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

Sport utility vehicle

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 June 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)

(866) 710-4623

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):



Title of each class	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, 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 July 30, 2019, the number of shares outstanding of the Registrant’s common stock was 390,415,331 shares.

Table of Contents

INDEX

Ally Financial Inc. • Form 10-Q



		Page
Part I — Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2019, and 2018	3
	Condensed Consolidated Balance Sheet (unaudited) at June 30, 2019, and December 31, 2018	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three and Six Months Ended June 30, 2019, and 2018	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2019, and 2018	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
	Note 1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies	10
	Note 2. Revenue from Contracts with Customers	12
	Note 3. Other Income, Net of Losses	13
	Note 4. Reserves for Insurance Losses and Loss Adjustment Expenses	14
	Note 5. Other Operating Expenses	14
	Note 6. Investment Securities	15
	Note 7. Finance Receivables and Loans, Net	19
	Note 8. Leasing	26
	Note 9. Securitizations and Variable Interest Entities	29
	Note 10. Other Assets	32
	Note 11. Deposit Liabilities	32
	Note 12. Debt	33
	Note 13. Accrued Expenses and Other Liabilities	35
	Note 14. Accumulated Other Comprehensive (Loss) Income	36
	Note 15. Earnings per Common Share	39
	Note 16. Regulatory Capital and Other Regulatory Matters	39
	Note 17. Derivative Instruments and Hedging Activities	42
	Note 18. Income Taxes	49
	Note 19. Fair Value	50
	Note 20. Offsetting Assets and Liabilities	57
	Note 21. Segment Information	59
	Note 22. Parent and Guarantor Condensed Consolidating Financial Statements	61
	Note 23. Contingencies and Other Risks	70
	Note 24. Subsequent Events	70
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	71
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	118
Item 4.	Controls and Procedures	119
Part II — Other Information		120
Item 1.	Legal Proceedings	120
Item 1A.	Risk Factors	120
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	120
Item 3.	Defaults Upon Senior Securities	120
Item 4.	Mine Safety Disclosures	120
Item 5.	Other Information	120
Item 6.	Exhibits	121
Signatures		122



Table of Contents		PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018			2019			2018
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,860		$	1,647		$	3,667		$	3,190
Interest on loans held-for-sale	3			6			5			6
Interest and dividends on investment securities and other earning assets	244			188			484			364
Interest on cash and cash equivalents	21			17			44			32
Operating leases	363			374			724			756
Total financing revenue and other interest income	2,491			2,232			4,924			4,348
Interest expense
Interest on deposits	651			399			1,243			750
Interest on short-term borrowings	37			40			81			72
Interest on long-term debt	407			434			826			845
Total interest expense	1,095			873			2,150			1,667
Net depreciation expense on operating lease assets	239			265			485			538
Net financing revenue and other interest income	1,157			1,094			2,289			2,143
Other revenue
Insurance premiums and service revenue earned	261			239			522			495
Gain on mortgage and automotive loans, net	2			1			12			2
Other gain on investments, net	39			27			147			15
Other income, net of losses	93			97			180			206
Total other revenue	395			364			861			718
Total net revenue	1,552			1,458			3,150			2,861
Provision for loan losses	177			158			459			419
Noninterest expense
Compensation and benefits expense	296			292			614			598
Insurance losses and loss adjustment expenses	127			101			186			164
Other operating expenses	458			446			911			891
Total noninterest expense	881			839			1,711			1,653
Income from continuing operations before income tax (benefit) expense	494			461			980			789
Income tax (benefit) expense from continuing operations	(90		)	113			21			189
Net income from continuing operations	584			348			959			600
(Loss) income from discontinued operations, net of tax	(2		)	1			(3		)	(1		)
Net income	582			349			956			599
Other comprehensive income (loss), net of tax	309			(70		)	615			(398		)
Comprehensive income	$	891		$	279		$	1,571		$	201

Statement continues on the next page.

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

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Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended June 30,				Six months ended June 30,
(in dollars) (a)	2019		2018		2019			2018
Basic earnings per common share
Net income from continuing operations	$	1.47	$	0.81	$	2.39		$	1.38
Loss from discontinued operations, net of tax	—		—		(0.01		)	—
Net income	$	1.46	$	0.81	$	2.39		$	1.38
Diluted earnings per common share
Net income from continuing operations	$	1.46	$	0.80	$	2.38		$	1.38
Loss from discontinued operations, net of tax	—		—		(0.01		)	—
Net income	$	1.46	$	0.81	$	2.37		$	1.37
Cash dividends declared per common share	$	0.17	$	0.13	$	0.34		$	0.26


(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.

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Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q



($ in millions, except share data)	June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents
Noninterest-bearing	$	659		$	810
Interest-bearing	2,904			3,727
Total cash and cash equivalents	3,563			4,537
Equity securities	591			773
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral)	28,688			25,303
Held-to-maturity securities (fair value of $2,499 and $2,307)	2,461			2,362
Loans held-for-sale, net	275			314
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	129,210			129,926
Allowance for loan losses	(1,282		)	(1,242		)
Total finance receivables and loans, net	127,928			128,684
Investment in operating leases, net	8,407			8,417
Premiums receivable and other insurance assets	2,460			2,326
Other assets	6,075			6,153
Total assets	$	180,448		$	178,869
Liabilities
Deposit liabilities
Noninterest-bearing	$	162		$	142
Interest-bearing	116,163			106,036
Total deposit liabilities	116,325			106,178
Short-term borrowings	6,519			9,987
Long-term debt	37,466			44,193
Interest payable	744			523
Unearned insurance premiums and service revenue	3,171			3,044
Accrued expenses and other liabilities	1,907			1,676
Total liabilities	166,132			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 496,560,246 and 492,797,409; and outstanding 392,775,052 and 404,899,599)	21,403			21,345
Accumulated deficit	(4,682		)	(5,489		)
Accumulated other comprehensive income (loss)	84			(539		)
Treasury stock, at cost (103,785,194 and 87,897,810 shares)	(2,489		)	(2,049		)
Total equity	14,316			13,268
Total liabilities and equity	$	180,448		$	178,869

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

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Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q

The assets of consolidated variable interest entities 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)	June 30, 2019			December 31, 2018
Assets
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	$	16,101		$	18,086
Allowance for loan losses	(98		)	(114		)
Total finance receivables and loans, net	16,003			17,972
Investment in operating leases, net	90			164
Other assets	614			767
Total assets	$	16,707		$	18,903
Liabilities
Long-term debt	$	9,030		$	10,482
Accrued expenses and other liabilities	11			12
Total liabilities	$	9,041		$	10,494

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

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Condensed Consolidated Statement of Changes in Equity (unaudited)

Ally Financial Inc. • Form 10-Q



	Three months ended June 30,
($ in millions)	Common stock and paid-in capital		Accumulated deficit			Accumulated other comprehensive (loss) income			Treasury stock			Total equity
Balance at April 1, 2018	$	21,273	$	(6,318	)	$	(578	)	$	(1,295	)	$	13,082
Net income			349									349
Share-based compensation	30											30
Other comprehensive loss						(70		)				(70		)
Common stock repurchases									(195		)	(195		)
Common stock dividends ($0.13 per share)			(57		)							(57		)
Balance at June 30, 2018	$	21,303	$	(6,026	)	$	(648	)	$	(1,490	)	$	13,139
Balance at April 1, 2019	$	21,379	$	(5,195	)	$	(225	)	$	(2,260	)	$	13,699
Net income			582									582
Share-based compensation	24											24
Other comprehensive income						309						309
Common stock repurchases									(229		)	(229		)
Common stock dividends ($0.17 per share)			(69		)							(69		)
Balance at June 30, 2019	$	21,403	$	(4,682	)	$	84		$	(2,489	)	$	14,316



	Six months ended June 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 (a)
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			599									599
Share-based compensation	58											58
Other comprehensive loss						(398		)				(398		)
Common stock repurchases									(380		)	(380		)
Common stock dividends ($0.26 per share)			(115		)							(115		)
Balance at June 30, 2018	$	21,303	$	(6,026	)	$	(648	)	$	(1,490	)	$	13,139
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			956									956
Share-based compensation	58											58
Other comprehensive income						615						615
Common stock repurchases									(440		)	(440		)
Common stock dividends ($0.34 per share)			(139		)							(139		)
Balance at June 30, 2019	$	21,403	$	(4,682	)	$	84		$	(2,489	)	$	14,316


(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.

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Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, ($ in millions)	2019			2018
Operating activities
Net income	$	956		$	599
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	752			865
Provision for loan losses	459			419
Gain on mortgage and automotive loans, net	(12		)	(2		)
Other gain on investments, net	(147		)	(15		)
Originations and purchases of loans held-for-sale	(528		)	(730		)
Proceeds from sales and repayments of loans held-for-sale	335			512
Net change in
Deferred income taxes	1			192
Interest payable	221			193
Other assets	(21		)	(25		)
Other liabilities	(114		)	(24		)
Other, net	(58		)	25
Net cash provided by operating activities	1,844			2,009
Investing activities
Purchases of equity securities	(210		)	(500		)
Proceeds from sales of equity securities	511			535
Purchases of available-for-sale securities	(7,018		)	(4,094		)
Proceeds from sales of available-for-sale securities	2,568			390
Proceeds from repayments of available-for-sale securities	1,805			1,621
Purchases of held-to-maturity securities	(268		)	(316		)
Proceeds from repayments of held-to-maturity securities	107			72
Purchases of finance receivables and loans held-for-investment	(2,386		)	(2,611		)
Proceeds from sales of finance receivables and loans initially held-for-investment	159			—
Originations and repayments of finance receivables and loans held-for-investment and other, net	2,769			(638		)
Purchases of operating lease assets	(1,769		)	(2,107		)
Disposals of operating lease assets	1,321			1,763
Net change in nonmarketable equity investments	113			(46		)
Other, net	(209		)	(186		)
Net cash used in investing activities	(2,507		)	(6,117		)

Statement continues on the next page.

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

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Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, ($ in millions)	2019			2018
Financing activities
Net change in short-term borrowings	(3,468		)	(4,305		)
Net increase in deposits	10,133			5,441
Proceeds from issuance of long-term debt	4,590			12,940
Repayments of long-term debt	(11,372		)	(9,800		)
Repurchase of common stock	(440		)	(380		)
Dividends paid	(139		)	(115		)
Net cash (used in) provided by financing activities	(696		)	3,781
Effect of exchange-rate changes on cash and cash equivalents and restricted cash	3			(3		)
Net decrease in cash and cash equivalents and restricted cash	(1,356		)	(330		)
Cash and cash equivalents and restricted cash at beginning of year	5,626			5,269
Cash and cash equivalents and restricted cash at June 30,	$	4,270		$	4,939
Supplemental disclosures
Cash paid for
Interest	$	1,884		$	1,455
Income taxes	24			17
Noncash items
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	20			—
Other disclosures
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale	7			12

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.



June 30, ($ in millions)	2019		2018
Cash and cash equivalents on the Condensed Consolidated Balance Sheet	$	3,563	$	3,924
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	707		1,015
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows	$	4,270	$	4,939


(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 FDIC 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 June 30, 2019, and for the three months and six months ended June 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) 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.

The new accounting model for credit losses represents a significant departure from existing GAAP, and will materially increase the allowance for credit losses on our finance receivables and loans, with a resulting negative adjustment to retained earnings. We expect that our consumer automotive loan portfolio will generate the majority of this increase. The amount of the change in the allowance for credit losses will also be impacted by the composition of our portfolio at the adoption date, as well as economic conditions and forecasts at that time. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our loan portfolios. Additionally, we currently expect to phase in the day-one impact of CECL into regulatory capital over a period of three years, as further described in Note 16. Management created 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 validating and testing the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We performed limited parallel runs during the first two quarters of 2019, and will continue to refine and enhance our estimation process with additional parallel testing throughout 2019. Additionally, we do not

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

expect a material allowance for credit losses on our debt securities as a result of the standard based upon the current composition of our portfolio.

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 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.

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 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 June 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)	$	—	$	134	$	—	$	—	$	—	$	134
Remarketing fee income	19		—		—		—		—		19
Brokerage commissions and other revenue	—		—		—		—		17		17
Deposit account and other banking fees	—		—		—		—		4		4
Brokered/agent commissions	—		4		—		—		—		4
Other	5		—		—		—		—		5
Total revenue from contracts with customers	24		138		—		—		21		183
All other revenue	37		148		4		10		13		212
Total other revenue (d)	$	61	$	286	$	4	$	10	$	34	$	395
2018
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)	$	—	$	125	$	—	$	—	$	—	$	125
Remarketing fee income	21		—		—		—		—		21
Brokerage commissions and other revenue	—		—		—		—		15		15
Brokered/agent commissions	—		4		—		—		—		4
Deposit account and other banking fees	—		—		—		—		3		3
Other	4		—		—		—		—		4
Total revenue from contracts with customers	25		129		—		—		18		172
All other revenue	38		137		2		14		1		192
Total other revenue (d)	$	63	$	266	$	2	$	14	$	19	$	364

(a)

We had opening balances of $2.7 billion and $2.5 billion in unearned revenue associated with outstanding contracts at April 1, 2019, and April 1, 2018, respectively, and $202 million and $195 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 June 30, 2019, and June 30, 2018, respectively.


(b)	At June 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 $380 million during the remainder of 2019, $705 million in 2020, $605 million in 2021, $473 million in 2022, and $595 million thereafter. At June 30, 2018, we had unearned revenue of $2.6 billion associated with outstanding contracts.


(c)	We had deferred insurance assets of $1.6 billion at both April 1, 2019, and June 30, 2019, and recognized $114 million of expense during the three months ended June 30, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at April 1, 2018, and June 30, 2018, respectively, and recognized $106 million of expense during the three months ended June 30, 2018.


(d)	Represents a component of total net revenue. Refer to Note 21 for further information on our reportable operating segments.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 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)	$	—	$	265	$	—	$	—	$	—	$	265
Remarketing fee income	37		—		—		—		—		37
Brokerage commissions and other revenue	—		—		—		—		34		34
Deposit account and other banking fees	—		—		—		—		9		9
Brokered/agent commissions	—		7		—		—		—		7
Other	10		—		—		—		—		10
Total revenue from contracts with customers	47		272		—		—		43		362
All other revenue	82		374		6		21		16		499
Total other revenue (c)	$	129	$	646	$	6	$	21	$	59	$	861
2018
Revenue from contracts with customers
Noninsurance contracts (a) (b)	$	—	$	248	$	—	$	—	$	—	$	248
Remarketing fee income	44		—		—		—		—		44
Brokerage commissions and other revenue	—		—		—		—		31		31
Brokered/agent commissions	—		8		—		—		—		8
Deposit account and other banking fees	—		—		—		—		6		6
Other	6		1		—		—		—		7
Total revenue from contracts with customers	50		257		—		—		37		344
All other revenue	79		255		3		22		15		374
Total other revenue (c)	$	129	$	512	$	3	$	22	$	52	$	718

(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 $401 million and $389 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the six months ended June 30, 2019, and June 30, 2018, respectively.

(b)

We had deferred insurance assets of $1.5 billion and $1.6 billion at January 1, 2019, and June 30, 2019, respectively, and recognized $225 million of expense during the six months ended June 30, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at January 1, 2018, and June 30, 2018, respectively, and recognized $209 million of expense during the six months ended June 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 $23 million and $38 million for the three months and six months ended June 30, 2019, respectively, and $16 million and $34 million for the three months and six months ended, June 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 June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Late charges and other administrative fees	$	28	$	25	$	57	$	54
Remarketing fees	19		21		37		44
Income from equity-method investments	8		7		12		13
Servicing fees	4		8		10		16
Other, net	34		36		64		79
Total other income, net of losses	$	93	$	97	$	180	$	206

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	186			159
Prior years (a)	—			5
Total net insurance losses and loss adjustment expenses incurred	186			164
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year	(134		)	(121		)
Prior years	(27		)	(26		)
Total net insurance losses and loss adjustment expenses paid or payable	(161		)	(147		)
Net reserves for insurance losses and loss adjustment expenses at June 30,	63			49
Plus: Reinsurance recoverable	90			100
Total gross reserves for insurance losses and loss adjustment expenses at June 30,	$	153		$	149


(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 June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Insurance commissions	$	117	$	109	$	231	$	219
Technology and communications	73		74		150		145
Advertising and marketing	35		29		83		68
Lease and loan administration	43		40		82		82
Professional services	30		35		59		67
Regulatory and licensing fees	28		35		56		65
Vehicle remarketing and repossession	25		26		52		58
Premises and equipment depreciation	25		22		47		42
Occupancy	16		11		29		22
Non-income taxes	11		6		20		14
Amortization of intangible assets	3		3		6		6
Other	52		56		96		103
Total other operating expenses	$	458	$	446	$	911	$	891

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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.



	June 30, 2019									December 31, 2018
	Amortized cost		Gross unrealized					Fair value		Amortized cost		Gross unrealized					Fair value
($ in millions)	Amortized cost		gains		losses			Fair value		Amortized cost		gains		losses			Fair value
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	2,023	$	7	$	(12	)	$	2,018	$	1,911	$	—	$	(60	)	$	1,851
U.S. States and political subdivisions	585		13		—			598		816		3		(17		)	802
Foreign government	146		3		—			149		145		1		(1		)	145
Agency mortgage-backed residential	18,971		191		(62		)	19,100		17,486		47		(395		)	17,138
Mortgage-backed residential	2,927		18		(11		)	2,934		2,796		1		(111		)	2,686
Agency mortgage-backed commercial	1,303		48		—			1,351		3		—		—			3
Mortgage-backed commercial	712		2		(1		)	713		715		1		(2		)	714
Asset-backed	473		4		—			477		723		2		(2		)	723
Corporate debt	1,326		25		(3		)	1,348		1,286		1		(46		)	1,241
Total available-for-sale securities (a) (b) (c)	$	28,466	$	311	$	(89	)	$	28,688	$	25,881	$	56	$	(634	)	$	25,303
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential (d)	$	2,430	$	41	$	(3	)	$	2,468	$	2,319	$	6	$	(61	)	$	2,264
Asset-backed retained notes	31		—		—			31		43		—		—			43
Total held-to-maturity securities	$	2,461	$	41	$	(3	)	$	2,499	$	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 June 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 $4.4 billion and $9.2 billion at June 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 $615 million and $821 million of the underlying investment securities at June 30, 2019, and December 31, 2018, respectively.


(d)	Held-to-maturity securities with a fair value of $1.3 billion and $1.2 billion at June 30, 2019, and December 31, 2018, respectively, were pledged to secure advances from the FHLB.

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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
June 30, 2019
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies	$	2,018	1.7	%	$	73	2.0	%	$	1,430	1.6	%	$	515	1.8	%	$	—	—	%
U.S. States and political subdivisions	598		3.1		33		3.3		47		2.3		153		2.8		365		3.4
Foreign government	149		2.3		4		1.2		67		2.2		78		2.4		—		—
Agency mortgage-backed residential	19,100		3.4		—		—		—		—		50		1.9		19,050		3.4
Mortgage-backed residential	2,934		3.3		—		—		—		—		—		—		2,934		3.3
Agency mortgage-backed commercial	1,351		3.1		—		—		3		3.2		932		3.1		416		3.1
Mortgage-backed commercial	713		3.7		—		—		—		—		36		3.9		677		3.7
Asset-backed	477		3.4		—		—		328		3.4		74		3.9		75		3.1
Corporate debt	1,348		3.2		143		3.0		549		3.0		634		3.4		22		5.6
Total available-for-sale securities	$	28,688	3.2		$	253	2.7		$	2,424	2.2		$	2,472	2.9		$	23,539	3.4
Amortized cost of available-for-sale securities	$	28,466			$	253			$	2,420			$	2,412			$	23,381
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential	$	2,430	3.2	%	$	—	—	%	$	—	—	%	$	—	—	%	$	2,430	3.2	%
Asset-backed retained notes	31		3.1		—		—		31		2.1		—		—		—		—
Total held-to-maturity securities	$	2,461	3.2		$	—	—		$	31	2.1		$	—	—		$	2,430	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 $129 million and $35 million at June 30, 2019, and December 31, 2018, respectively, and were composed primarily of money-market accounts and short-term securities, including U.S. Treasury bills.

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 June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Taxable interest	$	220	$	164	$	434	$	318
Taxable dividends	3		3		6		6
Interest and dividends exempt from U.S. federal income tax	4		6		9		12
Interest and dividends on investment securities	$	227	$	173	$	449	$	336

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 June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019			2018
Available-for-sale securities
Gross realized gains	$	24	$	1	$	34		$	7
Gross realized losses (a)	—		—		(1		)	—
Net realized gains on available-for-sale securities	24		1		33			7
Net realized gain on equity securities	10		18		39			40
Net unrealized gain (loss) on equity securities	5		8		75			(32		)
Other gain on investments, net	$	39	$	27	$	147		$	15

(a)

Certain available-for-sale securities were sold at a loss during the three months and six months ended June 30, 2019, and June 30, 2018, as a result of market conditions within these periods (e.g., a downgrade in the rating of a debt security) 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.

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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 June 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 June 30, 2019.



	June 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	$	—	$	—		$	1,532	$	(12	)	$	31	$	—		$	1,758	$	(60	)
U.S. States and political subdivisions	—		—			46		—			259		(3		)	317		(14		)
Foreign government	5		—			8		—			6		—			74		(1		)
Agency mortgage-backed residential	1,033		(1		)	5,713		(61		)	5,537		(94		)	7,808		(301		)
Mortgage-backed residential	26		—			1,235		(11		)	1,024		(20		)	1,360		(91		)
Agency mortgage-backed commercial	10		—			—		—			—		—			—		—
Mortgage-backed commercial	280		(1		)	—		—			347		(1		)	36		(1		)
Asset-backed	6		—			75		—			294		(1		)	124		(1		)
Corporate debt	35		—			256		(3		)	576		(19		)	569		(27		)
Total temporarily impaired available-for-sale securities	$	1,395	$	(2	)	$	8,865	$	(87	)	$	8,074	$	(138	)	$	12,046	$	(496	)
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	$	447	$	(3	)	$	—	$	—		$	457	$	(6	)	$	1,376	$	(55	)
Asset-backed retained notes	11		—			—		—			16		—			19		—
Total held-to-maturity debt securities	$	458	$	(3	)	$	—	$	—		$	473	$	(6	)	$	1,395	$	(55	)

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)	June 30, 2019		December 31, 2018
Consumer automotive (a)	$	72,898	$	70,539
Consumer mortgage
Mortgage Finance (b)	16,485		15,155
Mortgage — Legacy (c)	1,315		1,546
Total consumer mortgage	17,800		16,701
Total consumer	90,698		87,240
Commercial
Commercial and industrial
Automotive	29,382		33,672
Other	4,353		4,205
Commercial real estate	4,777		4,809
Total commercial	38,512		42,686
Total finance receivables and loans (d)	$	129,210	$	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 $12 million and $18 million at June 30, 2019, and December 31, 2018, respectively, 34% of which are expected to start principal amortization in 2019, and 41% in 2020. The remainder of these loans have exited the interest-only period.


(c)	Includes loans originated as interest-only mortgage loans of $263 million and $341 million at June 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 $577 million and $587 million at June 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 June 30, 2019 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at April 1, 2019	$	1,070		$	52		$	166		$	1,288
Charge-offs (a)	(301		)	(5		)	(12		)	(318		)
Recoveries	129			7			—			136
Net charge-offs	(172		)	2			(12		)	(182		)
Provision for loan losses	180			(5		)	2			177
Other	—			—			(1		)	(1		)
Allowance at June 30, 2019	$	1,078		$	49		$	155		$	1,282

(a)

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for more information regarding our charge-off policies.



Three months ended June 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at April 1, 2018	$	1,066		$	74		$	138		$	1,278
Charge-offs (a)	(296		)	(8		)	(2		)	(306		)
Recoveries	114			6			6			126
Net charge-offs	(182		)	(2		)	4			(180		)
Provision for loan losses	168			(4		)	(6		)	158
Other	1			(2		)	2			1
Allowance at June 30, 2018	$	1,053		$	66		$	138		$	1,257

(a)

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, 2019 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2019	$	1,048		$	53		$	141		$	1,242
Charge-offs (a)	(653		)	(8		)	(17		)	(678		)
Recoveries	247			12			—			259
Net charge-offs	(406		)	4			(17		)	(419		)
Provision for loan losses	437			(8		)	30			459
Other	(1		)	—			1			—
Allowance at June 30, 2019	$	1,078		$	49		$	155		$	1,282
Allowance for loan losses at June 30, 2019
Individually evaluated for impairment	$	42		$	20		$	49		$	111
Collectively evaluated for impairment	1,036			29			106			1,171
Finance receivables and loans at gross carrying value
Ending balance	$	72,898		$	17,800		$	38,512		$	129,210
Individually evaluated for impairment	496			220			196			912
Collectively evaluated for impairment	72,402			17,580			38,316			128,298

(a)



Six months ended June 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2018	$	1,066		$	79		$	131		$	1,276
Charge-offs (a)	(661		)	(20		)	(2		)	(683		)
Recoveries	226			12			6			244
Net charge-offs	(435		)	(8		)	4			(439		)
Provision for loan losses	421			(3		)	1			419
Other	1			(2		)	2			1
Allowance at June 30, 2018	$	1,053		$	66		$	138		$	1,257
Allowance for loan losses at June 30, 2018
Individually evaluated for impairment	$	42		$	24		$	27		$	93
Collectively evaluated for impairment	1,011			42			111			1,164
Finance receivables and loans at gross carrying value
Ending balance	$	70,473		$	15,131		$	39,940		$	125,544
Individually evaluated for impairment	480			228			198			906
Collectively evaluated for impairment	69,993			14,903			39,742			124,638

(a)

The following table presents information about significant sales of finance receivables and loans and transfers of finance receivables and loans from held-for-investment to held-for-sale based on net carrying value.



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Consumer automotive	$	—	$	—	$	20	$	—
Consumer mortgage	—		4		—		5
Total sales and transfers (a)	$	—	$	4	$	20	$	5


(a)	During the six months ended June 30, 2019, we also sold $131 million of loans held-for-sale that were initially classified as finance receivables and loans held-for-investment, and transferred $79 million of finance receivables from held-for-sale to held-for-investment, both relating to equipment finance receivables from our commercial automotive business.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents information about significant purchases of finance receivables and loans based on unpaid principal balance at the time of purchase.



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Consumer automotive	$	218	$	233	$	317	$	401
Consumer mortgage	678		852		1,913		2,147
Commercial	3		—		3		—
Total purchases of finance receivables and loans	$	899	$	1,085	$	2,233	$	2,548

The following table presents an analysis of our past-due finance receivables and loans recorded at gross carrying value.



($ in millions)	30–59 days past due		60–89 days past due		90 days or more past due		Total past due		Current		Total finance receivables and loans
June 30, 2019
Consumer automotive	$	1,802	$	444	$	273	$	2,519	$	70,379	$	72,898
Consumer mortgage
Mortgage Finance	77		9		9		95		16,390		16,485
Mortgage — Legacy	32		13		30		75		1,240		1,315
Total consumer mortgage	109		22		39		170		17,630		17,800
Total consumer	1,911		466		312		2,689		88,009		90,698
Commercial
Commercial and industrial
Automotive	3		—		67		70		29,312		29,382
Other	—		—		2		2		4,351		4,353
Commercial real estate	—		—		4		4		4,773		4,777
Total commercial	3		—		73		76		38,436		38,512
Total consumer and commercial	$	1,914	$	466	$	385	$	2,765	$	126,445	$	129,210
December 31, 2018
Consumer automotive	$	2,107	$	537	$	296	$	2,940	$	67,599	$	70,539
Consumer mortgage
Mortgage Finance	67		5		4		76		15,079		15,155
Mortgage — Legacy	30		10		42		82		1,464		1,546
Total consumer mortgage	97		15		46		158		16,543		16,701
Total consumer	2,204		552		342		3,098		84,142		87,240
Commercial
Commercial and industrial
Automotive	—		1		31		32		33,640		33,672
Other	—		4		16		20		4,185		4,205
Commercial real estate	—		—		1		1		4,808		4,809
Total commercial	—		5		48		53		42,633		42,686
Total consumer and commercial	$	2,204	$	557	$	390	$	3,151	$	126,775	$	129,926

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents the gross carrying value of our finance receivables and loans on nonaccrual status.



($ in millions)	June 30, 2019		December 31, 2018
Consumer automotive	$	642	$	664
Consumer mortgage
Mortgage Finance	12		9
Mortgage — Legacy	53		70
Total consumer mortgage	65		79
Total consumer	707		743
Commercial
Commercial and industrial
Automotive	89		203
Other	101		142
Commercial real estate	6		4
Total commercial	196		349
Total consumer and commercial finance receivables and loans	$	903	$	1,092

Management performs a quarterly analysis of the consumer automotive, consumer mortgage, and commercial portfolios using a range of credit quality indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. The following tables present the population of loans by quality indicators for our consumer automotive, consumer mortgage, and commercial portfolios.

The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at gross carrying value. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information.



	June 30, 2019						December 31, 2018
($ in millions)	Performing		Nonperforming		Total		Performing		Nonperforming		Total
Consumer automotive	$	72,256	$	642	$	72,898	$	69,875	$	664	$	70,539
Consumer mortgage
Mortgage Finance	16,473		12		16,485		15,146		9		15,155
Mortgage — Legacy	1,262		53		1,315		1,476		70		1,546
Total consumer mortgage	17,735		65		17,800		16,622		79		16,701
Total consumer	$	89,991	$	707	$	90,698	$	86,497	$	743	$	87,240

The following table presents pass and criticized credit quality indicators based on regulatory definitions for our commercial finance receivables and loans recorded at gross carrying value.



	June 30, 2019						December 31, 2018
($ in millions)	Pass		Criticized (a)		Total		Pass		Criticized (a)		Total
Commercial and industrial
Automotive	$	26,629	$	2,753	$	29,382	$	30,799	$	2,873	$	33,672
Other	3,580		773		4,353		3,373		832		4,205
Commercial real estate	4,517		260		4,777		4,538		271		4,809
Total commercial	$	34,726	$	3,786	$	38,512	$	38,710	$	3,976	$	42,686


(a)	Includes loans classified as special mention, substandard, or doubtful. These classifications are based on regulatory definitions and generally represent loans within our portfolio that have a higher default risk or have already defaulted.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Impaired Loans and Troubled Debt Restructurings

Impaired Loans

Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. For more information on our impaired finance receivables and loans, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

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



($ in millions)	Unpaid principal balance (a)		Gross carrying value		Impaired with no allowance		Impaired with an allowance		Allowance for impaired loans
June 30, 2019
Consumer automotive	$	506	$	496	$	101	$	395	$	42
Consumer mortgage
Mortgage Finance	14		14		6		8		—
Mortgage — Legacy	211		206		65		141		20
Total consumer mortgage	225		220		71		149		20
Total consumer	731		716		172		544		62
Commercial
Commercial and industrial
Automotive	89		89		18		71		19
Other	122		101		55		46		30
Commercial real estate	6		6		6		—		—
Total commercial	217		196		79		117		49
Total consumer and commercial finance receivables and loans	$	948	$	912	$	251	$	661	$	111
December 31, 2018
Consumer automotive	$	503	$	495	$	105	$	390	$	44
Consumer mortgage
Mortgage Finance	15		15		6		9		1
Mortgage — Legacy	221		216		65		151		22
Total consumer mortgage	236		231		71		160		23
Total consumer	739		726		176		550		67
Commercial
Commercial and industrial
Automotive	203		203		112		91		10
Other	159		142		40		102		46
Commercial real estate	4		4		4		—		—
Total commercial	366		349		156		193		56
Total consumer and commercial finance receivables and loans	$	1,105	$	1,075	$	332	$	743	$	123


(a)	Adjusted for charge-offs.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present average balance and interest income for our impaired finance receivables and loans.



	2019				2018
Three months ended June 30, ($ in millions)	Average balance		Interest income		Average balance		Interest income
Consumer automotive	$	498	$	9	$	472	$	7
Consumer mortgage
Mortgage Finance	14		—		9		—
Mortgage — Legacy	209		2		219		3
Total consumer mortgage	223		2		228		3
Total consumer	721		11		700		10
Commercial
Commercial and industrial
Automotive	113		—		78		1
Other	108		—		82		—
Commercial real estate	6		—		5		—
Total commercial	227		—		165		1
Total consumer and commercial finance receivables and loans	$	948	$	11	$	865	$	11



	2019				2018
Six months ended June 30, ($ in millions)	Average balance		Interest income		Average balance		Interest income
Consumer automotive	$	498	$	17	$	462	$	14
Consumer mortgage
Mortgage Finance	15		—		9		—
Mortgage — Legacy	211		5		220		5
Total consumer mortgage	226		5		229		5
Total consumer	724		22		691		19
Commercial
Commercial and industrial
Automotive	143		1		61		2
Other	117		—		66		—
Commercial real estate	6		—		4		—
Total commercial	266		1		131		2
Total consumer and commercial finance receivables and loans	$	990	$	23	$	822	$	21

Troubled Debt Restructurings

Troubled Debt Restructurings (TDRs) are loan modifications where concessions were granted to borrowers experiencing financial difficulties. For consumer automotive loans, we may offer several types of assistance to aid our customers, including payment extensions and rewrites of the loan terms. Additionally, for mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. These programs are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates. Total TDRs recorded at gross carrying value were $818 million and $812 million at June 30, 2019, and December 31, 2018, respectively.

Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were $15 million and $4 million at June 30, 2019, and December 31, 2018, respectively. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present information related to finance receivables and loans recorded at gross carrying value modified in connection with a TDR during the period.



	2019					2018
Three months ended June 30, ($ in millions)	Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value
Consumer automotive	5,598	$	96	$	85	5,898	$	107	$	93
Consumer mortgage
Mortgage Finance	2	—		—		7	2		2
Mortgage — Legacy	18	3		3		27	6		7
Total consumer mortgage	20	3		3		34	8		9
Total consumer	5,618	99		88		5,932	115		102
Commercial
Commercial and industrial
Automotive	—	—		—		3	4		4
Other	1	22		6		2	55		51
Total commercial	1	22		6		5	59		55
Total consumer and commercial finance receivables and loans	5,619	$	121	$	94	5,937	$	174	$	157



	2019					2018
Six months ended June 30, ($ in millions)	Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value
Consumer automotive	13,025	$	225	$	196	12,940	$	235	$	203
Consumer mortgage
Mortgage Finance	3	—		—		8	3		3
Mortgage — Legacy	38	6		6		89	16		16
Total consumer mortgage	41	6		6		97	19		19
Total consumer	13,066	231		202		13,037	254		222
Commercial
Commercial and industrial
Automotive	6	41		41		3	4		4
Other	1	22		6		2	55		51
Total commercial	7	63		47		5	59		55
Total consumer and commercial finance receivables and loans	13,073	$	294	$	249	13,042	$	313	$	277

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present information about finance receivables and loans recorded at gross carrying value that have redefaulted during the reporting period and were within twelve months or less of being modified as a TDR. Redefault is when finance receivables and loans meet the requirements for evaluation under our charge-off policy (refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information) except for commercial finance receivables and loans, where redefault is defined as 90 days past due.



	2019					2018
Three months ended June 30, ($ in millions)	Number of loans	Gross carrying value		Charge-off amount		Number of loans	Gross carrying value		Charge-off amount
Consumer automotive	1,752	$	20	$	12	2,425	$	29	$	17
Consumer mortgage
Mortgage — Legacy	—	—		—		1	—		—
Total consumer finance receivables and loans	1,752	$	20	$	12	2,426	$	29	$	17



	2019					2018
Six months ended June 30, ($ in millions)	Number of loans	Gross carrying value		Charge-off amount		Number of loans	Gross carrying value		Charge-off amount
Consumer automotive	3,961	$	46	$	28	4,751	$	57	$	35
Consumer mortgage
Mortgage — Legacy	—	—		—		1	—		—
Total consumer finance receivables and loans	3,961	$	46	$	28	4,752	$	57	$	35

8. Leasing

On January 1, 2019, we adopted the amendments to the lease accounting principles. Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.

Ally as the Lessee

We have operating leases for our corporate facilities, which have remaining lease terms of 3 months to 13 years. Most of the property leases have fixed payment terms with annual fixed-escalation clauses and include options to extend the leases for periods that range from 1 to 15 years. Some of those lease agreements also include options to terminate the leases in periods that range from 2 to 5 years after the commencement of the leases. We have not included any of these term extensions or termination provisions in our estimates of the lease term, as we do not consider it reasonably certain that the options will be exercised. Our property-lease agreements contain a lease component, which includes the right to use the real estate, and non-lease components, which include utilities and common area maintenance services. Lease components are accounted for under the ASC Topic on Leases, while non-lease components are accounted for under other GAAP Topics. We elected the practical expedient to account for the lease and non-lease components for property leases as a single lease component. Additional variable-rent payments made during the lease term are not based on a rate or index and are excluded from the calculations of ROU assets and lease liabilities and recognized as a component of variable lease expense as incurred.

We also have operating leases for a fleet of vehicles that is used by our sales force for business purposes, with noncancellable lease terms of 367 days. Thereafter, the leases are month-to-month, up to a maximum of 48 months from inception. In addition to lease costs related to the vehicles, the lease contracts include non-lease components such as maintenance, fuel, and administrative services. We elected to account for the lease and non-lease components separately. As a result, the non-lease components are excluded from the calculation of the ROU asset and lease liability and are recognized as other operating expenses as incurred.

The following table details our total investment in operating leases.



($ in millions)	June 30, 2019		January 1, 2019 (a)
Assets
Operating lease right-of-use assets (b)	$	172	$	161
Liabilities
Operating lease liabilities (c)	$	200	$	190


(a)	Date of adoption.


(b)	Included in other assets on our Condensed Consolidated Balance Sheet.


(c)	Included in accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

During the three months and six months ended June 30, 2019, we paid $13 million and $25 million, respectively, in cash for amounts included in the measurement of lease liabilities at June 30, 2019. This amount is included in net cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. During the six months ended June 30, 2019, we obtained $34 million of ROU assets in exchange for new operating lease liabilities. As of June 30, 2019, the weighted-average remaining lease term of our operating lease portfolio was 7 years, and the weighted-average discount rate was 2.97%.

The following table presents future minimum rental payments we are required to make under operating leases that have commenced as of June 30, 2019, and that have noncancellable lease terms expiring after June 30, 2019.



($ in millions)
2019	$	25
2020	48
2021	37
2022	25
2023	16
2024 and thereafter	71
Total undiscounted cash flows	222
Difference between undiscounted cash flows and discounted cash flows	(22		)
Total lease liability	$	200

In addition to the above, we entered into a forward-starting lease agreement in September 2017, for a new corporate facility in Charlotte, North Carolina, where we plan to consolidate several existing facilities into that location. The lessor and their agents are currently constructing the facilities at this location, with the lease scheduled to commence in April 2021 after construction is completed. The lease agreement will have a total of $290 million in undiscounted future lease payments over the 15 year term of the lease.

Future minimum rental payments required under operating leases as of December 31, 2018, prior to the date of adoption and as defined by the previous lease accounting guidance, with noncancellable lease terms expiring after December 31, 2018, were as follows.



Year ended December 31, ($ in millions)
2019	$	48
2020	47
2021	46
2022	37
2023	31
2024 and thereafter	294
Total minimum payments required	$	503

The following table details the components of total net operating lease expense.



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Operating lease expense	$	12	$	11	$	23	$	21
Variable lease expense	2		1		4		3
Total lease expense, net (a)	$	14	$	12	$	27	$	24

(a) Included in other operating expenses in our Condensed Consolidated Statement of Comprehensive Income

Ally as the Lessor

Investment in Operating Leases

We purchase consumer operating lease contracts and the associated vehicles from dealerships after those contracts are executed by the dealers and the consumers. The amount we pay a dealer for an operating lease contract is based on the negotiated price for the vehicle less vehicle trade-in, down payment from the consumer, and available automotive manufacturer incentives. Under the operating lease, the consumer is obligated to make payments in amounts equal to the amount by which the negotiated purchase price of the vehicle (less any trade-in value, down payment, or available manufacturer incentives) exceeds the contract residual value (including residual support) of the vehicle at lease termination, plus operating lease rental charges. The customer can terminate the lease at any point after commencement, subject to additional charges and fees. Both the consumer and the dealership have the option to purchase the vehicle at the end of the lease

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

term, which can range from 24 to 60 months, at the residual value of the vehicle, however it is not reasonably certain this option will be exercised and as such our consumer leases are classified as operating leases. We have made an accounting policy election to exclude the sales taxes we collect from consideration in the lease contract and from variable lease payments not included in contract consideration. In addition to the charges described above, the consumer is generally responsible for certain charges related to excess mileage or excessive wear and tear on the vehicle. These charges are deemed variable lease payments and, as these payments are not based on a rate or index, they are recognized as net depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income as incurred.

When we acquire a consumer operating lease, we assume ownership of the vehicle from the dealer. We require that property damage, bodily injury, collision, and comprehensive insurance be obtained by the lessee on all consumer operating leases. Neither the consumer nor the dealer is responsible for the value of the vehicle at the time of lease termination. When vehicles are not purchased by customers or the receiving dealer at scheduled lease termination, the vehicle is returned to us for remarketing. We generally bear the risk of loss to the extent the value of a leased vehicle upon remarketing is below the expected residual value. At contract inception, we determine pricing based on the projected residual value of the leased vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used-vehicle supply. This internally-generated data is compared against third-party, independent data for reasonableness. Periodically, we revise the projected value of the leased vehicle at termination based on current market conditions and adjust depreciation expense if necessary over the remaining life of the contract. At termination, our actual sales proceeds from remarketing the vehicle may be higher or lower than the estimated residual value resulting in a gain or loss on remarketing, which is included in net depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income. Excessive mileage or excessive wear and tear on the vehicle during the lease may impact the sales proceeds received upon remarketing. As of June 30, 2019, consumer operating leases with a carrying value, net of accumulated depreciation, of $366 million were covered by a residual value guarantee of 15% of the manufacturer’s suggested retail price.

The following table details our investment in operating leases.



($ in millions)	June 30, 2019			December 31, 2018
Vehicles	$	9,961		$	9,995
Accumulated depreciation	(1,554		)	(1,578		)
Investment in operating leases, net	$	8,407		$	8,417

The following table presents future minimum rental payments we have the right to receive under operating leases with noncancellable lease terms expiring after June 30, 2019.



($ in millions)
2019	$	726
2020	1,062
2021	536
2022	129
2023	16
2024 and thereafter	1
Total lease payments from operating leases	$	2,470

We recognized $363 million and $724 million, and $374 million and $756 million in operating lease revenue for the three months and six months ended June 30, 2019, and June 30, 2018, respectively. Depreciation expense on operating lease assets includes remarketing gains and losses recognized on the sale of operating lease assets. The following table summarizes the components of depreciation expense on operating lease assets.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018			2019			2018
Depreciation expense on operating lease assets (excluding remarketing gains) (a)	$	262		$	281		$	523		$	572
Remarketing gains, net	(23		)	(16		)	(38		)	(34		)
Net depreciation expense on operating lease assets	$	239		$	265		$	485		$	538

(a) Includes variable lease payments related to excess mileage and excessive wear and tear on vehicles $5 million and $9 million during the three and six months ended June 30, 2019, respectively, and $6 million and $13 million during the three and six months ended June 30, 2018.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Finance Leases

Our total gross investment in finance leases, which is included in finance receivables and loans, net, on our Condensed Consolidated Balance Sheet was $492 million and $439 million as of June 30, 2019, and December 31, 2018, respectively. This includes lease payment receivables of $478 million and $425 million at June 30, 2019, and December 31, 2018, respectively, and unguaranteed residual assets of $14 million at both June 30, 2019, and December 31, 2018. Interest income on finance lease receivables was $6 million and $12 million for the three months and six months ended June 30, 2019, respectively, and $5 million and $11 million for the three months and six months ended June 30, 2018, and is included in interest and fees on finance receivables and loans in our Condensed Consolidated Statement of Comprehensive Income.

The following table presents future minimum rental payments we have the right to receive under finance leases with noncancellable lease terms expiring after June 30, 2019.



($ in millions)
2019	$	82
2020	157
2021	142
2022	79
2023	46
2024 and thereafter	32
Total undiscounted cash flows	538
Difference between undiscounted cash flows and discounted cash flows	(60		)
Present value of lease payments recorded as lease receivable	$	478

9. Securitizations and Variable Interest Entities

We securitize, transfer, and service consumer and commercial automotive loans, and operating leases. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) using special purpose entities (SPEs). An SPE is a legal entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity by securitizing certain of our financial assets. SPEs are often variable interest entities (VIEs) and may or may not be included on our Condensed Consolidated Balance Sheet.

VIEs are legal entities that either have an insufficient amount of equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of the equity investment at risk lack the ability to control the entity’s activities that most significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the right to receive expected residual returns of the entity.

The VIEs included on the Condensed Consolidated Balance Sheet represent SPEs where we are deemed to be the primary beneficiary, primarily due to our servicing activities and our beneficial interests in the VIE that could be potentially significant.

The nature, purpose, and activities of nonconsolidated SPEs are similar to those of our consolidated SPEs with the primary difference being the nature and extent of our continuing involvement. For nonconsolidated SPEs, the transferred financial assets are removed from our balance sheet provided the conditions for sale accounting are met. The financial assets obtained from the securitization are primarily reported as cash or retained interests (if applicable). Liabilities incurred as part of these securitizations, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction. With respect to our ongoing right to service the assets we sell, the servicing fee we receive represents adequate compensation, and consequently, we do not recognize a servicing asset or liability.

There were no sales of financial assets into nonconsolidated VIEs for both the three months and six months ended June 30, 2019, and June 30, 2018.

We provide long-term guarantee contracts to investors in certain nonconsolidated affordable housing entities and have extended a line of credit to provide liquidity. Since we do not have control over the entities or the power to make decisions, we do not consolidate the entities and our involvement is limited to the guarantee and the line of credit.

We are involved with various other nonconsolidated equity investments, including affordable housing entities and venture capital funds and loan funds. We do not consolidate these entities and our involvement is limited to our outstanding investment, additional capital committed to these funds plus any previously recognized low income housing tax credits that are subject to recapture.

Refer to Note 1 and Note 11 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for further description of our securitization activities and our involvement with VIEs.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents our involvement in consolidated and nonconsolidated VIEs in which we hold variable interests. For additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Condensed Consolidated Balance Sheet.



($ in millions)	Carrying value of total assets			Carrying value of total liabilities			Assets sold to nonconsolidated VIEs (a)		Maximum exposure to loss in nonconsolidated VIEs
June 30, 2019
On-balance sheet variable interest entities
Consumer automotive	$	16,123	(b)	$	6,016	(c)
Commercial automotive	9,077			3,047
Off-balance sheet variable interest entities
Consumer automotive	33		(d)	—			$	796	$	829	(e)
Commercial other	926		(f)	329		(g)	—		1,187		(h)
Total	$	26,159		$	9,392		$	796	$	2,016
December 31, 2018
On-balance sheet variable interest entities
Consumer automotive	$	16,255	(b)	$	6,573	(c)
Commercial automotive	11,089			3,946
Off-balance sheet variable interest entities
Consumer automotive	45		(d)	—			$	1,235	$	1,280	(e)
Commercial other	806		(f)	326		(g)	—		1,054		(h)
Total	$	28,195		$	10,845		$	1,235	$	2,334


(a)	Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.


(b)	Includes $8.5 billion and $8.4 billion of assets that were not encumbered by VIE beneficial interests held by third parties at June 30, 2019, and December 31, 2018, respectively. Ally or consolidated affiliates hold the interests in these assets.


(c)	Includes $22 million and $25 million of liabilities that were not obligations to third-party beneficial interest holders at June 30, 2019, and December 31, 2018, respectively.

(d)

Represents retained notes and certificated residual interests, of which $31 million and $43 million were classified as held-to-maturity securities at June 30, 2019, and December 31, 2018, respectively, and $2 million was classified as other assets at both June 30, 2019, and December 31, 2018. These assets represent our five percent interest in the credit risk of the assets underlying asset-backed securitizations.

(e)

Maximum exposure to loss represents the current unpaid principal balance of outstanding loans, retained notes, certificated residual interests, as well as certain noncertificated interests retained from the sale of automotive finance receivables. This measure is based on the very unlikely event that all of our sold loans have defects that would trigger a representation and warranty provision and the underlying collateral supporting the loans becomes worthless. This required disclosure is not an indication of our expected loss.


(f)	Amounts are classified as other assets.


(g)	Amounts are classified as accrued expenses and other liabilities.

(h)

For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long-term guarantee contracts. The amount disclosed is based on the unlikely event that the underlying properties cease generating yield to investors and the yield delivered to investors in the form of low income tax housing credits is recaptured. For nonconsolidated equity investments, maximum exposure to loss represents our outstanding investment, additional committed capital, and low income housing tax credits subject to recapture. The amount disclosed is based on the unlikely event that our committed capital is funded, our investments become worthless, and the tax credits previously delivered to us are recaptured. This required disclosure is not an indication of our expected loss.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Cash Flows with Off-balance Sheet Securitization Entities

The following table summarizes cash flows received and paid related to SPEs and asset-backed financings where the transfer is accounted for as a sale and we have a continuing involvement with the transferred consumer automotive assets (e.g., servicing) that were outstanding during the six months ended June 30, 2019, and 2018. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated SPEs that existed during each period.



Six months ended June 30, ($ in millions)	Consumer automotive			Consumer mortgage
2019
Cash flows received on retained interests in securitization entities	$	13		$	—
Servicing fees	6			—
Cash disbursements for repurchases during the period	(1		)	—
2018
Cash flows received on retained interests in securitization entities	$	9		$	—
Servicing fees	10			—
Cash disbursements for repurchases during the period	(2		)	—
Representations and warranty recoveries	—			2

Delinquencies and Net Credit Losses

The following tables present quantitative information about delinquencies and net credit losses for off-balance sheet securitizations and whole-loan sales where we have continuing involvement.



	Total amount				Amount 60 days or more past due
($ in millions)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Off-balance sheet securitization entities
Consumer automotive	$	796	$	1,235	$	9	$	13
Whole-loan sales (a)
Consumer automotive	392		634		2		3
Total	$	1,188	$	1,869	$	11	$	16


(a)	Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.



	Net credit losses
	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Off-balance sheet securitization entities
Consumer automotive	$	2	$	2	$	4	$	5
Whole-loan sales (a)
Consumer automotive	1		—		1		1
Total	$	3	$	2	$	5	$	6


(a)	Whole-loan sales are not part of a securitization transaction, but represent consumer automotive pools of loans sold to third-party investors.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

10. Other Assets

The components of other assets were as follows.



($ in millions)	June 30, 2019			December 31, 2018
Property and equipment at cost	$	1,245		$	1,250
Accumulated depreciation	(640		)	(686		)
Net property and equipment	605			564
Nonmarketable equity investments (a)	1,303			1,410
Investment in qualified affordable housing projects (b)	724			649
Accrued interest, fees, and rent receivables	631			599
Restricted cash held for securitization trusts (c)	608			965
Other accounts receivable	396			203
Equity-method investments (d)	317			262
Goodwill (e)	240			240
Net deferred tax assets	173			317
Restricted cash and cash equivalents (f)	99			124
Fair value of derivative contracts in receivable position (g)	59			41
Cash collateral placed with counterparties	9			26
Other assets	911			753
Total other assets	$	6,075		$	6,153

(a)

Includes investments in FHLB stock of $778 million and $903 million at June 30, 2019, and December 31, 2018, respectively; Federal Reserve Bank (FRB) stock of $448 million at both June 30, 2019, and December 31, 2018; and equity securities without a readily determinable fair value of $77 million and $59 million at June 30, 2019, and December 31, 2018, respectively, measured at cost with adjustments for impairment and observable changes in price. During the three months and six months ended June 30, 2019, we recorded $7 million of upward adjustments related to equity securities without a readily determinable fair value. Through June 30, 2019, we recorded $7 million of cumulative upward adjustments and $3 million of cumulative impairments and downward adjustments related to equity securities without a readily determinable fair value.

(b)

Investment in qualified affordable housing projects are accounted for using the proportional amortization method of accounting and include $322 million and $319 million of unfunded commitments to provide additional capital contributions to investees at June 30, 2019, and December 31, 2018, respectively. Substantially all of the unfunded commitments at June 30, 2019, are expected to be paid out over the next five years.


(c)	Includes restricted cash collected from customer payments on securitized receivables, which are distributed by us to investors as payments on the related secured debt, and cash reserve deposits utilized as a form of credit enhancement for various securitization transactions.


(d)	Primarily relates to investments made in connection with our Community Reinvestment Act (CRA) program.


(e)	Includes goodwill of $27 million within our Insurance operations at both June 30, 2019, and December 31, 2018; $193 million within Corporate and Other at both June 30, 2019, and December 31, 2018; and $20 million within Automotive Finance operations at both June 30, 2019, and December 31, 2018. No changes to the carrying amount of goodwill were recorded during the six months ended June 30, 2019.


(f)	Primarily represents a number of arrangements with third parties where certain restrictions are placed on balances we hold due to collateral agreements associated with operational processes with a third-party bank, or letter of credit arrangements and corresponding collateral requirements.


(g)	For additional information on derivative instruments and hedging activities, refer to Note 17.

11. Deposit Liabilities

Deposit liabilities consisted of the following.



($ in millions)	June 30, 2019		December 31, 2018
Noninterest-bearing deposits	$	162	$	142
Interest-bearing deposits
Savings and money-market checking accounts	62,078		56,050
Certificates of deposit	54,084		49,985
Other deposits	1		1
Total deposit liabilities	$	116,325	$	106,178

At June 30, 2019, and December 31, 2018, certificates of deposit included $22.8 billion and $21.0 billion, respectively, of those in denominations of $100 thousand or more. At June 30, 2019, and December 31, 2018, certificates of deposit included $6.9 billion and $6.1 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

12. Debt

Short-term Borrowings

The following table presents the composition of our short-term borrowings portfolio.



	June 30, 2019						December 31, 2018
($ in millions)	Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total
Demand notes	$	2,462	$	—	$	2,462	$	2,477	$	—	$	2,477
Federal Home Loan Bank	—		3,625		3,625		—		6,825		6,825
Securities sold under agreements to repurchase	—		432		432		—		685		685
Total short-term borrowings	$	2,462	$	4,057	$	6,519	$	2,477	$	7,510	$	9,987


(a)	Refer to the section below titled Long-term Debt for further details on assets restricted as collateral for payment of the related debt.

We periodically enter into term repurchase agreements—short-term borrowing agreements in which we sell securities to one or more investors while simultaneously committing to repurchase them at a specified future date, at the stated price plus accrued interest. As of June 30, 2019, the securities sold under agreements to repurchase consisted of $169 million of U.S. Treasury securities and $263 million of agency mortgage-backed residential debt securities set to mature as follows: $169 million within 30 days, and $263 million within 31 to 60 days. Refer to Note 6 and Note 20 for further details.

The primary risk associated with these repurchase agreements is that the counterparty will be unable to perform under the terms of the contract. As the borrower, we are exposed to the excess market value of the securities pledged over the amount borrowed. Daily mark-to-market collateral management is designed to limit this risk to the initial margin. However, should a counterparty declare bankruptcy or become insolvent, we may incur additional delays and costs. In some instances, we may place or receive cash collateral with counterparties under collateral arrangements associated with our repurchase agreements. At June 30, 2019, we did not place any collateral, and we received cash collateral totaling $3 million and noncash collateral totaling $1 million. At December 31, 2018, we did not place any collateral, and we received cash collateral totaling $8 million and noncash collateral totaling $4 million.

Long-term Debt

The following table presents the composition of our long-term debt portfolio.



	June 30, 2019						December 31, 2018
($ in millions)	Unsecured		Secured		Total		Unsecured		Secured		Total
Long-term debt (a)
Due within one year	$	2,613	$	6,714	$	9,327	$	1,663	$	7,313	$	8,976
Due after one year	9,458		18,681		28,139		10,444		24,773		35,217
Total long-term debt (b) (c)	$	12,071	$	25,395	$	37,466	$	12,107	$	32,086	$	44,193


(a)	Includes basis adjustments related to the application of hedge accounting. Refer to Note 17 for additional information.


(b)	Includes $2.6 billion of trust preferred securities at both June 30, 2019, and December 31, 2018.


(c)	Includes advances net of hedge basis adjustment from the FHLB of Pittsburgh of $14.7 billion and $14.9 billion at June 30, 2019, and December 31, 2018, respectively.

The following table presents the scheduled remaining maturity of long-term debt at June 30, 2019, assuming no early redemptions will occur. The amounts below include adjustments to the carrying value resulting from the application of hedge accounting. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.



($ in millions)	2019			2020			2021			2022			2023			2024 and thereafter			Total
Unsecured
Long-term debt	$	873		$	2,256		$	696		$	1,084		$	11		$	8,273		$	13,193
Original issue discount	(21		)	(43		)	(46		)	(51		)	(57		)	(904		)	(1,122		)
Total unsecured	852			2,213			650			1,033			(46		)	7,369			12,071
Secured
Long-term debt	2,963			6,879			9,393			5,426			557			177			25,395
Total long-term debt	$	3,815		$	9,092		$	10,043		$	6,459		$	511		$	7,546		$	37,466

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following summarizes assets restricted as collateral for the payment of the related debt obligation primarily arising from securitization transactions accounted for as secured borrowings and repurchase agreements.



	June 30, 2019					December 31, 2018
($ in millions)	Total (a)			Ally Bank		Total (a)			Ally Bank
Investment securities (b)	$	5,517		$	5,067	$	10,280		$	9,564
Mortgage assets held-for-investment and lending receivables	17,589			17,589		16,498			16,498
Consumer automotive finance receivables	11,287			7,319		17,015			9,715
Commercial automotive finance receivables	13,736			13,736		15,563			15,563
Operating leases	96			—		170			—
Total assets restricted as collateral (c) (d)	$	48,225		$	43,711	$	59,526		$	51,340
Secured debt	$	29,452	(e)	$	25,386	$	39,596	(e)	$	32,072


(a)	Ally Bank is a component of the total column.


(b)	A portion of the restricted investment securities at June 30, 2019, and December 31, 2018, were restricted under repurchase agreements. Refer to the section above titled Short-term Borrowings for information on the repurchase agreements.

(c)

Ally Bank has an advance agreement with the FHLB, and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling $27.4 billion and $30.8 billion at June 30, 2019, and December 31, 2018, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans and investment securities. Ally Bank has access to the FRB Discount Window and had assets pledged and restricted as collateral to the FRB totaling $2.4 billion at both June 30, 2019, and December 31, 2018. These assets were composed of consumer automotive finance receivables and loans. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of Ally or its subsidiaries.


(d)	Excludes restricted cash and cash reserves for securitization trusts recorded within other assets on the Condensed Consolidated Balance Sheet. Refer to Note 10 for additional information.


(e)	Includes $4.1 billion and $7.5 billion of short-term borrowings at June 30, 2019, and December 31, 2018, respectively.

Trust Preferred Securities

At both June 30, 2019, and December 31, 2018, we had issued and outstanding approximately $2.6 billion in aggregate liquidation preference of 8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 (Series 2 TRUPS). Each Series 2 TRUPS security has a liquidation amount of $25. Distributions are cumulative and are payable until redemption at the applicable coupon rate. Distributions are payable at an annual rate equal to three-month London interbank offered rate plus 5.785% payable quarterly in arrears. Ally has the right to defer payments of interest for a period not exceeding 20 consecutive quarters. The Series 2 TRUPS have no stated maturity date, but must be redeemed upon the redemption or maturity of the related debentures (Debentures), which mature on February 15, 2040. Ally at any time may redeem the Series 2 TRUPS at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption. The Series 2 TRUPS are generally nonvoting, other than with respect to certain limited matters. During any period in which any Series 2 TRUPS remain outstanding but in which distributions on the Series 2 TRUPS have not been fully paid, none of Ally or its subsidiaries will be permitted to (i) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or otherwise make a liquidation payment with respect to, any of Ally’s capital stock or make any guarantee payment with respect thereto; or (ii) make any payments of principal, interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or junior in interest to the Debentures with certain specified exceptions in each case.

Funding Facilities

We utilize both committed secured credit facilities and other collateralized funding vehicles. The debt outstanding under our various funding facilities is included on our Condensed Consolidated Balance Sheet.

As of June 30, 2019, Ally Bank had exclusive access to $250 million of funding capacity from committed secured credit facilities. Ally Bank’s credit facilities are complemented by the FRB and FHLB funding programs.

The total capacity in our credit facilities is provided by banks through private transactions. The facilities can be revolving in nature, generally having an original tenor ranging from 364 days to two years, and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the commitment period. At June 30, 2019, all of our $3.3 billion of capacity was revolving and of this balance, $2.0 billion was from facilities with a remaining tenor greater than 364 days.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Committed Secured Credit Facilities



	Outstanding				Unused capacity (a)				Total capacity
($ in millions)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Bank funding
Secured	$	250	$	3,500	$	—	$	1,300	$	250	$	4,800
Parent funding
Secured	1,365		3,165		1,635		635		3,000		3,800
Total committed secured credit facilities	$	1,615	$	6,665	$	1,635	$	1,935	$	3,250	$	8,600


(a)	Funding from committed secured credit facilities is available on request in the event excess collateral resides in certain facilities or the extent incremental collateral is available and contributed to the facilities.

13. Accrued Expenses and Other Liabilities

The components of accrued expenses and other liabilities were as follows.



($ in millions)	June 30, 2019		December 31, 2018
Accounts payable	$	580	$	516
Unfunded commitments for investment in qualified affordable housing projects	322		319
Employee compensation and benefits	197		255
Reserves for insurance losses and loss adjustment expenses	153		134
Cash collateral received from counterparties	38		41
Deferred revenue	28		27
Fair value of derivative contracts in payable position (a)	4		37
Other liabilities	585		347
Total accrued expenses and other liabilities	$	1,907	$	1,676


(a)	For additional information on derivative instruments and hedging activities, refer to Note 17.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

14. Accumulated Other Comprehensive (Loss) Income

The following table presents changes, net of tax, in each component of accumulated other comprehensive (loss) income.



	Three months ended June 30,
($ in millions)	Unrealized (losses) gains on investment securities (a)			Translation adjustments and net investment hedges (b)		Cash flow hedges (b)		Defined benefit pension plans			Accumulated other comprehensive (loss) income
Balance at April 1, 2018	$	(524	)	$	19	$	25	$	(98	)	$	(578	)
Net change	(74		)	—		3		1			(70		)
Balance at June 30, 2018	$	(598	)	$	19	$	28	$	(97	)	$	(648	)
Balance at April 1, 2019	$	(158	)	$	18	$	11	$	(96	)	$	(225	)
Net change	291			1		17		—			309
Balance at June 30, 2019	$	133		$	19	$	28	$	(96	)	$	84



	Six months ended June 30,
($ in millions)	Unrealized (losses) gains on investment securities (a)			Translation adjustments and net investment hedges (b)			Cash flow hedges (b)		Defined benefit pension plans			Accumulated other comprehensive (loss) income
Balance at December 31, 2017	$	(173	)	$	16		$	11	$	(89	)	$	(235	)
Cumulative effect of changes in accounting principles, net of tax
Adoption of Accounting Standards Update 2016-01	27			—			—		—			27
Adoption of Accounting Standards Update 2018-02	(40		)	4			—		(6		)	(42		)
Balance at January 1, 2018	(186		)	20			11		(95		)	(250		)
Net change	(412		)	(1		)	17		(2		)	(398		)
Balance at June 30, 2018	$	(598	)	$	19		$	28	$	(97	)	$	(648	)
Balance at December 31, 2018	$	(481	)	$	18		$	19	$	(95	)	$	(539	)
Cumulative effect of changes in accounting principles, net of tax (c)
Adoption of Accounting Standards Update 2017-08	8			—			—		—			8
Balance at January 1, 2019	(473		)	18			19		(95		)	(531		)
Net change	606			1			9		(1		)	615
Balance at June 30, 2019	$	133		$	19		$	28	$	(96	)	$	84


(a)	Represents the after-tax difference between the fair value and amortized cost of our available-for-sale securities portfolio.


(b)	For additional information on derivative instruments and hedging activities, refer to Note 17.


(c)	Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present the before- and after-tax changes in each component of accumulated other comprehensive income (loss).



Three months ended June 30, 2019 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	404			$	(95	)		$	309
Less: Net realized gains reclassified to income from continuing operations	24			(a)	(6		)	(b)	18
Net change	380				(89		)		291
Translation adjustments
Net unrealized gains arising during the period	4				(1		)		3
Net investment hedges (c)
Net unrealized losses arising during the period	(3		)		1				(2		)
Cash flow hedges (c)
Net unrealized gains arising during the period	26				(6		)		20
Less: Net realized gains reclassified to income from continuing operations	4				(1		)		3
Net change	22				(5		)		17
Other comprehensive income	$	403			$	(94	)		$	309


(a)	Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income.


(b)	Includes amounts reclassified to income tax (benefit) expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income.


(c)	For additional information on derivative instruments and hedging activities, refer to Note 17.



Three months ended June 30, 2018 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized losses arising during the period	$	(95	)		$	22			$	(73	)
Less: Net realized gains reclassified to income from continuing operations	1			(a)	—			(b)	1
Net change	(96		)		22				(74		)
Translation adjustments
Net unrealized losses arising during the period	(3		)		1				(2		)
Net investment hedges (c)
Net unrealized gains arising during the period	3				(1		)		2
Cash flow hedges (c)
Net unrealized gains arising during the period	5				(2		)		3
Defined benefit pension plans
Net unrealized gains arising during the period	1				—				1
Other comprehensive loss	$	(90	)		$	20			$	(70	)


(a)	Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income.


(b)	Includes amounts reclassified to income tax (benefit) expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income.


(c)	For additional information on derivative instruments and hedging activities, refer to Note 17.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, 2019 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	825			$	(194	)		$	631
Less: Net realized gains reclassified to income from continuing operations	33			(a)	(8		)	(b)	25
Net change	792				(186		)		606
Translation adjustments
Net unrealized gains arising during the period	6				(2		)		4
Net investment hedges (c)
Net unrealized losses arising during the period	(5		)		2				(3		)
Cash flow hedges (c)
Net unrealized losses arising during the period	21				(5		)		16
Less: Net realized gains reclassified to income from continuing operations	9				(2		)		7
Net change	12				(3		)		9
Defined benefit pension plans
Net unrealized losses arising during the period	(1		)		—				(1		)
Other comprehensive income	$	804			$	(189	)		$	615


(a)	Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income.


(b)	Includes amounts reclassified to income tax (benefit) expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income.


(c)	For additional information on derivative instruments and hedging activities, refer to Note 17.



Six months ended June 30, 2018 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized losses arising during the period	$	(531	)		$	125			$	(406	)
Less: Net realized gains reclassified to income from continuing operations	7			(a)	(1		)	(b)	6
Net change	(538		)		126				(412		)
Translation adjustments
Net unrealized losses arising during the period	(8		)		2				(6		)
Net investment hedges (c)
Net unrealized gains arising during the period	7				(2		)		5
Cash flow hedges (c)
Net unrealized gains arising during the period	23				(6		)		17
Defined benefit pension plans
Net unrealized losses arising during the period	(2		)		—				(2		)
Other comprehensive loss	$	(518	)		$	120			$	(398	)


(a)	Includes gains reclassified to other gain on investments, net in our Condensed Consolidated Statement of Comprehensive Income.


(b)	Includes amounts reclassified to income tax (benefit) expense from continuing operations in our Condensed Consolidated Statement of Comprehensive Income.


(c)	For additional information on derivative instruments and hedging activities, refer to Note 17.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

15. Earnings per Common Share

The following table presents the calculation of basic and diluted earnings per common share.



	Three months ended June 30,					Six months ended June 30,
($ in millions, except per share data; shares in thousands) (a)	2019			2018		2019			2018
Net income from continuing operations attributable to common stockholders	$	584		$	348	$	959		$	600
(Loss) income from discontinued operations, net of tax	(2		)	1		(3		)	(1		)
Net income attributable to common stockholders	$	582		$	349	$	956		$	599
Basic weighted-average common shares outstanding (b)	398,100			430,628		401,098			433,405
Diluted weighted-average common shares outstanding (b)	399,916			432,554		402,921			435,727
Basic earnings per common share
Net income from continuing operations	$	1.47		$	0.81	$	2.39		$	1.38
Loss from discontinued operations, net of tax	—			—		(0.01		)	—
Net income	$	1.46		$	0.81	$	2.39		$	1.38
Diluted earnings per common share
Net income from continuing operations	$	1.46		$	0.80	$	2.38		$	1.38
Loss from discontinued operations, net of tax	—			—		(0.01		)	—
Net income	$	1.46		$	0.81	$	2.37		$	1.37


(a)	Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.


(b)	Includes shares related to share-based compensation that vested but were not yet issued.

16. Regulatory Capital and Other Regulatory Matters

The FRB and other U.S. banking agencies have adopted risk-based and leverage capital standards that establish minimum capital-to-asset ratios for BHCs, like Ally, and depository institutions, like Ally Bank. The risk-based capital ratios are based on a banking organization’s risk-weighted assets (RWAs), which are generally determined under the standardized approach applicable to Ally and Ally Bank by (1) assigning on-balance sheet exposures to broad risk weight categories according to the counterparty or, if relevant, the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived as representing greater risk), and (2) multiplying off-balance sheet exposures by specified credit conversion factors to calculate credit equivalent amounts and assigning those credit equivalent amounts to the relevant risk weight categories. The leverage ratio, in contrast, is based on an institution’s average unweighted on-balance sheet exposures.

Ally and Ally Bank are subject to capital requirements issued by U.S. banking regulators that require us to maintain risk-based and leverage capital ratios above minimum levels. As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which generally reflects higher capital requirements, capital buffers, and changes to regulatory capital definitions, deductions, and adjustments, relative to the predecessor requirements implementing the Basel I capital framework in the United States. Certain aspects of U.S. Basel III, including the capital buffers, were subject to a phase-in period through December 31, 2018.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Condensed Consolidated Financial Statements or the results of operations and financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and Ally Bank must meet specific capital guidelines that involve quantitative measures of capital, assets, and certain off-balance sheet items. These measures and related classifications, which are used in the calculation of our risk-based and leverage capital ratios and those of Ally Bank, are also subject to qualitative judgments by the regulators about the components of capital, the risk-weightings of assets and other exposures, and other factors. The FRB also uses these ratios and guidelines as part of the capital planning and stress testing processes. In addition, in order for Ally to maintain its status as an FHC, Ally and its bank subsidiary, Ally Bank, must remain well capitalized and well managed, as defined under applicable laws. The well capitalized standard for insured depository institutions, such as Ally Bank, reflects the capital requirements under U.S. Basel III.

Under U.S. Basel III, Ally and Ally Bank must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 8%. In addition to these minimum risk-based capital ratios, Ally and Ally Bank are subject to a capital conservation buffer of more than 2.5%. Failure to maintain the full amount of the buffer would result in restrictions on the ability of Ally and Ally Bank to make capital distributions, including dividend payments and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. U.S. Basel III also subjects Ally and Ally Bank to a minimum Tier 1 leverage ratio of 4%.

U.S. Basel III also revised the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had previously been recognized as capital but that do not satisfy these criteria. For example, subject to certain exceptions (e.g., certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other hybrid securities were

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

excluded from a BHC’s Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain items are deducted from Common Equity Tier 1 capital under U.S. Basel III that had not previously been deducted from regulatory capital, and certain other deductions from regulatory capital have been modified. Among other things, U.S. Basel III requires significant investments in the common stock of unconsolidated financial institutions, mortgage servicing assets, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revised the standardized approach for calculating RWAs by, among other things, modifying certain risk weights and the methods for calculating RWAs for certain types of assets and exposures.

Ally and Ally Bank are subject to the U.S. Basel III standardized approach for counterparty credit risk, but not to the U.S. Basel III advanced approaches for credit risk or operational risk. Ally is also not subject to the U.S. market risk capital rule, which applies only to banking organizations with significant trading assets and liabilities.

In December 2018, the FRB and other U.S. banking agencies approved a final rule to address the impact of CECL on regulatory capital by allowing BHCs and banks, including Ally, the option to phase in the day-one impact of CECL over a period of three years for regulatory capital purposes. In addition, the FRB announced that although BHCs subject to company-run stress tests as part of CCAR must incorporate CECL beginning in the 2020 cycle, in order to reduce uncertainty, the FRB will maintain its current modeling framework for the allowance for loan losses in supervisory stress tests through the 2021 cycle.

In July 2019, the FRB and other U.S. banking agencies issued a final rule to simplify certain aspects of the capital rules for banking organizations such as Ally. The final rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, and investments in the capital instruments of unconsolidated financial institutions (collectively, threshold items). Under the current capital rule, a banking organization must deduct from Common Equity Tier 1 capital amounts of threshold items that individually exceed 10% of Common Equity Tier 1 capital. The aggregate amount of threshold items not deducted under the 10% threshold deduction but that nonetheless exceeds 15% of Common Equity Tier 1 capital minus certain deductions from and adjustments to Common Equity Tier 1 capital must also be deducted. Any amount of these threshold items not deducted from Common Equity Tier 1 capital are currently risk weighted at 100%. The final rule removes the individual and aggregate deduction thresholds for threshold items and adopts a single 25% Common Equity Tier 1 capital deduction threshold for each item individually, and requires that any of the threshold items not deducted be risk weighted at 250%. The final rule also simplifies the calculation methodology for minority interests. These provisions take effect on April 1, 2020, and we do not expect them to have a material impact to our capital position.

In May 2018, targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act), including amendments that affect whether and, if so, how the FRB applies enhanced prudential standards to BHCs like us with $100 billion or more but less than $250 billion in total consolidated assets. During the fourth quarter of 2018, the FRB and other U.S. banking agencies issued proposals that would implement these amendments in the EGRRCP Act and establish risk-based categories for determining the prudential standards and the capital and liquidity requirements that apply to large U.S. banking organizations. Under the proposals, Ally would be treated as a Category IV firm and, as such, would be (1) made subject to the FRB’s Comprehensive Capital Analysis and Review (CCAR) on a two-year cycle rather than the current one-year cycle, (2) made subject to supervisory stress testing on a two-year cycle rather than the current one-year cycle, (3) required to continue submitting an annual capital plan to the FRB for non-objection, (4) allowed to continue excluding accumulated other comprehensive income (AOCI) from regulatory capital, (5) required to continue maintaining a buffer of unencumbered highly liquid assets to meet projected net cash outflows for 30 days, (6) required to conduct liquidity stress tests on a quarterly basis rather than the current monthly basis, (7) allowed to engage in more tailored liquidity risk management, including monthly rather than weekly calculations of collateral positions, the elimination of limits for activities that are not relevant to the firm, and fewer required elements of monitoring of intraday liquidity exposures, (8) exempted from company-run stress testing, the modified liquidity coverage ratio (LCR), and the proposed modified net stable funding ratio (NSFR), and (9) allowed to remain exempted from the supplementary leverage ratio, the countercyclical capital buffer, and single counterparty credit limits.

Following the issuance of this proposed rule, during the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more but less than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB, participate in the supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, our capital actions during this cycle will be largely based on the results from our 2018 supervisory stress test.

In April 2018, the FRB issued a proposal to more closely align forward-looking stress testing results with the FRB’s non-stress regulatory capital requirements for banking organizations with $50 billion or more in total consolidated assets. The proposal would introduce a stress capital buffer based on firm-specific stress test performance, which would effectively replace the non-stress capital conservation buffer. The proposal would also make several changes to the CCAR process, such as eliminating the CCAR quantitative objection, narrowing the set of planned capital actions assumed to occur in the stress scenario, and eliminating the 30% dividend payout ratio as a criterion for heightened scrutiny of a firm’s capital plan. In December 2017, the Basel Committee approved revisions to the global Basel III capital framework (commonly known as Basel IV), many of which—if adopted in the United States—could heighten regulatory capital standards even more.

At this time, how all of these proposals and revisions will be harmonized and finalized in the United States is not clear or predictable and we continue to evaluate the impacts these proposals and revisions may have on us.

Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements within the established timeframes.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table summarizes our capital ratios under the U.S. Basel III capital framework.



	June 30, 2019				December 31, 2018				Required minimum (a)		Well-capitalized minimum
($ in millions)	Amount		Ratio		Amount		Ratio		Required minimum (a)		Well-capitalized minimum
Capital ratios
Common Equity Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	13,887	9.52	%	$	13,397	9.14	%	4.50	%	(b)
Ally Bank	16,739		12.54		16,552		12.61		4.50		6.50	%
Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	16,319	11.19	%	$	15,831	10.80	%	6.00	%	6.00	%
Ally Bank	16,739		12.54		16,552		12.61		6.00		8.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	18,572	12.73	%	$	18,046	12.31	%	8.00	%	10.00	%
Ally Bank	17,947		13.44		17,620		13.42		8.00		10.00
Tier 1 leverage (to adjusted quarterly average assets) (c)
Ally Financial Inc.	$	16,319	9.05	%	$	15,831	9.00	%	4.00	%	(b)
Ally Bank	16,739		10.26		16,552		10.69		4.00		5.00	%


(a)	In addition to the minimum risk-based capital requirements for the Common Equity Tier 1 capital, Tier 1 capital, and total capital ratios, Ally and Ally Bank were required to maintain a minimum capital conservation buffer of 2.5% and 1.875% at June 30, 2019, and December 31, 2018, respectively.


(b)	Currently, there is no ratio component for determining whether a BHC is “well-capitalized.”


(c)	Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology.

At June 30, 2019, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was subject.

Capital Planning and Stress Tests

Pending the adoption of proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would implement the EGRRCP Act, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit a proposed capital plan to the FRB.

Ally’s proposed capital plan must include an assessment of our expected uses and sources of capital and a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any dividend or other capital distribution, and any similar action that the FRB determines could have an impact on Ally’s capital. The proposed capital plan must also include a discussion of how Ally, under expected and stressful conditions, will maintain capital commensurate with its risks and above the minimum regulatory capital ratios, and will serve as a source of strength to Ally Bank. The FRB will either object to Ally’s proposed capital plan, in whole or in part, or provide a notice of non-objection. If the FRB objects to the proposed capital plan, or if certain material events occur after approval of the plan, Ally must submit a revised capital plan within 30 days. Even if the FRB does not object to our capital plan, Ally may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval under certain circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the distributions.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents information related to our common stock and distributions to our common stockholders over the last six quarters.



	Common stock repurchased during period (a)			Number of common shares outstanding		Cash dividends declared per common share (b)
($ in millions, except per share data; shares in thousands)	Approximate dollar value		Number of shares	Beginning of period	End of period	Cash dividends declared per common share (b)
2018
First quarter	$	185	6,473	437,054	432,691	$	0.13
Second quarter	195		7,280	432,691	425,752	0.13
Third quarter	250		9,194	425,752	416,591	0.15
Fourth quarter	309		12,121	416,591	404,900	0.15
2019
First quarter	$	211	8,113	404,900	399,761	$	0.17
Second quarter	229		7,775	399,761	392,775	0.17


(a)	Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.


(b)	On July 16, 2019, the Ally Board of Directors (the Board) declared a quarterly cash dividend of $0.17 per share on all common stock, payable on August 15, 2019. Refer to Note 24 for further information regarding this common stock dividend.

Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On June 28, 2018, we received from the FRB a non-objection to our capital plan, which included increases in both our stock-repurchase program and our planned dividends. Consistent with the capital plan, the Board authorized increases in our stock-repurchase program, permitting us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019. On October 5, 2018, we submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable regulatory requirements.

As described earlier in this note, our capital actions during this cycle will be largely based on the results from our 2018 supervisory stress test. On April 1, 2019, the Board authorized an increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally, on July 16, 2019, the Board declared a quarterly cash dividend of $0.17 per share of our common stock. Refer to Note 24 for further information on the most recent dividend.

Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue to be subject to the FRB’s review and approval by the Board. The amount and size of any future dividends and share repurchases also will be subject to various factors, including Ally’s capital and liquidity positions, regulatory considerations, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative uses of capital, common-stock price, and general market conditions, and may be suspended at any time.

17. Derivative Instruments and Hedging Activities

We enter into derivative instruments, which may include interest rate, foreign-currency, and equity swaps, futures, forwards, and options in connection with our risk-management activities. Our primary objective for utilizing derivative financial instruments is to manage interest rate risk associated with our fixed- and variable-rate assets and liabilities, foreign exchange risks related to our foreign-currency denominated assets and liabilities, and other market risks related to our investment portfolio.

Interest Rate Risk

We monitor our mix of fixed- and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, futures, options, and swaptions to achieve our desired mix of fixed- and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges.

Derivatives qualifying for hedge accounting can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio, and pay-fixed swaps designated as fair value hedges of closed portfolios of fixed-rate held-for-investment consumer automotive loan assets in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. Other derivatives qualifying for hedge accounting consist of pay-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest payments on certain variable-rate borrowings and deposit liabilities, receive-fixed swaps designated as cash flow hedges of the expected future cash flows in the form of interest receipts on certain securities within our available-for-sale portfolio, as well as interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our dealer floorplan commercial loans.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

We may also execute economic hedges, which consist of interest rate swaps, interest rate caps, forwards, futures, options, and swaptions to mitigate interest rate risk.

We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage business that meet the accounting definition of a derivative.

Foreign Exchange Risk

We enter into derivative financial instrument contracts to mitigate the risk associated with variability in cash flows related to our various foreign-currency exposures.

We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our investment in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive income. We also periodically enter into foreign-currency forwards to economically hedge any foreign-denominated debt, centralized lending, and foreign-denominated third-party loans. These foreign-currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income offsetting the gains and losses on the associated foreign-currency transactions.

Investment Risk

We enter into equity options to economically hedge our exposure to the equity markets.

Counterparty Credit Risk

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the agreements. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties that owe us under the contract completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral as measured by the market value of the derivative financial instrument.

We manage our risk to financial counterparties through internal credit analysis, limits, and monitoring. Additionally, derivatives and repurchase agreements are entered into with approved counterparties using industry standard agreements.

We execute certain over-the-counter (OTC) derivatives such as interest rate caps using bilateral agreements with financial counterparties. Bilateral agreements generally require both parties to post collateral in the event the fair values of the derivative financial instruments meet posting thresholds established under the agreements. In the event that either party defaults on the obligation, the secured party may seize the collateral. Payments related to the exchange of collateral for OTC derivatives are recognized as collateral.

We also execute certain derivatives such as interest rate swaps with clearinghouses, which requires us to post and receive collateral. For these clearinghouse derivatives, these payments are recognized as settlements rather than collateral.

Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified credit-risk-related event. No such specified credit-risk-related events occurred during the three months and six months ended June 30, 2019, or 2018.

We placed cash and noncash collateral totaling $9 million and $165 million, respectively, supporting our derivative positions at June 30, 2019, compared to $26 million and $105 million of cash and noncash collateral at December 31, 2018, in accounts maintained by counterparties. These amounts include collateral placed at clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. Refer to Note 12 for details on the repurchase agreements. The receivables for cash collateral placed are included on our Condensed Consolidated Balance Sheet in other assets.

We received cash and noncash collateral from counterparties totaling $25 million and $32 million, respectively, in accounts maintained by counterparties at June 30, 2019, compared to $30 million and $3 million of cash and noncash collateral at December 31, 2018. These amounts include collateral received from clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. Refer to Note 12 for details on repurchase agreements. The payables for cash collateral received are included on our Condensed Consolidated Balance Sheet in accrued expenses and other liabilities. Included in these amounts is noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the noncash collateral received under these agreements.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Balance Sheet Presentation

The following table summarizes the amounts of derivative instruments reported on our Condensed Consolidated Balance Sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories.

Derivative contracts in a receivable and payable position exclude open trade equity on derivatives cleared through central clearing counterparties. Any associated collateral exchanged with our central clearing counterparties are treated as settlements of the derivative exposure, rather than collateral. Such payments are recognized as settlements of the derivatives contracts in a receivable and payable position on our Condensed Consolidated Balance Sheet.

Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.



	June 30, 2019						December 31, 2018
	Derivative contracts in a				Notional amount		Derivative contracts in a				Notional amount
($ in millions)	receivable position		payable position				receivable position		payable position
Derivatives designated as accounting hedges
Interest rate contracts
Swaps	$	—	$	—	$	16,986	$	—	$	—	$	24,203
Purchased options	54		—		4,100		—		—		—
Foreign exchange contracts
Forwards	—		—		137		1		—		136
Total derivatives designated as accounting hedges	54		—		21,223		1		—		24,339
Derivatives not designated as accounting hedges
Interest rate contracts
Futures and forwards	—		—		17		—		—		11
Written options	2		3		1,765		—		37		6,793
Purchased options	3		—		1,658		37		—		6,742
Total interest rate risk	5		3		3,440		37		37		13,546
Foreign exchange contracts
Futures and forwards	—		—		126		3		—		181
Total foreign exchange risk	—		—		126		3		—		181
Equity contracts
Written options	—		1		—		—		—		—
Total equity risk	—		1		—		—		—		—
Total derivatives not designated as accounting hedges	5		4		3,566		40		37		13,727
Total derivatives	$	59	$	4	$	24,789	$	41	$	37	$	38,066

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents amounts recorded on our Condensed Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges.



($ in millions)	Carrying amount of the hedged items				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
	Carrying amount of the hedged items				Total				Discontinued (a)
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Assets
Available-for-sale securities (b) (c)	$	1,401	$	1,485	$	11	$	—	$	10	$	(5	)
Finance receivables and loans, net (d)	46,111		40,850		153		24		59		5
Liabilities
Long-term debt	$	12,093	$	13,001	$	85	$	67	$	66	$	67


(a)	Represents the fair value hedging adjustment on qualifying hedges for which the hedging relationship was discontinued. This represents a subset of the amounts reported in the total hedging adjustment.


(b)	The carrying amount of hedged available-for-sale securities is presented above using amortized cost. Refer to Note 6 for a reconciliation of the amortized cost and fair value of available-for-sale securities.

(c)

Includes the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At December 31, 2018, the amortized cost basis of the closed portfolios used in these hedging relationships was $47 million. There was no basis adjustment associated with the last-of-layer relationships, and the amount identified as the last of layer in these hedge relationships was $28 million at December 31, 2018. A last-of-layer hedge strategy did not exist at June 30, 2019.

(d)

The hedged item represents the carrying value of the hedged portfolio of assets. The amount identified as the last of layer in the open hedge relationship was $13.4 billion as of June 30, 2019, and $21.4 billion as of December 31, 2018. The basis adjustment associated with the open last-of-layer relationship was a $94 million asset as of June 30, 2019, and a $19 million asset as of December 31, 2018, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. The amount that is identified as the last of layer in the discontinued hedge relationship was $12.8 billion at June 30, 2019. The basis adjustment associated with the discontinued last-of-layer relationship was a $57 million asset as of June 30, 2019, which was allocated across the entire remaining pool upon termination of the hedge relationship.

Statement of Comprehensive Income Presentation

The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting hedges reported in our Condensed Consolidated Statement of Comprehensive Income.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018			2019			2018
Gain (loss) recognized in earnings
Interest rate contracts
Gain on mortgage and automotive loans, net	$	—		$	—		$	1		$	—
Other income, net of losses	(2		)	(2		)	(7		)	—
Total interest rate contracts	(2		)	(2		)	(6		)	—
Foreign exchange contracts
Other income, net of losses	(2		)	6			(3		)	6
Total foreign exchange contracts	(2		)	6			(3		)	6
(Loss) gain recognized in earnings	$	(4	)	$	4		$	(9	)	$	6

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables summarize the location and amounts of gains and losses on derivative instruments designated as fair value and cash flow hedges reported in our Condensed Consolidated Statement of Comprehensive Income.



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets						Interest on long-term debt
Three months ended June 30, ($ in millions)	2019			2018			2019			2018			2019			2018
(Loss) gain on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—		$	—		$	—		$	—		$	(19	)	$	8
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—			—			—			—			19			(8		)
Hedged fixed-rate FHLB advances	—			—			—			—			—			10
Derivatives designated as hedging instruments on fixed-rate FHLB advances	—			—			—			—			—			(10		)
Hedged available-for-sale securities	—			—			2			(2		)	—			—
Derivatives designated as hedging instruments on available-for-sale securities	—			—			(2		)	2			—			—
Hedged fixed-rate consumer automotive loans	98			(6		)	—			—			—			—
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans	(98		)	6			—			—			—			—
Total gain on fair value hedging relationships	—			—			—			—			—			—
Gain on cash flow hedging relationships
Interest rate contracts
Hedged variable-rate borrowings
Reclassified from accumulated other comprehensive income into income	—			—			—			—			4			—
Total gain on cash flow hedging relationships	$	—		$	—		$	—		$	—		$	4		$	—
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	1,860		$	1,647		$	244		$	188		$	407		$	434

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets						Interest on deposits				Interest on long-term debt
Six months ended June 30, ($ in millions)	2019			2018			2019			2018			2019		2018		2019			2018
(Loss) gain on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—		$	—		$	—		$	—		$	—	$	—	$	(19	)	$	44
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—			—			—			—			—		—		19			(43		)
Hedged fixed-rate FHLB advances	—			—			—			—			—		—		—			43
Derivatives designated as hedging instruments on fixed-rate FHLB advances	—			—			—			—			—		—		—			(43		)
Hedged available-for-sale securities	—			—			12			(5		)	—		—		—			—
Derivatives designated as hedging instruments on available-for-sale securities	—			—			(12		)	5			—		—		—			—
Hedged fixed-rate consumer automotive loans	141			(51		)	—			—			—		—		—			—
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans	(141		)	51			—			—			—		—		—			—
Total gain on fair value hedging relationships	—			—			—			—			—		—		—			1
Gain on cash flow hedging relationships
Interest rate contracts
Hedged deposit liabilities
Reclassified from accumulated other comprehensive income into income	—			—			—			—			1		—		—			—
Hedged variable-rate borrowings
Reclassified from accumulated other comprehensive income into income	—			—			—			—			—		—		8			—
Total gain on cash flow hedging relationships	$	—		$	—		$	—		$	—		$	1	$	—	$	8		$	—
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	3,667		$	3,190		$	484		$	364		$	1,243	$	750	$	826		$	845

During the next twelve months, we estimate no amount will be reclassified into pretax earnings from derivatives designated as cash flow hedges.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables summarize the location and amounts of gains and losses related to interest and amortization on derivative instruments designated as fair value and cash flow hedges reported in our Condensed Consolidated Statement of Comprehensive Income.



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets					Interest on long-term debt
Three months ended June 30, ($ in millions)	2019			2018			2019			2018		2019			2018
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—		$	—		$	—		$	—	$	6		$	14
Interest for qualifying accounting hedges of unsecured debt	—			—			—			—		—			1
Amortization of deferred secured debt basis adjustments (FHLB advances)	—			—			—			—		(5		)	(5		)
Interest for qualifying accounting hedges of secured debt (FHLB advances)	—			—			—			—		—			2
Amortization of deferred basis adjustments of available-for-sale securities	—			—			(1		)	—		—			—
Amortization of deferred loan basis adjustments	(9		)	(4		)	—			—		—			—
Interest for qualifying accounting hedges of consumer automotive loans held-for-investment	11			5			—			—		—			—
Total gain (loss) on fair value hedging relationships	2			1			(1		)	—		1			12
Gain on cash flow hedging relationships
Interest rate contracts
Interest for qualifying accounting hedges of variable-rate borrowings	—			—			—			—		—			2
Total gain on cash flow hedging relationships	$	—		$	—		$	—		$	—	$	—		$	2

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets						Interest on long-term debt
Six months ended June 30, ($ in millions)	2019			2018			2019			2018			2019			2018
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—		$	—		$	—		$	—		$	12		$	29
Interest for qualifying accounting hedges of unsecured debt	—			—			—			—			—			4
Amortization of deferred secured debt basis adjustments (FHLB advances)	—			—			—			—			(11		)	(6		)
Interest for qualifying accounting hedges of secured debt (FHLB advances)	—			—			—			—			—			4
Amortization of deferred basis adjustments of available-for-sale securities	—			—			(1		)	—			—			—
Interest for qualifying accounting hedges of available-for-sale securities	—			—			—			(1		)	—			—
Amortization of deferred loan basis adjustments	(13		)	(8		)	—			—			—			—
Interest for qualifying accounting hedges of consumer automotive loans held-for-investment	17			(2		)	—			—			—			—
Total gain (loss) on fair value hedging relationships	4			(10		)	(1		)	(1		)	1			31
Gain on cash flow hedging relationships
Interest rate contracts
Interest for qualifying accounting hedges of variable-rate borrowings	—			—			—			—			—			3
Total gain on cash flow hedging relationships	$	—		$	—		$	—		$	—		$	1		$	3

The following table summarizes the effect of cash flow hedges on accumulated other comprehensive income (loss).



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Interest rate contracts
Gain recognized in other comprehensive income (loss)	$	22	$	5	$	12	$	23

The following table summarizes the effect of net investment hedges on accumulated other comprehensive income (loss) and the Condensed Consolidated Statement of Comprehensive Income.



	Three months ended June 30,					Six months ended June 30,
($ in millions)	2019			2018		2019			2018
Foreign exchange contracts (a) (b)
(Loss) gain recognized in other comprehensive income (loss)	$	(3	)	$	3	$	(5	)	$	7


(a)	There were no amounts excluded from effectiveness testing for the three months and six months ended June 30, 2019, or 2018.


(b)	Gains and losses reclassified from accumulated other comprehensive income (loss) are reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income. There were no amounts reclassified for the three months and six months ended June 30, 2019, or 2018.

18. Income Taxes

We recognized income tax benefit from continuing operations of $90 million and income tax expense from continuing operations of $21 million for the three months and six months ended June 30, 2019, respectively, compared to income tax expense of $113 million and $189 million for the same periods in 2018.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The decreases in income tax expense for the three months and six months ended June 30, 2019, compared to the same periods in 2018, were primarily due to a release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release during the three months ended June 30, 2019, was primarily driven by our current capacity to engage in certain securitization transactions and the market demand from investors related to these transactions, coupled with the anticipated timing of the forecasted expiration of certain tax credit carryforwards. This release of valuation allowance of approximately $200 million resulted in a significant variation in the customary relationship between pretax income and income tax expense. Additionally, the decrease in income tax expense for the six months ended June 30, 2019, compared to the same period in 2018, was partially offset by the tax effects of an increase in pretax earnings.

As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. Following the release of the aforementioned valuation allowance, we continue to believe it is more likely than not that the benefit for certain foreign tax credit carryforwards and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to these carryforwards and it is reasonably possible that the valuation allowance may change in the next twelve months.

19. Fair Value

Fair Value Measurements

For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date under current market conditions. Fair value is based on the assumptions we believe market participants would use when pricing an asset or liability. Additionally, entities are required to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.

Judgment is used in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements and amounts that could be realized.

GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.


Level 1	Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.

Level 2

Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.


Level 3	Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management’s best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

The following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized.


•	Equity Securities — Includes various marketable equity securities measured at fair value with changes in fair value recognized in net income. Measurements based on observable market prices are classified as Level 1.

•

Available-for-sale securities — All classes of available-for-sale securities are carried at fair value based on observable market prices, when available. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (including prepayment speeds, delinquency levels, and credit losses).

•

Interests retained in financial asset sales — Includes certain noncertificated interests retained from the sale of automotive finance receivables. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

•

Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk-management strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures, options of Eurodollar futures, and equity options. To determine the fair value of these instruments, we utilize the quoted market prices for the particular derivative contracts; therefore, we classified these contracts as Level 1.

We also execute OTC and centrally-cleared derivative contracts, such as interest rate swaps, swaptions, foreign-currency denominated forward contracts, caps, floors, and agency to-be-announced securities. We utilize third-party-developed valuation models that are widely accepted in the market to value these derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves, interpolated volatility assumptions, or equity pricing) are used in the model. We classified these derivative contracts as Level 2 because all significant inputs into these models were market observable.

We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of our mortgage business, certain of which meet the accounting definition of a derivative and therefore are recorded as derivatives on our Condensed Consolidated Balance Sheet. Because these derivatives are valued using internal pricing models with unobservable inputs, they are classified as Level 3.

We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if warranted. The CVA calculation utilizes the credit default swap spreads of the counterparty.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Recurring Fair Value

The following tables display the assets and liabilities measured at fair value on a recurring basis including financial instruments elected for the fair value option. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our risk-management activities.



	Recurring fair value measurements
June 30, 2019 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)	$	582	$	—	$	9	$	591
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	2,017		1		—		2,018
U.S. States and political subdivisions	—		598		—		598
Foreign government	13		136		—		149
Agency mortgage-backed residential	—		19,100		—		19,100
Mortgage-backed residential	—		2,934		—		2,934
Agency mortgage-backed commercial	—		1,351		—		1,351
Mortgage-backed commercial	—		713		—		713
Asset-backed	—		477		—		477
Corporate debt	—		1,348		—		1,348
Total available-for-sale securities	2,030		26,658		—		28,688
Mortgage loans held-for-sale (b)	—		—		22		22
Interests retained in financial asset sales	—		—		3		3
Derivative contracts in a receivable position
Interest rate	—		57		2		59
Total derivative contracts in a receivable position	—		57		2		59
Total assets	$	2,612	$	26,715	$	36	$	29,363
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate	$	—	$	3	$	—	$	3
Other	1		—		—		1
Total derivative contracts in a payable position	1		3		—		4
Total liabilities	$	1	$	3	$	—	$	4


(a)	Our investment in any one industry did not exceed 14%.


(b)	Carried at fair value due to fair value option elections.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Recurring fair value measurements
December 31, 2018 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)	$	766	$	—	$	7	$	773
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	1,850		1		—		1,851
U.S. States and political subdivisions	—		802		—		802
Foreign government	7		138		—		145
Agency mortgage-backed residential	—		17,138		—		17,138
Mortgage-backed residential	—		2,686		—		2,686
Agency mortgage-backed commercial	—		3		—		3
Mortgage-backed commercial	—		714		—		714
Asset-backed	—		723		—		723
Corporate debt	—		1,241		—		1,241
Total available-for-sale securities	1,857		23,446		—		25,303
Mortgage loans held-for-sale (b)	—		—		8		8
Interests retained in financial asset sales	—		—		4		4
Derivative contracts in a receivable position
Interest rate	—		37		—		37
Foreign currency	—		4		—		4
Total derivative contracts in a receivable position	—		41		—		41
Total assets	$	2,623	$	23,487	$	19	$	26,129
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate	$	—	$	37	$	—	$	37
Total derivative contracts in a payable position	—		37		—		37
Total liabilities	$	—	$	37	$	—	$	37


(a)	Our investment in any one industry did not exceed 9%.


(b)	Carried at fair value due to fair value option elections.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. There were no transfers into or out of Level 3 in the periods presented. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk-management activities.



	Level 3 recurring fair value measurements
			Net realized/unrealized gains															Fair value at June 30, 2019		Net unrealized gains still held at June 30, 2019
($ in millions)	Fair value at April 1, 2019		included in earnings			included in OCI		Purchases		Sales			Issuances		Settlements					included in earnings		included in OCI
Assets
Equity securities	$	11	$	2	(a)	$	—	$	—	$	—		$	—	$	(4	)	$	9	$	2	$	—
Mortgage loans held-for-sale (b)	15		3		(c)	—		156		(152		)	—		—			22		—		—
Other assets
Interests retained in financial asset sales	4		—			—		—		—			—		(1		)	3		—		—
Derivative assets	2		—		(c)	—		—		—			—		—			2		—		—
Total assets	$	32	$	5		$	—	$	156	$	(152	)	$	—	$	(5	)	$	36	$	2	$	—


(a)	Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.


(b)	Carried at fair value due to fair value option elections.


(c)	Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.



	Level 3 recurring fair value measurements
	Fair value at April 1, 2018		Net realized/unrealized gains					Purchases		Sales			Issuances		Settlements			Fair value at June 30, 2018		Net unrealized gains included in earnings still held at June 30, 2018
($ in millions)			included in earnings			included in OCI
Assets
Equity securities	$	12	$	—		$	—	$	—	$	—		$	—	$	—		$	12	$	—
Mortgage loans held-for-sale (a)	7		1		(b)	—		73		(68		)	—		—			13		—
Other assets
Interests retained in financial asset sales	5		—			—		—		—			—		(1		)	4		—
Derivative assets	1		—			—		—		—			—		—			1		—
Total assets	$	25	$	1		$	—	$	73	$	(68	)	$	—	$	(1	)	$	30	$	—


(a)	Carried at fair value due to fair value option elections.


(b)	Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.



	Level 3 recurring fair value measurements
			Net realized/unrealized gains															Fair value at June 30, 2019		Net unrealized gains still held at June 30, 2019
($ in millions)	Fair value at Jan. 1, 2019		included in earnings			included in OCI		Purchases		Sales			Issuances		Settlements					included in earnings		included in OCI
Assets
Equity securities	$	7	$	6	(a)	$	—	$	—	$	—		$	—	$	(4	)	$	9	$	6	$	—
Mortgage loans held-for-sale (b)	8		4		(c)	—		246		(236		)	—		—			22		—		—
Other assets
Interests retained in financial asset sales	4		—			—		—		—			—		(1		)	3		—		—
Derivative assets	—		2		(c)	—		—		—			—		—			2		2		—
Total assets	$	19	$	12		$	—	$	246	$	(236	)	$	—	$	(5	)	$	36	$	8	$	—


(a)	Reported as other gain on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.


(b)	Carried at fair value due to fair value option elections.


(c)	Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Level 3 recurring fair value measurements
	Fair value at Jan. 1, 2018		Net realized/unrealized (losses) gains						Purchases		Sales			Issuances		Settlements			Fair value at June 30, 2018		Net unrealized losses included in earnings still held at June 30, 2018
($ in millions)			included in earnings				included in OCI
Assets
Equity securities	$	19	$	(4	)	(a)	$	—	$	—	$	—		$	—	$	(3	)	$	12	$	(5	)
Mortgage loans held-for-sale (b)	13		2			(c)	—		132		(134		)	—		—			13		—
Other assets
Interests retained in financial asset sales	5		—				—		—		—			—		(1		)	4		—
Derivative assets	1		—				—		—		—			—		—			1		—
Total assets	$	38	$	(2	)		$	—	$	132	$	(134	)	$	—	$	(4	)	$	30	$	(5	)


(a)	Reported as other loss on investments, net, in the Condensed Consolidated Statement of Comprehensive Income.


(b)	Carried at fair value due to fair value option elections.


(c)	Reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.

Nonrecurring Fair Value

We may be required to measure certain assets and liabilities at fair value from time to time. These periodic fair value measures typically result from the application of lower-of-cost or fair value accounting or certain impairment measures. These items would constitute nonrecurring fair value measures.

The following tables display assets and liabilities measured at fair value on a nonrecurring basis and still held at June 30, 2019, and December 31, 2018, respectively. The amounts are as of the end of each period presented, which approximate the fair value measurements that occurred during each period.



	Nonrecurring fair value measurements								Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment			Total gain (loss) included in earnings
June 30, 2019 ($ in millions)	Level 1		Level 2		Level 3		Total					Total gain (loss) included in earnings
Assets
Loans held-for-sale, net	$	—	$	—	$	253	$	253	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Automotive	—		—		54		54		(19		)	n/m	(a)
Other	—		—		17		17		(30		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		71		71		(49		)	n/m	(a)
Other assets
Repossessed and foreclosed assets (c)	—		—		13		13		(1		)	n/m	(a)
Nonmarketable equity investments	—		—		9		9		(1		)	n/m	(a)
Equity-method investments	—		—		3		3		(4		)	n/m	(a)
Total assets	$	—	$	—	$	349	$	349	$	(55	)	n/m

n/m = not meaningful

(a)

We consider the applicable valuation allowance, loan loss allowance, or cumulative impairment to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation allowance, loan loss allowance, or cumulative impairment.


(b)	Represents the portion of the portfolio specifically impaired during 2019. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


(c)	The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Nonrecurring fair value measurements								Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment			Total gain (loss) included in earnings
December 31, 2018 ($ in millions)	Level 1		Level 2		Level 3		Total					Total gain (loss) included in earnings
Assets
Loans held-for-sale, net
Automotive (a)	$	—	$	—	$	210	$	210	$	(2	)	n/m	(b)
Other	—		—		96		96		—			n/m	(b)
Total loans held-for-sale, net	—		—		306		306		(2		)	n/m	(b)
Commercial finance receivables and loans, net (c)
Automotive	—		—		84		84		(10		)	n/m	(b)
Other	—		—		55		55		(46		)	n/m	(b)
Total commercial finance receivables and loans, net	—		—		139		139		(56		)	n/m	(b)
Other assets
Nonmarketable equity investments	—		—		1		1		(1		)	n/m	(b)
Equity-method investments	—		—		3		3		—			n/m	(b)
Repossessed and foreclosed assets (d)	—		—		13		13		(1		)	n/m	(b)
Total assets	$	—	$	—	$	462	$	462	$	(60	)	n/m

n/m = not meaningful


(a)	Represents loans within our commercial automotive portfolio. Of this amount, $104 million was valued based upon a sales price for a transaction that closed in January 2019, and $106 million was valued using a discounted cash flow analysis, with a spread over forward interest rates as a significant unobservable input utilizing a range of 0.08–1.09% and weighted average of 0.72%.

(b)


(c)	Represents the portion of the portfolio specifically impaired during 2018. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


(d)	The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.

Fair Value Option for Financial Assets

We elected the fair value option for an insignificant amount of conforming mortgage loans held-for-sale. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related derivatives. Our intent in electing fair value measurement was to mitigate a divergence between accounting gains or losses and economic exposure for certain assets and liabilities.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Fair Value of Financial Instruments

The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is required in interpreting current market data to develop the market assumptions and inputs necessary to estimate fair value. As such, the actual amount received to sell an asset or the amount paid to settle a liability could differ from our estimates. Fair value information presented herein was based on information available at June 30, 2019, and December 31, 2018.



			Estimated fair value
($ in millions)	Carrying value		Level 1		Level 2		Level 3		Total
June 30, 2019
Financial assets
Held-to-maturity securities	$	2,461	$	—	$	2,499	$	—	$	2,499
Loans held-for-sale, net	253		—		—		253		253
Finance receivables and loans, net	127,928		—		—		131,383		131,383
FHLB/FRB stock (a)	1,226		—		1,226		—		1,226
Financial liabilities
Deposit liabilities	$	56,084	$	—	$	—	$	56,575	$	56,575
Short-term borrowings	6,519		—		—		6,523		6,523
Long-term debt	37,466		—		23,441		16,734		40,175
December 31, 2018
Financial assets
Held-to-maturity securities	$	2,362	$	—	$	2,307	$	—	$	2,307
Loans held-for-sale, net	306		—		—		306		306
Finance receivables and loans, net	128,684		—		—		130,878		130,878
FHLB/FRB stock (a)	1,351		—		1,351		—		1,351
Financial liabilities
Deposit liabilities	$	51,985	$	—	$	—	$	51,997	$	51,997
Short-term borrowings	9,987		—		—		9,992		9,992
Long-term debt	44,193		—		23,846		21,800		45,646


(a)	Included in other assets on our Condensed Consolidated Balance Sheet.

20. Offsetting Assets and Liabilities

Our derivative contracts and repurchase/reverse repurchase transactions are supported by qualifying master netting and master repurchase agreements. These agreements are legally enforceable bilateral agreements that (i) create a single legal obligation for all individual transactions covered by the agreement to the nondefaulting entity upon an event of default of the counterparty, including bankruptcy, insolvency, or similar proceeding, and (ii) provide the nondefaulting entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default of the counterparty.

To further mitigate the risk of counterparty default related to derivative instruments, we maintain collateral agreements with certain counterparties. The agreements require both parties to maintain collateral in the event the fair values of the derivative financial instruments meet established thresholds. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the obligation. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. A party posts additional collateral when their obligation rises or removes collateral when it falls, such that the net replacement cost of the nondefaulting party is covered in the event of counterparty default.

In certain instances as it relates to our derivative instruments, we have the option to report derivative assets and liabilities as well as assets and liabilities associated with cash collateral received or delivered that is governed by a master netting agreement on a net basis as long as certain qualifying criteria are met. Similarly, for our repurchase/reverse repurchase transactions, we have the option to report recognized assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At June 30, 2019, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance Sheet.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.



	Gross amounts of recognized assets/liabilities		Gross amounts offset on the Condensed Consolidated Balance Sheet		Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet
							Gross amounts not offset on the Condensed Consolidated Balance Sheet
June 30, 2019 ($ in millions)							Financial instruments			Collateral (a) (b) (c)			Net amount
Assets
Derivative assets in net asset positions (d)	$	57	$	—	$	57	$	(2	)	$	(54	)	$	1
Derivative assets with no offsetting arrangements	2		—		2		—			—			2
Total assets	$	59	$	—	$	59	$	(2	)	$	(54	)	$	3
Liabilities
Derivative liabilities in net liability positions (d)	$	2	$	—	$	2	$	—		$	(1	)	$	1
Derivative liabilities in net asset positions	2		—		2		(2		)	—			—
Total derivative liabilities (d)	4		—		4		(2		)	(1		)	1
Securities sold under agreements to repurchase (e)	432		—		432		—			(432		)	—
Total liabilities	$	436	$	—	$	436	$	(2	)	$	(433	)	$	1


(a)	Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty.

(b)

Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash collateral received. There was $32 million of noncash derivative collateral, and $1 million of noncash collateral associated with our repurchase agreements, pledged to us that was excluded at June 30, 2019. We do not record such collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met.


(c)	Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $33 million at June 30, 2019. We have not sold or pledged any of the noncash collateral received under these agreements as of June 30, 2019.


(d)	For additional information on derivative instruments and hedging activities, refer to Note 17.


(e)	For additional information on securities sold under agreements to repurchase, refer to Note 12.



	Gross amounts of recognized assets/liabilities		Gross amounts offset on the Condensed Consolidated Balance Sheet		Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet
							Gross amounts not offset on the Condensed Consolidated Balance Sheet
December 31, 2018 ($ in millions)							Financial instruments		Collateral (a) (b) (c)			Net amount
Assets
Derivative assets in net asset positions	$	41	$	—	$	41	$	—	$	(4	)	$	37
Total assets (d)	$	41	$	—	$	41	$	—	$	(4	)	$	37
Liabilities
Derivative liabilities in net liability positions (d)	$	37	$	—	$	37	$	—	$	—		$	37
Securities sold under agreements to repurchase (e)	685		—		685		—		(685		)	—
Total liabilities	$	722	$	—	$	722	$	—	$	(685	)	$	37


(a)	Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual derivative counterparty.

(b)

Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash collateral received. There was $3 million of noncash derivative collateral, and $4 million of noncash collateral associated with our repurchase agreements, pledged to us that was excluded at December 31, 2018. We do not record such collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met.


(c)	Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $7 million at December 31, 2018. We have not sold or pledged any of the noncash collateral received under these agreements as of December 31, 2018.


(d)	For additional information on derivative instruments and hedging activities, refer to Note 17.


(e)	For additional information on securities sold under agreements to repurchase, refer to Note 12.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

21. Segment Information

Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance.

We report our results of operations on a business-line basis through four operating segments: Automotive Finance operations, Insurance operations, Mortgage Finance operations, and Corporate Finance operations, with the remaining activity reported in Corporate and Other. The operating segments are determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by management. The following is a description of each of our reportable operating segments.

Automotive Finance operations — One of the largest full service automotive finance operations in the United States providing automotive financing services to consumers, automotive dealers, companies, and municipalities. Our automotive finance services include providing retail installment sales contracts, loans and operating leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, warehouse lines to automotive retailers, fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and vehicle-remarketing services.

Insurance operations — A complementary automotive-focused business offering both consumer finance protection and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provide VSCs, VMCs, and GAP products. We also underwrite select commercial insurance coverages, which primarily insure dealers’ vehicle inventory.

Mortgage Finance operations — Primarily consists of the management of a held-for-investment consumer mortgage finance loan portfolio, which includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties. Our direct-to-consumer mortgage offering, named Ally Home, consists of a variety of jumbo and conforming fixed- and adjustable-rate mortgage products with the assistance of a third-party fulfillment provider. Jumbo mortgage loans are generally held on our balance sheet and are accounted for as held-for-investment. Conforming mortgage loans are generally originated as held-for-sale and then sold to the fulfillment provider, and we retain no mortgage servicing rights associated with those loans that are sold.

Corporate Finance operations — Primarily provides senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies. Our primary focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. We also offer a commercial real estate product to serve companies in the healthcare industry.

Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. Additionally, financial results related to Ally Invest are currently included within Corporate and Other.

We utilize an FTP methodology for the majority of our business operations. The FTP methodology assigns charge rates and credit rates to classes of assets and liabilities based on expected duration and the benchmark rate curve plus an assumed credit spread. Matching duration allocates interest income and interest expense to these reportable segments so their respective results are insulated from interest rate risk. This methodology is consistent with our ALM practices, which includes managing interest rate risk centrally at a corporate level. The net residual impact of the FTP methodology is included within the results of Corporate and Other.

The information presented in our reportable operating segments is based in part on internal allocations, which involve management judgment.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Financial information for our reportable operating segments is summarized as follows.



Three months ended June 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations			Corporate and Other			Consolidated (a)
2019
Net financing revenue and other interest income	$	1,022	$	15	$	46	$	61		$	13		$	1,157
Other revenue	61		286		4		10			34			395
Total net revenue	1,083		301		50		71			47			1,552
Provision for loan losses	180		—		—		3			(6		)	177
Total noninterest expense	444		301		36		22			78			881
Income (loss) from continuing operations before income tax expense	$	459	$	—	$	14	$	46		$	(25	)	$	494
Total assets	$	114,955	$	8,241	$	16,584	$	4,980		$	35,688		$	180,448
2018
Net financing revenue and other interest income	$	925	$	13	$	44	$	57		$	55		$	1,094
Other revenue	63		266		2		14			19			364
Total net revenue	988		279		46		71			74			1,458
Provision for loan losses	170		—		—		(6		)	(6		)	158
Total noninterest expense	436		268		32		19			84			839
Income (loss) from continuing operations before income tax expense	$	382	$	11	$	14	$	58		$	(4	)	$	461
Total assets	$	114,915	$	7,634	$	13,385	$	4,458		$	30,953		$	171,345


(a)	Net financing revenue and other interest income after the provision for loan losses totaled $980 million and $936 million for the three months ended June 30, 2019, and 2018, respectively.



Six months ended June 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations			Corporate and Other			Consolidated (a)
2019
Net financing revenue and other interest income	$	2,002	$	27	$	96	$	115		$	49		$	2,289
Other revenue	129		646		6		21			59			861
Total net revenue	2,131		673		102		136			108			3,150
Provision for loan losses	442		—		2		26			(11		)	459
Total noninterest expense	901		528		73		51			158			1,711
Income (loss) from continuing operations before income tax expense	$	788	$	145	$	27	$	59		$	(39	)	$	980
Total assets	$	114,955	$	8,241	$	16,584	$	4,980		$	35,688		$	180,448
2018
Net financing revenue and other interest income	$	1,834	$	25	$	87	$	103		$	94		$	2,143
Other revenue	129		512		3		22			52			718
Total net revenue	1,963		537		90		125			146			2,861
Provision for loan losses	429		—		2		(6		)	(6		)	419
Total noninterest expense	884		499		66		44			160			1,653
Income (loss) from continuing operations before income tax expense	$	650	$	38	$	22	$	87		$	(8	)	$	789
Total assets	$	114,915	$	7,634	$	13,385	$	4,458		$	30,953		$	171,345


(a)	Net financing revenue and other interest income after the provision for loan losses totaled $1.8 billion and $1.7 billion for the six months ended June 30, 2019, and 2018, respectively.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

22. Parent and Guarantor Condensed Consolidating Financial Statements

Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of June 30, 2019, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and unconditionally guarantee the senior notes on a joint and several basis.

The following financial statements present condensed consolidating financial data for (i) Ally Financial Inc. (on a parent company-only basis); (ii) the Guarantors; (iii) the nonguarantor subsidiaries (all other subsidiaries); and (iv) a column for adjustments to arrive at (v) the information for the parent company, the Guarantors, and nonguarantors on a consolidated basis.

Investment in subsidiaries is accounted for by the parent company and the Guarantors using the equity method for this presentation. Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of subsidiaries, investment in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statements of Comprehensive Income



Three months ended June 30, 2019 ($ in millions)	Parent			Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(60	)	$	—	$	1,923	$	(3	)	$	1,860
Interest and fees on finance receivables and loans — intercompany	3			—		1		(4		)	—
Interest on loans held-for-sale	—			—		3		—			3
Interest and dividends on investment securities and other earning assets	—			—		244		—			244
Interest on cash and cash equivalents	4			—		17		—			21
Interest-bearing cash — intercompany	3			—		5		(8		)	—
Operating leases	(1		)	—		364		—			363
Total financing (loss) revenue and other interest income	(51		)	—		2,557		(15		)	2,491
Interest expense
Interest on deposits	—			—		651		—			651
Interest on short-term borrowings	13			—		24		—			37
Interest on long-term debt	212			—		195		—			407
Interest on intercompany debt	6			—		6		(12		)	—
Total interest expense	231			—		876		(12		)	1,095
Net depreciation expense on operating lease assets	1			—		238		—			239
Net financing (loss) revenue	(283		)	—		1,443		(3		)	1,157
Cash dividends from subsidiaries
Bank subsidiary	500			500		—		(1,000		)	—
Nonbank subsidiaries	94			—		—		(94		)	—
Other revenue
Insurance premiums and service revenue earned	—			—		261		—			261
(Loss) gain on mortgage and automotive loans, net	(1		)	—		3		—			2
Other gain on investments, net	—			—		39		—			39
Other income, net of losses	91			—		145		(143		)	93
Total other revenue	90			—		448		(143		)	395
Total net revenue	401			500		1,891		(1,240		)	1,552
Provision for loan losses	5			—		173		(1		)	177
Noninterest expense
Compensation and benefits expense	9			—		287		—			296
Insurance losses and loss adjustment expenses	—			—		127		—			127
Other operating expenses	159			—		442		(143		)	458
Total noninterest expense	168			—		856		(143		)	881
Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries	228			500		862		(1,096		)	494
Income tax (benefit) expense from continuing operations	(289		)	—		199		—			(90		)
Net income from continuing operations	517			500		663		(1,096		)	584
Loss from discontinued operations, net of tax	(2		)	—		—		—			(2		)
Undistributed income (loss) of subsidiaries
Bank subsidiary	110			110		—		(220		)	—
Nonbank subsidiaries	(43		)	—		—		43			—
Net income	582			610		663		(1,273		)	582
Other comprehensive income, net of tax	309			237		311		(548		)	309
Comprehensive income	$	891		$	847	$	974	$	(1,821	)	$	891

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended June 30, 2018 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(1	)	$	—		$	1,648		$	—		$	1,647
Interest and fees on finance receivables and loans — intercompany	4			—			1			(5		)	—
Interest on loans held-for-sale	—			—			6			—			6
Interest and dividends on investment securities and other earning assets	—			—			188			—			188
Interest on cash and cash equivalents	2			—			14			1			17
Interest-bearing cash — intercompany	2			—			2			(4		)	—
Operating leases	1			—			373			—			374
Total financing revenue and other interest income	8			—			2,232			(8		)	2,232
Interest expense
Interest on deposits	—			—			395			4			399
Interest on short-term borrowings	10			—			30			—			40
Interest on long-term debt	257			—			177			—			434
Interest on intercompany debt	4			—			8			(12		)	—
Total interest expense	271			—			610			(8		)	873
Net depreciation expense on operating lease assets	1			—			264			—			265
Net financing (loss) revenue	(264		)	—			1,358			—			1,094
Cash dividends from subsidiaries
Bank subsidiary	500			500			—			(1,000		)	—
Nonbank subsidiaries	132			—			—			(132		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			239			—			239
Gain on mortgage and automotive loans, net	—			—			1			—			1
Other gain on investments, net	—			—			27			—			27
Other income, net of losses	100			—			185			(188		)	97
Total other revenue	100			—			452			(188		)	364
Total net revenue	468			500			1,810			(1,320		)	1,458
Provision for loan losses	32			—			126			—			158
Noninterest expense
Compensation and benefits expense	25			—			267			—			292
Insurance losses and loss adjustment expenses	—			—			101			—			101
Other operating expenses	173			—			461			(188		)	446
Total noninterest expense	198			—			829			(188		)	839
Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries	238			500			855			(1,132		)	461
Income tax (benefit) expense from continuing operations	(66		)	—			179			—			113
Net income from continuing operations	304			500			676			(1,132		)	348
(Loss) income from discontinued operations, net of tax	(1		)	—			2			—			1
Undistributed income (loss) of subsidiaries
Bank subsidiary	52			52			—			(104		)	—
Nonbank subsidiaries	(6		)	—			—			6			—
Net income	349			552			678			(1,230		)	349
Other comprehensive loss, net of tax	(70		)	(56		)	(74		)	130			(70		)
Comprehensive income	$	279		$	496		$	604		$	(1,100	)	$	279

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, 2019 ($ in millions)	Parent			Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(120	)	$	—	$	3,790	$	(3	)	$	3,667
Interest and fees on finance receivables and loans — intercompany	6			—		3		(9		)	—
Interest on loans held-for-sale	—			—		5		—			5
Interest and dividends on investment securities and other earning assets	—			—		484		—			484
Interest on cash and cash equivalents	6			—		38		—			44
Interest-bearing cash — intercompany	5			—		8		(13		)	—
Operating leases	1			—		723		—			724
Total financing (loss) revenue and other interest income	(102		)	—		5,051		(25		)	4,924
Interest expense
Interest on deposits	—			—		1,243		—			1,243
Interest on short-term borrowings	26			—		55		—			81
Interest on long-term debt	423			—		403		—			826
Interest on intercompany debt	11			—		11		(22		)	—
Total interest expense	460			—		1,712		(22		)	2,150
Net depreciation expense on operating lease assets	2			—		483		—			485
Net financing (loss) revenue	(564		)	—		2,856		(3		)	2,289
Cash dividends from subsidiaries
Bank subsidiary	900			900		—		(1,800		)	—
Nonbank subsidiaries	136			—		—		(136		)	—
Other revenue
Insurance premiums and service revenue earned	—			—		522		—			522
Gain on mortgage and automotive loans, net	3			—		9		—			12
Other gain on investments, net	—			—		147		—			147
Other income, net of losses	194			—		289		(303		)	180
Total other revenue	197			—		967		(303		)	861
Total net revenue	669			900		3,823		(2,242		)	3,150
Provision for loan losses	32			—		445		(18		)	459
Noninterest expense
Compensation and benefits expense	21			—		593		—			614
Insurance losses and loss adjustment expenses	—			—		186		—			186
Other operating expenses	314			—		900		(303		)	911
Total noninterest expense	335			—		1,679		(303		)	1,711
Income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries	302			900		1,699		(1,921		)	980
Income tax (benefit) expense from continuing operations	(350		)	—		371		—			21
Net income from continuing operations	652			900		1,328		(1,921		)	959
Loss from discontinued operations, net of tax	(3		)	—		—		—			(3		)
Undistributed income of subsidiaries
Bank subsidiary	167			167		—		(334		)	—
Nonbank subsidiaries	140			—		—		(140		)	—
Net income	956			1,067		1,328		(2,395		)	956
Other comprehensive income, net of tax	615			466		631		(1,097		)	615
Comprehensive income	$	1,571		$	1,533	$	1,959	$	(3,492	)	$	1,571

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, 2018 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	10		$	—		$	3,180		$	—		$	3,190
Interest and fees on finance receivables and loans — intercompany	6			—			2			(8		)	—
Interest on loans held-for-sale	—			—			6			—			6
Interest and dividends on investment securities and other earning assets	—			—			365			(1		)	364
Interest on cash and cash equivalents	4			—			28			—			32
Interest-bearing cash — intercompany	4			—			4			(8		)	—
Operating leases	3			—			753			—			756
Total financing revenue and other interest income	27			—			4,338			(17		)	4,348
Interest expense
Interest on deposits	—			—			750			—			750
Interest on short-term borrowings	20			—			52			—			72
Interest on long-term debt	515			—			330			—			845
Interest on intercompany debt	7			—			10			(17		)	—
Total interest expense	542			—			1,142			(17		)	1,667
Net depreciation expense on operating lease assets	5			—			533			—			538
Net financing (loss) revenue	(520		)	—			2,663			—			2,143
Cash dividends from subsidiaries
Bank subsidiary	1,500			1,500			—			(3,000		)	—
Nonbank subsidiaries	301			—			—			(301		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			495			—			495
Gain on mortgage and automotive loans, net	28			—			2			(28		)	2
Other gain on investments, net	—			—			15			—			15
Other income, net of losses	196			—			406			(396		)	206
Total other revenue	224			—			918			(424		)	718
Total net revenue	1,505			1,500			3,581			(3,725		)	2,861
Provision for loan losses	113			—			334			(28		)	419
Noninterest expense
Compensation and benefits expense	48			—			550			—			598
Insurance losses and loss adjustment expenses	—			—			164			—			164
Other operating expenses	355			—			932			(396		)	891
Total noninterest expense	403			—			1,646			(396		)	1,653
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries	989			1,500			1,601			(3,301		)	789
Income tax (benefit) expense from continuing operations	(122		)	—			311			—			189
Net income from continuing operations	1,111			1,500			1,290			(3,301		)	600
(Loss) income from discontinued operations, net of tax	(2		)	—			1			—			(1		)
Undistributed (loss) income of subsidiaries
Bank subsidiary	(545		)	(545		)	—			1,090			—
Nonbank subsidiaries	35			—			—			(35		)	—
Net income	599			955			1,291			(2,246		)	599
Other comprehensive loss, net of tax	(398		)	(332		)	(413		)	745			(398		)
Comprehensive income	$	201		$	623		$	878		$	(1,501	)	$	201

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Balance Sheet



June 30, 2019 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	44		$	—	$	615		$	—		$	659
Interest-bearing	6			—		2,898			—			2,904
Interest-bearing — intercompany	1,242			—		745			(1,987		)	—
Total cash and cash equivalents	1,292			—		4,258			(1,987		)	3,563
Equity securities	—			—		591			—			591
Available-for-sale securities	—			—		28,688			—			28,688
Held-to-maturity securities	—			—		2,475			(14		)	2,461
Loans held-for-sale, net	—			—		275			—			275
Finance receivables and loans, net
Finance receivables and loans, net	2,292			—		126,904			14			129,210
Intercompany loans to
Nonbank subsidiaries	663			—		102			(765		)	—
Allowance for loan losses	(34		)	—		(1,248		)	—			(1,282		)
Total finance receivables and loans, net	2,921			—		125,758			(751		)	127,928
Investment in operating leases, net	2			—		8,405			—			8,407
Intercompany receivables from
Bank subsidiary	105			—		—			(105		)	—
Nonbank subsidiaries	40			—		115			(155		)	—
Investment in subsidiaries
Bank subsidiary	16,865			16,865		—			(33,730		)	—
Nonbank subsidiaries	7,096			—		—			(7,096		)	—
Premiums receivable and other insurance assets	—			—		2,460			—			2,460
Other assets	2,339			—		5,475			(1,739		)	6,075
Total assets	$	30,660		$	16,865	$	178,500		$	(45,577	)	$	180,448
Liabilities and equity
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	162		$	—		$	162
Interest-bearing	1			—		116,162			—			116,163
Interest-bearing — intercompany	—			—		1,242			(1,242		)	—
Total deposit liabilities	1			—		117,566			(1,242		)	116,325
Short-term borrowings	2,462			—		4,057			—			6,519
Long-term debt	12,447			—		25,019			—			37,466
Intercompany debt to
Bank subsidiary	14			—		—			(14		)	—
Nonbank subsidiaries	847			—		663			(1,510		)	—
Intercompany payables to
Bank subsidiary	51			—		—			(51		)	—
Nonbank subsidiaries	108			—		107			(215		)	—
Interest payable	150			—		594			—			744
Unearned insurance premiums and service revenue	—			—		3,171			—			3,171
Accrued expenses and other liabilities	264			—		3,377			(1,734		)	1,907
Total liabilities	16,344			—		154,554			(4,766		)	166,132
Total equity	14,316			16,865		23,946			(40,811		)	14,316
Total liabilities and equity	$	30,660		$	16,865	$	178,500		$	(45,577	)	$	180,448

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



December 31, 2018 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	55		$	—	$	755		$	—		$	810
Interest-bearing	5			—		3,722			—			3,727
Interest-bearing — intercompany	1,249			—		521			(1,770		)	—
Total cash and cash equivalents	1,309			—		4,998			(1,770		)	4,537
Equity securities	—			—		773			—			773
Available-for-sale securities	—			—		25,303			—			25,303
Held-to-maturity securities	—			—		2,382			(20		)	2,362
Loans held-for-sale, net	—			—		314			—			314
Finance receivables and loans, net
Finance receivables and loans, net	2,349			—		127,577			—			129,926
Intercompany loans to
Nonbank subsidiaries	882			—		397			(1,279		)	—
Allowance for loan losses	(55		)	—		(1,187		)	—			(1,242		)
Total finance receivables and loans, net	3,176			—		126,787			(1,279		)	128,684
Investment in operating leases, net	5			—		8,412			—			8,417
Intercompany receivables from
Bank subsidiary	158			—		—			(158		)	—
Nonbank subsidiaries	45			—		129			(174		)	—
Investment in subsidiaries
Bank subsidiary	16,213			16,213		—			(32,426		)	—
Nonbank subsidiaries	6,928			—		—			(6,928		)	—
Premiums receivable and other insurance assets	—			—		2,326			—			2,326
Other assets	2,226			—		5,453			(1,526		)	6,153
Total assets	$	30,060		$	16,213	$	176,877		$	(44,281	)	$	178,869
Liabilities and equity
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	142		$	—		$	142
Interest-bearing	1			—		106,035			—			106,036
Interest-bearing — intercompany	—			—		1,249			(1,249		)	—
Total deposit liabilities	1			—		107,426			(1,249		)	106,178
Short-term borrowings	2,477			—		7,510			—			9,987
Long-term debt	12,774			—		31,419			—			44,193
Intercompany debt to
Bank subsidiary	20			—		—			(20		)	—
Nonbank subsidiaries	918			—		882			(1,800		)	—
Intercompany payables to
Bank subsidiary	45			—		—			(45		)	—
Nonbank subsidiaries	124			—		129			(253		)	—
Interest payable	159			—		364			—			523
Unearned insurance premiums and service revenue	—			—		3,044			—			3,044
Accrued expenses and other liabilities	274			—		2,962			(1,560		)	1,676
Total liabilities	16,792			—		153,736			(4,927		)	165,601
Total equity	13,268			16,213		23,141			(39,354		)	13,268
Total liabilities and equity	$	30,060		$	16,213	$	176,877		$	(44,281	)	$	178,869

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statement of Cash Flows



Six months ended June 30, 2019 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash provided by operating activities	$	693		$	900		$	2,189		$	(1,938	)	$	1,844
Investing activities
Purchases of equity securities	—			—			(210		)	—			(210		)
Proceeds from sales of equity securities	—			—			511			—			511
Purchases of available-for-sale securities	—			—			(7,018		)	—			(7,018		)
Proceeds from sales of available-for-sale securities	—			—			2,568			—			2,568
Proceeds from repayments of available-for-sale securities	—			—			1,805			—			1,805
Purchases of held-to-maturity securities	—			—			(268		)	—			(268		)
Proceeds from repayments of held-to-maturity securities	—			—			107			—			107
Net change in investment securities — intercompany	—			—			6			(6		)	—
Purchases of finance receivables and loans held-for-investment	—			—			(2,850		)	464			(2,386		)
Proceeds from sales of finance receivables and loans initially held-for-investment	476			—			147			(464		)	159
Originations and repayments of finance receivables and loans held-for-investment and other, net	(407		)	—			3,173			3			2,769
Net change in loans — intercompany	216			—			291			(507		)	—
Purchases of operating lease assets	—			—			(1,769		)	—			(1,769		)
Disposals of operating lease assets	2			—			1,319			—			1,321
Capital contributions to subsidiaries	(1		)	—			—			1			—
Returns of contributed capital	26			—			—			(26		)	—
Net change in nonmarketable equity investments	(11		)	—			124			—			113
Other, net	—			—			(208		)	(1		)	(209		)
Net cash provided by (used in) investing activities	301			—			(2,272		)	(536		)	(2,507		)
Financing activities
Net change in short-term borrowings — third party	(15		)	—			(3,453		)	—			(3,468		)
Net increase in deposits	—			—			10,126			7			10,133
Proceeds from issuance of long-term debt — third party	756			—			3,834			—			4,590
Repayments of long-term debt — third party	(1,116		)	—			(10,256		)	—			(11,372		)
Net change in debt — intercompany	(74		)	—			(216		)	290			—
Repurchase of common stock	(440		)	—			—			—			(440		)
Dividends paid — third party	(139		)	—			—			—			(139		)
Dividends paid and returns of contributed capital — intercompany	—			(900		)	(1,061		)	1,961			—
Capital contributions from parent	—			—			1			(1		)	—
Net cash used in financing activities	(1,028		)	(900		)	(1,025		)	2,257			(696		)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash	—			—			3			—			3
Net decrease in cash and cash equivalents and restricted cash	(34		)	—			(1,105		)	(217		)	(1,356		)
Cash and cash equivalents and restricted cash at beginning of year	1,398			—			5,998			(1,770		)	5,626
Cash and cash equivalents and restricted cash at June 30,	$	1,364		$	—		$	4,893		$	(1,987	)	$	4,270

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.



June 30, 2019 ($ in millions)	Parent		Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Cash and cash equivalents on the Condensed Consolidated Balance Sheet	$	1,292	$	—	$	4,258	$	(1,987	)	$	3,563
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	72		—		635		—			707
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows	$	1,364	$	—	$	4,893	$	(1,987	)	$	4,270


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 10 for additional details describing the nature of restricted cash balances.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, 2018 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash provided by operating activities	$	958		$	1,500		$	2,853		$	(3,302	)	$	2,009
Investing activities
Purchases of equity securities	—			—			(500		)	—			(500		)
Proceeds from sales of equity securities	—			—			535			—			535
Purchases of available-for-sale securities	—			—			(4,094		)	—			(4,094		)
Proceeds from sales of available-for-sale securities	—			—			390			—			390
Proceeds from repayments of available-for-sale securities	—			—			1,621			—			1,621
Purchases of held-to-maturity securities	—			—			(316		)	—			(316		)
Proceeds from repayments of held-to-maturity securities	—			—			72			—			72
Net change in investment securities — intercompany	—			—			17			(17		)	—
Purchases of finance receivables and loans held-for-investment	—			—			(3,431		)	820			(2,611		)
Proceeds from sales of finance receivables and loans initially held-for-investment	820			—			—			(820		)	—
Originations and repayments of finance receivables and loans held-for-investment and other, net	1,331			—			(1,969		)	—			(638		)
Net change in loans — intercompany	83			—			(5		)	(78		)	—
Purchases of operating lease assets	—			—			(2,107		)	—			(2,107		)
Disposals of operating lease assets	6			—			1,757			—			1,763
Capital contributions to subsidiaries	(57		)	(6		)	—			63			—
Returns of contributed capital	194			—			—			(194		)	—
Net change in nonmarketable equity investments	—			—			(46		)	—			(46		)
Other, net	(3		)	—			(183		)	—			(186		)
Net cash provided by (used in) investing activities	2,374			(6		)	(8,259		)	(226		)	(6,117		)
Financing activities
Net change in short-term borrowings — third party	(505		)	—			(3,800		)	—			(4,305		)
Net (decrease) increase in deposits	(6		)	—			5,324			123			5,441
Proceeds from issuance of long-term debt — third party	32			—			12,908			—			12,940
Repayments of long-term debt — third party	(2,412		)	—			(7,388		)	—			(9,800		)
Net change in debt — intercompany	(138		)	—			(83		)	221			—
Repurchase of common stock	(380		)	—			—			—			(380		)
Dividends paid — third party	(115		)	—			—			—			(115		)
Dividends paid and returns of contributed capital — intercompany	—			(1,500		)	(1,995		)	3,495			—
Capital contributions from parent	—			6			57			(63		)	—
Net cash (used in) provided by financing activities	(3,524		)	(1,494		)	5,023			3,776			3,781
Effect of exchange-rate changes on cash and cash equivalents and restricted cash	—			—			(3		)	—			(3		)
Net decrease in cash and cash equivalents and restricted cash	(192		)	—			(386		)	248			(330		)
Cash and cash equivalents and restricted cash at beginning of year	1,395			—			5,707			(1,833		)	5,269
Cash and cash equivalents and restricted cash at June 30,	$	1,203		$	—		$	5,321		$	(1,585	)	$	4,939

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.



June 30, 2018 ($ in millions)	Parent		Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Cash and cash equivalents on the Condensed Consolidated Balance Sheet	$	1,071	$	—	$	4,438	$	(1,585	)	$	3,924
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	132		—		883		—			1,015
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows	$	1,203	$	—	$	5,321	$	(1,585	)	$	4,939


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer to Note 10 for additional details describing the nature of restricted cash balances.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

23. Contingencies and Other Risks

Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability in connection with pending or threatened legal proceedings and other matters. These legal matters may be formal or informal and include litigation and arbitration with one or more identified claimants, certified or purported class actions with yet-to-be-identified claimants, and regulatory or other governmental information-gathering requests, examinations, investigations, and enforcement proceedings. Our legal matters exist in varying stages of adjudication, arbitration, negotiation, or investigation and span our business lines and operations. Claims may be based in law or equity—such as those arising under contracts or in tort and those involving banking, consumer-protection, securities, tax, employment, and other laws—and some can present novel legal theories and allege substantial or indeterminate damages.

Ally and its subsidiaries, including Ally Bank, also are or may be subject to potential liability under other contingent exposures, including indemnification, tax, self-insurance, and other miscellaneous contingencies.

We accrue for a legal matter or other contingent exposure when a loss becomes probable and the amount of loss can be reasonably estimated. Accruals are evaluated each quarter and may be adjusted, upward or downward, based on our best judgment after consultation with counsel. No assurance exists that our accruals will not need to be adjusted in the future. When a probable or reasonably possible loss on a legal matter or other contingent exposure could be material to our consolidated financial condition, results of operations, or cash flows, we provide disclosure in this note as prescribed by ASC 450, Contingencies. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information related to our policy for establishing accruals.

The course and outcome of legal matters are inherently unpredictable. This is especially so when a matter is still in its early stages, the damages sought are indeterminate or unsupported, significant facts are unclear or disputed, novel questions of law or other meaningful legal uncertainties exist, a request to certify a proceeding as a class action is outstanding or granted, multiple parties are named, or regulatory or other governmental entities are involved. Other contingent exposures and their ultimate resolution are similarly unpredictable for reasons that can vary based on the circumstances.

As a result, we often are unable to determine how or when threatened or pending legal matters and other contingent exposures will be resolved and what losses may be incrementally and ultimately incurred. Actual losses may be higher or lower than any amounts accrued or estimated for those matters and other exposures, possibly to a significant degree.

Subject to the foregoing, based on our current knowledge and after consultation with counsel, we do not believe that the ultimate outcomes of currently threatened or pending legal matters and other contingent exposures are likely to be material to our consolidated financial condition after taking into account existing accruals. In light of the uncertainties inherent in these matters and other exposures, however, one or more of them could be material to our results of operations or cash flows during a particular reporting period, depending on factors such as the amount of the loss or liability and the level of our income for that period.

24. Subsequent Events

Declaration of Quarterly Dividend

On July 16, 2019, the Board declared a quarterly cash dividend of $0.17 per share on all common stock. The dividend is payable on August 15, 2019, to stockholders of record at the close of business on August 1, 2019.

Health Credit Services Acquisition

On July 16, 2019, we signed an agreement to acquire Health Credit Services, a digital point-of-sale payment provider that offers financing to consumers, for approximately $190 million. The transaction is currently expected to close in the fourth quarter of 2019. The transaction is subject to the satisfaction of regulatory and other customary closing conditions.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Notice about Forward-Looking Statements and Other Terms

From time to time we have made, and in the future will make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “pursue,” “seek,” “continue,” “estimate,” “project,” “outlook,” “forecast,” “potential,” “target,” “objective,” “trend,” “plan,” “goal,” “initiative,” “priorities,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey our expectations, intentions, or forecasts about future events, circumstances, or results.

This report, including any information incorporated by reference in this report, contains forward-looking statements. We also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.

All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events or circumstances to differ from those in forward-looking statements include:


•	evolving local, regional, national, or international business, economic, or political conditions;


•	changes in laws or the regulatory or supervisory environment, including as a result of recent financial services legislation, regulation, or policies or changes in government officials or other personnel;


•	changes in monetary, fiscal, or trade laws or policies, including as a result of actions by government agencies, central banks, or supranational authorities;


•	changes in accounting standards or policies, including ASU 2016-13, Financial Instruments—Credit Losses;


•	changes in the automotive industry or the markets for new or used vehicles, including the rise of vehicle sharing and ride hailing, the development of autonomous and alternative-energy vehicles, and the impact of demographic shifts on attitudes and behaviors toward vehicle ownership and use;


•	disruptions or shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including financial or systemic shocks and volatility or changes in market liquidity, interest or currency rates, or valuations;


•	uncertainty about the future of the London Interbank Offered Rate (LIBOR) and any negative impacts that could result;


•	changes in business or consumer sentiment, preferences, or behavior, including spending, borrowing, or saving by businesses or households;


•	changes in our corporate or business strategies, the composition of our assets, or the way in which we fund those assets;


•	our ability to execute our business strategy for Ally Bank, including its digital focus;


•	our ability to optimize our automotive finance and insurance businesses and to continue diversifying into and growing other consumer and commercial business lines, including mortgage finance, corporate finance, brokerage, and wealth management;


•	our ability to develop capital plans that will be approved by the FRB and our ability to implement them, including any payment of dividends or share repurchases;


•	our ability to effectively manage capital or liquidity consistent with evolving business or operational needs, risk-management standards, and regulatory or supervisory requirements;


•	our ability to cost-effectively fund our business and operations, including through deposits and the capital markets;


•	changes in any credit rating assigned to Ally, including Ally Bank;


•	adverse publicity or other reputational harm to us or our senior officers;


•	our ability to develop, maintain, or market our products or services or to absorb unanticipated costs or liabilities associated with those products or services;


•	our ability to innovate, to anticipate the needs of current or future customers, to successfully compete, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q


•	the continuing profitability and viability of our dealer-centric automotive finance and insurance businesses, especially in the face of competition from captive finance companies and their automotive manufacturing sponsors and challenges to the dealer’s role as intermediary between manufacturers and purchasers;


•	our ability to appropriately underwrite loans that we originate or purchase and to otherwise manage credit risk;


•	changes in the credit, liquidity, or other financial condition of our customers, counterparties, service providers, or competitors;


•	our ability to effectively deal with economic, business, or market slowdowns or disruptions;


•	judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, us or the financial services industry;


•	our ability to address stricter or heightened regulatory or supervisory requirements and expectations;


•	the performance and availability of third-party service providers on whom we rely in delivering products and services to our customers and otherwise conducting our business and operations;


•	our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or infrastructure, including our capacity to withstand cyberattacks;


•	the adequacy of our corporate governance, risk-management framework, compliance programs, or internal controls over financial reporting, including our ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage operational risk;


•	the efficacy of our methods or models in assessing business strategies or opportunities or in valuing, measuring, estimating, monitoring, or managing positions or risk;


•	our ability to keep pace with changes in technology that affect us or our customers, counterparties, service providers, or competitors;


•	our ability to successfully make and integrate acquisitions;


•	the adequacy of our succession planning for key executives or other personnel and our ability to attract or retain qualified employees;


•	natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics; or

•

other assumptions, risks, or uncertainties described in the Risk Factors (Part II, Item 1A herein), Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part I, Item 2 herein), or the Notes to the Condensed Consolidated Financial Statements (Part I, Item 1 herein) in this Quarterly Report on Form 10-Q or described in any of the Company’s annual, quarterly or current reports.

Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

Unless the context otherwise requires, the following definitions apply. The term “loans” means the following consumer and commercial products associated with our direct and indirect financing activities: loans, retail installment sales contracts, lines of credit, and other financing products excluding operating leases. The term “operating leases” means consumer- and commercial-vehicle lease agreements where Ally is the lessor and the lessee is generally not obligated to acquire ownership of the vehicle at lease-end or compensate Ally for the vehicle’s residual value. The terms “lend,” “finance,” and “originate” mean our direct extension or origination of loans, our purchase or acquisition of loans, or our purchase of operating leases as applicable. The term “consumer” means all consumer products associated with our loan and operating-lease activities and all commercial retail installment sales contracts. The term “commercial” means all commercial products associated with our loan activities, other than commercial retail installment sales contracts.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Selected Financial Data

The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and our Condensed Consolidated Financial Statements and the notes thereto. The historical financial information presented may not be indicative of our future performance.

The following table presents selected Condensed Consolidated Statement of Comprehensive Income and earnings per common share data.



	Three months ended June 30,					Six months ended June 30,
($ in millions, except per share data; shares in thousands)	2019			2018		2019			2018
Total financing revenue and other interest income	$	2,491		$	2,232	$	4,924		$	4,348
Total interest expense	1,095			873		2,150			1,667
Net depreciation expense on operating lease assets	239			265		485			538
Net financing revenue and other interest income	1,157			1,094		2,289			2,143
Total other revenue	395			364		861			718
Total net revenue	1,552			1,458		3,150			2,861
Provision for loan losses	177			158		459			419
Total noninterest expense	881			839		1,711			1,653
Income from continuing operations before income tax (benefit) expense	494			461		980			789
Income tax (benefit) expense from continuing operations	(90		)	113		21			189
Net income from continuing operations	584			348		959			600
(Loss) income from discontinued operations, net of tax	(2		)	1		(3		)	(1		)
Net income	$	582		$	349	$	956		$	599
Basic earnings per common share (a):
Net income from continuing operations	$	1.47		$	0.81	$	2.39		$	1.38
Net income	1.46			0.81		2.39			1.38
Weighted-average common shares outstanding	398,100			430,628		401,098			433,405
Diluted earnings per common share (a):
Net income from continuing operations	$	1.46		$	0.80	$	2.38		$	1.38
Net income	1.46			0.81		2.37			1.37
Weighted-average common shares outstanding	399,916			432,554		402,921			435,727
Common share information:
Cash dividends declared per common share	$	0.17		$	0.13	$	0.34		$	0.26
Period-end common shares outstanding	392,775			425,752		392,775			425,752


(a)	Includes shares related to share-based compensation that vested but were not yet issued.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following tables present selected Condensed Consolidated Balance Sheet and ratio data.



June 30, ($ in millions)	2019		2018
Selected period-end balance sheet data:
Total assets	$	180,448	$	171,345
Total deposit liabilities	$	116,325	$	98,734
Long-term debt	$	37,466	$	47,328
Total equity	$	14,316	$	13,139



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Financial ratios:
Return on average assets (a)	1.29	%	0.82	%	1.08	%	0.72	%
Return on average equity (a)	16.92	%	10.71	%	14.20	%	9.19	%
Equity to assets (a)	7.64	%	7.68	%	7.58	%	7.78	%
Common dividend payout ratio (b)	11.64	%	16.05	%	14.23	%	18.84	%
Net interest spread (a) (c)	2.43	%	2.53	%	2.44	%	2.50	%
Net yield on interest-earning assets (a) (d)	2.66	%	2.68	%	2.66	%	2.66	%


(a)	The ratios were based on average assets and average equity using a combination of monthly and daily average methodologies.


(b)	Common dividend payout ratio was calculated using basic earnings per common share.


(c)	Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities, excluding discontinued operations for the periods shown.


(d)	Net yield on interest-earning assets represents annualized net financing revenue and other interest income as a percentage of total interest-earning assets.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

As of January 1, 2015, Ally became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which reflect new and higher capital requirements, capital buffers, and new regulatory capital definitions, deductions and adjustments. Certain aspects of U.S. Basel III, including the new capital buffers, were subject to a phase-in period through December 31, 2018. To assess our capital adequacy against the full impact of U.S. Basel III, we also present “fully phased-in” information that reflects regulatory capital rules that took effect at the conclusion of the transition period. Refer to Note 16 to the Condensed Consolidated Financial Statements for further information. The following table presents selected regulatory capital data.



	June 30, 2019						June 30, 2018
($ in millions)	Transitional			Fully phased-in (a)			Transitional			Fully phased-in (a)
Common Equity Tier 1 capital ratio	9.52		%	9.51		%	9.37		%	9.35		%
Tier 1 capital ratio	11.19		%	11.18		%	11.09		%	11.06		%
Total capital ratio	12.73		%	12.72		%	12.66		%	12.63		%
Tier 1 leverage ratio (to adjusted quarterly average assets) (b)	9.05		%	9.05		%	9.21		%	9.21		%
Total equity	$	14,316		$	14,316		$	13,139		$	13,139
Goodwill and certain other intangibles	(281		)	(281		)	(289		)	(289		)
Deferred tax assets arising from net operating loss and tax credit carryforwards (c)	(84		)	(84		)	(251		)	(251		)
Other adjustments	(64		)	(64		)	666			666
Common Equity Tier 1 capital	13,887			13,887			13,265			13,265
Trust preferred securities	2,494			2,494			2,492			2,492
Other adjustments	(62		)	(62		)	(59		)	(59		)
Tier 1 capital	16,319			16,319			15,698			15,698
Qualifying subordinated debt and other instruments qualifying as Tier 2	1,032			1,032			1,030			1,030
Qualifying allowance for credit losses and other adjustments	1,221			1,221			1,198			1,198
Total capital	$	18,572		$	18,572		$	17,926		$	17,926
Risk-weighted assets (d)	$	145,874		$	146,030		$	141,605		$	141,892

(a)

Our fully phased-in capital ratios are non-GAAP financial measures that management believes are important to the reader of the Condensed Consolidated Financial Statements but should be supplemental to, and not a substitute for, primary GAAP measures. The fully phased-in capital ratios are compared to the transitional capital ratios above. We believe these capital ratios are important because we believe investors, analysts, and banking regulators may assess our capital utilization and adequacy using these ratios. Additionally, presentation of these ratios allows readers to compare certain aspects of our capital utilization and adequacy on the same basis to other companies in the industry.


(b)	Tier 1 leverage ratio equals Tier 1 capital divided by adjusted quarterly average total assets (which reflects adjustments for disallowed goodwill, certain intangible assets, and disallowed deferred tax assets).


(c)	Contains deferred tax assets required to be deducted from capital under U.S. Basel III.


(d)	Risk-weighted assets are defined by regulation and are generally determined by allocating assets and specified off-balance sheet exposures into various risk categories.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Overview

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 FDIC 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 under the Gramm-Leach-Bliley Act of 1999, as amended.

Discontinued Operations

During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates to previous discontinued operations for which we continue to have wind-down, legal, and minimal operational costs. For all periods presented, the operating results for these operations have been removed from continuing operations. The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.

Primary Business Lines

Dealer Financial Services, which includes our Automotive Finance and Insurance operations, Mortgage Finance, and Corporate Finance are our primary business lines. The following table summarizes the operating results excluding discontinued operations of each business line. Operating results for each of the business lines are more fully described in the MD&A sections that follow.



	Three months ended June 30,							Six months ended June 30,
($ in millions)	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance	$	1,083		$	988		10	$	2,131		$	1,963		9
Insurance	301			279			8	673			537			25
Mortgage Finance	50			46			9	102			90			13
Corporate Finance	71			71			—	136			125			9
Corporate and Other	47			74			(36)	108			146			(26)
Total	$	1,552		$	1,458		6	$	3,150		$	2,861		10
Income (loss) from continuing operations before income tax (benefit) expense
Dealer Financial Services
Automotive Finance	$	459		$	382		20	$	788		$	650		21
Insurance	—			11			(100)	145			38			n/m
Mortgage Finance	14			14			—	27			22			23
Corporate Finance	46			58			(21)	59			87			(32)
Corporate and Other	(25		)	(4		)	n/m	(39		)	(8		)	n/m
Total	$	494		$	461		7	$	980		$	789		24

n/m = not meaningful


•	Our Dealer Financial Services is one of the largest full service automotive finance operations in the country and offers a wide range of financial services and insurance products to automotive dealerships and customers. Dealer Financial Services consists of two separate reportable segments—Automotive Finance and Insurance operations.

Our automotive finance services include purchasing retail installment sales contracts and operating leases from dealers, extending automotive loans directly to consumers, offering term loans to dealers, financing dealer floorplans and providing other lines of credit to dealers, supplying warehouse lines to automotive retailers, offering automotive-fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and supplying vehicle-remarketing services. Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to dealers. The automotive marketplace is dynamic and evolving, and we are focused on meeting the needs of both our dealer and consumer customers and continuing to strengthen and expand upon approximately 4.4 million consumer accounts in our portfolio and approximately 18,200 dealer relationships we have. Clearlane, our online automotive lender exchange, expands our direct-to-

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

consumer capabilities and provides a digital platform for consumers seeking financing. Additionally, we continue to identify and cultivate relationships with automotive retailers including those with leading eCommerce platforms. We believe these actions will enable us to respond to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers.

The Growth channel was established to focus on developing dealer relationships beyond those relationships that primarily were developed through our role as a captive finance company for General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler). The Growth channel was expanded to include direct-to-consumer financing through Clearlane and other channels and our arrangements with online automotive retailers. We have established relationships with thousands of Growth channel dealers through our customer-centric approach and specialized incentive programs designed to drive loyalty amongst dealers to our products and services. The success of the Growth channel has been a key enabler to converting our business model from a focused captive finance company to a leading market competitor. In this channel, we currently have over 11,000 dealer relationships, of which approximately 88% are franchised dealers (including brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and others), or used vehicle only retailers that have a national presence.

Our Insurance operations offer both consumer finance protection and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. We serve approximately 2.4 million end consumers and have active relationships with approximately 4,600 dealerships nationwide across Finance and Insurance (F&I) and Property and Casualty (P&C) products. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we offer vehicle service contracts (VSCs), vehicle maintenance contracts (VMCs), guaranteed asset protection (GAP) products, and other ancillary products desired by consumers. We also underwrite selected commercial insurance coverages, which primarily insure dealers’ wholesale vehicle inventory. Ally Premier Protection is our flagship VSC offering, which provides coverage for new and used vehicles of virtually all makes and models. We also offer ClearGuard, on the SmartAuction platform, which is a protection product designed to minimize the risk to dealers from arbitration claims for eligible vehicles sold at auction. Additionally, we are the preferred VSC and protection plan provider for GM Canada.


•	Our Mortgage Finance operations consist of the management of held-for-investment and held-for-sale consumer mortgage loan portfolios. Our held-for-investment portfolio includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties, and a direct-to-consumer mortgage offering under the Ally Home brand.

Through the bulk loan channel, we purchase loans from several qualified sellers including direct originators and large aggregators who have the financial capacity to support strong representations and warranties and the industry knowledge and experience to originate high-quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage prepayments through retention modification or refinancing through our direct-to-consumer channel. During the three months and six months ended June 30, 2019, we purchased $678 million and $1.9 billion of mortgage loans that were originated by third parties. Our mortgage loan purchases are held-for-investment.

Through our direct-to-consumer channel, which was introduced late in 2016, we offer a variety of competitively-priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment provider. Under our current arrangement, our direct-to-consumer conforming mortgages are originated as held-for-sale and sold, while jumbo and LMI mortgages are originated as held-for-investment. Loans originated in the direct-to-consumer channel are sourced by existing Ally customer marketing, prospect marketing on third-party websites, and email or direct mail campaigns. In April of 2019, we announced a strategic partnership with Better.com, which delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this partnership, Better.com conducts the processing, underwriting, and closing for Ally’s digital mortgage offering in a highly innovative, scalable, and cost-efficient manner. Ally and Better.com launched a pilot program in nine states during July, with a broader market integration expected by year-end.

The combination of our bulk portfolio purchase program and our direct-to-consumer strategy provides the capacity to expand revenue sources and further grow and diversify our finance receivable portfolio with an attractive asset class while also deepening relationships with existing Ally customers.

•

Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies. We believe our growing deposit-based funding model, coupled with our expanded product offerings and deep industry relationships, provide an advantage over our competition, which includes other banks as well as publicly and privately held finance companies. Our Corporate Finance lending portfolio is generally composed of first-lien, first-out loans. Our primary focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, expansions, restructurings, and working capital. The portfolio is well diversified across multiple industries including manufacturing, distribution, services, and other specialty sectors. These specialty sectors include our Technology Finance and Healthcare verticals. In late 2017, we expanded our Healthcare vertical to include a commercial real estate product focused on lending to skilled nursing facilities, senior housing, medical office buildings, and hospitals. Additionally, we recently launched a new lender finance product, providing senior secured asset-based lending facilities to non-bank middle-market lenders.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

•

Corporate and Other primarily consists of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes activity related to certain equity investments, which primarily consist of Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments.

In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering, which enables us to complement our competitive deposit products with low-cost investing through the platform we acquired from the June 2016 acquisition of TradeKing Group, Inc. (TradeKing). Through Ally Invest, we are able to offer a broader array of personal finance products through a fully integrated digital consumer platform centered around self-directed products and digital advisory services. Our value proposition is based on the combination of attractive pricing, a broad product offering for active and passive investors, and outstanding client-focused and user-friendly customer service that is accessible twenty-four hours a day, seven days a week, via the phone, web or email—consistent with the Ally brand. Financial results related to our online brokerage operations are currently included within Corporate and Other.

We continue to invest in enhancing the customer experience with integrated features across product lines on our digital platform, build upon our strong brand, and leverage our innovative culture. Upon launching our first ever enterprise-wide campaign themed “Do It Right,” we introduced a broad audience to our full suite of digital financial services, which emphasizes our relentless customer-centric focus and commitment to constantly create and reinvent our product offerings and digital experiences to meet the needs of consumers. Our product offerings and brand continue to gain traction in the marketplace, as demonstrated by industry recognition of our award-winning direct online bank and strong retention rates of our customer base.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Consolidated Results of Operations

The following table summarizes our consolidated operating results excluding discontinued operations for the periods shown. Refer to the operating segment sections of the MD&A that follows for a more complete discussion of operating results by business line.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	2,491		$	2,232	12	$	4,924	$	4,348	13
Total interest expense	1,095			873		(25)	2,150		1,667		(29)
Net depreciation expense on operating lease assets	239			265		10	485		538		10
Net financing revenue and other interest income	1,157			1,094		6	2,289		2,143		7
Other revenue
Insurance premiums and service revenue earned	261			239		9	522		495		5
Gain on mortgage and automotive loans, net	2			1		100	12		2		n/m
Other gain on investments, net	39			27		44	147		15		n/m
Other income, net of losses	93			97		(4)	180		206		(13)
Total other revenue	395			364		9	861		718		20
Total net revenue	1,552			1,458		6	3,150		2,861		10
Provision for loan losses	177			158		(12)	459		419		(10)
Noninterest expense
Compensation and benefits expense	296			292		(1)	614		598		(3)
Insurance losses and loss adjustment expenses	127			101		(26)	186		164		(13)
Other operating expenses	458			446		(3)	911		891		(2)
Total noninterest expense	881			839		(5)	1,711		1,653		(4)
Income from continuing operations before income tax (benefit) expense	494			461		7	980		789		24
Income tax (benefit) expense from continuing operations	(90		)	113		180	21		189		89
Net income from continuing operations	$	584		$	348	68	$	959	$	600	60

n/m = not meaningful

We earned net income from continuing operations of $584 million and $959 million for the three months and six months ended June 30, 2019, respectively, compared to $348 million and $600 million for the three months and six months ended June 30, 2018. During the three months and six months ended June 30, 2019, results were favorably impacted by an income tax benefit from the release of valuation allowance of approximately $200 million on foreign tax credit carryforwards during the second quarter of 2019, and higher net financing revenue across our lending operations, driven primarily by higher yields and growth in earning assets. Results for the six months ended June 30, 2019, were also favorably impacted by higher market values of equity investments primarily within our Insurance operations. These items were partially offset by higher provision for loan losses, and higher noninterest expense.

Net financing revenue and other interest income increased $63 million and $146 million for the three months and six months ended June 30, 2019, respectively, compared to the three months and six months ended June 30, 2018. Within our Automotive Finance operations, consumer automotive financing revenue benefited from improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, and higher average retail asset levels resulting from sustained asset growth. Commercial automotive net financing revenue also increased due primarily to higher yields resulting from higher benchmark interest rates. Income from interest and dividends on investment securities and other earning assets, including cash and cash equivalents, increased $60 million and $132 million for the three months and six months ended June 30, 2019, compared to the same periods in 2018, due to both higher yields and higher balances of investment securities as we continue to utilize this portfolio to manage liquidity and generate a stable source of income. Financing revenue and other interest income within our Mortgage Finance operations was favorably impacted by increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans and direct-to-consumer originations. Financing revenue and other interest income within our Corporate Finance operations was favorably impacted by our strategy to prudently grow assets and our product suite within existing verticals while selectively pursuing opportunities to broaden industry and product diversification. The increases to financing revenue and other interest income were partially offset by increases of 25% and 29% in total interest expense for the three months and six months ended June 30, 2019, respectively, compared to the three months and six months ended June 30, 2018. While we continue to shift borrowings toward more cost-effective deposit funding and reduce our dependence on market-based funding through reductions in higher-cost secured

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

and unsecured debt, interest expense increased as a result of higher market rates across all funding sources. Additionally, our overall borrowing levels were higher to support the growth in our lending operations. Our total deposit liabilities increased $17.6 billion to $116.3 billion as of June 30, 2019, as compared to $98.7 billion as of June 30, 2018.

Insurance premiums and service revenue earned was $261 million and $522 million for the three months and six months ended June 30, 2019, respectively, compared to $239 million and $495 million for the same periods in 2018. The increases for the three months and six months ended June 30, 2019, were primarily due to higher vehicle inventory insurance rates and portfolio growth.

Gain on mortgage and automotive loans increased $1 million and $10 million for the three months and six months ended June 30, 2019, as compared to the same periods in 2018. We continue to selectively utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization, including the sale of previously written-down consumer automotive loans related to consumers in Chapter 13 bankruptcy.

Other gain on investments was $39 million and $147 million for the three months and six months ended June 30, 2019, respectively, compared to $27 million and $15 million for the same periods in 2018. During the three months ended June 30, 2019, gross realized gains from our available-for-sale securities portfolio increased $23 million due to favorable market conditions as compared to the same period in 2018. This increase was partially offset by lower realized and unrealized gains on equity securities. The gain on investments for the six months ended June 30, 2019, includes $75 million of unrealized gains as a result of changes in the fair value of our portfolio of equity securities, compared to $32 million of unrealized losses in the fair value of our portfolio of equity securities for the six months ended June 30, 2018.

Other income decreased $4 million and $26 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The decreases for the three months and six months ended June 30, 2019, were primarily due to lower syndication income, lower servicing fee income resulting from lower levels of off-balance sheet consumer automotive serviced loans, and lower remarketing income related to lower operating lease termination volume. Additionally, other income decreased during the six months ended June 30, 2019, due to lower income related to certain equity hedges.

The provision for loan losses was $177 million and $459 million for the three months and six months ended June 30, 2019, respectively, compared to $158 million and $419 million for the same periods in 2018. The increase in provision for loan losses was primarily driven by reserve reductions during the three and six months ended June 30, 2018, associated with hurricane activity experienced during 2017 within our retail automotive loan portfolio, and a recovery of $6 million recognized within our corporate finance portfolio both during the three months and six months ended June 30, 2018. Additionally, for the six months ended June 30, 2019, provision expense was unfavorably impacted by two specific corporate finance loan exposures which were within separate industries, each with unique considerations. These items were partially offset by lower net charge-offs in our retail automotive loan portfolio, despite continued loan portfolio growth, as we continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries. Refer to the Risk Management section of this MD&A for further discussion on our provision for loan losses.

Noninterest expense increased $42 million and $58 million for the three months and six months ended June 30, 2019, as compared to the same periods in 2018. The increases for the three months ended June 30, 2019, were driven by higher weather-related losses due to specific weather events within our Insurance operations. Additionally, noninterest expense increased for three months and six months ended June 30, 2019, to support the growth of our consumer and commercial product suite. We continue to make investments in our technology platform to enhance the customer experience and expand our digital capabilities, and in marketing activities to promote brand awareness and drive retail deposit growth.

We recognized total income tax benefit from continuing operations of $90 million and income tax expense of $21 million for the three months and six months ended June 30, 2019, respectively, compared to $113 million and $189 million for the same periods in 2018. The decreases in income tax expense for the three months and six months ended June 30, 2019, compared to the same periods in 2018, were primarily due to a release of valuation allowance of approximately $200 million on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release during the three months ended June 30, 2019, was primarily driven by our current capacity to engage in certain securitization transactions and the market demand from investors related to these transactions, coupled with the anticipated timing of the forecasted expiration of certain tax credit carryforwards. Additionally, the decrease in income tax expense for the six months ended June 30, 2019, compared to the same period in 2018, was partially offset by the tax effects of an increase in pretax earnings.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Dealer Financial Services

Results for Dealer Financial Services are presented by reportable segment, which includes our Automotive Finance and Insurance operations.

Automotive Finance

Results of Operations

The following table summarizes the operating results of our Automotive Finance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.



	Three months ended June 30,					Six months ended June 30,
($ in millions)	2019		2018		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Consumer	$	1,184	$	1,058	12	$	2,314	$	2,070	12
Commercial	412		371		11	834		713		17
Loans held-for-sale	—		—		—	1		—		n/m
Operating leases	363		374		(3)	724		756		(4)
Other interest income	3		1		n/m	4		3		33
Total financing revenue and other interest income	1,962		1,804		9	3,877		3,542		9
Interest expense	701		614		(14)	1,390		1,170		(19)
Net depreciation expense on operating lease assets	239		265		10	485		538		10
Net financing revenue and other interest income	1,022		925		10	2,002		1,834		9
Other revenue
Gain on automotive loans, net	—		—		—	8		—		n/m
Other income	61		63		(3)	121		129		(6)
Total other revenue	61		63		(3)	129		129		—
Total net revenue	1,083		988		10	2,131		1,963		9
Provision for loan losses	180		170		(6)	442		429		(3)
Noninterest expense
Compensation and benefits expense	127		130		2	263		261		(1)
Other operating expenses	317		306		(4)	638		623		(2)
Total noninterest expense	444		436		(2)	901		884		(2)
Income from continuing operations before income tax (benefit) expense	$	459	$	382	20	$	788	$	650	21
Total assets	$	114,955	$	114,915	—	$	114,955	$	114,915	—

n/m = not meaningful

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Components of net operating lease revenue, included in amounts above, were as follows.



	Three months ended June 30,							Six months ended June 30,
($ in millions)	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Net operating lease revenue
Operating lease revenue	$	363		$	374		(3)	$	724		$	756		(4)
Depreciation expense
Depreciation expense on operating lease assets (excluding remarketing gains)	262			281			7	523			572			9
Remarketing gains, net	(23		)	(16		)	44	(38		)	(34		)	12
Net depreciation expense on operating lease assets	239			265			10	485			538			10
Total net operating lease revenue	$	124		$	109		14	$	239		$	218		10
Investment in operating leases, net	$	8,407		$	8,639		(3)	$	8,407		$	8,639		(3)

The following table presents the average balance and yield of the loan and operating lease portfolios of our Automotive Financing operations.



	Three months ended June 30,								Six months ended June 30,
	2019				2018				2019				2018
($ in millions)	Average balance (a)		Yield		Average balance (a)		Yield		Average balance (a)		Yield		Average balance (a)		Yield
Finance receivables and loans, net (b)
Consumer automotive (c)	$	72,274	6.58	%	$	69,941	6.08	%	$	71,631	6.53	%	$	69,337	5.99	%
Commercial
Wholesale floorplan	29,031		4.77		29,309		4.12		29,508		4.80		29,334		3.97
Other commercial automotive (d)	5,719		4.70		6,161		4.56		5,643		4.72		6,132		4.44
Investment in operating leases, net (e)	8,370		5.94		8,583		5.09		8,379		5.75		8,606		5.11


(a)	Average balances are calculated using a combination of monthly and daily average methodologies.


(b)	Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.


(c)	Includes the effects of derivative financial instruments designated as hedges.


(d)	Consists primarily of automotive dealer term loans, including those to finance dealership land and buildings, and dealer fleet financing.

(e)

Yield includes gains on the sale of off-lease vehicles of $23 million and $38 million for the three months and six months ended June 30, 2019, respectively, compared to $16 million and $34 million for the three months and six months ended June 30, 2018. Excluding these gains on sale, the annualized yield would be 4.84% for both the three months and six months ended June 30, 2019, compared to 4.35% and 4.31% for the three months and six months ended June 30, 2018, respectively.

Our Automotive Finance operations earned income from continuing operations before income tax expense of $459 million and $788 million for the three months and six months ended June 30, 2019, respectively, compared to $382 million and $650 million for the three months and six months ended June 30, 2018. During the three months and six months ended June 30, 2019, we continued to focus on driving capital optimization and expanding risk-adjusted returns. As a result, we experienced higher consumer loan financing revenue, primarily due to an increase in consumer loan portfolio yields and asset levels. We also experienced higher commercial financing revenue due to higher yields resulting from higher benchmark interest rates. Growth in finance revenue for both the three months and six months ended June 30, 2019, was partially offset by higher interest expense driven by higher funding costs and growth in our consumer loan portfolio.

Consumer loan financing revenue increased $126 million and $244 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The increases were primarily due to improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, and higher average retail asset levels resulting from sustained asset growth, including a continued focus on the used-vehicle portfolio primarily through franchised dealers. Additionally, we have continued to identify and grow relationships with automotive retailers including those with leading eCommerce platforms. Through these actions, we continue to optimize our origination mix and achieve greater portfolio diversification.

Commercial loan financing revenue increased $41 million and $121 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The increases were primarily due to higher yields resulting from higher benchmark interest rates. For the three months ended June 30, 2019, the increase was partially offset by a decrease in average outstanding floorplan assets compared to the same period in 2018.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Interest expense was $701 million and $1.4 billion for the three months and six months ended June 30, 2019, respectively, compared to $614 million and $1.2 billion in the same periods in 2018. The increases were primarily due to higher funding costs and growth in our consumer automotive loan portfolio.

We recorded gains from the sale of automotive loans of $8 million for the six months ended June 30, 2019, compared to no gains for the three months and six months ended June 30, 2018. We continue to selectively utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization, including the sale of previously written-down consumer automotive loans related to consumers in Chapter 13 bankruptcy. There were no such sales during the three months ended June 30, 2019, or the six months ended June 30, 2018.

Other income decreased 3% and 6% for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The decreases were primarily due to a decrease in remarketing fee income resulting from lower operating lease termination volume, as well as a decrease in servicing fee income resulting from lower levels of off-balance sheet consumer automotive serviced loans.

Total net operating lease revenue increased $15 million and $21 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. These increases were primarily due to favorable performance in our outstanding portfolio of trucks and sport utility vehicles, as well as a more favorable shift in portfolio mix of vehicle type, as our share of sport utility vehicles has increased compared to the same periods in 2018. Additionally, we recognized remarketing gains of $23 million and $38 million for the three months and six months ended June 30, 2019, compared to $16 million and $34 million for the same periods in 2018. The increases were primarily due to higher gain per unit, partially offset by a lower number of terminated units. This was partially offset by a reduction in our outstanding portfolio of leased vehicles, primarily due to the runoff of our legacy GM operating lease portfolio, which was substantially wound-down as of June 30, 2018. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

The provision for loan losses was $180 million and $442 million for the three months and six months ended June 30, 2019, respectively, compared to $170 million and $429 million for the same periods in 2018. The increases were largely driven by reserve reductions during the three months and six months ended June 30, 2018, associated with hurricane activity experienced during 2017 within our retail automotive loan portfolio. This activity was largely offset by lower net charge-offs, despite continued growth within our retail automotive loan portfolio. We continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting, and higher recoveries. Refer to the Risk Management section of this MD&A for further discussion.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Automotive Financing Volume

Consumer Automotive Financing

For the three months and six months ended June 30, 2019, our portfolio yield for consumer automotive loans increased 50 and 54 basis points, respectively, relative to the same periods in 2018. We set our buy rates using a granular, risk-based methodology factoring in several variables including interest costs, projected net average annualized loss rates at the time of origination, anticipated operating costs, and targeted return on equity. The increases in rates on recent loan originations were primarily the result of our continued focus on risk adjusted returns and increased levels of used vehicle loan volume. Over the past several years, we have continued to focus on portfolio diversification and the used vehicle segment, primarily through franchised dealers, which has contributed to higher yields on our consumer automotive loan portfolio. Commensurate with this shift in origination mix, we continue to maintain consistent, disciplined underwriting within our new and used consumer automotive loan originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was $8.5 billion, or approximately 11.6% of our total consumer automotive loans at June 30, 2019, as compared to $8.3 billion, or approximately 11.7% of our total consumer automotive loans at December 31, 2018.

The following table presents retail loan originations by credit tier and product type.



	Used retail				New retail
Credit Tier (a)	Volume ($ in billions)		% Share of volume	Average FICO®	Volume ($ in billions)		% Share of volume	Average FICO®
Three months ended June 30, 2019
S	$	1.3	25	738	$	1.5	44	743
A	2.2		42	678	1.4		41	676
B	1.2		23	645	0.4		12	644
C	0.4		8	607	0.1		3	613
D	0.1		2	519	—		—	579
Total retail originations	$	5.2	100	678	$	3.4	100	698
Three months ended June 30, 2018
S	$	1.3	27	738	$	1.6	46	746
A	2.1		43	675	1.3		37	675
B	1.2		24	644	0.5		14	645
C	0.3		6	612	0.1		3	616
Total retail originations	$	4.9	100	680	$	3.5	100	700
Six months ended June 30, 2019
S	$	2.7	26	738	$	3.0	46	744
A	4.3		41	677	2.5		38	676
B	2.5		24	644	0.8		13	643
C	0.8		8	608	0.2		3	612
D	0.1		1	537	—		—	571
Total retail originations	$	10.4	100	680	$	6.5	100	699
Six months ended June 30, 2018
S	$	2.7	28	738	$	3.4	48	747
A	4.1		42	674	2.5		35	675
B	2.3		24	643	1.0		14	645
C	0.6		6	609	0.2		3	614
Total retail originations	$	9.7	100	681	$	7.1	100	702

(a)

Represents Ally’s internal credit score, incorporating numerous borrower and structure attributes including: severity and aging of delinquency; number of credit inquiries; loan-to-value (LTV) ratio; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring. We originated an insignificant amount of retail loans classified below Tier C during the three months and six months ended June 30, 2018.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table presents the percentage of total retail loan originations, in dollars, by the loan term in months.



	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
0–71	19	%	19	%	20	%	20	%
72–75	66		68		66		67
76 +	15		13		14		13
Total retail originations (a)	100	%	100	%	100	%	100	%


(a)	Excludes RV loans.

Retail originations with a term of 76 months or more represented 15% and 14% of total retail originations for the three months and six months ended June 30, 2019, respectively, compared to 13% for both the three months and six months ended June 30, 2018. Substantially all of the loans originated with a term of 76 months or more during the three months and six months ended June 30, 2019, and 2018, were considered to be prime and in credit tiers S, A, or B. We define prime consumer automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of 620 or greater.

The following table presents the percentage of total outstanding retail loans by origination year.



June 30,	2019		2018
Pre-2015	3	%	7	%
2015	7		14
2016	14		23
2017	22		33
2018	32		23
2019	22		—
Total	100	%	100	%

The 2019, 2018, and 2017 vintages comprise 76% of the overall retail portfolio as of June 30, 2019, and have higher average buy rates than older vintages.

The following tables present the total retail loan and operating lease origination dollars and percentage mix by product type and by channel.



	Consumer automotive financing originations				% Share of Ally originations
Three months ended June 30, ($ in millions)	2019		2018		2019	2018
Used retail	$	5,259	$	4,924	54	51
New retail standard	3,368		3,365		34	35
Lease	1,060		1,228		11	13
New retail subvented	56		62		1	1
Total consumer automotive financing originations (a)	$	9,743	$	9,579	100	100


(a)	Includes Commercial Services Group (CSG) originations of $1.0 billion and $892 million for the three months ended June 30, 2019, and 2018, respectively, and RV originations of $90 million for the three months ended June 30, 2018.



	Consumer automotive financing originations				% Share of Ally originations
Six months ended June 30, ($ in millions)	2019		2018		2019	2018
Used retail	$	10,411	$	9,693	55	51
New retail standard	6,417		6,971		34	37
Lease	1,943		2,275		10	12
New retail subvented	123		104		1	—
Total consumer automotive financing originations (a)	$	18,894	$	19,043	100	100


(a)	Includes CSG originations of $2.0 billion and $1.9 billion for the six months ended June 30, 2019, and 2018, respectively, and RV originations of $190 million for the six months ended June 30, 2018.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q



	Consumer automotive financing originations				% Share of Ally originations
Three months ended June 30, ($ in millions)	2019		2018		2019	2018
Growth channel	$	4,862	$	4,319	50	45
Chrysler dealers	2,450		2,719		25	28
GM dealers	2,431		2,541		25	27
Total consumer automotive financing originations	$	9,743	$	9,579	100	100



	Consumer automotive financing originations				% Share of Ally originations
Six months ended June 30, ($ in millions)	2019		2018		2019	2018
Growth channel	$	9,353	$	8,502	50	45
GM dealers	4,805		5,387		25	28
Chrysler dealers	4,736		5,154		25	27
Total consumer automotive financing originations	$	18,894	$	19,043	100	100

During the three months and six months ended June 30, 2019, total consumer loan and operating lease originations increased $164 million and decreased $149 million, respectively, compared to the same periods in 2018. For the three months ended June 30, 2019, the increase was primarily due to increased originations from the Growth channel, which was partially offset by lower originations from the Chrysler and GM channels. For the six months ended June 30, 2019, the decrease was primarily due to lower originations from the Chrysler and GM channels, which was partially offset by increased originations from the Growth channel. Over the past several years we have continued to diversify our portfolio through the Growth channel, including increased levels of used vehicle loan volume, which we view as an attractive asset class consistent with our continued focus on obtaining appropriate risk-adjusted returns.

We have included origination metrics by loan term and FICO® Score within this MD&A. However, the proprietary way we evaluate risk is based on multiple inputs as described in the section titled Automotive Financing Volume—Acquisition and Underwriting within the MD&A in our 2018 Annual Report on Form 10-K.

The following tables present the percentage of retail loan and operating lease originations, in dollars, by FICO® Score and product type.



	Used retail				New retail				Lease
Three months ended June 30,	2019		2018		2019		2018		2019		2018
740 +	17	%	18	%	23	%	25	%	50	%	48	%
660–739	39		39		35		34		34		35
620–659	25		28		20		22		10		10
540–619	13		12		7		6		4		5
< 540	2		1		1		1		—		—
Unscored (a)	4		2		14		12		2		2
Total consumer automotive financing originations	100	%	100	%	100	%	100	%	100	%	100	%


(a)	Unscored are primarily CSG contracts with business entities that have no FICO® Score.



	Used retail				New retail				Lease
Six months ended June 30,	2019		2018		2019		2018		2019		2018
740 +	18	%	19	%	24	%	26	%	48	%	48	%
660–739	39		38		34		34		34		35
620–659	25		28		20		21		11		10
540–619	12		12		6		6		5		5
< 540	2		1		1		1		—		—
Unscored (a)	4		2		15		12		2		2
Total consumer automotive financing originations	100	%	100	%	100	%	100	%	100	%	100	%


(a)	Unscored are primarily CSG contracts with business entities that have no FICO® Score.

Originations with a FICO® Score of less than 620 (considered nonprime) represented 11% of total consumer loan and operating lease originations for both the three months and six months ended June 30, 2019, and 10% for both the three months and six months ended June 30, 2018. Consumer loans and operating leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations for the

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

three months and six months ended June 30, 2019. Nonprime applications that are not automatically declined by our proprietary credit-scoring models for risk reasons are manually reviewed and decisioned by an experienced underwriting team. The nonprime portfolio is subject to more stringent underwriting criteria for certain loan attributes (e.g., payment-to-income, mileage, and maximum amount financed) and generally does not include any loans with a term of 76 months or more. For discussion of our credit-risk-management practices and performance, refer to the section titled Risk Management.

For discussion of manufacturer marketing incentives, refer to the section titled Automotive Financing Volume—Manufacturer Marketing Incentives within the MD&A in our 2018 Annual Report on Form 10-K.

Commercial Wholesale Financing Volume

The following table presents the percentage of average balance of our commercial wholesale floorplan finance receivables, in dollars, by product type and by channel.



	Average balance						Average balance
	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018			2019			2018
GM new vehicles	41		%	42		%	40		%	42		%
Chrysler new vehicles	33			31			33			30
Growth new vehicles	14			14			14			15
Used vehicles	12			13			13			13
Total	100		%	100		%	100		%	100		%
Total commercial wholesale finance receivables	$	29,031		$	29,309		$	29,508		$	29,334

Average commercial wholesale financing receivables outstanding decreased $278 million and increased $174 million during the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The decrease for the three months ended June 30, 2019, was primarily driven by a reduction in the number of GM dealer relationships due to the competitive environment across the automotive lending market, partially offset by higher average vehicle prices. The increase for the six months ended June 30, 2019, was primarily driven by higher average vehicle prices, as well as increased inventory levels at GM and Chrysler dealers. These two factors were partially offset by a reduction in the number of GM and Chrysler dealer relationships due to the competitive environment across the automotive lending market. Dealer inventory levels are dependent on a number of factors, including manufacturer production schedules and vehicle mix, sales incentives, and industry sales—all of which can influence future wholesale balances.

Other Commercial Automotive Financing

We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by real estate or other dealership assets and are typically personally guaranteed by the individual owners of the dealership. Automotive fleet financing credit lines may be obtained by dealers, their affiliates, and other independent companies that are used to purchase vehicles, which they lease or rent to others. Other commercial automotive loans decreased 7% and 8% for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018, to an average of $5.7 billion and $5.6 billion.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Insurance

Results of Operations

The following table summarizes the operating results of our Insurance operations. The amounts presented are before the elimination of balances and transactions with our other reportable segments.



	Three months ended June 30,							Six months ended June 30,
($ in millions)	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Insurance premiums and other income
Insurance premiums and service revenue earned	$	261		$	239		9	$	522		$	495		5
Interest and dividends on investment securities and cash and cash equivalents, net (a)	15			13			15	27			25			8
Other gain on investments, net (b)	23			25			(8)	118			11			n/m
Other income	2			2			—	6			6			—
Total insurance premiums and other income	301			279			8	673			537			25
Expense
Insurance losses and loss adjustment expenses	127			101			(26)	186			164			(13)
Acquisition and underwriting expense
Compensation and benefits expense	20			18			(11)	41			39			(5)
Insurance commissions expense	117			109			(7)	231			219			(5)
Other expenses	37			40			8	70			77			9
Total acquisition and underwriting expense	174			167			(4)	342			335			(2)
Total expense	301			268			(12)	528			499			(6)
Income from continuing operations before income tax (benefit) expense	$	—		$	11		(100)	$	145		$	38		n/m
Total assets	$	8,241		$	7,634		8	$	8,241		$	7,634		8
Insurance premiums and service revenue written	$	314		$	278		13	$	619		$	553		12
Combined ratio (c)	114.4		%	111.2		%		100.0		%	99.6		%

n/m = not meaningful


(a)	Includes interest expense of $19 million and $38 million for the three months and six months ended June 30, 2019, respectively, and $16 million and $32 million for the three months and six months ended June 30, 2018.


(b)	Includes net unrealized gains on equity investments of $4 million and $69 million for the three months and six months ended June 30, 2019, respectively, $8 million of net unrealized gains for the three months ended June 30, 2018, and net unrealized losses of $27 million for the six months ended June 30, 2018.


(c)	Management uses a combined ratio as a primary measure of underwriting profitability. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other income.

Our Insurance operations income from continuing operations before income tax expense was $0 million during the three months ended June 30, 2019, and $145 million for the six months ended June 30, 2019, compared to $11 million and $38 million for the three months and six months ended June 30, 2018, respectively. The decrease for the three months ended June 30, 2019, was primarily due to higher weather losses in 2019, compared to lower than average weather losses for the three months ended June 30, 2018. The increase for the six months ended June 30, 2019, was primarily driven by $118 million of gains related to equity investments, compared to $11 million of gains for the six months ended June 30, 2018.

Insurance premiums and service revenue earned was $261 million and $522 million for the three months and six months ended June 30, 2019, respectively, compared to $239 million and $495 million for the three months and six months ended June 30, 2018. The increases for the three months and six months ended June 30, 2019, were primarily due to higher vehicle inventory insurance rates and portfolio growth.

Insurance losses and loss adjustment expenses totaled $127 million and $186 million for the three months and six months ended June 30, 2019, respectively, compared to $101 million and $164 million for the same periods in 2018. The increases for the three months and six months ended June 30, 2019, were primarily driven by higher weather-related losses due to specific weather events and portfolio growth within our vehicle inventory insurance business. Higher weather losses contributed to an increase in the combined ratio to 114.4% and 100.0% for the three months and six months ended June 30, 2019, respectively, compared to 111.2% and 99.6% for the three months and six months ended June 30, 2018. In April 2019, we renewed our annual reinsurance program and continue to utilize this coverage to manage our risk of weather-related loss.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Premium and Service Revenue Written

The following table summarizes premium and service revenue written by product.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018			2019			2018
Vehicle service contracts
New retail	$	117		$	124		$	217		$	231
Used retail	167			143			325			273
Reinsurance (a)	(45		)	(42		)	(100		)	(88		)
Total vehicle service contracts (b)	239			225			442			416
Vehicle inventory insurance (c)	44			27			120			89
Other (d)	31			26			57			48
Total	$	314		$	278		$	619		$	553


(a)	Reinsurance represents the transfer of premiums and risk from an Ally insurance company to a third-party insurance company.


(b)	VSC revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern.


(c)	Vehicle inventory insurance includes dealer ancillary products.


(d)	Other products include GAP coverage, VMCs, ClearGuard, and other ancillary products.

Insurance premiums and service revenue written was $314 million and $619 million for the three months and six months ended June 30, 2019, respectively, compared to $278 million and $553 million for the same periods in 2018. The increases for the three months and six months ended June 30, 2019, were primarily due to growth in VSC and vehicle inventory insurance products, with continued momentum in the Growth channel, which represents our non-GM volume.

Cash and Investments

A significant aspect of our Insurance operations is the investment of proceeds from premiums and other revenue sources. We use these investments to satisfy our obligations related to future claims at the time these claims are settled. Our Insurance operations have an Investment Committee, which develops guidelines and strategies for these investments. The guidelines established by this committee reflect our risk appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.

The following table summarizes the composition of our Insurance operations cash and investment portfolio at fair value.



($ in millions)	June 30, 2019		December 31, 2018
Cash
Noninterest-bearing cash	$	182	$	252
Interest-bearing cash	916		644
Total cash	1,098		896
Equity securities	582		766
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	625		460
U.S. States and political subdivisions	513		691
Foreign government	149		145
Agency mortgage-backed residential	1,095		758
Mortgage-backed residential	128		135
Corporate debt	1,348		1,241
Total available-for-sale securities	3,858		3,430
Total cash and securities	$	5,538	$	5,092

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Mortgage Finance

Results of Operations

The following table summarizes the activities of our Mortgage Finance operations. The amounts presented are before the elimination of balances and transactions with our reportable segments.



	Three months ended June 30,					Six months ended June 30,
($ in millions)	2019		2018		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	150	$	114	32	$	296	$	219	35
Interest expense	104		70		(49)	200		132		(52)
Net financing revenue and other interest income	46		44		5	96		87		10
Gain on mortgage loans, net	2		1		100	4		2		100
Other income, net of losses	2		1		100	2		1		100
Total other revenue	4		2		100	6		3		100
Total net revenue	50		46		9	102		90		13
Provision for loan losses	—		—		—	2		2		—
Noninterest expense
Compensation and benefits expense	9		8		(13)	17		16		(6)
Other operating expenses	27		24		(13)	56		50		(12)
Total noninterest expense	36		32		(13)	73		66		(11)
Income from continuing operations before income tax (benefit) expense	$	14	$	14	—	$	27	$	22	23
Total assets	$	16,584	$	13,385	24	$	16,584	$	13,385	24

Our Mortgage Finance operations earned income from continuing operations before income tax expense of $14 million and $27 million for the three months and six months ended June 30, 2019, respectively, compared to $14 million and $22 million for the three months and six months ended June 30, 2018. The increase for the six months ended June 30, 2019, was primarily due to growth in our mortgage loan portfolio and an increase in gain on sale of mortgage loans held-for-sale, partially offset by accelerated premium amortization due to higher prepayment activity and higher noninterest expense driven primarily by continued asset growth during the three months ended June 30, 2019. For the three months ended June 30, 2019, growth in net financing revenue driven by mortgage portfolio growth and higher gains on the sale of mortgage loans were offset by accelerated premium amortization due to higher prepayment activity and higher noninterest expenses driven primarily by continued asset growth.

Net financing revenue and other interest income was $46 million and $96 million for the three months and six months ended June 30, 2019, respectively, compared to $44 million and $87 million for the three months and six months ended June 30, 2018. The increases in net financing revenue and other interest income were primarily due to increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans and direct-to-consumer originations. These increases were partially offset by accelerated premium amortization due to higher prepayment activity during the three months ended June 30, 2019. During the three months and six months ended June 30, 2019, we purchased $678 million and $1.9 billion of mortgage loans that were originated by third parties, compared to $852 million and $2.1 billion during the three months and six months ended June 30, 2018, respectively.

Gain on sale of mortgage loans, net, was $2 million and $4 million for the three months and six months ended June 30, 2019, respectively, compared to $1 million and $2 million for the three months and six months ended June 30, 2018, as a result of higher direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment provider.

Total noninterest expense was $36 million and $73 million for the three months and six months ended June 30, 2019, respectively, compared to $32 million and $66 million for the three months and six months ended June 30, 2018. The increases were primarily driven by continued asset growth.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table presents the total unpaid principal balance (UPB) of purchases and originations of consumer mortgages held-for-investment, by FICO® Score at the time of acquisition.



FICO® Score	Volume ($ in millions)		% Share of volume
Three months ended June 30, 2019
740 +	$	852	79
720–739	119		11
700–719	92		9
680–699	11		1
Total consumer mortgage financing volume	$	1,074	100
Three months ended June 30, 2018
740 +	$	781	80
720–739	112		12
700–719	73		7
680–699	7		1
660–679	1		—
Total consumer mortgage financing volume	$	974	100
Six months ended June 30, 2019
740 +	$	2,050	80
720–739	282		11
700–719	222		8
680–699	17		1
Total consumer mortgage financing volume	$	2,571	100
Six months ended June 30, 2018
740 +	$	1,875	79
720–739	244		10
700–719	178		8
680–699	62		3
660–679	1		—
Total consumer mortgage financing volume	$	2,360	100

The following table presents the net UPB, net UPB as a percentage of total, weighted-average coupon (WAC), premium net of discounts, LTV, and FICO® Scores for the products in our Mortgage Finance held-for-investment loan portfolio.



Product	Net UPB (a) ($ in millions)		% of total net UPB	WAC		Net premium ($ in millions)		Average refreshed LTV (b)		Average refreshed FICO® (c)
June 30, 2019
Adjustable-rate	$	2,638	16	3.42	%	$	34	53.97	%	775
Fixed-rate	13,557		84	4.20		256		61.89		774
Total	$	16,195	100	4.08		$	290	60.60		774
December 31, 2018
Adjustable-rate	$	2,828	19	3.40	%	$	37	53.69	%	775
Fixed-rate	12,042		81	4.15		248		60.97		774
Total	$	14,870	100	4.01		$	285	59.58		774


(a)	Represents UPB net of charge-offs.


(b)	Updated home values were derived using a combination of appraisals, broker price opinions, automated valuation models, and metropolitan statistical area level house price indices.


(c)	Updated to reflect changes in credit score since loan origination.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Corporate Finance

Results of Operations

The following table summarizes the activities of our Corporate Finance operations. The amounts presented are before the elimination of balances and transactions with our reportable segments.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019		2018			Favorable/(unfavorable) % change	2019		2018			Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans	$	95	$	84		13	$	184	$	158		16
Interest on loans held-for-sale	2		5			(60)	3		5			(40)
Interest expense	36		32			(13)	72		60			(20)
Net financing revenue and other interest income	61		57			7	115		103			12
Total other revenue	10		14			(29)	21		22			(5)
Total net revenue	71		71			—	136		125			9
Provision for loan losses	3		(6		)	(150)	26		(6		)	n/m
Noninterest expense
Compensation and benefits expense	13		12			(8)	32		27			(19)
Other operating expenses	9		7			(29)	19		17			(12)
Total noninterest expense	22		19			(16)	51		44			(16)
Income from continuing operations before income tax (benefit) expense	$	46	$	58		(21)	$	59	$	87		(32)
Total assets	$	4,980	$	4,458		12	$	4,980	$	4,458		12

n/m = not meaningful

Our Corporate Finance operations earned income from continuing operations before income tax expense of $46 million and $59 million for the three months and six months ended June 30, 2019, respectively, compared to $58 million and $87 million for the same periods in 2018. The decreases were due primarily to higher provision for loan losses, partially offset by higher net financing revenue and other interest income resulting from higher asset levels.

Net financing revenue and other interest income was $61 million and $115 million for the three months and six months ended June 30, 2019, respectively, compared to $57 million and $103 million for the same periods in 2018. The increases were primarily due to the growth of our loan portfolio, represented by a 15% increase in the gross carrying value of finance receivables and loans as of June 30, 2019, compared to June 30, 2018.

Other revenue was $10 million and $21 million for the three months and six months ended June 30, 2019, respectively, compared to $14 million and $22 million for the same periods in 2018. The decreases for the three months and six months ended June 30, 2019, were primarily driven by lower syndication income, partially offset by higher gains related to our equity investments, as compared to the same periods in 2018.

The provision for loan losses increased $9 million and $32 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The increases for the three months and six months ended June 30, 2019, were impacted by a $6 million recovery recognized during the second quarter of 2018 that did not reoccur. Additionally, the increase in provision expense for the six months ended June 30, 2019, was driven by higher reserves associated with two loan exposures, within separate industries, each with unique considerations.

Total noninterest expense was $22 million and $51 million for the three months and six months ended June 30, 2019, respectively, compared to $19 million and $44 million for the three months and six months ended June 30, 2018. The increases were primarily due to higher compensation and benefits expense and other noninterest costs associated with growth in the business.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Credit Portfolio

The following table presents loans held-for-sale, the gross carrying value of finance receivables and loans outstanding, unfunded commitments to lend, and total serviced loans of our Corporate Finance operations.



($ in millions)	June 30, 2019		December 31, 2018
Loans held-for-sale, net	$	195	$	47
Finance receivables and loans	$	4,795	$	4,636
Unfunded lending commitments (a)	$	2,240	$	2,141
Total serviced loans	$	5,655	$	5,501

(a)

Includes unused revolving credit line commitments for loans held-for-sale and finance receivables and loans, signed commitment letters, and standby letter of credit facilities, which are issued on behalf of clients and may contingently require us to make payments to a third-party beneficiary in the event of a draw by the beneficiary thereunder. As many of these commitments are subject to borrowing base agreements and other restrictive covenants or may expire without being fully drawn, the stated amounts of these letters of credit are not necessarily indicative of future cash requirements.

The following table presents the percentage of total finance receivables and loans of our Corporate Finance operations by industry concentration. The finance receivables and loans are reported at gross carrying value.



	June 30, 2019		December 31, 2018
Industry
Services	28.4	%	25.6	%
Health services	25.7		24.5
Automotive and transportation	13.5		12.3
Machinery, equipment, and electronics	6.9		6.0
Wholesale	5.2		7.5
Food and beverages	4.3		5.0
Chemicals and metals	4.1		4.9
Other manufactured products	3.9		4.7
Paper, printing, and publishing	2.3		2.8
Retail trade	2.0		1.3
Other	3.7		5.4
Total finance receivables and loans	100.0	%	100.0	%

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Corporate and Other

The following table summarizes the activities of Corporate and Other, which primarily consist of centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, original issue discount, and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to Ally Invest, and reclassifications and eliminations between the reportable operating segments.



	Three months ended June 30,							Six months ended June 30,
($ in millions)	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans (a)	$	20		$	21		(5)	$	41		$	31		32
Interest on loans held-for-sale	1			1			—	1			1			—
Interest and dividends on investment securities and other earning assets	215			162			33	428			312			37
Interest on cash and cash equivalents	16			14			14	35			27			30
Other, net	(4		)	(2		)	(100)	(6		)	(4		)	(50)
Total financing revenue and other interest income	248			196			27	499			367			36
Interest expense
Original issue discount amortization (b)	10			25			60	20			49			59
Other interest expense (c)	225			116			(94)	430			224			(92)
Total interest expense	235			141			(67)	450			273			(65)
Net financing revenue and other interest income	13			55			(76)	49			94			(48)
Other revenue
Other gain on investments, net	14			1			n/m	23			7			n/m
Other income, net of losses	20			18			11	36			45			(20)
Total other revenue	34			19			79	59			52			13
Total net revenue	47			74			(36)	108			146			(26)
Provision for loan losses	(6		)	(6		)	—	(11		)	(6		)	83
Total noninterest expense (d)	78			84			7	158			160			1
Loss from continuing operations before income tax (benefit) expense	$	(25	)	$	(4	)	n/m	$	(39	)	$	(8	)	n/m
Total assets	$	35,688		$	30,953		15	$	35,688		$	30,953		15

n/m = not meaningful


(a)	Primarily related to impacts associated with hedging activities within our consumer automotive loan portfolio and financing revenue from our legacy mortgage portfolio.


(b)	Amortization is included as interest on long-term debt in the Condensed Consolidated Statement of Comprehensive Income.


(c)	Includes the residual impacts of our FTP methodology and impacts of hedging activities of certain debt obligations.


(d)	Includes reductions of $219 million and $448 million for the three months and six months ended June 30, 2019, respectively, and $206 million and $426 million for the three months and six months ended June 30, 2018, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense.

The following table presents the scheduled remaining amortization of the original issue discount at June 30, 2019.



Year ended December 31, ($ in millions)	2019		2020		2021		2022		2023		2024 and thereafter (a)		Total
Original issue discount
Outstanding balance at year end	$	1,101	$	1,058	$	1,012	$	961	$	904	$	—
Total amortization (b)	21		43		46		51		57		904		$	1,122


(a)	The maximum annual scheduled amortization for any individual year is $147 million in 2030.


(b)	The amortization is included as interest on long-term debt in the Condensed Consolidated Statement of Comprehensive Income.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Corporate and Other incurred a loss from continuing operations before income tax expense of $25 million and $39 million for the three months and six months ended June 30, 2019, respectively, compared to a loss of $4 million and $8 million for the three months and six months ended June 30, 2018. Total financing revenue and other interest income increased for both the three months and six months ended June 30, 2019, compared to the same periods in 2018, primarily driven by our investment securities portfolio. This increase was more than offset by higher funding costs.

Financing revenue and other interest income was $248 million and $499 million for the three months and six months ended June 30, 2019, respectively, compared to $196 million and $367 million for the three months and six months ended June 30, 2018. The increases were primarily driven by higher interest and dividends from investment securities, primarily as a result of higher yields and growth in the size of the investment portfolio. Results for the three months and six months ended June 30, 2019, were also favorably impacted by increases in interest on cash and cash equivalents, as a result of higher yields.

Total interest expense was $235 million and $450 million for the three months and six months ended June 30, 2019, respectively, compared to $141 million and $273 million for the three months and six months ended June 30, 2018. The increases were primarily driven by increased interest on deposits resulting from higher market rates and deposit growth, partially offset by a decrease in higher-cost secured debt borrowings.

Total other revenue was $34 million and $59 million for the three months and six months ended June 30, 2019, respectively, compared to $19 million and $52 million for the three months and six months ended June 30, 2018. The increases were primarily due to increased realized investment gains, partially offset by lower income related to certain equity hedges during the six months ended June 30, 2019.

Total assets were $35.7 billion as of June 30, 2019, compared to $31.0 billion as of June 30, 2018. This increase was primarily the result of growth in our available-for-sale and held-to-maturity securities portfolios. The increase was partially offset by the continued runoff of our legacy mortgage portfolio. At June 30, 2019, the gross carrying value of the legacy mortgage portfolio was $1.3 billion, compared to $1.8 billion at June 30, 2018.

Cash and Securities

The following table summarizes the composition of the cash and securities portfolio at fair value for Corporate and Other.



($ in millions)	June 30, 2019		December 31, 2018
Cash
Noninterest-bearing cash	$	454	$	535
Interest-bearing cash	1,988		3,083
Total cash	2,442		3,618
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	1,393		1,391
U.S. States and political subdivisions	85		111
Agency mortgage-backed residential	18,005		16,380
Mortgage-backed residential	2,806		2,551
Agency mortgage-backed commercial	1,351		3
Mortgage-backed commercial	713		714
Asset-backed	477		723
Total available-for-sale securities	24,830		21,873
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	2,468		2,264
Asset-backed retained notes	31		43
Total held-to-maturity securities	2,499		2,307
Total cash and securities	$	29,771	$	27,798

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Ally Invest



	2nd quarter 2019		1st quarter 2019		4th quarter 2018		3rd quarter 2018		2nd quarter 2018
Trading days (a)	63.0		61.0		62.0		62.5		64.0
Average customer trades per day (in thousands)	18.3		19.5		19.6		19.1		18.0
Funded accounts (b) (in thousands)	337		320		302		287		271
Total net customer assets ($ in millions)	$	7,149	$	6,796	$	5,804	$	6,608	$	5,990
Total customer cash balances ($ in millions)	$	1,229	$	1,209	$	1,159	$	1,178	$	1,166


(a)	Represents the number of days the New York Stock Exchange and other U.S. stock exchange markets are open for trading. A half day represents a day when the U.S. markets close early.


(b)	Represents open and funded brokerage accounts.

Total funded accounts increased 5% from the prior quarter and 24% from the second quarter of 2018 as a result of a continued focus on marketing campaigns. Average customer trades per day decreased from the prior quarter, primarily due to seasonality. Additionally, net customer assets increased in the second quarter of 2019, primarily as a result of equity market appreciation and customer account growth.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Risk Management

Managing the risk/reward trade-off is a fundamental component of operating our businesses, and all employees are responsible for managing risk. We use multiple layers of defense to identify, monitor, and manage current and emerging risks.


•	Business lines — Responsible for owning and managing all of the risks that emanate from their risk-taking activities, including business units and support functions.


•	Independent risk management — Responsible for establishing and maintaining our risk-management framework and promulgating it enterprise-wide. Independent risk management also provides an objective, critical assessment of risks and—through oversight, effective challenge, and other means—evaluates whether Ally remains aligned with its risk appetite.


•	Internal audit — Provides its own independent assessments of the effectiveness of our risk management, internal controls, and governance; and independent assessments regarding the quality of our loan portfolios. Internal audit includes Audit Services and the Loan Review Group.

Our risk-management framework is overseen by the Risk Committee (RC) of the Ally Board of Directors (the Board). The RC sets the risk appetite across our company while risk-oriented management committees, the executive leadership team, and our associates identify and monitor current and emerging risks and manage those risks within our risk appetite. For more information on our risk management process, refer to the Risk Management MD&A section of our 2018 Annual Report on Form 10-K.

Loan and Operating Lease Exposure

The following table summarizes the exposures from our loan and operating lease activities.



($ in millions)	June 30, 2019		December 31, 2018
Finance receivables and loans
Automotive Finance	$	106,473	$	108,463
Mortgage Finance	16,485		15,155
Corporate Finance	4,795		4,636
Corporate and Other (a)	1,457		1,672
Total finance receivables and loans	129,210		129,926
Loans held-for-sale
Automotive Finance	—		210
Mortgage Finance (b)	22		8
Corporate Finance	195		47
Corporate and Other	58		49
Total loans held-for-sale	275		314
Total on-balance sheet loans	129,485		130,240
Off-balance sheet securitized loans
Automotive Finance (c)	796		1,235
Whole-loan sales
Automotive Finance (c)	392		634
Total off-balance sheet loans	1,188		1,869
Operating lease assets
Automotive Finance	8,407		8,417
Total loan and operating lease exposure	$	139,080	$	140,526


(a)	Includes $1.3 billion and $1.5 billion of consumer mortgage loans in our legacy mortgage portfolio at June 30, 2019, and December 31, 2018, respectively.


(b)	Represents the current balance of conforming mortgages originated directly to the held-for-sale portfolio.


(c)	Represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions.

The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact on our borrowers. The potential financial statement impact of these exposures varies depending on the accounting classification and future expected disposition strategy. We retain the majority of our consumer automotive loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. We ultimately manage the associated risks based on the underlying economics of the exposure. Our operating lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, has declined over the past several years as we have experienced growth in our consumer

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

automotive loan portfolio and a significant reduction in operating lease assets since 2014. While all operating leases are exposed to potential reductions in used vehicle values, only loans where we take possession of the vehicle are affected by potential reductions in used vehicle values.

Credit Risk

Credit risk is defined as the risk of loss arising from an obligor not meeting its contractual obligations to us. Credit risk includes consumer credit risk, commercial credit risk, and counterparty credit risk.

Credit risk is a major source of potential economic loss to us. Credit risk is monitored by the risk committees, executive leadership team, and our associates. Together, they oversee credit decisioning, account servicing activities, and credit-risk-management processes and manage credit risk exposures within our risk appetite. In addition, our Loan Review Group provides an independent assessment of the quality of our credit portfolios and credit-risk-management practices, and directly reports its findings to the RC on a regular basis.

To mitigate risk, we have implemented specific policies and practices across business lines, utilizing both qualitative and quantitative analyses. This reflects our commitment to maintaining an independent and ongoing assessment of credit risk and credit quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and operating lease portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem areas, loans and operating leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and procedures. Our consumer and commercial loan and operating lease portfolios are subject to regular stress tests that are based on plausible, but unexpected, economic scenarios to assess how the portfolios may perform in a severe economic downturn. In addition, we establish and maintain underwriting policies and limits across our portfolios and higher risk segments (e.g., nonprime) based on our risk appetite.

Another important aspect to managing credit risk involves the need to carefully monitor and manage the performance and pricing of our loan products with the aim of generating appropriate risk-adjusted returns. When considering pricing, various granular risk-based factors are considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit losses and trends in credit losses in conjunction with pricing at contract inception and continue to closely monitor our loan performance and profitability performance in light of forecasted economic conditions, and manage credit risk and expectations of losses in the portfolio.

We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated geographic region or a particular product or industry segment. We perform quarterly analyses of the consumer automotive, consumer mortgage, and commercial portfolios using a range of indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information.

Additionally, we utilize numerous collection strategies to mitigate loss and provide ongoing support to customers in financial distress. For consumer automotive loans, we work with customers when they become delinquent on their monthly payment. In lieu of repossessing their vehicle, we may offer several types of assistance to aid our customers based on their willingness and ability to repay their loan. Loss mitigation may include payment extensions and rewrites of the loan terms. For mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. These programs are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates.

Furthermore, we manage our credit exposure to financial counterparties based on the risk profile of the counterparty. Within our policies we have established standards and requirements for managing counterparty risk exposures in a safe and sound manner. Counterparty credit risk is derived from multiple exposure types including derivatives, securities trading, securities financing transactions, financial futures, cash balances (e.g., due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more information on derivative counterparty credit risk, refer to Note 17 to the Condensed Consolidated Financial Statements.

We employ an internal team of economists to enhance our planning and forecasting capabilities. This team conducts industry and market research, monitors economic risks, and helps support various forms of scenario planning. This group closely monitors macroeconomic trends given the nature of our business and the potential impacts on our exposure to credit risk. During the three months and six months ended June 30, 2019, the U.S. economy continued to modestly expand, and consumer confidence remained elevated. The labor market remained healthy during the period, with the unemployment rate at 3.7% as of June 30, 2019. Within the U.S. automotive market, new light vehicle sales have moderated from both historic highs and year-over-year pace, to an average 17.0 million and 16.9 million Seasonally Adjusted Annual Rate for the three months and six months ended June 30, 2019, respectively. We expect to experience modest downward pressure on used vehicle values during 2019.

Consumer Credit Portfolio

During the three months and six months ended June 30, 2019, the credit performance of the consumer loan portfolio reflected both our underwriting strategy to originate a diversified portfolio of consumer automotive loan assets, including used, nonsubvented new, higher LTV, extended term, Growth channel, and nonprime finance receivables and loans, as well as high-quality jumbo and LMI mortgage loans that are acquired through bulk loan purchases and direct-to-consumer mortgage originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately 11.6% of our total consumer automotive loans at June 30, 2019, compared to approximately 11.7% at December 31, 2018. For information on our consumer credit risk practices and policies regarding

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delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

The following table includes consumer finance receivables and loans recorded at gross carrying value.



	Outstanding				Nonperforming (a)				Accruing past due 90 days or more (b)
($ in millions)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Consumer automotive (c) (d)	$	72,898	$	70,539	$	642	$	664	$	—	$	—
Consumer mortgage
Mortgage Finance	16,485		15,155		12		9		—		—
Mortgage — Legacy	1,315		1,546		53		70		—		—
Total consumer finance receivables and loans	$	90,698	$	87,240	$	707	$	743	$	—	$	—


(a)	Includes nonaccrual TDR loans of $232 million and $257 million at June 30, 2019, and December 31, 2018, respectively.


(b)	Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for a description of our accounting policies for finance receivables and loans.


(c)	Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 17 to the Condensed Consolidated Financial Statements for additional information.


(d)	Includes outstanding CSG loans of $8.1 billion and $7.9 billion at June 30, 2019, and December 31, 2018, respectively, and RV loans of $1.5 billion and $1.7 billion at June 30, 2019, and December 31, 2018, respectively.

Total consumer finance receivables and loans increased $3.5 billion at June 30, 2019, compared with December 31, 2018, reflecting an increase of $2.4 billion of consumer automotive finance receivables and loans and an increase of $1.1 billion of consumer mortgage finance receivables and loans. The increase in consumer automotive finance receivables and loans was primarily related to continued momentum in our Growth channel. The increase in consumer mortgage finance receivables and loans was primarily due to the execution of bulk loan purchases totaling $1.9 billion during the six months ended June 30, 2019.

Total consumer nonperforming finance receivables and loans at June 30, 2019, decreased $36 million to $707 million from December 31, 2018, reflecting a decrease of $22 million of consumer automotive finance receivables and loans and a decrease of $14 million of consumer mortgage nonperforming finance receivables and loans. The decrease in nonperforming consumer automotive finance receivables and loans was primarily due to seasonality. The decrease in nonperforming consumer mortgage finance receivables and loans was primarily due to run-off in our legacy mortgage portfolio, as well as favorable macroeconomic conditions. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information. Nonperforming consumer finance receivables and loans as a percentage of total outstanding consumer finance receivables and loans were 0.8% and 0.9% at June 30, 2019, and December 31, 2018, respectively.

Total consumer TDRs outstanding at June 30, 2019, decreased $10 million since December 31, 2018, to $716 million. The decrease was primarily driven by a $10 million reduction in our legacy mortgage portfolio, while the consumer automotive and mortgage finance portfolios remained relatively stable. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information.

Consumer automotive loans accruing and past due 30 days or more decreased $388 million to $2.1 billion at June 30, 2019, compared to December 31, 2018, primarily due to seasonality. Compared to June 30, 2018, consumer automotive loans accruing and past due 30 days or more increased $153 million at June 30, 2019, driven by growth in the overall size of the consumer automotive loan portfolio, as well as slightly higher delinquency rates as part of our continued diversification strategy.

The following table includes consumer net charge-offs from finance receivables and loans at gross carrying value and related ratios.



	Three months ended June 30,									Six months ended June 30,
	Net charge-offs (recoveries)					Net charge-off ratios (a)				Net charge-offs (recoveries)					Net charge-off ratios (a)
($ in millions)	2019			2018		2019		2018		2019			2018		2019		2018
Consumer automotive	$	172		$	182	1.0	%	1.0	%	$	406		$	435	1.1	%	1.3	%
Consumer mortgage
Mortgage Finance	—			1		—		—		—			2		—		—
Mortgage — Legacy	(2		)	1		(0.6	)	0.2		(4		)	6		(0.6	)	0.6
Total consumer finance receivables and loans	$	170		$	184	0.8		0.9		$	402		$	443	0.9		1.1


(a)	Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the period for each loan category.

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Our net charge-offs from total consumer finance receivables and loans were $170 million and $402 million for the three months and six months ended June 30, 2019, respectively, compared to $184 million and $443 million for the three months and six months ended June 30, 2018. The decreases in net charge-offs for both the three months and six months ended June 30, 2019, were primarily driven by our consumer automotive loan portfolio where we experienced strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries.

The following table summarizes total consumer loan originations for the periods shown. Total consumer loan originations include loans classified as finance receivables and loans and loans held-for-sale during the period.



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Consumer automotive	$	8,683	$	8,351	$	16,951	$	16,768
Consumer mortgage (a)	552		194		903		345
Total consumer loan originations	$	9,235	$	8,545	$	17,854	$	17,113


(a)	Excludes bulk loan purchases associated with our Mortgage Finance operations and includes $155 million and $244 million of loans originated as held-for-sale for the three months and six months ended June 30, 2019, respectively, and $72 million and $132 million for the three months and six months ended June 30, 2018.

Total consumer loan originations increased $690 million and $741 million for the three months and six months ended June 30, 2019, respectively, compared to the three months and six months ended June 30, 2018, reflecting increases of $358 million and $558 million of consumer mortgage loans and increases of $332 million and $183 million of consumer automotive loans. The increases in consumer mortgage loan originations for the three months and six months ended June 30, 2019, were primarily due to growth in the direct-to-consumer mortgage business. The increases in consumer automotive loan originations for the three months and six months ended June 30, 2019, were primarily due to higher used volume in the Growth channel, partially offset by lower new retail volume from GM and Chrysler.

The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state concentration. Total consumer automotive loans were $72.9 billion and $70.5 billion at June 30, 2019, and December 31, 2018, respectively. Total consumer mortgage loans were $17.8 billion and $16.7 billion at June 30, 2019, and December 31, 2018, respectively.



	June 30, 2019 (a)				December 31, 2018
	Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage
California	8.4	%	36.7	%	8.4	%	36.9	%
Texas	12.6		6.3		12.8		6.2
Florida	8.8		5.0		8.8		4.7
Pennsylvania	4.6		1.4		4.5		1.4
Illinois	4.1		2.8		4.1		3.0
Georgia	4.0		2.8		4.1		2.8
North Carolina	3.9		1.8		3.9		1.7
New York	3.1		2.5		3.1		2.4
Ohio	3.6		0.4		3.5		0.4
New Jersey	2.8		2.2		2.7		2.1
Other United States	44.1		38.1		44.1		38.4
Total consumer loans	100.0	%	100.0	%	100.0	%	100.0	%


(a)	Presentation is in descending order as a percentage of total consumer finance receivables and loans at June 30, 2019.

We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of consumer loans are in California and Texas, which represented an aggregate of 25.3% and 25.4% of our total outstanding consumer finance receivables and loans at June 30, 2019, and December 31, 2018, respectively. Our consumer mortgage loan portfolio concentration within California, which is primarily composed of high-quality jumbo mortgage loans, generally aligns to the California share of jumbo mortgages nationally.

Repossessed and Foreclosed Assets

We classify an asset as repossessed or foreclosed, which is included in other assets on our Condensed Consolidated Balance Sheet, when physical possession of the collateral is taken. We dispose of the acquired collateral in a timely fashion in accordance with regulatory requirements. For more information on repossessed and foreclosed assets, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

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Repossessed consumer automotive loan assets in our Automotive Finance operations decreased $2 million from December 31, 2018, to $134 million at June 30, 2019. Foreclosed mortgage assets at June 30, 2019, remained flat at $11 million from December 31, 2018.

Commercial Credit Portfolio

During the three months and six months ended June 30, 2019, the credit performance of the commercial portfolio remained strong as nonperforming finance receivables and loans decreased, and our net charge-offs remained low. For information on our commercial credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

The following table includes total commercial finance receivables and loans reported at gross carrying value.



	Outstanding				Nonperforming (a)				Accruing past due 90 days or more (b)
($ in millions)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Commercial and industrial
Automotive	$	29,382	$	33,672	$	89	$	203	$	—	$	—
Other (c)	4,353		4,205		101		142		—		—
Commercial real estate	4,777		4,809		6		4		—		—
Total commercial finance receivables and loans	$	38,512	$	42,686	$	196	$	349	$	—	$	—


(a)	Includes nonaccrual TDR loans of $96 million and $86 million at June 30, 2019, and December 31, 2018, respectively.


(b)	Loans are generally in nonaccrual status when principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for a description of our accounting policies for finance receivables and loans.


(c)	Other commercial and industrial primarily includes senior secured commercial lending largely associated with our Corporate Finance operations.

Total commercial finance receivables and loans outstanding decreased $4.2 billion from December 31, 2018, to $38.5 billion at June 30, 2019. The decrease was primarily due to lower dealer inventory levels and a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market. This decrease was partially offset by growth in our Corporate Finance portfolio.

Total commercial nonperforming finance receivables and loans were $196 million at June 30, 2019, reflecting a decrease of $153 million when compared to December 31, 2018. The decrease was primarily due to reduced exposure to one larger dealer group that was placed into default in the fourth quarter of 2018, as well as the partial liquidation and charge-off of two accounts within our Corporate Finance portfolio. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans decreased to 0.5% at June 30, 2019, compared to 0.8% at December 31, 2018.

Total commercial TDRs outstanding at June 30, 2019, increased $16 million since December 31, 2018, to $102 million. The increase was primarily driven by TDRs granted to one larger dealer group that was placed into default in the fourth quarter of 2018. This increase was partially offset by the partial liquidation and charge-off of two accounts within our Corporate Finance portfolio. Refer to Note 7 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information.

The following table includes total commercial net charge-offs from finance receivables and loans at gross carrying value and related ratios.



	Three months ended June 30,									Six months ended June 30,
	Net charge-offs (recoveries)					Net charge-off ratios (a)				Net charge-offs (recoveries)					Net charge-off ratios (a)
($ in millions)	2019		2018			2019		2018		2019		2018			2019		2018
Commercial and industrial
Automotive	$	1	$	2		—	%	—	%	$	1	$	2		—	%	—	%
Other	11		(6		)	1.0		(0.5	)	16		(6		)	0.7		(0.3	)
Commercial real estate	—		—			—		—		—		—			—		—
Total commercial finance receivables and loans	$	12	$	(4	)	0.1		—		$	17	$	(4	)	0.1		—


(a)	Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding finance receivables and loans excluding loans measured at fair value and loans held-for-sale during the period for each loan category.

Our net charge-offs from total commercial finance receivables and loans were $12 million and $17 million for the three months and six months ended June 30, 2019, respectively, compared to net recoveries of $4 million for both the three months and six months ended June 30,

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2018. The increases in net charge-offs for the three months and six months ended June 30, 2019, were primarily driven by partial charge-offs of two accounts within our Corporate Finance portfolio.

Commercial Real Estate

The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real estate finance receivables and loans were $4.8 billion at both June 30, 2019, and December 31, 2018.

The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration. These finance receivables and loans are reported at gross carrying value.



	June 30, 2019		December 31, 2018
Texas	15.2	%	15.5	%
Florida	11.9		11.6
California	7.6		8.3
Michigan	6.8		6.8
North Carolina	4.7		3.6
New York	4.6		4.8
Georgia	4.0		4.0
South Carolina	3.5		3.4
New Jersey	3.0		3.1
Utah	2.8		2.6
Other United States	35.9		36.3
Total commercial real estate finance receivables and loans	100.0	%	100.0	%

Commercial Criticized Exposure

Finance receivables and loans classified as special mention, substandard, or doubtful are reported as criticized. These classifications are based on regulatory definitions and generally represent finance receivables and loans within our portfolio that have a higher default risk or have already defaulted. These finance receivables and loans require additional monitoring and review including specific actions to mitigate our potential loss.

Total criticized exposures decreased $190 million from December 31, 2018, to $3.8 billion at June 30, 2019. The decrease was primarily due to declining dealer inventory levels and the reduced exposure to one larger dealer group that defaulted in the fourth quarter of 2018.

The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentration. These finance receivables and loans within our automotive and Corporate Finance portfolios are reported at gross carrying value.



	June 30, 2019		December 31, 2018
Industry
Automotive	81.0	%	80.6	%
Services	5.3		5.0
Electronics	4.4		2.3
Other	9.3		12.1
Total commercial criticized finance receivables and loans	100.0	%	100.0	%

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Allowance for Loan Losses

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



Three months ended June 30, 2019 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at April 1, 2019	$	1,070		$	52		$	1,122		$	166		$	1,288
Charge-offs (a)	(301		)	(5		)	(306		)	(12		)	(318		)
Recoveries	129			7			136			—			136
Net charge-offs	(172		)	2			(170		)	(12		)	(182		)
Provision for loan losses	180			(5		)	175			2			177
Other	—			—			—			(1		)	(1		)
Allowance at June 30, 2019	$	1,078		$	49		$	1,127		$	155		$	1,282
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2019 (b)	1.5		%	0.3		%	1.2		%	0.4		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2019	1.0		%	—		%	0.8		%	0.1		%	0.6		%
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2019 (b)	168.0		%	75.1		%	159.5		%	79.3		%	142.1		%
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2019	1.6			(6.0		)	1.7			3.3			1.8

(a)


(b)	Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value.



Three months ended June 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at April 1, 2018	$	1,066		$	74		$	1,140		$	138		$	1,278
Charge-offs (a)	(296		)	(8		)	(304		)	(2		)	(306		)
Recoveries	114			6			120			6			126
Net charge-offs	(182		)	(2		)	(184		)	4			(180		)
Provision for loan losses	168			(4		)	164			(6		)	158
Other	1			(2		)	(1		)	2			1
Allowance at June 30, 2018	$	1,053		$	66		$	1,119		$	138		$	1,257
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2018 (b)	1.5		%	0.4		%	1.3		%	0.3		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the three months ended June 30, 2018	1.0		%	—		%	0.9		%	—		%	0.6		%
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2018 (b)	175.0		%	63.2		%	158.4		%	69.5		%	138.9		%
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2018	1.4			10.7			1.5			n/m			1.8

n/m = not meaningful

(a)


(b)	Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value.

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Six months ended June 30, 2019 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at January 1, 2019	$	1,048		$	53		$	1,101		$	141		$	1,242
Charge-offs (a)	(653		)	(8		)	(661		)	(17		)	(678		)
Recoveries	247			12			259			—			259
Net charge-offs	(406		)	4			(402		)	(17		)	(419		)
Provision for loan losses	437			(8		)	429			30			459
Other	(1		)	—			(1		)	1			—
Allowance at June 30, 2019	$	1,078		$	49		$	1,127		$	155		$	1,282
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2019 (b)	1.5		%	0.3		%	1.2		%	0.4		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2019	1.1		%	—		%	0.9		%	0.1		%	0.6		%
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2019 (b)	168.0		%	75.1		%	159.5		%	79.3		%	142.1		%
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2019	1.3			(5.6		)	1.4			4.7			1.5

(a)


(b)	Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value.



Six months ended June 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at January 1, 2018	$	1,066		$	79		$	1,145		$	131		$	1,276
Charge-offs (a)	(661		)	(20		)	(681		)	(2		)	(683		)
Recoveries	226			12			238			6			244
Net charge-offs	(435		)	(8		)	(443		)	4			(439		)
Provision for loan losses	421			(3		)	418			1			419
Other	1			(2		)	(1		)	2			1
Allowance at June 30, 2018	$	1,053		$	66		$	1,119		$	138		$	1,257
Allowance for loan losses to finance receivables and loans outstanding at June 30, 2018 (b)	1.5		%	0.4		%	1.3		%	0.3		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the six months ended June 30, 2018	1.3		%	0.1		%	1.1		%	—		%	0.7		%
Allowance for loan losses to total nonperforming finance receivables and loans at June 30, 2018 (b)	175.0		%	63.2		%	158.4		%	69.5		%	138.9		%
Ratio of allowance for loan losses to annualized net charge-offs at June 30, 2018	1.2			4.2			1.3			n/m			1.4

n/m = not meaningful

(a)


(b)	Coverage percentages are based on the allowance for loan losses related to finance receivables and loans excluding those loans held at fair value as a percentage of the gross carrying value.

The allowance for consumer loan losses at June 30, 2019, increased $8 million compared to June 30, 2018, reflecting an increase of $25 million in the consumer automotive allowance and a decrease of $17 million in the consumer mortgage allowance. The increase in our consumer automotive allowance was primarily driven by portfolio growth as finance receivable balances are up $2.4 billion from the prior-year period, partially offset by lower hurricane-related reserves. The decrease in the consumer mortgage allowance was primarily driven by run-off in our legacy mortgage portfolio and lower hurricane-related reserves, partially offset by growth in our Mortgage Finance portfolio as finance receivable balances are up $3.2 billion from the prior-year period.

The allowance for commercial loan losses increased $17 million at June 30, 2019, compared to June 30, 2018. The increase was primarily driven by higher reserves in our Corporate Finance portfolio as balances are up $611 million from the prior-year period, as well as higher reserves for individually impaired accounts, which was primarily associated with one lending exposure in our Corporate Finance portfolio. Overall credit performance in the Corporate Finance portfolio remains stable.

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Allowance for Loan Losses by Type

The following table summarizes the allocation of the allowance for loan losses by product type.



	2019						2018
June 30, ($ in millions)	Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses		Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses
Consumer
Consumer automotive	$	1,078	1.5	%	84.1	%	$	1,053	1.5	%	83.7	%
Consumer mortgage
Mortgage Finance	18		0.1		1.4		18		0.1		1.5
Mortgage — Legacy	31		2.3		2.4		48		2.7		3.8
Total consumer mortgage	49		0.3		3.8		66		0.4		5.3
Total consumer loans	1,127		1.2		87.9		1,119		1.3		89.0
Commercial
Commercial and industrial
Automotive	42		0.1		3.3		42		0.1		3.4
Other	87		2.0		6.8		69		1.7		5.5
Commercial real estate	26		0.6		2.0		27		0.6		2.1
Total commercial loans	155		0.4		12.1		138		0.3		11.0
Total allowance for loan losses	$	1,282	1.0		100.0	%	$	1,257	1.0		100.0	%

Provision for Loan Losses

The following table summarizes the provision for loan losses by product type.



	Three months ended June 30,						Six months ended June 30,
($ in millions)	2019			2018			2019			2018
Consumer
Consumer automotive	$	180		$	168		$	437		$	421
Consumer mortgage
Mortgage Finance	—			—			2			2
Mortgage — Legacy	(5		)	(4		)	(10		)	(5		)
Total consumer mortgage	(5		)	(4		)	(8		)	(3		)
Total consumer loans	175			164			429			418
Commercial
Commercial and industrial
Automotive	—			3			6			7
Other	2			(8		)	25			(8		)
Commercial real estate	—			(1		)	(1		)	2
Total commercial loans	2			(6		)	30			1
Total provision for loan losses	$	177		$	158		$	459		$	419

The provision for consumer loan losses was $175 million and $429 million for the three months and six months ended June 30, 2019, respectively, compared to $164 million and $418 million for three months and six months ended June 30, 2018. The provision for consumer automotive loan losses increased $12 million and $16 million during the three months and six months ended June 30, 2019, as compared to the same periods in the prior year. The increases were driven primarily by reserve reductions during the three and six months ended June 30, 2018, associated with hurricane activity experienced during 2017. This activity was largely offset by lower net charge-offs, which occurred despite continued growth within our retail automotive loan portfolio. We continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries. The provision for consumer mortgage loan losses decreased $1 million and $5 million during the three months and six months ended June 30, 2019, primarily driven by overall lower net charge-offs and strong credit performance as the legacy mortgage portfolio continues to run-off and we continue to grow our Mortgage Finance business.

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The provision for commercial loan losses increased $8 million and $29 million for the three months and six months ended June 30, 2019, respectively, compared to the three months and six months ended June 30, 2018. The increases in provision for commercial loan losses for the three months and six months ended June 30, 2019, were impacted by our Corporate Finance portfolio where we recognized a $6 million recovery during the three months ended June 30, 2018, which did not reoccur. Additionally, the increase in provision expense for the six months ended June 30, 2019, was primarily driven by higher reserves associated with two specific exposures which were within separate industries, each with unique considerations. Overall credit performance in the Corporate Finance portfolio remains stable.

Market Risk

Our financing, investing, and insurance activities give rise to market risk, or the potential change in the value of our assets (including securities, assets held-for-sale, and operating leases) and liabilities (including deposits and debt) due to movements in market variables such as interest rates, credit spreads, foreign-exchange rates, equity prices, and off-lease vehicle prices.

The impact of changes in benchmark interest rates on our assets and liabilities (interest rate risk) represents an exposure to market risk. We primarily use interest rate derivatives to manage our interest rate risk exposure.

The fair value of our credit-sensitive assets is also exposed to credit spread risk. Credit spread is the amount of additional return over the benchmark interest rates that an investor would demand for taking exposure to the credit risk of an instrument. Generally, an increase in credit spreads would result in a decrease in a fair value measurement.

We are also exposed to foreign-currency risk arising from foreign-currency denominated assets and liabilities, primarily in Canada. We enter into hedges to mitigate foreign exchange risk.

We also have exposure to changes in the value of equity securities. We have exposure to equity securities with readily determinable fair values primarily related to our Insurance operations. For such equity securities, we use equity derivatives to manage our exposure to equity price fluctuations. In addition, we are exposed to changes in the value of other equity investments without readily determinable fair market values. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information. We may experience changes in the valuation of these investments, which may cause volatility in our earnings.

The composition of our balance sheet, including shorter-duration consumer automotive loans and variable-rate commercial loans, coupled with the continued funding shift toward retail deposits, partially mitigates market risk. Additionally, we maintain risk-management controls that measure and monitor market risk using a variety of analytical techniques including market value, sensitivity analysis, and value at risk models. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information.

LIBOR Transition

In July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its intent to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. Due to the uncertainty surrounding the future of LIBOR, it is expected that a transition away from the use of LIBOR to alternative benchmark rates will occur by the end of 2021. We have exposure to LIBOR-based contracts within certain of our finance receivables and loans primarily related to commercial automotive loans, corporate finance loans, and mortgage loans, as well as certain investment securities, derivative contracts, and trust preferred securities, among other arrangements.

The discontinuation of LIBOR or LIBOR-based rates will present risks to our business, as further described in the section titled Risk Factors within our 2018 Annual Report on Form 10-K. In recognition of these risks and uncertainties, we have established a formal enterprise-wide initiative to identify, assess, monitor, and mitigate risks that may arise from the potential discontinuation of LIBOR and the related transition to an alternative reference rate. Through this initiative, we continue to assess and plan for potential impacts to our financial forecasts, operational processes, technology, modeling, as well as our current and potential future contracts with customers and counterparties.

We continue to evaluate the most appropriate course of action for each instrument that currently references LIBOR. For example, the Alternative Reference Rates Committee (ARRC), a group convened by the FRB, has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed purchase transactions. We are evaluating SOFR, among other alternatives and actions, as a potential alternative reference rate to LIBOR and are taking steps to assess the operational, financial, and various other impacts this change could have to our business. We will continue to actively monitor industry developments and their potential impact to us.

We are also actively assessing how the discontinuation of LIBOR could impact accounting and financial reporting including, but not limited to, potential impacts to our hedge accounting, valuation or modeling, or impacts associated with modifying the terms of our loan agreements or debt instruments with our customers or counterparties. We also continue to monitor activities of standard setters such as the FASB, which added a project to its agenda to address potential accounting and reporting implications relating to the expected discontinuation of LIBOR. Additionally, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits the use of the OIS rate based on the SOFR to be designated as a benchmark interest rate for hedge accounting purposes.

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Net Financing Revenue Sensitivity Analysis

Interest rate risk represents our most significant exposure to market risk. We actively monitor the level of exposure to movements in interest rates and take actions to mitigate adverse impacts these movements may have on future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our financial instruments.

We prepare our forward-looking baseline forecasts of net financing revenue taking into consideration anticipated future business growth, asset/liability positioning, and interest rates based on the implied forward curve. The analysis is highly dependent upon a variety of assumptions including the repricing characteristics of retail deposits with both contractual and non-contractual maturities. Based on current market conditions, actual beta on our total retail deposits portfolio has been approximately 48% relative to the increase in the federal funds rate since the third quarter of 2015. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.

Simulations are used to assess changes in net financing revenue in multiple interest rate scenarios relative to the baseline forecast. The changes in net financing revenue relative to the baseline are defined as the sensitivity. Our simulations incorporate contractual cash flows and repricing characteristics for all assets, liabilities, and off-balance sheet exposures and incorporate the effects of changing interest rates on the prepayment and attrition rates of certain assets and liabilities. Our simulation does not assume any specific future actions are taken to mitigate the impacts of changing interest rates.

The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to the implied market forward curve. Management also evaluates nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types. Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue over the next twelve months would decrease by $60 million if interest rates remain unchanged.

The following table presents the pretax dollar impact to forecasted net financing revenue over the next twelve months assuming 100 basis point and 200 basis point instantaneous parallel and gradual parallel shock increases, and assuming 100 basis point instantaneous parallel and gradual parallel shock decreases to the implied market forward curve as of June 30, 2019, and December 31, 2018.



	June 30, 2019						December 31, 2018
($ in millions)	Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
Change in interest rates
-100 basis points	$	(60	)	$	(147	)	$	(20	)	$	(34	)
+100 basis points	43			28			51			10
+200 basis points	91			(11		)	81			(10		)


(a)	Gradual changes in interest rates are recognized over twelve months.

The implied forward rate curve was lower across all tenors compared to December 31, 2018, and includes multiple projected declines in the Federal Funds Target in the forecast horizon. The impact of this change is reflected in our baseline net financing revenue projections. As of June 30, 2019, our net interest income sensitivity in the +100 and +200 basis point instantaneous shock scenarios has primarily been impacted by lower rates and the impact of funding sources shifting from short-term market-based funding to retail deposits, partially offset by year-to-date notional decreases in pay-fixed interest rate swaps on certain automotive assets.

The exposure in the downward instantaneous interest rate shock scenario has increased as of June 30, 2019, primarily due to mortgage prepayment risk in a lower interest rate environment.

Our risk position is influenced by the net impact of derivative hedging which primarily consists of interest rate swaps designated as fair value hedges of certain fixed-rate assets and fixed-rate debt instruments, and pay-fixed interest rate swaps designated as cash flow hedges of certain floating-rate debt instruments. During the first half of 2019, we also initiated a hedge program of interest rate floor contracts designated as cash flow hedges on certain floating-rate assets. The size, maturity, and mix of our hedging activities are adjusted as our balance sheet, ALM objectives, and interest rate environment evolve over time.

Operating Lease Residual Risk Management

We are exposed to residual risk on vehicles in the consumer operating lease portfolio. This operating lease residual risk represents the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at lease inception. However, certain automotive manufacturers have provided their guarantee for portions of our residual exposure, as further described in Note 8. Our operating lease portfolio, net of accumulated depreciation was $8.4 billion at both June 30, 2019, and December 31, 2018. The expected lease residual value of our operating lease portfolio at scheduled termination was $6.8 billion at both June 30, 2019, and December 31, 2018. For information on our valuation of automotive operating lease residuals including periodic revisions through adjustments to depreciation expense based on current and forecasted market conditions, refer to the section titled Critical Accounting Estimates—Valuation of Automotive Operating Lease Assets and Residuals within the MD&A in our 2018 Annual Report on Form 10-K.

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Operating Lease Vehicle Terminations and Remarketing

The following table summarizes the volume of operating lease terminations and average gain per vehicle, as well as our methods of vehicle sales at lease termination, stated as a percentage of total operating lease vehicle disposals.



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Off-lease vehicles terminated (in units)	29,267			35,919			55,297			80,641
Average gain per vehicle ($ per unit)	$	776		$	447		$	680		$	423
Method of vehicle sales
Auction
Internet	53		%	51		%	52		%	53		%
Physical	15			14			15			14
Sale to dealer, lessee, and other	32			35			33			33

We recognized an average gain per vehicle of $776 and $680 for the three months and six months ended June 30, 2019, compared to $447 and $423 for the same periods in 2018. The increases in average gain per vehicle for the three months and six months ended June 30, 2019, compared to the same periods in 2018, were primarily due to an increase in the mix of trucks and sport utility vehicles and a decrease in the mix of cars, which drove more favorable remarketing results. The decreases in remarketing volume were primarily due to the wind down of our legacy GM operating lease portfolio. We expect future termination volume to be more consistent with trends experienced during the six months ended June 30, 2019. For more information on our investment in operating leases, refer to Note 8 to the Condensed Consolidated Financial Statements, and Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

Operating Lease Portfolio Mix

We monitor the concentration of our outstanding operating leases. The following table presents the mix of operating lease assets by vehicle type, based on volume of units outstanding.

Our overall operating lease residual exposure has declined in recent years largely as a result of the runoff of our legacy GM operating lease portfolio, and as a result our exposure to Chrysler vehicles has grown and represented approximately 93% of our operating lease units as of June 30, 2019, as compared to 88% as of June 30, 2018.

Information Technology/Security Risk

Information technology/security risk includes risk resulting from the failure of, or insufficiency in, information technology (e.g., system outage) or intentional or accidental unauthorized access, sharing, removal, tampering, or disposal of company and customer data or records.

We and our service providers rely extensively on communications, data-management, and other operating systems and infrastructure to conduct our business and operations. Failures or disruptions to these systems or infrastructure from cyberattacks or other events may impede our ability to conduct business and operations and may result in business, reputational, financial, regulatory, or other harm.

We and other financial institutions continue to be the target of various cyberattacks, including those by unauthorized parties who may seek to disrupt our operations through malware, phishing attacks, denial-of-service, or other security breaches, as part of an effort to disrupt the operations of financial institutions or obtain confidential, proprietary, or other information or assets of the Company, our customers, employees, or other third parties with whom we transact.

Cybersecurity and the continued development of our controls, processes, and systems to protect our technology infrastructure, customer information, and other proprietary information or assets remain a critical and ongoing priority. We recognize that cyber-related risks continue to evolve and have become increasingly sophisticated, and as a result we continuously evaluate the adequacy of our preventive and detective measures.

In order to help mitigate cybersecurity risks, we devote substantial resources to protect the Company from cyber-related incidents. We regularly assess vulnerabilities and threats to our environment utilizing various resources including independent third-party assessments to evaluate whether our layered system of controls effectively mitigates risk. We also invest in new technologies and infrastructure in order to respond to evolving risks within our environment. We continue to partner with other industry peers in order to share knowledge and information to further our security environment and invest in training and employee awareness to cyber-related risks. Additionally, as a further protective measure, we maintain insurance coverage that, subject to terms and conditions, may cover certain aspects of cybersecurity

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and information risks; however, such insurance may not be sufficient to cover losses. Management monitors a significant amount of operational metrics and data surrounding cybersecurity operations, and the organization monitors compliance with established limits in connection with our risk appetite. Senior leadership regularly reviews, questions, and challenges such information.

The RC reviews cybersecurity risks, incidents, and developments in connection with its oversight of our independent risk-management program. The Board and the Audit Committee (AC) also undertake reviews as appropriate. The Information Technology Risk Committee is responsible for supporting the Chief Risk Officer’s oversight of Ally’s management of cybersecurity and other risks involving our communications, data-management, and other operating systems and infrastructure. Additionally, our cybersecurity program is regularly assessed by Audit Services, which reports directly to the AC. The business lines are also actively engaged in overseeing the service providers that supply or support the operating systems and infrastructure on which we depend and, with effective challenge from the independent risk-management function, managing related operational and other risks.

Notwithstanding these risk and control initiatives, we may incur losses attributable to information technology/security risk from time to time, and there can be no assurance these losses will not be incurred in the future or will not be substantial. For further information on cybersecurity, technology, systems, and infrastructure, refer to the section titled Risk Factors within our 2018 Annual Report on Form 10-K.

We are currently preparing to implement a new technology platform for our consumer automotive loans and operating leases that will be utilized for customer servicing and financial reporting activities through their full lifecycle. This new platform will replace our existing consumer automotive loan and lease technology platform, and is expected to be implemented within the next twelve months. While we expect that this new platform will help us continue to expand our technological capabilities, there are inherent risks in implementing any new system such as this. We will continue to evaluate and test the new platform through a series of ongoing assessments until fully implemented.

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Liquidity Management, Funding, and Regulatory Capital

Overview

The purpose of liquidity management is to enable us to meet loan and operating lease demand, debt maturities, deposit withdrawals, and other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources of funding include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate, and investor profiles. Additional liquidity is available through a pool of unencumbered highly liquid securities, committed secured credit facilities, repurchase agreements, and advances from the FHLB of Pittsburgh.

We define liquidity risk as the risk that an institution’s financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise from a variety of institution-specific or market-related events that could have a negative impact on cash flows available to the organization. Effective management of liquidity risk facilitates an organization’s preparedness to meet cash flow obligations caused by unanticipated events. Managing liquidity needs and contingent funding exposures has proven essential to the solvency of financial institutions.

The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing our funding and liquidity strategies. Corporate Treasury is responsible for managing our liquidity positions within limits approved by ALCO and the RC. As part of managing liquidity risk, we prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by the Liquidity Risk Group within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.

Funding Strategy

Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in different segments of the capital markets. Our funding strategy largely focuses on the development of diversified funding sources across a broad base of depositors, lenders, and investors to meet liquidity needs throughout different market cycles, including periods of financial distress. These funding sources include retail and brokered deposits, committed secured credit facilities, public and private asset-backed securitizations, unsecured debt, FHLB advances, whole-loan sales, demand notes, and repurchase agreements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one source, and results in a more cost-effective funding strategy over the long term. We evaluate funding markets on an ongoing basis to achieve an appropriate balance of unsecured and secured funding sources and maturity profiles.

We diversify our overall funding to reduce reliance on any one source of funding and to achieve a well-balanced funding portfolio across a spectrum of risk, maturity, and cost-of-funds characteristics. Optimizing funding at Ally Bank continues to be a key part of our long-term liquidity strategy. We optimize our funding sources at Ally Bank by growing retail deposits, maintaining active public and private securitization programs, managing a prudent maturity profile of our brokered deposit portfolio, utilizing repurchase agreements, and continuing to access funds from the FHLB.

Essentially all asset originations are directed to Ally Bank to reduce parent company exposures and funding requirements, and to utilize our growing consumer deposit-taking capabilities. This allows us to use bank funding for an increasing proportion of our automotive finance and other assets and to provide a sustainable long-term funding channel for the business, while also improving the cost of funds for the enterprise.

Liquidity Risk Management

Multiple metrics are used to measure the level of liquidity risk, manage the liquidity position, identify related trends, and monitor such trends and metrics against established limits. These metrics include coverage ratios and comprehensive stress tests that measure the sufficiency of the liquidity portfolio over stressed horizons ranging from overnight to more than twelve months, stability ratios that measure longer-term structural liquidity, and concentration ratios that enable prudent funding diversification. In addition, we have established internal management routines designed to review all aspects of liquidity and funding plans, evaluate the adequacy of liquidity buffers, review stress testing results, and assist management in the execution of its funding strategy and risk-management accountabilities.

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We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed secured credit facility capacity. Our liquidity stress testing is designed to enable an ongoing total liquidity position that would allow us to operate our businesses and to meet our contractual and contingent obligations, including unsecured debt maturities, for at least twelve months, assuming severe market-wide disruptions and enterprise-specific events disrupt normal access to funding. We hold available liquidity at various entities, taking into consideration regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. The following table summarizes our total available liquidity.



($ in millions)	June 30, 2019		December 31, 2018
Unencumbered highly liquid U.S. federal government and U.S. agency securities	$	21,541	$	12,849
Liquid cash and equivalents	3,157		4,227
Committed secured credit facilities
Total capacity	3,250		8,600
Outstanding	1,615		6,665
Unused capacity (a)	1,635		1,935
Total available liquidity	$	26,333	$	19,011


(a)	Funding from committed secured credit facilities is available on request in the event excess collateral resides in certain facilities or the extent incremental collateral is available and contributed to the facilities.

In addition, our average Modified Liquidity Coverage Ratio was 125% for the three months ended June 30, 2019, which exceeds the regulatory required minimum of 100%. Refer to Note 16 to the Condensed Consolidated Financial Statements and the section titled Regulation and Supervision in Part I, Item 1 of our 2018 Annual Report on Form 10-K for further discussion of our liquidity requirements.

Recent Funding Developments

During the first six months of 2019, we accessed the public and private markets to execute secured funding transactions, an unsecured funding transaction, and to manage our committed secured credit facility capacity. Key funding highlights from January 1, 2019, to date were as follows:


•	During the first six months of 2019, we raised $1.8 billion through securitizations backed by consumer automotive loans.


•	In May 2019, we accessed the unsecured debt capital markets and raised $750 million through the issuance of senior notes.


•	Our total capacity in committed secured credit facilities was reduced by $5.4 billion during the six months ended June 30, 2019, as we continue to shift our overall funding toward a greater mix of cost-effective deposit funding.

Funding Sources

The following table summarizes our sources of funding and the amount outstanding under each category for the periods shown.



	June 30, 2019			December 31, 2018
($ in millions)	On-balance sheet funding		% Share of funding	On-balance sheet funding		% Share of funding
Deposits	$	116,325	73	$	106,178	66
Debt
Secured financings	29,452		18	39,596		25
Institutional term debt	11,779		7	11,760		7
Retail debt programs (a)	2,754		2	2,824		2
Total debt (b)	43,985		27	54,180		34
Total on-balance sheet funding	$	160,310	100	$	160,358	100


(a)	Includes $292 million and $347 million of retail term notes at June 30, 2019, and December 31, 2018, respectively.


(b)	Includes hedge basis adjustment as described in Note 17 to the Condensed Consolidated Financial Statements.

Refer to Note 12 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at June 30, 2019.

Deposits

Ally Bank, which is a direct bank with no branch network, obtains retail deposits directly from customers through internet, telephone, mobile, and mail channels. These retail deposits provide our Automotive Finance, Mortgage Finance, and Corporate Finance operations with a stable and low-cost funding source. Retail deposit growth is a key driver of optimizing funding costs and reducing reliance on capital markets-based funding. We believe deposits provide a stable, low-cost source of funds that is less sensitive to interest rate changes, market

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volatility, or changes in credit ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts through both direct and indirect marketing channels. Current retail deposit offerings consist of a variety of products including CDs, savings accounts, money-market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries, including a deposit related to Ally Invest customer cash balances.

The following table shows Ally Bank’s number of accounts and deposit balances as of the end of each quarter since 2018.



	2nd quarter 2019		1st quarter 2019		4th quarter 2018		3rd quarter 2018		2nd quarter 2018		1st quarter 2018
Number of retail bank accounts (in thousands)	3,712		3,503		3,238		3,079		2,947		2,864
Deposits ($ in millions)
Retail	$	98,600	$	95,423	$	89,121	$	84,629	$	81,736	$	81,657
Brokered (a)	17,562		17,734		16,914		16,567		16,839		15,661
Other (b)	163		142		143		183		159		128
Total deposits	$	116,325	$	113,299	$	106,178	$	101,379	$	98,734	$	97,446


(a)	Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.1 billion as of June 30, 2019, March 31, 2019, and December 31, 2018, and $1.2 billion as of the end of each other quarter presented.


(b)	Other deposits include mortgage escrow, dealer, and other deposits.

During the first six months of 2019, our total deposit base grew $10.1 billion and we added approximately 100 thousand retail deposit customers, resulting in nearly 1.9 million total retail deposit customers as of June 30, 2019. The recent growth in total deposits has been primarily attributable to our retail deposit portfolio—particularly within our online savings product and retail CDs. Strong retention rates and customer acquisition, reflecting the strength of the brand, continue to drive growth in retail deposits. Refer to Note 11 to the Condensed Consolidated Financial Statements for a summary of deposit funding by type.

Securitizations and Secured Financings

In addition to building a larger deposit base, secured funding continues to be a significant, reliable, and cost-effective source of financing. Securitizations and secured funding transactions, collectively referred to as securitization transactions due to their similarities, allow us to convert our automotive finance receivables and operating leases into cash earlier than what would have occurred in the normal course of business, and we continue to remain active in the well-established securitization markets.

As part of these securitization transactions, we sell assets to various special purpose entities (SPEs) in exchange for the proceeds from the issuance of debt and other beneficial interests in the assets. The activities of the SPEs are generally limited to acquiring the assets, issuing and making payments on the debt, paying related expenses, and periodically reporting to investors.

These SPEs are separate legal entities that assume the risks and rewards of ownership of the receivables they hold. The assets of the SPEs are not available to satisfy our claims or those of our creditors. In addition, the SPEs do not invest in our equity or in the equity of any of our affiliates. Our economic exposure related to the SPEs is generally limited to cash reserves, retained interests, and customary representation and warranty provisions.

We typically agree to service the transferred assets in our securitization transactions for a fee, and we may also earn other related fees. The total amount of servicing fees earned is disclosed in Note 3 to the Condensed Consolidated Financial Statements. We may also retain a portion of senior and subordinated interests issued by the SPEs. Subordinate interests typically provide credit support to the more highly rated senior interest in a securitization transaction and may be subject to all or a portion of the first-loss position related to the sold assets.

Certain of these securitization transactions meet the criteria to be accounted for as off-balance sheet securitization transactions if we do not hold a potentially significant economic interest or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Certain of our securitization transactions do not meet the required criteria to be accounted for as off-balance sheet securitization transactions; therefore, they are accounted for as secured borrowings. For information regarding our securitization activities, refer to Note 1 and Note 11 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

During the first six months of 2019, we raised $1.8 billion through the completion of term securitization transactions backed by consumer automotive loans. Additionally, for consumer automotive loans and operating leases, the term structure of the transaction locks in funding for a specified pool of loans and operating leases, creating an effective tool for managing interest rate and liquidity risk.

We manage securitization execution risk by maintaining a diverse investor base and available capacity from private committed secured credit facilities provided by banks. Our ability to access the unused capacity in these facilities depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges. We maintain bilateral facilities, which fund our Automotive Finance operations. The facilities can be revolving in nature—generally having an original tenor ranging from 364 days to two years and allowing for additional funding during the commitment period—or they can be amortizing and not allow for any further funding after the commitment period. At June 30, 2019, all of our $3.3 billion of capacity was revolving and of this balance, $2.0 billion was from facilities with a remaining tenor greater than 364 days.

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We also have access to funding through advances with the FHLB. These advances are primarily secured by consumer mortgage and commercial real estate automotive finance receivables and loans. As of June 30, 2019, we had pledged $27.4 billion of assets to the FHLB resulting in $20.8 billion in total funding capacity with $18.4 billion of debt outstanding.

At June 30, 2019, $48.2 billion of our total assets were restricted as collateral for the payment of debt obligations accounted for as secured borrowings and repurchase agreements. Refer to Note 12 to the Condensed Consolidated Financial Statements for further discussion.

Unsecured Financings

We obtain unsecured funding from the sale of floating-rate demand notes under our Demand Notes program. The holder has the option to require us to redeem these notes at any time without restriction. Demand Notes outstanding were $2.5 billion at June 30, 2019. We also have short-term and long-term unsecured debt outstanding from retail term note programs. These programs are composed of callable fixed-rate instruments with fixed-maturity dates and floating-rate notes. There were $292 million of retail term notes outstanding at June 30, 2019. The remainder of our unsecured debt is composed of institutional term debt. In May 2019, we accessed the unsecured debt capital markets and raised $750 million through the issuance of senior notes. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt.

Other Secured and Unsecured Short-term Borrowings

We have access to repurchase agreements. A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The securities sold in repurchase agreements include U.S. government and federal agency obligations. As of June 30, 2019, we had $432 million of debt outstanding under repurchase agreements.

Additionally, we have access to the FRB Discount Window and can borrow funds to meet short-term liquidity demands. However, the FRB is not a primary source of funding for day-to-day business. Instead, it is a liquidity source that can be accessed in stressed environments or periods of market disruption. We had assets pledged and restricted as collateral to the FRB totaling $2.4 billion as of June 30, 2019. We had no debt outstanding with the FRB as of June 30, 2019.

Cash Flows

The following summarizes the activity reflected on the Condensed Consolidated Statement of Cash Flows. While this information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity, dividends, and ALM herein may provide more useful context in evaluating our liquidity position and related activity.

Net cash provided by operating activities was $1.8 billion and $2.0 billion for the six months ended June 30, 2019, and 2018, respectively. Activity was largely consistent year-over-year, as cash flows from our consumer and commercial lending activities offset a decline in our leasing business.

Net cash used in investing activities was $2.5 billion for the six months ended June 30, 2019, compared to $6.1 billion for the same period in 2018. The decrease was primarily due to a $3.8 billion net decrease in cash outflows from purchases, sales, originations and repayments of finance receivables and loans, as repayments outpaced originations. This decrease was also driven by a $266 million increase in proceeds from equity securities, net of purchases. This was partially offset by a $562 million increase in net outflows from purchases of available-for-sale securities, net of sales and repayments.

Net cash used in financing activities for the six months ended June 30, 2019, was $696 million, compared to net cash provided by of $3.8 billion for the same period in 2018. The increase in net cash used in financing activities was primarily attributable to an $8.4 billion decrease in net cash inflows due to issuance of long-term debt and an increase in net cash outflows related to repayments of long-term debt of $1.6 billion between the two periods. This was partially offset by an increase of $4.7 billion from net cash inflows associated with deposits and a decrease in net cash outflows related to short-term borrowings of $837 million.

Capital Planning and Stress Tests

Pending the adoption of proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would implement the Economic Growth, Regulatory Relief, and Consumer Protection Act, as further described in Note 16 to the Condensed Consolidated Financial Statements, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit a proposed capital plan to the FRB.

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circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the distributions.

The following table presents information related to our common stock and distributions to our common stockholders over the last six quarters.



	Common stock repurchased during period (a)			Number of common shares outstanding		Cash dividends declared per common share (b)
($ in millions, except per share data; shares in thousands)	Approximate dollar value		Number of shares	Beginning of period	End of period	Cash dividends declared per common share (b)
2018
First quarter	$	185	6,473	437,054	432,691	$	0.13
Second quarter	195		7,280	432,691	425,752	0.13
Third quarter	250		9,194	425,752	416,591	0.15
Fourth quarter	309		12,121	416,591	404,900	0.15
2019
First quarter	$	211	8,113	404,900	399,761	$	0.17
Second quarter	229		7,775	399,761	392,775	0.17


(a)	Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.


(b)	On July 16, 2019, the Board declared a quarterly cash dividend of $0.17 per share on all common stock, payable on August 15, 2019. Refer to Note 24 to the Condensed Consolidated Financial Statements for further information regarding this common stock dividend.

During the first quarter of 2019, the FRB announced that a number of large and noncomplex BHCs with $100 billion or more but less than $250 billion in total consolidated assets, including Ally, will not be required to submit a capital plan to the FRB, participate in the supervisory stress test or CCAR, or conduct company-run stress tests during the 2019 cycle. Instead, our capital actions during this cycle will be largely based on the results from our 2018 supervisory stress test. On April 1, 2019, the Board authorized an increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally, on July 16, 2019, the Board declared a quarterly cash dividend of $0.17 per share of our common stock. Refer to Note 24 to the Condensed Consolidated Financial Statements for further information on the most recent dividend.

Regulatory Capital

Refer to Note 16 to the Condensed Consolidated Financial Statements and the section titled Selected Financial Data within this MD&A.

Credit Ratings

The cost and availability of unsecured financing are influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Lower ratings result in higher borrowing costs and reduced access to capital markets. This is particularly true for certain institutional investors whose investment guidelines require investment-grade ratings on term debt and the two highest rating categories for short-term debt (particularly money-market investors).

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Nationally recognized statistical rating organizations rate substantially all our debt. The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies.



Rating agency	Short-term	Senior unsecured debt	Outlook	Date of last action
Fitch	B	BB+	Positive	August 28, 2018 (a)
Moody’s	Not Prime	Ba2	Stable	February 11, 2019 (b)
S&P	B	BB+	Positive	October 17, 2018 (c)
DBRS	R-3	BBB (Low)	Positive	May 20, 2019 (d)


(a)	Fitch affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and maintained a Positive outlook on August 28, 2018.

(b)

Moody’s upgraded our senior unsecured debt rating to Ba2 from Ba3, affirmed our short-term rating of Not Prime, and maintained a Stable outlook on February 11, 2019. Effective December 1, 2014, we determined to not renew our contractual arrangement with Moody’s related to their providing of our issuer, senior unsecured debt, and short-term ratings. Notwithstanding this, Moody’s has determined to continue to provide these ratings on a discretionary basis. However, Moody’s has no obligation to continue to provide these ratings, and could cease doing so at any time.


(c)	Standard & Poor’s affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and changed the outlook from Stable to Positive on October 17, 2018.


(d)	DBRS affirmed our senior unsecured debt rating of BBB (Low), affirmed our short-term rating of R-3, and changed the outlook from Stable to Positive on May 20, 2019.

Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, which may include capital adequacy, liquidity, asset quality, business mix, level and quality of earnings, and the current operating, legislative, and regulatory environment. Rating agencies themselves could make or be required to make substantial changes to their ratings policies and practices—particularly in response to legislative and regulatory changes. Potential changes in rating methodology, as well as in the legislative and regulatory environment, and the timing of those changes could impact our ratings, which as noted above could increase our borrowing costs and reduce our access to capital.

A credit rating is not a recommendation to buy, sell, or hold securities, and the ratings are subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

Off-balance Sheet Arrangements

Refer to Note 9 to the Condensed Consolidated Financial Statements.

Critical Accounting Estimates

We identified critical accounting estimates that, as a result of judgments, uncertainties, uniqueness, and complexities of the underlying accounting standards and operations involved could result in material changes to our financial condition, results of operations, or cash flows under different conditions or using different assumptions.

Our most critical accounting estimates are as follows:


•	Allowance for loan losses


•	Valuation of automotive lease assets and residuals


•	Fair value of financial instruments


•	Determination of provision for income taxes

During 2019, we did not substantively change any material aspect of our overall methodologies and processes used in developing the above estimates from what was described in the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

Refer to Note 1 to the Condensed Consolidated Financial Statements for further discussion regarding the methodology used in calculating the provision for income taxes for interim financial reporting.

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Statistical Table

The accompanying supplemental information should be read in conjunction with the more detailed information, including our Condensed Consolidated Financial Statements and the notes thereto, which appears elsewhere in this Quarterly Report.

Net Interest Margin Table

The following table presents an analysis of net yield on interest-earning assets (or net interest margin) excluding discontinued operations for the periods shown.



	2019							2018							Increase (decrease) due to
Three months ended June 30, ($ in millions)	Average balance (a)			Interest income/interest expense		Yield/rate		Average balance (a)			Interest income/interest expense		Yield/rate		Volume			Yield/rate		Total
Assets
Interest-bearing cash and cash equivalents	$	3,713		$	21	2.27	%	$	3,048		$	17	2.24	%	$	4		$	—	$	4
Investment securities (b)	31,244			227		2.91		25,748			173		2.69		37			17		54
Loans held-for-sale, net	191			3		6.30		358			6		6.72		(3		)	—		(3		)
Finance receivables and loans, net (b) (c)	129,950			1,860		5.74		124,516			1,647		5.31		72			141		213
Investment in operating leases, net (d)	8,370			124		5.94		8,583			109		5.09		(3		)	18		15
Other earning assets	1,202			17		5.67		1,239			15		4.86		—			2		2
Total interest-earning assets	174,670			2,252		5.17		163,492			1,967		4.83							285
Noninterest-bearing cash and cash equivalents	544							526
Other assets	6,722							7,505
Allowance for loan losses	(1,284		)					(1,274		)
Total assets	$	180,652						$	170,249
Liabilities and equity
Interest-bearing deposit liabilities	$	114,257		$	651	2.29	%	$	97,351		$	399	1.64	%	$	69		$	183	$	252
Short-term borrowings	5,887			37		2.52		8,767			40		1.83		(13		)	10		(3		)
Long-term debt (b)	40,222			407		4.06		45,802			434		3.80		(53		)	26		(27		)
Total interest-bearing liabilities	160,366			1,095		2.74		151,920			873		2.30							222
Noninterest-bearing deposit liabilities	135							126
Total funding sources	160,501			1,095		2.74		152,046			873		2.30
Other liabilities	6,357							5,134
Total liabilities	166,858							157,180
Total equity	13,794							13,069
Total liabilities and equity	$	180,652						$	170,249
Net financing revenue and other interest income				$	1,157						$	1,094								$	63
Net interest spread (e)						2.43	%						2.53	%
Net yield on interest-earning assets (f)						2.66	%						2.68	%


(a)	Average balances are calculated using a combination of monthly and daily average methodologies.


(b)	Includes the effects of derivative financial instruments designated as hedges. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information about the effects of our hedging activities.


(c)	Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.


(d)	Yield includes gains on the sale of off-lease vehicles of $23 million and $16 million for the three months ended June 30, 2019, and 2018, respectively. Excluding these gains on sale, the annualized yield would be 4.84% and 4.35% for the three months ended June 30, 2019, and 2018, respectively.


(e)	Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.


(f)	Net yield on interest-earning assets represents annualized net financing revenue and other interest income as a percentage of total interest-earning assets.

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	2019							2018							Increase (decrease) due to
Six months ended June 30, ($ in millions)	Average balance (a)			Interest income/interest expense		Yield/rate		Average balance (a)			Interest income/interest expense		Yield/rate		Volume			Yield/rate		Total
Assets
Interest-bearing cash and cash equivalents	$	3,961		$	44	2.24	%	$	3,274		$	32	1.97	%	$	7		$	5	$	12
Investment securities (b)	30,291			449		2.99		25,491			336		2.66		63			50		113
Loans held-for-sale, net	190			5		5.31		217			6		5.58		(1		)	—		(1		)
Finance receivables and loans, net (b) (c)	129,310			3,667		5.72		123,506			3,190		5.21		150			327		477
Investment in operating leases, net (d)	8,379			239		5.75		8,606			218		5.11		(6		)	27		21
Other earning assets	1,215			35		5.81		1,175			28		4.81		1			6		7
Total interest-earning assets	173,346			4,439		5.16		162,269			3,810		4.73							629
Noninterest-bearing cash and cash equivalents	494							521
Other assets	6,641							7,383
Allowance for loan losses	(1,266		)					(1,278		)
Total assets	$	179,215						$	168,895
Liabilities and equity
Interest-bearing deposit liabilities	$	111,729		$	1,243	2.24	%	$	96,330		$	750	1.57	%	$	120		$	373	$	493
Short-term borrowings	6,467			81		2.53		8,556			72		1.70		(18		)	27		9
Long-term debt (b)	41,303			826		4.03		45,669			845		3.73		(81		)	62		(19		)
Total interest-bearing liabilities	159,499			2,150		2.72		150,555			1,667		2.23							483
Noninterest-bearing deposit liabilities	136							120
Total funding sources	159,635			2,150		2.72		150,675			1,667		2.23
Other liabilities	6,002							5,081
Total liabilities	165,637							155,756
Total equity	13,578							13,139
Total liabilities and equity	$	179,215						$	168,895
Net financing revenue and other interest income				$	2,289						$	2,143								$	146
Net interest spread (e)						2.44	%						2.50	%
Net yield on interest-earning assets (f)						2.66	%						2.66	%


(a)	Average balances are calculated using a combination of monthly and daily average methodologies.


(b)	Includes the effects of derivative financial instruments designated as hedges. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information about the effects of our hedging activities.


(c)	Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.


(d)	Yield includes gains on the sale of off-lease vehicles of $38 million and $34 million for the six months ended June 30, 2019, and 2018, respectively. Excluding these gains on sale, the annualized yield would be 4.84% and 4.31% for the six months ended June 30, 2019, and 2018, respectively.


(e)	Net interest spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.


(f)	Net yield on interest-earning assets represents annualized net financing revenue and other interest income as a percentage of total interest-earning assets.

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Recently Issued Accounting Standards

Refer to Note 1 to the Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the Market Risk section of Item 2, Management’s Discussion and Analysis.

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Controls and Procedures

Ally Financial Inc. • Form 10-Q

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the specified time periods. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of internal control including the possibility of human error or the circumvention or overriding of controls through individual actions or collusion. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) and concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

In the normal course of business, we review our controls and procedures and make enhancements or modifications intended to support the quality of our financial reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2019, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Ally Financial Inc. • Form 10-Q

Item 1. Legal Proceedings

Refer to Note 23 to the Condensed Consolidated Financial Statements (incorporated herein by reference) for a discussion related to our legal proceedings which supplements the discussion of legal proceedings set forth in Note 29 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in our 2018 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not have any unregistered sales of equity securities during the three months ended June 30, 2019.

Purchases of Equity Securities by the Issuer

The following table presents repurchases of our common stock, by month, for the three months ended June 30, 2019.



Three months ended June 30, 2019	Total number of shares repurchased (a) (in thousands)	Weighted-average price paid per share (a) (b) (in dollars)		Total number of shares repurchased as part of publicly announced program (a) (c) (in thousands)	Maximum approximate dollar value of shares that may yet be repurchased under the program (a) (b) (c) ($ in millions)
April 2019	2,606	$	29.10	2,606	$	154
May 2019	2,793	29.43		2,793	72
June 2019	2,376	29.76		2,376	1
Total	7,775	29.42		7,775


(a)	Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.


(b)	Excludes brokerage commissions.

(c)

On June 28, 2018, we announced a common stock-repurchase program of up to $1.0 billion. The program commenced in the third quarter of 2018 and expired on June 30, 2019. Additionally, on April 1, 2019, we announced a common stock-repurchase program of up to $1.25 billion to commence in the third quarter of 2019 through the second quarter of 2020. Refer to Note 16 to the Condensed Consolidated Financial Statements for further details.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Ally Financial Inc. • Form 10-Q

Item 6. Exhibits

The exhibits listed on the following index of exhibits are filed as a part of this report.



Exhibit	Description	Method of Filing

4.1	Action of the Executive Committee of Ally Financial Inc. dated as of May 16, 2019	Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated as of May 21, 2019, (File No. 1-03754), incorporated herein by reference.

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)	Filed herewith.

31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)	Filed herewith.

32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350	Filed herewith.

101	The following information from our Form 10-Q for the quarter ended June 30, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Statement of Comprehensive Income (unaudited), (ii) Condensed Consolidated Balance Sheet (unaudited), (iii) Condensed Consolidated Statement of Changes in Equity (unaudited), (iv) Condensed Consolidated Statement of Cash Flows (unaudited), and (v) the Notes to the Condensed Consolidated Financial Statements (unaudited)	Filed herewith.

104	The cover page of our Form 10-Q for the quarter ended June 30, 2019, formatted in iXBRL	Filed herewith.

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Signatures

Ally Financial Inc. • Form 10-Q

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, this 1st day of August, 2019.




	Ally Financial Inc. (Registrant)

	/S/ JENNIFER A. LACLAIR
	Jennifer A. LaClair Chief Financial Officer




	/S/ DAVID J. DEBRUNNER
	David J. DeBrunner Vice President, Chief Accounting Officer, and Corporate Controller

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