Ally Financial Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2021, 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 Avenue, 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:

Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ALLY

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☑

At October 29, 2021, the number of shares outstanding of the Registrant’s common stock was 346,444,000 shares.

Table of Contents

INDEX

Ally Financial Inc. • Form 10-Q


		Page
	Glossary of Abbreviations and Acronyms	3
Part I — Financial Information
Item 1.	Financial Statements	5
	Condensed Consolidated Statement of Comprehensive Income (unaudited) for the Three Months and Nine Months Ended September 30, 2021, and 2020	5
	Condensed Consolidated Balance Sheet (unaudited) at September 30, 2021, and December 31, 2020	7
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three Months and Nine Months Ended September 30, 2021, and 2020	9
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, 2021, and 2020	11
	Notes to Condensed Consolidated Financial Statements (unaudited)	13
	Note 1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies	13
	Note 2. Revenue from Contracts with Customers	13
	Note 3. Other Income, Net of Losses	15
	Note 4. Reserves for Insurance Losses and Loss Adjustment Expenses	16
	Note 5. Other Operating Expenses	16
	Note 6. Investment Securities	17
	Note 7. Finance Receivables and Loans, Net	21
	Note 8. Leasing	29
	Note 9. Securitizations and Variable Interest Entities	32
	Note 10. Other Assets	34
	Note 11. Deposit Liabilities	35
	Note 12. Debt	35
	Note 13. Accrued Expenses and Other Liabilities	37
	Note 14. Preferred Stock	37
	Note 15. Accumulated Other Comprehensive Income	39
	Note 16. Earnings per Common Share	42
	Note 17. Regulatory Capital and Other Regulatory Matters	42
	Note 18. Derivative Instruments and Hedging Activities	46
	Note 19. Income Taxes	52
	Note 20. Fair Value	53
	Note 21. Offsetting Assets and Liabilities	61
	Note 22. Segment Information	62
	Note 23. Contingencies and Other Risks	65
	Note 24. Subsequent Events	66
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	67
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	120
Item 4.	Controls and Procedures	121
Part II — Other Information		122
Item 1.	Legal Proceedings	122
Item 1A.	Risk Factors	122
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	122
Item 3.	Defaults Upon Senior Securities	122
Item 4.	Mine Safety Disclosures	122
Item 5.	Other Information	122
Item 6.	Exhibits	123
Signatures		124

Table of Contents

Index of Defined Terms

Ally Financial Inc. • Form 10-Q

Glossary of Abbreviations and Acronyms

The following is a list of abbreviations and acronyms that are used in this Quarterly Report on Form 10-Q.


Term						Definition
ABS						Asset-backed securities
ALCO						Asset-Liability Committee
ALM						Asset Liability Management
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
BHC						Bank holding company
BHC Act						Bank Holding Company Act of 1956 as amended
BMC						Better Mortgage Company
Board						Ally Board of Directors
CCAR						Comprehensive Capital Analysis and Review
CD						Certificate of deposit
CECL						Accounting Standards Update 2016-13 (and related Accounting Standards Updates), or current expected credit loss
COVID-19						Coronavirus disease 2019
CRA						Community Reinvestment Act of 1977 as amended
CSG						Commercial Services Group
CVA						Credit valuation adjustment
Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 as amended
EGRRCP Act						Economic Growth, Regulatory Relief, and Consumer Protection Act as amended
ERMC						Enterprise Risk Management Committee
ESG						Environmental, social, and governance
F&I						Finance and insurance
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
FDICIA						Federal Deposit Insurance Corporation Improvement Act of 1991 as amended
FHC						Financial holding company
FHLB						Federal Home Loan Bank
FRB						Federal Reserve Bank, or Board of Governors of the Federal Reserve System, as the context requires
FTP						Funds-transfer pricing
GAP						Guaranteed asset protection
GDP						Gross domestic product of the United States of America
GLB Act						Gramm-Leach-Bliley Act of 1999 as amended
GM						General Motors Company
IB Finance						IB Finance Holding Company, LLC
IRA						Individual retirement account
LCR						Liquidity coverage ratio
LIBOR						London Interbank Offered Rate
LMI						Low-to-moderate income
LTV						Loan-to-value
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations
NYSE						New York Stock Exchange
OTC						Over-the-counter
P&C						Property and casualty
PCA						Prompt corrective action
RC						Risk Committee of the Ally Board of Directors

Table of Contents

Index of Defined Terms

Ally Financial Inc. • Form 10-Q


Term						Definition
ROU						Right-of-use
RV						Recreational vehicle
RWA						Risk-weighted asset
SEC						U.S. Securities and Exchange Commission
Series 2 TRUPS						8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I
SOFR						Secured Overnight Financing Rate
SPE						Special-purpose entity
Stellantis						Stellantis N.V.
TDR						Troubled debt restructuring
UPB						Unpaid principal balance
U.S. Basel III						The rules implementing the 2010 Basel III capital framework in the United States as well as related provisions of the Dodd-Frank Act, as amended from time to time
U.S. GAAP						Accounting Principles Generally Accepted in the United States of America
VIE						Variable interest entity
VMC						Vehicle maintenance contract
VSC						Vehicle service contract
WAC						Weighted-average coupon
wSTWF						Weighted short-term wholesale funding

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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,619	$	1,602	$	4,789	$	4,974
Interest on loans held-for-sale	5		5		14		11
Interest and dividends on investment securities and other earning assets	155		173		433		596
Interest on cash and cash equivalents	5		5		13		23
Operating leases	393		360		1,147		1,070
Total financing revenue and other interest income	2,177		2,145		6,396		6,674
Interest expense
Interest on deposits	245		452		819		1,585
Interest on short-term borrowings	—		9		1		39
Interest on long-term debt	191		309		671		975
Interest on other	8		—		8		—
Total interest expense	444		770		1,499		2,599
Net depreciation expense on operating lease assets	139		175		384		675
Net financing revenue and other interest income	1,594		1,200		4,513		3,400
Other revenue
Insurance premiums and service revenue earned	279		276		837		816
Gain on mortgage and automotive loans, net	18		33		73		35
Loss on extinguishment of debt	(52)		(49)		(126)		(50)
Other gain on investments, net	24		64		212		173
Other income, net of losses	122		160		498		331
Total other revenue	391		484		1,494		1,305
Total net revenue	1,985		1,684		6,007		4,705
Provision for credit losses	76		147		31		1,337
Noninterest expense
Compensation and benefits expense	389		342		1,230		1,036
Insurance losses and loss adjustment expenses	69		85		206		301
Goodwill impairment	—		—		—		50
Other operating expenses	544		478		1,584		1,423
Total noninterest expense	1,002		905		3,020		2,810
Income from continuing operations before income tax expense	907		632		2,956		558
Income tax expense from continuing operations	195		156		549		159
Net income from continuing operations	712		476		2,407		399
Income (loss) from discontinued operations, net of tax	—		—		1		(1)
Net income	712		476		2,408		398
Other comprehensive (loss) income, net of tax	(165)		(120)		(580)		572
Comprehensive income	$	547	$	356	$	1,828	$	970

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 September 30,				Nine months ended September 30,
(in dollars) (a)	2021		2020		2021		2020




Net income from continuing operations attributable to common stockholders	$	683	$	476	$	2,378	$	399
Income (loss) from discontinued operations, net of tax	—		—		1		(1)
Net income attributable to common stockholders	$	683	$	476	$	2,379	$	398
Basic weighted-average common shares outstanding (b)	359,179		375,658		368,215		375,478
Diluted weighted-average common shares outstanding (b) (c)	361,855		377,011		370,745		376,659
Basic earnings per common share
Net income from continuing operations	$	1.90	$	1.27	$	6.46	$	1.06

Net income	$	1.90	$	1.27	$	6.46	$	1.06
Diluted earnings per common share
Net income from continuing operations	$	1.89	$	1.26	$	6.41	$	1.06

Net income	$	1.89	$	1.26	$	6.42	$	1.06
Cash dividends declared per common share	$	0.25	$	0.19	$	0.63	$	0.57

(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.

(c)During the three months and nine months ended September 30, 2020, there were 0.4 million and 1.0 million, respectively, in shares underlying share-based awards excluded because their inclusion would have been antidilutive. There were no antidilutive shares during the three months and nine months ended September 30, 2021.

Refer to Note 16 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)	September 30, 2021		December 31, 2020

Assets
Cash and cash equivalents
Noninterest-bearing	$	636	$	724
Interest-bearing	10,279		14,897
Total cash and cash equivalents	10,915		15,621
Equity securities	1,045		1,071
Available-for-sale securities (amortized cost of $32,972 and $28,936) (a)	33,122		29,830
Held-to-maturity securities (fair value of $1,193 and $1,331)	1,150		1,253
Loans held-for-sale, net	456		406
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	114,471		118,534
Allowance for loan losses	(3,148)		(3,283)
Total finance receivables and loans, net	111,323		115,251
Investment in operating leases, net	10,969		9,639
Premiums receivable and other insurance assets	2,752		2,679
Other assets	7,452		6,415
Total assets	$	179,184	$	182,165
Liabilities
Deposit liabilities
Noninterest-bearing	$	167	$	128
Interest-bearing	139,277		136,908
Total deposit liabilities	139,444		137,036
Short-term borrowings	—		2,136
Long-term debt	14,946		22,006
Interest payable	422		412
Unearned insurance premiums and service revenue	3,537		3,438
Accrued expenses and other liabilities	3,546		2,434
Total liabilities	161,895		167,462
Contingencies (refer to Note 23)
Equity
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 504,133,393 and 501,237,055; and outstanding 349,598,889 and 374,674,415)	21,644		21,544
Preferred stock	2,324		—
Accumulated deficit	(2,136)		(4,278)
Accumulated other comprehensive income	51		631
Treasury stock, at cost (154,534,504 and 126,562,640 shares)	(4,594)		(3,194)
Total equity	17,289		14,703
Total liabilities and equity	$	179,184	$	182,165

(a)Refer to Note 6 for discussion of investment securities pledged as collateral.

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 Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q

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


($ in millions)	September 30, 2021		December 31, 2020
Assets
Finance receivables and loans, net
Consumer automotive	$	8,156	$	7,630
Commercial	—		5,868
Allowance for loan losses	(284)		(285)
Total finance receivables and loans, net	7,872		13,213

Other assets	621		983
Total assets	$	8,493	$	14,196
Liabilities
Long-term debt	$	1,437	$	4,158
Accrued expenses and other liabilities	2		3
Total liabilities	$	1,439	$	4,161

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 September 30,
($ in millions)	Common stock and paid-in capital		Preferred stock		Accumulated deficit		Accumulated other comprehensive income (loss)		Treasury stock		Total equity
Balance at July 1, 2020	$	21,499	$	—	$	(5,296)	$	815	$	(3,192)	$	13,826
Net income					476						476
Share-based compensation	18										18
Other comprehensive loss							(120)				(120)
Common stock repurchases									(1)		(1)
Common stock dividends ($0.19 per share)					(73)						(73)
Balance at September 30, 2020	$	21,517	$	—	$	(4,893)	$	695	$	(3,193)	$	14,126
Balance at July 1, 2021	$	21,631	$	2,324	$	(2,726)	$	216	$	(3,915)	$	17,530
Net income					712						712


Preferred stock dividends — Series B					(20)						(20)
Preferred stock dividends — Series C					(9)						(9)
Share-based compensation	13										13
Other comprehensive loss							(165)				(165)
Common stock repurchases									(679)		(679)
Common stock dividends ($0.25 per share)					(93)						(93)
Balance at September 30, 2021	$	21,644	$	2,324	$	(2,136)	$	51	$	(4,594)	$	17,289

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 Changes in Equity (unaudited)

Ally Financial Inc. • Form 10-Q


	Nine months ended September 30,
($ in millions)	Common stock and paid-in capital		Preferred stock		Accumulated deficit		Accumulated other comprehensive income		Treasury stock		Total equity











Balance at December 31, 2019	$	21,438	$	—	$	(4,057)	$	123	$	(3,088)	$	14,416
Cumulative effect of changes in accounting principles, net of tax
Adoption of Accounting Standards Update 2016-13					(1,017)						(1,017)
Balance at January 1, 2020	$	21,438	$	—	$	(5,074)	$	123	$	(3,088)	$	13,399
Net income					398						398
Share-based compensation	79										79
Other comprehensive income							572				572
Common stock repurchases									(105)		(105)
Common stock dividends ($0.57 per share)					(217)						(217)
Balance at September 30, 2020	$	21,517	$	—	$	(4,893)	$	695	$	(3,193)	$	14,126
Balance at January 1, 2021	$	21,544	$	—	$	(4,278)	$	631	$	(3,194)	$	14,703
Net income					2,408						2,408
Net proceeds from issuance of Series B preferred stock			1,335								1,335
Net proceeds from issuance of Series C preferred stock			989								989
Preferred stock dividends — Series B					(20)						(20)
Preferred stock dividends — Series C					(9)						(9)
Share-based compensation	100										100
Other comprehensive loss							(580)				(580)
Common stock repurchases									(1,400)		(1,400)
Common stock dividends ($0.63 per share)					(237)						(237)
Balance at September 30, 2021	$	21,644	$	2,324	$	(2,136)	$	51	$	(4,594)	$	17,289

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


Nine months ended September 30, ($ in millions)	2021		2020
Operating activities
Net income	$	2,408	$	398
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	931		1,159
Goodwill impairment	—		50
Provision for credit losses	31		1,337
Gain on mortgage and automotive loans, net	(73)		(35)
Other gain on investments, net	(212)		(173)
Loss on extinguishment of debt	126		50
Originations and purchases of loans held-for-sale	(3,136)		(2,241)
Proceeds from sales and repayments of loans held-for-sale	3,186		2,107

Net change in

Deferred income taxes	(558)		122
Interest payable	10		107
Other assets	19		(196)
Other liabilities	419		(29)
Other, net	(68)		(52)
Net cash provided by operating activities	3,083		2,604
Investing activities

Purchases of equity securities	(1,117)		(816)
Proceeds from sales of equity securities	1,280		936
Purchases of available-for-sale securities	(17,211)		(12,013)
Proceeds from sales of available-for-sale securities	4,870		6,350
Proceeds from repayments of available-for-sale securities	8,725		7,846
Purchases of held-to-maturity securities	(201)		—
Proceeds from repayments of held-to-maturity securities	303		306
Purchases of finance receivables and loans held-for-investment	(5,466)		(5,188)
Proceeds from sales of finance receivables and loans initially held-for-investment	376		122
Originations and repayments of finance receivables and loans held-for-investment and other, net	8,669		14,745
Purchases of operating lease assets	(4,231)		(3,226)
Disposals of operating lease assets	2,618		1,946

Net change in nonmarketable equity investments	104		305
Other, net	(294)		(308)
Net cash (used in) provided by investing activities	(1,575)		11,005

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


Nine months ended September 30, ($ in millions)	2021		2020
Financing activities
Net change in short-term borrowings	(2,136)		(2,499)
Net increase in deposits	2,398		14,168
Proceeds from issuance of long-term debt	253		3,174
Repayments of long-term debt	(4,812)		(11,887)
Purchases of land and buildings in satisfaction of finance lease liabilities	(391)		—
Repurchases of common stock	(1,400)		(105)
Preferred stock issuance	2,324		—
Trust preferred securities redemption	(2,513)		—
Common stock dividends paid	(237)		(217)
Preferred stock dividends paid	(29)		—
Net cash (used in) provided by financing activities	(6,543)		2,634
Effect of exchange-rate changes on cash and cash equivalents and restricted cash	—		(1)
Net (decrease) increase in cash and cash equivalents and restricted cash	(5,035)		16,242
Cash and cash equivalents and restricted cash at beginning of year	16,574		4,380
Cash and cash equivalents and restricted cash at September 30,	$	11,539	$	20,622
Supplemental disclosures
Cash paid for
Interest	$	1,422	$	2,414
Income taxes	1,235		8
Noncash items

Loans held-for-sale transferred to finance receivables and loans held-for-investment	5		74
Additions of property and equipment	46		—
Finance receivables and loans held-for-investment transferred to loans held-for-sale	414		128

In-kind distribution from equity-method investee	—		126
Equity consideration received in exchange for restructured loans	—		5
Decrease in held-to-maturity securities due to the consolidation of a VIE	—		5
Increase in held-for-investment loans and other, net, due to the consolidation of a VIE	—		114
Increase in collateralized borrowings, net, due to the consolidation of a VIE	—		109

The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Condensed Consolidated Balance Sheet to the Condensed Consolidated Statement of Cash Flows.


September 30, ($ in millions)	2021		2020
Cash and cash equivalents on the Condensed Consolidated Balance Sheet	$	10,915	$	19,939
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	624		683
Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows	$	11,539	$	20,622

(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, we, us, or our) is a digital financial-services company committed to its promise to “Do It Right” for its consumer, commercial, and corporate customers. Ally is composed of an industry-leading independent automotive finance and insurance operation, an award-winning digital direct bank (Ally Bank, Member FDIC and Equal Housing Lender, which offers mortgage lending, point-of-sale personal lending, and a variety of deposit and other banking products), a corporate finance business for equity sponsors and middle-market companies, and securities brokerage and investment advisory services. A relentless ally for all things money, Ally helps people save well and earn well, so they can spend for what matters. We are a Delaware corporation and are registered as a BHC under the BHC Act, and an FHC under the GLB Act.

Our accounting and reporting policies conform to U.S. GAAP. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Certain reclassifications may have been made to the prior periods’ financial statements and notes to conform to the current period’s presentation, which did not have a material impact on our Condensed Consolidated Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive lease assets and residuals, fair value of financial instruments, and the determination of the provision for income taxes.

The Condensed Consolidated Financial Statements at September 30, 2021, and for the three months and nine months ended September 30, 2021, and 2020, 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, 2020, as filed on February 24, 2021, with the SEC.

Significant Accounting Policies

Income Taxes

In calculating the provision for interim income taxes, in accordance with 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 2020 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 2020 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

Reference Rate Reform (ASU 2021-01)

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarified the scope of ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, indicating that certain optional expedients and exceptions included in ASU 2020-04 are applicable to derivative instruments affected by the market-wide change in interest rates used for discounting, margining, or contract price alignment. We adopted the amendments in this ASU immediately upon issuance in January 2021 on a prospective basis and will apply this guidance, along with the guidance from ASU 2020-04, as contracts are modified through December 2022. The adoption did not have an immediate direct impact on our financial statements. We do not expect there to be a material impact to our financial statements.

2. Revenue from Contracts with Customers

Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of ASC Topic 606, Revenue from Contracts with Customers. As part of our Insurance operations, we recognize revenue from insurance contracts, which are addressed by other GAAP and are not included in the scope of this standard. Certain noninsurance contracts within our Insurance operations, including VSCs, GAP contracts, and 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. 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 2020 Annual Report on Form 10-K.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated
2021
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)	$	—	$	157	$	—	$	—	$	—	$	157
Remarketing fee income	26		—		—		—		—		26
Brokerage commissions and other revenue	—		—		—		—		12		12
Deposit account and other banking fees (d)	—		—		—		—		2		2
Brokered/agent commissions	—		4		—		—		—		4
Other	5		—		—		—		1		6
Total revenue from contracts with customers	31		161		—		—		15		207
All other revenue	30		122		19		16		(3)		184
Total other revenue (e)	$	61	$	283	$	19	$	16	$	12	$	391
2020
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)	$	—	$	148	$	—	$	—	$	—	$	148
Remarketing fee income	20		—		—		—		—		20
Brokerage commissions and other revenue	—		—		—		—		12		12
Deposit account and other banking fees (d)	—		—		—		—		4		4
Brokered/agent commissions	—		4		—		—		—		4
Other	3		—		—		—		—		3
Total revenue from contracts with customers	23		152		—		—		16		191
All other revenue	38		186		36		9		24		293
Total other revenue (e)	$	61	$	338	$	36	$	9	$	40	$	484

(a)We had opening balances of $3.1 billion and $2.9 billion in unearned revenue associated with outstanding contracts at July 1, 2021, and July 1, 2020, respectively, and $228 million and $218 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months ended September 30, 2021, and September 30, 2020, respectively.

(b)At September 30, 2021, we had unearned revenue of $3.1 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $218 million during the remainder of 2021, $817 million in 2022, $735 million in 2023, $572 million in 2024, and $731 million thereafter. At September 30, 2020, we had unearned revenue of $3.0 billion associated with outstanding contracts.

(c)We had deferred insurance assets of $1.9 billion at both July 1, 2021, and September 30, 2021, and recognized $135 million of expense during the three months ended September 30, 2021. We had deferred insurance assets of $1.8 billion at both July 1, 2020, and September 30, 2020, and recognized $125 million of expense during the three months ended September 30, 2020.

(d)Reflects various services fees we charge depositors. Effective May 25, 2021, we eliminated all overdraft fees for Ally Bank deposit accounts.

(e)Represents a component of total net revenue. Refer to Note 22 for further information on our reportable operating segments.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Nine months ended September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated
2021
Revenue from contracts with customers
Noninsurance contracts (a) (b)	$	—	$	470	$	—	$	—	$	—	$	470
Remarketing fee income	80		—		—		—		—		80
Brokerage commissions and other revenue	—		—		—		—		45		45
Deposit account and other banking fees (c)	—		—		—		—		13		13
Brokered/agent commissions	—		12		—		—		—		12
Other	17		—		—		—		3		20
Total revenue from contracts with customers	97		482		—		—		61		640
All other revenue	87		524		81		75		87		854
Total other revenue (d)	$	184	$	1,006	$	81	$	75	$	148	$	1,494
2020
Revenue from contracts with customers
Noninsurance contracts (a) (b)	$	—	$	433	$	—	$	—	$	—	$	433
Remarketing fee income	52		—		—		—		—		52
Brokerage commissions and other revenue	—		—		—		—		39		39
Deposit account and other banking fees (c)	—		—		—		—		9		9
Brokered/agent commissions	—		12		—		—		—		12
Other	11		—		—		—		—		11
Total revenue from contracts with customers	63		445		—		—		48		556
All other revenue	85		468		65		28		103		749
Total other revenue (d)	$	148	$	913	$	65	$	28	$	151	$	1,305

(a)We had opening balances of $3.0 billion and $2.9 billion in unearned revenue associated with outstanding contracts at January 1, 2021, and January 1, 2020, respectively, and $681 million and $643 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the nine months ended September 30, 2021, and September 30, 2020.

(b)We had deferred insurance assets of $1.8 billion and $1.9 billion at January 1, 2021, and September 30, 2021, respectively, and recognized $400 million of expense during the nine months ended September 30, 2021. We had deferred insurance assets of $1.7 billion and $1.8 billion at January 1, 2020, and September 30, 2020, respectively, and recognized $371 million of expense during the nine months ended September 30, 2020.

(c)Reflects various services fees we charge depositors. Effective May 25, 2021, we eliminated all overdraft fees for Ally Bank deposit accounts.

(d)Represents a component of total net revenue. Refer to Note 22 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 $86 million and $278 million for the three months and nine months ended September 30, 2021, respectively, and $71 million and $62 million for the three months and nine months ended September 30, 2020, on the sale of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.

3. Other Income, Net of Losses

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


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Gain on nonmarketable equity investments, net	$	1	$	15	$	104	$	11
Late charges and other administrative fees	29		28		89		65
Remarketing fees	26		20		80		52
Income from equity-method investments	26		63		71		115

Other, net	40		34		154		88
Total other income, net of losses	$	122	$	160	$	498	$	331

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)	2021		2020
Total gross reserves for insurance losses and loss adjustment expenses at January 1,	$	129	$	122
Less: Reinsurance recoverable	90		88
Net reserves for insurance losses and loss adjustment expenses at January 1,	39		34
Net insurance losses and loss adjustment expenses incurred related to:
Current year	207		298
Prior years (a)	(1)		3
Total net insurance losses and loss adjustment expenses incurred	206		301
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year	(174)		(271)
Prior years	(29)		(27)
Total net insurance losses and loss adjustment expenses paid or payable	(203)		(298)

Net reserves for insurance losses and loss adjustment expenses at September 30,	42		37
Plus: Reinsurance recoverable	83		88
Total gross reserves for insurance losses and loss adjustment expenses at September 30,	$	125	$	125

(a)There have been no material adverse changes to the reserve for prior years.

5. Other Operating Expenses

Details of other operating expenses were as follows.


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Insurance commissions	$	142	$	130	$	416	$	383
Technology and communications	90		77		249		236
Lease and loan administration	56		57		168		141
Advertising and marketing	57		36		143		112
Property and equipment depreciation	40		34		114		102
Professional services	36		28		97		87
Vehicle remarketing and repossession	19		17		57		51
Charitable contributions (a)	2		2		57		6
Regulatory and licensing fees	19		18		54		76
Occupancy	14		14		47		43
Non-income taxes	8		9		23		23
Amortization of intangible assets	5		4		14		14
Other	56		52		145		149
Total other operating expenses	$	544	$	478	$	1,584	$	1,423

(a)Includes contributions made to the Ally Charitable Foundation.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

6. Investment Securities

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



	September 30, 2021								December 31, 2020
	Amortized cost		Gross unrealized				Fair value		Amortized cost		Gross unrealized				Fair value
($ in millions)			gains		losses						gains		losses
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	1,759	$	3	$	(19)	$	1,743	$	783	$	20	$	—	$	803
U.S. States and political subdivisions	839		25		(6)		858		1,046		50		(1)		1,095
Foreign government	159		4		(2)		161		167		9		—		176
Agency mortgage-backed residential	19,579		306		(179)		19,706		18,053		538		(3)		18,588
Mortgage-backed residential	3,463		23		(7)		3,479		2,595		49		(4)		2,640
Agency mortgage-backed commercial	4,767		90		(121)		4,736		4,063		139		(13)		4,189

Asset-backed	544		3		—		547		420		5		—		425
Corporate debt	1,862		43		(13)		1,892		1,809		105		—		1,914
Total available-for-sale securities (a) (b) (c) (d) (e)	$	32,972	$	497	$	(347)	$	33,122	$	28,936	$	915	$	(21)	$	29,830


Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	$	1,150	$	55	$	(12)	$	1,193	$	1,253	$	79	$	(1)	$	1,331

Total held-to-maturity securities (e) (f)	$	1,150	$	55	$	(12)	$	1,193	$	1,253	$	79	$	(1)	$	1,331

(a)Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $13 million at both September 30, 2021, and December 31, 2020.

(b)Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 18 for additional information.

(c)Available-for-sale securities with a fair value of $258 million and $145 million at September 30, 2021, and December 31, 2020, respectively, were pledged for purposes as required by contractual obligation or law. Under these agreements, we granted the counterparty the right to sell or pledge the underlying investment securities.

(d)Totals do not include accrued interest receivable, which was $82 million and $90 million at September 30, 2021, and December 31, 2020, respectively. Accrued interest receivable is included in other assets on our Condensed Consolidated Balance Sheet.

(e)There was no allowance for credit losses recorded at September 30, 2021, or December 31, 2020, as management determined that there were no expected credit losses in our portfolio of available-for-sale and held-to-maturity securities.

(f)Totals do not include accrued interest receivable, which was $2 million and $3 million at September 30, 2021, and December 31, 2020, respectively. Accrued interest receivable is included in other assets on our Condensed Consolidated Balance Sheet.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The maturity distribution of debt securities outstanding is summarized in the following tables based upon contractual maturities. Call or prepayment options may cause actual maturities to differ from contractual maturities.


	Total				Due in one year or less				Due after one year through five years				Due after five years through ten years				Due after ten years
($ in millions)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
September 30, 2021
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies	$	1,743	1.1	%	$	291	0.8	%	$	180	1.0	%	$	1,272	1.2	%	$	—	—	%
U.S. States and political subdivisions	858		3.1		33		2.5		74		2.7		134		3.3		617		3.1
Foreign government	161		1.8		2		0.8		97		1.9		62		1.8		—		—
Agency mortgage-backed residential	19,706		2.5		—		—		—		—		28		2.0		19,678		2.5
Mortgage-backed residential	3,479		2.6		—		—		—		—		25		2.9		3,454		2.6
Agency mortgage-backed commercial	4,736		1.9		—		—		26		2.4		1,751		2.3		2,959		1.7

Asset-backed	547		2.0		—		—		308		2.4		230		1.4		9		3.3
Corporate debt	1,892		2.3		89		3.0		765		2.3		1,029		2.3		9		2.3
Total available-for-sale securities	$	33,122	2.4		$	415	1.4		$	1,450	2.1		$	4,531	2.0		$	26,726	2.5
Amortized cost of available-for-sale securities	$	32,972			$	413			$	1,420			$	4,466			$	26,673
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential	$	1,150	2.8	%	$	—	—	%	$	—	—	%	$	—	—	%	$	1,150	2.8	%

Total held-to-maturity securities	$	1,150	2.8		$	—	—		$	—	—		$	—	—		$	1,150	2.8
December 31, 2020
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies	$	803	1.2	%	$	13	0.1	%	$	708	1.1	%	$	82	1.7	%	$	—	—	%
U.S. States and political subdivisions	1,095		3.0		49		1.4		103		2.3		228		2.7		715		3.3
Foreign government	176		2.1		9		1.7		86		2.3		81		1.9		—		—
Agency mortgage-backed residential	18,588		3.1		—		—		—		—		37		2.0		18,551		3.1
Mortgage-backed residential	2,640		3.1		—		—		—		—		36		2.9		2,604		3.1
Agency mortgage-backed commercial	4,189		1.9		—		—		—		—		1,628		2.3		2,561		1.7

Asset-backed	425		2.9		—		—		349		3.0		49		1.8		27		3.1
Corporate debt	1,914		2.7		155		2.7		625		2.9		1,077		2.6		57		2.1
Total available-for-sale securities	$	29,830	2.8		$	226	2.3		$	1,871	2.2		$	3,218	2.4		$	24,515	3.0
Amortized cost of available-for-sale securities	$	28,936			$	224			$	1,808			$	3,022			$	23,882
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential	$	1,253	3.0	%	$	—	—	%	$	—	—	%	$	—	—	%	$	1,253	3.0	%

Total held-to-maturity securities	$	1,253	3.0		$	—	—		$	—	—		$	—	—		$	1,253	3.0

(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 $151 million and $25 million at September 30, 2021, and December 31, 2020, respectively, and were composed primarily of money-market funds 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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Taxable interest	$	139	$	154	$	384	$	536
Taxable dividends	7		4		19		14
Interest and dividends exempt from U.S. federal income tax	4		4		14		12
Interest and dividends on investment securities	$	150	$	162	$	417	$	562

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.


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Available-for-sale securities
Gross realized gains	$	44	$	45	$	82	$	169
Gross realized losses (a)	—		(2)		—		(2)

Net realized gains on available-for-sale securities	44		43		82		167
Net realized gain on equity securities	45		7		159		88
Net unrealized (loss) gain on equity securities	(65)		14		(29)		(82)
Other gain on investments, net	$	24	$	64	$	212	$	173

(a)Certain available-for-sale securities were sold at a loss during the three months and nine months ended September 30, 2020, as a result of identifiable market or credit events, or a loss was realized based on corporate actions outside of our control (such as a call by the issuer). Any such sales were made in accordance with our risk-management policies and practices.

The following table presents the credit quality of our held-to-maturity securities, based on the latest available information as of September 30, 2021, and December 31, 2020. The credit ratings are sourced from nationally recognized statistical rating organizations, which include S&P, Moody’s, and Fitch. They represent a composite of the ratings or, where credit ratings cannot be sourced from the agencies, are presented based on the asset type. All of our held-to-maturity securities were current in their payment of principal and interest as of September 30, 2021, and December 31, 2020. We have not recorded any interest income reversals on our held-to-maturity securities during the nine months ended September 30, 2021, or 2020.


	September 30, 2021		December 31, 2020
($ in millions)	AA		Total (a)		AA		Total (a)
Debt securities
Agency mortgage-backed residential	$	1,150	$	1,150	$	1,253	$	1,253

Total held-to-maturity securities	$	1,150	$	1,150	$	1,253	$	1,253

(a)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. 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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table summarizes available-for-sale securities in an unrealized loss position, which we evaluated to determine if a credit loss exists requiring the recognition of an allowance for credit losses. For additional information on our methodology, refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K. As of September 30, 2021, and December 31, 2020, we did not have the intent to sell the available-for-sale 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. We have not recorded any interest income reversals on our available-for-sale securities during the nine months ended September 30, 2021, or 2020.


	September 30, 2021								December 31, 2020

	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	$	1,349	$	(19)	$	—	$	—	$	3	$	—	$	—	$	—
U.S. States and political subdivisions	264		(6)		11		—		83		(1)		—		—
Foreign government	60		(2)		4		—		7		—		—		—
Agency mortgage-backed residential	9,619		(178)		48		(1)		1,225		(3)		—		—
Mortgage-backed residential	1,344		(7)		17		—		316		(4)		—		—
Agency mortgage-backed commercial	2,955		(112)		125		(9)		926		(13)		—		—

Asset-backed	139		—		—		—		11		—		—		—
Corporate debt	718		(11)		29		(2)		59		—		5		—
Total available-for-sale securities	$	16,448	$	(335)	$	234	$	(12)	$	2,630	$	(21)	$	5	$	—

During the three months and nine months ended September 30, 2021, and 2020, management determined that there were no expected credit losses for securities in an unrealized loss position. This analysis considered a variety of factors including, but not limited to, performance indicators of the issuer, default rates, industry analyst reports, credit ratings, and other relevant information, which indicated that contractual cash flows are expected to occur. As a result of this evaluation, management determined that no credit reserves were required at September 30, 2021, or December 31, 2020.

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 amortized cost basis was as follows.


($ in millions)	September 30, 2021		December 31, 2020

Consumer automotive (a)	$	77,761	$	73,668
Consumer mortgage
Mortgage Finance (b)	16,059		14,632
Mortgage — Legacy (c)	396		495
Total consumer mortgage	16,455		15,127
Consumer other (d)	836		407
Total consumer	95,052		89,202
Commercial
Commercial and industrial
Automotive	8,772		19,082
Other	5,859		5,242
Commercial real estate	4,788		5,008
Total commercial	19,419		29,332
Total finance receivables and loans (e) (f)	$	114,471	$	118,534

(a)Certain finance receivables and loans are included in fair value hedging relationships. Refer to Note 18 for additional information.

(b)Includes loans originated as interest-only mortgage loans of $6 million and $8 million at September 30, 2021, and December 31, 2020, respectively. All of these loans have exited the interest-only period.

(c)Includes loans originated as interest-only mortgage loans of $23 million and $30 million at September 30, 2021, and December 31, 2020, respectively, of which 98% have exited the interest-only period.

(d)Includes $8 million of finance receivables at both September 30, 2021, and December 31, 2020, for which we have elected the fair value option.

(e)Totals include net unearned income, unamortized premiums and discounts, and deferred fees and costs of $2.3 billion and $2.0 billion at September 30, 2021, and December 31, 2020, respectively.

(f)Totals do not include accrued interest receivable, which was $487 million and $587 million at September 30, 2021, and December 31, 2020, respectively. Accrued interest receivable is included in other assets on our Condensed Consolidated Balance Sheet.

The following tables present an analysis of the activity in the allowance for loan losses on finance receivables and loans for the three months and nine months ended September 30, 2021.


Three months ended September 30, 2021 ($ in millions)	Consumer automotive		Consumer mortgage		Consumer other (a)		Commercial		Total
Allowance at July 1, 2021	$	2,802	$	24	$	72	$	228	$	3,126
Charge-offs (b)	(211)		(2)		(5)		—		(218)
Recoveries	160		4		—		—		164
Net charge-offs	(51)		2		(5)		—		(54)
Provision for credit losses	59		(1)		19		(1)		76


Allowance at September 30, 2021	$	2,810	$	25	$	86	$	227	$	3,148

(a)Excludes $8 million of finance receivables at both July 1, 2021, and September 30, 2021, for which we have elected the fair value option and incorporate no allowance for loan losses.

(b)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.


Nine months ended September 30, 2021 ($ in millions)	Consumer automotive		Consumer mortgage		Consumer other (a)		Commercial		Total
Allowance at January 1, 2021	$	2,902	$	33	$	73	$	275	$	3,283
Charge-offs (b)	(678)		(6)		(18)		(21)		(723)
Recoveries	535		10		1		11		557
Net charge-offs	(143)		4		(17)		(10)		(166)
Provision for credit losses	51		(12)		30		(38)		31


Allowance at September 30, 2021	$	2,810	$	25	$	86	$	227	$	3,148

(a)Excludes $8 million of finance receivables at both September 30, 2021, and December 31, 2020, for which we have elected the fair value option and incorporate no allowance for loan losses.

(b)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended September 30, 2020 ($ in millions)	Consumer automotive		Consumer mortgage		Consumer other (a)		Commercial		Total


Allowance at July 1, 2020	$	2,963	$	42	$	49	$	300	$	3,354
Charge-offs (b)	(269)		(4)		(2)		(4)		(279)
Recoveries	152		5		—		—		157
Net charge-offs	(117)		1		(2)		(4)		(122)
Provision for credit losses	134		(3)		20		(4)		147
Other	2		(1)		—		(1)		—
Allowance at September 30, 2020	$	2,982	$	39	$	67	$	291	$	3,379

(a)Excludes $8 million of finance receivables at both July 1, 2020, and September 30, 2020, for which we have elected the fair value option and incorporate no allowance for loan losses.

(b)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.


Nine months ended September 30, 2020 ($ in millions)	Consumer automotive		Consumer mortgage		Consumer other (a)		Commercial		Total
Allowance at December 31, 2019	$	1,075	$	46	$	9	$	133	$	1,263
Cumulative effect of the adoption of Accounting Standards Update 2016-13	1,334		(6)		16		2		1,346
Allowance at January 1, 2020	2,409		40		25		135		2,609
Charge-offs (b)	(887)		(9)		(11)		(47)		(954)
Recoveries	371		14		1		2		388
Net charge-offs	(516)		5		(10)		(45)		(566)
Provision for credit losses	1,088		(5)		51		203		1,337
Other	1		(1)		1		(2)		(1)
Allowance at September 30, 2020	$	2,982	$	39	$	67	$	291	$	3,379

(a)Excludes $8 million and $11 million of finance receivables at September 30, 2020, and December 31, 2019, respectively, for which we have elected the fair value option and incorporate no allowance for loan losses.

(b)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.

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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020

Consumer mortgage	$	—	$	128	$	413	$	128


Total sales and transfers	$	—	$	128	$	413	$	128

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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Consumer automotive	$	709	$	925	$	2,013	$	1,920
Consumer mortgage	1,191		659		3,123		3,013

Commercial	3		3		3		4
Total purchases of finance receivables and loans	$	1,903	$	1,587	$	5,139	$	4,937

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Nonaccrual Loans

The following tables present the amortized cost of our finance receivables and loans on nonaccrual status. All consumer or commercial finance receivables and loans that were 90 days or more past due were on nonaccrual status as of September 30, 2021, and December 31, 2020.


					September 30, 2021
($ in millions)	Nonaccrual status at Jan. 1, 2021		Nonaccrual status at Jul. 1, 2021		Nonaccrual status		Nonaccrual with no allowance (a)
Consumer automotive	$	1,256	$	1,033	$	1,015	$	432
Consumer mortgage
Mortgage Finance	67		49		45		27
Mortgage — Legacy	35		27		24		22
Total consumer mortgage	102		76		69		49
Consumer other	3		2		3		—
Total consumer	1,361		1,111		1,087		481
Commercial
Commercial and industrial
Automotive	40		33		32		3
Other	116		133		163		62
Commercial real estate	5		6		3		3
Total commercial	161		172		198		68
Total finance receivables and loans	$	1,522	$	1,283	$	1,285	$	549

(a)Represents a component of nonaccrual status at end of period.


					December 31, 2020
($ in millions)	Nonaccrual status at Jan. 1, 2020		Nonaccrual status at Jul. 1, 2020		Nonaccrual status		Nonaccrual with no allowance (a)
Consumer automotive	$	762	$	1,250	$	1,256	$	604
Consumer mortgage
Mortgage Finance	17		27		67		18
Mortgage — Legacy	40		36		35		28
Total consumer mortgage	57		63		102		46
Consumer other	2		1		3		—
Total consumer	821		1,314		1,361		650
Commercial
Commercial and industrial
Automotive	73		80		40		10
Other	138		132		116		41
Commercial real estate	4		6		5		5
Total commercial	215		218		161		56
Total finance receivables and loans	$	1,036	$	1,532	$	1,522	$	706

(a)Represents a component of nonaccrual status at end of period.

We recorded interest income from cash payments associated with finance receivables and loans in nonaccrual status of $2 million and $7 million for the three months and nine months ended September 30, 2021, respectively, compared to $2 million and $8 million for the three months and nine months ended September 30, 2020, respectively.

Credit Quality Indicators

We evaluate the credit quality of our consumer loan portfolio based on the aging status of the loan and by payment activity. Loan delinquency reporting is generally based upon borrower payment activity, relative to the contractual terms of the loan. In accordance with regulatory guidance, if borrowers are less than 30 days past due on their loans and enter into loan modifications offered as a result of

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

COVID-19, their loans generally continue to be considered performing loans and continue to accrue interest during the period of the loan modification. For borrowers who are 30 days or more past due when entering into loan modifications offered as a result of COVID-19, we evaluate the loan modifications under our existing troubled debt restructuring framework, and where such a loan modification would result in a concession to a borrower experiencing financial difficulty, the loan is accounted for as a TDR and generally will not accrue interest.

The following tables present the amortized cost basis of our consumer finance receivables and loans by credit quality indicator based on delinquency status at September 30, 2021, and origination year.


	Origination year														Revolving loans converted to term
September 30, 2021 ($ in millions)	2021		2020		2019		2018		2017		2016 and prior		Revolving loans				Total
Consumer automotive
Current	$	28,365	$	19,572	$	13,244	$	7,877	$	4,172	$	2,538	$	—	$	—	$	75,768
30–59 days past due	224		325		335		238		152		122		—		—		1,396
60–89 days past due	50		93		102		68		41		32		—		—		386
90 or more days past due	17		40		54		40		29		31		—		—		211
Total consumer automotive	28,656		20,030		13,735		8,223		4,394		2,723		—		—		77,761
Consumer mortgage
Mortgage Finance
Current	7,542		2,485		1,151		862		1,192		2,649		—		—		15,881
30–59 days past due	78		4		10		18		12		23		—		—		145
60–89 days past due	1		—		—		—		1		3		—		—		5
90 or more days past due	—		—		4		8		2		14		—		—		28
Total Mortgage Finance	7,621		2,489		1,165		888		1,207		2,689		—		—		16,059
Mortgage — Legacy
Current	—		—		—		—		—		86		252		26		364
30–59 days past due	—		—		—		—		—		5		4		2		11
60–89 days past due	—		—		—		—		—		2		—		—		2
90 or more days past due	—		—		—		—		—		14		4		1		19
Total Mortgage — Legacy	—		—		—		—		—		107		260		29		396
Total consumer mortgage	7,621		2,489		1,165		888		1,207		2,796		260		29		16,455
Consumer other
Current	613		168		24		6		2		—		—		—		813
30–59 days past due	5		2		—		—		—		—		—		—		7
60–89 days past due	4		1		—		—		—		—		—		—		5
90 or more days past due	2		1		—		—		—		—		—		—		3
Total consumer other (a)	624		172		24		6		2		—		—		—		828
Total consumer	$	36,901	$	22,691	$	14,924	$	9,117	$	5,603	$	5,519	$	260	$	29	$	95,044

(a)Excludes $8 million of finance receivables at September 30, 2021, for which we have elected the fair value option.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


	Origination year														Revolving loans converted to term
December 31, 2020 ($ in millions)	2020		2019		2018		2017		2016		2015 and prior		Revolving loans				Total
Consumer automotive
Current	$	27,255	$	19,204	$	12,129	$	7,060	$	3,678	$	1,766	$	—	$	—	$	71,092
30–59 days past due	281		466		376		264		174		97		—		—		1,658
60–89 days past due	66		165		129		88		55		32		—		—		535
90 or more days past due	32		108		96		71		46		30		—		—		383
Total consumer automotive	27,634		19,943		12,730		7,483		3,953		1,925		—		—		73,668
Consumer mortgage
Mortgage Finance
Current	3,432		2,410		1,744		2,254		1,177		3,492		—		—		14,509
30–59 days past due	10		9		10		11		7		16		—		—		63
60–89 days past due	1		1		3		2		1		3		—		—		11
90 or more days past due	1		5		8		10		4		21		—		—		49
Total Mortgage Finance	3,444		2,425		1,765		2,277		1,189		3,532		—		—		14,632
Mortgage — Legacy
Current	—		—		—		—		—		121		303		36		460
30–59 days past due	—		—		—		—		—		4		2		—		6
60–89 days past due	—		—		—		—		—		2		—		—		2
90 or more days past due	—		—		—		—		—		20		5		2		27
Total Mortgage — Legacy	—		—		—		—		—		147		310		38		495
Total consumer mortgage	3,444		2,425		1,765		2,277		1,189		3,679		310		38		15,127
Consumer other
Current	306		53		13		4		1		—		—		—		377
30–59 days past due	9		3		1		—		—		—		—		—		13
60–89 days past due	4		1		—		1		—		—		—		—		6
90 or more days past due	2		1		—		—		—		—		—		—		3
Total consumer other (a)	321		58		14		5		1		—		—		—		399
Total consumer	$	31,399	$	22,426	$	14,509	$	9,765	$	5,143	$	5,604	$	310	$	38	$	89,194

(a)Excludes $8 million of finance receivables at December 31, 2020, for which we have elected the fair value option.

We evaluate the credit quality of our commercial loan portfolio using regulatory risk ratings, which are based on relevant information about the borrower’s financial condition, including current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. We use the following definitions for risk rankings below Pass.

•Special mention — Loans that have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

•Substandard — Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness or weakness that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

•Doubtful — Loans that have all the weaknesses inherent in those classified as substandard, with the additional characteristic that the weaknesses make collection or liquidation in full, based on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The regulatory risk classification utilized is influenced by internal credit risk ratings, which are based on a variety of factors. A borrower’s internal credit risk rating is updated at least annually, and more frequently when a borrower’s credit profile changes, including when we become aware of potential credit deterioration. The following tables present the amortized cost basis of our commercial finance receivables and loans by credit quality indicator based on risk rating and origination year.


	Origination year														Revolving loans converted to term
September 30, 2021 ($ in millions)	2021		2020		2019		2018		2017		2016 and prior		Revolving loans				Total
Commercial and industrial
Automotive
Pass	$	278	$	247	$	182	$	49	$	32	$	64	$	7,232	$	—	$	8,084
Special mention	9		4		17		26		33		29		525		—		643
Substandard	—		1		—		1		—		—		43		—		45

Total automotive	287		252		199		76		65		93		7,800		—		8,772
Other
Pass	519		468		489		125		138		155		2,948		96		4,938
Special mention	—		75		114		21		21		138		115		15		499
Substandard	—		24		96		—		139		90		10		25		384
Doubtful	—		7		—		—		—		27		4		—		38

Total other	519		574		699		146		298		410		3,077		136		5,859
Commercial real estate
Pass	784		1,153		837		698		398		721		3		5		4,599
Special mention	6		5		118		7		19		24		—		—		179
Substandard	—		—		—		—		—		10		—		—		10

Total commercial real estate	790		1,158		955		705		417		755		3		5		4,788
Total commercial	$	1,596	$	1,984	$	1,853	$	927	$	780	$	1,258	$	10,880	$	141	$	19,419

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


	Origination year														Revolving loans converted to term
December 31, 2020 ($ in millions)	2020		2019		2018		2017		2016		2015 and prior		Revolving loans				Total
Commercial and industrial
Automotive
Pass	$	869	$	220	$	58	$	91	$	76	$	34	$	15,433	$	—	$	16,781
Special mention	48		23		59		52		9		18		2,013		—		2,222
Substandard	3		2		—		—		1		—		72		—		78
Doubtful	—		—		—		—		—		—		1		—		1
Total automotive	920		245		117		143		86		52		17,519		—		19,082
Other
Pass	536		622		244		210		81		69		2,142		76		3,980
Special mention	76		169		123		190		102		115		123		43		941
Substandard	33		26		—		108		—		77		21		20		285
Doubtful	—		—		—		6		—		27		2		1		36
Total other	645		817		367		514		183		288		2,288		140		5,242
Commercial real estate
Pass	1,108		928		799		580		651		512		—		2		4,580
Special mention	38		132		116		32		49		43		—		—		410
Substandard	—		—		—		3		6		7		—		—		16
Doubtful	—		—		—		—		2		—		—		—		2
Total commercial real estate	1,146		1,060		915		615		708		562		—		2		5,008
Total commercial	$	2,711	$	2,122	$	1,399	$	1,272	$	977	$	902	$	19,807	$	142	$	29,332

The following table presents an analysis of our past-due commercial finance receivables and loans recorded at amortized cost basis.



($ 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

September 30, 2021







Commercial
Commercial and industrial
Automotive	$	—	$	—	$	—	$	—	$	8,772	$	8,772
Other	—		—		—		—		5,859		5,859
Commercial real estate	—		—		—		—		4,788		4,788
Total commercial	$	—	$	—	$	—	$	—	$	19,419	$	19,419


December 31, 2020







Commercial
Commercial and industrial
Automotive	$	—	$	—	$	—	$	—	$	19,082	$	19,082
Other	—		—		—		—		5,242		5,242
Commercial real estate	—		—		2		2		5,006		5,008
Total commercial	$	—	$	—	$	2	$	2	$	29,330	$	29,332

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 amortized cost were $2.4 billion and $2.2 billion at September 30, 2021, and December 31, 2020, respectively.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Our consumer automotive portfolio accounts for the majority of the year-over-year increase in TDR balances. TDRs in our consumer automotive portfolio increased as a result of the COVID-19 loan modification program offered to customers. Additionally, following the expiration of that program, we have continued to support impacted borrowers pursuant to our established risk management policies and practices.

Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were $24 million and $14 million at September 30, 2021, and December 31, 2020, respectively. Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for additional information.

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


	2021					2020
Three months ended September 30, ($ in millions)	Number of loans	Pre-modification amortized cost basis		Post-modification amortized cost basis		Number of loans	Pre-modification amortized cost basis		Post-modification amortized cost basis

Consumer automotive	19,907	$	347	$	338	30,794	$	540	$	525
Consumer mortgage
Mortgage Finance	18	11		10		2	—		—
Mortgage — Legacy	8	1		1		12	1		1
Total consumer mortgage	26	12		11		14	1		1

Total consumer	19,933	359		349		30,808	541		526


Commercial and industrial
Automotive	—	—		—		2	7		7
Other	—	—		—		2	58		54

Total commercial	—	—		—		4	65		61
Total finance receivables and loans	19,933	$	359	$	349	30,812	$	606	$	587

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


	2021					2020
Nine months ended September 30, ($ in millions)	Number of loans	Pre-modification amortized cost basis		Post-modification amortized cost basis		Number of loans	Pre-modification amortized cost basis		Post-modification amortized cost basis

Consumer automotive	60,167	$	1,090	$	1,071	74,887	$	1,203	$	1,140
Consumer mortgage
Mortgage Finance	33	19		19		31	15		15
Mortgage — Legacy	12	2		2		67	8		8
Total consumer mortgage	45	21		21		98	23		23

Total consumer	60,212	1,111		1,092		74,985	1,226		1,163


Commercial and industrial
Automotive	1	1		1		5	45		40
Other	1	33		33		3	81		61
Commercial real estate	1	3		3		—	—		—
Total commercial	3	37		37		8	126		101
Total finance receivables and loans	60,215	$	1,148	$	1,129	74,993	$	1,352	$	1,264

The following tables present information about finance receivables and loans recorded at amortized cost that have redefaulted during the reporting period and were within 12 months or less of being modified as a TDR. Redefault is when finance receivables and loans meet the requirements for evaluation under our charge-off policy (refer to Note 1 to the Consolidated Financial Statements in our 2020 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.


	2021					2020
Three months ended September 30, ($ in millions)	Number of loans	Amortized cost		Charge-off amount		Number of loans	Amortized cost		Charge-off amount

Consumer automotive	2,374	$	31	$	15	5,195	$	52	$	37




Total consumer finance receivables and loans	2,374	$	31	$	15	5,195	$	52	$	37


	2021					2020
Nine months ended September 30, ($ in millions)	Number of loans	Amortized cost		Charge-off amount		Number of loans	Amortized cost		Charge-off amount

Consumer automotive	6,939	$	86	$	46	7,478	$	76	$	54
Consumer mortgage
Mortgage Finance	1	—		—		—	—		—
Mortgage — Legacy	4	—		—		—	—		—

Total consumer finance receivables and loans	6,944	$	86	$	46	7,478	$	76	$	54

8. Leasing

Ally as the Lessee

We have operating leases for our corporate facilities, which have remaining lease terms of 3 months to 11 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 approximately 5 to 6 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.

We also have operating leases for a fleet of vehicles that is used by our sales force for business purposes, with noncancelable lease terms of 367 days. Thereafter, the leases are month-to-month, up to a maximum of 48 months from inception.

During the three months and nine months ended September 30, 2021, we paid $10 million and $39 million, respectively, in cash for amounts included in the measurement of lease liabilities at September 30, 2021, compared to $12 million and $37 million for the three months and nine months ended September 30, 2020, in cash for amounts included in the measurement of lease liabilities at September 30, 2020. These amounts are included in net cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. During the nine months ended September 30, 2021, and September 30, 2020, we obtained $352 million and $58 million, respectively, of ROU assets in

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

exchange for new lease liabilities. For the nine months ended September 30, 2021, this balance included a new corporate facility in Charlotte, North Carolina, which we executed a purchase agreement on in July 2021, and reclassified the ROU asset to property and equipment and satisfied the finance lease liability. As of September 30, 2021, the weighted-average remaining lease term of our operating lease portfolio was 7 years, and the weighted-average discount rate was 2.03%, compared to 7 years and 2.21% as of December 31, 2020.

The following table presents future minimum rental payments we are required to make under operating leases that have commenced as of September 30, 2021, and that have noncancelable lease terms expiring after September 30, 2021.


($ in millions)
2021	$	11
2022	38
2023	28
2024	23
2025	21
2026 and thereafter	66
Total undiscounted cash flows	187
Difference between undiscounted cash flows and discounted cash flows	(12)
Total lease liability	$	175

In March 2021, we commenced the lease for a new corporate facility in Charlotte, North Carolina, which included an underlying purchase option. We provided notice of our intent to exercise the purchase option in April 2021, and executed on the purchase agreement in July 2021. Additionally, we agreed to lease a portion of this corporate facility in exchange for $13 million in future lease payments over a ten year lease term.

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


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Operating lease expense	$	10	$	11	$	36	$	35

Variable lease expense	2		2		6		6

Total lease expense, net (a)	$	12	$	13	$	42	$	41

(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 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 accordingly our consumer leases are classified as operating leases. 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 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 September 30,

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

2021, and December 31, 2020, consumer operating leases with a carrying value, net of accumulated depreciation, of $211 million and $352 million, respectively, 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)	September 30, 2021		December 31, 2020
Vehicles	$	12,445	$	11,182
Accumulated depreciation	(1,476)		(1,543)
Investment in operating leases, net	$	10,969	$	9,639

The following table presents future minimum rental payments we have the right to receive under operating leases with noncancelable lease terms expiring after September 30, 2021.


($ in millions)
2021	$	430
2022	1,461
2023	1,027
2024	396
2025	72
2026 and thereafter	5
Total lease payments from operating leases	$	3,391

We recognized operating lease revenue of $393 million and $1.1 billion for the three months and nine months ended September 30, 2021, respectively, and $360 million and $1.1 billion for the three months and nine months ended September 30, 2020. Depreciation expense on operating lease assets includes net 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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Depreciation expense on operating lease assets (excluding remarketing gains) (a)	$	225	$	246	$	662	$	737
Remarketing gains, net	(86)		(71)		(278)		(62)
Net depreciation expense on operating lease assets	$	139	$	175	$	384	$	675

(a)Includes variable lease payments related to excess mileage and excessive wear and tear on vehicles of $3 million and $13 million during the three months and nine months ended September 30, 2021, respectively, and $6 million and $18 million during the three months and nine months ended September 30, 2020.

Finance Leases

In our Automotive Finance operations, we also hold automotive leases that require finance lease treatment as prescribed by ASC Topic 842, Leases. Our total gross investment in finance leases, which is included in finance receivables and loans, net, on our Condensed Consolidated Balance Sheet was $488 million and $450 million as of September 30, 2021, and December 31, 2020, respectively. This includes lease payment receivables of $475 million and $437 million at September 30, 2021, and December 31, 2020, respectively, and unguaranteed residual assets of $13 million at both September 30, 2021, and December 31, 2020. Interest income on finance lease receivables was $7 million and $20 million for the three months and nine months ended September 30, 2021, respectively, and $5 million and $11 million for the three months and nine months ended September 30, 2020, and is included in interest and fees on finance receivables and loans in our Condensed Consolidated Statement of Comprehensive Income.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents future minimum rental payments we have the right to receive under finance leases with noncancelable lease terms expiring after September 30, 2021.


($ in millions)
2021	$	45
2022	158
2023	129
2024	106
2025	51
2026 and thereafter	37
Total undiscounted cash flows	526
Difference between undiscounted cash flows and discounted cash flows	(475)
Present value of lease payments recorded as lease receivable	$	51

9. Securitizations and Variable Interest Entities

We securitize, transfer, and service consumer and commercial automotive loans. We often securitize these loans (also referred to as financial assets) using 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 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 nine months ended September 30, 2021, and September 30, 2020.

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 2020 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
September 30, 2021
On-balance sheet variable interest entities
Consumer automotive	$	19,580	(b)	$	1,563	(c)

Off-balance sheet variable interest entities

Commercial other	1,688		(d)	733		(e)	—		2,234		(f)
Total	$	21,268		$	2,296		$	—	$	2,234
December 31, 2020
On-balance sheet variable interest entities
Consumer automotive	$	17,833	(b)	$	3,103	(c)
Commercial automotive	6,276			1,152
Off-balance sheet variable interest entities

Commercial other	1,295		(d)	529		(e)	—		1,754		(f)
Total	$	25,404		$	4,784		$	—	$	1,754

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

(b)Includes $11.1 billion and $9.9 billion of assets that were not encumbered by VIE beneficial interests held by third parties at September 30, 2021, and December 31, 2020, respectively. Ally or consolidated affiliates hold the interests in these assets.

(c)Includes $124 million and $94 million of liabilities that were not obligations to third-party beneficial interest holders at September 30, 2021, and December 31, 2020, respectively.

(d)Amounts are classified as other assets.

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

(f)For certain nonconsolidated affordable housing entities, maximum exposure to loss represents the yield we guaranteed investors through long-term guarantee contracts. The amount disclosed is based on the unlikely event that the 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.

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 (for example, servicing) that were outstanding during the nine months ended September 30, 2021, and 2020. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated SPEs that existed during each period.


	Nine months ended September 30,
($ in millions)	2021		2020


Consumer automotive
Cash flows received on retained interests in securitization entities	$	—	$	11
Servicing fees	—		3
Cash disbursements for repurchases during the period	—		(2)
Total	$	—	$	12

Delinquencies and Net Credit Losses

We did not have any off-balance sheet securitizations or whole-loan sales where we had continuing involvement at September 30, 2021, or December 31, 2020. During the nine months ended September 30, 2020, we recognized $1 million of net credit losses from off-balance sheet securitizations where we have continuing involvement.

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)	September 30, 2021		December 31, 2020
Property and equipment at cost (a)	$	2,075	$	1,541
Accumulated depreciation	(917)		(815)
Net property and equipment	1,158		726
Investment in qualified affordable housing projects	1,341		1,095
Nonmarketable equity investments (b) (c)	931		915
Net deferred tax assets	852		94
Accrued interest, fees, and rent receivables	580		704
Restricted cash held for securitization trusts (d)	567		875
Equity-method investments (e)	402		320
Goodwill	343		343

Other accounts receivable	158		166
Operating lease right-of-use assets	148		162
Restricted cash and cash equivalents (f)	57		78
Net intangible assets (g)	37		50
Fair value of derivative contracts in receivable position (h)	9		17
Other assets	869		870
Total other assets	$	7,452	$	6,415

(a)Balance includes a new corporate facility purchased during the three months ended September 30, 2021. Refer to Note 8 for additional information.

(b)Includes investments in FHLB stock of $224 million and $276 million at September 30, 2021, and December 31, 2020, respectively; FRB stock of $449 million at both September 30, 2021, and December 31, 2020; and equity securities without a readily determinable fair value of $258 million and $189 million at September 30, 2021, and December 31, 2020, respectively, measured at cost with adjustments for impairment and observable changes in price.

(c)During the three months and nine months ended September 30, 2021, we recorded $1 million and $83 million of upward adjustments related to equity securities without a readily determinable fair value still held at September 30, 2021, respectively, driven primarily by an investment in one entity for which there was a subsequent funding round at a higher valuation during the nine months ended September 30, 2021, resulting in an observable price change. During the nine months ended September 30, 2021, we recorded $1 million of impairments and downward adjustments related to equity securities without a readily determinable fair value still held at September 30, 2021, respectively. Securities held in our portfolio of equity securities without a readily determinable fair value as of September 30, 2021, include cumulative upward adjustments of $178 million and impairments and downward adjustments of $12 million through September 30, 2021.

(d)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.

(e)Primarily relates to investments made in connection with our CRA program.

(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)Includes gross intangible assets of $109 million at both September 30, 2021, and December 31, 2020, and accumulated amortization of $72 million and $59 million at September 30, 2021, and December 31, 2020, respectively.

(h)For additional information on derivative instruments and hedging activities, refer to Note 18.

The carrying balance of goodwill by reportable operating segment was as follows.


($ in millions)	Automotive Finance operations		Insurance operations		Corporate and Other (a)		Total



Goodwill at December 31, 2020	$	20	$	27	$	296	$	343

Impairment losses	—		—		—		—

Goodwill at September 30, 2021	$	20	$	27	$	296	$	343

(a)Includes $153 million of goodwill associated with Ally Lending at both September 30, 2021, and December 31, 2020, and $143 million of goodwill associated with Ally Invest at both September 30, 2021, and December 31, 2020.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

11. Deposit Liabilities

Deposit liabilities consisted of the following.



($ in millions)	September 30, 2021		December 31, 2020
Noninterest-bearing deposits	$	167	$	128
Interest-bearing deposits
Savings, money market, and checking accounts	98,035		83,698
Certificates of deposit	41,242		53,210

Total deposit liabilities	$	139,444	$	137,036

At September 30, 2021, and December 31, 2020, certificates of deposit included $21.7 billion and $25.8 billion, respectively, of those in denominations of $100 thousand or more. At September 30, 2021, and December 31, 2020, certificates of deposit included $7.3 billion and $8.6 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.

12. Debt

Short-Term Borrowings

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


	September 30, 2021						December 31, 2020
($ in millions)	Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total
Demand notes (b)	$	—	$	—	$	—	$	2,136	$	—	$	2,136



Total short-term borrowings	$	—	$	—	$	—	$	2,136	$	—	$	2,136

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

(b)On March 1, 2021, we terminated the offering of our demand notes program, and redeemed in full all outstanding demand notes.

Long-Term Debt

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


	September 30, 2021						December 31, 2020
($ in millions)	Unsecured		Secured		Total		Unsecured		Secured		Total
Long-term debt (a)
Due within one year	$	1,000	$	4,428	$	5,428	$	647	$	4,438	$	5,085
Due after one year	7,855		1,663		9,518		11,367		5,554		16,921
Total long-term debt (b) (c)	$	8,855	$	6,091	$	14,946	$	12,014	$	9,992	$	22,006

(a)Includes basis adjustments related to the application of hedge accounting. Refer to Note 18 for additional information.

(b)Includes $188 million and $2.6 billion of trust preferred securities at September 30, 2021, and December 31, 2020, respectively.

(c)Includes advances, net of hedge basis adjustments, from the FHLB of Pittsburgh of $4.6 billion and $5.8 billion at September 30, 2021, and December 31, 2020, respectively.

The following table presents the scheduled remaining maturity of long-term debt at September 30, 2021, 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)	2021		2022		2023		2024		2025		2026 and thereafter		Total
Unsecured
Long-term debt	$	209	$	1,083	$	2,086	$	1,479	$	2,357	$	2,571	$	9,785
Original issue discount	(20)		(51)		(57)		(64)		(69)		(669)		(930)
Total unsecured	189		1,032		2,029		1,415		2,288		1,902		8,855
Secured
Long-term debt	643		4,791		591		32		24		10		6,091
Total long-term debt	$	832	$	5,823	$	2,620	$	1,447	$	2,312	$	1,912	$	14,946

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.


	September 30, 2021				December 31, 2020
($ in millions)	Total (a)		Ally Bank		Total (a)		Ally Bank

Consumer mortgage finance receivables	$	16,378	$	16,378	$	14,979	$	14,979
Consumer automotive finance receivables	10,389		10,276		9,953		9,510
Commercial finance receivables	10		10		10,866		10,866


Total assets restricted as collateral (b) (c)	$	26,777	$	26,664	$	35,798	$	35,355
Secured debt	$	6,091	$	6,008	$	9,992	$	9,634

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

(b)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 $16.4 billion and $20.0 billion at September 30, 2021, and December 31, 2020, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans. 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 September 30, 2021, and December 31, 2020. 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 other subsidiaries.

(c)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.

Trust Preferred Securities

We had approximately $191 million and $2.6 billion in aggregate liquidation preference of Series 2 TRUPS outstanding at September 30, 2021, and December 31, 2020, respectively. 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 LIBOR 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, in part or in whole, 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. The Series 2 TRUPS were issued prior to October 4, 2010, under the Emergency Economic Stabilization Act of 2008 and are not subject to phase-out from additional Tier 1 capital into Tier 2 capital.

On April 22, 2021, we issued $1.35 billion of preferred stock, Series B, and used the proceeds to redeem $1.4 billion, or 56,000,000 shares of the Series 2 TRUPS outstanding, effective May 24, 2021. On June 2, 2021, we issued $1.0 billion of preferred stock, Series C, and used the proceeds to redeem an additional $1.04 billion, or 41,600,000 shares of the Series 2 TRUPS outstanding, effective July 2, 2021. On September 15, 2021, we announced our intent to redeem the remaining $191 million or 7,650,000 shares of the Series 2 TRUPS outstanding. The redemption was effectuated on October 15, 2021.

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.

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 September 30, 2021, all of our $75 million of capacity was revolving 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)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020


Parent funding
Secured	$	—	$	—	$	75	$	560	$	75	$	560

Total committed secured credit facilities	$	—	$	—	$	75	$	560	$	75	$	560

(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)	September 30, 2021		December 31, 2020
Accounts payable	$	1,296	$	602
Unfunded commitments for investment in qualified affordable housing projects	729		525
Employee compensation and benefits	450		316

Operating lease liabilities	175		187
Deferred revenue	169		104
Reserves for insurance losses and loss adjustment expenses	125		129
Fair value of derivative contracts in payable position (a)	61		33
Net deferred tax liabilities	13		92
Cash collateral received from counterparties	8		6
Other liabilities	520		440
Total accrued expenses and other liabilities	$	3,546	$	2,434

(a)For additional information on derivative instruments and hedging activities, refer to Note 18.

14. Preferred Stock

Series B Preferred Stock

In April 2021, we issued 1,350,000 shares of 4.700% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series B, with $0.01 par value and liquidation preference of $1,000 per share. Proceeds from the offering were used to redeem a portion of our 8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I. Dividends on shares of the Series B Preferred Stock are discretionary and are not cumulative. Holders of the Series B Preferred Stock will be entitled to receive, if, when and as declared by our Board, or a duly authorized committee of the Board, out of legally available assets, non-cumulative cash dividends quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on August 15, 2021. Dividends will accrue (i) from the date of original issue to, but excluding, May 15, 2026, at a fixed rate of 4.700% per annum and (ii) from, and including, May 15, 2026, during each five-year reset period, at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date plus 3.868% on the liquidation preference amount of $1,000 per share. So long as any share of Series B Preferred Stock remains outstanding, unless the dividends for the most recently completed dividend period have been paid in full, or set aside for payment, on all outstanding shares of Series B Preferred Stock, we will be prohibited, subject to certain specified exceptions, from (i) declaring or paying any dividends or making any distributions with respect to any stock that ranks on a parity basis with, or junior in interest to, the Series B Preferred Stock or (ii) repurchasing, redeeming, or otherwise acquiring for consideration, directly or indirectly, any stock that ranks on a parity basis with, or junior in interest to, the Series B Preferred Stock.

The holders of the Series B Preferred Stock do not have voting rights other than those set forth in the certificate of designations for the Series B Preferred Stock included in Ally’s Certificate of Incorporation. The Series B Preferred Stock does not have a stated maturity date, and will be perpetual unless redeemed at Ally’s option. Ally is not required to redeem the Series B Preferred Stock and holders of the Series B Preferred Stock have no right to require Ally to redeem their shares. Ally may, at its option, redeem the shares of Series B Preferred stock (i) in whole or in part, on any dividend payment date on or after May 15, 2026, or (ii) in whole, but not in part, at any time within 90 days following a regulatory capital treatment event. In the event of any liquidation, dissolution or winding up of the affairs of Ally, holders of the Series B Preferred Stock will be entitled to receive the liquidation amount per share of Series B Preferred Stock and an amount equal to all declared, but unpaid dividends declared prior to the date of payment out of assets available for distribution, before any distribution is made for holders of stock that ranks junior in interest to the Series B Preferred Stock, subject to the rights of Ally’s creditors.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Series C Preferred Stock

In June 2021, we issued 1,000,000 shares of 4.700% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series C, with $0.01 par value and liquidation preference of $1,000 per share. Proceeds from the offering were used to redeem a portion of our 8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I. Dividends on shares of the Series C Preferred Stock are discretionary and are not cumulative. Holders of the Series C Preferred Stock will be entitled to receive, if, when and as declared by our Board, or a duly authorized committee of the Board, out of legally available assets, non-cumulative cash dividends quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on August 15, 2021. Dividends will accrue (i) from the date of original issue to, but excluding, May 15, 2028, at a fixed rate of 4.700% per annum and (ii) from, and including, May 15, 2028, during each seven-year reset period, at a rate per annum equal to the seven-year treasury rate as of the most recent reset dividend determination date plus 3.481% on the liquidation preference amount of $1,000 per share. So long as any share of Series C Preferred Stock remains outstanding, unless the dividends for the most recently completed dividend period have been paid in full, or set aside for payment, on all outstanding shares of Series C Preferred Stock, we will be prohibited, subject to certain specified exceptions, from (i) declaring or paying any dividends or making any distributions with respect to any stock that ranks on a parity basis with, or junior in interest to, the Series C Preferred Stock or (ii) repurchasing, redeeming, or otherwise acquiring for consideration, directly or indirectly, any stock that ranks on a parity basis with, or junior in interest to, the Series C Preferred Stock.

The holders of the Series C Preferred Stock do not have voting rights other than those set forth in the certificate of designations for the Series C Preferred Stock included in Ally’s Certificate of Incorporation. The Series C Preferred Stock does not have a stated maturity date, and will be perpetual unless redeemed at Ally’s option. Ally is not required to redeem the Series C Preferred Stock and holders of the Series C Preferred Stock have no right to require Ally to redeem their shares. Ally may, at its option, redeem the shares of Series C Preferred stock (i) in whole or in part, on any dividend payment date on or after May 15, 2028, or (ii) in whole, but not in part, at any time within 90 days following a regulatory capital treatment event. In the event of any liquidation, dissolution or winding up of the affairs of Ally, holders of the Series C Preferred Stock will be entitled to receive the liquidation amount per share of Series C Preferred Stock and an amount equal to all declared, but unpaid dividends declared prior to the date of payment out of assets available for distribution, before any distribution is made for holders of stock that ranks junior in interest to the Series C Preferred Stock, subject to the rights of Ally’s creditors.

The following table summarizes information about our preferred stock.


	September 30, 2021
Series B preferred stock (a)
Issuance date	April 22, 2021
Carrying value ($ in millions)	$	1,335
Par value (per share)	$	0.01
Liquidation preference (per share)	$	1,000
Number of shares authorized	1,350,000
Number of shares issued and outstanding	1,350,000
Dividend/coupon
Prior to May 15, 2026	4.700%
On and after May 15, 2026	Five Year Treasury + 3.868%
Series C preferred stock (a)
Issuance date	June 2, 2021
Carrying value ($ in millions)	$	989
Par value (per share)	$	0.01
Liquidation preference (per share)	$	1,000
Number of shares authorized	1,000,000
Number of shares issued and outstanding	1,000,000
Dividend/coupon
Prior to May 15, 2028	4.700%
On and after May 15, 2028	Seven Year Treasury + 3.481%

(a)We may, at our option, redeem the Series B and Series C shares on any dividend payment date on or after May 15, 2026, or May 15, 2028, respectively, or at any time within 90 days following a regulatory event that precludes the instruments from being included in additional Tier 1 capital.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

15. Accumulated Other Comprehensive Income

The following tables present changes, net of tax, in each component of accumulated other comprehensive income.


	Three months ended September 30,
($ in millions)	Unrealized gains on investment securities (a)		Translation adjustments and net investment hedges (b)		Cash flow hedges (b)		Defined benefit pension plans		Accumulated other comprehensive income






Balance at July 1, 2020	$	783	$	19	$	116	$	(103)	$	815
Net change	(103)		(1)		(16)		—		(120)
Balance at September 30, 2020	$	680	$	18	$	100	$	(103)	$	695
Balance at July 1, 2021	$	259	$	20	$	48	$	(111)	$	216
Net change	(157)		—		(9)		1		(165)
Balance at September 30, 2021	$	102	$	20	$	39	$	(110)	$	51

(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 18.


	Nine months ended September 30,
($ in millions)	Unrealized gains on investment securities (a)		Translation adjustments and net investment hedges (b)		Cash flow hedges (b)		Defined benefit pension plans		Accumulated other comprehensive income






Balance at January 1, 2020	$	208	$	19	$	2	$	(106)	$	123
Net change	472		(1)		98		3		572
Balance at September 30, 2020	$	680	$	18	$	100	$	(103)	$	695
Balance at January 1, 2021	$	640	$	19	$	82	$	(110)	$	631
Net change	(538)		1		(43)		—		(580)
Balance at September 30, 2021	$	102	$	20	$	39	$	(110)	$	51

(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 18.

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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.


Three months ended September 30, 2021 ($ in millions)	Before tax			Tax effect			After tax
Investment securities
Net unrealized losses arising during the period	$	(161)		$	38		$	(123)
Less: Net realized gains reclassified to income from continuing operations	44		(a)	(10)		(b)	34

Net change	(205)			48			(157)
Translation adjustments
Net unrealized losses arising during the period	(4)			1			(3)



Net investment hedges (c)
Net unrealized gains arising during the period	4			(1)			3



Cash flow hedges (c)

Less: Net realized gains reclassified to income from continuing operations	12		(d)	(3)		(b)	9


Defined benefit pension plans

Less: Net realized losses reclassified to income from continuing operations	(1)			—		(b)	(1)


Other comprehensive loss	$	(216)		$	51		$	(165)

(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 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 18.

(d)Includes gains reclassified to interest and fees on finance receivables and loans in our Condensed Consolidated Statement of Comprehensive Income.


Three months ended September 30, 2020 ($ in millions)	Before tax			Tax effect			After tax
Investment securities
Net unrealized losses arising during the period	$	(92)		$	22		$	(70)
Less: Net realized gains reclassified to income from continuing operations	43		(a)	(10)		(b)	33
Net change	(135)			32			(103)
Translation adjustments
Net unrealized gains arising during the period	3			(1)			2
Net investment hedges (c)
Net unrealized losses arising during the period	(4)			1			(3)
Cash flow hedges (c)

Less: Net realized gains reclassified to income from continuing operations	21			(5)			16



Other comprehensive loss	$	(157)		$	37		$	(120)

(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 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 18.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Nine months ended September 30, 2021 ($ in millions)	Before tax			Tax effect			After tax
Investment securities
Net unrealized losses arising during the period	$	(621)		$	147		$	(474)
Less: Net realized gains reclassified to income from continuing operations	82		(a)	(18)		(b)	64

Net change	(703)			165			(538)
Translation adjustments
Net unrealized gains arising during the period	1			—			1



Net investment hedges (c)
Net unrealized losses arising during the period	(1)			1			—



Cash flow hedges (c)

Less: Net realized gains reclassified to income from continuing operations	55		(d)	(12)		(b)	43


Defined benefit pension plans
Net unrealized losses arising during the period	(2)			1			(1)
Less: Net realized losses reclassified to income from continuing operations	(1)			—		(b)	(1)

Net change	(1)			1			—
Other comprehensive loss	$	(759)		$	179		$	(580)

(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 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 18.

(d)Includes gains reclassified to interest and fees on finance receivables and loans in our Condensed Consolidated Statement of Comprehensive Income.


Nine months ended September 30, 2020 ($ in millions)	Before tax			Tax effect			After tax
Investment securities
Net unrealized gains arising during the period	$	785		$	(184)		$	601
Less: Net realized gains reclassified to income from continuing operations	167		(a)	(38)		(b)	129
Net change	618			(146)			472
Translation adjustments
Net unrealized losses arising during the period	(4)			1			(3)
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	169			(41)			128
Less: Net realized gains reclassified to income from continuing operations	40			(10)			30
Net change	129			(31)			98
Defined benefit pension plans
Net unrealized gains arising during the period	4			(1)			3
Other comprehensive income	$	750		$	(178)		$	572

(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 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 18.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

16. Earnings per Common Share

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


	Three months ended September 30,				Nine months ended September 30,
($ in millions, except per share data; shares in thousands) (a)	2021		2020		2021		2020
Net income from continuing operations	$	712	$	476	$	2,407	$	399
Preferred stock dividends — Series B	(20)		—		(20)		—
Preferred stock dividends — Series C	(9)		—		(9)		—
Net income from continuing operations attributable to common stockholders	$	683	$	476	$	2,378	$	399
Income (loss) from discontinued operations, net of tax	—		—		1		(1)
Net income attributable to common stockholders	$	683	$	476	$	2,379	$	398
Basic weighted-average common shares outstanding (b)	359,179		375,658		368,215		375,478
Diluted weighted-average common shares outstanding (b) (c)	361,855		377,011		370,745		376,659
Basic earnings per common share
Net income from continuing operations	$	1.90	$	1.27	$	6.46	$	1.06

Net income	$	1.90	$	1.27	$	6.46	$	1.06
Diluted earnings per common share
Net income from continuing operations	$	1.89	$	1.26	$	6.41	$	1.06

Net income	$	1.89	$	1.26	$	6.42	$	1.06

(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.

17. Regulatory Capital and Other Regulatory Matters

Ally is currently subject to enhanced prudential standards that were established by the FRB under the Dodd-Frank Act. Targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the 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. Through final rules implementing these amendments—which are commonly known as the tailoring framework—the FRB and other U.S. banking agencies established four risk-based categories of prudential standards and capital and liquidity requirements for banking organizations with $100 billion or more in total consolidated assets. The most stringent standards and requirements apply to U.S. global systemically important BHCs, which are assigned to Category I. The assignment of other banking organizations to the remaining three categories is based on measures of size and four other risk-based indicators: cross-jurisdictional activity, wSTWF, nonbank assets, and off-balance-sheet exposure.

Under the tailoring framework, Ally is a Category IV firm and, as such, is (1) subject to supervisory stress testing on a two-year cycle, (2) required to submit an annual capital plan to the FRB, (3) exempted from company-run capital stress testing requirements, (4) required to maintain a buffer of unencumbered highly liquid assets to meet projected net stressed cash outflows over a 30-day planning horizon, (5) exempted from the requirements of the LCR and the net stable funding ratio provided that our average wSTWF continues to remain under $50 billion, and (6) exempted from the requirements of the supplementary leverage ratio, the countercyclical capital buffer, and single-counterparty credit limits. Refer to Note 20 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for additional details on the tailoring framework and other applicable capital and liquidity requirements.

We continue to be subject to rules enabling the FRB to conduct supervisory stress testing on a more or less frequent basis based on our financial condition, size, complexity, risk profile, scope of operations, or activities, or risks to the U.S. economy. Further, we remain subject to rules requiring the resubmission of our capital plan if we determine that there has been or will be a material change in our risk profile, financial condition, or corporate structure since we last submitted the capital plan or if the FRB determines that (a) our capital plan is incomplete or our capital plan or internal capital adequacy process contains material weaknesses, (b) there has been, or will likely be, a material change in our risk profile (including a material change in our business strategy or any risk exposure), financial condition, or corporate structure, or (c) the BHC stress scenario(s) are not appropriate for our business model and portfolios, or changes in the financial markets or the macroeconomic outlook that could have a material impact on our risk profile and financial condition require the use of updated scenarios.

In January 2021 the FDIC announced that, given the passage of time since the last submission of resolution plans and the uncertain economic outlook, the FDIC will resume requiring resolution plan submissions for insured depository institutions with $100 billion or more in assets, including Ally Bank. In June 2021 the FDIC outlined a modified approach to implementing its rule requiring these insured depository

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

institutions to submit resolution plans. The modified approach extends the submission frequency to a three-year cycle, streamlines content requirements, and places enhanced emphasis on engagement with firms. Under the modified approach, resolution plans will be submitted in two groups, with the first group consisting of Ally Bank and other insured depository institutions whose top-tier parent company is not a U.S. global systemically important bank or a Category II firm and the second group consisting of all other insured depository institutions with $100 billion or more in total assets. In August 2021, the FDIC notified Ally Bank that its next resolution plan submission is due on or before December 1, 2022.

Refer to Note 20 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for further discussion about regulatory developments.

Basel Capital Framework

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 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.

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 requirement, which for Ally was 3.5% and for Ally Bank was 2.5% as of September 30, 2021, as further described in the next paragraph. Failure to maintain more than the full amount of the capital conservation buffer requirement would result in automatic 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%.

In March 2020, the FRB issued a final rule to more closely align forward-looking stress testing results with the FRB’s non-stress regulatory capital requirements for BHCs with $100 billion or more in total consolidated assets and other specified companies. The final rule introduced a stress capital buffer requirement based on firm-specific stress test performance and planned dividends, which for Ally replaced the fixed 2.5% component of the capital conservation buffer requirement. Refer to Note 20 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for details about changes to the CCAR process effected by the final rule. Under the final rule, Ally’s stress capital buffer requirement is the greater of 2.5% and the result of the following calculation: (1) the difference between Ally’s starting and minimum projected Common Equity Tier 1 capital ratios under the severely adverse scenario in the supervisory stress test, plus (2) the sum of the dollar amount of Ally’s planned common stock dividends for each of the fourth through seventh quarters of its nine-quarter capital planning horizon, as a percentage of risk-weighted assets. For a Category IV firm like Ally, the capital conservation buffer requirement comprises the stress capital buffer requirement. The capital conservation buffer requirement applicable to Ally’s depository-institution subsidiary, Ally Bank, continues to be a fixed 2.5%. Ally received its first preliminary stress capital buffer requirement from the FRB in June 2020, which was determined under this new methodology to be 3.5%, was finalized in August 2020, and became effective in October 2020. In June 2020, the FRB also announced its determination that changes in financial markets or the macroeconomic outlook could have a material effect on the risk profiles and financial conditions of firms subject to the capital-plan rule and that, as a result, the firms (including Ally) would be required to resubmit capital plans to the FRB within 45 days after receiving updated stress scenarios from the FRB. In September 2020, the FRB released two updated scenarios—severely adverse and alternative severe. We updated our capital plan in light of firm-specific baseline and stress scenarios, as required, and submitted our updated plan to the FRB in November 2020. In December 2020, the FRB publicly disclosed summary results of this second round of supervisory stress testing and extended its deadline for notifying firms about whether their stress capital buffer requirements will be recalculated to March 31, 2021. On March 25, 2021, the FRB further extended this deadline to June 30, 2021. On June 24, 2021, we received notification from the FRB that our stress capital buffer requirement would not be recalculated in connection with the second round of 2020 supervisory stress testing. Refer to the later section titled Capital Planning and Stress Tests for more information.

Under the capital conservation buffer requirement, the maximum amount of capital distributions and discretionary bonus payments that can be made by a banking organization, such as Ally or Ally Bank, is a function of its eligible retained income. During the COVID-19 pandemic, the FRB and other U.S. banking agencies expressed a concern that the definition of eligible retained income would not limit distributions in the gradual manner intended but instead could do so in a sudden and severe manner even if a banking organization were to experience only a modest reduction in its capital ratios. As a result, to better allow a banking organization to use its capital buffer as intended and continue lending in adverse conditions, the U.S. banking agencies issued an interim final rule that became effective in March 2020, and revised the definition of eligible retained income to the greater of (1) a banking organization’s net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of a banking organization’s net income over the preceding four quarters. This interim final rule was adopted as final with no changes effective January 1, 2021.

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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The risk-based capital ratios and the Tier 1 leverage ratio play a central role in PCA, which is an enforcement framework used by the U.S. banking agencies to constrain the activities of depository institutions based on their levels of regulatory capital. Five categories have been established using thresholds for the Common Equity Tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio, the total risk-based capital ratio, and the Tier 1 leverage ratio: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. FDICIA generally prohibits a depository institution from making any capital distribution, including any payment of a cash dividend or a management fee to its BHC, if the depository institution would become undercapitalized after the distribution. An undercapitalized institution is also subject to growth limitations and must submit and fulfill a capital restoration plan. While BHCs are not subject to the PCA framework, the FRB is empowered to compel a BHC to take measures—such as the execution of financial or performance guarantees—when PCA is required in connection with one of its depository-institution subsidiaries. In addition, under FDICIA, only well-capitalized and, with a waiver from the FDIC, adequately capitalized institutions may accept brokered deposits, and even adequately capitalized institutions are subject to some restrictions on the rates they may offer for brokered deposits. At September 30, 2021, Ally Bank was well capitalized under the PCA framework.

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


	September 30, 2021				December 31, 2020				Required minimum (a)		Well-capitalized minimum
($ in millions)	Amount		Ratio		Amount		Ratio
Capital ratios
Common Equity Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	15,670	11.20	%	$	14,878	10.64	%	4.50	%	(b)
Ally Bank	18,095		13.71		17,567		13.38		4.50		6.50	%
Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	17,930	12.81	%	$	17,289	12.37	%	6.00	%	6.00	%
Ally Bank	18,095		13.71		17,567		13.38		6.00		8.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	20,375	14.56	%	$	19,778	14.15	%	8.00	%	10.00	%
Ally Bank	19,746		14.96		19,210		14.63		8.00		10.00
Tier 1 leverage (to adjusted quarterly average assets) (c)
Ally Financial Inc.	$	17,930	9.99	%	$	17,289	9.41	%	4.00	%	(b)
Ally Bank	18,095		10.65		17,567		10.12		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 was required to maintain a minimum capital conservation buffer of 3.5% at both September 30, 2021, and December 31, 2020, and Ally Bank was required to maintain a minimum capital conservation buffer of 2.5% at both September 30, 2021, and December 31, 2020.

(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.

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 three-year period. In March 2020, the FRB and other U.S. banking agencies issued an interim final rule that became effective for the first quarter of 2020 and that provides BHCs and banks with an alternative option to temporarily delay an estimate of the impact of CECL, relative to the incurred loss methodology for estimating the allowance for loan losses, on regulatory capital. The interim final rule was clarified and adjusted in a final rule that became effective in September 2020. We have elected this alternative option instead of the one described in the December 2018 rule. As a result, under the final rule, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. The estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in allowance during the two-year deferral period. As of September 30, 2021, the total deferred impact on Common Equity Tier 1 capital related to our adoption of CECL was $1.2 billion.

At both September 30, 2021, and December 31, 2020, Ally and Ally Bank were “well-capitalized.” Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements within the established timeframes.

Capital Planning and Stress Tests

Under the tailoring framework described earlier in the section titled Basel Capital Framework, we are generally subject to supervisory stress testing on a two-year cycle and exempted from mandated company-run capital stress testing requirements. We are also required to submit an annual capital plan to the FRB. Our annual 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,

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

any dividend or other capital distribution, and any similar action that the FRB determines could have an impact on our capital. The plan must also include a detailed description of our process for assessing capital adequacy, including a discussion of how we, under expected and stressful conditions, will maintain capital commensurate with our risks and above the minimum regulatory capital ratios, will serve as a source of strength to Ally Bank, and will maintain sufficient capital to continue our operations by maintaining ready access to funding, meeting our obligations to creditors and other counterparties, and continuing to serve as a credit intermediary.

We submitted our 2020 capital plan in April 2020, which included planned capital distributions to common stockholders through share repurchases and cash dividends over the nine-quarter planning horizon. In June 2020, the FRB provided us with the results of the supervisory stress test, additional industry-wide sensitivity analyses conducted in light of the COVID-19 pandemic, and our preliminary stress capital buffer requirement. As described earlier in the section titled Basel Capital Framework, we updated our capital plan in light of revised stress scenarios from the FRB and submitted our updated plan to the FRB in November 2020. In December 2020, the FRB publicly disclosed summary results of its second round of supervisory stress testing and extended its deadline for notifying firms about whether their stress capital buffer requirements will be recalculated to March 31, 2021. On March 25, 2021, the FRB further extended this deadline to June 30, 2021. On June 24, 2021, we received notification from the FRB that our stress capital buffer requirement would not be recalculated in connection with the second round of 2020 supervisory stress testing.

In June 2020, the FRB announced several actions to ensure that large firms, such as Ally, would remain resilient despite the economic uncertainty from the COVID-19 pandemic, including for the third quarter of 2020 (1) the suspension of repurchases by any firm of its common stock, except repurchases relating to issuances of common stock related to employee stock ownership plans, and (2) the disallowance of any increase by a firm in the amount of its common-stock dividends and the imposition of a common-stock dividend limit equal to the average of the firm’s net income for the four preceding calendar quarters. These restrictions were extended by the FRB for the fourth quarter of 2020. In December 2020, the FRB extended and modified these restrictions for the first quarter of 2021 to limit aggregate common-stock dividends and share repurchases to an amount equal to the average of the firm’s net income for the four preceding calendar quarters subject to specified exceptions. On March 25, 2021, the FRB extended these modified restrictions for the second quarter of 2021 and announced that, for a firm such as Ally that is not subject to the 2021 supervisory stress test and on a two-year cycle, the additional restrictions will end after June 30, 2021, and the firm’s stress capital buffer requirement based on the June 2020 supervisory stress test results will remain in place. On January 11, 2021, our Board authorized a stock-repurchase program, permitting us to repurchase up to $1.6 billion of our common stock from time to time from the first quarter of 2021 through the fourth quarter of 2021 subject to restrictions imposed by the FRB. On July 12, 2021, our Board authorized an increase in the maximum amount of this stock-repurchase program, from $1.6 billion to $2.0 billion.

In January 2021, the FRB issued a final rule effective April 5, 2021, to align its capital planning and stress capital buffer requirements with the tailoring framework. Under the final rule, unless otherwise directed by the FRB in specified circumstances, Ally and other Category IV firms are generally no longer required to calculate forward-looking projections of revenues, losses, reserves, and pro forma capital levels under scenarios provided by the FRB. Each firm continues to be required, however, to provide a forward-looking analysis of income and capital levels under expected and stressful conditions that are designed by the firm. In addition, for Category IV firms, the final rule updated the frequency of calculating the portion of the stress capital buffer derived from the supervisory stress test to every other year. These firms have the ability to elect to participate in the supervisory stress test—and receive a correspondingly updated stress capital buffer requirement—in a year in which they would not generally be subject to the supervisory stress test. During a year in which a Category IV firm does not undergo a supervisory stress test, the firm would receive an updated stress capital buffer requirement that reflects its updated planned common-stock dividends. The final rule also includes reporting and other changes consistent with the tailoring framework. The deadline for electing to opt into the 2021 supervisory stress test was April 5, 2021, and Ally did not make such an election.

We submitted our 2021 capital plan on April 5, 2021, which includes planned capital distributions to common stockholders through share repurchases and cash dividends over the nine-quarter planning horizon and other capital actions. During the second quarter of 2021, we issued $1.35 billion of Series B Preferred Stock and $1.0 billion of Series C Preferred Stock, both of which qualify as additional Tier 1 capital under U.S. Basel III. The proceeds from these issuances were used to redeem a portion of the Series 2 TRUPS then outstanding. Refer to Note 12 and Note 14 for additional details about these instruments and capital actions. In June 2021, we submitted an updated capital plan to the FRB reflecting these capital actions and the increases in our stock-repurchase program and common-stock dividend described above. This updated capital plan was used by the FRB to recalculate Ally’s final stress capital buffer requirement, which was announced in August 2021 and remained unchanged at 3.5%. 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 our internal governance requirements, including approval by our 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, accounting and regulatory considerations (including any restrictions that may be imposed by the FRB), impacts related to the COVID-19 pandemic, financial and operational performance, alternative uses of capital, common-stock price, and general market conditions, and may be extended, modified, or discontinued at any time.

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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 seven quarters.


	Common stock repurchased during period (a) (b)			Number of common shares outstanding		Cash dividends declared per common share (c)
($ in millions, except per share data; shares in thousands)	Approximate dollar value		Number of shares	Beginning of period	End of period
2020
First quarter	$	104	3,838	374,332	373,155	$	0.19
Second quarter	—		53	373,155	373,837	0.19
Third quarter	1		9	373,837	373,857	0.19
Fourth quarter	1		37	373,857	374,674	0.19
2021
First quarter	$	219	5,276	374,674	371,805	$	0.19
Second quarter	502		9,641	371,805	362,639	0.19
Third quarter	679		13,055	362,639	349,599	0.25

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

(b)On March 17, 2020, we announced the voluntary suspension of our stock-repurchase program through its termination on June 30, 2020. Consistent with the FRB’s restrictions on common-stock repurchases for large firms such as Ally, described above, we did not implement a new stock-repurchase program or repurchase shares of our common stock, except in connection with compensation plans, for the remainder of 2020. Refer to the discussion above for further details about this action.

(c)On October 5, 2021, our Board declared a quarterly cash dividend of $0.25 per share on all common stock, payable on November 15, 2021, to stockholders of record at the close of business on November 1, 2021. Refer to Note 24 for further information regarding this common stock dividend.

18. Derivative Instruments and Hedging Activities

We enter into derivative instruments, which may include interest rate swaps, foreign-currency forwards, equity options, and interest rate 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-rate 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-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve our desired mix of fixed-rate 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 (which do not qualify for hedge accounting treatment).

Derivatives qualifying for hedge accounting treatment 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.

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

We also enter into interest rate lock commitments and forward 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

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

foreign-currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income or expense offsetting the gains and losses on the associated foreign-currency transactions.

Investment Risk

We enter into equity options to mitigate the risk associated with our exposure to the equity markets.

Credit Risk

We enter into various retail automotive-loan purchase agreements with certain counterparties. As part of those agreements, we may withhold a portion of the purchase price from the counterparty and be required to pay the counterparty all or part of the amount withheld at agreed upon measurement dates and determinable amounts if actual credit performance of the acquired loans on the measurement date is better than or equal to what was estimated at the time of acquisition. Based upon these terms, these contracts meet the accounting definition of a derivative.

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 OTC derivatives, such as interest rate caps and floors, 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 nine months ended September 30, 2021, or 2020.

We placed cash and noncash collateral totaling $7 million and $258 million, respectively, supporting our derivative positions at September 30, 2021, compared to $4 million and $145 million of cash and noncash collateral at December 31, 2020, in accounts maintained by counterparties. These amounts include collateral placed at clearinghouses and exclude cash and noncash collateral pledged under repurchase agreements. The receivables for cash collateral placed are included on our Condensed Consolidated Balance Sheet in other assets.

We received cash collateral from counterparties totaling $8 million in accounts maintained by counterparties at September 30, 2021. This amount includes collateral received from clearinghouses and exclude cash and noncash collateral pledged under 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.

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 margin 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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.


	September 30, 2021						December 31, 2020
	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	$	—	$	—	$	22,282	$	—	$	—	$	12,385


Foreign exchange contracts
Forwards	1		—		172		1		—		164
Total derivatives designated as accounting hedges	1		—		22,454		1		—		12,549
Derivatives not designated as accounting hedges
Interest rate contracts

Futures and forwards	2		—		249		1		—		391
Written options	5		2		406		15		—		587

Total interest rate risk	7		2		655		16		—		978
Foreign exchange contracts

Futures and forwards	—		—		436		—		1		159


Total foreign exchange risk	—		—		436		—		1		159
Credit contracts (a)
Other credit derivatives	—		55		n/a		—		28		n/a
Total credit risk	—		55		n/a		—		28		n/a
Equity contracts

Written options	—		4		1		—		4		2
Purchased options	1		—		—		—		—		—
Total equity risk	1		4		1		—		4		2
Total derivatives not designated as accounting hedges	8		61		1,092		16		33		1,139
Total derivatives	$	9	$	61	$	23,546	$	17	$	33	$	13,688

n/a = not applicable

(a)The maximum potential amount of undiscounted future payments that could be required under these credit derivatives was $109 million and $56 million as of September 30, 2021, and December 31, 2020, respectively.

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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
					Total				Discontinued (a)
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Assets
Available-for-sale securities (b) (c)	$	5,307	$	1,259	$	(26)	$	39	$	4	$	28
Finance receivables and loans, net (d)	45,463		28,393		78		225		50		72
Liabilities

Long-term debt	$	7,083	$	8,656	$	108	$	169	$	132	$	203

(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 and includes $3.9 billion and $592 million at September 30, 2021, and December 31, 2020, respectively, related to 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. Refer to Note 6 for a reconciliation of the amortized cost and fair value of available-for-sale securities.

(c)The amount that is identified as the last of layer in the open hedge relationship was $3.0 billion as of September 30, 2021. The basis adjustment associated with the open last of layer relationship was a $30 million liability as of September 30, 2021, which would be allocated across the entire remaining pool upon termination or maturity of the hedge relationship. The amount that has been identified as the last of layer in the discontinued hedge relationship was $4.7 billion and $1.2 billion as of September 30, 2021, and December 31, 2020, respectively. This amount is cumulative and is not adjusted as amortization of the associated basis runs off. The basis adjustment associated with the discontinued last of layer relationship was a $9 million asset as of September 30, 2021, and a $20 million asset as of December 31, 2020, which was allocated across the entire remaining pool upon termination of the hedge relationship.

(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 $16.6 billion and $9.4 billion at September 30, 2021, and December 31, 2020, respectively. The basis adjustment associated with the open last-of-layer relationship was a $28 million asset as of September 30, 2021, and a $153 million asset as of December 31, 2020, 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 $20.1 billion at September 30, 2021, and $18.5 billion at December 31, 2020. This amount is cumulative and is not adjusted as amortization of the associated basis runs off. The basis adjustment associated with the discontinued last-of-layer hedge relationship was a $50 million asset and a $72 million asset as of September 30, 2021, and December 31, 2020, respectively, 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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
(Loss) gain recognized in earnings
Interest rate contracts
(Loss) gain on mortgage and automotive loans, net	$	(4)	$	7	$	(12)	$	(8)
Other income, net of losses	4		(4)		6		(27)
Total interest rate contracts	—		3		(6)		(35)
Foreign exchange contracts

Other income, net of losses	—		(4)		—		(1)
Other operating expenses	3		—		(1)		—
Total foreign exchange contracts	3		(4)		(1)		(1)
Credit contracts

Other income, net of losses	(7)		—		(22)		—
Total credit contracts	(7)		—		(22)		—
Total loss recognized in earnings	$	(4)	$	(1)	$	(29)	$	(36)

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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 qualifying 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 deposits			Interest on long-term debt
Three months ended September 30, ($ in millions)	2021		2020			2021		2020			2021		2020		2021		2020
(Loss) gain on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—	$	—		$	—	$	—		$	—	$	—	$	(4)	$	(2)
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—		—			—		—			—		—		4		2


Hedged available-for-sale securities	—		—			(34)		(2)			—		—		—		—
Derivatives designated as hedging instruments on available-for-sale securities	—		—			34		2			—		—		—		—
Hedged fixed-rate consumer automotive loans	(35)		(45)			—		—			—		—		—		—
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans	35		45			—		—			—		—		—		—
Total gain on fair value hedging relationships	—		—			—		—			—		—		—		—
(Loss) gain on cash flow hedging relationships
Interest rate contracts


Hedged deposit liabilities
Reclassified from accumulated other comprehensive income into income	—		—			—		—			—		(2)		—		—


Hedged variable-rate commercial loans
Reclassified from accumulated other comprehensive income into income	12		23			—		—			—		—		—		—


Total gain (loss) on cash flow hedging relationships	$	12	$	23		$	—	$	—		$	—	$	(2)	$	—	$	—
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	1,619	$	1,602		$	155	$	173		$	245	$	452	$	191	$	309

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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
Nine months ended September 30, ($ in millions)	2021		2020			2021		2020			2021		2020		2021		2020
Gain (loss) on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—	$	—		$	—	$	—		$	—	$	—	$	69	$	(172)
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—		—			—		—			—		—		(69)		172


Hedged available-for-sale securities	—		—			(51)		43			—		—		—		—
Derivatives designated as hedging instruments on available-for-sale securities	—		—			51		(43)			—		—		—		—
Hedged fixed-rate consumer automotive loans	(112)		180			—		—			—		—		—		—
Derivatives designated as hedging instruments on fixed-rate consumer automotive loans	112		(180)			—		—			—		—		—		—
Total gain on fair value hedging relationships	—		—			—		—			—		—		—		—
(Loss) gain on cash flow hedging relationships
Interest rate contracts


Hedged deposit liabilities
Reclassified from accumulated other comprehensive income into income	—		—			—		—			(1)		(7)		—		—


Hedged variable-rate commercial loans
Reclassified from accumulated other comprehensive income into income	52		48			—		—			—		—		—		—
Reclassified from accumulated other comprehensive income into income as a result of a forecasted transaction being probable not to occur	4		—			—		—			—		—		—		—

Total gain (loss) on cash flow hedging relationships	$	56	$	48		$	—	$	—		$	(1)	$	(7)	$	—	$	—
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	4,789	$	4,974		$	433	$	596		$	819	$	1,585	$	671	$	975

During the next 12 months, we estimate $22 million of gains will be reclassified into pretax earnings from derivatives designated as cash flow hedges.

The following tables summarize the location and amounts of gains and losses related to interest and amortization on derivative instruments designated as qualifying 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 September 30, ($ in millions)	2021		2020			2021		2020			2021		2020
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—	$	—		$	—	$	—		$	1	$	3

Amortization of deferred secured debt basis adjustments (FHLB advances)	—		—			—		—			(3)		(5)

Amortization of deferred basis adjustments of available-for-sale securities	—		—			(1)		(2)			—		—
Interest for qualifying accounting hedges of available-for-sale securities	—		—			(1)		(2)			—		—
Amortization of deferred loan basis adjustments	(11)		(12)			—		—			—		—
Interest for qualifying accounting hedges of consumer automotive loans held for investment	(31)		(37)			—		—			—		—

Total loss on fair value hedging relationships	$	(42)	$	(49)		$	(2)	$	(4)		$	(2)	$	(2)

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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
Nine months ended September 30, ($ in millions)	2021		2020			2021		2020			2021		2020
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—	$	—		$	—	$	—		$	3	$	11
Interest for qualifying accounting hedges of unsecured debt	—		—			—		—			3		—
Amortization of deferred secured debt basis adjustments (FHLB advances)	—		—			—		—			(11)		(17)

Amortization of deferred basis adjustments of available-for-sale securities	—		—			(4)		(5)			—		—
Interest for qualifying accounting hedges of available-for-sale securities	—		—			(5)		(4)			—		—
Amortization of deferred loan basis adjustments	(35)		(38)			—		—			—		—
Interest for qualifying accounting hedges of consumer automotive loans held for investment	(93)		(84)			—		—			—		—

Total loss on fair value hedging relationships	(128)		(122)			(9)		(9)			(5)		(6)
Gain on cash flow hedging relationships
Interest rate contracts


Interest for qualifying accounting hedges of variable-rate commercial loans	—		1			—		—			—		—
Total gain on cash flow hedging relationships	$	—	$	1		$	—	$	—		$	—	$	—

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


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Interest rate contracts
(Loss) gain recognized in other comprehensive income	$	(12)	$	(21)	$	(55)	$	129

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


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Foreign exchange contracts (a) (b)
Gain (loss) recognized in other comprehensive income	$	4	$	(4)	$	(1)	$	3

(a)There were no amounts excluded from effectiveness testing for the three months and nine months ended September 30, 2021, or 2020.

(b)Gains and losses reclassified from accumulated other comprehensive income 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 nine months ended September 30, 2021, or 2020.

19. Income Taxes

The increase in income tax expense for the three months ended September 30, 2021, compared to the same period in 2020, was primarily due to the tax effects of an increase in pretax earnings. The increase in income tax expense for the nine months ended September 30, 2021, compared to the same period in 2020, was primarily due to the tax effects of an increase in pretax earnings, partially offset by a nonrecurring tax benefit from the release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2021.

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 changes to 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 12 months.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

20. 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 — We hold 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 — We carry our available-for-sale securities at fair value based on external pricing sources. We classify our securities as Level 1 when fair value is determined using quoted prices available for the same instruments trading in active markets. We classify our securities as Level 2 when fair value is determined using prices for similar instruments trading in active markets. We perform pricing validation procedures for our available-for-sale securities.

•Interests retained in financial asset sales — We retain 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 (for example, forward interest rates) and internally developed inputs (for example, prepayment speeds, delinquency levels, and credit losses).

•Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk-management strategies. Certain of these derivatives are exchange traded, such as equity options. To determine the fair value of these instruments, we utilize the quoted market prices for those 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, 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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

We purchase automotive finance receivables and loans from third parties as part of forward flow arrangements and, from time-to-time, execute opportunistic ad-hoc bulk purchases. As part of those agreements, we may withhold a portion of the purchase price from the counterparty and be required to pay the counterparty all or part of the amount withheld at agreed upon measurement dates and determinable amounts if actual credit performance of the acquired loans on the measurement date is better than or equal to what was estimated at the time of acquisition. Because these contracts meet the accounting definition of a derivative, we recognize a liability at fair value for these deferred purchase price payments. The fair value of these liabilities is determined using a discounted cash flow method. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (for example, forward interest rates) and internally developed inputs (for example, prepayment speeds, delinquency levels, and expected credit losses). These liabilities are valued using internal loss models with unobservable inputs, and 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 CVA, if warranted. The CVA calculation would utilize 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
September 30, 2021 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)	$	1,034	$	—	$	11	$	1,045
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	1,743		—		—		1,743
U.S. States and political subdivisions	—		851		7		858
Foreign government	15		146		—		161
Agency mortgage-backed residential	—		19,706		—		19,706
Mortgage-backed residential	—		3,479		—		3,479
Agency mortgage-backed commercial	—		4,736		—		4,736

Asset-backed	—		547		—		547
Corporate debt	—		1,892		—		1,892
Total available-for-sale securities	1,758		31,357		7		33,122
Mortgage loans held-for-sale (b)	—		102		—		102

Finance receivables and loans, net
Consumer other (b)	—		—		8		8

Derivative contracts in a receivable position
Interest rate	—		2		5		7
Foreign currency	—		1		—		1
Equity contracts	1		—		—		1
Total derivative contracts in a receivable position	1		3		5		9

Total assets	$	2,793	$	31,462	$	31	$	34,286
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate	$	—	$	—	$	2	$	2

Credit contracts	—		—		55		55
Equity contracts	4		—		—		4
Total derivative contracts in a payable position	4		—		57		61

Total liabilities	$	4	$	—	$	57	$	61

(a)Our direct 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


	Recurring fair value measurements
December 31, 2020 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)	$	1,064	$	—	$	7	$	1,071
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	803		—		—		803
U.S. States and political subdivisions	—		1,088		7		1,095
Foreign government	17		159		—		176
Agency mortgage-backed residential	—		18,588		—		18,588
Mortgage-backed residential	—		2,640		—		2,640
Agency mortgage-backed commercial	—		4,189		—		4,189

Asset-backed	—		425		—		425
Corporate debt	—		1,914		—		1,914
Total available-for-sale securities	820		29,003		7		29,830
Mortgage loans held-for-sale (b)	—		—		91		91

Finance receivables and loans, net
Consumer other (b)	—		—		8		8

Derivative contracts in a receivable position
Interest rate	—		—		16		16
Foreign currency	—		1		—		1

Total derivative contracts in a receivable position	—		1		16		17

Total assets	$	1,884	$	29,004	$	129	$	31,017
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position

Foreign currency	$	—	$	1	$	—	$	1
Credit contracts	—		—		28		28
Equity contracts	4		—		—		4
Total derivative contracts in a payable position	4		1		28		33

Total liabilities	$	4	$	1	$	28	$	33

(a)Our direct investment in any one industry did not exceed 11%.

(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. 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.


	Equity securities (a)				Available-for-sale securities				Mortgage loans held-for-sale (b) (c)				Finance receivables and loans, net (b) (d)				Interests retained in financial asset sales
($ in millions)	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
Assets
Fair value at July 1,	$	9	$	5	$	7	$	5	$	97	$	91	$	8	$	8	$	—	$	1
Net realized/unrealized gains
Included in earnings	1		1		—		—		15		22		1		2		—		—
Included in OCI	—		—		—		—		—		—		—		—		—		—
Purchases	—		—		—		2		789		854		4		5		—		—
Sales	—		—		—		—		(799)		(811)		—		—		—		—
Issuances	—		—		—		—		—		—		—		—		—		—
Settlements	—		—		—		—		—		—		(5)		(7)		—		(1)
Transfers into Level 3	1		—		—		—		—		—		—		—		—		—
Transfers out of Level 3 (e)	—		—		—		—		(102)		—		—		—		—		—
Fair value at September 30,	$	11	$	6	$	7	$	7	$	—	$	156	$	8	$	8	$	—	$	—
Net unrealized gains still held at September 30,
Included in earnings	$	1	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Included in OCI	—		—		—		—		—		—		—		—		—		—

(a)Net realized/unrealized gains are 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)Net realized/unrealized gains are reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.

(d)Net realized/unrealized gains are reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.

(e)During the three months ended September 30, 2021, mortgage loans held for sale were transferred out of Level 3 and into Level 2 of the fair value hierarchy. This transfer reflects that the underlying assets are valued based on observable prices in an active market for similar assets, and is deemed to have occurred at the end of the reporting period.


	Derivative liabilities, net of derivative assets
($ in millions)	2021 (a)		2020 (b)
Liabilities
Fair value at July 1,	$	37	$	(12)
Net realized/unrealized losses (gains)
Included in earnings	12		(6)
Included in OCI	—		—
Purchases	—		—
Sales	—		—
Issuances	1		—
Settlements	—		—
Transfers into Level 3	—		—
Transfers out of Level 3 (c)	2		—
Fair value at September 30,	$	52	$	(18)
Net unrealized losses (gains) still held at September 30,
Included in earnings	$	10	$	(6)
Included in OCI	—		—

(a)Net realized/unrealized losses are reported as gain on mortgage and automotive loans, net, and other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.

(b)Net realized/unrealized gains are reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.

(c)During the three months ended September 30, 2021, certain derivative assets were transferred out of Level 3 and into Level 2 of the fair value hierarchy. This transfer reflects that the underlying assets are valued based on observable prices in an active market for similar assets, and is deemed to have occurred at the end of the reporting period.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


	Equity securities (a)				Available-for-sale securities				Mortgage loans held-for-sale (b) (c)				Finance receivables and loans, net (b) (d)				Interests retained in financial asset sales
($ in millions)	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
Assets
Fair value at January 1,	$	7	$	8	$	7	$	2	$	91	$	30	$	8	$	11	$	—	$	2
Net realized/unrealized gains (losses)
Included in earnings	5		(2)		—		—		64		35		2		2		—		—
Included in OCI	—		—		—		—		—		—		—		—		—		—
Purchases	—		—		—		5		2,640		1,832		12		14		—		—
Sales	(2)		—		—		—		(2,693)		(1,741)		—		—		—		—
Issuances	—		—		—		—		—		—		—		—		—		—
Settlements	—		—		—		—		—		—		(14)		(19)		—		(2)
Transfers into Level 3	1		—		—		—		—		—		—		—		—		—
Transfers out of Level 3 (e)	—		—		—		—		(102)		—		—		—		—		—
Fair value at September 30,	$	11	$	6	$	7	$	7	$	—	$	156	$	8	$	8	$	—	$	—
Net unrealized gains (losses) still held at September 30,
Included in earnings	$	5	$	(2)	$	—	$	—	$	—	$	2	$	—	$	—	$	—	$	—
Included in OCI	—		—		—		—		—		—		—		—		—		—

(a)Net realized/unrealized gains (losses) are 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)Net realized/unrealized gains are reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.

(d)Net realized/unrealized gains are reported as other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.

(e)During the nine months ended September 30, 2021, mortgage loans held for sale were transferred out of Level 3 and into Level 2 of the fair value hierarchy. This transfer reflects that the underlying assets are valued based on observable prices in an active market for similar assets, and is deemed to have occurred at the end of the reporting period.


	Derivative liabilities, net of derivative assets
($ in millions)	2021 (a)		2020 (b)
Liabilities
Fair value at January 1,	$	12	$	(2)
Net realized/unrealized losses (gains)
Included in earnings	34		(16)
Included in OCI	—		—
Purchases	—		—
Sales	—		—
Issuances	4		—
Settlements	—		—
Transfers into Level 3	—		—
Transfers out of Level 3 (c)	2		—
Fair value at September 30,	$	52	$	(18)
Net unrealized losses (gains) still held at September 30,
Included in earnings	$	25	$	(16)
Included in OCI	—		—

(a)Net realized/unrealized losses are reported as gain on mortgage and automotive loans, net, and other income, net of losses, in the Condensed Consolidated Statement of Comprehensive Income.

(b)Net realized/unrealized gains are reported as gain on mortgage and automotive loans, net, in the Condensed Consolidated Statement of Comprehensive Income.

(c)During the nine months ended September 30, 2021, certain derivative assets were transferred out of Level 3 and into Level 2 of the fair value hierarchy. This transfer reflects that the underlying assets are valued based on observable prices in an active market for similar assets, and is deemed to have occurred at the end of the reporting period.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 September 30, 2021, and December 31, 2020, respectively. The amounts are generally 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 adjustments		Total gain (loss) included in earnings
September 30, 2021 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets




Loans held-for-sale, net	$	—	$	—	$	354	$	354	$	—	n/m	(a)






Commercial finance receivables and loans, net (b)
Automotive	—		—		27		27		(2)		n/m	(a)
Other	—		—		67		67		(36)		n/m	(a)
Total commercial finance receivables and loans, net	—		—		94		94		(38)		n/m	(a)
Other assets
Nonmarketable equity investments	2		—		8		10		1		n/m	(a)

Repossessed and foreclosed assets (c)	—		—		3		3		—		n/m	(a)

Total assets	$	2	$	—	$	459	$	461	$	(37)	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 reserve, loan loss allowance, or cumulative adjustment.

(b)Represents collateral-dependent loans held for investment for which a nonrecurring measurement was made. The related allowance for loan losses represents the cumulative fair value adjustments for 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 adjustments		Total gain (loss) included in earnings
December 31, 2020 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets




Loans held-for-sale, net	$	—	$	—	$	315	$	315	$	—	n/m	(a)






Commercial finance receivables and loans, net (b)
Automotive	—		—		27		27		(5)		n/m	(a)
Other	—		—		54		54		(20)		n/m	(a)
Total commercial finance receivables and loans, net	—		—		81		81		(25)		n/m	(a)
Other assets
Nonmarketable equity investments (c)	—		7		118		125		88		n/m	(a)

Repossessed and foreclosed assets (d)	—		—		9		9		(1)		n/m	(a)

Total assets	$	—	$	7	$	523	$	530	$	62	n/m

n/m = not meaningful

(c)Primarily relates to an investment in one entity for which there was a subsequent funding round. This subsequent funding round resulted in an observable price change in the value of our investment in the entity. Refer to Note 13 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for further discussion.

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

Additionally, on April 30, 2020, we recognized a $50 million impairment of goodwill at Ally Invest. At the time of impairment, the fair value of goodwill at Ally Invest was classified as Level 3 under the fair value hierarchy. Refer to Note 13 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for further discussion.

Fair Value Option for Financial Assets

We elected the fair value option for an insignificant amount of conforming mortgage loans held for sale and certain acquired unsecured consumer finance receivables. We elected the fair value option for conforming mortgage loans held for sale to mitigate earnings volatility by better matching the accounting for the assets with the related derivatives. We elected the fair value option for certain acquired unsecured consumer finance receivables to mitigate the complexities of recording these loans at amortized cost. 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 September 30, 2021, and December 31, 2020.


			Estimated fair value
($ in millions)	Carrying value		Level 1		Level 2		Level 3		Total
September 30, 2021
Financial assets
Held-to-maturity securities	$	1,150	$	—	$	1,193	$	—	$	1,193
Loans held-for-sale, net	354		—		—		354		354
Finance receivables and loans, net	111,315		—		—		118,484		118,484
FHLB/FRB stock (a)	673		—		673		—		673
Financial liabilities
Deposit liabilities	$	43,242	$	—	$	—	$	43,594	$	43,594

Long-term debt	14,946		—		12,643		4,992		17,635
December 31, 2020
Financial assets
Held-to-maturity securities	$	1,253	$	—	$	1,331	$	—	$	1,331
Loans held-for-sale, net	315		—		—		315		315
Finance receivables and loans, net	115,243		—		—		122,156		122,156
FHLB/FRB stock (a)	725		—		725		—		725
Financial liabilities
Deposit liabilities	$	55,210	$	—	$	—	$	55,932	$	55,932
Short-term borrowings	2,136		—		—		2,136		2,136
Long-term debt	22,006		—		19,161		6,310		25,471

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

In addition to the financial instruments presented in the above table, we have various financial instruments for which the carrying value approximates the fair value due to their short-term nature and limited credit risk. These instruments include cash and cash equivalents, restricted cash, cash collateral, accrued interest receivable, accrued interest payable, trade receivables and payables, and other short-term receivables and payables. Included in cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. Classified as Level 1 under the fair value hierarchy, cash and cash equivalents generally expose us to limited credit risk and are so near maturity that they present insignificant risk of changes in value because of changes in interest rates.

21. 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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 September 30, 2021, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance Sheet. For additional information on derivative instruments and hedging activities, refer to Note 18.

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
($ in millions)							Financial instruments		Collateral (a) (b) (c)		Net amount
September 30, 2021
Assets
Derivative assets in net asset positions	$	1	$	—	$	1	$	—	$	(1)	$	—
Derivative assets in net liability positions	1		—		1		(1)		—		—
Derivative assets with no offsetting arrangements	7		—		7		—		—		7


Total assets	$	9	$	—	$	9	$	(1)	$	(1)	$	7
Liabilities
Derivative liabilities in net liability positions	$	4	$	—	$	4	$	(1)	$	(3)	$	—

Derivative liabilities with no offsetting arrangements	57		—		57		—		—		57


Total liabilities	$	61	$	—	$	61	$	(1)	$	(3)	$	57
December 31, 2020
Assets
Derivative assets in net liability positions	$	1	$	—	$	1	$	(1)	$	—	$	—
Derivative assets with no offsetting arrangements	16		—		16		—		—		16
Total assets	$	17	$	—	$	17	$	(1)	$	—	$	16
Liabilities
Derivative liabilities in net liability positions	$	5	$	—	$	5	$	(1)	$	(1)	$	3
Derivative liabilities with no offsetting arrangements	28		—		28		—		—		28
Total liabilities	$	33	$	—	$	33	$	(1)	$	(1)	$	31

(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. 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. We have not sold or pledged any of the noncash collateral received under these agreements.

22. 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 — Our held-for-investment portfolio includes our direct-to-consumer Ally Home mortgage offering and bulk purchases of high-quality jumbo and LMI mortgage loans originated by third parties. Through our direct-to-consumer channel, we offer a variety of competitively priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment provider. Through the bulk loan channel, we purchase loans from several qualified sellers on a servicing-released basis, allowing us to directly oversee servicing activities and manage refinancing through our direct-to-consumer channel.

Corporate Finance operations — Primarily provides senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies, with a focus on businesses owned by private equity sponsors. These loans are typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. We also provide, through our Lender Finance business, nonbank wholesale-funded managers with partial funding for their direct-lending activities, which is principally leveraged loans. Additionally, we 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 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, and reclassifications and eliminations between the reportable operating segments. Financial results related to Ally Invest, our online brokerage operations, and Ally Lending, our point-of-sale financing business, are also 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.

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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 September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated (a)
2021
Net financing revenue and other interest income	$	1,329	$	14	$	36	$	77	$	138	$	1,594
Other revenue	61		283		19		16		12		391
Total net revenue	1,390		297		55		93		150		1,985
Provision for credit losses	53		—		2		5		16		76
Total noninterest expense	512		273		47		27		143		1,002
Income (loss) from continuing operations before income tax expense	$	825	$	24	$	6	$	61	$	(9)	$	907
Total assets	$	99,617	$	9,354	$	16,328	$	6,729	$	47,156	$	179,184
2020
Net financing revenue and other interest income	$	1,102	$	8	$	30	$	75	$	(15)	$	1,200
Other revenue	61		338		36		9		40		484
Total net revenue	1,163		346		66		84		25		1,684
Provision for credit losses	128		—		—		1		18		147
Total noninterest expense	469		268		40		23		105		905
Income (loss) from continuing operations before income tax expense	$	566	$	78	$	26	$	60	$	(98)	$	632
Total assets	$	103,366	$	8,944	$	15,503	$	5,995	$	51,462	$	185,270

(a)Net financing revenue and other interest income after the provision for credit losses totaled $1.5 billion and $1.1 billion for the three months ended September 30, 2021, and September 30, 2020, respectively.


Nine months ended September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated (a)
2021
Net financing revenue and other interest income	$	3,868	$	44	$	82	$	225	$	294	$	4,513
Other revenue	184		1,006		81		75		148		1,494
Total net revenue	4,052		1,050		163		300		442		6,007
Provision for credit losses	8		—		(2)		5		20		31
Total noninterest expense	1,499		798		136		86		501		3,020
Income (loss) from continuing operations before income tax expense	$	2,545	$	252	$	29	$	209	$	(79)	$	2,956
Total assets	$	99,617	$	9,354	$	16,328	$	6,729	$	47,156	$	179,184
2020
Net financing revenue and other interest income	$	3,131	$	34	$	98	$	220	$	(83)	$	3,400
Other revenue	148		913		65		28		151		1,305
Total net revenue	3,279		947		163		248		68		4,705
Provision for credit losses	1,150		—		4		140		43		1,337
Total noninterest expense	1,407		846		113		84		360		2,810
Income (loss) from continuing operations before income tax expense	$	722	$	101	$	46	$	24	$	(335)	$	558
Total assets	$	103,366	$	8,944	$	15,503	$	5,995	$	51,462	$	185,270

(a)Net financing revenue and other interest income after the provision for credit losses totaled $4.5 billion and $2.1 billion for the nine months ended September 30, 2021, and September 30, 2020, respectively.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

23. Contingencies and Other Risks

As a financial-services company, we are regularly involved in pending or threatened legal proceedings and other matters and are or may be subject to potential liability in connection with them. 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 Topic 450, Contingencies. Refer to Note 1 to the Consolidated Financial Statements in our 2020 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.

Descriptions of certain of our legal matters follow. We do not believe, however, that an estimate of reasonably possible losses or a range of reasonably possible losses—whether in excess of any related accrual or where no accrual exists—can be made for any of these matters for some or all of the reasons identified in the preceding paragraphs.

Purported and Certified Class Actions

In March 2016, Ally filed an action against two buyers of a motor vehicle—Ally Financial Inc. v. Alberta Haskins and David Duncan, Case No. 16JE-AC01713-01, in the Circuit Court of Jefferson County, Missouri—for the purpose of collecting the deficiency that remained due under the retail installment sales contract after the buyers had defaulted and the vehicle had been repossessed and disposed of. In March 2017, the buyers filed a second amended answer and counterclaim on behalf of nationwide and Missouri classes, arguing that Ally’s pre- and post-disposition notices had violated Article 9 of the Uniform Commercial Code as adopted in each State and other applicable jurisdiction. The request for relief included an indeterminate amount of actual, statutory, and punitive damages as well as fees, costs, interest, and other remedies. In May 2018, the circuit court certified the nationwide and Missouri classes and denied Ally’s motion for partial summary judgment. In September 2018, the case was reassigned to a different circuit-court judge, and in February 2019, Ally filed a motion to decertify the nationwide and Missouri classes. In November 2019, the circuit court denied Ally’s motion to decertify. In December 2019, Ally filed a petition with the Missouri Court of Appeals and then with the Missouri Supreme Court for a writ prohibiting the circuit court from taking further action other than vacating the order denying decertification, but each of those petitions was denied. In June 2020, the buyers on behalf of the certified nationwide and Missouri classes filed a motion for partial summary judgment on liability and damages, including statutory damages, the waiver of amounts due, and prejudgment interest. These damages, if awarded by the court, could be significant. In August 2020, Ally filed a petition for a writ of certiorari with the United States Supreme Court—Ally Financial Inc. v. Alberta Haskins et al., No. 20-177—requesting review of the Missouri Supreme Court’s order denying Ally’s petition for a writ of prohibition. In December 2020, Ally—while maintaining its denial of any liability or wrongdoing and its other positions in the case—entered into a binding memorandum of understanding with the buyers, on behalf of the nationwide and Missouri classes, to fully settle the case. In January 2021, the United States Supreme Court granted a joint motion to defer consideration of Ally’s petition for a writ of certiorari. In March 2021, the parties executed and filed with the circuit court a class-action settlement agreement and release that includes provisions for a cash payment of $87.5 million by Ally, a waiver of $700 million in charged-off deficiency balances by Ally, a request by Ally that identified consumer reporting agencies delete specified trade lines, and a release by the nationwide and Missouri classes of related claims against Ally. The class-action settlement agreement and release was preliminarily approved by the circuit court in March 2021, and specified notices have been delivered to class

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

members. In September 2021, the circuit court entered an amended final order approving the class-action settlement agreement and release. During the year ended December 31, 2020, Ally established an accrual of $87.5 million related to this matter.

In February 2021, a purported class action—Cheng et al. v. Ally Financial Inc. et al.—was filed in the U.S. District Court for the Northern District of California (Case No. 3:21-cv-00781). The complaint alleges that Ally and other defendants conspired to prevent or restrict retail investors from purchasing or otherwise acquiring long positions in specified equity securities and to force them instead to sell their positions in those securities at artificially lower prices. The claims include alleged violations of antitrust and unfair-competition laws, misleading public statements, breach of fiduciary duty and the implied covenant of good faith and fair dealing, negligence, and constructive fraud. The request for relief includes an indeterminate amount of damages, fees, costs, and interest, injunctive relief, and other remedies. Also in February 2021, three other purported class actions were filed—Clapp et al. v. Ally Financial Inc. et al. in the U.S. District Court for the Northern District of California (Case No. 3:21-cv-00896), Dechirico et al. v. Ally Financial Inc. et al. in the U.S. District Court for the Eastern District of New York (Case No. 1:21-cv-00677), and Ross et al. v. Ally Financial Inc. et al. in the U.S. District Court for the Southern District of Texas (Case No. 4:21-cv-00292). In March 2021, a fifth purported class action—Fox et al. v. Ally Financial Inc. et al.—was filed in the U.S. District Court for the District of Minnesota (Case No. 0:21-cv-00689). In April 2021, the U.S. Judicial Panel on Multidistrict Litigation consolidated all five of these cases into a multidistrict litigation proceeding in the U.S. District Court for the Southern District of Florida with the caption In re: January 2021 Short Squeeze Trading Litigation (Case No. 1:21-md-02989). Also in April 2021, a sixth purported class action—D’Agostino et al. v. Ally Financial Inc. et al.— was filed in the U.S. District Court for the Southern District of Florida (Case No. 1:21-cv-21458), and in July 2021, this case was consolidated into the multidistrict litigation proceeding as well. The allegations and requested relief in the Clapp, Dechirico, Ross, Fox, and D’Agostino complaints are substantially similar to those included in the Cheng complaint. In August 2021, the plaintiffs voluntarily dismissed Ally from the multidistrict litigation proceeding, without prejudice to their right to refile the purported class action against Ally in the future.

24. Subsequent Events

Declaration of Common Dividend

On October 5, 2021, our Board declared a quarterly cash dividend of $0.25 per share on all common stock. The dividend is payable on November 15, 2021, to stockholders of record at the close of business on November 1, 2021.

Fair Square Financial Acquisition

On October 20, 2021, we signed a definitive agreement to acquire Fair Square Financial Holdings LLC and its subsidiaries, including Fair Square Financial LLC (collectively, Fair Square). Fair Square is a digital-first, nonbank credit-card company that operates in the United States. The consideration for the acquisition is $750 million in cash, subject to closing equity and other adjustments. The transaction is currently expected to close by March 31, 2022, subject to the satisfaction of customary closing conditions.

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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 governmental agencies, central banks, or supranational authorities;

•changes in accounting standards or policies;

•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 type, 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 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 lending, point-of-sale personal lending, corporate finance, brokerage, and wealth management;

•our ability to develop capital plans that will receive non-objection from 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;

•the potential outcomes of legal and regulatory proceedings and governmental and regulatory examinations, investigations, and other inquiries to which we are or may be subject at any given time, and our ability to remediate regulatory deficiencies on a timely basis and to otherwise absorb and address the heightened scrutiny and expectations generally from supervisory and other governmental authorities, the severity of remedies sought, such as enforcement proceeds, and the potential collateral consequences arising from those outcomes;

•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 (such as adverse effects of the COVID-19 pandemic on us and our customers, counterparties, employees, and third-party service providers);

•policies and other actions of governments to mitigate climate and related environmental risks, as well as associated changes in the behavior and preferences of businesses and consumers; 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. The term “partnerships” means business arrangements rather than partnerships as defined by law.

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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 the 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 September 30,				Nine months ended September 30,
($ in millions, except per share data; shares in thousands)	2021		2020		2021		2020
Total financing revenue and other interest income	$	2,177	$	2,145	$	6,396	$	6,674
Total interest expense	444		770		1,499		2,599
Net depreciation expense on operating lease assets	139		175		384		675
Net financing revenue and other interest income	1,594		1,200		4,513		3,400
Total other revenue	391		484		1,494		1,305
Total net revenue	1,985		1,684		6,007		4,705
Provision for credit losses	76		147		31		1,337
Total noninterest expense	1,002		905		3,020		2,810
Income from continuing operations before income tax expense	907		632		2,956		558
Income tax expense from continuing operations	195		156		549		159
Net income from continuing operations	712		476		2,407		399
Income (loss) from discontinued operations, net of tax	—		—		1		(1)
Net income	$	712	$	476	$	2,408	$	398
Net income from continuing operations attributable to common stockholders	$	683	$	476	$	2,378	$	399
Net income attributable to common stockholders	$	683	$	476	$	2,379	$	398
Basic earnings per common share (a):
Net income from continuing operations	$	1.90	$	1.27	$	6.46	$	1.06
Net income	1.90		1.27		6.46		1.06
Weighted-average common shares outstanding	359,179		375,658		368,215		375,478






Diluted earnings per common share (a):
Net income from continuing operations	$	1.89	$	1.26	$	6.41	$	1.06
Net income	1.89		1.26		6.42		1.06
Weighted-average common shares outstanding	361,855		377,011		370,745		376,659
Common share information:
Cash dividends declared per common share	$	0.25	$	0.19	$	0.63	$	0.57
Period-end common shares outstanding	349,599		373,857		349,599		373,857

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


September 30, ($ in millions)	2021		2020
Selected period-end balance sheet data:
Total assets	$	179,184	$	185,270
Total deposit liabilities	$	139,444	$	134,938
Long-term debt	$	14,946	$	25,704
Preferred stock	$	2,324	$	—
Total equity	$	17,289	$	14,126


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Financial ratios:
Return on average assets (a)	1.58	%	1.02	%	1.78	%	0.29	%
Return on average equity (a)	16.00	%	13.41	%	19.58	%	3.77	%
Equity to assets (a)	9.85	%	7.62	%	9.10	%	7.75	%
Common dividend payout ratio (b)	13.16	%	14.96	%	9.75	%	53.77	%
Net interest spread (a) (c)	3.56	%	2.49	%	3.34	%	2.39	%
Net yield on interest-earning assets (a) (d)	3.66	%	2.65	%	3.46	%	2.57	%

(a)The ratios were based on average assets and average total equity using an average daily balance methodology.

(b)The 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.

(d)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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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

We became subject to U.S. Basel III on January 1, 2015, although a number of its provisions—including capital buffers and certain regulatory capital deductions—were subject to phase-in periods. For further information on U.S. Basel III, refer to Note 17 to the Condensed Consolidated Financial Statements. The following table presents selected regulatory capital data under U.S Basel III.


	September 30,
($ in millions)	2021			2020
Common Equity Tier 1 capital ratio	11.20		%	10.36		%
Tier 1 capital ratio	12.81		%	12.11		%
Total capital ratio	14.56		%	14.05		%
Tier 1 leverage ratio (to adjusted quarterly average assets) (a)	9.99		%	9.00		%
Total equity	$	17,289		$	14,126
CECL phase-in adjustment (b)	1,155			1,212
Preferred stock (c)	(2,324)			—
Goodwill and certain other intangibles	(370)			(387)
Deferred tax assets arising from net operating loss and tax credit carryforwards (d)	(48)			(17)
Other adjustments (e)	(32)			(676)
Common Equity Tier 1 capital	15,670			14,258
Preferred stock (c)	2,324			—
Trust preferred securities (c)	—			2,498

Other adjustments	(64)			(88)
Tier 1 capital	17,930			16,668
Qualifying subordinated debt and other instruments qualifying as Tier 2	830			1,035
Qualifying allowance for loan losses and other adjustments	1,615			1,634
Total capital	$	20,375		$	19,337
Risk-weighted assets (f)	$	139,957		$	137,594

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

(b)We have elected to delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information.

(c)In connection with our issuances of non-cumulative perpetual preferred stock in the second and third quarter of 2021, we redeemed a portion of the Series 2 TRUPS outstanding. In September 2021, we announced our intent to redeem the remaining shares of the Series 2 TRUPS outstanding without issuing a replacement capital instrument. The redemption was effectuated on October 15, 2021. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional details about our redemptions of Series 2 TRUPS, and Note 14 to the Condensed Consolidated Financial Statements for additional details about our issuances of non-cumulative perpetual preferred stock.

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

(e)Primarily comprises adjustments related to our accumulated other comprehensive income opt-out election, which allows us to exclude most elements of accumulated other comprehensive income from regulatory capital.

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

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Overview

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 September 30,					Nine months ended September 30,
($ in millions)	2021		2020		Favorable/(unfavorable) % change	2021		2020		Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance	$	1,390	$	1,163	20	$	4,052	$	3,279	24
Insurance	297		346		(14)	1,050		947		11
Mortgage Finance	55		66		(17)	163		163		—
Corporate Finance	93		84		11	300		248		21
Corporate and Other	150		25		n/m	442		68		n/m
Total	$	1,985	$	1,684	18	$	6,007	$	4,705	28
Income from continuing operations before income tax expense
Dealer Financial Services
Automotive Finance	$	825	$	566	46	$	2,545	$	722	n/m
Insurance	24		78		(69)	252		101		150
Mortgage Finance	6		26		(77)	29		46		(37)
Corporate Finance	61		60		2	209		24		n/m
Corporate and Other	(9)		(98)		91	(79)		(335)		76
Total	$	907	$	632	44	$	2,956	$	558	n/m

n/m = not meaningful

•Our Dealer Financial Services business 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 their customers. Dealer Financial Services comprises our Automotive Finance and Insurance segments.

Our Automotive Finance operations 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 dealer-centric business model, value-added products and services, full-spectrum financing, and business expertise proven over many credit cycles make us a premier automotive finance company. 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, including substantial investments in electrification by automobile manufacturers and suppliers. Ally remains focused on meeting the needs of both our dealer and consumer customers and continuing to strengthen and expand upon our approximate 20,400 dealer relationships. We continue to identify and cultivate relationships with automotive retailers including those with leading eCommerce platforms. We also operate Clearlane, our online direct-lending platform, which provides a digital platform for consumers seeking direct financing. 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. Our strong and expansive dealer relationships, comprehensive suite of products and services, full-spectrum financing, and depth of experience position us to evolve with future shifts in automobile technologies, including electrification. Ally provides automobile financing for hybrid and battery-electric vehicles

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

today, and is well positioned to remain a leader in automotive financing as we believe the vast majority of these vehicles will be sold through dealerships with whom we have an established relationship.

The Growth channel was established to focus on developing dealer relationships beyond those relationships that primarily were developed through our previous role as a captive finance company for GM and Stellantis. 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 in evolving our business model from a focused captive finance company to a leading market competitor. In this channel, we currently have over 14,000 dealer relationships, of which approximately 77% are franchised dealers (including brands such as Ford, Honda, Hyundai, Kia, Nissan, Toyota, and others), or used vehicle only retailers with 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 2.5 million consumers nationwide across F&I and P&C products. In addition, we offer F&I products in Canada, where we serve approximately 434,000 consumers and are the VSC and protection plan provider for GM Canada and the VSC provider for Subaru Canada.

As a leading provider with a focus on offering dealers a broad range of consumer F&I products, we offer VSCs, VMCs, and GAP products. 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.

•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 our direct-to-consumer Ally Home mortgage offering, and bulk purchases of high-quality jumbo and LMI mortgage loans originated by third parties.

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 2019, we announced a strategic partnership with BMC, which delivers an enhanced end-to-end digital mortgage experience for our customers through our direct-to-consumer channel. Through this partnership, BMC conducts the sales, processing, underwriting, and closing for Ally’s digital mortgage offerings in a highly innovative, scalable, and cost-efficient manner, while Ally retains control of all the marketing and advertising strategies and loan pricing. During the nine months ended September 30, 2021, we originated $7.6 billion of mortgage loans through our direct-to-consumer channel.

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 refinancing through our direct-to-consumer channel. During the nine months ended September 30, 2021, we purchased $3.1 billion of mortgage loans that were originated by third parties. Our mortgage loan purchases are held for investment.

The combination of our direct-to-consumer strategy and bulk portfolio purchase program 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.

During the third quarter of 2021, we announced the launch of RefiNow. RefiNow is available to certain borrowers with a Fannie Mae-backed mortgage and provides a home financing option to serve borrowers who may not qualify for other options.

•Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle-market companies owned by private equity sponsors, and loans to asset managers that primarily provide leveraged loans. 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. While there continues to be a significant level of liquidity and competition in the middle-market lending space, we have continued to prudently grow our lending portfolio with a disciplined focus on credit quality, including a greater emphasis on asset-based loans. We seek markets and opportunities where our clients require customized, highly structured, and time-sensitive financing solutions. Our corporate-finance lending portfolio is generally composed of first-lien, first-out loans. Our 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. Additionally, our Lender Finance business provides asset managers with partial funding for their direct-lending activities. The portfolio is well diversified across multiple industries including financials, services, manufacturing, distribution and other specialty sectors. These specialty sectors include our Healthcare and Technology Finance verticals. The Healthcare vertical provides financing across the healthcare spectrum including services, pharmaceuticals,

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

manufacturing, and medical devices and supplies. Our Technology Finance vertical provides financing solutions to venture capital-backed, technology-based companies. We also provide a commercial real estate product focused on lending to skilled nursing facilities, senior housing, medical office buildings, and hospitals.

•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 FTP and treasury ALM activities. Corporate and Other also includes activity related to certain equity investments, which primarily consist of FHLB and FRB stock as well as other strategic investments, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, CRA loans and related investments, and reclassifications and eliminations between the reportable operating segments.

Corporate and Other includes the results of Ally Invest, our digital brokerage and wealth management offering, which enables us to complement our competitive deposit products with low-cost investing. The digital wealth management business aligns with our strategy to create a premier digital financial services company and provides additional sources of fee income through asset management and certain other fees, with minimal balance sheet utilization. This business also provides an additional source of low-cost deposits through arrangements with Ally Invest’s clearing broker.

Corporate and Other also includes the results of Ally Lending. Ally Lending currently serves medical, retail, and home improvement service providers by enabling promotional and fixed rate installment-loan products through a digital application process at point-of-sale. The home improvement segment, which was launched in the second quarter of 2020, now represents nearly 45% of new originations, and is expected to grow. We believe the market outlook for point-of-sale lending provides attractive opportunities for future diversification, including in the automotive servicing and vehicle upfit space. Point-of-sale lending broadens our capabilities, and expands our product offering into consumer unsecured lending, all while helping to further meet the financial needs of our customers.

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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 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 September 30,					Nine months ended September 30,
($ in millions)	2021		2020		Favorable/(unfavorable) % change	2021		2020		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	2,177	$	2,145	1	$	6,396	$	6,674	(4)
Total interest expense	444		770		42	1,499		2,599		42
Net depreciation expense on operating lease assets	139		175		21	384		675		43
Net financing revenue and other interest income	1,594		1,200		33	4,513		3,400		33
Other revenue
Insurance premiums and service revenue earned	279		276		1	837		816		3
Gain on mortgage and automotive loans, net	18		33		(45)	73		35		109
Loss on extinguishment of debt	(52)		(49)		(6)	(126)		(50)		(152)
Other gain on investments, net	24		64		(63)	212		173		23
Other income, net of losses	122		160		(24)	498		331		50
Total other revenue	391		484		(19)	1,494		1,305		14
Total net revenue	1,985		1,684		18	6,007		4,705		28
Provision for credit losses	76		147		48	31		1,337		98
Noninterest expense
Compensation and benefits expense	389		342		(14)	1,230		1,036		(19)
Insurance losses and loss adjustment expenses	69		85		19	206		301		32
Goodwill impairment	—		—		—	—		50		100
Other operating expenses	544		478		(14)	1,584		1,423		(11)
Total noninterest expense	1,002		905		(11)	3,020		2,810		(7)
Income from continuing operations before income tax expense	907		632		44	2,956		558		n/m
Income tax expense from continuing operations	195		156		(25)	549		159		n/m
Net income from continuing operations	$	712	$	476	50	$	2,407	$	399	n/m

n/m = not meaningful

We earned net income from continuing operations of $712 million and $2.4 billion for the three months and nine months ended September 30, 2021, respectively, compared to net income of $476 million and $399 million for the three months and nine months ended September 30, 2020. During the three months and nine months ended September 30, 2021, results were favorably impacted by lower provision for credit losses associated with improved macroeconomic conditions and higher net financing revenue driven by lower interest expense and lower net depreciation expense on operating lease assets. These items were partially offset by higher noninterest expense for the three months and nine months ended September 30, 2021.

Net financing revenue and other interest income increased $394 million and $1.1 billion for the three months and nine months ended September 30, 2021, respectively, as compared to the three months and nine months ended September 30, 2020. Within our Automotive Finance operations, higher average consumer assets and higher portfolio yields contributed to the increase in revenue resulting from a continued focus on the used-vehicle portfolio primarily through franchised dealers and growth in application volume from our dealer network. Also within our Automotive Finance operations, total net operating lease revenue increased $69 million and $368 million for the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, driven by strong remarketing gains as a result of continued new vehicle supply constraints and an increase in demand for used vehicles. We also experienced lower interest expense for the three months and nine months ended September 30, 2021, as compared to the same periods in 2020, driven by market and industry dynamics that drove a decrease in our deposit rates and other funding costs, and our continued shift to more cost-efficient deposit funding. These items were partially offset by lower commercial automotive revenue within our Automotive Finance operations, driven by lower outstanding floorplan assets as a result of declining new vehicle inventories due to ongoing production constraints from a global semiconductor chip shortage, and strong new vehicle sales during the first half of the year. Additionally, during the nine months ended September 30, 2021, net financing revenue and other interest income decreased within our Mortgage Finance operations, primarily due to

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

higher prepayment activity, driven by a lower interest rate environment which resulted in portfolio depletion and accelerated premium amortization.

Loss on extinguishment of debt increased $3 million and $76 million for the three months and nine months ended September 30, 2021, respectively, as compared to the three months and nine months ended September 30, 2020. The increase for the nine months ended September 30, 2021, was primarily driven by $121 million of losses incurred for the partial redemption of the Series 2 TRUPs during the nine months ended September 30, 2021, as compared to a $48 million loss on the early repayment of 13 FHLB advances we elected to prepay and early terminate during the third quarter of 2020.

Other gain on investments was $24 million and $212 million for the three months and nine months ended September 30, 2021, respectively, compared to $64 million and $173 million for the three months and nine months ended September 30, 2020. The decrease for three months ended September 30, 2021, was the result of a decrease in the fair value of the equity securities. The increase for the nine months ended September 30, 2021, was primarily attributable to favorable performance within our equity securities portfolio, as compared to results from the nine months ended September 30, 2020, driven by unfavorable market conditions from the COVID-19 pandemic in the first quarter of 2020, and favorable equity-market conditions throughout 2021.

Other income, net of losses decreased $38 million and increased $167 million for the three months and nine months ended September 30, 2021, respectively, as compared to the three months and nine months ended September 30, 2020. The decrease for the three months ended September 30, 2021, was primarily driven by a decrease in income earned from equity-method investments. The increase for the nine months ended September 30, 2021, was primarily due to $83 million of upward adjustments related to equity securities without a readily determinable fair value, driven primarily by an investment in one entity for which there was a subsequent funding round at a higher valuation during the nine months ended September 30, 2021, resulting in an observable price change.

The provision for credit losses decreased $71 million and $1.3 billion for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. For the nine months ended September 30, 2021, the decrease in provision for credit losses was primarily driven by reserve increases during the same period in 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to reserve declines during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover. Additionally, the provision decrease during the three months and nine months ended September 30, 2021, was impacted by lower net charge-offs in our consumer and commercial automotive portfolios as we continue to experience strong credit performance, partially offset by a reserve increase from portfolio growth in our consumer portfolios during the three months and nine months ended September 30, 2021. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Noninterest expense was $1.0 billion and $3.0 billion for the three months and nine months ended September 30, 2021, respectively, compared to $905 million and $2.8 billion for the three months and nine months ended September 30, 2020. The increases for the three months and nine months ended September 30, 2021, were driven by higher compensation and benefits expense attributable to an update to our retirement eligibility benefits, and increased expenses to support the growth of our consumer product suite and expand our digital capabilities and portfolio of products, as well as $54 million of contributions to the Ally Charitable Foundation during the nine months ended September 30, 2021. The increases in noninterest expense were partially offset by lower insurance losses for the three months and nine months ended September 30, 2021, as compared to the same periods in 2020, and a goodwill impairment charge of $50 million related to Ally Invest for the nine months ended September 30, 2020.

We recognized total income tax expense from continuing operations of $195 million and $549 million for the three months and nine months ended September 30, 2021, respectively, compared to income tax expense of $156 million and $159 million for the same periods in 2020. The increase in income tax expense for the three months ended September 30, 2021, compared to the same period in 2020, was primarily due to the tax effects of an increase in pretax earnings. The increase in income tax expense for the nine months ended September 30, 2021, compared to the same period in 2020, was primarily due to the tax effects of an increase in pretax earnings, partially offset by a nonrecurring tax benefit from the release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2021.

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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 September 30,					Nine months ended September 30,
($ in millions)	2021		2020		Favorable/(unfavorable) % change	2021		2020		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Consumer	$	1,320	$	1,253	5	$	3,859	$	3,670	5
Commercial	112		153		(27)	398		670		(41)

Operating leases	393		360		9	1,147		1,070		7
Other interest income	—		1		(100)	—		4		(100)
Total financing revenue and other interest income	1,825		1,767		3	5,404		5,414		—
Interest expense	357		490		27	1,152		1,608		28
Net depreciation expense on operating lease assets (a)	139		175		21	384		675		43
Net financing revenue and other interest income	1,329		1,102		21	3,868		3,131		24
Other revenue

Other income	61		61		—	184		148		24
Total other revenue	61		61		—	184		148		24
Total net revenue	1,390		1,163		20	4,052		3,279		24
Provision for credit losses	53		128		59	8		1,150		99
Noninterest expense
Compensation and benefits expense	136		134		(1)	425		415		(2)
Other operating expenses	376		335		(12)	1,074		992		(8)
Total noninterest expense	512		469		(9)	1,499		1,407		(7)
Income from continuing operations before income tax expense	$	825	$	566	46	$	2,545	$	722	n/m
Total assets	$	99,617	$	103,366	(4)	$	99,617	$	103,366	(4)

n/m = not meaningful

(a)Includes net remarketing gains of $86 million and $278 million for the three months and nine months ended September 30, 2021, respectively, compared to remarketing gains of $71 million and $62 million for the three months and nine months ended September 30, 2020.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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


	Three months ended September 30,								Nine months ended September 30,
	2021				2020				2021				2020
($ 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)	$	76,557	6.62	%	$	72,999	6.56	%	$	74,918	6.66	%	$	72,605	6.53	%
Commercial
Wholesale floorplan (d)	8,849		3.18		15,385		3.02		11,737		3.22		20,226		3.55
Other commercial automotive (e)	5,038		4.16		5,880		4.04		5,423		4.24		5,705		4.24
Investment in operating leases, net (f)	10,919		9.21		9,317		7.89		10,372		9.83		9,155		5.76

(a)Average balances are calculated using an average daily balance methodology.

(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 2020 Annual Report on Form 10-K.

(c)Includes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Excluding the impact of hedging activities, the yield was 6.84% and 6.89% for the three months and nine months ended September 30, 2021, respectively, and 6.83% and 6.77% for the three months and nine months ended September 30, 2020.

(d)Includes the effects of derivative financial instruments designated as hedges, which is included within Corporate and Other. Excluding the impact of hedging activities, the yield was 2.65% and 2.58% for the three months and nine months ended September 30, 2021, respectively, and 2.42% and 3.07% for the three months and nine months ended September 30, 2020.

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

(f)Yield includes gains on the sale of off-lease vehicles of $86 million and $278 million for the three months and nine months ended September 30, 2021, respectively, compared to gains on the sale of off-lease vehicles of $71 million and $62 million for the three months and nine months ended September 30, 2020. Excluding these gains and losses on sale, the yield was 6.09% and 6.24% for the three months and nine months ended September 30, 2021, respectively, and 4.88% and 4.86% for the three months and nine months ended September 30, 2020. The shift in off-lease vehicle disposition mix is expected to continue in the near term and may limit our ability to optimize remarketing proceeds. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

Our Automotive Finance operations earned income from continuing operations before income tax expense of $825 million and $2.5 billion for the three months and nine months ended September 30, 2021, respectively, compared to income earned of $566 million and $722 million for the three months and nine months ended September 30, 2020. For the three months and nine months ended September 30, 2021, the increases were due primarily to lower provision for credit losses and lower interest expense, as well as lower net depreciation expense on operating lease assets. The lower provision for credit losses for the three months ended September 30, 2021, was primarily driven by a decrease in net charge-offs. The lower provision for credit losses for the nine months ended September 30, 2021, was primarily driven by reserve increases in the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to reserve declines during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover.

Consumer automotive loan financing revenue increased $67 million and $189 million for the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. Higher average consumer assets and higher portfolio yields contributed to the increase in revenue resulting from a continued focus on the used-vehicle portfolio primarily through franchised dealers and growth in application volume from our dealer network. Through these actions, we continue to optimize risk adjusted returns through our origination mix.

Commercial loan financing revenue decreased $41 million and $272 million for the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The decreases were driven by lower outstanding floorplan assets as a result of declining new vehicle inventories due to ongoing production constraints from a global semiconductor chip shortage, and strong new vehicle sales during the first half of the year.

Interest expense was $357 million and $1.2 billion for the three months and nine months ended September 30, 2021, respectively, compared to $490 million and $1.6 billion for the three months and nine months ended September 30, 2020. The decreases were primarily due to market and industry dynamics, which drove a decrease in our deposit rates and other funding costs, as we continue to shift towards a more favorable mix of lower cost funding.

Other income was $61 million and $184 million for the three months and nine months ended September 30, 2021, respectively, compared to $61 million and $148 million for the same periods in 2020. The increase during the nine months ended September 30, 2021, was primarily due to an increase in remarketing fee income resulting from higher dealer sales activity during the nine months ended September 30, 2021. In addition, late fee income increased for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, as a result of the suppression of late fees in the prior year, as part of our COVID-19 relief efforts.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Total net operating lease revenue increased $69 million and $368 million for the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. We recognized remarketing gains of $86 million and $278 million for the three months and nine months ended September 30, 2021, respectively, compared to remarketing gains of $71 million and $62 million for the three months and nine months ended September 30, 2020, while depreciation expense on operating lease assets decreased $21 million and $75 million for the three months and nine months ended September 30, 2021, respectively compared to the same periods in 2020. The increases in net operating lease revenue were primarily driven by strong remarketing gains as a result of continued new vehicle supply constraints and an increase in demand for used vehicles. The increases were also impacted by an increase in yield primarily resulting from lower depreciation expense resulting from downward adjustments to the rate of depreciation during the nine months ended September 30, 2021, as well as asset growth. Refer to the Operating Lease Residual Risk Management section of this MD&A for further discussion.

The provision for credit losses decreased $75 million and $1.1 billion for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. For the nine months ended September 30, 2021, the decrease in provision for credit losses was primarily driven by reserve increases during the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to reserve declines during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover. Additionally, the provision decrease during the three months and nine months ended September 30, 2021, was driven by lower net charge-offs in our consumer and commercial automotive portfolios as we continue to experience strong credit performance, partially offset by a reserve increase from portfolio growth in our consumer automotive portfolio during the three months and nine months ended September 30, 2021. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Automotive Financing Volume

Consumer Automotive Financing

Our portfolio yield for consumer automotive loans, excluding the impact of hedging activities, increased approximately 1 and 12 basis points for the three months and nine months ended September 30, 2021, respectively, relative to the same periods in 2020. 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. Our underwriting capabilities allow us to manage our risk tolerance levels to quickly react to major changes in the economy, including the current pandemic environment. Over the past several years, we have continued to focus on optimizing pricing relative to market interest rates as well as 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 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 $8.8 billion, or approximately 11.3%, of our total consumer automotive loans at September 30, 2021, as compared to $8.6 billion, or approximately 11.7% of our total consumer automotive loans at December 31, 2020.

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 September 30, 2021
S	$	1.5	19	738	$	1.1	33	742
A	4.0		51	682	1.7		52	683
B	1.8		24	647	0.5		15	650
C	0.5		6	612	—		—	621


Total retail originations	$	7.8	100	679	$	3.3	100	694
Three months ended September 30, 2020
S	$	1.3	24	736	$	1.4	47	735
A	2.6		48	682	1.3		43	679
B	1.0		19	639	0.3		10	645
C	0.3		6	578	—		—	609
D	0.1		2	517	—		—	607
E	0.1		1	495	—		—	575
Total retail originations	$	5.4	100	677	$	3.0	100	699
Nine months ended September 30, 2021
S	$	4.1	20	736	$	3.4	33	738
A	10.4		50	682	5.2		51	680
B	5.1		25	648	1.5		15	650
C	0.9		4	608	0.1		1	613
D	0.2		1	563	—		—	583
E	0.1		—	544	—		—	567
Total retail originations	$	20.8	100	679	$	10.2	100	693
Nine months ended September 30, 2020
S	$	3.5	24	736	$	3.6	46	735
A	6.9		47	681	3.3		42	676
B	3.1		21	643	0.9		11	645
C	0.9		6	601	0.1		1	612
D	0.2		1	541	—		—	593
E	0.1		1	515	—		—	572
Total retail originations	$	14.7	100	679	$	7.9	100	697

(a)Represents Ally’s internal credit score, incorporating numerous borrower and structure attributes including: severity and aging of delinquency; number of credit inquiries; LTV ratio; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring.

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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 September 30,				Nine months ended September 30,
	2021		2020		2021		2020
0–71	14	%	20	%	15	%	19	%
72–75	66		63		66		64
76 +	20		17		19		17
Total retail originations	100	%	100	%	100	%	100	%

Retail originations with a term of 76 months or more represented 20% and 19% of total retail originations for the three months and nine months ended September 30, 2021, respectively, compared to 17% for both the three months and nine months ended September 30, 2020. Substantially all of the loans originated with a term of 76 months or more during the three months and nine months ended September 30, 2021, and 2020, 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 at origination of 620 or greater.

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


September 30,	2021		2020
Pre-2017	4	%	9	%
2017	6		12
2018	10		20
2019	18		30
2020	25		29
2021	37		—
Total retail	100	%	100	%

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 September 30, ($ in millions)	2021		2020			2021	2020
Used retail	$	7,809	$	5,416		64	55
New retail	3,216		3,008			26	31
Lease	1,260		1,364			10	14
Total consumer automotive financing originations (a)	$	12,285	$	9,788		100	100

(a)Includes CSG originations of $1.1 billion and $992 million for the three months ended September 30, 2021, and 2020, respectively.


	Consumer automotive financing originations				% Share of Ally originations
Nine months ended September 30, ($ in millions)	2021		2020			2021	2020
Used retail	$	20,783	$	14,656		59	57
New retail	10,163		7,947			29	30
Lease	4,441		3,442			12	13
Total consumer automotive financing originations (a)	$	35,387	$	26,045		100	100

(a)Includes CSG originations of $3.4 billion and $2.7 billion for the nine months ended September 30, 2021, and 2020, respectively.

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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 September 30, ($ in millions)	2021		2020			2021	2020
Growth channel	$	6,738	$	4,918		55	50
Stellantis dealers	3,076		2,841			25	29
GM dealers	2,471		2,029			20	21
Total consumer automotive financing originations	$	12,285	$	9,788		100	100


	Consumer automotive financing originations				% Share of Ally originations
Nine months ended September 30, ($ in millions)	2021		2020			2021	2020
Growth channel	$	18,835	$	13,079		53	50
Stellantis dealers	9,224		7,145			26	28
GM dealers	7,328		5,821			21	22
Total consumer automotive financing originations	$	35,387	$	26,045		100	100

Total consumer automotive loan and operating lease originations increased $2.5 billion and $9.3 billion for the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The increase for the three months ended September 30, 2021, as compared to the same period in 2020, was driven by higher financed transaction amounts, as well as increased application flow and decisioning speeds. The increase for the nine months ended September 30, 2021, as compared to the same period in 2020, was primarily driven by higher consumer demand and higher financed transaction amounts, as well as increased application flow and decisioning speeds. Additionally, originations for the three months and nine months ended September 30, 2020, were impacted by the COVID-19 pandemic that temporarily shut down or restricted operations at automotive dealers. These restrictions, along with the industry-wide halt of new vehicle production, drove a significant decrease in industry automotive light vehicle sales.

We have included origination metrics by loan term and FICO® Score within this MD&A. However, we employ our own risk evaluation, including proprietary risk models, in evaluating credit risk, as described in the section titled Automotive Financing Volume—Acquisition and Underwriting within the MD&A in our 2020 Annual Report on Form 10-K.

The following table presents 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 September 30,	2021		2020		2021		2020		2021		2020
740 +	16	%	19	%	19	%	22	%	55	%	46	%
660–739	41		40		40		40		33		38
620–659	27		23		24		20		9		12
540–619	11		12		5		5		2		3
< 540	2		3		—		—		—		—
Unscored (a)	3		3		12		13		1		1
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
Nine months ended September 30,	2021		2020		2021		2020		2021		2020
740 +	16	%	19	%	18	%	22	%	53	%	46	%
660–739	41		40		40		38		34		37
620–659	27		24		24		20		10		12
540–619	11		12		5		6		2		4
< 540	2		2		—		—		—		—
Unscored (a)	3		3		13		14		1		1
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.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Originations with a FICO® Score of less than 620 (considered nonprime) represented 9% of total consumer loan and operating lease originations for both the three months and nine months ended September 30, 2021, compared to 10% and 11% for the three months and nine months ended September 30, 2020, respectively. Consumer loans and operating leases with FICO® Scores of less than 540 composed 1% of total originations for both the three months and nine months ended September 30, 2021, compared to 2% and 1% of total originations for the three months and nine months ended September 30, 2020, respectively. Nonprime applications are subject to more stringent underwriting criteria (for example, minimum payment-to-income ratio and vehicle mileage, and maximum amount financed), and our nonprime loan portfolio 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 2020 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
	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2021			2020			2021			2020
Stellantis new vehicles	29		%	34		%	32		%	33		%
GM new vehicles	16			33			22			34
Growth new vehicles	11			16			15			16
Used vehicles	44			17			31			17
Total	100		%	100		%	100		%	100		%
Total commercial wholesale finance receivables	$	8,849		$	15,385		$	11,737		$	20,226

Average commercial wholesale financing receivables outstanding decreased $6.5 billion and $8.5 billion during the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The decreases were primarily due to lower dealer inventory levels, driven by strong consumer demand for vehicles that outpaced lower automotive production levels due to the global semiconductor chip shortage. The declines were also impacted by a reduction in the number of GM 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. Manufacturer production and corresponding dealer stock levels, as well as dealer penetration levels, may continue to influence our future wholesale balances. While the severity and duration of these supply chain disruptions is not currently clear, we anticipate this will continue to result in lower commercial wholesale finance receivables for the remainder of 2021 commensurate with lower dealer inventory levels.

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. Additionally, these loans generally include cross-collateral and cross-default provisions. 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. The average balances of other commercial automotive loans decreased $842 million and $317 million for the three months and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, to an average of $5.0 billion and $5.4 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 September 30,							Nine months ended September 30,
($ in millions)	2021			2020			Favorable/(unfavorable) % change	2021			2020			Favorable/(unfavorable) % change
Insurance premiums and other income
Insurance premiums and service revenue earned	$	279		$	276		1	$	837		$	816		3
Interest and dividends on investment securities, cash and cash equivalents, and other earning assets, net (a)	14			8			75	44			34			29
Other gain on investments, net (b)	1			59			(98)	160			89			80
Other income	3			3			—	9			8			13
Total insurance premiums and other income	297			346			(14)	1,050			947			11
Expense
Insurance losses and loss adjustment expenses	69			85			19	206			301			32
Acquisition and underwriting expense
Compensation and benefits expense	23			21			(10)	69			62			(11)
Insurance commissions expense	142			130			(9)	416			383			(9)
Other expenses	39			32			(22)	107			100			(7)
Total acquisition and underwriting expense	204			183			(11)	592			545			(9)
Total expense	273			268			(2)	798			846			6
Income from continuing operations before income tax expense	$	24		$	78		(69)	$	252		$	101		150
Total assets	$	9,354		$	8,944		5	$	9,354		$	8,944		5
Insurance premiums and service revenue written	$	295		$	333		(11)	$	929		$	917		1
Combined ratio (c)	96.4		%	96.1		%		94.2		%	102.6		%

n/m = not meaningful

(a)Includes interest expense of $15 million and $43 million, for the three months and nine months ended September 30, 2021, respectively, and $21 million and $60 million for the three months and nine months ended September 30, 2020.

(b)Includes net unrealized gains on equity securities of $65 million and $34 million for the three months and nine months ended September 30, 2021, respectively, compared to net unrealized gains of $13 million for the three months ended September 30, 2020, and net unrealized losses of $80 million for the nine months ended September 30, 2020.

(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 earned income from continuing operations before income tax expense of $24 million and $252 million for the three months and nine months ended September 30, 2021, respectively, compared to $78 million and $101 million for the three months and nine months ended September 30, 2020. The decrease for the three months ended September 30, 2021, was primarily due to a $58 million decrease in other gain on investments, net. The increase for the nine months ended September 30, 2021, was primarily driven by a $71 million increase in other gain on investments, net and a $95 million decrease in insurance losses and loss adjustment expenses primarily as a result of lower weather-related losses from our P&C business.

Insurance premiums and service revenue earned was $279 million and $837 million for the three months and nine months ended September 30, 2021, respectively, compared to $276 million and $816 million for the three months and nine months ended September 30, 2020. The activity included $13 million and $53 million in higher earned revenue from our F&I products for the three months and nine months ended September 30, 2021, respectively, as revenue is earned over the life of the contracts on a basis proportionate to the anticipated loss pattern. The increases were offset by $10 million and $31 million in lower earned premiums from our P&C products for the three months and nine months ended September 30, 2021, respectively, driven by lower dealer vehicle inventory levels.

Other gain on investments, net was $1 million and $160 million for the three months and nine months ended September 30, 2021, respectively, compared to $59 million and $89 million for the same periods in 2020. The decrease for the three months ended September 30, 2021, was primarily due to a $65 million decrease in the fair value of the equity securities as compared to a $13 million increase in the fair value of equity securities in the prior year quarter. The increase for the nine months ended September 30, 2021, was primarily attributable to

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

favorable performance within our equity securities portfolio, as compared to results from the nine months ended September 30, 2020, which included $80 million in unrealized losses driven by unfavorable market conditions from the COVID-19 pandemic in 2020.

Insurance losses and loss adjustment expenses totaled $69 million and $206 million for the three months and nine months ended September 30, 2021, respectively, compared to $85 million and $301 million for the same periods in 2020. The decreases for the three months and nine months ended September 30, 2021, were primarily driven by lower weather losses related to our vehicle inventory insurance business. Total acquisition and underwriting expense increased $21 million and $47 million for the three months and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. The increases were primarily due to an increase in insurance commissions expense, commensurate with higher earned premiums from our F&I products.

The combined ratio was 96.4% and 94.2% for the three months and nine months ended September 30, 2021, as compared to 96.1% and 102.6% for the three months and nine months ended September 30, 2020. The decrease for the nine months ended September 30, 2021, was primarily driven by lower weather losses from our P&C business. In April 2021, we renewed our annual excess of loss reinsurance agreement and continue to utilize this coverage for our vehicle inventory insurance to manage our risk of weather-related loss.

Premium and Service Revenue Written

The following table summarizes premium and service revenue written by product, net of premiums ceded to reinsurers. VSC and GAP revenue are earned over the life of the service contract on a basis proportionate to the anticipated loss pattern. Refer to Note 3 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for further discussion of this revenue stream.


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Finance and insurance products
Vehicle service contracts	$	201	$	232	$	660	$	642
Guaranteed asset protection and other finance and insurance products (a)	41		37		125		103
Total finance and insurance products	242		269		785		745
Property and casualty insurance (b)	53		64		144		172

Total	$	295	$	333	$	929	$	917

(a)Other products include VMCs, ClearGuard, and other ancillary products.

(b)P&C insurance include vehicle inventory insurance and dealer ancillary products.

Insurance premiums and service revenue written was $295 million and $929 million for the three months and nine months ended September 30, 2021, respectively, compared to $333 million and $917 million for the same periods in 2020. F&I premiums written decreased during the three months ended September 30, 2021, due to lower new retail vehicle sales driven by lower vehicle inventory levels, partially offset by higher rates, while the increase for the nine months ended September 30, 2021, was primarily due to strong new retail vehicle sales during the first half of the year and higher rates. P&C premiums written declined during the three months and nine months ended September 30, 2021, driven by lower dealer vehicle inventory levels resulting from lower manufacturer production levels, which have been impacted by supply chain disruptions including shortages of semiconductor chips. This decline in P&C premiums written was partially offset by lower dealer inventory reinsurance costs. While the severity and duration of these supply chain disruptions is not currently clear, we anticipate this will continue to result in lower written premium levels until industry dealer inventory levels recover.

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.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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


($ in millions)	September 30, 2021		December 31, 2020
Cash and cash equivalents
Noninterest-bearing cash	$	235	$	189
Interest-bearing cash	641		579
Total cash and cash equivalents	876		768
Equity securities	1,023		1,064
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	254		56
U.S. States and political subdivisions	528		680
Foreign government	161		176
Agency mortgage-backed residential	678		719
Mortgage-backed residential	91		44


Corporate debt	1,892		1,914
Total available-for-sale securities	3,604		3,589
Total cash, cash equivalents, and securities	$	5,503	$	5,421

In addition to these cash and investment securities, the Insurance segment has an interest-bearing intercompany arrangement with the Corporate segment, callable on demand. The intercompany loan balance due to Insurance was $898 million and $830 million at September 30, 2021, and December 31, 2020, respectively.

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 September 30,					Nine months ended September 30,
($ in millions)	2021		2020		Favorable/(unfavorable) % change	2021		2020		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	106	$	121	(12)	$	288	$	386	(25)
Interest expense	70		91		23	206		288		28
Net financing revenue and other interest income	36		30		20	82		98		(16)
Gain on mortgage loans, net	18		34		(47)	73		60		22
Other income, net of losses	1		2		(50)	8		5		60
Total other revenue	19		36		(47)	81		65		25
Total net revenue	55		66		(17)	163		163		—
Provision for credit losses	2		—		n/m	(2)		4		150
Noninterest expense
Compensation and benefits expense	5		6		17	16		17		6
Other operating expenses	42		34		(24)	120		96		(25)
Total noninterest expense	47		40		(18)	136		113		(20)
Income from continuing operations before income tax expense	$	6	$	26	(77)	$	29	$	46	(37)
Total assets	$	16,328	$	15,503	5	$	16,328	$	15,503	5

n/m = not meaningful

Our Mortgage Finance operations earned income from continuing operations before income tax expense of $6 million and $29 million for the three months and nine months ended September 30, 2021, respectively, compared to $26 million and $46 million for the three months and nine months ended September 30, 2020. The decrease for the for the three months ended September 30, 2021, was driven by a decline in net gains on the sale of mortgage loans, an increase in the provision for loan losses, and an increase in noninterest expense, partially offset by an increase in net financing revenue and other interest income. The decrease for the nine months ended September 30, 2021, was driven by a decline in net financing revenue and other interest income due to higher prepayment activity and an increase in noninterest expense, partially offset by higher net gains on the sale of mortgage loans and a decrease in the provision for credit losses.

Net financing revenue and other interest income was $36 million and $82 million for the three months and nine months ended September 30, 2021, respectively, compared to $30 million and $98 million for the three months and nine months ended September 30, 2020. The increase in net financing revenue and other interest income for the three months ended September 30, 2021, was primarily due to a decrease in interest expense partially offset by a decrease in financing revenue and other interest income driven by higher prepayment activity, resulting from a lower interest rate environment and associated accelerated premium amortization. The decrease in net financing revenue and other interest income for the nine months ended September 30, 2021, was primarily due to higher prepayment activity, driven by a lower interest rate environment which resulted in portfolio depletion and accelerated premium amortization. Premium amortization for loans purchased was $18 million and $77 million for the three months and nine months ended September 30, 2021, respectively, compared to $35 million and $88 million for the three months and nine months ended September 30, 2020. During the three months and nine months ended September 30, 2021, we purchased $1.2 billion and $3.1 billion of mortgage loans that were originated by third parties, respectively, compared to $659 million and $3.0 billion for the three months and nine months ended September 30, 2020. We originated $2.8 billion and $4.9 billion of mortgage loans held for investment during the three months and nine months ended September 30, 2021, respectively, compared to $441 million and $1.4 billion, during the three months and nine months ended September 30, 2020.

Gain on sale of mortgage loans, net, was $18 million and $73 million for the three months and nine months ended September 30, 2021, respectively, compared to $34 million and $60 million for the three months and nine months ended September 30, 2020. The decrease for the three months ended September 30, 2021, was primarily due to lower volumes for our conforming direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment provider. The increase for the nine months ended September 30, 2021, was driven by higher direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment provider. During the three months and nine months ended September 30, 2021, we originated $788 million and $2.6 billion of loans held for sale, compared to $845 million and $1.8 billion during the three months and nine months ended September 30, 2020.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The provision for credit losses increased $2 million for the three months ended September 30, 2021, and decreased $6 million for the nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. The increase in provision for credit losses for the three months ended September 30, 2021, was primarily driven by a reserve increase associated with portfolio growth. For the nine months ended September 30, 2021, the decrease in provision for credit losses was primarily driven by a reserve increase during the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a reserve decline during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Total noninterest expense was $47 million and $136 million for the three months and nine months ended September 30, 2021, compared to $40 million and $113 million for the three months and nine months ended September 30, 2020. The increases were primarily driven by continued growth in direct-to-consumer mortgage originations.

The following table presents the total 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 September 30, 2021
740 +	$	3,585	91
720–739	277		7
700–719	92		2
680–699	2		—

Total consumer mortgage financing volume	$	3,956	100
Three months ended September 30, 2020
740 +	$	929	84
720–739	95		9
700–719	68		6
680–699	6		1
660–679	2		—
Total consumer mortgage financing volume	$	1,100	100
Nine months ended September 30, 2021
740 +	$	7,299	91
720–739	559		7
700–719	189		2
680–699	2		—


Total consumer mortgage financing volume	$	8,049	100
Nine months ended September 30, 2020
740 +	$	3,769	85
720–739	399		9
700–719	251		6
680–699	17		—
660–679	2		—
Total consumer mortgage financing volume	$	4,438	100

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table presents the net UPB, net UPB as a percentage of total, 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)
September 30, 2021
Adjustable-rate	$	310	2	3.00	%	$	2	47.59	%	760
Fixed-rate	15,632		98	3.27		115		57.76		776
Total	$	15,942	100	3.27		$	117	57.56		776
December 31, 2020
Adjustable-rate	$	927	6	3.31	%	$	11	49.24	%	773
Fixed-rate	13,516		94	3.85		178		60.89		776
Total	$	14,443	100	3.81		$	189	60.15		776

(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 September 30,					Nine months ended September 30,
($ in millions)	2021		2020		Favorable/(unfavorable) % change	2021		2020		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans	$	83	$	81	2	$	244	$	263	(7)
Interest on loans held-for-sale	3		3		—	8		8		—
Interest expense	9		9		—	27		51		47
Net financing revenue and other interest income	77		75		3	225		220		2



Total other revenue	16		9		78	75		28		168
Total net revenue	93		84		11	300		248		21
Provision for credit losses	5		1		n/m	5		140		96
Noninterest expense
Compensation and benefits expense	15		13		(15)	52		48		(8)
Other operating expenses	12		10		(20)	34		36		6
Total noninterest expense	27		23		(17)	86		84		(2)
Income from continuing operations before income tax expense	$	61	$	60	2	$	209	$	24	n/m
Total assets	$	6,729	$	5,995	12	$	6,729	$	5,995	12

n/m = not meaningful

Our Corporate Finance operations earned income from continuing operations before income tax expense of $61 million and $209 million for the three months and nine months ended September 30, 2021, compared to income earned of $60 million and $24 million for the three months and nine months ended September 30, 2020. The increases for the three months and nine months ended September 30, 2021, were primarily due to higher other revenue driven by increased investment gains and strong fee income generation as well as a higher provision for credit losses recognized during nine months ended September 30, 2020.

Net financing revenue and other interest income was $77 million and $225 million for the three months and nine months ended September 30, 2021, compared to $75 million and $220 million for the three months and nine months ended September 30, 2020. The increases for both the three months and nine months ended September 30, 2021, were primarily due to higher accelerated fee income related to loan prepayments and higher average assets from continued growth in the portfolio in 2021.

Other revenue increased $7 million and $47 million for the three months and nine months ended September 30, 2021, compared to the three months and nine months ended September 30, 2020. These increases were driven by $27 million in investment income as compared to investment losses of $9 million for the nine months ended September 30, 2020. Investment income included both realized gains and upward adjustments to the fair value of certain nonmarketable equity securities. The increases were also driven by higher syndication and fee income for the three months and nine months ended September 30, 2021, compared to the same periods in 2020.

The provision for credit losses increased $4 million for the three months ended September 30, 2021, and decreased $135 million for the nine months ended September 30, 2021, compared to the three months and nine months ended September 30, 2020. For the three months ended September 30, 2021, the increase was driven by higher provisions for specific loan exposures as well as reserve increases associated with portfolio growth, partially offset by lower non-specific reserve build driven by an improvement in the overall portfolio compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021, the decrease in provision for credit losses was driven by a reserve increase during the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a reserve decline during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover. Additionally, provision expense was lower as a result of higher recoveries and lower non-specific reserve build during the nine months ended September 30, 2021, compared with the prior year period. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

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 amortized cost of finance receivables and loans outstanding, unfunded commitments to lend, and total serviced loans of our Corporate Finance operations.


($ in millions)	September 30, 2021		December 31, 2020
Loans held-for-sale, net	$	215	$	205
Finance receivables and loans	$	6,609	$	6,006
Unfunded lending commitments (a)	$	4,647	$	4,193
Total serviced loans	$	10,061	$	8,455

(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 unfunded commitments 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 amortized cost.


	September 30, 2021		December 31, 2020
Industry
Financial services	33.1	%	22.8	%
Health services	17.9		22.1
Services	16.8		19.6
Chemicals and metals	8.9		5.9
Automotive and transportation	8.3		10.1
Machinery, equipment, and electronics	6.0		5.8
Other manufactured products	2.0		3.1
Wholesale	1.9		2.3
Lumber and wood	1.5		2.4
Food and beverages	1.3		2.0
Retail trade	0.7		1.1
Construction	0.7		1.1
Other	0.9		1.7
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 as well as other strategic investments, 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 Ally Lending, CRA loans and related investments, and reclassifications and eliminations between the reportable operating segments.


	Three months ended September 30,					Nine months ended September 30,
($ in millions)	2021		2020		Favorable/(unfavorable) % change	2021		2020		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans (a)	$	(4)	$	(4)	—	$	(6)	$	(11)	45
Interest on loans held-for-sale	1		1		—	2		1		100
Interest and dividends on investment securities and other earning assets	130		148		(12)	357		515		(31)
Interest on cash and cash equivalents	4		1		n/m	12		10		20
Other, net	—		(2)		100	—		(6)		100
Total financing revenue and other interest income	131		144		(9)	365		509		(28)
Interest expense
Original issue discount amortization (b)	54		12		n/m	135		34		n/m
Other interest expense (c)	(61)		147		141	(64)		558		111
Total interest expense	(7)		159		104	71		592		88
Net financing revenue (loss) and other interest income	138		(15)		n/m	294		(83)		n/m
Other revenue
Loss on mortgage and automotive loans, net	—		(1)		100	—		(25)		100
Loss on extinguishment of debt	(52)		(49)		(6)	(126)		(50)		(152)
Other gain on investments, net	22		5		n/m	47		87		(46)
Other income, net of losses	42		85		(51)	227		139		63
Total other revenue	12		40		(70)	148		151		(2)
Total net revenue	150		25		n/m	442		68		n/m
Provision for credit losses	16		18		11	20		43		53
Total noninterest expense (d)	143		105		(36)	501		360		(39)
Loss from continuing operations before income tax expense	$	(9)	$	(98)	91	$	(79)	$	(335)	76
Total assets	$	47,156	$	51,462	(8)	$	47,156	$	51,462	(8)

n/m = not meaningful

(a)Primarily related to impacts associated with hedging activities within our automotive loan portfolio, consumer unsecured lending activity, 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 $290 million and $815 million for the three months and nine months ended September 30, 2021, respectively, and $234 million and $732 million for the three months and nine months ended September 30, 2020, 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.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table presents the scheduled remaining amortization of the original issue discount at September 30, 2021.


Year ended December 31, ($ in millions)	2021		2022		2023		2024		2025		2026 and thereafter (a)		Total
Original issue discount
Outstanding balance at year end	$	910	$	859	$	802	$	738	$	669	$	—
Total amortization (b)	20		51		57		64		69		669		$	930

(a)The maximum annual scheduled amortization for any individual year is $141 million in 2030.

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

Corporate and Other incurred a loss from continuing operations before income tax expense of $9 million and $79 million for the three months and nine months ended September 30, 2021, respectively, compared to a loss of $98 million and $335 million for the three months and nine months ended September 30, 2020. The decrease in loss was primarily driven by a decrease in total interest expense resulting from a lower interest rate environment, partially offset by a decrease in total financing revenue and other interest income for the three months and nine months ended, September 30, 2021.

Total financing revenue and other interest income was $131 million and $365 million for the three months and nine months ended September 30, 2021, respectively, compared to $144 million and $509 million for the three months and nine months ended September 30, 2020. The decreases were primarily driven by the impacts of a lower interest rate environment on the investment securities portfolio and on hedging activities.

Total interest expense decreased $166 million and $521 million for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. The decreases were primarily driven by market and industry dynamics that drove a decrease in our deposit rates and other funding costs, and our continued shift to more cost-efficient deposit funding, as well as the residual impacts of our FTP methodology.

Total other revenue decreased $28 million and $3 million for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. The decrease for the three months ended, September 30, 2021, was driven by a reduction in Corporate investment gains partially offset by other gains on investments, net. The decrease for the nine months ended, September 30, 2021, was primarily driven by $121 million of losses incurred for the partial redemption of the Series 2 TRUPs during the nine months ended September 30, 2021, as compared to a $48 million loss on the early repayment of 13 FHLB advances we elected to prepay and early terminate during the third quarter of 2020, and a reduction in other gains on investments, net. This decrease was partially offset by upward adjustments related to equity securities without a readily determinable fair value, and a loss on sale of mortgage and automotive loans during the nine months ended September 30, 2020.

The provision for credit losses decreased $2 million and $23 million for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. For the nine months ended September 30, 2021, the decrease in provision for credit losses was primarily driven by a reserve increase related to Ally Lending during the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a reserve decline during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover. Additionally, the decrease in provision for credit losses for the three months and nine months ended September 30, 2021, was favorably impacted by improved portfolio performance related to Ally Lending, partially offset by reserve increases related to continued portfolio growth within Ally Lending. Refer to the Risk Management section of this MD&A for further discussion on our provision for credit losses.

Noninterest expense increased $38 million and $141 million for the three months and nine months ended September 30, 2021, respectively, as compared to the three months and nine months ended September 30, 2020. The increase for the three months ended September 30, 2021, was driven by increased expenses to support the growth of our consumer product suite, as we continue to make investments in our technology platform to enhance the customer experience and expand our digital capabilities and portfolio of products, as well as $54 million of contributions to the Ally Charitable Foundation during the nine months ended September 30, 2021. The increase in noninterest expense was partially offset by a goodwill impairment charge of $50 million related to Ally Invest for the nine months ended September 30, 2020.

Total assets were $47.2 billion as of September 30, 2021, compared to $51.5 billion as of September 30, 2020. This decrease was primarily the result of a reduction in our total cash and cash equivalents portfolio. As of September 30, 2021, the amortized cost of the legacy mortgage portfolio was $396 million, compared to $904 million at September 30, 2020.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Cash and Securities

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


($ in millions)	September 30, 2021		December 31, 2020
Cash and cash equivalents
Noninterest-bearing cash	$	378	$	512
Interest-bearing cash	9,638		14,318
Total cash and cash equivalents	10,016		14,830
Equity securities	8		—
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	1,489		747
U.S. States and political subdivisions	330		415
Agency mortgage-backed residential	19,028		17,869
Mortgage-backed residential	3,388		2,596
Agency mortgage-backed commercial	4,736		4,189

Asset-backed	547		425



Total available-for-sale securities	29,518		26,241
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	1,193		1,331

Total held-to-maturity securities	1,193		1,331
Total cash, cash equivalents, and securities	$	40,735	$	42,402

Ally Invest

Ally Invest is our digital brokerage and wealth management offering, which enables us to complement our competitive deposit products with low-cost and commission-free investing. The following table presents trading days and average customer trades per day, the number of funded accounts, total net customer assets, and total customer cash balances as of the end of each of the last five quarters.


	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Trading days (a)	64.0		63.0		61.0		63.0		64.0
Average customer trades per day for the three months ended, (in thousands)	40.8		48.5		80.9		60.1		58.7
Funded accounts (b) (in thousands)	503		495		484		457		445
Total net customer assets (b) ($ in millions)	$	16,290	$	16,444	$	15,199	$	14,017	$	11,498
Total customer cash balances (b) ($ in millions)	$	2,175	$	2,166	$	2,149	$	2,178	$	1,946

(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 activity across both the brokerage and managed portfolios.

During the three months ended September 30, 2021, declining market volatility and customer engagement drove lower account openings and trade activity. Total funded accounts increased 2% from the prior quarter and increased 13% from the third quarter of 2020. Average customer trades per day decreased 16% from the prior quarter, and 30% from the third quarter of 2020, driven primarily by declining market volatility as overall trade activity approached pre-pandemic levels. Additionally, net customer assets decreased 1% from the prior quarter and increased 42% from the third quarter of 2020, as a result of equity market appreciation and increased customer account openings.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Ally Lending

Ally Lending is our unsecured financing offering, which currently serves medical and home improvement service providers by enabling promotional and fixed rate installment-loan products through a digital application process at point-of-sale. The following table presents consumer unsecured originations by FICO® Score.


	Three months ended September 30, 2021			Three months ended September 30, 2020			Nine months ended September 30, 2021			Nine months ended September 30, 2020
($ in millions)	Volume		Average FICO®	Volume		Average FICO®	Volume		Average FICO®	Volume		Average FICO®






Total consumer unsecured originations (a)	$	362	733	$	181	736	$	872	737	$	326	735

(a)Includes acquired loans, for which we have elected the fair value option measurement.

During the three months and nine months ended September 30, 2021, consumer unsecured originations increased $181 million and $546 million, respectively, to $362 million and $872 million, respectively, as compared to the three months and nine months ended September 30, 2020. We continue to expand our relationships across all verticals, including the home improvement and medical segments.

The carrying value of our consumer unsecured portfolio was $836 million at September 30, 2021, compared to $327 million at September 30, 2020, while the associated yield was 13.86% and 14.32% for the three months and nine months ended September 30, 2021, as compared to 17.77% and 15.80% for the three months and nine months ended September 30, 2020, respectively.

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 — Operates independent of the business lines and is 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 regarding the quality of our loan portfolios as well as the effectiveness of our risk management, internal controls, and governance. Internal audit includes Audit Services and the Loan Review Group.

Our risk-management framework is overseen by the RC of our 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. Our primary types of risks include credit risk, insurance/underwriting risk, liquidity risk, market risk, business/strategic risk, reputation risk, operational risk, information technology/security risk, compliance risk, and conduct risk. For more information on our risk management process, refer to the Risk Management MD&A section of our 2020 Annual Report on Form 10-K.

In addition to the primary risks that we manage, climate-related risk has been identified as an emerging risk. Climate-related risk refers to the risk of loss or change in business activities arising from climate change and represents a transverse risk that could impact other risks within Ally’s risk-management framework, such as credit risk from negatively impacted borrowers, reputation risk from increased stakeholder concerns, and operational risk from physical climate risks. Refer to section titled Climate-Related Risk within this section for more information.

Loan and Operating Lease Exposure

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


($ in millions)	September 30, 2021		December 31, 2020
Finance receivables and loans
Automotive Finance	$	90,348	$	96,809
Mortgage Finance	16,059		14,632
Corporate Finance	6,609		6,006
Corporate and Other (a)	1,455		1,087
Total finance receivables and loans	114,471		118,534
Loans held-for-sale

Mortgage Finance (b)	102		91
Corporate Finance	215		205
Corporate and Other	139		110
Total loans held-for-sale	456		406
Total on-balance-sheet loans	114,927		118,940






Operating lease assets
Automotive Finance	10,969		9,639

Total loan and operating lease exposure	$	125,896	$	128,579

(a)Includes $396 million and $495 million of consumer mortgage loans in our legacy mortgage portfolio at September 30, 2021, and December 31, 2020, respectively.

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

The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and housing prices, unemployment levels, real personal income, 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 most 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 may be more volatile than credit risk in stressed macroeconomic scenarios. 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.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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 RCs, 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 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 (for example, 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 relative to expected credit losses at contract inception. We closely monitor our loan performance and profitability 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, various segmentations (for example, geographic region, product type, industry segment), as well as the aggregate portfolio. We perform quarterly analyses of the consumer automotive, consumer mortgage, consumer other, and commercial portfolios 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 maturity extensions, delinquent interest capitalization, changes to contractual interest rates, and principal forgiveness.

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, and certain cash balances. For more information on derivative counterparty credit risk, refer to Note 18 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. The U.S. economy has started to recover from shutdowns that resulted from the COVID-19 pandemic. After peaking at 14.7%, as adjusted, in April 2020, the unemployment rate declined to 4.8% as of September 30, 2021. As a result of the economic disruption from COVID-19, sales of light motor vehicles fell to an annual pace of 8.7 million in April 2020, a 49-year low, before rising to an average 13.3 million annual pace during the three months ended September 30, 2021. Sales slowed in June 2021 amid low new vehicle inventories. These low inventories have also caused used vehicle values to rise, as further described in the section below titled Operating Lease Vehicle Terminations and Remarketing. Additionally, used vehicle values may also be impacted by changes in customer preferences, including alternative transportation methods such as public transportation, vehicle sharing, and ride hailing.

Consumer Credit Portfolio

During the three months and nine months ended September 30, 2021, the credit performance of the consumer loan portfolio reflected our underwriting strategy to originate a diversified portfolio of consumer automotive loan assets, including new, used, prime and nonprime finance receivables and loans, high-quality jumbo and LMI mortgage loans that are acquired through bulk loan purchases and direct-to-consumer mortgage originations, as well as point-of-sale personal lending through Ally Lending. Additionally, credit performance of the consumer loan portfolio was impacted by fiscal and monetary stimulus deployed by governmental authorities to partially mitigate the adverse effects from the COVID-19 pandemic on households and businesses. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately 11.3% and 11.7% of our total consumer automotive loans at September 30, 2021, and December 31, 2020, respectively. For information on our consumer credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table includes consumer finance receivables and loans recorded at amortized cost.


	Outstanding				Nonperforming (a)				Accruing past due 90 days or more (b)

($ in millions)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Consumer automotive (c) (d)	$	77,761	$	73,668	$	1,015	$	1,256	$	—	$	—
Consumer mortgage
Mortgage Finance	16,059		14,632		45		67		—		—
Mortgage — Legacy	396		495		24		35		—		—
Total consumer mortgage	16,455		15,127		69		102		—		—
Consumer other (e)	828		399		3		3		—		—
Total consumer finance receivables and loans	$	95,044	$	89,194	$	1,087	$	1,361	$	—	$	—

(a)Includes nonaccrual TDR loans of $681 million and $745 million at September 30, 2021, and December 31, 2020, 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 2020 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 18 to the Condensed Consolidated Financial Statements for additional information.

(d)Includes outstanding CSG loans of $8.5 billion and $8.2 billion at September 30, 2021, and December 31, 2020, respectively, and RV loans of $823 million and $1.1 billion at September 30, 2021, and December 31, 2020, respectively.

(e)Excludes finance receivables of $8 million at both September 30, 2021, and December 31, 2020, for which we have elected the fair value option.

Total consumer finance receivables and loans increased $5.8 billion at September 30, 2021, compared with December 31, 2020. The increase consists of $4.1 billion of consumer automotive finance receivables and loans, $1.3 billion of consumer mortgage finance receivables and loans and $429 million of consumer other finance receivables and loans. The increase was primarily due to an increase in consumer automotive finance receivables and loans primarily related to continued momentum in our used vehicle lending, as well as an increase in consumer mortgage finance receivables and loans as a result of bulk loan purchases and direct-to-consumer origination volume which exceeded loan pay-offs. Growth in consumer other finance receivables and loans was related to Ally Lending loan originations which outpaced portfolio runoff.

Total consumer nonperforming finance receivables and loans at September 30, 2021, decreased $274 million to $1.1 billion from December 31, 2020. The decrease in our consumer automotive loan portfolio was in line with expectations while the decrease in our consumer mortgage portfolio was driven by strong consumer payment activity due to 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 1.1% and 1.5% at September 30, 2021, and December 31, 2020, respectively.

Total consumer TDRs outstanding at September 30, 2021, increased $235 million since December 31, 2020, to $2.2 billion. Results primarily reflect a $239 million increase in our consumer automotive loan portfolio. This increase is driven by an increase in deferrals offered through our established risk management policies and practices to customers subsequent to a COVID-19 deferral, where the loan modification in connection with other factors resulted in a TDR classification. 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 $407 million to $1.4 billion at September 30, 2021, compared to December 31, 2020, which was in line with expectations.

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The following table includes consumer net charge-offs from finance receivables and loans at amortized cost and related ratios.


	Three months ended September 30,								Nine months ended September 30,
	Net charge-offs (recoveries)				Net charge-off ratios (a)				Net charge-offs (recoveries)				Net charge-off ratios (a)
($ in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Consumer automotive	$	51	$	117	0.3	%	0.6	%	$	143	$	516	0.3	%	0.9	%
Consumer mortgage
Mortgage Finance	—		1		—		—		2		1		—		—
Mortgage — Legacy	(2)		(2)		(1.8)		(0.6)		(6)		(6)		(1.8)		(0.7)
Total consumer mortgage	(2)		(1)		—		—		(4)		(5)		—		—
Consumer other	5		2		2.8		3.4		17		10		4.0		5.6
Total consumer finance receivables and loans	$	54	$	118	0.2		0.5		$	156	$	521	0.2		0.8

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

Our net charge-offs from total consumer finance receivables and loans were $54 million and $156 million for the three months and nine months ended September 30, 2021, compared to $118 million and $521 million for the three months and nine months ended September 30, 2020. Net charge-offs for our consumer automotive portfolio decreased by $66 million and $373 million for the three months and nine months ended September 30, 2021, driven by strong payment performance, elevated recoveries, and lower loss severity as a result of elevated used vehicle values. While economic conditions have improved since the beginning of the pandemic, and we have taken a number of actions including the utilization of loan modification programs to support our customers and manage credit risk, we may incur higher net charge-offs in future periods as a result of continued economic dislocation resulting from the impacts of COVID-19.

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 September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Consumer automotive	$	11,025	$	8,425	$	30,946	$	22,604
Consumer mortgage (a)	3,553		1,286		7,559		3,241
Consumer other (b)	362		181		872		326
Total consumer loan originations	$	14,940	$	9,892	$	39,377	$	26,171

(a)Excludes bulk loan purchases associated with our Mortgage Finance operations, and includes $788 million and $2.6 billion of loans originated as held for sale for the three months and nine months ended September 30, 2021, respectively, and $845 million and $1.8 billion for the three months and nine months ended September 30, 2020, respectively.

(b)Includes acquired loans related to our Ally Lending business, for which we have elected the fair value option measurement.

Total consumer loan originations increased $5.0 billion and $13.2 billion for the three months and nine months ended September 30, 2021, compared to the three months and nine months ended September 30, 2020. The increase for the three months ended September 30, 2021, as compared to the same period in 2020, was primarily due to increased financed transaction amounts and application flow and decisioning speeds in the consumer automotive portfolio. The increase for the nine months ended September 30, 2021, as compared to the same period in 2020, was driven by increased consumer demand, higher financed transaction amounts, and increased application flow and decisioning speeds in the consumer automotive portfolio. The increases for the three months and nine months ended September 30, 2021, were also impacted by growth in the direct-to-consumer mortgage business driven by the lower interest rate environment. Additionally, originations for the three months and nine months ended September 30, 2020, were impacted by the COVID-19 pandemic that temporarily shut down or restricted operations at automotive dealers. These restrictions, along with the industry-wide halt of new vehicle production, drove a significant decrease in industry automotive light vehicle sales.

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The following table shows the percentage of consumer automotive and consumer mortgage finance receivables and loans by state concentration based on amortized cost. Total consumer automotive loans were $77.8 billion and $73.7 billion at September 30, 2021, and December 31, 2020, respectively. Total consumer mortgage loans were $16.5 billion and $15.1 billion at September 30, 2021, and December 31, 2020, respectively.


	September 30, 2021 (a)				December 31, 2020
	Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage
California	8.7	%	38.4	%	8.6	%	34.3	%
Texas	12.8		7.4		12.5		8.0
Florida	9.2		6.3		8.8		5.5
Pennsylvania	4.4		2.3		4.5		2.0
Georgia	4.0		3.0		3.9		3.1
North Carolina	4.1		1.7		4.1		2.3
Illinois	3.8		3.3		4.0		3.0
New York	3.2		2.3		3.2		3.4
Ohio	3.4		0.5		3.5		0.5
New Jersey	3.0		2.4		2.9		2.2
Other United States	43.4		32.4		44.0		35.7
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 September 30, 2021.

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 25.8% and 24.7% of our total outstanding consumer finance receivables and loans at September 30, 2021, and December 31, 2020, 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 2020 Annual Report on Form 10-K.

Repossessed consumer automotive loan assets in our Automotive Finance operations were $100 million at September 30, 2021, and foreclosed mortgage assets were $1 million at September 30, 2021.

Commercial Credit Portfolio

During the three months and nine months ended September 30, 2021, the credit performance of the commercial portfolio remained strong as nonperforming finance receivables and loans as well as 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 2020 Annual Report on Form 10-K.

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The following table includes total commercial finance receivables and loans reported at amortized cost.


	Outstanding				Nonperforming (a)				Accruing past due 90 days or more (b)

($ in millions)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Commercial and industrial
Automotive	$	8,772	$	19,082	$	32	$	40	$	—	$	—
Other (c)	5,859		5,242		163		116		—		—
Commercial real estate	4,788		5,008		3		5		—		—
Total commercial finance receivables and loans	$	19,419	$	29,332	$	198	$	161	$	—	$	—

(a)Includes nonaccrual TDR loans of $130 million and $125 million at September 30, 2021, and December 31, 2020, respectively.

(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 $9.9 billion from December 31, 2020, to $19.4 billion at September 30, 2021. Results primarily reflect a $10.3 billion decrease in our commercial automotive loan portfolio within the commercial and industrial receivables class due to lower dealer inventory levels, driven by strong consumer demand for vehicles that outpaced lower automotive production levels due to the global semiconductor chip shortage. This decrease was also driven by a $220 million decline in our commercial real estate portfolio. These decreases were partially offset by a $617 million increase to commercial other loans within the commercial and industrial portfolio class, driven primarily by asset-based lending, mostly through our Corporate Finance lender finance vertical, which provides asset managers with partial funding for their direct lending activities.

Total commercial nonperforming finance receivables and loans were $198 million at September 30, 2021, reflecting an increase of $37 million compared to December 31, 2020. The increase was primarily due to the downgrade of two exposures to nonaccrual status within commercial other in our commercial and industrial portfolio class. This increase was partially offset by a decrease due to lower dealer inventory levels in our commercial automotive portfolio driven by lower production levels due to the global semiconductor chip shortage. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans increased to 1.0% at September 30, 2021, compared to 0.5% at December 31, 2020.

Total commercial TDRs outstanding at September 30, 2021, increased $37 million since December 31, 2020, to $240 million. The increase was primarily driven by the restructuring of one exposure and an increase in the outstanding balance of an existing TDR within commercial other in our commercial and industrial portfolio class. Refer to Note 7 to the Condensed Consolidated Financial Statements for additional information.

The following table includes total commercial net charge-offs from finance receivables and loans at amortized cost and related ratios.


	Three months ended September 30,								Nine months ended September 30,
	Net charge-offs				Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)
($ in millions)	2021		2020		2021		2020		2021		2020		2021		2020
Commercial and industrial
Automotive	$	—	$	4	—	%	0.1	%	$	—	$	7	—	%	—	%
Other	—		—		—		—		10		38		0.3		0.9

Total commercial finance receivables and loans	$	—	$	4	—		0.1		$	10	$	45	0.1		0.2

Our net charge-offs from total commercial finance receivables and loans were $0 million and $10 million for the three months and nine months ended September 30, 2021, respectively, compared to net charge-offs of $4 million and $45 million for the three months and nine months ended September 30, 2020, respectively. The decrease for the three months ended September 30, 2021, was primarily driven by the charge-offs of two exposures in our commercial automotive portfolio during the three months ended September 30, 2020. The decrease for the nine months ended September 30, 2021, was primarily driven by our Corporate Finance portfolio and included the partial net charge-off of two exposures in 2021. These charge-offs were lower than the total charge-offs related to two exposures, including the full charge-off of one exposure during the nine months ended September 30, 2020. This decrease was also impacted by the charge-offs of four exposures in our commercial automotive portfolio during the nine months ended September 30, 2020.

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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 and $5.0 billion at September 30, 2021, and December 31, 2020, respectively.

The following table presents the percentage of total commercial real estate finance receivables and loans by state concentration based on amortized cost.



	September 30, 2021		December 31, 2020
Florida	15.8	%	13.3	%
Texas	14.8		13.0
California	8.2		7.9
North Carolina	5.7		5.5
Michigan	5.6		7.7
New York	5.1		5.6
Georgia	3.5		3.6
Utah	3.3		3.0
Illinois	2.8		2.8
Missouri	2.3		2.0
Other United States	32.9		35.5
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 $2.2 billion from December 31, 2020, to $1.8 billion at September 30, 2021. The decrease was primarily due to lower dealer inventory levels in our commercial automotive portfolio driven by continued lower production levels as automotive manufacturers work to return to pre-pandemic levels. This decrease was also driven by a lower number of special mention accounts within commercial other in our commercial and industrial receivables class.

The following table presents the percentage of total commercial criticized finance receivables and loans by industry concentration based on amortized cost.



	September 30, 2021		December 31, 2020
Industry
Automotive	50.8	%	67.7	%
Health/Medical	14.0		7.3
Services	12.1		5.8
Other	23.1		19.2
Total commercial criticized finance receivables and loans	100.0	%	100.0	%

Allowance for Loan Losses

We adopted CECL on January 1, 2020, as further described in Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.

The CECL standard introduced a new accounting model to measure credit losses for financial assets measured at amortized costs. In contrast to the previous incurred loss model, CECL requires credit losses for financial assets measured at amortized cost to be determined based on the total current expected credit losses over the life of the financial asset or group of assets.

Under CECL, our modeling processes incorporate the following considerations:

•a single forecast scenario for macroeconomic factors incorporated into the modeling process;

•a 12-month reasonable and supportable forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 24-month period; and

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•data from the historical mean will be calculated from January 2008 through the most current period available which includes data points from the most recent recessionary period.

Our quantitatively determined allowance under CECL is impacted by certain forecasted economic factors as further described in Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K. For example, macroeconomic variables that our consumer automotive allowance for loan losses is most sensitive to include national and state unemployment levels. Our process for determining the allowance for loan losses considers a borrower’s willingness and ability to pay and considers other factors, including loan modification programs. In addition to our quantitative allowance for loan losses, we also incorporate qualitative adjustments that may relate to idiosyncratic risks, changes in current economic conditions that may not be reflected in quantitatively derived results such as the impacts associated with COVID-19. We also monitor model performance, using model error and related assessments, and we may incorporate qualitative reserves to adjust our quantitatively determined allowance if we observe deterioration in model performance.

Through March 2021, forecasted economic variables utilized in our quantitative allowance processes were updated to reflect the current macroeconomic environment and our future expectations which included (but were not limited to) the following: the unemployment rate declining to approximately 5% by the end of 2021, before reverting to the historical mean of approximately 7% starting in the first quarter of 2024, stable GDP growth through 2021 as measured on a quarter-over-quarter seasonally adjusted annualized rate basis, and increases in new light vehicle sales on a seasonally adjusted annualized rate basis to approximately 17 million units by the end of 2021. Given the overall improvement in the macroeconomic variables during the three months ended March 31, 2021, it resulted in a decrease in the allowance for loan losses through our quantitative reserving process. Using our qualitative allowance framework, we reassessed and adjusted levels by incorporating uncertainty and volatility in the macroeconomic environment due to the COVID-19 pandemic, which partially offset the decreases in reserves from our quantitative process. As a result, our overall allowance for loan losses decreased $131 million from the prior quarter to $3.2 billion at March 31, 2021, representing 2.8% as a percentage of total finance receivables as of March 31, 2021, compared to 2.8% as of December 31, 2020.

Through June 2021, forecasted economic variables utilized in our quantitative allowance processes were updated to reflect the current macroeconomic environment and our future expectations which included (but were not limited to) the following: the unemployment rate declining to approximately 4% by mid-2022, before reverting to the historical mean of approximately 7% mid-2024, GDP growth through mid-2022 as measured on a quarter-over-quarter seasonally adjusted annualized rate basis, and stable new light vehicle sales on a seasonally adjusted annualized rate basis of approximately 17 million units through mid-2022. Given the stabilization in the macroeconomic environment during the three months ended June 30, 2021, changes in the macroeconomic variables did not have a significant impact on the allowance for loan losses through our quantitative reserving process. We continue to utilize our qualitative allowance framework to reassess and adjust management reserve levels to account for ongoing uncertainty and volatility in the macroeconomic environment due to the COVID-19 pandemic. Our overall allowance for loan losses decreased $26 million from the prior quarter to $3.1 billion at June 30, 2021, representing 2.8% as a percentage of total finance receivables as of June 30, 2021, compared to 2.8% as of March 31, 2021.

Through September 2021, forecasted economic variables utilized in our quantitative allowance processes were updated to reflect the current macroeconomic environment and our future expectations which included (but were not limited to) the following: the unemployment rate declining to approximately 4% in the third quarter of 2022, before reverting to the historical mean of approximately 7% by August 2024, deceleration of GDP growth as measured on a quarter-over-quarter seasonally adjusted annualized rate basis, and new light vehicle sales on a seasonally adjusted annualized rate basis nearing approximately 17 million units in mid-2022. Given the stabilization in the macroeconomic environment during the three months ended September 30, 2021, changes in the macroeconomic variables did not have a significant impact on the allowance for loan losses through our quantitative reserving process. We continue to utilize our qualitative allowance framework to reassess and adjust management reserve levels to account for ongoing uncertainty and volatility in the macroeconomic environment, including the global supply chain and manufacturing challenges, workforce participation, inflation, and other complexities stemming from the COVID-19 pandemic. Our overall allowance for loan losses increased $22 million from the prior quarter to $3.1 billion at September 30, 2021, representing 2.8% as a percentage of total finance receivables as of September 30, 2021, compared to 2.8% as of June 30, 2021, and 2.8% as of March 31, 2021.

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


Three months ended September 30, 2021 ($ in millions)	Consumer automotive			Consumer mortgage			Consumer other			Total consumer			Commercial			Total
Allowance at July 1, 2021	$	2,802		$	24		$	72		$	2,898		$	228		$	3,126


Charge-offs (a)	(211)			(2)			(5)			(218)			—			(218)
Recoveries	160			4			—			164			—			164
Net charge-offs	(51)			2			(5)			(54)			—			(54)
Provision due to change in portfolio size	69			5			22			96			—			96
Provision due to incremental charge-offs	51			(2)			5			54			—			54
Provision due to all other factors	(61)			(4)			(8)			(73)			(1)			(74)
Total provision for credit losses (b)	59			(1)			19			77			(1)			76

Allowance at September 30, 2021	$	2,810		$	25		$	86		$	2,921		$	227		$	3,148

Net charge-offs to average finance receivables and loans outstanding for the three months ended September 30, 2021	0.3		%	(0.1)		%	2.8		%	0.2		%	—		%	0.2		%

Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2021	13.6			(2.5)			4.2			13.4			n/m			14.5

n/m = not meaningful

(a)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.

(b)Consumer mortgage provision benefit includes $3 million related to our legacy mortgage portfolio and provision expense of $2 million related to mortgage finance. Commercial provision benefit includes a provision benefit of $5 million related to commercial automotive and $2 million related to commercial real estate, and a provision expense of $6 million related to commercial other within the commercial and industrial portfolio class.


Nine months ended September 30, 2021 ($ in millions)	Consumer automotive			Consumer mortgage			Consumer other			Total consumer			Commercial			Total


Allowance at January 1, 2021	$	2,902		$	33		$	73		$	3,008		$	275		$	3,283
Charge-offs (a)	(678)			(6)			(18)			(702)			(21)			(723)
Recoveries	535			10			1			546			11			557
Net charge-offs	(143)			4			(17)			(156)			(10)			(166)
Provision due to change in portfolio size	160			3			57			220			(16)			204
Provision due to incremental charge-offs	143			(4)			17			156			10			166
Provision due to all other factors	(252)			(11)			(44)			(307)			(32)			(339)
Total provision for credit losses (b)	51			(12)			30			69			(38)			31

Allowance at September 30, 2021	$	2,810		$	25		$	86		$	2,921		$	227		$	3,148

Net charge-offs to average finance receivables and loans outstanding for the nine months ended September 30, 2021	0.3		%	—		%	4.0		%	0.2		%	0.1		%	0.2		%

Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2021	14.7			(4.2)			3.7			14.0			16.0			14.2

(a)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.

(b)Consumer mortgage provision benefit includes $2 million related to mortgage finance and $10 million related to our legacy mortgage portfolio. Commercial provision benefit includes a provision benefit of $27 million related to commercial automotive and $18 million related to commercial real estate, and a provision expense of $7 million related to commercial other within the commercial and industrial portfolio class.

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Three months ended September 30, 2020 ($ in millions)	Consumer automotive			Consumer mortgage			Consumer other			Total consumer			Commercial			Total
Allowance at July 1, 2020	$	2,963		$	42		$	49		$	3,054		$	300		$	3,354


Charge-offs (a)	(269)			(4)			(2)			(275)			(4)			(279)
Recoveries	152			5			—			157			—			157
Net charge-offs	(117)			1			(2)			(118)			(4)			(122)
Provision due to change in portfolio size	45			(3)			18			60			(1)			59
Provision due to incremental charge-offs	117			(1)			2			118			4			122
Provision due to all other factors	(28)			1			—			(27)			(7)			(34)
Total provision for credit losses (b)	134			(3)			20			151			(4)			147
Other	2			(1)			—			1			(1)			—
Allowance at September 30, 2020	$	2,982		$	39		$	67		$	3,088		$	291		$	3,379

Net charge-offs to average finance receivables and loans outstanding for the three months ended September 30, 2020	0.6		%	—		%	3.4		%	0.5		%	0.1		%	0.4		%

Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2020	6.4			(10.1)			7.1			6.5			18.3			6.9

(a)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.

(b)Consumer mortgage provision expense includes a provision benefit of $3 million related to our legacy mortgage portfolio. Commercial provision expense includes $2 million related to commercial other within the commercial and industrial portfolio class, and a provision benefit of $6 million related to commercial real estate.


Nine months ended September 30, 2020 ($ in millions)	Consumer automotive			Consumer mortgage			Consumer other			Total consumer			Commercial			Total
Allowance at December 31, 2019	$	1,075		$	46		$	9		$	1,130		$	133		$	1,263
Cumulative effect of the adoption of Accounting Standards Update 2016-13	1,334			(6)			16			1,344			2			1,346
Allowance at January 1, 2020	$	2,409		$	40		$	25		$	2,474		$	135		$	2,609
Charge-offs (a)	(887)			(9)			(11)			(907)			(47)			(954)
Recoveries	371			14			1			386			2			388
Net charge-offs	(516)			5			(10)			(521)			(45)			(566)
Provision due to change in portfolio size	49			(3)			22			68			(15)			53
Provision due to incremental charge-offs	516			(5)			10			521			45			566
Provision due to all other factors	523			3			19			545			173			718
Total provision for credit losses (b)	1,088			(5)			51			1,134			203			1,337
Other	1			(1)			1			1			(2)			(1)
Allowance at September 30, 2020	$	2,982		$	39		$	67		$	3,088		$	291		$	3,379

Net charge-offs to average finance receivables and loans outstanding for the nine months ended September 30, 2020	0.9		%	—		%	5.6		%	0.8		%	0.2		%	0.6		%

Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2020	4.3			(6.1)			5.0			4.4			4.8			4.5

(a)Refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for information regarding our charge-off policies.

(b)Consumer mortgage provision expense includes $4 million related to mortgage finance and a provision benefit of $9 million related to our legacy mortgage portfolio. Commercial provision expense includes $40 million related to commercial automotive and $141 million related to commercial other within the commercial and industrial portfolio class, and $22 million related to commercial real estate.

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($ in millions)	Consumer automotive		Consumer mortgage		Consumer other		Total consumer		Commercial		Total
September 30, 2021
Allowance for loan losses to finance receivables and loans outstanding (a)	3.6	%	0.2	%	10.3	%	3.1	%	1.2	%	2.8	%
Allowance for loan losses to total nonperforming finance receivables and loans (a)	276.8	%	36.3	%	n/m		268.6	%	114.5	%	244.8	%
September 30, 2020
Allowance for loan losses to finance receivables and loans outstanding (a)	4.0	%	0.2	%	20.9	%	3.4	%	1.0	%	2.9	%
Allowance for loan losses to total nonperforming finance receivables and loans (a)	236.2	%	49.3	%	n/m		230.0	%	193.8	%	226.3	%

n/m = not meaningful

(a)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 amortized cost.

The allowance for consumer loan losses as of September 30, 2021, decreased $167 million compared to September 30, 2020, reflecting decreases of $172 million in the consumer automotive allowance and $14 million in the consumer mortgage allowance, partially offset by an increase of $19 million in the consumer other allowance. The decreases in both our consumer automotive and consumer mortgage allowance were primarily driven by reserve declines associated with improvement in the macroeconomic environment as the economy has continued to recover, partially offset by higher reserves resulting from continued portfolio growth. The increase in the consumer other allowance was primarily driven by continued growth in Ally Lending, partially offset by reserve declines associated with improvement in the macroeconomic environment.

The allowance for commercial loan losses as of September 30, 2021, decreased $64 million compared to September 30, 2020. The decrease was primarily driven by reserve declines within our commercial automotive portfolio associated with improvement in the macroeconomic environment as the economy has continued to recover, as well as reserve decreases due to lower commercial automotive portfolio balances for the three months and nine months ended September 30, 2021.

The provision for consumer credit losses decreased $74 million and $1.1 billion for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. For the nine months ended September 30, 2021, the decrease in provision for consumer credit losses was primarily driven by a reserve increase within the consumer automotive portfolio during the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a reserve decline during the nine months ended September 30, 2021, as the macroeconomic environment continued to recover. Additionally, provision decreases during the three months and nine months ended September 30, 2021, were driven by lower net charge-offs in our consumer automotive portfolio as we continue to experience strong credit performance driven by favorable economic and operating conditions.

The provision for commercial credit losses increased $3 million and decreased $241 million for the three months and nine months ended September 30, 2021, respectively, compared to the three months and nine months ended September 30, 2020. The increase in provision for commercial credit losses for the three months ended September 30, 2021, was driven by higher specific reserves within our other commercial and industrial portfolio. For the nine months ended September 30, 2021, the decrease in provision for commercial credit losses was primarily driven by a reserve increase within the commercial automotive and other commercial and industrial portfolios during the nine months ended September 30, 2020, associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic, compared to a reserve decline during the same period in 2021, as the macroeconomic environment continued to recover.

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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.


	2021				2020
September 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	$	2,810	3.6	89.3	$	2,982	4.0	88.2
Consumer mortgage
Mortgage Finance	17		0.1	0.5	20		0.1	0.6
Mortgage — Legacy	8		2.0	0.3	19		2.1	0.6
Total consumer mortgage	25		0.2	0.8	39		0.2	1.2
Consumer other	86		10.3	2.7	67		20.9	2.0
Total consumer loans	2,921		3.1	92.8	3,088		3.4	91.4
Commercial
Commercial and industrial
Automotive	15		0.2	0.5	59		0.3	1.8
Other	169		2.9	5.3	181		3.5	5.3
Commercial real estate	43		0.9	1.4	51		1.1	1.5
Total commercial loans	227		1.2	7.2	291		1.0	8.6
Total allowance for loan losses	$	3,148	2.8	100.0	$	3,379	2.9	100.0

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, loans 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 and can affect interest rate sensitivities and cash flows when compared to our expectations. 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 18 to the Condensed Consolidated Financial Statements for additional information.

LIBOR Transition

In recognition of the significance of LIBOR cessation, Ally employs an enterprise-wide LIBOR transition program that devotes numerous resources throughout all levels of the organization to facilitate the transition to alternative reference rates. Our program spans across impacted business lines and functions to evaluate risks associated with the transition, while taking into account specific considerations related to our customers, products and instruments, and counterparty exposures. Through this program, we continue to plan for the transition away from LIBOR to alternative reference rates, and the potential impacts to our existing and future contracts with customers and counterparties, financial forecasts, operational processes, technology, modeling, and vendor relationships. Our program is also subject to the governance and oversight of our Board through the RC and certain executive committees, including the ALCO and the ERMC.

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We are monitoring regulatory, legislative, and industry developments surrounding the LIBOR transition and their impacts to us. On March 5, 2021, the ICE Benchmark Administration and the United Kingdom Financial Conduct Authority confirmed that most USD LIBOR tenors will continue to be published through the second quarter of 2023. This extension will allow many legacy USD LIBOR contracts to mature prior to cessation, and in line with guidance from the U.S. banking regulators, we do not anticipate entering into new LIBOR contracts beyond December 31, 2021.

We continue to make progress on our transition efforts, including the development of new products and agreements that utilize alternative reference rates, such as Prime and SOFR. Additionally, we continue to reduce our LIBOR exposure through strategic actions. For example, in the second quarter of 2021, we executed the sale of a portion of our adjustable-rate mortgage loans that were tied to LIBOR, and redeemed a portion of our Series 2 TRUPS with an interest rate linked to LIBOR. In the third quarter of 2021, we advanced our efforts of transitioning existing bilateral lending arrangements from LIBOR to alternative rates, and commenced direct-to-consumer mortgage lending in our held-for-investment channel using an alternative rate. In October 2021, we redeemed all remaining Series 2 TRUPS.

For further discussion on our LIBOR exposure and transition plan, refer to the section titled Risk Management—LIBOR Transition in our 2020 Annual Report on Form 10-K. For information regarding the risks surrounding the LIBOR transition, refer to the section titled Risk Factors in our 2020 Annual Report on Form 10-K.

Net Financing Revenue Sensitivity Analysis

Interest rate risk represents one of our most significant exposures 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 a sensitivity analysis of net financing revenue as our primary metric to measure and manage the interest rate risk of our financial instruments.

We prepare 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. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing assumptions.

Simulations are then 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 12 months. We test a number of alternative rate scenarios, 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, our net financing revenue over the next 12 months is expected to decrease by $29 million if interest rates remain unchanged.

The following table presents the pretax dollar impact to baseline forecasted net financing revenue over the next 12 months assuming various shocks to the implied market forward curve as of September 30, 2021, and December 31, 2020.


	September 30, 2021				December 31, 2020
	Gradual (a)		Instantaneous		Gradual (a)		Instantaneous
Change in interest rates	($ in millions)				($ in millions)

+200 basis points	$	82	$	(69)	$	70	$	64
+100 basis points	70		53		32		68
-25 basis points (b)	(27)		(54)		(3)		(40)

(a)Gradual changes in interest rates are recognized over 12 months.

(b)Our models currently assume rates do not go below zero.

The implied forward rate curve was steeper at September 30, 2021, as interest rates were at or near historical lows across the curve on December 31, 2020. The impact of this change is reflected in our baseline net financing revenue projections. As of September 30, 2021, we expect an upward instantaneous interest rate shock scenario to have a modest impact to the baseline forecast as the repricing of our asset base, combined with the benefit of our pay fixed swap position, is expected to largely offset assumed repricing of our liabilities, primarily deposits.

The exposure in the downward instantaneous interest rate shock scenario is largely driven by floating-rate assets and prepayment risk, as well as limited assumed repricing of liquid deposits.

Our risk position is influenced by the impact of hedging activity 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. The size, maturity, and mix of our hedging activities are adjusted as our balance sheet, ALM objectives, and interest rate environment evolve over time.

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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 in certain instances, some automotive manufacturers have provided their guarantee for portions of our residual exposure, as further described in Note 8 to the Condensed Consolidated Financial Statements. Our operating lease portfolio, net of accumulated depreciation was $11.0 billion and $9.6 billion as of September 30, 2021, and December 31, 2020, respectively. The expected lease residual value of our operating lease portfolio at scheduled termination was $8.7 billion and $7.9 billion as of September 30, 2021, and December 31, 2020, respectively. 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 2020 Annual Report on Form 10-K.

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 September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Off-lease vehicles terminated (in units)	34,475			28,917			99,731			76,121
Average gain per vehicle ($ per unit)	$	2,495		$	2,437		$	2,793		$	810
Method of vehicle sales
Auction
Internet	19		%	53		%	33		%	57		%
Physical	5			8			8			10
Sale to dealer, lessee, and other	76			39			59			33

We recognized an average gain per vehicle of $2,495 and $2,793 for the three months and nine months ended September 30, 2021, respectively, compared to an average gain per vehicle of $2,437 and $810 for the same period in 2020. The increases in remarketing performance were primarily due to continued new vehicle supply constraints coupled with increased demand for used vehicles, despite downward adjustments to the rate of depreciation expense in recent periods. The number of off-lease vehicles remarketed during the three months and nine months ended September 30, 2021, increased 19% and 31%, respectively, compared to the same periods in 2020, primarily due to impacts of the COVID-19 pandemic which reduced vehicle remarketing activity at auction sites and lowered dealer demand in the first two quarters of 2020, as well as increases in demand for used vehicles in recent periods. The remarketing channel mix for dealer and lessee buyouts increased during the three months and nine months ended September 30, 2021, primarily due to supply constraints increasing dealer demand for off-lease vehicles, as well as increases in new vehicle prices that are causing a shift in consumer preference. The shift in off-lease vehicle disposition mix is expected to continue in the near term and may limit our ability to optimize remarketing proceeds.

Operating Lease Portfolio Mix

We monitor the concentration of our outstanding operating leases. Our exposure to Stellantis vehicles represented approximately 82% and 90% of our operating lease units as of September 30, 2021, and 2020, respectively.

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


September 30,	2021		2020
Sport utility vehicle	58	%	57	%
Truck	34		34
Car	8		9

Climate-Related Risk

We have identified and defined climate-related risk as an emerging risk to the Company. Pursuant to the Company’s risk-management framework, emerging risks include those that have yet to create a material impact or would only arise during stressful or unlikely circumstances.

Climate-related risk is generally categorized into two major categories: (1) risk related to the transition to a lower-carbon economy (transition risk) and (2) risk related to the physical impacts of climate change. Transition risk considers how changes in policy, technology, and market preference could pose operational, financial and reputational risk to companies. Physical risk from climate change can be acute or chronic. Acute physical risk refers to risks that are event-driven such as increased severity of extreme weather events, such as cyclones,

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hurricanes, or floods. Chronic physical risks refer to long-term shifts in climate patterns, such as sustained higher temperatures, that may cause sea levels to rise.

As the impacts of climate change become more evident, the Company has recognized (1) the importance of understanding, preparing for and taking timely preventive action against potentially material climate-change impacts, (2) increasing investor demand for consistent and comparable climate-change risk data, (3) changing federal policy focus as a result of rejoining the Paris Climate Agreement and an increase in regulatory discussion about potential requirements and oversight, and (4) that Ally’s commitment to “Do It Right” extends to the conservation of environmental resources to ensure a sustainable future for our customers, employees, shareholders and the communities in which we live and operate. Specifically, Ally has:

•Defined climate-related risk as an emerging risk within our risk-management framework.

•Appointed an Environmental Sustainability Risk Executive reporting to our Chief Risk Officer and established a sustainability office staffed with employees focused on adopting sustainability measures and developing and executing a comprehensive enterprise strategy on climate-related risks and opportunities.

•Included sustainability and climate-related matters in executive level forums and Board education.

•Performed our first assessment and calculation of greenhouse gas emissions including Scope 1 emissions (direct emissions from owned or controlled sources), Scope 2 emissions (indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the company), and relevant Scope 3 emissions (all other indirect emissions that occur in the company’s value chain) for fiscal year 2020.

•Submitted our inaugural CDP (formally the Carbon Disclosure Project) climate change questionnaire in July 2021.

•Initiated a formal ESG Stakeholder Assessment that includes customers, investors, community partners, local governments and employees to gain perspective on ESG priorities and their importance to Ally.

•Executed Ally’s carbon neutrality strategy for 2020 Scope I and II emissions through a combined purchase of carbon offsets and Green-e Energy Certified renewable energy credits.

•Committed to developing a comprehensive enterprise environmental sustainability strategy focusing on greater data collection, aggregation and analysis, with the goal of aligning with the recommendations from the Task Force on Climate-related Financial Disclosures in assessing and reporting on our exposures to climate-related risks and opportunities consistent with the financial industry.

Refer to the section titled Risk Factors in our 2020 Annual Report on Form 10-K for information on climate-related risks.

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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 the actual or perceived inability to liquidate assets or obtain adequate funding or to easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions. 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 positions an organization 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 ALCO, chaired by the Corporate Treasurer, 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, Corporate Treasury prepares periodic forecasts depicting anticipated funding needs and sources of funds, executes our funding strategies, and manages liquidity under normal as well as more severely stressed macroeconomic environments. Oversight and monitoring of liquidity risk are provided by Independent Risk Management.

Funding Strategy

Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in various segments of the capital markets. We focus on maintaining diversified funding sources across a broad base of depositors, lenders, and investors to meet liquidity needs throughout different economic 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. Our access to diversified funding sources enhances funding flexibility 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 manage our funding to achieve a well-balanced 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 liquidity risk, manage the liquidity position, identify related trends, and monitor such trends and metrics against established limits. These metrics include comprehensive stress tests that measure the sufficiency of the liquidity portfolio over stressed horizons ranging from overnight to 12 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.

Our liquidity stress testing is designed to allow us to operate our businesses and to meet our contractual and contingent obligations, including unsecured debt maturities, for at least 12 months, assuming our normal access to funding is disrupted by severe market-wide and enterprise-specific events. We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed secured credit facility capacity. This available liquidity is held at various legal entities, and is subject to regulatory restrictions and tax implications that may limit our ability to transfer funds across entities.

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The following table summarizes our total available liquidity.


($ in millions)	September 30, 2021		December 31, 2020
Unencumbered highly liquid securities (a)	$	26,650	$	24,763
Liquid cash and equivalents	10,129		14,945
Committed secured credit facilities
Total capacity (b)	75		560
Outstanding	—		—
Unused capacity (c)	75		560
Total available liquidity	$	36,854	$	40,268

(a)Includes unencumbered U.S. federal government, U.S. agency and corporate debt securities.

(b)Includes committed secured credit facilities for which we had sufficient assets available to be pledged as collateral as of the reporting date.

(c)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.

Recent Funding Developments

During March 2020, the spread of COVID-19 was declared a pandemic. This global health crisis has resulted in economic disruption and volatility in the capital markets. While credit spreads for longer-term funding sources such as unsecured debt and ABS issuance increased significantly initially, FRB actions in response to the disruptions reduced credit spreads and improved market liquidity. These actions included providing significant quantitative-easing programs, expanding the Money Market Mutual Fund Liquidity Facility to include a wider range of securities, broadening the Commercial Paper Funding Facility, launching new funds and facilities to support employers, consumers and businesses, and establishing the Term Asset-Backed Loan Facility to facilitate ABS issuance of student, automotive, credit card, and small business loans guaranteed by the Small Business Administration. We continue to closely monitor market conditions, and actions taken by banking agencies to support general market liquidity. In recent years, we have become less reliant on market-based funding and believe we have adequate liquidity to meet our near-term funding needs.

Key funding highlights from January 1, 2021, to date were as follows:

•We terminated our demand note offering and as of March 1, 2021, we repaid all outstanding balances under this program.

•We prepaid $161 million of unsecured term notes during the nine months ended September 30, 2021, as we continue to shift our overall funding toward more cost-effective funding.

•On April 22, 2021, we issued $1.35 billion of preferred stock, Series B, and used the proceeds to redeem $1.4 billion, or 56,000,000 shares of the Series 2 TRUPS outstanding, effective May 24, 2021.

•On June 2, 2021, we issued $1.0 billion of preferred stock, Series C, and used the proceeds to redeem an additional $1.04 billion, or 41,600,000 shares of the Series 2 TRUPS outstanding, effective July 2, 2021. On September 15, 2021, we announced our intent to redeem the remaining $191 million or 7,650,000 shares of the Series 2 TRUPS outstanding. The redemption was effectuated on October 15, 2021.

•Our total capacity in committed secured credit facilities was reduced by $485 million during the nine months ended September 30, 2021, as we continue to shift our overall funding toward a greater mix of cost-effective deposit funding.

•On November 2, 2021, we issued $750 million of senior unsecured notes maturing November 2028, which provided additional liquidity at Ally Financial.

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Funding Sources

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


	September 30, 2021			December 31, 2020
($ in millions)	On-balance sheet funding		% Share of funding	On-balance sheet funding		% Share of funding


Deposits	$	139,444	90	$	137,036	85
Debt
Secured financings	6,091		4	9,992		6
Institutional term debt	8,633		6	11,654		7
Retail debt programs (a)	222		—	2,496		2
Total debt (b)	14,946		10	24,142		15
Total on-balance-sheet funding	$	154,390	100	$	161,178	100

(a)Includes $222 million and $360 million of retail term notes at September 30, 2021, and December 31, 2020, respectively.

(b)Includes hedge basis adjustment as described in Note 18 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 September 30, 2021.

Deposits

Ally Bank is a digital direct bank with no branch network that obtains retail deposits directly from customers. We offer competitive rates and fees on a full spectrum of retail deposit products, including online savings accounts, money-market demand accounts, CDs, interest-bearing checking accounts, trust accounts, and IRAs. In addition to providing customers with valuable products and digital services, retail deposits provide a key funding source for Ally Bank as it continues to diversify its funding profile and reduce its reliance on more expensive and rate-sensitive funding, providing our Automotive Finance, Mortgage Finance, Corporate Finance, and Ally Lending businesses with a stable and low-cost funding source. We believe retail deposits are less sensitive to interest rate changes, market volatility, or changes in credit ratings when compared to other funding sources. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries.

The following table shows Ally Bank’s total primary retail deposit customers and deposit balances as of the end of each of the last five quarters.


	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Total primary retail deposit customers (in thousands)	2,448		2,394		2,334		2,250		2,211
Deposits ($ in millions)
Retail	$	131,590	$	129,222	$	128,370	$	124,357	$	120,789
Brokered (a)	5,667		7,787		11,060		12,551		13,990
Other (b)	2,187		2,095		155		128		159
Total deposits	$	139,444	$	139,104	$	139,585	$	137,036	$	134,938

(a)Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.9 billion as of both March 31,2021, and December 31, 2020, and $1.8 billion as of September 30, 2020.

(b)Other deposits include mortgage escrow and other deposits. Additionally, beginning on June 30, 2021, other deposits also include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $2.0 billion as of September 30, 2021, and $1.9 billion as of June 30, 2021, driven by revisions to brokered-deposit regulations by the FDIC.

During the first nine months of 2021, our total deposit base grew $2.4 billion and we added approximately 197,000 retail deposit customers, ending with 2.4 million retail deposit customers as of September 30, 2021. The growth in total deposits has been driven by strong growth in retail deposits, partially offset by a reduction in brokered deposits. Total retail deposits increased $7.2 billion during the nine months ended September 30, 2021, primarily within our online savings product, bringing the total retail deposits portfolio to $131.6 billion as of September 30, 2021. Strong customer acquisition and retention rates, reflecting the strength of the brand, continue to drive the growth in retail deposits.

We continue to advance our digital capabilities and deliver incremental value to our retail deposit customers beyond competitive rates. In early 2020, we launched our smart savings tools and have continued to deliver enhancements, improving our customer’s digital banking experience and providing unique opportunities to organize and build their savings. In addition, on June 2, 2021, we announced the elimination of all overdraft fees across our retail deposit products for all customers. This change is the latest example of our “Do It Right” commitment for our customers.

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We continue to be recognized for the experience and value we provide our customers. In 2021, Ally Bank’s checking account earned national Bank On certification from the Cities for Financial Empowerment Fund (CFE). The organization recognized Ally’s existing checking account, which goes above and beyond CFE criteria, for providing lower- and moderate-income consumers with a safe, affordable path to join the financial mainstream and achieve financial stability. In October 2021, MONEY® Magazine named Ally to its “Best Online Bank” list for the fourth consecutive year, as well as the ninth time in the past eleven years, and in June 2021, Kiplinger named Ally Bank the “Best Internet Bank” for the fifth consecutive year. For additional information on our deposit funding by type, refer to Note 11 to the Condensed Consolidated Financial Statements.

Securitizations and Secured Financings

While we primarily fund our business through deposits, we maintain a presence in the securitization markets to finance our automotive loan portfolios. Securitizations and secured funding transactions, collectively referred to as securitization transactions due to their similarities, allow us to convert our automotive-finance receivables into cash earlier than what would have occurred in the normal course of business. For additional details surrounding our securitization activities, refer to the section titled Liquidity Management, Funding, and Regulatory Capital in our 2020 Annual Report on Form 10-K.

We manage securitization execution risk by maintaining a diverse domestic and foreign investor base and available capacity from 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 September 30, 2021, all of our $75 million of capacity was revolving with a remaining tenor greater than 364 days.

We also have access to funding through advances with the FHLB. These advances are primarily secured by consumer mortgage finance receivables and loans and investment securities. As of September 30, 2021, we had pledged $16.4 billion of assets to the FHLB resulting in $12.5 billion in total funding capacity with $4.7 billion of debt outstanding.

At September 30, 2021, $26.8 billion of our total assets were restricted as collateral for the payment of debt obligations accounted for as secured borrowings. Refer to Note 12 to the Condensed Consolidated Financial Statements for further discussion.

Unsecured Financings

We 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. There were $222 million of retail term notes outstanding at September 30, 2021. In November 2021, we issued $750 million of senior unsecured notes maturing November 2028. In 2020, we accessed the unsecured debt capital markets four times, and collectively raised $2.8 billion through the issuance of senior notes composed of institutional term debt. We have also historically obtained 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. On March 1, 2021, we terminated the offering of our demand notes program, and redeemed in full all outstanding demand 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 September 30, 2021, we had no 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 September 30, 2021. We had no debt outstanding with the FRB as of September 30, 2021.

Guaranteed Securities

Certain senior notes (collectively, the Guaranteed Notes) issued by Ally Financial Inc. (referred to within this section as the Parent) are unconditionally guaranteed on a joint and several basis by IB Finance, a subsidiary of the Parent and the direct parent of Ally Bank, and Ally US LLC, a subsidiary of the Parent (together, the Guarantors, and the guarantee provided by each such Guarantor, the Note Guarantees). The Guarantors are primary obligors with respect to payment when due, whether at maturity, by acceleration or otherwise, of all payment obligations of the Parent in respect of the Guaranteed Notes pursuant to the terms of the applicable indenture. At both September 30, 2021, and December 31, 2020, the outstanding principal balance of the Guaranteed Notes was $2.0 billion, with the last scheduled maturity to take place in 2031.

The Note Guarantees rank equally in right of payment with the applicable Guarantor’s existing and future unsubordinated unsecured indebtedness and are subordinate to any secured indebtedness of the applicable Guarantor to the extent of the value of the assets securing such indebtedness. The Note Guarantees are structurally subordinate to indebtedness and other liabilities (including trade payables and lease

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obligations, and in the case of Ally Bank, its deposits) of any nonguarantor subsidiaries of the applicable Guarantor to the extent of the value of the assets of such subsidiaries.

The Note Guarantees and all other obligations of the Guarantors will terminate and be of no further force or effect (i) upon a permissible sale, disposition, or other transfer (including through merger or consolidation) of a majority of the equity interests (including any sale, disposition or other transfer following which the applicable Guarantor is no longer a subsidiary of the Parent), of the applicable Guarantor, or (ii) upon the discharge of the Parent’s obligations related to the Guaranteed Notes.

The following tables present summarized financial data for the Parent and the Guarantors on a combined basis. The Guarantors, both of which the Parent is deemed to possess control over, are fully consolidated after eliminating intercompany balances and transactions. Summarized financial data for nonguarantor subsidiaries is excluded.


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2021		2020		2021		2020
Net financing loss and other interest income	$	(279)	$	(261)	$	(799)	$	(793)
Dividends from bank subsidiaries	1,000		—		2,300		400
Dividends from nonbank subsidiaries	9		19		25		60
Total other revenue	26		77		187		210
Total net revenue (loss)	756		(165)		1,713		(123)
Provision for credit losses	(20)		(28)		(91)		(56)
Total noninterest expense	143		160		491		471
Income (loss) from continuing operations before income tax benefit	633		(297)		1,313		(538)
Income tax benefit from continuing operations (a)	(97)		(71)		(342)		(220)
Net income (loss) from continuing operations	730		(226)		1,655		(318)
Income from discontinued operations, net of tax	—		1		1		—
Net income (loss) (b)	$	730	$	(225)	$	1,656	$	(318)

(a)There is a significant variation in the customary relationship between pretax income (loss) and income tax benefit due to our accounting policy elections and other adjustments.

(b)Excludes the Parent’s and Guarantors’ share of income of all nonguarantor subsidiaries.



($ in millions)	September 30, 2021		December 31, 2020
Total assets (a)	$	4,824	$	7,600
Total liabilities	$	10,619	$	16,133

(a)Excludes investments in all nonguarantor subsidiaries.

Cash Flows

The following summarizes the activity reflected in 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 helpful 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 $3.1 billion and $2.6 billion for the nine months ended September 30, 2021, and 2020, respectively. Operating cash inflows were higher versus the same quarter in the prior year as our operating environment and results normalized after the COVID-19 pandemic.

Net cash used in investing activities was $1.6 billion for the nine months ended September 30, 2021, compared to net cash provided by investing activities of $11.0 billion for the same period in 2020. The decrease was primarily due to an increase of $5.8 billion in net cash outflows related to purchases of available for sale securities and a decrease in net cash inflows of $6.1 billion related to higher originations of loans held for investment.

Net cash used in financing activities for the nine months ended September 30, 2021, was $6.5 billion, compared to net cash provided by financing activities of $2.6 billion for the same period in 2020. The change was primarily attributable to a decrease of $11.8 billion in net cash inflows related to deposits and a redemption of Trust Preferred Securities of $2.5 billion. This activity was offset by a $4.2 billion decrease in net cash outflows related to long term debt issuance and repayments and a $2.3 billion increase in net cash inflows from preferred shares issuances.

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Capital Planning and Stress Tests

Under the tailoring framework described in the section titled Basel Capital Framework of Note 17 to the Condensed Consolidated Financial Statements, we are generally subject to supervisory stress testing on a two-year cycle and exempted from mandated company-run capital stress testing requirements. We are also required to submit an annual capital plan to the FRB. Our annual 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 our capital. The plan must also include a detailed description of our process for assessing capital adequacy, including a discussion of how we, under expected and stressful conditions, will maintain capital commensurate with our risks and above the minimum regulatory capital ratios, will serve as a source of strength to Ally Bank, and will maintain sufficient capital to continue our operations by maintaining ready access to funding, meeting our obligations to creditors and other counterparties, and continuing to serve as a credit intermediary.

We submitted our 2021 capital plan on April 5, 2021, which includes planned capital distributions to common stockholders through share repurchases and cash dividends over the nine-quarter planning horizon and other capital actions. During the second quarter of 2021, we issued $1.35 billion of Series B Preferred Stock and $1.0 billion of Series C Preferred Stock, both of which qualify as additional Tier 1 capital under U.S. Basel III. The proceeds from these issuances were used to redeem a portion of the Series 2 TRUPS then outstanding. Refer to Note 12 and Note 14 to the Condensed Consolidated Financial Statements for additional details about these instruments and capital actions. In June 2021, we submitted an updated capital plan to the FRB reflecting these capital actions and the increases in our stock-repurchase program and common-stock dividend described above. This updated capital plan was used by the FRB to recalculate Ally’s final stress capital buffer requirement, which was announced in August 2021 and remained unchanged at 3.5% 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 our internal governance requirements, including approval by our 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, accounting and regulatory considerations (including any restrictions that may be imposed by the FRB), impacts related to the COVID-19 pandemic, financial and operational performance, alternative uses of capital, common-stock price, and general market conditions, and may be extended, modified, or discontinued at any time.

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Regulatory Capital

Refer to Note 17 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).

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

BBB-

Stable

March 30, 2021 (a)

Moody’s

P-3

Baa3

Stable

August 27, 2021 (b)

S&P

A-3

BBB-

Stable

March 25, 2021 (c)

DBRS

R-3

BBB (Low)

Stable

March 4, 2021 (d)

(a)Fitch affirmed our senior unsecured debt rating of BBB- and short-term rating of F3, and changed the outlook to Stable from Negative on March 30, 2021.

(b)Moody’s upgraded our senior unsecured rating to Baa3 from Ba3, upgraded our short-term rating to P-3 from Non-Prime and changed the outlook to Stable from Rating Under Review on August 27, 2021.

(c)Standard & Poor’s affirmed our senior unsecured debt rating of BBB-, affirmed our short-term rating of A-3, and changed the outlook to Stable from Negative on March 25, 2021.

(d)DBRS affirmed our senior unsecured debt rating of BBB (Low), affirmed our short-term rating of R-3, and changed the outlook to Stable from Negative on March 4, 2021.

As illustrated by the issuer ratings above, as of September 30, 2021, Ally holds an investment-grade rating by the respective nationally recognized rating agencies.

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 2021, we implemented a new proprietary statistical model to measure our expected future credit losses in accordance with CECL in our consumer automotive portfolio. The model replaced our existing statistical model used to calculate portfolio-level reserves.

We did not substantively change any material aspect of our methodologies and processes used in developing any of the estimates described above from what was described in the Consolidated Financial Statements in our 2020 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 tables present an analysis of net yield on interest-earning assets (or net interest margin) excluding discontinued operations for the periods shown.


	2021						2020						Increase (decrease) due to
Three months ended September 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	$	13,055	$	5	0.14	%	$	20,719	$	5	0.11	%		$	(2)	$	2	$	—


Investment securities (b)	34,508		150		1.73		31,085		162		2.07			18		(30)		(12)
Loans held-for-sale, net	464		5		3.87		472		5		4.33			—		—		—
Finance receivables and loans, net (b) (c)	112,907		1,619		5.69		117,546		1,602		5.42			(63)		80		17
Investment in operating leases, net (d)	10,919		254		9.21		9,317		185		7.89			32		37		69
Other earning assets	685		5		2.57		974		11		4.07			(3)		(3)		(6)
Total interest-earning assets	172,538		2,038		4.68		180,113		1,970		4.35							68
Noninterest-bearing cash and cash equivalents	526						536
Other assets	9,328						8,137
Allowance for loan losses	(3,152)						(3,371)
Total assets	$	179,240					$	185,415
Liabilities and equity
Interest-bearing deposit liabilities (b)	$	139,084	$	245	0.70	%	$	132,807	$	452	1.35	%		$	21	$	(228)	$	(207)
Short-term borrowings	—		—		—		3,343		9		1.08			(9)		—		(9)
Long-term debt	15,487		191		4.87		28,512		309		4.31			(141)		23		(118)
Total interest-bearing liabilities	154,571		436		1.12		164,662		770		1.86							(334)
Noninterest-bearing deposit liabilities	160						157
Total funding sources	154,731		436		1.12		164,819		770		1.86
Other liabilities (e)	6,852		8		n/m		6,472							n/m		n/m		8
Total liabilities	161,583						171,291
Total equity	17,657						14,124
Total liabilities and equity	$	179,240					$	185,415
Net financing revenue and other interest income			$	1,594					$	1,200								$	394
Net interest spread (f)					3.56	%					2.49	%


Net yield on interest-earning assets (g)					3.66	%					2.65	%

n/m = not meaningful

(a)Average balances are calculated using an average daily balance methodology.

(b)Includes the effects of derivative financial instruments designated as hedges. Refer to Note 18 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 of our 2020 Annual Report on Form 10-K.

(d)Yield includes gains on the sale of off-lease vehicles of $86 million and $71 million for the three months ended September 30, 2021, and 2020, respectively. Excluding these gains and losses on sale, the annualized yield was 6.09% and 4.88% for the three months ended September 30, 2021, and 2020, respectively.

(e)Represents interest expense on tax liabilities included in other liabilities on the Condensed Consolidated Balance Sheet. The interest expense on tax liabilities is included in the net yield on interest-earning assets and excluded from the interest spread. For more information on our accounting policies regarding income taxes, refer to Note 1 to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K.

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

(g)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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	2021						2020						Increase (decrease) due to
Nine months ended September 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	$	14,986	$	13	0.11	%	$	12,719	$	23	0.24	%		$	4	$	(14)	$	(10)


Investment securities (b)	34,756		417		1.61		31,278		562		2.40			62		(207)		(145)
Loans held-for-sale, net	496		14		3.74		320		11		4.59			6		(3)		3
Finance receivables and loans, net (b) (c)	113,168		4,789		5.66		122,190		4,974		5.44			(367)		182		(185)
Investment in operating leases, net (d)	10,372		763		9.83		9,155		395		5.76			53		315		368
Other earning assets	696		16		3.04		1,039		34		4.38			(11)		(7)		(18)
Total interest-earning assets	174,474		6,012		4.61		176,701		5,999		4.53							13
Noninterest-bearing cash and cash equivalents	517						462
Other assets	8,939						7,991
Allowance for loan losses	(3,201)						(3,077)
Total assets	$	180,729					$	182,077
Liabilities and equity
Interest-bearing deposit liabilities (b)	$	138,633	$	819	0.79	%	$	126,942	$	1,585	1.67	%		$	146	$	(912)	$	(766)
Short-term borrowings	269		1		0.31		4,181		39		1.24			(36)		(2)		(38)
Long-term debt	18,336		671		4.89		30,721		975		4.24			(393)		89		(304)
Total interest-bearing liabilities	157,238		1,491		1.27		161,844		2,599		2.14							(1,108)
Noninterest-bearing deposit liabilities	154						144
Total funding sources	157,392		1,491		1.27		161,988		2,599		2.14
Other liabilities (e)	6,897		8		n/m		5,986							n/m		n/m		8
Total liabilities	164,289						167,974
Total equity	16,440						14,103
Total liabilities and equity	$	180,729					$	182,077
Net financing revenue and other interest income			$	4,513					$	3,400								$	1,113
Net interest spread (f)					3.34	%					2.39	%


Net yield on interest-earning assets (g)					3.46	%					2.57	%

n/m = not meaningful

(a)Average balances are calculated using an average daily balance methodology.

(d)Yield includes gains on the sale of off-lease vehicles of $279 million and $62 million for the nine months ended September 30, 2021, and 2020, respectively. Excluding these gains and losses on sale, the annualized yield was 6.24% and 4.86% for the nine months ended September 30, 2021, and 2020, respectively.

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

(g)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 of Financial Condition and Results of Operations.

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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 September 30, 2021, 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 2020 Annual Report on Form 10-K.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in our 2020 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 September 30, 2021.

Purchases of Equity Securities by the Issuer

The following table presents repurchases of our common stock, by month, for the three months ended September 30, 2021.


Three months ended September 30, 2021	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)
July 2021	2,627	$	51.44	2,627	$	1,144
August 2021	5,700	52.41		5,700	845
September 2021	4,728	51.79		4,728	600
Total	13,055	51.99		13,055

(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 July 13, 2021, we announced a common stock-repurchase program of up to $2.0 billion for 2021, replacing the $1.6 billion common stock-repurchase authorization previously announced on January 12, 2021. The programs commenced in the first quarter of 2021 and expire on December 31, 2021. Refer to Note 17 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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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

22.1	Subsidiary Guarantors	Filed as Exhibit 22 to the Company’s Quarterly Report for the period ended March 31, 2020, on Form 10-Q (File No. 1-3754), 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 September 30, 2021, formatted in Inline XBRL: (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 September 30, 2021, (formatted in Inline XBRL and contained in Exhibit 101)	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 2nd day of November, 2021.



			Ally Financial Inc. (Registrant)

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



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

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