Company Quick10K Filing
Quick10K
Ally Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$29.39 397 $11,670
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-18 Earnings, Exhibits
8-K 2019-05-16 Other Events, Exhibits
8-K 2019-05-07 Shareholder Vote, Regulation FD, Exhibits
8-K 2019-04-18 Earnings, Exhibits
8-K 2019-04-15 Other Events, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2019-01-15 Other Events, Exhibits
8-K 2018-12-04 Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-10 Other Events, Exhibits
8-K 2018-10-05 Regulation FD, Exhibits
8-K 2018-08-01 Officers
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-16 Other Events, Exhibits
8-K 2018-06-28 Regulation FD, Exhibits
8-K 2018-06-21 Regulation FD, Exhibits
8-K 2018-05-08 Shareholder Vote, Regulation FD, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-04-18 Officers, Regulation FD, Exhibits
8-K 2018-04-12 Other Events, Exhibits
8-K 2018-03-15 Regulation FD, Exhibits
8-K 2018-02-26 Officers, Exhibits
8-K 2018-01-30 Earnings, Exhibits
8-K 2018-01-11 Other Events, Exhibits
HNP Huaneng Power 9,370
LGIH LGI Homes 1,590
TRHC Tabula Rasa Healthcare 1,050
JRSH Jerash 79
WYY Widepoint 50
ISIG Insignia Systems 14
OBLN Obalon Therapeutics 13
ALPHA Alpha Energy 0
GAIF Graham Alternative Investment Fund I 0
USVR US VR Global.com 0
ALLY 2019-03-31
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ally201933110-qexhibit311.htm
EX-31.2 ally201933110-qexhibit312.htm
EX-32 ally201933110-qexhibit32.htm

Ally Financial Earnings 2019-03-31

ALLY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ally201933110-q.htm FORM 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019, or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to                         
Commission file number: 1-3754
ALLY FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware
 
38-0572512
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Ally Detroit Center
500 Woodward Ave.
Floor 10, Detroit, Michigan
48226
(Address of principal executive offices)
(Zip Code)
(866) 710-4623
(Registrant’s telephone number, including area code)
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 þ                    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 þ                    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
  
Accelerated filer o
  
Non-accelerated filer o
 
Smaller reporting company o
 
  
 
 
Emerging growth company o
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.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                    No þ
Securities registered pursuant to Section 12(b) of the Act (all listed on the New York Stock Exchange):
Title of each class
Trading symbols
Common Stock, par value $0.01 per share
ALLY
8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I
ALLY PRA
At May 2, 2019, the number of shares outstanding of the Registrant’s common stock was 397,159,456 shares.



INDEX
Ally Financial Inc. • Form 10-Q

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



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



 
 
Three months ended March 31,
($ in millions)
 
2019
 
2018
Financing revenue and other interest income
 
 
 
 
Interest and fees on finance receivables and loans
 
$
1,807

 
$
1,543

Interest on loans held-for-sale
 
2

 

Interest and dividends on investment securities and other earning assets
 
240

 
176

Interest on cash and cash equivalents
 
23

 
15

Operating leases
 
361

 
382

Total financing revenue and other interest income
 
2,433


2,116

Interest expense
 
 
 
 
Interest on deposits
 
592

 
351

Interest on short-term borrowings
 
44

 
32

Interest on long-term debt
 
419

 
411

Total interest expense
 
1,055


794

Net depreciation expense on operating lease assets
 
246

 
273

Net financing revenue and other interest income
 
1,132


1,049

Other revenue
 
 
 
 
Insurance premiums and service revenue earned
 
261

 
256

Gain on mortgage and automotive loans, net
 
10

 
1

Other gain (loss) on investments, net
 
108

 
(12
)
Other income, net of losses
 
87

 
109

Total other revenue
 
466


354

Total net revenue
 
1,598


1,403

Provision for loan losses
 
282

 
261

Noninterest expense
 
 
 
 
Compensation and benefits expense
 
318

 
306

Insurance losses and loss adjustment expenses
 
59

 
63

Other operating expenses
 
453

 
445

Total noninterest expense
 
830


814

Income from continuing operations before income tax expense
 
486


328

Income tax expense from continuing operations
 
111

 
76

Net income from continuing operations
 
375


252

Loss from discontinued operations, net of tax
 
(1
)
 
(2
)
Net income
 
374


250

Other comprehensive income (loss), net of tax
 
306

 
(328
)
Comprehensive income (loss)

$
680


$
(78
)
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

3

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

 
 
Three months ended March 31,
(in dollars) (a)
 
2019
 
2018
Basic earnings per common share
 
 
 
 
Net income from continuing operations
 
$
0.93

 
$
0.58

Loss from discontinued operations, net of tax
 

 
(0.01
)
Net income
 
$
0.93

 
$
0.57

Diluted earnings per common share
 
 
 
 
Net income from continuing operations
 
$
0.92

 
$
0.57

Loss from discontinued operations, net of tax
 

 
(0.01
)
Net income
 
$
0.92

 
$
0.57

Cash dividends declared per common share
 
$
0.17

 
$
0.13

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

4

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

($ in millions, except share data)
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
Cash and cash equivalents
 
 
 
 
Noninterest-bearing
 
$
946

 
$
810

Interest-bearing
 
3,011

 
3,727

Total cash and cash equivalents
 
3,957

 
4,537

Equity securities
 
536

 
773

Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral)
 
27,630

 
25,303

Held-to-maturity securities (fair value of $2,374 and $2,307)
 
2,387

 
2,362

Loans held-for-sale, net
 
107

 
314

Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net of unearned income
 
130,055

 
129,926

Allowance for loan losses
 
(1,288
)
 
(1,242
)
Total finance receivables and loans, net
 
128,767

 
128,684

Investment in operating leases, net
 
8,339

 
8,417

Premiums receivable and other insurance assets
 
2,401

 
2,326

Other assets
 
5,993

 
6,153

Total assets
 
$
180,117

 
$
178,869

Liabilities
 
 
 
 
Deposit liabilities
 
 
 
 
Noninterest-bearing
 
$
141

 
$
142

Interest-bearing
 
113,158


106,036

Total deposit liabilities
 
113,299

 
106,178

Short-term borrowings
 
6,115

 
9,987

Long-term debt
 
41,490

 
44,193

Interest payable
 
696

 
523

Unearned insurance premiums and service revenue
 
3,096

 
3,044

Accrued expenses and other liabilities
 
1,722

 
1,676

Total liabilities
 
166,418

 
165,601

Contingencies (refer to Note 23)
 
 
 
 
Equity
 
 
 
 
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 495,771,320 and 492,797,409; and outstanding 399,760,804 and 404,899,599)
 
21,379

 
21,345

Accumulated deficit
 
(5,195
)
 
(5,489
)
Accumulated other comprehensive loss
 
(225
)
 
(539
)
Treasury stock, at cost (96,010,516 and 87,897,810 shares)
 
(2,260
)
 
(2,049
)
Total equity
 
13,699

 
13,268

Total liabilities and equity
 
$
180,117

 
$
178,869

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

5

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)
 
March 31, 2019
 
December 31, 2018
Assets
 
 
 
 
Finance receivables and loans, net
 
 
 
 
Finance receivables and loans, net of unearned income
 
$
16,772

 
$
18,086

Allowance for loan losses
 
(99
)
 
(114
)
Total finance receivables and loans, net
 
16,673

 
17,972

Investment in operating leases, net
 
123

 
164

Other assets
 
636

 
767

Total assets
 
$
17,432

 
$
18,903

Liabilities
 
 
 
 
Long-term debt
 
$
9,742

 
$
10,482

Accrued expenses and other liabilities
 
11

 
12

Total liabilities
 
$
9,753

 
$
10,494

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

6

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

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

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

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

 
 
 
7

Adoption of Accounting Standards Update 2018-02
 
 
 
42

 
(42
)
 
 
 

Balance at January 1, 2018
 
21,245

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

Net income
 

 
250

 


 

 
250

Share-based compensation
 
28

 

 


 


 
28

Other comprehensive loss
 

 

 
(328
)
 


 
(328
)
Common stock repurchases
 

 

 


 
(185
)
 
(185
)
Common stock dividends ($0.13 per share)
 

 
(58
)
 

 

 
(58
)
Balance at March 31, 2018
 
$
21,273

 
$
(6,318
)
 
$
(578
)
 
$
(1,295
)
 
$
13,082

Balance at December 31, 2018
 
$
21,345

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

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

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

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

Net income
 

 
374

 


 

 
374

Share-based compensation
 
34

 

 

 

 
34

Other comprehensive income
 

 

 
306

 

 
306

Common stock repurchases
 

 

 

 
(211
)
 
(211
)
Common stock dividends ($0.17 per share)
 

 
(70
)
 

 


 
(70
)
Balance at March 31, 2019
 
$
21,379

 
$
(5,195
)
 
$
(225
)
 
$
(2,260
)
 
$
13,699

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

7

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

Three months ended March 31, ($ in millions)
 
2019
 
2018
Operating activities




Net income

$
374


$
250

Reconciliation of net income to net cash provided by operating activities

 

 
Depreciation and amortization

369


434

Provision for loan losses

282


261

Gain on mortgage and automotive loans, net

(10
)

(1
)
Other (gain) loss on investments, net

(108
)

12

Originations and purchases of loans held-for-sale

(134
)

(248
)
Proceeds from sales and repayments of loans held-for-sale

111


230

Net change in

 

 
Deferred income taxes

100


83

Interest payable

173


120

Other assets

(40
)

29

Other liabilities

37


(106
)
Other, net

(73
)

33

Net cash provided by operating activities

1,081


1,097

Investing activities




Purchases of equity securities
 
(48
)
 
(374
)
Proceeds from sales of equity securities
 
383

 
220

Purchases of available-for-sale securities

(3,401
)

(2,360
)
Proceeds from sales of available-for-sale securities

656


328

Proceeds from repayments of available-for-sale securities

694


795

Purchases of held-to-maturity securities

(131
)

(155
)
Proceeds from repayments of held-to-maturity securities

44


35

Purchases of finance receivables and loans held-for-investment

(1,452
)

(1,497
)
Proceeds from sales of finance receivables and loans initially held-for-investment

157



Originations and repayments of finance receivables and loans held-for-investment and other, net
 
1,149

 
(1,300
)
Purchases of operating lease assets

(792
)

(969
)
Disposals of operating lease assets

624


976

Net change in nonmarketable equity investments

171


(19
)
Other, net

(95
)

(82
)
Net cash used in investing activities

(2,041
)

(4,402
)
Statement continues on the next page.
The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

8

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

Three months ended March 31, ($ in millions)
 
2019
 
2018
Financing activities




Net change in short-term borrowings

(3,872
)

(1,848
)
Net increase in deposits

7,114


4,173

Proceeds from issuance of long-term debt

1,766


6,665

Repayments of long-term debt

(4,490
)

(5,771
)
Repurchase of common stock
 
(211
)
 
(185
)
Dividends paid

(70
)

(58
)
Net cash provided by financing activities

237


2,976

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

1


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

(722
)

(331
)
Cash and cash equivalents and restricted cash at beginning of year

5,626


5,269

Cash and cash equivalents and restricted cash at March 31,

$
4,904


$
4,938

Supplemental disclosures

 
 
 
Cash paid for

 
 
 
Interest

$
862


$
667

Income taxes

12


5

Noncash items

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

63



Finance receivables and loans held-for-investment transferred to loans held-for-sale
 
20

 

Other disclosures

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

3


11

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.
March 31, ($ in millions)
 
2019
 
2018
Cash and cash equivalents on the Condensed Consolidated Balance Sheet
 
$
3,957

 
$
3,721

Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)
 
947

 
1,217

Total cash and cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows
 
$
4,904

 
$
4,938

(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.

9

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


1.    Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, Ally, the Company, or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services and insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). We also support the Ally CashBack Credit Card. Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for equity sponsors and middle-market companies. We are a Delaware corporation and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956, as amended, and a financial holding company (FHC) under the Gramm-Leach-Bliley Act of 1999, as amended.
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive lease assets and residuals, fair value of financial instruments, and the determination of the provision for income taxes.
The Condensed Consolidated Financial Statements at March 31, 2019, and for the three months ended March 31, 2019, and 2018, are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related Notes) included in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed on February 20, 2019, with the U.S. Securities and Exchange Commission (SEC).
Significant Accounting Policies
Lease Accounting
At contract inception, we determine whether the contract is or contains a lease based on the terms and conditions of the contract. Lease contracts are recognized on our Condensed Consolidated Balance Sheet as right-of-use (ROU) assets and lease liabilities; however, we have elected not to recognize ROU assets and lease liabilities on real estate leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded based on the present value of the future lease payments over the expected lease term. As the interest rate implicit in the lease contract is typically not readily determinable, we utilize our incremental borrowing rate, which is the rate we would incur to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. The ROU asset also includes initial direct costs paid less lease incentives received from the lessor. Our lease contracts are generally classified as operating and, as a result, we recognize a single lease cost within other operating expenses on the income statement on a straight-line basis over the lease term. This update to our accounting policy resulted from our adoption of Accounting Standards Update (ASU) 2016-02 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.
Investments
Premiums on debt securities that have noncontingent call features that are callable at fixed prices on preset dates are amortized to the earliest call date as an adjustment to investment yield. All other premiums and discounts on debt securities are amortized over the stated maturity of the security as an adjustment to investment yield. This method of amortization differs from that described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, which describes our full accounting policy for Investments. This update to our amortization methodology resulted from the adoption of ASU 2017-08 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.
Income Taxes
In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This method differs from that described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.
Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K regarding additional significant accounting policies.

10

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

Recently Adopted Accounting Standards
Leases (ASU 2016-02)
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02. The amendments in this update primarily replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases (previously referred to as capital leases) and lessor accounting requirements for operating leases and sales type and direct financing leases are largely unchanged. The amendments require the lessee of an operating lease to record a balance sheet gross-up upon lease commencement by recognizing a ROU asset and lease liability equal to the present value of the lease payments. The ROU asset and lease liability should be derecognized in a manner that effectively yields a straight line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also change the types of costs that can be capitalized related to a lease agreement for both lessees and lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The FASB issued additional ASUs to clarify the guidance and provide certain practical expedients and an additional transition option. We adopted ASU 2016-02 and the subsequent ASUs that modified ASU 2016-02 (collectively, the amendments) on January 1, 2019. This includes the early adoption of ASU 2019-01, which was issued in March 2019 to amend certain provisions included in ASU 2016-02.
We adopted this guidance using the modified retrospective approach on January 1, 2019, and have not adjusted prior period comparative information and will continue to disclose prior period financial information in accordance with the previous lease accounting guidance. We have elected certain practical expedients permitted within the amendments that allow us to not reassess (i) current lease classifications, (ii) whether existing contracts meet the definition of a lease under the amendments to the lease guidance, and (iii) whether current initial direct costs meet the new criteria for capitalization, for all existing leases as of the adoption date. We made an accounting policy election to calculate the impact of adoption using the remaining minimum lease payments and remaining lease term for each contract that was identified as a lease, discounted at our incremental borrowing rate as of the adoption date. The adoption of the amendments resulted in a ROU asset of approximately $161 million from operating leases for our various corporate facilities, a $29 million reduction to accrued expenses and other liabilities for accrued rent and unamortized tenant improvement allowances, and a lease liability of approximately $190 million. The adoption did not change our previously reported Condensed Consolidated Statements of Comprehensive Income and did not result in a cumulative catch-up adjustment to opening retained earnings.
Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)
In March 2017, the FASB issued ASU 2017-08. The amendments in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. We adopted the amendments on January 1, 2019, on a modified retrospective basis, which resulted in an increase to our accumulated deficit of $10 million, net of income taxes, partially offset by an $8 million decrease to accumulated other comprehensive loss, net of income taxes.
Recently Issued Accounting Standards
Financial Instruments—Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (CECL). The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be recorded under the current incurred loss model for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. The amendments are effective on January 1, 2020, with early adoption permitted as of January 1, 2019. The amendments must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption. We plan to adopt these amendments on January 1, 2020, and expect to utilize the modified retrospective approach as required.
The new accounting model for credit losses represents a significant departure from existing GAAP, and will materially increase the allowance for credit losses on our finance receivables and loans, with a resulting negative adjustment to retained earnings. We expect that our consumer automotive loan portfolio will generate the majority of this increase. The amount of the change in the allowance for credit losses will also be impacted by the composition of our portfolio at the adoption date, as well as economic conditions and forecasts at that time. Management created a cross-functional working group to govern the implementation of these amendments, including consideration of model development, data integrity, technology, reporting and disclosure requirements, key accounting interpretations, control environment, and corporate governance. We are in the process of refining and testing the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We performed a limited parallel run during the first quarter of 2019, and will continue to refine and enhance our estimation process with additional parallel testing throughout 2019. Additionally, we do not expect a material allowance for credit losses on our debt securities as a result of the standard based upon the current composition of our portfolio.

11

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

2.    Revenue from Contracts with Customers
Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of ASC 606, Revenue from Contracts with Customers. As part of our Insurance operations, we recognize revenue from insurance contracts, which are addressed by other GAAP and are not included in the scope of this standard. Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of this standard. All revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the anticipated cost emergence. Further, commissions and sales expense incurred to obtain these contracts are amortized over the terms of the related policies and service contracts on the same basis as premiums and service revenue are earned, and all advertising costs are recognized as expense when incurred.
The following table presents a disaggregated view of our revenue from contracts with customers included in other revenue that falls within the scope of the revenue recognition principles of ASC 606, Revenue from Contracts with Customers. For further information regarding our revenue recognition policies and details about the nature of our respective revenue streams, refer to Note 1 and Note 3 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.
Three months ended March 31,  ($ in millions)
 
Automotive Finance operations
 
Insurance operations
 
Mortgage Finance operations
 
Corporate Finance operations
 
Corporate and Other
 
Consolidated
2019
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
Noninsurance contracts (a) (b) (c)
 
$

 
$
131

 
$

 
$

 
$

 
$
131

Remarketing fee income
 
18

 

 

 

 

 
18

Brokerage commissions and other revenue
 

 

 

 

 
17

 
17

Deposit account and other banking fees
 

 

 

 

 
5

 
5

Brokered/agent commissions
 

 
3

 

 

 

 
3

Other
 
5

 

 

 

 

 
5

Total revenue from contracts with customers
 
23

 
134

 

 

 
22

 
179

All other revenue
 
45

 
226

 
2

 
11

 
3

 
287

Total other revenue (d)
 
$
68

 
$
360

 
$
2

 
$
11

 
$
25

 
$
466

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

 
$
123

 
$

 
$

 
$

 
$
123

Remarketing fee income
 
23

 

 

 

 

 
23

Brokerage commissions and other revenue
 

 

 

 

 
16

 
16

Deposit account and other banking fees
 

 

 

 

 
3

 
3

Brokered/agent commissions
 

 
4

 

 

 

 
4

Other
 
2

 
1

 

 

 

 
3

Total revenue from contracts with customers
 
25

 
128

 

 

 
19

 
172

All other revenue
 
41

 
118

 
1

 
8

 
14

 
182

Total other revenue (d)
 
$
66

 
$
246

 
$
1

 
$
8

 
$
33

 
$
354

(a)
We had $2.6 billion and $2.5 billion in unearned revenue associated with outstanding contracts at January 1, 2019, and January 1, 2018, respectively, and $199 million and $194 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 March 31, 2019, and March 31, 2018, respectively.
(b)
At March 31, 2019, we had unearned revenue of $2.7 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $554 million during the remainder of 2019, $672 million in 2020, $562 million in 2021, $424 million in 2022, and $477 million thereafter. At March 31, 2018, we had unearned revenue of $2.5 billion associated with outstanding contracts.
(c)
We had opening and closing balances of deferred insurance assets of $1.5 billion and $1.6 billion at January 1, 2019, and March 31, 2019, respectively, and recognized $111 million of expense during the three months ended March 31, 2019. We had opening and closing balances of deferred insurance assets of $1.4 billion at both January 1, 2018, and March 31, 2018, and recognized $103 million of expense during the three months ended March 31, 2018.
(d)
Represents a component of total net revenue. Refer to Note 21 for further information on our reportable operating segments.
In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized net remarketing gains of $15 million and $18 million for the three months ended March 31, 2019, and March 31, 2018, respectively, 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.

12

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

3.    Other Income, Net of Losses
Details of other income, net of losses, were as follows.
 
 
Three months ended March 31,
($ in millions)
 
2019
 
2018
Late charges and other administrative fees
 
$
29

 
$
29

Remarketing fees
 
18

 
23

Servicing fees
 
6

 
8

Income from equity-method investments
 
4

 
6

Other, net
 
30

 
43

Total other income, net of losses
 
$
87


$
109

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

 
$
140

Less: Reinsurance recoverable
 
96

 
108

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

 
32

Net insurance losses and loss adjustment expenses incurred related to:
 
 
 
 
Current year
 
59

 
60

Prior years (a)
 

 
3

Total net insurance losses and loss adjustment expenses incurred
 
59

 
63

Net insurance losses and loss adjustment expenses paid or payable related to:
 
 
 
 
Current year
 
(33
)
 
(31
)
Prior years
 
(23
)
 
(19
)
Total net insurance losses and loss adjustment expenses paid or payable
 
(56
)
 
(50
)
Net reserves for insurance losses and loss adjustment expenses at March 31,
 
41

 
45

Plus: Reinsurance recoverable
 
94

 
112

Total gross reserves for insurance losses and loss adjustment expenses at March 31,
 
$
135

 
$
157

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

13

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

5.    Other Operating Expenses
Details of other operating expenses were as follows.
 
Three months ended March 31,
($ in millions)
2019
 
2018
Insurance commissions
$
114

 
$
110

Technology and communications
77

 
71

Advertising and marketing
48

 
39

Lease and loan administration
39

 
42

Professional services
29

 
32

Regulatory and licensing fees
28

 
30

Vehicle remarketing and repossession
27

 
32

Premises and equipment depreciation
22

 
20

Occupancy
13

 
11

Non-income taxes
9

 
8

Amortization of intangible assets
3

 
3

Other
44

 
47

Total other operating expenses
$
453

 
$
445


14

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 and held-to-maturity, include government securities, corporate bonds, asset-backed securities, and mortgage-backed securities. The cost, fair value, and gross unrealized gains and losses on available-for-sale and held-to-maturity debt securities were as follows.
 
 
March 31, 2019
 
December 31, 2018


Amortized cost

Gross unrealized

Fair value

Amortized cost

Gross unrealized

Fair value
($ in millions)

gains

losses

gains

losses

Available-for-sale securities
















Debt securities
















U.S. Treasury and federal agencies

$
1,990


$
1


$
(49
)

$
1,942


$
1,911


$


$
(60
)

$
1,851

U.S. States and political subdivisions

771


13


(3
)

781


816


3


(17
)

802

Foreign government

170


2




172


145


1


(1
)

145

Agency mortgage-backed residential

18,939


98


(193
)

18,844


17,486


47


(395
)

17,138

Agency mortgage-backed commercial
 
316

 
4

 

 
320

 
3

 

 

 
3

Mortgage-backed residential
 
2,912

 
7

 
(33
)
 
2,886

 
2,796

 
1

 
(111
)
 
2,686

Mortgage-backed commercial

725




(2
)

723


715


1


(2
)

714

Asset-backed

665


4


(1
)

668


723


2


(2
)

723

Corporate debt

1,301


7


(14
)

1,294


1,286


1


(46
)

1,241

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

$
27,789


$
136


$
(295
)

$
27,630


$
25,881


$
56


$
(634
)

$
25,303

Held-to-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed residential (d)
 
$
2,351

 
$
15

 
$
(28
)
 
$
2,338

 
$
2,319

 
$
6

 
$
(61
)
 
$
2,264

Asset-backed retained notes
 
36

 

 

 
36

 
43

 

 

 
43

Total held-to-maturity securities

$
2,387


$
15


$
(28
)

$
2,374


$
2,362

 
$
6

 
$
(61
)
 
$
2,307

(a)
Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million at both March 31, 2019, and December 31, 2018.
(b)
Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 17 for additional information.
(c)
Available-for-sale securities with a fair value of $4.1 billion and $9.2 billion at March 31, 2019, and December 31, 2018, respectively, were pledged to secure advances from the Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements, or for other purposes as required by contractual obligation or law. Under these agreements, we have granted the counterparty the right to sell or pledge $985 million and $821 million of the underlying investment securities at March 31, 2019, and December 31, 2018, respectively.
(d)
Held-to-maturity securities with a fair value of $1.3 billion and $1.2 billion at March 31, 2019, and December 31, 2018, respectively, were pledged to secure advances from the FHLB.

15

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

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


Total

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years
($ in millions)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield
March 31, 2019




















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




















U.S. Treasury and federal agencies

$
1,942


1.7
%

$
28


1.7
%

$
1,341


1.6
%

$
573


1.9
%

$


%
U.S. States and political subdivisions

781


3.2


52


2.7


43


2.5


212


2.7


474


3.5

Foreign government

172


2.3


41


2.1


55


2.3


73


2.4


3


2.7

Agency mortgage-backed residential
 
18,844

 
3.4

 

 

 

 

 
52

 
1.9

 
18,792

 
3.4

Agency mortgage-backed commercial
 
320

 
3.2

 

 

 
3

 
3.1

 
83

 
3.3

 
234

 
3.2

Mortgage-backed residential

2,886


3.3














2,886


3.3

Mortgage-backed commercial

723


3.8










36


4.0


687


3.8

Asset-backed

668


3.5






390


3.4


165


4.0


113


3.3

Corporate debt

1,294


3.2


152


3.1


512


2.9


606


3.4


24


5.9

Total available-for-sale securities

$
27,630


3.3


$
273


2.7


$
2,344


2.2


$
1,800


2.8


$
23,213


3.4

Amortized cost of available-for-sale securities

$
27,789




$
273




$
2,376




$
1,814




$
23,326



Amortized cost of held-to-maturity securities
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed residential
 
$
2,351

 
3.2
%
 
$

 
%
 
$

 
%
 
$

 
%
 
$
2,351

 
3.2
%
Asset-backed retained notes
 
36

 
2.1

 

 

 
36

 
2.1

 

 

 

 

Total held-to-maturity securities
 
$
2,387

 
3.2

 
$

 

 
$
36

 
2.1

 
$

 

 
$
2,351

 
3.2

December 31, 2018




















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




















U.S. Treasury and federal agencies

$
1,851


1.9
%

$
12


1.0
%

$
1,277


1.8
%

$
562


2.0
%

$


%
U.S. States and political subdivisions

802


3.0


49


1.9


43


2.3


252


2.6


458


3.4

Foreign government

145


2.4


18


3.1


60


2.3


67


2.4





Agency mortgage-backed residential
 
17,138

 
3.3

 

 

 

 

 
54

 
1.9

 
17,084

 
3.3

Agency mortgage-backed commercial
 
3

 
3.1

 

 

 
3

 
3.1

 

 

 

 

Mortgage-backed residential

2,686


3.3














2,686


3.3

Mortgage-backed commercial

714


3.8










46


3.9


668


3.8

Asset-backed

723


3.5






478


3.4


121


4.0


124


3.3

Corporate debt

1,241


3.1


144


2.8


496


2.9


581


3.3


20


5.5

Total available-for-sale securities

$
25,303


3.2


$
223


2.6


$
2,357


2.4


$
1,683


2.8


$
21,040


3.3

Amortized cost of available-for-sale securities

$
25,881





$
224





$
2,405





$
1,743





$
21,509




Amortized cost of held-to-maturity securities

 






















Agency mortgage-backed residential
 
$
2,319

 
3.2
%
 
$

 
%
 
$

 
%
 
$

 
%
 
$
2,319

 
3.2
%
Asset-backed retained notes
 
43

 
2.0

 

 

 
42

 
2.0

 
1

 
3.3

 

 

Total held-to-maturity securities
 
$
2,362

 
3.2

 
$

 

 
$
42

 
2.0

 
$
1

 
3.3

 
$
2,319

 
3.2

(a)
Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the contractual coupon and amortized cost, and excludes expected capital gains and losses.
The balances of cash equivalents were $56 million and $35 million at March 31, 2019, and December 31, 2018, respectively, and were composed primarily of money-market accounts and short-term securities, including U.S. Treasury bills.

16

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 March 31,
($ in millions)
2019
 
2018
Taxable interest
$
214

 
$
154

Taxable dividends
3

 
3

Interest and dividends exempt from U.S. federal income tax
5

 
6

Interest and dividends on investment securities
$
222

 
$
163

The following table presents gross gains and losses realized upon the sales of available-for-sale securities, and net gains or losses on equity securities held during the period. There were no other-than-temporary impairments of available-for-sale securities for the periods presented.
 
Three months ended March 31,
($ in millions)
2019
 
2018
Available-for-sale securities
 
 
 
Gross realized gains
$
10

 
$
6

Gross realized losses (a)
(1
)
 

Net realized gains on available-for-sale securities
9

 
6

Net realized gain on equity securities
29

 
22

Net unrealized gain (loss) on equity securities
70

 
(40
)
Other gain (loss) on investments, net
$
108

 
$
(12
)
(a)
Certain available-for-sale securities were sold at a loss during the three months ended March 31, 2019, as a result of market conditions within these periods (e.g., a downgrade in the rating of a debt security) or 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.

17

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

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


Less than 12 months

12 months or longer

Less than 12 months

12 months or longer
($ in millions)

Fair value

Unrealized loss

Fair value

Unrealized loss

Fair value

Unrealized loss

Fair value

Unrealized loss
Available-for-sale securities
















Debt securities