenue associated with outstanding contracts at July 1, 2019, and July 1, 2018, respectively, and $206 million and $199 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months ended September 30, 2019, and September 30, 2018.
(b)
At September 30, 2019, we had unearned revenue of $2.8 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $197 million during the remainder of 2019, $737 million in 2020, $646 million in 2021, $523 million in 2022, and $720 million thereafter. At September 30, 2018, we had unearned revenue of $2.6 billion associated with outstanding contracts.
(c)
We had deferred insurance assets of $1.6 billion and $1.7 billion at July 1, 2019, and September 30, 2019, respectively, and recognized $119 million of expense during the three months ended September 30, 2019. We had deferred insurance assets of $1.5 billion at both July 1, 2018, and September 30, 2018, respectively, and recognized $108 million of expense during the three months ended September 30, 2018.
(d)
Represents a component of total net revenue. Refer to Note 21 for further information on our reportable operating segments.

13

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

Nine months ended September 30, ($ in millions)
 
Automotive Finance operations
 
Insurance operations
 
Mortgage Finance operations
 
Corporate Finance operations
 
Corporate and Other
 
Consolidated
2019
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
Noninsurance contracts (a) (b)
 
$

 
$
403

 
$

 
$

 
$

 
$
403

Remarketing fee income
 
56

 

 

 

 

 
56

Brokerage commissions and other revenue
 

 

 

 

 
50

 
50

Deposit account and other banking fees
 

 

 

 

 
12

 
12

Brokered/agent commissions
 

 
10

 

 

 

 
10

Other
 
15

 

 

 

 

 
15

Total revenue from contracts with customers
 
71

 
413

 

 

 
62

 
546

All other revenue
 
117

 
522

 
16

 
30

 
43

 
728

Total other revenue (c)
 
$
188

 
$
935

 
$
16

 
$
30

 
$
105

 
$
1,274

2018
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
Noninsurance contracts (a) (b)
 
$

 
$
377

 
$

 
$

 
$

 
$
377

Remarketing fee income
 
63

 

 

 

 

 
63

Brokerage commissions and other revenue
 

 

 

 

 
46

 
46

Brokered/agent commissions
 

 
11

 

 

 

 
11

Deposit account and other banking fees
 

 

 

 

 
9

 
9

Other
 
10

 
1

 

 

 

 
11

Total revenue from contracts with customers
 
73

 
389

 

 

 
55

 
517

All other revenue
 
136

 
405

 
5

 
36

 
17

 
599

Total other revenue (c)
 
$
209

 
$
794

 
$
5

 
$
36

 
$
72

 
$
1,116

(a)
We had opening balances of $2.6 billion and $2.5 billion in unearned revenue associated with outstanding contracts at January 1, 2019, and January 1, 2018, respectively, and $607 million and $588 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the nine months ended September 30, 2019, and September 30, 2018.
(b)
We had deferred insurance assets of $1.5 billion and $1.7 billion at January 1, 2019, and September 30, 2019, respectively, and recognized $344 million of expense during the nine months ended September 30, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at January 1, 2018, and September 30, 2018, respectively, and recognized $317 million of expense during the nine months ended September 30, 2018.
(c)
Represents a component of total net revenue. Refer to Note 21 for further information on our reportable operating segments.
In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized net remarketing gains of $28 million and $66 million for the three months and nine months ended September 30, 2019, respectively, and $27 million and $61 million for the three months and nine months ended September 30, 2018, on the sale of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.
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)
 
2019
 
2018
 
2019
 
2018
Late charges and other administrative fees
 
$
28

 
$
29

 
$
85

 
$
83

Remarketing fees
 
19

 
19

 
56

 
63

Income from equity-method investments
 
7

 
5

 
19

 
18

Servicing fees
 
4

 
5

 
14

 
21

Other, net
 
38

 
43

 
102

 
122

Total other income, net of losses
 
$
96

 
$
101

 
$
276

 
$
307



14

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

4.    Reserves for Insurance Losses and Loss Adjustment Expenses
The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.
($ in millions)
 
2019
 
2018
Total gross reserves for insurance losses and loss adjustment expenses at January 1,
 
$
134

 
$
140

Less: Reinsurance recoverable
 
96

 
108

Net reserves for insurance losses and loss adjustment expenses at January 1,
 
38

 
32

Net insurance losses and loss adjustment expenses incurred related to:
 
 
 
 
Current year
 
259

 
235

Prior years (a)
 
1

 
6

Total net insurance losses and loss adjustment expenses incurred
 
260

 
241

Net insurance losses and loss adjustment expenses paid or payable related to:
 
 
 
 
Current year
 
(227
)
 
(205
)
Prior years
 
(29
)
 
(27
)
Total net insurance losses and loss adjustment expenses paid or payable
 
(256
)
 
(232
)
Net reserves for insurance losses and loss adjustment expenses at September 30,
 
42

 
41

Plus: Reinsurance recoverable
 
93

 
98

Total gross reserves for insurance losses and loss adjustment expenses at September 30,
 
$
135

 
$
139

(a)
There have been no material adverse changes to the reserve for prior years.
5.    Other Operating Expenses
Details of other operating expenses were as follows.
 
Three months ended September 30,
 
Nine months ended September 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Insurance commissions
$
120

 
$
113

 
$
351

 
$
332

Technology and communications
77

 
75

 
227

 
220

Advertising and marketing
46

 
38

 
129

 
106

Lease and loan administration
40

 
42

 
122

 
124

Professional services
32

 
33

 
91

 
100

Regulatory and licensing fees
29

 
33

 
85

 
98

Vehicle remarketing and repossession
26

 
27

 
78

 
85

Premises and equipment depreciation
25

 
22

 
72

 
64

Occupancy
14

 
11

 
43

 
33

Non-income taxes
9

 
10

 
29

 
24

Amortization of intangible assets
2

 
2

 
8

 
8

Other
48

 
50

 
144

 
153

Total other operating expenses
$
468

 
$
456

 
$
1,379

 
$
1,347



15

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

6.    Investment Securities
Our investment portfolio includes various debt and equity securities. Our debt securities, which are classified as available-for-sale or held-to-maturity, include government securities, corporate bonds, asset-backed securities, and mortgage-backed securities. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity debt securities were as follows.
 
 
September 30, 2019
 
December 31, 2018


Amortized cost

Gross unrealized

Fair value

Amortized cost

Gross unrealized

Fair value
($ in millions)

gains

losses

gains

losses

Available-for-sale securities
















Debt securities
















U.S. Treasury and federal agencies

$
2,389


$
8


$
(15
)

$
2,382


$
1,911


$


$
(60
)

$
1,851

U.S. States and political subdivisions

612


19


(1
)

630


816


3


(17
)

802

Foreign government

152


3




155


145


1


(1
)

145

Agency mortgage-backed residential

19,887


244


(23
)

20,108


17,486


47


(395
)

17,138

Mortgage-backed residential
 
2,799

 
22

 
(9
)
 
2,812

 
2,796

 
1

 
(111
)
 
2,686

Agency mortgage-backed commercial
 
1,341

 
72

 

 
1,413

 
3

 

 

 
3

Mortgage-backed commercial

112


1




113


715


1


(2
)

714

Asset-backed

413


4




417


723


2


(2
)

723

Corporate debt

1,321


35


(2
)

1,354


1,286


1


(46
)

1,241

Total available-for-sale securities (a) (b) (c)

$
29,026


$
408


$
(50
)

$
29,384


$
25,881


$
56


$
(634
)

$
25,303

Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed residential (d)
 
$
2,593

 
$
70

 
$
(1
)
 
$
2,662

 
$
2,319

 
$
6

 
$
(61
)
 
$
2,264

Asset-backed retained notes
 
25

 

 

 
25

 
43

 

 

 
43

Total held-to-maturity securities

$
2,618


$
70


$
(1
)

$
2,687


$
2,362

 
$
6

 
$
(61
)
 
$
2,307

(a)
Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million at both September 30, 2019, and December 31, 2018, respectively.
(b)
Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 17 for additional information.
(c)
Available-for-sale securities with a fair value of $2.5 billion and $9.2 billion at September 30, 2019, and December 31, 2018, respectively, were pledged to secure advances from the Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements, or for other purposes as required by contractual obligation or law. Under these agreements, we have granted the counterparty the right to sell or pledge $594 million and $821 million of the underlying investment securities at September 30, 2019, and December 31, 2018, respectively.
(d)
Held-to-maturity securities with a fair value of $972 million and $1.2 billion at September 30, 2019, and December 31, 2018, respectively, were pledged to secure advances from the FHLB.

16

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

The maturity distribution of 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
September 30, 2019




















Fair value of available-for-sale securities (a)




















U.S. Treasury and federal agencies

$
2,382


1.5
%

$
65


2.1
%

$
1,742


1.5
%

$
575


1.6
%

$


%
U.S. States and political subdivisions

630


3.1


21


2.2


61


2.2


169


2.8


379


3.4

Foreign government

155


2.3


4


1.4


65


2.3


86


2.3





Agency mortgage-backed residential
 
20,108

 
3.3

 

 

 

 

 
49

 
2.0

 
20,059

 
3.3

Mortgage-backed residential
 
2,812

 
3.3

 

 

 

 

 

 

 
2,812

 
3.3

Agency mortgage-backed commercial
 
1,413

 
2.9

 

 

 
3

 
3.2

 
1,089

 
3.0

 
321

 
2.6

Mortgage-backed commercial

113


3.5














113


3.5

Asset-backed

417


3.5






310


3.5


53


3.9


54


3.0

Corporate debt

1,354


3.2


125


2.8


571


3.0


643


3.4


15


5.5

Total available-for-sale securities

$
29,384


3.1


$
215


2.5


$
2,752


2.0


$
2,664


2.8


$
23,753


3.3

Amortized cost of available-for-sale securities

$
29,026




$
215




$
2,745




$
2,568




$
23,498



Amortized cost of held-to-maturity securities
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed residential
 
$
2,593

 
3.2
%
 
$

 
%
 
$

 
%
 
$

 
%
 
$
2,593

 
3.2
%
Asset-backed retained notes
 
25

 
2.2

 

 

 
25

 
2.2

 

 

 

 

Total held-to-maturity securities
 
$
2,618

 
3.2

 
$

 

 
$
25

 
2.2

 
$

 

 
$
2,593

 
3.2

December 31, 2018




















Fair value of available-for-sale securities (a)




















U.S. Treasury and federal agencies

$
1,851


1.9
%

$
12


1.0
%

$
1,277


1.8
%

$
562


2.0
%

$


%
U.S. States and political subdivisions

802


3.0


49


1.9


43


2.3


252


2.6


458


3.4

Foreign government

145


2.4


18


3.1


60


2.3


67


2.4





Agency mortgage-backed residential
 
17,138

 
3.3

 

 

 

 

 
54

 
1.9

 
17,084

 
3.3

Mortgage-backed residential

2,686

 
3.3

 

 

 

 

 

 

 
2,686

 
3.3

Agency mortgage-backed commercial
 
3

 
3.1

 

 

 
3

 
3.1

 

 

 

 

Mortgage-backed commercial

714


3.8










46


3.9


668


3.8

Asset-backed

723


3.5






478


3.4


121


4.0


124


3.3

Corporate debt

1,241


3.1


144


2.8


496


2.9


581


3.3


20


5.5

Total available-for-sale securities

$
25,303


3.2


$
223


2.6


$
2,357


2.4


$
1,683


2.8


$
21,040


3.3

Amortized cost of available-for-sale securities

$
25,881





$
224





$
2,405





$
1,743





$
21,509




Amortized cost of held-to-maturity securities

 






















Agency mortgage-backed residential
 
$
2,319

 
3.2
%
 
$

 
%
 
$

 
%
 
$

 
%
 
$
2,319

 
3.2
%
Asset-backed retained notes
 
43

 
2.0

 

 

 
42

 
2.0

 
1

 
3.3

 

 

Total held-to-maturity securities
 
$
2,362

 
3.2

 
$

 

 
$
42

 
2.0

 
$
1

 
3.3

 
$
2,319

 
3.2

(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 $124 million and $35 million at September 30, 2019, and December 31, 2018, respectively, and were composed primarily of money-market accounts and short-term securities, including U.S. Treasury bills.

17

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

The following table presents interest and dividends on investment securities.
 
Three months ended September 30,
 
Nine months ended September 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Taxable interest
$
214


$
172

 
$
648

 
$
490

Taxable dividends
4


4

 
10

 
10

Interest and dividends exempt from U.S. federal income tax
3


6

 
12

 
18

Interest and dividends on investment securities
$
221


$
182

 
$
670

 
$
518


The following table presents gross gains and losses realized upon the sales of available-for-sale securities, and net gains or losses on equity securities held during the period. There were no other-than-temporary impairments of available-for-sale securities for the periods presented.
 
Three months ended September 30,
 
Nine months ended September 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Available-for-sale securities
 
 
 
 
 
 
 
Gross realized gains
$
30

 
$
1

 
$
64

 
$
8

Gross realized losses (a)
(3
)
 

 
(4
)
 

Net realized gains on available-for-sale securities
27

 
1

 
60

 
8

Net realized gain on equity securities
12

 
15

 
51

 
55

Net unrealized (loss) gain on equity securities
(12
)
 
6

 
63

 
(26
)
Other gain on investments, net
$
27

 
$
22

 
$
174

 
$
37


(a)
Certain available-for-sale securities were sold at a loss during the three months and nine months ended September 30, 2019, and September 30, 2018, as a result of identifiable market or credit events, or a loss was realized based on corporate actions outside of our control (such as a call by the issuer). Any such sales were made in accordance with our risk-management policies and practices.

18

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

The table below summarizes available-for-sale and held-to-maturity securities in an unrealized loss position, which we evaluated for other than temporary impairment. For additional information on our methodology, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K. As of September 30, 2019, we did not have the intent to sell the available-for-sale or held-to-maturity securities with an unrealized loss position and we do not believe it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result of this evaluation, we believe that the securities with an unrealized loss position are not considered to be other-than-temporarily impaired at September 30, 2019.
 
 
September 30, 2019
 
December 31, 2018


Less than 12 months

12 months or longer

Less than 12 months

12 months or longer
($ in millions)

Fair value

Unrealized loss

Fair value

Unrealized loss

Fair value

Unrealized loss

Fair value

Unrealized loss
Available-for-sale securities
















Debt securities
















U.S. Treasury and federal agencies

$
1,131


$
(8
)

$
279


$
(7
)

$
31


$


$
1,758


$
(60
)
U.S. States and political subdivisions

63


(1
)

9




259


(3
)

317


(14
)
Foreign government

11




4




6




74


(1
)
Agency mortgage-backed residential
 
2,722

 
(8
)
 
1,317

 
(15
)
 
5,537

 
(94
)
 
7,808

 
(301
)
Mortgage-backed residential
 
647

 
(2
)
 
221

 
(7
)
 
1,024

 
(20
)
 
1,360

 
(91
)
Mortgage-backed commercial
 
43

 

 

 

 
347

 
(1
)
 
36

 
(1
)
Asset-backed

17




13




294


(1
)

124


(1
)
Corporate debt

104




57


(2
)

576


(19
)

569


(27
)
Total temporarily impaired available-for-sale securities

$
4,738


$
(19
)

$
1,900


$
(31
)

$
8,074


$
(138
)

$
12,046


$
(496
)
Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed residential
 
$
142

 
$
(1
)
 
$
87

 
$

 
$
457

 
$
(6
)
 
$
1,376

 
$
(55
)
Asset-backed retained notes
 

 

 
9

 

 
16

 

 
19

 

Total held-to-maturity debt securities
 
$
142

 
$
(1
)
 
$
96

 
$

 
$
473

 
$
(6
)
 
$
1,395

 
$
(55
)


19

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

7.    Finance Receivables and Loans, Net
The composition of finance receivables and loans reported at gross carrying value was as follows.
($ in millions)
 
September 30, 2019
 
December 31, 2018
Consumer automotive (a)
 
$
73,071

 
$
70,539

Consumer mortgage
 
 
 
 
Mortgage Finance (b)
 
15,782

 
15,155

Mortgage — Legacy (c)
 
1,228

 
1,546

Total consumer mortgage
 
17,010

 
16,701

Total consumer
 
90,081

 
87,240

Commercial
 
 
 
 
Commercial and industrial
 
 
 
 
Automotive
 
29,122

 
33,672

Other
 
4,377

 
4,205

Commercial real estate
 
5,029

 
4,809

Total commercial
 
38,528

 
42,686

Total finance receivables and loans (d)
 
$
128,609

 
$
129,926

(a)
Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 17 for additional information.
(b)
Includes loans originated as interest-only mortgage loans of $11 million and $18 million at September 30, 2019, and December 31, 2018, respectively, 14% of which are expected to start principal amortization in 2019, and 44% in 2020. The remainder of these loans have exited the interest-only period.
(c)
Includes loans originated as interest-only mortgage loans of $234 million and $341 million at September 30, 2019, and December 31, 2018, respectively, of which 99% have exited the interest-only period.
(d)
Totals include net unearned income, unamortized premiums and discounts, and deferred fees and costs of $547 million and $587 million at September 30, 2019, and December 31, 2018, respectively.
The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans.
Three months ended September 30, 2019 ($ in millions)
 
Consumer automotive
 
Consumer mortgage
 
Commercial
 
Total
Allowance at July 1, 2019
 
$
1,078

 
$
49

 
$
155

 
$
1,282

Charge-offs (a)
 
(374
)
 
(3
)
 
(16
)
 
(393
)
Recoveries
 
121

 
5

 

 
126

Net charge-offs</