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, ~~2017,~~2018, 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 and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files).

Yes 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.

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

Yes ¨ No þ

At May ~~2, 2017,~~3, 2018, the number of shares outstanding of the Registrant’s common stock was ~~459,193,676~~430,028,556 shares.

Table of Contents

INDEX

Ally Financial Inc. Ÿ• Form 10-Q



		Page
Part I — Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Statement of Comprehensive Income (unaudited) for the Three Months Ended March 31, ~~2017~~2018, and ~~2016~~2017	3
	Condensed Consolidated Balance Sheet (unaudited) at March 31, ~~2017~~2018, and December 31, ~~2016~~2017	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Three Months Ended March 31, ~~2017~~2018, and ~~2016~~2017	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Three Months Ended March 31, ~~2017~~2018, and ~~2016~~2017	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
	Note 1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies	10
	Note 2. Revenue from Contracts with Customers	13
	Note 3. Other Income, Net of Losses	17
	Note 4. Reserves for Insurance Losses and Loss Adjustment Expenses	18
	Note 5. Other Operating Expenses	18
	Note 6. Investment Securities	19
	Note 7. Finance Receivables and Loans, Net	23
	Note 8. Investment in Operating Leases, Net	29
	Note 9. Securitizations and Variable Interest Entities	29
	Note 10. Servicing Activities	31
	Note 11. Other Assets	32
	Note 12. Deposit Liabilities	33
	Note 13. Debt	33
	Note 14. Accrued Expenses and Other Liabilities	35
	Note 15. Accumulated Other Comprehensive Loss	36
	Note 16. Earnings per Common Share	37
	Note 17. Regulatory Capital and Other Regulatory Matters	37
	Note 18. Derivative Instruments and Hedging Activities	40
	Note 19. Income Taxes	46
	Note 20. Fair Value	46
	Note 21. Offsetting Assets and Liabilities	52
	Note 22. Segment Information	54
	Note 23. Parent and Guarantor Condensed Consolidating Financial Statements	55
	Note 24. Contingencies and Other Risks	62
	Note 25. Subsequent Events	63
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5764
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	96108
Item 4.	Controls and Procedures	97109
Part II — Other Information		98110
Item 1.	Legal Proceedings	98110
Item 1A.	Risk Factors	98110
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98110
Item 3.	Defaults Upon Senior Securities	98110
Item 4.	Mine Safety Disclosures	98110
Item 5.	Other Information	98110
Item 6.	Exhibits	98111
Signatures		99
~~Index of Exhibits~~		~~100~~112



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 March 31,						Three months ended March 31,
($ in millions)	2017			2016			2018			2017
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,368		$	1,235		$	1,543		$	1,368
Interest and dividends on investment securities and other earning assets	134			102			176			134
Interest on cash and cash equivalents	5			3			15			5
Operating leases	543			769			382			543
Total financing revenue and other interest income	2,050			2,109			2,116			2,050
Interest expense
Interest on deposits	231			193			351			231
Interest on short-term borrowings	27			13			32			27
Interest on long-term debt	424			442			411			424
Total interest expense	682			648			794			682
Net depreciation expense on operating lease assets	389			510			273			389
Net financing revenue and other interest income	979			951			1,049			979
Other revenue
Insurance premiums and service revenue earned	241			230			256			241
Gain on mortgage and automotive loans, net	14			1			1			14
Loss on extinguishment of debt	(1		)	(4		)
Other gain on investments, net	27			54
Other (loss) gain on investments, net							(12		)	27
Other income, net of losses	115			95			109			114
Total other revenue	396			376			354			396
Total net revenue	1,375			1,327			1,403			1,375
Provision for loan losses	271			220			261			271
Noninterest expense
Compensation and benefits expense	285			252			306			285
Insurance losses and loss adjustment expenses	88			73			63			88
Other operating expenses	405			385			445			405
Total noninterest expense	778			710			814			778
Income from continuing operations before income tax expense	326			397			328			326
Income tax expense from continuing operations	113			150			76			113
Net income from continuing operations	213			247			252			213
Income from discontinued operations, net of tax	1			3
(Loss) income from discontinued operations, net of tax							(2		)	1
Net income	214			250			250			214
Other comprehensive income, net of tax	20			146
Comprehensive income	$	234		$	396
Other comprehensive (loss) income, net of tax							(328		)	20
Comprehensive (loss) income							$	(78	)	$	234

Statement continues on the next page.

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

Table of Contents

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q


	Three months ended March 31,				Three months ended March 31,
(in dollars) (a)	2017		2016		2018			2017
Basic earnings per common share
Net income from continuing operations	$	0.46	$	0.48	$	0.58		$	0.46
Income from discontinued operations, net of tax	—		0.01
Loss from discontinued operations, net of tax					(0.01		)	—
Net income	$	0.46	$	0.49	$	0.57		$	0.46
Diluted earnings per common share
Net income from continuing operations	$	0.46	$	0.48	$	0.57		$	0.46
Income from discontinued operations, net of tax	—		0.01
Loss from discontinued operations, net of tax					(0.01		)	—
Net income	$	0.46	$	0.49	$	0.57		$	0.46
Cash dividends per common share	$	0.08	$	—
Cash dividends declared per common share					$	0.13		$	0.08


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

Refer to Note 1716 for additional earnings per share information. The Notes to the Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

Table of Contents

Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q


($ in millions, except share data)	March 31, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Assets
Cash and cash equivalents
Noninterest-bearing	$	1,513		$	1,547		$	768		$	844
Interest-bearing	2,789			4,387			2,953			3,408
Total cash and cash equivalents	4,302			5,934			3,721			4,252
Available-for-sale securities (refer to Note 7 for discussion of investment securities pledged as collateral)	20,308			18,926
Held-to-maturity securities (fair value of $1,063 and $789)	1,104			839
Equity securities							680			518
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral)							22,726			22,303
Held-to-maturity securities (fair value of $1,895 and $1,865)							1,967			1,899
Loans held-for-sale, net	1			—			126			108
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	119,002			118,944			125,327			122,893
Allowance for loan losses	(1,155		)	(1,144		)	(1,278		)	(1,276		)
Total finance receivables and loans, net	117,847			117,800			124,049			121,617
Investment in operating leases, net	10,461			11,470			8,530			8,741
Premiums receivable and other insurance assets	1,944			1,905			2,197			2,047
Other assets	6,134			6,854			6,025			5,663
Total assets	$	162,101		$	163,728		$	170,021		$	167,148
Liabilities
Deposit liabilities
Noninterest-bearing	$	102		$	84		$	122		$	108
Interest-bearing	84,384			78,938			97,324			93,148
Total deposit liabilities	84,486			79,022			97,446			93,256
Short-term borrowings	8,371			12,673			9,564			11,413
Long-term debt	51,061			54,128			45,076			44,226
Interest payable	382			351			494			375
Unearned insurance premiums and service revenue	2,514			2,500			2,904			2,604
Accrued expenses and other liabilities	1,922			1,737			1,455			1,780
Total liabilities	148,736			150,411			156,939			153,654
Contingencies (refer to Note 25)
Contingencies (refer to Note 24)
Equity
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 488,997,931 and 485,707,644; and outstanding 462,193,424 and 467,000,306)	21,187			21,166
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 491,993,371 and 489,883,553; and outstanding 432,690,882 and 437,053,936)							21,273			21,245
Accumulated deficit	(6,975		)	(7,151		)	(6,318		)	(6,406		)
Accumulated other comprehensive loss	(321		)	(341		)	(578		)	(235		)
Treasury stock, at cost (26,804,507 and 18,707,338 shares)	(526		)	(357		)
Treasury stock, at cost (59,302,489 and 52,829,617 shares)							(1,295		)	(1,110		)
Total equity	13,365			13,317			13,082			13,494
Total liabilities and equity	$	162,101		$	163,728		$	170,021		$	167,148

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

Table of Contents

Condensed Consolidated Balance Sheet (unaudited)

Ally Financial Inc. • Form 10-Q

The assets of consolidated variable interest entities, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, 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, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Assets
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	$	22,550		$	24,630		$	19,080		$	20,623
Allowance for loan losses	(154		)	(173		)	(142		)	(136		)
Total finance receivables and loans, net	22,396			24,457			18,938			20,487
Investment in operating leases, net	1,273			1,745			337			444
Other assets	914			1,390			785			689
Total assets	$	24,583		$	27,592		$	20,060		$	21,620
Liabilities
Long-term debt	$	13,331		$	13,259		$	11,710		$	10,197
Accrued expenses and other liabilities	12			12			12			9
Total liabilities	$	13,343		$	13,271		$	11,722		$	10,206

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

Table of Contents

Condensed Consolidated Statement of Changes in Equity (unaudited)

Ally Financial Inc. • Form 10-Q


($ in millions)	Common stock and paid-in capital		Preferred stock		Accumulated deficit			Accumulated other comprehensive loss			Treasury stock			Total equity			Common stock and paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Treasury stock			Total equity
Balance at January 1, 2016	$	21,100	$	696	$	(8,110	)	$	(231	)	$	(16	)	$	13,439
Net income					250									250
Preferred stock dividends					(15		)							(15		)
Share-based compensation	17													17
Other comprehensive income								146						146
Share repurchases related to employee stock-based compensation awards											(14		)	(14		)
Balance at March 31, 2016	$	21,117	$	696	$	(7,875	)	$	(85	)	$	(30	)	$	13,823
Balance at January 1, 2017	$	21,166	$	—	$	(7,151	)	$	(341	)	$	(357	)	$	13,317		$	21,166	$	(7,151	)	$	(341	)	$	(357	)	$	13,317
Net income					214									214					214									214
Share-based compensation	21													21			21											21
Other comprehensive income								20						20								20						20
Common stock repurchases (a)											(169		)	(169		)
Common stock repurchases																									(169		)	(169		)
Common stock dividends ($0.08 per share)					(38		)							(38		)			(38		)							(38		)
Balance at March 31, 2017	$	21,187	$	—	$	(6,975	)	$	(321	)	$	(526	)	$	13,365		$	21,187	$	(6,975	)	$	(321	)	$	(526	)	$	13,365
Balance at January 1, 2018, before cumulative effect of adjustments																	$	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, after cumulative effect of adjustments																	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


(a)	~~Includes shares repurchased related~~ Refer to ~~employee stock-based compensation awards.~~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.

Table of Contents

Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended March 31, ($ in millions)	2017			2016			2018			2017
Operating activities
Net income	$	214		$	250		$	250		$	214
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	534			653			434			534
Provision for loan losses	271			220			261			271
Gain on mortgage and automotive loans, net	(14		)	(1		)	(1		)	(14		)
Other gain on investments, net	(27		)	(54		)
Loss on extinguishment of debt	1			4
Other loss (gain) on investments, net							12			(27		)
Originations and purchases of loans held-for-sale	(21		)	(44		)	(248		)	(21		)
Proceeds from sales and repayments of loans originated as held-for-sale	20			104
Proceeds from sales and repayments of loans held-for-sale							230			20
Net change in
Deferred income taxes	91			147			83			91
Interest payable	31			24			120			31
Other assets	60			46			29			60
Other liabilities	(20		)	(122		)	(106		)	(20		)
Other, net	35			(25		)	33			36
Net cash provided by operating activities	1,175			1,202			1,097			1,175
Investing activities
Purchases of equity securities							(374		)	(137		)
Proceeds from sales of equity securities							220			314
Purchases of available-for-sale securities	(2,833		)	(4,870		)	(2,360		)	(2,696		)
Proceeds from sales of available-for-sale securities	1,045			4,175			328			731
Proceeds from maturities and repayment of available-for-sale securities	589			409
Proceeds from repayments of available-for-sale securities							795			589
Purchases of held-to-maturity securities	(215		)	(118		)	(155		)	(215		)
Proceeds from maturities and repayments of held-to-maturity securities	5			—
Purchases of loans held-for-investment	(405		)	(1,402		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	1,164			2,594
Originations and repayments of loans held-for-investment and other, net	(1,174		)	(684		)
Proceeds from repayments of held-to-maturity securities							35			5
Purchases of finance receivables and loans held-for-investment							(1,497		)	(405		)
Proceeds from sales of finance receivables and loans initially held-for-investment							—			1,164
Originations and repayments of finance receivables and loans held-for-investment and other, net							(1,300		)	(1,174		)
Purchases of operating lease assets	(893		)	(701		)	(969		)	(893		)
Disposals of operating lease assets	1,545			1,535			976			1,545
Net change in restricted cash	355			48
Net change in nonmarketable equity investments	213			(315		)	(19		)	213
Other, net	(59		)	(20		)	(82		)	(56		)
Net cash (used in) provided by investing activities	(663		)	651
Net cash used in investing activities							(4,402		)	(1,015		)

Statement continues on the next page.

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

Table of Contents

Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended March 31, ($ in millions)	2017			2016			2018			2017
Financing activities
Net change in short-term borrowings	(4,303		)	(2,739		)	(1,848		)	(4,303		)
Net increase in deposits	5,451			3,780			4,173			5,451
Proceeds from issuance of long-term debt	4,488			4,244			6,665			4,488
Repayments of long-term debt	(7,573		)	(8,490		)	(5,771		)	(7,573		)
Repurchases of common stock	(169		)	(14		)
Repurchase of common stock							(185		)	(169		)
Dividends paid	(38		)	(15		)	(58		)	(38		)
Net cash used in financing activities	(2,144		)	(3,234		)
Effect of exchange-rate changes on cash and cash equivalents	—			2
Net decrease in cash and cash equivalents	(1,632		)	(1,379		)
Cash and cash equivalents at beginning of year	5,934			6,380
Cash and cash equivalents at March 31,	$	4,302		$	5,001
Net cash provided by (used in) financing activities							2,976			(2,144		)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash							(2		)	—
Net decrease in cash and cash equivalents and restricted cash							(331		)	(1,984		)
Cash and cash equivalents and restricted cash at beginning of year							5,269			7,881
Cash and cash equivalents and restricted cash at March 31,							$	4,938		$	5,897
Supplemental disclosures
Cash paid for
Interest	$	648		$	626		$	667		$	648
Income taxes	2			—			5			2
Noncash items
Held-to-maturity securities received in consideration for loans sold	56			—			—			56
Finance receivables and loans transferred to loans held-for-sale	1,213			2,599			—			1,213
Other disclosures
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale	8			9			11			8

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)	2018		2017
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet	$	3,721	$	4,302
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	1,217		1,595
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows	$	4,938	$	5,897


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 11for 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 requires otherwise, Ally, the Company, or we, us, or our) is a leading digital financial services company and top 25 U.S. financial holding company (FHC) based on total assets, offering diversified financial products and services for consumers, businesses, automotive dealers, and corporate clients. ~~Our legacy dates back to 1919, and~~ Ally ~~was redesigned in 2009~~operates with a distinctive brand, an innovative approach, and a relentless focus on our customers. We ~~reconverted to~~are a Delaware corporation ~~in 2009~~ 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)~~an FHC under the Gramm-Leach-Bliley Act of 1999 as amended. We are one of the largest full service automotive finance operations in the country with a legacy that dates back to 1919, a deep expertise in automotive lending, and a complementary automotive-focused insurance business. Our wholly-owned banking subsidiary, Ally Bank, has received numerous industry awards for its services and capabilities and is ~~an award-winning~~one of the largest and most respected online ~~bank,~~banks, uniquely positioned for the observed shifting trends in consumer banking preferences for digital banking. We offer mortgage lending services and ~~an indirect, wholly-owned subsidiary of Ally Financial Inc. Collectively, Ally Financial Inc. and its subsidiaries offer~~ a variety of deposit and other banking products, including CDs, online savings, money market and checking accounts, and IRA ~~products, automotive lending products to customers and dealers, corporate finance lending, insurance products and services,~~products. We also promote a cash back credit ~~card, mortgage lending offerings, and~~card. We have recently integrated a growing digital wealth management ~~solutions.~~and online brokerage platform to enable consumers to have a variety of options in managing their savings and wealth. Additionally, through our corporate finance business, we primarily offer senior secured leveraged cash flow and asset-based loans to middle-market companies.

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, legal and regulatory reserves, and the determination of the provision for income taxes.

The Condensed Consolidated Financial Statements at March 31, ~~2017,~~2018, and for the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, 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, ~~2016,~~2017, as filed on February ~~27, 2017,~~21, 2018, with the U.S. Securities and Exchange Commission (SEC).

Significant Accounting Policies

Investments

Our investment portfolio includes various debt and equity securities. Our debt securities include government securities, corporate bonds, asset-backed securities (ABS), and mortgage-backed securities (MBS). Debt securities are classified based on management’s intent to sell or hold the security. We classify debt securities as held-to-maturity only when we have both the intent and ability to hold the securities to maturity. We classify debt securities as trading when the securities are acquired for the purpose of selling or holding them for a short period of time. Debt securities not classified as either held-to-maturity or trading are classified as available-for-sale.

Our portfolio includes debt securities classified as available-for-sale and held-to-maturity. Our available-for-sale debt securities are carried at fair value with unrealized gains and losses included in accumulated other comprehensive loss and are subject to impairment. Our held-to-maturity debt securities are carried at amortized cost and are subject to impairment.

We assess our debt securities for potential other-than-temporary impairment. We employ a methodology that considers available evidence in evaluating potential other-than-temporary impairment of our debt securities classified as available-for-sale and held-to-maturity. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the decline in fair value. We also evaluate the financial health of and business outlook for the issuer, the performance of the underlying assets for interests in securitized assets, and, for debt securities classified as available-for-sale, our intent and ability to hold the investment through recovery of its amortized cost basis.

Once a decline in fair value of a debt security is determined to be other-than-temporary, an impairment charge for the credit component is recorded to other gain (loss) on investments, net, in our Condensed Consolidated Statement of Comprehensive Income, and a new cost basis in the investment is established. The noncredit loss component of an available-for-sale debt security continues to be recorded in other comprehensive (loss) income when we do not intend to sell the security and it is not more likely than not that we will have to sell the security prior to the security’s anticipated recovery. Both the credit and noncredit loss components are recorded in earnings when we intend to sell the security or it is more likely than not that we will have to sell the security prior to the security’s anticipated recovery. Subsequent increases and decreases to the fair value of available-for-sale debt securities are included in other comprehensive (loss) income, so long as they are not attributable to another other-than-temporary impairment.

We amortize premiums and discounts on debt securities as an adjustment to investment yield generally over the stated maturity of the security. For ABS and MBS where prepayments can be reasonably estimated, amortization is adjusted for expected prepayments.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Our investment in equity securities includes securities that are recognized at fair value with changes in the market value recorded in earnings, and equity securities that are recognized using other measurement principles.

Effective January 1, 2018, equity securities that are publicly traded and have a readily determinable fair value, as well as certain investments that do not have a readily determinable fair value and are not eligible to be recognized using other measurement principles, are recorded at fair value with changes in fair value recorded in earnings and reported in other gain (loss) on investments, net in our Condensed Consolidated Statement of Comprehensive Income. These investments, which are primarily attributable to the investment portfolio of our Insurance operations, are included in equity securities on our Condensed Consolidated Balance Sheet. Refer to Note 6 for further information on our equity securities that have a readily determinable market value.

Our equity securities recognized using other measurement principles include investments in Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock held to meet regulatory requirements, equity investments related to low income housing tax credits and the Community Reinvestment Act (CRA), which are not publicly traded and do not have a readily determinable fair value, and other equity investments that are not publicly traded and do not have a readily determinable fair value. Our low income housing tax credit investments are accounted for using the proportional amortization method of accounting for qualified affordable housing investments. Our obligations related to unfunded commitments for our low income housing tax credit investments are included in other liabilities. The majority of our CRA investments are accounted for using the equity method of accounting. Our investments in low income housing tax credits and CRA investments are included in other assets on our Condensed Consolidated Balance Sheet. Our investments in FHLB and FRB stock are carried at cost. Our remaining investments in equity securities are recorded at cost, less impairment and adjusted for observable price differences under the measurement alternative provided under GAAP. These investments, along with our investments in FHLB and FRB stock, are included in nonmarketable equity investments in other assets on our Condensed Consolidated Balance Sheet. As conditions warrant, we review these investments for impairment and adjust the carrying value of the investment if it is deemed to be impaired. Investments recorded under the measurement alternative are also reviewed at each reporting period to determine if any adjustments are required for observable price changes in identical or similar securities.

Realized gains and losses on the sale of securities are determined using the specific identification method and are reported in other gain (loss) on investments, net in our Condensed Consolidated Statement of Comprehensive Income.

Derivative Instruments and Hedging Activities

We use derivative instruments primarily for risk management purposes. We do not use derivative instruments for speculative purposes. Certain of our derivative instruments are designated as accounting hedges in qualifying relationships, whereas other derivative instruments have not been designated as accounting hedges. In accordance with applicable accounting standards, all derivative instruments, whether designated for hedge accounting or not, are required to be recorded on the balance sheet as assets or liabilities and measured at fair value. We have elected to report the fair value of derivative assets and liabilities on a gross basis—including the fair value for the right to reclaim cash collateral or the obligation to return cash collateral—arising from instruments executed with the same counterparty under a master netting arrangement where we do not have the intent to offset. For additional information on derivative instruments and hedging activities, refer to Note 18.

At the inception of a hedge accounting relationship, we designate each qualifying hedge relationship as a hedge of the fair value of a specifically identified asset or liability (fair value hedge); as a hedge of the variability of cash flows to be received or paid, or forecasted to be received or paid, related to a recognized asset or liability (cash flow hedge); or as a hedge of the foreign-currency exposure of a net investment in a foreign operation (net investment hedge). We formally document all relationships between hedging instruments and hedged items, as well as the risk management objectives for undertaking various hedge transactions. Both at hedge inception and on an ongoing basis, we formally assess whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in fair values or cash flows of hedged items.

Changes in the fair value of derivative instruments qualifying as fair value hedges, along with the gain or loss on the hedged asset or liability attributable to the hedged risk, are recorded in current period earnings. For qualifying cash flow hedges, the changes in fair value of the derivative financial instruments are recorded in accumulated other comprehensive loss and recognized in the income statement when the hedged cash flows affect earnings. For a qualifying net investment hedge, the gain or loss is reported in accumulated other comprehensive loss as part of the cumulative translation adjustment.

Hedge accounting treatment is no longer applied if a derivative financial instrument is terminated, or if the hedge designation is removed or assessed to be no longer highly effective. For terminated fair value hedges, any changes to the hedged asset or liability remain as part of the basis of the hedged asset or liability and are recognized into income over the remaining life of the asset or liability. For terminated cash flow hedges, unless it is probable that the forecasted cash flows will not occur within a specified period, any changes in fair value of the derivative financial instrument previously recognized remain in accumulated other comprehensive loss, and are reclassified into earnings in the same period that the hedged cash flows affect earnings. Any previously recognized gain or loss for a net investment hedge continues to remain in accumulated other comprehensive loss until earnings are impacted by sale or liquidation of the associated foreign operation. In all instances, after hedge accounting is no longer applied, any subsequent changes in fair value of the derivative instrument will be recorded into earnings.

Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated as accounting hedges under GAAP are reported in current period earnings.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 ~~2016~~2017 Annual Report on Form 10-K, which describes our annual significant income tax accounting policy and related methodology.

~~Securitizations and Variable Interest Entities~~

We securitize, transfer, and service consumer and commercial automotive loans and operating leases. Securitization transactions typically involve the use of variable interest entities (VIEs) and are accounted for either as sales or secured borrowings. We may retain economic interests in securitized and sold assets, which are generally in the form of senior or subordinated interests, other residual interests, and servicing rights.

In order to conclude whether or not a VIE is required to be consolidated, careful consideration and judgment must be given to our continuing involvement with the variable interest entity. In circumstances where we have both the power to direct the activities of the entity that most significantly impact the entity's performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, we would conclude that we would consolidate the entity, which would also preclude us from recording an accounting sale on the transaction. In the case of a consolidated VIE, the accounting is consistent with a secured borrowing, (e.g., we continue to carry the loans and we record the related securitized debt on our Condensed Consolidated Balance Sheet).

In transactions where we are not determined to be the primary beneficiary of the VIE, we must determine whether or not we achieve a sale for accounting purposes. In order to achieve a sale for accounting purposes, the assets being transferred must be legally isolated, not be constrained by restrictions from further transfer, and be deemed to be beyond our control. If we were to fail any of the three criteria for sale accounting, the accounting would be consistent with the preceding paragraph (i.e., a secured borrowing). Refer to Note 10 to the Condensed Consolidated Financial Statements for discussion on VIEs.

Gains or losses on off-balance sheet securitizations take into consideration the fair value of any retained interests including the value of certain servicing assets or liabilities, if any, which are initially recorded at fair value at the date of sale. The estimate of the fair value of the retained interests and servicing requires us to exercise significant judgment about the timing and amount of future cash flows from the interests. Refer to Note 21 to the Condensed Consolidated Financial Statements for a discussion of fair value estimates.

Gains or losses on off-balance sheet securitizations and sales are reported in gain on mortgage and automotive loans, net, in our Condensed Consolidated Statement of Comprehensive Income. Retained interests are classified as securities or as other assets depending on their nature. On December 24, 2016, the risk retention rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Frank Act) of 2010 became effective, requiring us to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations. Our note was updated to address this guidance.

We retain servicing responsibilities for all of our consumer and commercial automotive loan and operating lease securitizations. We may receive servicing fees for off-balance sheet securitizations based on the securitized loan balances and certain ancillary fees, all of which are reported in servicing fees in the Condensed Consolidated Statement of Comprehensive Income. Typically, the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability.

Whether on- or off-balance sheet, the investors in the securitization trusts generally have no recourse to our assets outside of protections afforded through customary market representation and warranty repurchase provisions.

Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

~~Stock Compensation~~Statement of Cash Flows — ~~Improvements to Employee Share-Based Payment Accounting~~Restricted Cash (ASU ~~2016-09)~~2016-18)

As of December 31, ~~2016,~~2017, we ~~adopted~~elected to early-adopt Accounting Standards Update (ASU) ~~2016-09.~~2016-18. The amendments in this update ~~include changes to several aspects~~require that amounts classified as restricted cash and restricted cash equivalents be included within the beginning-of-period and end-of-period amounts along with cash and cash equivalents on the statement of ~~share-based payment accounting.~~cash flows. The amendments ~~allow for an entity-wide accounting policy election~~were applied retrospectively to ~~either account for forfeitures as they occur or estimate~~all periods presented within the ~~number~~statement of ~~awards that are expected to vest. We elected to account for forfeitures as they occur.~~cash flows. The ~~amendments modify the tax withholding requirements to allow entities to withhold an amount up to the employee’s maximum individual statutory tax rates without resulting~~implementation of this guidance resulted in a liability classification of the award as opposed to limiting the withholding to the minimum statutory tax rates as required under previous accounting guidance. The amendments require that all excess tax benefits and tax deficiencies related to share-based payment awards should be recognizedchange in income tax expense or benefit in the income statement in the period in which they occur. The adoption of these amendments did not have a material impact to the financial statements. The amendments also address the classification and presentation of certain items on the cash flow statement. Specifically, cash flows related to excess tax benefits should be classified as an operating activity instead of a financing activity and cash flows related to cash paid to a tax authority by an employer when withholding shares from an employee’s award for tax withholding purposes should be classified as a financing activity. The adoption of the amendment requiring excess tax benefits to be classified as an operating activity did not have a material impact to our Condensed Consolidated Statement of Cash Flows. The adoption of the amendment requiring amounts paid to a tax authority by an employer when withholding shares from an employee’s award for tax withholding purposes to be classified as a financing activity resulted in the reclassification of cash flows in our Condensed Consolidated Statement of Cash Flows ~~for the three months ended March 31, 2016,~~and additional disclosures surrounding restricted cash balances, but did not result in a change to our Condensed Consolidated Statement of ~~$14 million from operating activities to financing activities.~~

~~Recently Issued Accounting Standards~~Comprehensive Income or Condensed Consolidated Balance Sheet.

Revenue from Contracts with Customers (ASU 2014-09) ~~and Revenue from Contracts with Customers — Deferral of the Effective Date (ASU 2015-14)~~

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09. The purpose of this guidance is to streamline and consolidate existing revenue recognition principles in GAAP and to converge revenue recognition principles with International Financial Reporting ~~Standards (IFRS).~~Standards. The core principle of the amendments is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The amendments include a five step process for consideration of the ~~main~~core principle, guidance on the accounting treatment for costs associated with a contract, and disclosure requirements related to the revenue process. As originally issued, the amendments in ASU 2014-09 were to be effective beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the guidance until January 1, 2018, and permitted early adoption as of the original effective date in ASU 2014-09. The FASB ~~created a transition resource group to work with stakeholders and clarify the new guidance as necessary. The FASB has~~ issued several additional ASUs to clarify guidance and provide implementation support for ASU 2014-09. The clarifying guidance elaborates on the key concepts within ASU 2014-09 and clarifies how those concepts interact with other GAAP requirements. ~~Management has considered these additional~~On January 1, 2018, we adopted ASU 2014-09 and all subsequent ASUs ~~when assessing~~that modified ASU 2014-09 (collectively, the ~~overall impact of ASU 2014-09. The~~ amendments to the revenue recognition ~~principles can be applied on adoption either through a full retrospective application or on a modified basis~~principles), which have been codified in ASC 606, Revenue from Contracts with ~~a cumulative effect adjustment on~~Customers, and ASC 610-20, Gains and Losses from the ~~date~~Derecognition of initial adoption with certain practical expedients. A majority of our revenue streams are not within the scope of this ASU as they are governed by other accounting standards. Management has determined that certain revenue streams and contractual arrangements are in scope of this guidance, including deposit fees, premiums on certain noninsurance contracts, brokering commissions through our insurance operations, remarketing fee income through SmartAuction, and investment advisory fee income through TradeKing. Management does not expect these amendmentsNonfinancial Assets, respectively. We elected to impact current revenue recognition patterns for a majority of the in scope revenue streams and contracts. However, we expect that the application of this guidance to noninsurance contracts within our insurance business will result in the deferral of certain amounts we currently recognize as revenue upon the origination of the contract. We do not expect the impact of the new guidance to these specific contracts to be material to the financial statements. Management continues to evaluate whether we will adopt this guidance using the ~~full~~modified retrospective approach orapplied to all contracts with customers that were not completed as of January 1, 2018. The adoption of the ~~modified retrospective approach.~~

~~Table~~amendments resulted in a reduction to our opening retained earnings of ~~Contents~~

~~Notes~~approximately $126 million, net of income taxes. Refer to ~~Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Note 2 for further details.

Financial Instruments — Recognition and Measurement of Financial Assets (ASU 2016-01)

InAs of January ~~2016, the FASB issued~~1, 2018, we adopted ASU 2016-01. The amendments in this update modify the requirements related to the measurement of certain financial instruments in the statement of financial condition and results of operations. The FASB subsequently issued ASU 2018-03 to clarify guidance and provide implementation support for ASU 2016-01, which we elected to early-adopt as of January 1, 2018, to align with the adoption of ASU 2016-01. For equity investments (other than investments accounted for using the equity method), entities must measure such instruments at fair value with changes in fair value recognized in net income. Changes in fair value for ~~available-for-sale~~ equity securities ~~will~~are no longer be recognized through other comprehensive ~~income.~~(loss) income, which creates additional volatility in our Condensed Consolidated Statement of Comprehensive Income. Reporting entities may continue to elect to measure certain equity investments that do not have a readily determinable fair value at cost with adjustments for impairment and observable changes in price. In addition, for a liability (other than a derivative liability) that an entity measures at fair value, any change in fair value related to the instrument-specific credit risk, that is the entity’s own-credit, should be presented separately in other comprehensive (loss) income and not as a component of net income. ~~The~~We adopted these amendments, are effective on January 1, 2018, with early adoption permitted solely for the provisions pertaining to instrument-specific credit risk for liabilities measured at fair value. The amendments must be appliedas required, on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. The ~~amendment requiring equity investments~~adoption of the amendments resulted in a reduction to ~~be measured at fair value~~our opening retained earnings of approximately $20 million, net of income taxes.

Derivatives and Hedging — Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)

As of January 1, 2018, we elected to early-adopt ASU 2017-12. The amendments in this update enhance the financial reporting of hedging relationships to better align hedge accounting with an entity’s risk management activities. This update also makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP and better portrays economic results through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. We adopted the amendments to all cash flow and net investment hedge relationships that existed on the date of adoption using a modified retrospective approach. No cumulative effect adjustment to our opening retained earnings was required as a result of the adoption. The presentation and disclosure requirements included in ~~fair value recognized~~this update were adopted prospectively. Refer to Note 18 for further details.

Accumulated Other Comprehensive Income — Reclassification of Certain Tax Effects (ASU 2018-02)

In February 2018, the FASB issued ASU 2018-02. The amendments in ~~net~~this update provide guidance concerning the treatment of the impact of income ~~will create additional volatility~~tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the Tax Act) on items included in ~~our consolidated results~~accumulated other comprehensive income. Our policy is to use the portfolio method with respect to reclassification of ~~operations since changes~~stranded income tax effects in ~~fair value for available-for-sale securities will be recognized~~

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

accumulated other comprehensive loss. The amendments in ~~net~~ASU 2018-02 provide entities an election to reclassify the income ~~as opposed to~~tax effect of the Tax Act from accumulated other comprehensive income to retained earnings. We elected to early-adopt this standard as ~~required under existing accounting guidance. Management continues to evaluate the impact~~ of ~~the other amendments. However, we do not anticipate the other amendments to have a material impact to our financial statements. Management currently plans to adopt these amendments on~~ January 1, 2018, and ~~expects~~reclassified the effect of the change in the federal corporate income tax rate on items included in accumulated other comprehensive loss. This election resulted in a reclassification of $42 million from accumulated other comprehensive loss to ~~use the modified retrospective approach as required.~~retained earnings.

Recently Issued Accounting Standards

Leases (ASU 2016-02)

In February 2016, the 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 and lessor accounting requirements for ~~both~~ operating leases and sales type and direct financing leases ~~(both of which~~(sales type and direct financing leases were both previously referred to as capital 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 right-of-use asset and lease liability equal to the present value of the lease payments. The right-of-use 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 for all types of leases. The amendments also require additional disclosures for all lease types for both lessees and lessors. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied on a modified retrospective basis with a cumulative adjustment to the beginning of the earliest fiscal year presented in the financial statements in the period of adoption. ~~Management is currently evaluating the impact of these amendments.~~ Upon adoption, we expect to record a balance sheet ~~gross up,~~gross-up, reflecting our right-of-use asset and lease liability for our operating leases where we are the lessee (for example, our facility leases). WeWhile we are currently reviewing our operating lease contracts where we are the lessee to determine the impact of the ~~gross up~~gross-up and the changes to capitalizable ~~costs. We are also~~costs, as well as reviewing our leases where we are the lessor to determine the impact of the changes to capitalizable ~~costs. Management~~costs, we do not anticipate the adoption of these amendments will have a material impact to our financial statements. We currently ~~plans~~plan to adopt these amendments on January 1, 2019, and ~~expects~~expect to use the modified retrospective approach as required.

Financial Instruments — Credit Losses (ASU 2016-13)

In June 2016, the FASB issued ASU 2016-13. 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 ~~measured as they are~~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. The new accounting model for credit losses represents a significant departure from existing GAAP, and will likely materially increase the allowance for credit losses with a resulting negative adjustment to retained earnings. Management created a formal working group to govern the implementation of these amendments consisting of key stakeholders from finance, risk, and accounting and is currently evaluating the impact of the amendments. ~~Management~~We are in the process of designing and building the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We currently ~~plans~~plan to adopt these amendments on January 1, 2020, and ~~expects~~expect to use the modified retrospective approach as required.

~~Statement of Cash Flows — Restricted Cash (ASU 2016-18)~~

In November 2016, the FASB issued ASU 2016-18. The amendments in this update require that amounts classified as restricted cash and restricted cash equivalents be included within the beginning-of-period and end-of-period amounts along with cash and cash equivalents on the statement of cash flows. Prior to this ASU, specific guidance on the presentation of changes in restricted cash and restricted cash equivalents within the statement of cash flows did not exist. The amendments are effective on January 1, 2018, with early adoption permitted. The amendments must be applied retrospectively to all periods presented within the statement of cash flows upon adoption. Management is currently evaluating the impact of these amendments.

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~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

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. The amendments are effective on January 1, 2019, with early adoption permitted. 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. ~~Management~~While our assessment is not final, we do not expect the amendments to have a material impact to our financial statements. We currently ~~evaluating~~plan to adopt these amendments on January 1, 2019, and expect to use the ~~impact of these amendments.~~modified retrospective approach as required.

2. ~~Acquisitions~~Revenue from Contracts with Customers

On ~~June~~January 1, ~~2016,~~2018, we ~~acquired 100%~~adopted the amendments to the revenue recognition principles using the modified retrospective approach applied to contracts with customers outstanding as of the ~~equity~~date of ~~TradeKing Group, Inc. (TradeKing), a digital wealth management company with an online broker-dealer, digital portfolio management platform, and educational content~~adoption. Results for $298 million in cash. TradeKing, which is being rebranded as Ally Invest, operates as a wholly-owned subsidiary of Ally. The addition of brokerage and wealth management is a natural extension of our online banking franchise, creating a full suite of financial products for savings and investments. We applied the acquisition method of accounting to this transaction, which generally requires the initial recognition of assets acquired, including identifiable intangible assets, and liabilities assumed at their respective fair value. Goodwill is recognized as the excess of the acquisition price after the recognition of the net assets, including the identifiable intangible assets. Beginning in June 2016, financial information related to TradeKing is included within Corporate and Other.

~~The following table summarizes the allocation of cash consideration paid for TradeKing and the amounts of the identifiable assets acquired and liabilities assumed recognized at the acquisition date.~~

($ in millions)
Purchase price
Cash consideration $ 298
Allocation of purchase price to net assets acquired
Intangible assets (a) 82
Cash and short-term investments (b) 50
Other assets 14
Deferred tax asset, net 4
Employee compensation and benefits (41 )
Other liabilities (4 )
Goodwill $ 193


~~(a)~~	~~We recorded $3 million of amortization on these intangible assets during the three months ended March 31, 2017.~~


~~(b)~~	~~Includes $40 million in cash proceeds from the acquisition transaction in order to pay employee compensation and benefits that vested upon acquisition as a result of the change in control.~~

The goodwill of $193 million arising from the acquisition consists largely of expected growth of the business as we leverage the Ally brand and our marketing capabilities to scale the acquired technology platform and expand the suite of financial products we offer to our existing growing customer base. None of the goodwill recognized is expected to be deductible for income tax purposes. Refer to Note 12 for a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting ~~period.~~

On August 1, 2016, we acquired assets that constitute a business from Blue Yield, an online automotive lender exchange, as we continue to expand our automotive finance offerings to include a direct-to-consumer option. We completed the acquisition for $28 million of total consideration. As a result of the purchase, we recognized $20 million of goodwill within Automotive Finance operations.

~~3. Discontinued Operations~~

~~Prior to the adoption of ASU 2014-08, which was prospectively applied only to newly identified disposals that qualify as discontinued operations~~periods beginning after January 1, ~~2015, we~~2018, are presented in accordance with the amendments to the revenue recognition principles, while prior period amounts have ~~classified operations as discontinued when operations~~not been adjusted and ~~cash flows will~~continue to be ~~eliminated from our ongoing operations~~presented in accordance with the accounting standards in effect for those periods. Refer to Note 1 for additional information.

Our primary revenue sources, which include financing revenue and ~~we do~~other interest income, are addressed by other GAAP and are not expect to retain any significant continuing involvement in their operations after the respective sale or disposal transactions. For all periods presented, the operating results for these discontinued operations have been removed from continuing operations and presented separately as discontinued operations, net of tax, in the ~~Condensed Consolidated Statement~~scope of ~~Comprehensive Income. The Notes~~the amendments to the ~~Condensed Consolidated Financial Statements have been adjusted~~revenue recognition principles. 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 the amendments to ~~exclude discontinued~~the revenue recognition principles. Certain noninsurance contracts within our Insurance operations, ~~unless otherwise noted.~~including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of the amendments to the revenue recognition

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

principles. Under the previous guidance, a portion of revenue earned on noninsurance contracts was recognized at contract inception, while the remainder was recognized over the contract term on a basis proportionate to the anticipated cost emergence. In addition, dealer and sales commissions incurred to obtain a noninsurance contract were recognized as expense when incurred, and certain direct-response advertising costs were deferred and recognized as expense over the term of the contract. Upon adoption of the amendments to the revenue recognition principles, 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 capitalized and recognized as expense over the contract term, and all advertising costs are recognized as expense when incurred.

The following table presents the impact to our Condensed Consolidated Balance Sheet as of January 1, 2018, as a result of adopting the amendments to the revenue recognition principles.



($ in millions)	As reported, December 31, 2017			Adjustment related to adoption			As adjusted, January 1, 2018
Assets
Premiums receivable and other insurance assets	$	2,047		$	122		$	2,169
Other assets	5,663			41			5,704
Total assets	$	167,148		$	163		$	167,311
Liabilities
Unearned insurance premiums and service revenue	$	2,604		$	289		$	2,893
Total liabilities	153,654			289			153,943
Equity
Accumulated deficit	(6,406		)	(126		)	(6,532		)
Total equity	13,494			(126		)	13,368
Total liabilities and equity	$	167,148		$	163		$	167,311

The following tables present the impact of adopting the amendments to the revenue recognition principles to our Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Balance Sheet.



	Three months ended March 31, 2018
($ in millions)	As reported			Effect of adoption
Other revenue
Insurance premiums and service revenue earned	$	256		$	(6	)
Total other revenue	354			(6		)
Total net revenue	1,403			(6		)
Noninterest expense
Compensation and benefits expense	306			(1		)
Other operating expenses	445			(2		)
Total noninterest expense	814			(3		)
Income from continuing operations before income tax expense	328			(3		)
Income tax expense from continuing operations	76			(1		)
Net income from continuing operations	252			(2		)
Net income	250			(2		)
Comprehensive loss	$	(78	)	$	(2	)

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



March 31, 2018 ($ in millions)	As reported			Effect of adoption
Assets
Premiums receivable and other insurance assets	$	2,197		$	125
Other assets	6,025			42
Total assets	170,021			167
Liabilities
Unearned insurance premiums and service revenue	$	2,904		$	295
Total liabilities	156,939			295
Equity
Accumulated deficit	(6,318		)	(128		)
Total equity	13,082			(128		)
Total liabilities and equity	$	170,021		$	167

The following is a description of our primary revenue sources that are derived from contracts with customers. As a result of the adoption of the amendments to the revenue recognition principles, our only revenue source for which the recognition pattern was affected was that of noninsurance contracts, as described in this note. Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to our customers, and in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. For information regarding our revenue recognition policies outside the scope of the amendments to the revenue recognition principles of ASC 606, Revenue from Contracts with Customers, refer to Note 1 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K.

Noninsurance contracts— We sell VSCs that offer owners mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer’s new vehicle limited warranty. We sell GAP contracts that protect the customer against having to pay certain amounts to a lender above the fair market value of their vehicle if the vehicle is damaged and declared a total loss or stolen. We also sell VMCs that provide coverage for certain agreed-upon services, such as oil changes and tire rotations, over the coverage period. We receive payment in full at the inception of each of these contracts. Our ~~discontinued~~performance obligation for these contracts is satisfied over the term of the contract and we recognize revenue over the contract term on a basis proportionate to the anticipated cost emergence, as we believe this is the most appropriate method to measure progress towards satisfaction of the performance obligation. Upon adoption of the amendments to the revenue recognition principles, unearned revenue of $289 million was recognized as a component of unearned insurance premiums and service revenue on our Condensed Consolidated Balance Sheet associated with outstanding contracts at January 1, 2018, and $22 million of this balance was recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months ended March 31, 2018. At March 31, 2018, we had unearned revenue of $2.5 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $568 million during the remainder of 2018, $643 million in 2019, $528 million in 2020, $378 million in 2021, and $389 million thereafter. The incremental costs to obtain these contracts are initially deferred and recorded as a component of premiums receivable and other insurance assets on our Condensed Consolidated Balance Sheet. These deferred costs are amortized as an expense over the term of the related contract commensurate with how the related revenue is recognized, and are included in compensation and benefits and other operating expenses in our Condensed Consolidated Statement of Comprehensive Income. We had deferred insurance assets of $1.4 billion at March 31, 2018, and recognized $103 million of expense during the three months ended March 31, 2018.

Sale of off-lease vehicles — When a customer’s vehicle lease matures, the customer has the option of purchasing or returning the vehicle. If the vehicle is returned to us, we obtain possession with the intent to sell through SmartAuction—our online auction platform, our dealer channel, or through various other physical auctions. Our performance obligation is satisfied and the remarketing gain or loss is recognized when control of the vehicle has passed to the buyer, which coincides with the sale date. 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 recorded through depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.

Remarketing fee income— In addition to using SmartAuction as a remarketing channel for our returned lease vehicles, we maintain the internet auction site and administer the auction process for third-party use. We earn a service fee from dealers for every third-party vehicle sold through SmartAuction. Our performance obligation is to provide the online marketplace for used vehicle transactions to be consummated. This obligation is satisfied and revenue is recognized when control of the vehicle has passed to the buyer, which coincides with the sale date. This revenue is recorded as remarketing fees within other income in our Condensed Consolidated Statement of Comprehensive Income.

Brokerage commissions and other revenues through Ally Invest — We charge fees to customers related to their use of certain services on our Ally Invest digital wealth management and online brokerage platform. These fees include commissions on customer-directed trades, account service fees, account management fees on professional portfolio management services,

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

subscriptions for market data feeds, and other ancillary fees. Commissions on customer-directed trades and account service fees are based on published fee schedules and are generated from a customer option to purchase the services offered under the contract. These options do not represent a material right and are only considered a contract when the customer executes their option to purchase these services. Based on this, the term of the contract does not extend beyond services provided, and as such revenue is recognized upon the completion of our performance obligation, which we view as the successful execution of the trade or service. Revenue on professional portfolio management services is calculated monthly based upon a fixed percentage of the client’s assets under management. Due to the fact that this revenue stream is composed of variable consideration that is based on factors outside of our control, we have deemed this revenue as constrained and we are unable to estimate the initial transaction price at the inception of the contract. We have elected to use the practical expedient under GAAP to recognize revenue monthly based on the amount we are able to invoice the customer. Subscriptions for market data feeds are based on published fee schedules, and our performance obligation for these contracts is satisfied over the term of the contract, which does not exceed 12 months. We receive payment in full at contract inception and recognize revenue over the related contract term on a straight-line basis, as we believe this is the most appropriate method to measure progress towards satisfaction of the performance obligation. We also earn revenue from a fee-sharing agreement with our clearing broker related to the interest income the clearing broker earns on customer cash balances and margin loans made to our customers. Ally concluded the initial transaction price is exclusively variable consideration and, based on the nature of our performance obligation to allow the clearing broker to collect interest income from cash deposits and customer loans from our customers, we are unable to determine the amount of revenue to be recognized until the total customer cash balance or the total interest income recognized on margin loans has been determined, which occurs monthly. These revenue streams are recorded as other income in our Condensed Consolidated Statement of Comprehensive Income.

Brokered/agent commissions through Insurance operations ~~relate~~— We have agreements with third parties to ~~previous discontinued operations~~offer various vehicle protection products to consumers. We also have agreements with third-party insurers to offer various insurance coverages to dealers. Our performance obligation for these arrangements is satisfied when a customer or dealer has purchased a vehicle protection product or an insurance policy through the third-party provider. In determining the initial transaction price for these agreements, we noted that revenue on brokered/agent commissions is based on the volume of vehicle protection product contracts sold or a percentage of insurance premium written, which is not known to Ally at the inception of the agreements with these third-party providers. As such, we believe the initial transaction price is exclusively variable consideration and, based on the nature of the performance obligation, we are unable to determine the amount of revenue we will record until the customer purchases a vehicle protection product or a dealer purchases an insurance policy from the third-party provider. Once Ally is notified of vehicle protection product sales or insurance policies issued by the third-party providers, we record the commission earned as insurance premiums and service revenues earned in our Condensed Consolidated Statement of Comprehensive Income.

Deposit account and other banking fees— We charge depositors various account service fees including those for outgoing wires, excessive transactions, overdrafts, stop payments, and returned deposits. These fees are generated from a customer option to purchase services offered under the contract. These options do not represent a material right and are only considered a contract in accordance with the amendments to the revenue recognition principles when the customer exercises their option to purchase these account services. Based on this, the term for our contracts with customers is considered day-to-day, and the contract does not extend beyond the services already provided. Revenue derived from deposit account fees is recorded at the point in time we perform the requested service, and is recorded as other income in our Condensed Consolidated Statement of Comprehensive Income. As a debit card issuer, we also generate interchange fee income from merchants during debit card transactions and incur certain corresponding charges from merchant card networks. Our performance obligation is satisfied when we have initiated the payment of funds from a customer’s account to a merchant through our contractual agreements with the merchant card networks. Interchange fees are reported on a net basis as other income in our Condensed Consolidated Statement of Comprehensive Income, and reflect interchange fee income of $3 million and interchange expenses of $3 million for the three months ended March 31, 2018.

Other revenue — Other revenue primarily includes service revenue related to various account management functions, fee income derived from third-party loans arranged through Clearlane—our online automotive lender exchange, and revenue associated with licensing and marketing from the Ally CashBack Credit Card—our co-branded credit card. These revenue streams are recorded as other income in our Condensed Consolidated Statement of Comprehensive Income.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 amendments to the revenue recognition principles.



Three months ended March 31, 2018 ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated
Revenue from contracts with customers
Noninsurance contracts	$	—	$	123	$	—	$	—	$	—	$	123
Remarketing fee income	23		—		—		—		—		23
Brokerage commissions and other revenue	—		—		—		—		16		16
Brokered/agent commissions	—		4		—		—		—		4
Deposit account and other banking fees	—		—		—		—		3		3
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 (a)	$	66	$	246	$	1	$	8	$	33	$	354


(a)	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, ~~Insurance operations, and Corporate Finance~~we recognized $18 million of gain on the sale of off-lease vehicles through depreciation expense on operating ~~segments, and other operations for which we continue to have wind-down, legal, and minimal operational costs. Select financial information~~lease assets in our Condensed Consolidated Statement of ~~discontinued operations is summarized below.~~

Three months ended March 31,
($ in millions) 2017 2016
Pretax income $ 1
$ 4
Tax expense —
1
Comprehensive Income during the three months ended March 31, 2018.

4.3. Other Income, Net of Losses

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


	Three months ended March 31,				Three months ended March 31,
($ in millions)	2017		2016		2018		2017
Late charges and other administrative fees					$	29	$	27
Remarketing fees	$	29	$	28	23		29
Late charges and other administrative fees	27		25
Servicing fees	16		13		8		16
Income from equity-method investments	—		6		6		—
Other, net	43		23		43		42
Total other income, net of losses	$	115	$	95	$	109	$	114

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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)	2017			2016			2018			2017
Total gross reserves for insurance losses and loss adjustment expenses at January 1,	$	149		$	169		$	140		$	149
Less: Reinsurance recoverable	108			120			108			108
Net reserves for insurance losses and loss adjustment expenses at January 1,	41			49			32			41
Net insurance losses and loss adjustment expenses incurred related to:
Current year	89			77			60			89
Prior years (a)	(1		)	(4		)	3			(1		)
Total net insurance losses and loss adjustment expenses incurred	88			73			63			88
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year	(45		)	(37		)	(31		)	(45		)
Prior years	(23		)	(22		)	(19		)	(23		)
Total net insurance losses and loss adjustment expenses paid or payable	(68		)	(59		)	(50		)	(68		)
Foreign exchange and other	2			3			—			2
Net reserves for insurance losses and loss adjustment expenses at March 31,	63			66			45			63
Plus: Reinsurance recoverable	112			118			112			112
Total gross reserves for insurance losses and loss adjustment expenses at March 31,	$	175		$	184		$	157		$	175


(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 March 31,
($ in millions)	2018		2017
Insurance commissions	$	110	$	99
Technology and communications	71		69
Lease and loan administration	42		36
Advertising and marketing	39		30
Vehicle remarketing and repossession	32		28
Professional services	32		26
Regulatory and licensing fees	30		27
Premises and equipment depreciation	20		22
Occupancy	11		12
Non-income taxes	8		8
Amortization of intangible assets	3		3
Other	47		45
Total other operating expenses	$	445	$	405

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

6. ~~Other Operating Expenses~~

~~Details of other operating expenses were as follows.~~

Three months ended March 31,
($ in millions) 2017 2016
Insurance commissions $ 99
$ 94
Technology and communications 69
66
Lease and loan administration 36
32
Advertising and marketing 30
27
Vehicle remarketing and repossession 28
24
Regulatory and licensing fees 27
21
Professional services 26
24
Premises and equipment depreciation 22
21
Occupancy 12
13
Non-income taxes 8
9
Other 48
54
Total other operating expenses $ 405
$ 385

7. Investment Securities

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


	March 31, 2017									December 31, 2016									March 31, 2018									December 31, 2017
	Amortized cost		Gross unrealized					Fair value		Amortized cost		Gross unrealized					Fair value		Amortized cost		Gross unrealized					Fair value		Amortized cost		Gross unrealized					Fair value
($ in millions)	Amortized cost		gains		losses			Fair value		Amortized cost		gains		losses			Fair value		Amortized cost		gains		losses			Fair value		Amortized cost		gains		losses			Fair value
Available-for-sale securities
Debt securities
U.S. Treasury	$	2,276	$	1	$	(52	)	$	2,225	$	1,680	$	—	$	(60	)	$	1,620	$	1,855	$	—	$	(86	)	$	1,769	$	1,831	$	—	$	(54	)	$	1,777
U.S. States and political subdivisions	803		9		(17		)	795		794		7		(19		)	782		845		5		(19		)	831		850		11		(7		)	854
Foreign government	143		3		—			146		157		5		—			162		150		1		(2		)	149		153		2		(1		)	154
Agency mortgage-backed residential	12,054		31		(223		)	11,862		10,473		29		(212		)	10,290		15,316		4		(437		)	14,883		14,412		35		(156		)	14,291
Mortgage-backed residential	2,053		4		(61		)	1,996		2,162		5		(70		)	2,097		2,456		3		(75		)	2,384		2,517		11		(34		)	2,494
Mortgage-backed commercial	533		2		(1		)	534		537		2		(2		)	537		582		1		(3		)	580		541		1		(1		)	541
Asset-backed	1,046		6		(1		)	1,051		1,396		6		(2		)	1,400		901		2		(3		)	900		933		4		(1		)	936
Corporate debt	1,262		6		(13		)	1,255		1,452		7		(16		)	1,443		1,263		1		(34		)	1,230		1,262		5		(11		)	1,256
Total debt securities (a) (b)	20,170		62		(368		)	19,864		18,651		61		(381		)	18,331
Equity securities	481		9		(46		)	444		642		7		(54		)	595
Total available-for-sale securities	$	20,651	$	71	$	(414	)	$	20,308	$	19,293	$	68	$	(435	)	$	18,926
Total available-for-sale securities (a) (b) (c)																			$	23,368	$	17	$	(659	)	22,726		$	22,499	$	69	$	(265	)	$	22,303
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential (c)	$	1,052	$	2	$	(43	)	$	1,011	$	839	$	—	$	(50	)	$	789
Agency mortgage-backed residential (d)																			$	1,936	$	—	$	(72	)	$	1,864	$	1,863	$	3	$	(37	)	$	1,829
Asset-backed retained notes	52		—		—			52		—		—		—			—		31		—		—			31		36		—		—			36
Total held-to-maturity securities (d)	$	1,104	$	2	$	(43	)	$	1,063	$	839	$	—	$	(50	)	$	789
Total held-to-maturity securities																			$	1,967	$	—	$	(72	)	$	1,895	$	1,899	$	3	$	(37	)	$	1,865


(a)	Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million ~~and $14 million~~ at both March 31, ~~2017,~~2018, and December 31, ~~2016, respectively.~~2017.


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

(c)

Investment securities with a fair value of ~~$3,235 million~~$8.0 billion and ~~$4,881 million~~$7.8 billion at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, were pledged to secure advances from the Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements, ~~and~~or for other purposes as required by contractual obligation or law. Under these agreements, ~~Ally has~~we have granted the counterparty the right to sell or pledge ~~$1,257~~$839 million and ~~$737 million~~$1.0 billion of the underlying investment securities at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.


~~(c)~~	~~Agency-backed residential mortgage-backed debt securities are held for liquidity purposes.~~


(d)	~~Held-to-maturity securities are recorded at amortized cost. Held-to-maturity securities~~Securities with a fair value of $0$993 million and ~~$87~~$664 million at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, were pledged to secure advances from the FHLB.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The maturity distribution of ~~investment~~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				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		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
March 31, 2017
Fair value of available-for-sale debt securities (a)
March 31, 2018
Fair value of available-for-sale securities (a)
U.S. Treasury	$	2,225	1.8	%	$	—	—	%	$	262	1.8	%	$	1,963	1.8	%	$	—	—	%	$	1,769	1.8	%	$	—	—	%	$	481	1.7	%	$	1,288	1.8	%	$	—	—	%
U.S. States and political subdivisions	795		3.1		66		2.4		34		2.5		175		2.9		520		3.3		831		3.0		70		2.3		42		2.3		219		2.6		500		3.3
Foreign government	146		2.5		—		—		66		2.7		80		2.4		—		—		149		2.5		—		—		77		2.6		72		2.4		—		—
Agency mortgage-backed residential	11,862		3.0		—		—		—		—		3		2.9		11,859		3.0		14,883		3.2		—		—		—		—		3		2.6		14,880		3.2
Mortgage-backed residential	1,996		2.9		—		—		—		—		—		—		1,996		2.9		2,384		3.1		—		—		—		—		—		—		2,384		3.1
Mortgage-backed commercial	534		2.8		—		—		—		—		3		2.8		531		2.8		580		3.4		—		—		—		—		31		3.3		549		3.4
Asset-backed	1,051		2.9		—		—		829		2.9		59		3.2		163		2.6		900		3.2		—		—		655		3.2		121		3.3		124		2.9
Corporate debt	1,255		2.9		99		2.1		642		2.6		468		3.2		46		4.7		1,230		3.0		123		2.8		496		2.7		573		3.3		38		4.8
Total available-for-sale debt securities	$	19,864	2.8		$	165	2.2		$	1,833	2.6		$	2,751	2.2		$	15,115	3.0
Amortized cost of available-for-sale debt securities	$	20,170			$	165			$	1,826			$	2,806			$	15,373
Total available-for-sale securities																					$	22,726	3.0		$	193	2.6		$	1,751	2.6		$	2,307	2.3		$	18,475	3.2
Amortized cost of available-for-sale securities																					$	23,368			$	194			$	1,776			$	2,403			$	18,995
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential	1,052		3.0	%	—		—	%	—		—	%	—		—	%	1,052		3.0	%	$	1,936	3.1	%	$	—	—	%	$	—	—	%	$	—	—	%	$	1,936	3.1	%
Asset-backed retained notes	52		1.5		10		0.8		40		1.6		2		2.7		—		—		31		1.7		—		—		30		1.7		1		3.0		—		—
Total held-to-maturity securities	$	1,104	2.9		$	10	0.8		$	40	1.6		$	2	2.7		$	1,052	3.0		$	1,967	3.1		$	—	—		$	30	1.7		$	1	3.0		$	1,936	3.1
December 31, 2016
Fair value of available-for-sale debt securities (a)
December 31, 2017
Fair value of available-for-sale securities (a)
U.S. Treasury	$	1,620	1.7	%	$	2	4.6	%	$	60	1.6	%	$	1,558	1.7	%	$	—	—	%	$	1,777	1.7	%	$	—	—	%	$	487	1.7	%	$	1,290	1.8	%	$	—	—	%
U.S. States and political subdivisions	782		3.1		64		1.7		29		2.3		172		2.8		517		3.4		854		2.9		76		1.8		36		2.3		203		2.5		539		3.3
Foreign government	162		2.6		—		—		58		2.8		104		2.4		—		—		154		2.5		—		—		80		2.5		74		2.4		—		—
Agency mortgage-backed residential	10,290		2.9		—		—		—		—		29		2.6		10,261		2.9		14,291		3.1		—		—		—		—		3		2.9		14,288		3.1
Mortgage-backed residential	2,097		2.9		—		—		—		—		—		—		2,097		2.9		2,494		3.1		—		—		—		—		—		—		2,494		3.1
Mortgage-backed commercial	537		2.6		—		—		—		—		3		2.8		534		2.6		541		3.2		—		—		30		3.1		31		3.1		480		3.2
Asset-backed	1,400		2.8		—		—		1,059		2.8		143		3.2		198		2.6		936		3.1		—		—		698		3.1		106		3.1		132		2.8
Corporate debt	1,443		2.8		72		2.2		840		2.6		489		3.2		42		4.7		1,256		2.9		140		2.6		513		2.6		564		3.2		39		4.7
Total available-for-sale debt securities	$	18,331	2.8		$	138	2.0		$	2,046	2.7		$	2,498	2.2		$	13,649	2.9
Amortized cost of available-for-sale debt securities	$	18,651			$	138			$	2,040			$	2,563			$	13,910
Total available-for-sale securities																					$	22,303	3.0		$	216	2.3		$	1,844	2.5		$	2,271	2.3		$	17,972	3.1
Amortized cost of available-for-sale securities																					$	22,499			$	217			$	1,852			$	2,314			$	18,116
Amortized cost of held-to-maturity securities	$	839	2.9	%	$	—	—	%	$	—	—	%	$	—	—	%	$	839	2.9	%
Agency mortgage-backed residential																					$	1,863	3.1	%	$	—	—	%	$	—	—	%	$	—	—	%	$	1,863	3.1	%
Asset-backed retained notes																					36		1.7		—		—		35		1.7		1		3.0		—		—
Total held-to-maturity securities																					$	1,899	3.1		$	—	—		$	35	1.7		$	1	3.0		$	1,863	3.1


(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 $1.1 billion and $291 million at March 31, 2017, and~~ ~~December 31, 2016, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.~~

1620

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The balances of cash equivalents were $18 million and $10 million at March 31, 2018, and December 31, 2017, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.

The following table presents interest and dividends on investment securities.


	Three months ended March 31,				Three months ended March 31,
($ in millions)	2017		2016		2018		2017
Taxable interest	$	119	$	94	$	154	$	119
Taxable dividends	2		4		3		2
Interest and dividends exempt from U.S. federal income tax	5		4		6		5
Interest and dividends on investment securities	$	126	$	102	$	163	$	126

~~Gross~~The following table presents gross gains and losses realized upon the sales of available-for-sale securities, ~~were $27 million~~ and ~~$54 million for~~net gains or losses on equity securities held during the ~~three months ended March 31, 2017, and 2016, respectively.~~period. There were no ~~gross realized losses or~~ other-than-temporary impairments ~~upon the sales~~ of available-for-sale securities for either period.



	Three months ended March 31,
($ in millions)	2018			2017
Available-for-sale securities
Gross realized gains	$	6		$	27
Gross realized losses	—			—
Net realized gains on available-for-sale securities	6			27
Net realized gain on equity securities	22
Net unrealized loss on equity securities (a)	(40		)
Other (loss) gain on investments, net	$	(12	)	$	27

(a)

As a result of our adoption of ASU 2016-01, beginning January 1, 2018, changes in the fair value of our portfolio of equity securities are recognized in net income. Prior to adoption, equity securities were included in our available-for-sale portfolio and unrealized changes in fair value were recognized through other comprehensive (loss) income until realized, at which point we recorded a gain or loss on sale. We adopted ASU 2016-01 on January 1, 2018, on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. Refer to the section titled Recently Adopted Accounting Standards in Note 1 for additional information.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The table below summarizes available-for-sale and held-to-maturity securities in an unrealized loss position, which we evaluated for other than temporary impairment applying the methodology described in accumulated other comprehensive income. Based on the assessment of whether such losses were deemed to be other-than-temporary, we believe that the unrealized losses are not indicative of an other-than-temporary impairment of these securities.Note 1. As of March 31, ~~2017,~~2018, we did not have the intent to sell the ~~debt~~available-for-sale or held-to-maturity securities with an unrealized loss position ~~in accumulated other comprehensive income,~~and we do not believe it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, and we expect to recover the entire amortized cost basis of the securities. As of March 31, 2017, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As a result of this evaluation, we believe that the securities with an unrealized loss position ~~in accumulated other comprehensive income~~ are not considered to be other-than-temporarily impaired at March 31, 2017. Refer to Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.2018.


	March 31, 2017										December 31, 2016										March 31, 2018										December 31, 2017
	Less than 12 months					12 months or longer					Less than 12 months					12 months or longer					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
($ 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	$	2,070	$	(52	)	$	—	$	—		$	1,612	$	(60	)	$	—	$	—		$	488	$	(16	)	$	1,282	$	(70	)	$	471	$	(8	)	$	1,305	$	(46	)
U.S. States and political subdivisions	435		(16		)	26		(1		)	524		(19		)	—		—			436		(9		)	176		(10		)	242		(2		)	183		(5		)
Foreign government	13		—			—		—			38		—			—		—			82		(2		)	4		—			80		(1		)	4		—
Agency mortgage-backed residential	8,874		(209		)	531		(14		)	8,052		(196		)	587		(16		)	8,951		(183		)	5,395		(254		)	4,066		(19		)	5,671		(137		)
Mortgage-backed residential	768		(16		)	816		(45		)	813		(17		)	860		(53		)	1,439		(29		)	734		(46		)	857		(2		)	773		(32		)
Mortgage-backed commercial	79		(1		)	77		—			47		(1		)	149		(1		)	71		(2		)	21		(1		)	76		(1		)	21		—
Asset-backed	175		—			134		(1		)	375		(2		)	127		—			426		(2		)	76		(1		)	220		(1		)	91		—
Corporate debt	565		(11		)	46		(2		)	744		(14		)	46		(2		)	932		(20		)	191		(14		)	529		(4		)	194		(7		)
Total temporarily impaired debt securities	12,979		(305		)	1,630		(63		)	12,205		(309		)	1,769		(72		)
Temporarily impaired equity securities	72		(6		)	162		(40		)	151		(8		)	269		(46		)
Total temporarily impaired available-for-sale securities	$	13,051	$	(311	)	$	1,792	$	(103	)	$	12,356	$	(317	)	$	2,038	$	(118	)	$	12,825	$	(263	)	$	7,879	$	(396	)	$	6,541	$	(38	)	$	8,242	$	(227	)
Held-to-maturity securities
Agency mortgage-backed residential																					$	1,147	$	(26	)	$	672	$	(46	)	$	773	$	(5	)	$	687	$	(32	)
Asset-backed retained certificates																					31		—			—		—			35		—			—		—
Total held-to-maturity debt securities																					$	1,178	$	(26	)	$	672	$	(46	)	$	808	$	(5	)	$	687	$	(32	)

1722

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

8.7. Finance Receivables and Loans, Net

The composition of finance receivables and loans reported at gross carrying value was as follows.


($ in millions)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Consumer automotive (a)	$	65,663	$	65,793	$	69,318	$	68,071
Consumer mortgage
Mortgage Finance (b)	8,331		8,294		12,733		11,657
Mortgage — Legacy (c)	2,606		2,756		1,950		2,093
Total consumer mortgage	10,937		11,050		14,683		13,750
Total consumer	76,600		76,843		84,001		81,821
Commercial
Commercial and industrial
Automotive	34,911		35,041		32,781		33,025
Other	3,499		3,248		4,184		3,887
Commercial real estate — Automotive	3,992		3,812
Commercial real estate					4,361		4,160
Total commercial	42,402		42,101		41,326		41,072
Total finance receivables and loans (d)	$	119,002	$	118,944	$	125,327	$	122,893


(a)	~~Includes $34 million~~Certain finance receivables and ~~$43 million of~~loans are included in fair value ~~adjustment for loans in hedge accounting relationships at~~ ~~March 31, 2017, and~~ ~~December 31, 2016, respectively.~~hedging relationships. Refer to Note 1918 for additional information.

(b)

Includes loans originated as interest-only mortgage loans of ~~$26~~$19 million and ~~$30~~$20 million at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, 3%34% of which are expected to start principal amortization in ~~2017, none~~2019, and 46% in ~~2018, 37% in 2019, 42% in 2020, and none thereafter.~~2020. The remainder of these loans have already exited the interest-only period.


(c)	Includes loans originated as interest-only mortgage loans of ~~$653~~$459 million and ~~$714~~$496 million at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, ~~17%~~2% of which are expected to start principal amortization in ~~2017, 2% in 2018, none in 2019, none in 2020, and 1% thereafter.~~2018. The remainder of these loans have already exited the interest-only period.


(d)	Totals include net ~~increases of $393 million and $359 million at March 31, 2017, and December 31, 2016, respectively, for~~ unearned income, unamortized premiums and discounts, and deferred fees and ~~costs.~~costs of $586 million and $551 million at March 31, 2018, and December 31, 2017, respectively.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

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


Three months ended March 31, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at January 1, 2017	$	932		$	91		$	121	$	1,144
Three months ended March 31, 2018 ($ in millions)												Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at January 1, 2018												$	1,066		$	79		$	131	$	1,276
Charge-offs (a)	(341		)	(9		)	—		(350		)	(365		)	(12		)	—		(377		)
Recoveries	90			7			—		97			112			6			—		118
Net charge-offs	(251		)	(2		)	—		(253		)	(253		)	(6		)	—		(259		)
Provision for loan losses	267			(3		)	7		271			253			1			7		261
Other (b)	(7		)	—			—		(7		)
Allowance at March 31, 2017	$	941		$	86		$	128	$	1,155
Allowance for loan losses at March 31, 2017
Allowance at March 31, 2018												$	1,066		$	74		$	138	$	1,278
Allowance for loan losses at March 31, 2018
Individually evaluated for impairment	$	32		$	33		$	24	$	89		$	40		$	27		$	21	$	88
Collectively evaluated for impairment	909			53			104		1,066			1,026			47			117		1,190
Finance receivables and loans at gross carrying value
Ending balance	$	65,663		$	10,937		$	42,402	$	119,002		$	69,318		$	14,683		$	41,326	$	125,327
Individually evaluated for impairment	388			249			120		757			463			230			147		840
Collectively evaluated for impairment	65,275			10,688			42,282		118,245			68,855			14,453			41,179		124,487

(a)

Represents the amount of the gross carrying value directly ~~written-off.~~written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K for more information regarding our charge-off policies.


~~(b)~~	~~Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.~~

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended March 31, 2016 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at January 1, 2016	$	834		$	114		$	106	$	1,054
Three months ended March 31, 2017 ($ in millions)												Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at January 1, 2017												$	932		$	91		$	121	$	1,144
Charge-offs (a)	(253		)	(10		)	—		(263		)	(341		)	(9		)	—		(350		)
Recoveries	80			4			—		84			90			7			—		97
Net charge-offs	(173		)	(6		)	—		(179		)	(251		)	(2		)	—		(253		)
Provision for loan losses	207			7			6		220			267			(3		)	7		271
Other (b)	(18		)	—			—		(18		)	(7		)	—			—		(7		)
Allowance at March 31, 2016	$	850		$	115		$	112	$	1,077
Allowance for loan losses at March 31, 2016
Allowance at March 31, 2017												$	941		$	86		$	128	$	1,155
Allowance for loan losses at March 31, 2017
Individually evaluated for impairment	$	25		$	43		$	18	$	86		$	32		$	33		$	24	$	89
Collectively evaluated for impairment	825			72			94		991			909			53			104		1,066
Finance receivables and loans at gross carrying value
Ending balance	$	63,013		$	10,675		$	37,188	$	110,876		$	65,663		$	10,937		$	42,402	$	119,002
Individually evaluated for impairment	337			261			90		688			388			249			120		757
Collectively evaluated for impairment	62,676			10,414			37,098		110,188			65,275			10,688			42,282		118,245

(a)


(b)	Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.

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.~~held-for-sale based on net carrying value.


	Three months ended March 31,				Three months ended March 31,
($ in millions)	2017		2016		2018		2017
Consumer automotive	$	1,213	$	2,599	$	—	$	1,213
Consumer mortgage	3		2		1		3
Total sales and transfers	$	1,216	$	2,601	$	1	$	1,216

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 March 31,
($ in millions)	2018		2017
Consumer automotive	$	168	$	68
Consumer mortgage	1,295		327
Total purchases of finance receivables and loans	$	1,463	$	395

1924

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~The following table presents information about significant purchases of finance receivables and loans.~~

Three months ended March 31,
($ in millions) 2017 2016
Consumer automotive
$ 68

$ —
Consumer mortgage
327

1,370
Total purchases of finance receivables and loans
$ 395
$ 1,370

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


($ in millions)	30–59 days past due		60–89 days past due		90 days or more past due		Total past due		Current		Total finance receivables and loans		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
March 31, 2017
March 31, 2018
Consumer automotive	$	1,346	$	308	$	263	$	1,917	$	63,746	$	65,663	$	1,574	$	359	$	253	$	2,186	$	67,132	$	69,318
Consumer mortgage
Mortgage Finance	30		2		7		39		8,292		8,331		97		8		18		123		12,610		12,733
Mortgage — Legacy	33		14		57		104		2,502		2,606		40		19		61		120		1,830		1,950
Total consumer mortgage	63		16		64		143		10,794		10,937		137		27		79		243		14,440		14,683
Total consumer	1,409		324		327		2,060		74,540		76,600		1,711		386		332		2,429		81,572		84,001
Commercial
Commercial and industrial
Automotive	—		—		6		6		34,905		34,911		23		6		4		33		32,748		32,781
Other	—		—		—		—		3,499		3,499		—		30		—		30		4,154		4,184
Commercial real estate — Automotive	—		—		—		—		3,992		3,992
Commercial real estate													4		—		—		4		4,357		4,361
Total commercial	—		—		6		6		42,396		42,402		27		36		4		67		41,259		41,326
Total consumer and commercial	$	1,409	$	324	$	333	$	2,066	$	116,936	$	119,002	$	1,738	$	422	$	336	$	2,496	$	122,831	$	125,327
December 31, 2016
December 31, 2017
Consumer automotive	$	1,850	$	428	$	302	$	2,580	$	63,213	$	65,793	$	1,994	$	478	$	268	$	2,740	$	65,331	$	68,071
Consumer mortgage
Mortgage Finance	39		6		4		49		8,245		8,294		60		11		18		89		11,568		11,657
Mortgage — Legacy	45		18		57		120		2,636		2,756		43		25		62		130		1,963		2,093
Total consumer mortgage	84		24		61		169		10,881		11,050		103		36		80		219		13,531		13,750
Total consumer	1,934		452		363		2,749		74,094		76,843		2,097		514		348		2,959		78,862		81,821
Commercial
Commercial and industrial
Automotive	3		—		7		10		35,031		35,041		5		—		3		8		33,017		33,025
Other	—		—		—		—		3,248		3,248		—		—		—		—		3,887		3,887
Commercial real estate — Automotive	—		—		—		—		3,812		3,812
Commercial real estate													—		—		—		—		4,160		4,160
Total commercial	3		—		7		10		42,091		42,101		5		—		3		8		41,064		41,072
Total consumer and commercial	$	1,937	$	452	$	370	$	2,759	$	116,185	$	118,944	$	2,102	$	514	$	351	$	2,967	$	119,926	$	122,893

2025

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


($ in millions)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Consumer automotive	$	573	$	598	$	601	$	603
Consumer mortgage
Mortgage Finance	10		10		28		25
Mortgage — Legacy	95		89		87		92
Total consumer mortgage	105		99		115		117
Total consumer	678		697		716		720
Commercial
Commercial and industrial
Automotive	34		33		68		27
Other	81		84		74		44
Commercial real estate — Automotive	5		5
Commercial real estate					5		1
Total commercial	120		122		147		72
Total consumer and commercial finance receivables and loans	$	798	$	819	$	863	$	792

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

The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at gross carrying value. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K for additional information.


	March 31, 2017						December 31, 2016						March 31, 2018						December 31, 2017
($ in millions)	Performing		Nonperforming		Total		Performing		Nonperforming		Total		Performing		Nonperforming		Total		Performing		Nonperforming		Total
Consumer automotive	$	65,090	$	573	$	65,663	$	65,195	$	598	$	65,793	$	68,717	$	601	$	69,318	$	67,468	$	603	$	68,071
Consumer mortgage
Mortgage Finance	8,321		10		8,331		8,284		10		8,294		12,705		28		12,733		11,632		25		11,657
Mortgage — Legacy	2,511		95		2,606		2,667		89		2,756		1,863		87		1,950		2,001		92		2,093
Total consumer mortgage	10,832		105		10,937		10,951		99		11,050		14,568		115		14,683		13,633		117		13,750
Total consumer	$	75,922	$	678	$	76,600	$	76,146	$	697	$	76,843	$	83,285	$	716	$	84,001	$	81,101	$	720	$	81,821

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


	March 31, 2017						December 31, 2016						March 31, 2018						December 31, 2017
($ in millions)	Pass		Criticized (a)		Total		Pass		Criticized (a)		Total		Pass		Criticized (a)		Total		Pass		Criticized (a)		Total
Commercial and industrial
Automotive	$	32,878	$	2,033	$	34,911	$	33,160	$	1,881	$	35,041	$	30,433	$	2,348	$	32,781	$	30,982	$	2,043	$	33,025
Other	2,814		685		3,499		2,597		651		3,248		3,284		900		4,184		2,986		901		3,887
Commercial real estate — Automotive	3,816		176		3,992		3,653		159		3,812
Commercial real estate													4,151		210		4,361		4,023		137		4,160
Total commercial	$	39,508	$	2,894	$	42,402	$	39,410	$	2,691	$	42,101	$	37,868	$	3,458	$	41,326	$	37,991	$	3,081	$	41,072


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

2126

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Impaired Loans and Troubled Debt Restructurings

Impaired Loans

Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. For more information on our impaired finance receivables and loans, refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K.

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


($ in millions)	Unpaid principal balance (a)		Gross carrying value		Impaired with no allowance		Impaired with an allowance		Allowance for impaired loans
March 31, 2017
($ in millions)											Unpaid principal balance (a)		Gross carrying value		Impaired with no allowance		Impaired with an allowance		Allowance for impaired loans
March 31, 2018
Consumer automotive	$	422	$	388	$	124	$	264	$	32	$	473	$	463	$	107	$	356	$	40
Consumer mortgage
Mortgage Finance	8		8		4		4		—		9		9		4		5		—
Mortgage — Legacy	245		241		56		185		33		226		221		61		160		27
Total consumer mortgage	253		249		60		189		33		235		230		65		165		27
Total consumer	675		637		184		453		65		708		693		172		521		67
Commercial
Commercial and industrial
Automotive	34		34		7		27		2		68		68		15		53		9
Other	98		81		19		62		21		85		74		41		33		11
Commercial real estate — Automotive	5		5		—		5		1
Commercial real estate											5		5		4		1		1
Total commercial	137		120		26		94		24		158		147		60		87		21
Total consumer and commercial finance receivables and loans	$	812	$	757	$	210	$	547	$	89	$	866	$	840	$	232	$	608	$	88
December 31, 2016
December 31, 2017
Consumer automotive	$	407	$	370	$	131	$	239	$	28	$	438	$	430	$	91	$	339	$	36
Consumer mortgage
Mortgage Finance	8		8		3		5		—		8		8		4		4		—
Mortgage — Legacy	243		239		56		183		34		228		223		58		165		27
Total consumer mortgage	251		247		59		188		34		236		231		62		169		27
Total consumer	658		617		190		427		62		674		661		153		508		63
Commercial
Commercial and industrial
Automotive	33		33		7		26		3		27		27		9		18		3
Other	99		84		—		84		19		54		44		10		34		11
Commercial real estate — Automotive	5		5		2		3		1
Commercial real estate											1		1		—		1		—
Total commercial	137		122		9		113		23		82		72		19		53		14
Total consumer and commercial finance receivables and loans	$	795	$	739	$	199	$	540	$	85	$	756	$	733	$	172	$	561	$	77


(a)	Adjusted for charge-offs.

2227

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents average balance and interest income for our impaired finance receivables and loans.


	2017				2016				2018				2017
Three months ended March 31, ($ in millions)	Average balance		Interest income		Average balance		Interest income		Average balance		Interest income		Average balance		Interest income
Consumer automotive	$	379	$	5	$	326	$	4	$	444	$	7	$	379	$	5
Consumer mortgage
Mortgage Finance	8		—		9		—		9		—		8		—
Mortgage — Legacy	241		2		255		2		221		2		241		2
Total consumer mortgage	249		2		264		2		230		2		249		2
Total consumer	628		7		590		6		674		9		628		7
Commercial
Commercial and industrial
Automotive	33		—		23		—		47		1		33		—
Other	83		—		49		1		52		—		83		—
Commercial real estate — Automotive	5		—		6		—
Commercial real estate									3		—		5		—
Total commercial	121		—		78		1		102		1		121		—
Total consumer and commercial finance receivables and loans	$	749	$	7	$	668	$	7	$	776	$	10	$	749	$	7

Troubled Debt Restructurings

Troubled Debt Restructurings (TDRs) are loan modifications where concessions were granted to borrowers experiencing financial difficulties. For automotive loans, we may offer several types of assistance to aid our customers, including extension of the loan maturity date and rewriting the loan terms. Additionally, for mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. ~~Numerous initiatives~~These programs are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates. Total TDRs recorded at gross carrying value were $~~704~~742 million and ~~$663~~$712 million at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively. ~~Commercial~~

Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were ~~$3 million and $2~~$6 million at both March 31, ~~2017,~~2018, and December 31, ~~2016, respectively.~~2017. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K for additional information.

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


	2017					2016					2018					2017
Three months ended March 31, ($ in millions)	Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value
Consumer automotive	6,447	$	115	$	99	5,622	$	89	$	76	7,042	$	128	$	110	6,447	$	115	$	99
Consumer mortgage
Mortgage Finance	1	—		—		1	1		1		1	1		1		1	—		—
Mortgage — Legacy	53	12		12		31	4		4		62	10		9		53	12		12
Total consumer mortgage	54	12		12		32	5		5		63	11		10		54	12		12
Total consumer	6,501	127		111		5,654	94		81		7,105	139		120		6,501	127		111
Commercial
Commercial and industrial
Automotive	—	—		—		—	—		—
Other	1	23		23		—	—		—		—	—		—		1	23		23
Commercial real estate — Automotive	—	—		—		—	—		—
Total commercial	1	23		23		—	—		—		—	—		—		1	23		23
Total consumer and commercial finance receivables and loans	6,502	$	150	$	134	5,654	$	94	$	81	7,105	$	139	$	120	6,502	$	150	$	134

2328

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents information about finance receivables and loans recorded at gross carrying value 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 ~~2016~~2017 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.


	2017					2016					2018					2017
Three months ended March 31, ($ in millions)	Number of loans	Gross carrying value		Charge-off amount		Number of loans	Gross carrying value		Charge-off amount		Number of loans	Gross carrying value		Charge-off amount		Number of loans	Gross carrying value		Charge-off amount
Consumer automotive	1,989	$	24	$	16	1,800	$	23	$	12	2,326	$	28	$	18	1,989	$	24	$	16
Consumer mortgage
Mortgage Finance	1	1		—		—	—		—		—	—		—		1	1		—
Mortgage — Legacy	—	—		—		1	—		—
Total consumer finance receivables and loans	1,990	$	25	$	16	1,801	$	23	$	12	2,326	$	28	$	18	1,990	$	25	$	16

9.8. Investment in Operating Leases, Net

Investments in operating leases were as follows.


($ in millions)	March 31, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Vehicles	$	13,240		$	14,584		$	10,206		$	10,556
Accumulated depreciation	(2,779		)	(3,114		)	(1,676		)	(1,815		)
Investment in operating leases, net	$	10,461		$	11,470		$	8,530		$	8,741

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


	Three months ended March 31,					Three months ended March 31,
($ in millions)	2017		2016			2018			2017
Depreciation expense on operating lease assets (excluding remarketing gains and losses)	$	386	$	565		$	291		$	386
Remarketing losses (gains)	3		(55		)
Remarketing (gains) losses						(18		)	3
Net depreciation expense on operating lease assets	$	389	$	510		$	273		$	389

~~10.~~9. Securitizations and Variable Interest Entities

We ~~are involved in several types~~securitize, transfer, and service consumer and commercial automotive loans, and operating leases. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) through the use of ~~securitization and financing transactions that utilize~~ special-purpose entities (SPEs). A SPE is ana 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 and operating lease ~~assets.~~assets which may, or may not, be included on our Condensed Consolidated Balance Sheet.

The transaction-specific SPEs involved in our securitization ~~and other financing~~ transactions are often considered VIEs. VIEs are entities that have either a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors at risk lack the ability to control the ~~entity's~~entity’s activities.

~~We provide a wide range~~The nature, purpose, and activities of consumer and commercial automotive loans, operating leases, and commercial loans to a diverse customer base. We securitize consumer and commercial automotive loans, and operating leases through private-label securitizations. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) through the use ofnonconsolidated securitization entities ~~which may~~are similar to those of our consolidated securitization entities with the primary difference being the nature and extent of our continuing involvement. Additionally, to qualify for off-balance sheet treatment, transfers of financial assets must meet appropriate sale accounting conditions. For nonconsolidated securitization entities, 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 ~~may not be consolidated~~retained interests (if applicable). Liabilities incurred as part of these securitization transactions, such as representation and warranty provisions, are recorded at fair value at the time of sale and are reported as accrued expenses and other liabilities on our ~~Condensed~~ Consolidated Balance Sheet.

~~The~~ 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. We had no pretax gain on sales of financial assets into nonconsolidated ~~consumer automotive securitization trusts was~~VIEs for the three months ended March 31, 2018, and a pretax gain of $2 million for the three months ended March 31, 2017. ~~There was no pretax gain or loss for the three months endedMarch 31, 2016.~~

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

We have involvement 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.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Refer to Note 11 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K for further description of our securitization activities and our involvement with VIEs.

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			Carrying value of total assets			Carrying value of total liabilities			Assets sold to nonconsolidated VIEs (a)		Maximum exposure to loss in nonconsolidated VIEs
March 31, 2017
March 31, 2018
On-balance sheet variable interest entities
Consumer automotive	$	19,632	(b)	$	8,298	(c)						$	17,993	(b)	$	8,232	(c)
Commercial automotive	14,113			5,109								10,428			3,521
Off-balance sheet variable interest entities
Consumer automotive	79		(d)	—			$	3,571	$	3,650	(e)	32		(d)	—			$	1,658	$	1,691	(e)
Commercial other	505		(f)	205		(g)	—		695		(h)	702		(f)	331		(g)	—		882		(h)
Total	$	34,329		$	13,612		$	3,571	$	4,345		$	29,155		$	12,084		$	1,658	$	2,573
December 31, 2016
December 31, 2017
On-balance sheet variable interest entities
Consumer automotive	$	20,869	(b)	$	8,557	(c)						$	17,597	(b)	$	7,677	(c)
Commercial automotive	16,278			4,764								12,550			2,558
Off-balance sheet variable interest entities
Consumer automotive	24		(d)	—			$	2,899	$	2,923	(e)	37		(d)	—			$	1,964	$	2,001	(e)
Commercial other	460		(f)	169		(g)	—		651		(h)	592		(f)	248		(g)	—		790		(h)
Total	$	37,631		$	13,490		$	2,899	$	3,574		$	30,776		$	10,483		$	1,964	$	2,791


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


(b)	Includes ~~$9.2~~$8.4 billion and ~~$9.6~~$8.5 billion of assets that are not encumbered by VIE beneficial interests held by third parties at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively. Ally or consolidated affiliates hold the interests in these ~~assets, which eliminate in consolidation.~~assets.

(c)

Includes ~~$64~~$31 million and ~~$50~~$29 million of liabilities ~~due to consolidated affiliates at March 31, 2017, and December 31, 2016, respectively. These liabilities~~that are not obligations to third-party beneficial interest ~~holders. These liabilities are secured by a portion of the unencumbered assets~~holders at March 31, 2018, and ~~eliminate in consolidation.~~December 31, 2017, respectively.

(d)

~~Includes $52~~Represents retained notes and certificated residual interests, of which $31 million and $36 million is classified as held-to-maturity securities at March 31, 2018, and ~~$27~~December 31, 2017, respectively. $1 million is classified as other assets at both March 31, ~~2017. Of the total amount at March~~2018, and December 31, ~~2017, $53 million represents retained notes and certificated residual interests.~~2017. These assets represent our compliance with the risk retention rules under the Dodd-Frank Act, requiring us to retain at least five percent of the credit risk of the assets underlying asset-backed ~~securitizations, which became effective on December 24, 2016. Amounts at December 31, 2016, are classified as other assets.~~

securitizations.

(e)

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


(f)	Amounts are classified as other assets.


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

(h)

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

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Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Cash Flows with Off-balance Sheet Securitization Entities

The following table summarizes cash flows received and paid related to securitization entities and asset-backed financings where the transfer is accounted for as a sale and we have a continuing involvement with the transferred consumer automotive assets (e.g., servicing) that were outstanding during the three months ended March 31, ~~2017,~~2018, and ~~2016~~.2017. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated securitization entities that existed during each period.


Three months ended March 31, ($ in millions)	Consumer automotive		Consumer automotive
2018
Cash disbursements for repurchases during the period			$	(1	)
Servicing fees			5
Cash flows received on retained interests in securitization entities			5
2017
Cash proceeds from transfers completed during the period	$	1,138	$	1,138
Servicing fees	9		9
Other cash flows	2		2
2016
Cash proceeds from transfers completed during the period	$	1,025
Servicing fees	8
Other cash flows	2

Delinquencies and Net Credit Losses

The following tables ~~represent on-balance sheet loans held-for-sale~~present quantitative information about delinquencies and ~~finance receivables and loans,~~net credit losses for off-balance sheet securitizations and whole-loan sales where we have continuing involvement. ~~The tables present quantitative information about delinquencies and net credit losses.~~


	Total Amount				Amount 60 days or more past due				Total amount				Amount 60 days or more past due
($ in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
On-balance sheet loans
Consumer automotive	$	65,663	$	65,793	$	571	$	730
Consumer mortgage	10,938		11,050		80		85
Commercial automotive	38,903		38,853		6		7
Commercial other	3,499		3,248		—		—
Total on-balance sheet loans	119,003		118,944		657		822
Off-balance sheet securitization entities
Consumer automotive	3,067		2,392		12		13		$	1,658	$	1,964	$	12	$	16
Total off-balance sheet securitization entities	3,067		2,392		12		13		1,658		1,964		12		16
Whole-loan sales (a)	2,787		3,164		5		6		1,167		1,399		3		4
Total	$	124,857	$	124,500	$	674	$	841	$	2,825	$	3,363	$	15	$	20


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


	Net credit losses				Net credit losses
	Three months ended March 31,				Three months ended March 31,
($ in millions)	2017		2016		2018		2017
On-balance sheet loans
Consumer automotive	$	251	$	173
Consumer mortgage	2		6
Total on-balance sheet loans	253		179
Off-balance sheet securitization entities
Consumer automotive	3		2		$	3	$	3
Total off-balance sheet securitization entities	3		2		3		3
Whole-loan sales (a)	1		—		1		1
Total	$	257	$	181	$	4	$	4


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

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

~~11.~~10. Servicing Activities

Automotive Finance Servicing Activities

We service consumer automotive contracts. Historically, we have sold a portion of our consumer automotive contracts. With respect to contracts we sell, we generally retain the right to service and earn a servicing fee for our servicing function. We have concluded that the fee we are paid for servicing consumer automotive finance receivables represents adequate compensation, and consequently, we do not recognize a servicing asset or liability. We recognized automotive servicing fee income of ~~$16~~$8 million and ~~$13~~$16 million during the three months ended March 31, 2018, and 2017, ~~and 2016,~~ respectively.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Automotive Finance Serviced Assets

The current unpaid principal balance and any related unamortized deferred fees and costs of total serviced automotive finance loans and net investment in operating leases outstanding were as follows.


($ in millions)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
On-balance sheet automotive finance loans and leases
Consumer automotive	$	65,464	$	65,646	$	68,738	$	67,631
Commercial automotive	38,903		38,853		36,935		37,058
Operating leases	10,332		11,311		8,489		8,682
Other	67		67		131		121
Off-balance sheet automotive finance loans
Securitizations	3,103		2,412		1,666		1,977
Whole-loan	2,824		3,191
Whole-loan sales					1,175		1,409
Total serviced automotive finance loans and leases	$	120,693	$	121,480	$	117,134	$	116,878

~~12.~~11. Other Assets

The components of other assets were as follows.


($ in millions)	March 31, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Property and equipment at cost	$	939		$	901		$	1,107		$	1,064
Accumulated depreciation	(542		)	(525		)	(627		)	(608		)
Net property and equipment	397			376			480			456
Restricted cash collections for securitization trusts (a)	1,359			1,694
Nonmarketable equity investments (a)							1,250			1,233
Restricted cash collections for securitization trusts (b)							986			812
Accrued interest and rent receivables							533			550
Net deferred tax assets	900			994			530			461
Nonmarketable equity investments (b)	833			1,046
Accrued interest and rent receivables	457			476
Goodwill (c)	240			240			240			240
Other accounts receivable	165			100			142			116
Cash reserve deposits held-for-securitization trusts (d)	164			184
Restricted cash and cash equivalents (d)							119			94
Cash reserve deposits held for securitization trusts (e)							112			111
Fair value of derivative contracts in receivable position (f)							56			39
Cash collateral placed with counterparties	119			167			33			29
Restricted cash and cash equivalents	111			111
Fair value of derivative contracts in receivable position (e)	80			95
Other assets	1,309			1,371			1,544			1,522
Total other assets	$	6,134		$	6,854		$	6,025		$	5,663

(a)

Includes investments in FHLB stock of $764 million and $745 million at March 31, 2018, and December 31, 2017, respectively; FRB stock of $446 million and $445 million at March 31, 2018, and December 31, 2017, respectively; and equity securities without a readily determinable fair value of $40 million at March 31, 2018, measured at cost with adjustments for impairment and observable changes in price. We have not recorded any impairments or adjustments for observable price differences to these investments during the three months ended March 31, 2018.


(b)	Represents cash collections from customer payments on securitized receivables. These funds are distributed to investors as payments on the related secured debt.


~~(b)~~	Includes investments in FHLB stock of $359 million and $577 million at March 31, 2017, and December 31, 2016, respectively; and Federal Reserve Bank (FRB) stock of $435 million at both March 31, 2017, and December 31, 2016.

(c)

Includes goodwill of $27 million atwithin our Insurance operations at both March 31, ~~2017,~~2018, and December 31, ~~2016;~~2017; $193 million within Corporate and Other at both March 31, ~~2017,~~2018, and December 31, ~~2016;~~2017; and $20 million within Automotive Finance operations at both March 31, ~~2017,~~2018, and December 31, ~~2016.~~2017. No changes to the carrying amount of goodwill were recorded during the three months ended March 31, ~~2017.~~2018.


(d)	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.


(e)	Represents credit enhancement in the form of cash reserves for various securitization transactions.


~~(e)~~(f)	For additional information on derivative instruments and hedging activities, refer to Note 1918.

2732

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~13.~~12. Deposit Liabilities

Deposit liabilities consisted of the following.


($ in millions)	March 31, 2017		December 31, 2016
($ in millions)					March 31, 2018		December 31, 2017
Noninterest-bearing deposits	$	102	$	84	$	122	$	108
Interest-bearing deposits
Savings and money market checking accounts	51,150		46,976		50,293		49,267
Certificates of deposit	33,148		31,795		47,025		43,869
Dealer deposits	86		167		6		12
Total deposit liabilities	$	84,486	$	79,022	$	97,446	$	93,256

At March 31, ~~2017~~,2018, and December 31, ~~2016~~,2017, certificates of deposit included ~~$12.2~~$20.6 billion and ~~$12.1~~$18.9 billion, respectively, of ~~certificates of deposit~~those in denominations of $100 thousand or more. At ~~both~~ March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, certificates of deposit included ~~$3.5~~$5.4 billion and $5.3 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.

~~14.~~13. Debt

Short-term Borrowings

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


	March 31, 2017							December 31, 2016						March 31, 2018						December 31, 2017
($ in millions)	Unsecured			Secured (a)		Total		Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total
Demand notes	$	3,652		$	—	$	3,652	$	3,622	$	—	$	3,622	$	2,957	$	—	$	2,957	$	3,171	$	—	$	3,171
Federal Home Loan Bank	—			1,850		1,850		—		7,875		7,875		—		5,900		5,900		—		7,350		7,350
Financial instruments sold under agreements to repurchase	—			1,620		1,620		—		1,176		1,176		—		707		707		—		892		892
Other	1,249		(b)	—		1,249		—		—		—
Total short-term borrowings	$	4,901		$	3,470	$	8,371	$	3,622	$	9,051	$	12,673	$	2,957	$	6,607	$	9,564	$	3,171	$	8,242	$	11,413


(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)~~	~~Balance represents private unsecured committed credit facility and includes debt issuance costs of $1 million as of March 31, 2017. This debt is scheduled to mature in December 2017.~~

We periodically enter into term repurchase agreements, short-term borrowing agreements in which we sell financial instruments to one or more investors while simultaneously committing to repurchase them at a specified future date, at the stated price plus accrued interest. As of March 31, ~~2017,~~2018, the financial instruments sold under ~~agreement~~agreements to repurchase consisted of ~~$520~~$707 million of agency mortgage-backed residential debt securities ~~maturing within the next 30 days, $0~~set to mature as follows: $432 million within 31 to 60 days, and ~~$626~~$275 million within 61 to 90 days. For further details refer to Note 7 and Note 22. Additionally, in December 2016, we sold asset-backed automotive financial instruments, which are our retained interests from certain on-balance sheet securitizations, subject to a repurchase agreement set to mature by July 2017 in exchange for $500 million, which was recorded as a short-term secured borrowing. As of March 31, 2017, the balance was $474 million. The asset-backed automotive financial instruments that we sold subject to the repurchase agreement are secured by finance receivables that we have securitized. Refer to Note 106 and Note 21 for ~~additional information on our securitization activities.~~further details.

The primary risk associated with these repurchase agreements is that the counterparty will be unable to perform under the terms of the contract. As the borrower, we are exposed to the excess market value of the securities pledged over the amount borrowed. Daily mark-to-market collateral management is designed to limit this risk to the initial margin. However, should a counterparty declare bankruptcy or become insolvent, we may incur additional delays and costs. ~~As of~~In some instances, we may place or receive cash collateral with counterparties under collateral arrangements associated with our repurchase agreements. At March 31, ~~2017, we received cash collateral totaling $1 million and~~2018, we placed cash collateral totaling $5 million ~~with counterparties under these~~and received cash collateral ~~arrangements associated with~~totaling $1 million. At December 31, 2017, we placed cash collateral totaling $10 million and received cash collateral totaling $1 million.

Long-term Debt

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



	March 31, 2018							December 31, 2017
($ in millions)	Unsecured		Secured			Total		Unsecured		Secured			Total
Long-term debt
Due within one year	$	3,681	$	7,639		$	11,320	$	3,482	$	7,499		$	10,981
Due after one year (a)	11,153		22,476			33,629		11,909		21,128			33,037
Fair value adjustment (b)	190		(63		)	127		240		(32		)	208
Total long-term debt (c)	$	15,024	$	30,052		$	45,076	$	15,631	$	28,595		$	44,226


(a)	Includes $2.6 billion of trust preferred securities at both March 31, 2018, and December 31, 2017.


(b)	Represents the basis adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to Note 18 for additional information.


(c)	Includes advances from the FHLB of Pittsburgh of $12.7 billion and $10.3 billion at March 31, 2018, and December 31, 2017, respectively.

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Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~Long-term Debt~~

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

March 31, 2017 December 31, 2016
($ in millions) Unsecured Secured Total Unsecured Secured Total
Long-term debt
Due within one year $ 2,329
$ 9,048
$ 11,377
$ 4,274
$ 10,279
$ 14,553
Due after one year (a) 14,893
24,492
39,385
15,450
23,810
39,260
Fair value adjustment (b) 308
(9 ) 299
326
(11 ) 315
Total long-term debt (c) $ 17,530
$ 33,531
$ 51,061
$ 20,050
$ 34,078
$ 54,128


~~(a)~~	~~Includes $2.6 billion of trust preferred securities at both March 31, 2017, and December 31, 2016.~~


~~(b)~~	~~Represents the fair value adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to~~ ~~Note 19~~ ~~for additional information.~~


~~(c)~~	~~Includes advances from the FHLB of Pittsburgh of $6.1 billion at both March 31, 2017, and December 31, 2016.~~

The following table presents the scheduled remaining maturity of long-term debt at March 31, ~~2017,~~2018, assuming no early redemptions will occur. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.


($ in millions)	2017			2018			2019			2020			2021			2022 and thereafter			Fair value adjustment			Total			2018			2019			2020			2021			2022			2023 and thereafter			Fair value adjustment			Total
Unsecured
Long-term debt	$	1,811		$	3,700		$	1,681		$	2,236		$	638		$	8,460		$	308		$	18,834		$	2,987		$	1,680		$	2,251		$	650		$	1,066		$	7,411		$	190		$	16,235
Original issue discount	(69		)	(101		)	(39		)	(39		)	(42		)	(1,014		)	—			(1,304		)	(76		)	(39		)	(39		)	(43		)	(47		)	(967		)	—			(1,211		)
Total unsecured	1,742			3,599			1,642			2,197			596			7,446			308			17,530			2,911			1,641			2,212			607			1,019			6,444			190			15,024
Secured
Long-term debt	7,575			8,534			8,080			5,175			2,558			1,618			(9		)	33,531			4,924			7,467			6,845			5,717			4,094			1,068			(63		)	30,052
Total long-term debt	$	9,317		$	12,133		$	9,722		$	7,372		$	3,154		$	9,064		$	299		$	51,061		$	7,835		$	9,108		$	9,057		$	6,324		$	5,113		$	7,512		$	127		$	45,076

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


	March 31, 2017					December 31, 2016					March 31, 2018					December 31, 2017
($ in millions)	Total (a)			Ally Bank		Total (a)			Ally Bank		Total (a)			Ally Bank		Total (a)			Ally Bank
Investment securities (b)	$	3,175		$	1,978	$	4,895		$	4,231	$	8,891		$	8,443	$	8,371		$	7,443
Mortgage assets held-for-investment and lending receivables	10,847			10,847		10,954			10,954		14,501			14,501		13,579			13,579
Consumer automotive finance receivables ~~(b)~~	26,420			4,523		27,846			5,751		17,472			6,639		19,787			6,200
Commercial automotive finance receivables	17,901			17,709		19,487			19,280		14,618			14,558		16,567			16,472
Investment in operating leases, net	1,412			314		2,040			913
Operating leases											350			—		457			—
Total assets restricted as collateral (c) (d)	$	59,755		$	35,371	$	65,222		$	41,129	$	55,832		$	44,141	$	58,761		$	43,694
Secured debt	$	37,001	(e)	$	15,120	$	43,129	(e)	$	22,149	$	36,659	(e)	$	25,874	$	36,837	(e)	$	23,278


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


(b)	A portion of the restricted investment securities at March 31, 2018, and ~~consumer automotive finance receivables are~~December 31, 2017, were restricted under repurchase agreements. Refer to the section above titled Short-term Borrowings for information on the repurchase agreements.

(c)

Ally Bank has an advance agreement with the FHLB, and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling $~~16.8~~27.0 billion and $~~19.0~~25.2 billion at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans and investment securities. Ally Bank has access to the ~~Federal Reserve Bank~~FRB Discount Window. Ally Bank had assets pledged and restricted as collateral to the ~~Federal Reserve Bank~~FRB totaling $2.3 billion ~~and $2.4 billion~~ at both March 31, ~~2017~~2018, and December 31, ~~2016~~2017~~, respectively.~~. These assets were composed of consumer automotive finance receivables and ~~loans and operating lease assets.~~loans. Availability under these programs is only for the operations of Ally Bank and cannot be used to fund the operations or liabilities of Ally or its subsidiaries.


(d)	Excludes restricted cash and cash reserves for securitization trusts recorded within other assets on the Condensed Consolidated Balance Sheet. Refer to Note 1211 for additional information.


(e)	Includes $~~3.5~~6.6 billion and $~~9.1~~8.2 billion of short-term borrowings at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Trust Preferred Securities

At March 31, ~~2017,~~2018, we have issued and outstanding approximately $2.6 billion in aggregate liquidation preference of 8.125% Fixed ~~Rate /~~ Rate/Floating Rate Trust Preferred Securities, Series 2 (Series 2 TRUPS). Each Series 2 TRUPS security has a liquidation amount of $25. Distributions are cumulative and are payable until redemption at the applicable coupon rate. ~~Distributions were payable at an annual rate of 8.125% payable quarterly in arrears, through but excluding February 15, 2016. From and including February 15, 2016, to~~To but excluding February 15, 2040, distributions ~~will be~~are payable at an annual rate equal to three-month London interbank offer rate plus 5.785% payable quarterly in ~~arrears, beginning May 15, 2016.~~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 ~~on or after February 15, 2016,~~ may redeem the Series 2 TRUPS at a redemption price equal to 100% of the principal amount being redeemed, plus accrued and unpaid interest through the date of redemption. The Series 2 TRUPS are generally nonvoting, other than with respect to certain limited matters. During any period in which any Series 2 TRUPS remain outstanding but in which distributions on the Series 2 TRUPS have not been fully paid, none of Ally or its subsidiaries will be permitted to (i) declare or pay dividends on, make any distributions with respect to, or redeem, purchase, acquire or otherwise make a liquidation payment with respect to, any of Ally’s capital stock or make any guarantee payment with respect thereto; or (ii) make any payments of principal, interest, or premium on, or repay, repurchase or redeem, any debt securities or guarantees that rank on a parity with or junior in interest to the Debentures with certain specified exceptions in each case.

Funding Facilities

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

As of March 31, ~~2017,~~2018, Ally Bank had exclusive access to ~~$2.4~~$1.5 billion of funding capacity from committed credit facilities. Funding programs supported by the ~~Federal Reserve~~FRB and the FHLB ~~together with repurchase agreements,~~ complement Ally Bank’s private collateralized funding vehicles.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The total capacity in our committed funding facilities is provided by banks through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At March 31, ~~2017~~2018, ~~$15.6 billion~~all of our ~~$16.4~~$8.7 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of March 31, ~~2017~~2018, we had ~~$3.1~~$6.6 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.

Committed Funding Facilities


	Outstanding				Unused capacity (a)				Total capacity				Outstanding				Unused capacity (a)				Total capacity
($ in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Bank funding
Secured (b)	$	2,050	$	3,250	$	350	$	350	$	2,400	$	3,600
Secured													$	1,500	$	1,785	$	—	$	890	$	1,500	$	2,675
Parent funding
Secured	12,123		11,550		652		1,975		12,775		13,525		4,255		6,330		2,970		2,920		7,225		9,250
Unsecured	1,250		—		—		1,250		1,250		1,250
Total committed facilities	$	15,423	$	14,800	$	1,002	$	3,575	$	16,425	$	18,375	$	5,755	$	8,115	$	2,970	$	3,810	$	8,725	$	11,925


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

14. Accrued Expenses and Other Liabilities

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



($ in millions)	March 31, 2018		December 31, 2017
Accounts payable	$	390	$	746
Employee compensation and benefits	161		248
Reserves for insurance losses and loss adjustment expenses	157		140
Fair value of derivative contracts in payable position (a)	56		41
Deferred revenue	34		32
Cash collateral received from counterparties	31		17
Other liabilities	626		556
Total accrued expenses and other liabilities	$	1,455	$	1,780


~~(b)~~(a)	~~Excludes off-balance sheet credit facility amounts.~~ 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

15. ~~Accrued Expenses and Other Liabilities~~

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

($ in millions)
March 31, 2017 December 31, 2016
Accounts payable $ 851
$ 649
Reserves for insurance losses and loss adjustment expenses 175
149
Employee compensation and benefits 156
232
Fair value of derivative contracts in payable position (a) 81
95
Deferred revenue 47
56
Cash collateral received from counterparties 12
10
Other liabilities 600
546
Total accrued expenses and other liabilities $ 1,922
$ 1,737


~~(a)~~	~~For additional information on derivative instruments and hedging activities, refer to~~ ~~Note 19~~.

~~16.~~ Accumulated Other Comprehensive Loss

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


($ in millions)	Unrealized (losses) gains on investment securities (a)			Translation adjustments and net investment hedges (b)		Cash flow hedges (b)		Defined benefit pension plans			Accumulated other comprehensive loss			Unrealized (losses) gains on investment securities (a)			Translation adjustments and net investment hedges (b)			Cash flow hedges (b)		Defined benefit pension plans			Accumulated other comprehensive loss
Balance at December 31, 2015	$	(159	)	$	9	$	8	$	(89	)	$	(231	)
2016 net change	142			5		—		(1		)	146
Balance at March 31, 2016	$	(17	)	$	14	$	8	$	(90	)	$	(85	)
Balance at December 31, 2016	$	(273	)	$	14	$	8	$	(90	)	$	(341	)	$	(273	)	$	14		$	8	$	(90	)	$	(341	)
2017 net change	21			—		—		(1		)	20			21			—			—		(1		)	20
Balance at March 31, 2017	$	(252	)	$	14	$	8	$	(91	)	$	(321	)	$	(252	)	$	14		$	8	$	(91	)	$	(321	)
Balance at December 31, 2017, before cumulative effect of adjustments														$	(173	)	$	16		$	11	$	(89	)	$	(235	)
Cumulative effect of changes in accounting principles, net of tax (c)
Adoption of Accounting Standards Update 2016-01														27			—			—		—			27
Adoption of Accounting Standards Update 2018-02														(40		)	4			—		(6		)	(42		)
Balance at January 1, 2018, after cumulative effect of adjustments														(186		)	20			11		(95		)	(250		)
2018 net change														(338		)	(1		)	14		(3		)	(328		)
Balance at March 31, 2018														$	(524	)	$	19		$	25	$	(98	)	$	(578	)


(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 1918.


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

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


Three months ended March 31, 2017 ($ in millions)	Before tax				Tax effect				After tax
Three months ended March 31, 2018 ($ in millions)												Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	51			$	(5	)		$	46
Net unrealized losses arising during the period												$	(436	)		$	103			$	(333	)
Less: Net realized gains reclassified to income from continuing operations	27			(a)	(2		)	(b)	25			6			(a)	(1		)	(b)	5
Net change	24				(3		)		21			(442		)		104				(338		)
Translation adjustments
Net unrealized losses arising during the period												(5		)		1				(4		)
Net investment hedges (c)
Net unrealized gains arising during the period	2				(1		)		1			4				(1		)		3
Net investment hedges (c)
Net unrealized losses arising during the period	(2		)		1				(1		)
Cash flow hedges (c)
Net unrealized gains arising during the period												18				(4		)		14
Defined benefit pension plans
Net unrealized losses arising during the period	(1		)		—				(1		)	(3		)		—				(3		)
Other comprehensive income	$	23			$	(3	)		$	20
Other comprehensive loss												$	(428	)		$	100			$	(328	)


(a)	Includes gains reclassified to other (loss) 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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended March 31, 2017 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	51			$	(5	)		$	46
Less: Net realized gains reclassified to income from continuing operations	27			(a)	(2		)	(b)	25
Net change	24				(3		)		21
Translation adjustments
Net unrealized gains arising during the period	2				(1		)		1
Net investment hedges (c)
Net unrealized losses arising during the period	(2		)		1				(1		)
Defined benefit pension plans
Net unrealized losses arising during the period	(1		)		—				(1		)
Other comprehensive income	$	23			$	(3	)		$	20


(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 19.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Three months ended March 31, 2016 ($ in millions)
Before tax Tax effect After tax
Investment securities
Net unrealized gains arising during the period $ 280
$ (104 ) $ 176
Less: Net realized gains reclassified to income from continuing operations 54
(a) (20 ) (b) 34
Net change 226

(84 )
142
Translation adjustments
Net unrealized gains arising during the period 13
(5 ) 8
Net investment hedges (c)
Net unrealized losses arising during the period (6 ) 3
(3 )
Defined benefit pension plans
Net unrealized losses arising during the period (1 ) —
(1 )
Other comprehensive income $ 232
$ (86 )
$ 146


~~(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 19~~18.

~~17.~~16. Earnings per Common Share

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


	Three months ended March 31,					Three months ended March 31,
($ in millions, except per share data; shares in thousands) (a)	2017		2016
Net income from continuing operations	$	213	$	247
Preferred stock dividends	—		(15		)
Net income from continuing operations attributable to common shareholders	213		232
Income from discontinued operations, net of tax	1		3
Net income attributable to common shareholders	$	214	$	235
($ in millions, except per share data; shares in thousands) (a)						2018			2017
Net income from continuing operations attributable to common stockholders						$	252		$	213
(Loss) income from discontinued operations, net of tax						(2		)	1
Net income attributable to common stockholders						$	250		$	214
Basic weighted-average common shares outstanding (b)	465,961		484,233			436,213			465,961
Diluted weighted-average common shares outstanding (b)	466,829		484,654			438,931			466,829
Basic earnings per common share
Net income from continuing operations	$	0.46	$	0.48		$	0.58		$	0.46
Income from discontinued operations, net of tax	—		0.01
Loss from discontinued operations, net of tax						(0.01		)	—
Net income	$	0.46	$	0.49		$	0.57		$	0.46
Diluted earnings per common share
Net income from continuing operations	$	0.46	$	0.48		$	0.57		$	0.46
Income from discontinued operations, net of tax	—		0.01
Loss from discontinued operations, net of tax						(0.01		)	—
Net income	$	0.46	$	0.49		$	0.57		$	0.46


(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 for thethree months ended March 31, ~~2017,~~2018, and ~~2016, respectively.~~2017.

~~18.~~17. Regulatory Capital and Other Regulatory Matters

AsThe 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 ~~BHC, we~~banking organization’s risk-weighted assets (RWAs), which are generally determined under the Basel III standardized approach applicable to Ally and ~~our wholly-owned state-chartered banking subsidiary,~~Ally Bank by (1) assigning on-balance sheet exposures to broad risk weight categories according to the counterparty or, if relevant, the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived as representing greater risk), and (2) multiplying off-balance sheet exposures by specified credit conversion factors to calculate credit equivalent amounts and assigning those credit equivalent amounts to the relevant risk weight categories. The leverage ratio, in contrast, is based on an institution’s average unweighted on-balance sheet exposures.

Ally and Ally Bank are subject to capital requirements issued by U.S. banking regulators that require us to maintain risk-based and leverage capital ratios above minimum levels. A risk-based capital ratio is a ratio of a banking organization’s regulatory capital to its risk-weighted assets. A leverage capital ratio is a ratio of a banking organization’s regulatory capital to a measure of assets or exposures that is not risk-weighted. As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which generally reflects higher capital requirements, capital buffers, and changes to regulatory capital definitions, deductions and adjustments, relative to the predecessor requirements implementing the Basel I capital framework in the United States. Certain aspects of U.S. Basel III, including the capital buffers ~~and certain regulatory capital deductions, will be phased in over several years.~~are subject to a phase-in period through December 31, 2018.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Condensed Consolidated Financial Statements or the results of operations and financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

and Ally Bank must meet specific capital guidelines that involve quantitative measures of capital, assets and certain off-balance sheet items. These measures and related classifications, which are used in the calculation of our risk-based and leverage capital ratios and those of Ally Bank, are also subject to qualitative judgments by the regulators about the components of capital, the risk-weightings of assets and other exposures, and other factors. The FRB also uses these ratios and guidelines as part of the capital planning and stress testing processes. In addition, in order for Ally to maintain its status as aan FHC, Ally and its bank subsidiary, Ally Bank, must remain ~~“well-capitalized”~~well capitalized and ~~“well-managed,”~~well managed, as defined under applicable laws. The ~~“well-capitalized”~~well capitalized standard for insured depository institutions, such as Ally Bank, reflects the capital requirements under U.S. Basel III.

Under U.S. Basel III, Ally and Ally Bank must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum ~~Total~~total risk-based capital ratio of 8%. In addition to these minimum ~~requirements,~~risk-based capital ratios, Ally isand Ally Bank are also subject to a Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in period from January 1, 2016, through December 31, 2018. Failure to maintain the full amount of the buffer ~~will~~would result in restrictions on ~~Ally’s~~the ability of Ally and Ally Bank to make capital distributions, including dividend ~~payment~~payments and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. ~~In addition to these new risk-based capital standards,~~ U.S. Basel III also subjects ~~all U.S. banking organizations, including~~ Ally and Ally Bank to a minimum Tier 1 leverage ratio of 4%~~, the denominator of which takes into account only on-balance sheet assets.~~.

U.S. Basel III also revised the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had previously been recognized as capital but that do not satisfy these criteria. ~~Subject~~For example, subject to certain exceptions (e.g., ~~for~~ certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other ~~“hybrid”~~hybrid securities ~~are no longer included in~~were excluded from a ~~BHC's~~BHC’s Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain items are deducted from Common Equity Tier 1 capital under U.S. Basel III that had not previously been deducted from regulatory capital, and certain other deductions from regulatory capital have been modified. Among other things, U.S. Basel III requires significant investments in the common ~~shares~~stock of unconsolidated financial institutions, mortgage servicing ~~rights,~~assets, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revised the standardized approach for calculating ~~risk-weighted assets~~RWAs by, among other things, modifying certain risk weights and the methods for calculating ~~risk-weighted assets~~RWAs for certain types of assets and exposures.

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

On April 13, 2018, the FRB and other U.S. banking agencies proposed a revision to their regulatory capital rules to address the regulatory capital treatment related to ASU 2016-13, which Ally plans to adopt effective January 1, 2020, as further described in Note 1. We expect the implementation of ASU 2016-13 will significantly increase our allowance for credit losses upon adoption. If finalized, the proposed changes to the regulatory capital rules would allow Ally to phase in the impact to our regulatory capital as a result of the increase to our allowance for credit losses on a straight-line basis over a three-year period. In addition, the U.S. banking agencies are proposing to make amendments to the stress testing regulations which would exclude the impact of the adoption of ASU 2016-13 until the 2020 stress testing cycle.

On April 10, 2018, the FRB issued a proposal that would seek to more closely align forward-looking stress testing results with the FRB’s non-stress capital requirements for banking organizations with $50 billion or more in assets. The proposal would introduce a “stress capital buffer” based on firm-specific stress test performance, which would effectively replace the capital conservation buffer for determining non-stress capital requirements. The proposal would also incorporate several other changes to the CCAR process including eliminating the CCAR quantitative objection, narrowing the set of planned capital actions assumed to occur in the stress scenario and eliminating the thirty percent dividend payout ratio as a criterion for heightened scrutiny of a firm’s capital plan, among other proposed changes. If finalized, the rule would be effective on December 31, 2018, and a firm’s first stress buffer requirements would generally be effective on October 1, 2019. We are currently evaluating the effect this proposal will have on our capital planning and stress testing requirements. In December 2017, the Basel Committee approved revisions to the global Basel III capital framework (commonly known as Basel IV), many of which—if adopted in the United States—could heighten regulatory capital standards even more. At this time, it is not clear how all of these proposals and revisions will be harmonized and finalized in the United States.

On March 7, 2016, Ally Bank received approval from the ~~Federal Reserve~~FRB to become a state member bank. Ally Bank is now regulated by the FRB through the Federal Reserve Bank of Chicago, as well as the Utah Department of Financial Institutions (UDFI). As a requirement of FRB membership, we held $446 million of FRB stock at March 31, 2018. In addition, in connection with the application for membership in the Federal Reserve System, Ally Bank made commitments to the FRB relating to capital, liquidity, and business plan requirements. These commitments ~~are~~were consistent with the prior requirements under the now-terminated Capital and Liquidity Maintenance Agreement with the Federal Deposit Insurance Corporation (FDIC), including the requirement to maintain capital at a level such that Ally Bank’s Tier 1 leverage ratio iswas at least 15%. ~~For this purpose,~~On August 22, 2017, banking agencies lifted the capital, liquidity, and business plan commitments that Ally Bank had made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio ~~is determined in accordance with the FRB's regulations related to capital adequacy. As a requirement~~ of ~~Federal Reserve membership, we held $435 million of FRB stock~~ at ~~March 31, 2017.~~least 15%.

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

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Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


	March 31, 2017				December 31, 2016				Required minimum			Well-capitalized minimum		March 31, 2018				December 31, 2017				Required minimum (a)		Well-capitalized minimum
($ in millions)	Amount		Ratio		Amount		Ratio		Required minimum			Well-capitalized minimum		Amount		Ratio		Amount		Ratio		Required minimum (a)		Well-capitalized minimum
Capital ratios
Common Equity Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	12,923	9.40	%	$	12,978	9.37	%	4.50	%		(a)		$	13,079	9.26	%	$	13,237	9.53	%	4.50	%	(b)
Ally Bank	18,562		17.74		17,888		16.70		4.50			6.50	%	16,535		13.93		17,059		15.04		4.50		6.50	%
Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	15,245	11.09	%	$	15,147	10.93	%	6.00	%		6.00	%	$	15,512	10.98	%	$	15,628	11.25	%	6.00	%	6.00	%
Ally Bank	18,562		17.74		17,888		16.70		6.00			8.00		16,535		13.93		17,059		15.04		6.00		8.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	17,459	12.70	%	$	17,419	12.57	%	8.00	%		10.00	%	$	17,760	12.57	%	$	17,974	12.94	%	8.00	%	10.00	%
Ally Bank	19,167		18.32		18,458		17.24		8.00			10.00		17,480		14.72		17,886		15.77		8.00		10.00
Tier 1 leverage (to adjusted quarterly average assets) ~~(b)~~(c)
Ally Financial Inc.	$	15,245	9.51	%	$	15,147	9.54	%	4.00	%		(a)		$	15,512	9.26	%	$	15,628	9.53	%	4.00	%	(b)
Ally Bank	18,562		15.38		17,888		15.21		15.00		(c)	5.00	%	16,535		11.94		17,059		12.87		4.00		5.00	%


(a)	In addition to the minimum risk-based capital requirements for common equity Tier 1 capital, Tier 1 capital, and total capital ratios, Ally and Ally Bank were required to maintain a minimum capital conservation buffer of 1.875% and 1.25% at March 31, 2018, and December 31, 2017, respectively, which ultimately increases to 2.5% on January 1, 2019.


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


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


~~(c)~~	~~Ally Bank has committed to the FRB to maintain a Tier 1 leverage ratio of at least 15%.~~

At March 31, ~~2017,~~2018, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was subject.

Capital Planning and Stress Tests

As a BHC with $50 billion or more of total consolidated assets, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit ~~an annual~~a proposed capital plan to the FRB.

Ally’s proposed capital plan must include an assessment of our expected uses and sources of capital and a description of all planned capital actions over a nine-quarter planning ~~horizon.~~horizon, including any issuance of a debt or equity capital instrument, any dividend or other capital distribution, and any similar action that the FRB determines could have an impact on Ally’s capital. The proposed capital plan must also include a discussion of how Ally, under expected and stressful conditions, will maintain capital commensurate with its risks and above the minimum regulatory capital ratios, ~~under baseline, adverse, and severely adverse economic scenarios,~~ and serve as a source of strength to Ally Bank. The FRB ~~must approve Ally's~~will either object to Ally’s proposed capital plan, in whole or in part, or provide a notice of non-objection to Ally’s proposed capital plan, and must do so before Ally may take any capital action. ~~Even with an approved~~In addition, even if the FRB does not object to our capital plan, Ally ~~must seek~~may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval ~~of the FRB before making a capital distribution if, among other factors, Ally~~under certain circumstances—for example, when we would not meet ~~its~~minimum regulatory capital ~~requirements~~ratios and capital buffers after ~~making~~giving effect to the ~~proposed capital distribution.~~distributions.

As part of the ~~2016~~2017 Comprehensive Capital Analysis and Review (CCAR) process, on April 5, 2017, we submitted our 2017 capital plan and stress test results to the FRB. On June 23, 2017, we publicly disclosed summary results of the stress test under the most severe scenario in accordance with regulatory requirements. On June 28, 2017, we received ~~approval for~~a non-objection to our capital plan from the FRB, including the proposed capital actions ~~including~~contained in our submission. The capital actions included a 50% increase in the quarterly cash dividend ofon common stock from $0.08 per share ofto $0.12 per share, and a 9% increase in our ~~common stock, subject to quarterly approval~~share repurchase program, which has been authorized by the Ally Board of Directors ~~and the ability~~(the Board), permitting us to repurchase up to ~~$700~~$760 million of our common stock from time to time from the third quarter of 2017 through the second quarter of ~~2017. Our first common stock dividend was paid during~~2018. In addition, we submitted to the ~~third quarter~~FRB the results of ~~2016~~our company-run mid-cycle stress test conducted under multiple macroeconomic scenarios and ~~we paid a cash dividend~~disclosed the results of ~~$0.08 per share~~this stress test under the most severe scenario on ~~our common stock during each subsequent quarter. On~~October 5, 2017, in accordance with regulatory requirements. Additionally, in connection with the 2017 CCAR process, on April ~~14, 2017,~~10, 2018, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.08~~$0.13 per share on all common ~~stock. Refer~~stock, payable on May 15, 2018.

Table of Contents

Notes to ~~Note 26~~Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents information related to our common stock for ~~further information regarding this common share dividend. Additionally,~~each quarter since the ~~Ally Board~~commencement of ~~Directors authorized a~~our common stock repurchase ~~program~~programs and initiation of ~~up to $700 million beginning in the third quarter of 2016 and continuing through the second quarter of 2017. Under this program, we have repurchased $495 million, or 25,140,190 shares of~~a quarterly cash dividend on common ~~stock, which reduced total shares by approximately 5.2% since inception. At March 31, 2017, we had 462,193,424 shares of common stock outstanding.~~stock.



	Common stock repurchased during period (a)			Number of common shares outstanding		Cash dividends declared per common share (b)
($ in millions, except per share data; shares in thousands)	Approximate dollar value		Number of shares	Beginning of period	End of period	Cash dividends declared per common share (b)
2016
Third quarter	$	159	8,298	483,753	475,470	$	0.08
Fourth quarter	167		8,745	475,470	467,000	0.08
2017
First quarter	$	169	8,097	467,000	462,193	$	0.08
Second quarter	204		10,485	462,193	452,292	0.08
Third quarter	190		8,507	452,292	443,796	0.12
Fourth quarter	190		7,033	443,796	437,054	0.12
2018
First quarter	$	185	6,473	437,054	432,691	$	0.13


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


(b)	On April 10, 2018, the Board declared a quarterly cash dividend of $0.13 per share on all common stock, payable on May 15, 2018. Refer to Note 25 for further information regarding this common stock dividend.

Ally submitted its ~~2017~~2018 capital plan on April 5, ~~2017,~~2018, with capital actions including distributions to common ~~shareholders~~stockholders through share repurchases and cash dividends. We expect to receive the FRB’s response (either a non-objection or objection) to Ally’s 2018 capital plan by June 30, 2018. 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 of and non-objection to the actions that we propose each year in our annual capital plan. ~~We expect to receive~~The amount and size of any future dividends and share repurchases will depend upon our results of operations, capital levels, future opportunities, consideration and approval by the ~~FRB’s response (either a non-objection or objection) to~~Board, and other considerations including the ~~capital plan submitted~~degree of severity of stress scenarios assigned by ~~June 30, 2017.~~the FRB as part of the CCAR process.

In January 2017, the FRB ~~finalized a rule amending~~amended the capital planning and stress testing rules, effective for the 2017 ~~cycle. The final rule, among other things, revised~~cycle and beyond. As a result of this amendment, the FRB may no longer object to the capital plan ~~rule to no longer subject~~of a large and noncomplex ~~firms, including~~BHC, like Ally, ~~to the provisions of the rule whereby the FRB may object to a capital plan~~ on the basis of qualitative deficiencies in ~~the firm’s~~its capital planning process. ~~Under the final rule,~~Instead, the qualitative assessment of Ally’s capital ~~plan~~planning process is now conducted outside of ~~the~~ CCAR ~~process,~~ through the supervisory review ~~process, and Ally’s reporting requirements have been modified to reduce certain reporting burdens related to capital planning and stress testing.~~process. The ~~final rule~~amendment also decreased the de minimis threshold for the amount of capital that Ally could distribute to ~~shareholders~~stockholders outside of an approved capital plan without seeking prior approval of the ~~FRB.~~FRB, and modified Ally’s reporting requirements to reduce unnecessary burdens.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

~~19.~~18. Derivative Instruments and Hedging Activities

We enter into derivative instruments, such as interest rate, foreign-currency, and equity swaps, futures, forwards, ~~options,~~ and ~~swaptions~~options in connection with our ~~market~~ risk management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, including automotive loan assets and debt. We use foreign exchange contracts to mitigate foreign-currency risk associated with foreign-currency-denominated debt, foreign exchange transactions, and our net investment in foreign subsidiaries. In addition, we also enter into equity option contracts to manage our exposure to the equity markets. Our primary objective for utilizing derivative financial instruments is to manage interest rate risk associated with our fixed- and variable-rate assets and liabilities, foreign exchange risks related to our foreign-currency denominated assets and liabilities, and market risks related to our investment ~~portfolio and certain of our executive share-based compensation plans.~~portfolio.

Interest Rate Risk

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

Derivatives qualifying for hedge accounting ~~consist of~~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, fair value hedges of securities within our available-for-sale portfolio, and pay-fixed swaps designated as fair value hedges of ~~specific~~closed portfolios of fixed-rate held-for-investment retail automotive loan ~~assets.~~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.

We may also execute economic hedges, which consist of interest rate swaps, ~~and~~ interest rate caps, ~~held~~forwards, futures, options, and swaptions to mitigate interest rate ~~risk associated with our debt portfolio.~~ risk.

We also ~~use~~enter into interest rate swaps to economically hedge our net fixed-versus-variable interest rate exposure. We enter into economic hedges in the form of short-dated, exchange-traded Eurodollar futures to hedge the interest rate exposurelock commitments and forward-sale commitments that are executed as part of our ~~fixed-rate automotive loans, as well as forwards, options, and swaptions~~mortgage business that meet the accounting definition of a derivative.

Table of Contents

Notes to ~~economically hedge our net fixed-versus-variable interest rate exposure.~~Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 investments 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 loss. We also periodically enter into foreign-currency forwards to economically hedge ~~our~~any foreign-denominated debt, ~~our~~ centralized lending, ~~program,~~ and foreign-denominated third-party loans. These ~~forward~~foreign currency forwards that are used as economic hedges are recorded at fair value with changes recorded as income offsetting the gains and losses on the associated foreign-currency transactions.

Market Risk

We enter into equity options to economically hedge our exposure to the equity markets. We purchase options to assume a long position on certain equities and write options to assume a short position.

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.

To mitigate the risk of counterparty default, we maintain collateral agreements with certain counterparties. The 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. Generally, our collateral arrangements are bilateral such that we and the counterparty post collateral for the value of our total obligation to each other. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls. These payments are characterized as collateral for over-the-counter (OTC) derivatives.

We execute certain derivatives such as interest rate swaps with clearinghouses, which requires us to post 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 ~~first quarter of 2017~~three months ended March 31, 2018, or ~~2016.~~2017.

We placed cash collateral totaling ~~$115~~$28 million and securities collateral totaling ~~$59~~$100 million at March 31, ~~2017,~~2018, and ~~$122~~$20 million and ~~$72~~$97 million at December 31, ~~2016,~~2017, respectively, in accounts maintained by counterparties. This amount primarily relates to collateral posted to support our derivative positions. This amount also excludes cash and securities pledged as collateral under repurchase agreements. ~~At March 31, 2017, and December 31, 2016, we placed cash collateral totaling $5 million and $45 million, respectively, with counterparties~~

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

~~under collateral arrangements associated with repurchase agreements.~~ Refer to Note 1413 for details on the repurchase agreements. The receivables for cash collateral placed are included inon our Condensed Consolidated Balance Sheet in other assets.

We received cash collateral from counterparties totaling ~~$12~~$30 million and ~~$10~~$17 million at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, primarily to support these derivative positions. This amount also excludes cash and securities pledged as collateral under repurchase agreements. At March 31, 2017, we received cash collateral totaling $1 million from counterparties under collateral arrangements associated with repurchase agreements. Refer to Note 14 for details on the repurchase agreements. The payables for cash collateral received are included on our Condensed Consolidated Balance Sheet in accrued expenses and other liabilities. In certain circumstances, we receive or post securities as collateral with counterparties. We do not record collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met. ~~At March 31, 2017, and December 31, 2016, we~~We received noncash collateral of ~~$6 million.~~$2 million at both March 31, 2018, and December 31, 2017. 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.

3641

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Balance Sheet Presentation

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

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

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


	March 31, 2017						December 31, 2016						March 31, 2018						December 31, 2017
	Derivative contracts in a				Notional amount		Derivative contracts in a				Notional amount		Derivative contracts in a				Notional amount		Derivative contracts in a				Notional amount
($ in millions)	receivable position (a)		payable position (b)				receivable position (a)		payable position (b)				receivable position		payable position				receivable position		payable position
Derivatives designated as accounting hedges
Interest rate contracts
Swaps (c) (d) (e)	$	18	$	17	$	3,939	$	19	$	21	$	4,731
Swaps													$	—	$	—	$	20,250	$	—	$	—	$	6,915
Foreign exchange contracts
Forwards	—		1		150		1		—		171		—		—		145		—		1		136
Total derivatives designated as accounting hedges	18		18		4,089		20		21		4,902		—		—		20,395		—		1		7,051
Derivatives not designated as accounting hedges
Interest rate contracts
Swaps	—		—		43		—		—		137
Futures and forwards	—		—		25		—		—		—		—		—		5		—		—		23
Written options	—		62		13,432		—		73		14,518		1		55		6,139		1		39		8,327
Purchased options	62		—		13,407		73		—		14,517		55		—		6,081		38		—		8,237
Total interest rate risk	62		62		26,907		73		73		29,172		56		55		12,225		39		39		16,587
Foreign exchange contracts
Futures and forwards	—		1		94		1		—		92		—		—		297		—		1		124
Total foreign exchange risk	—		1		94		1		—		92		—		—		297		—		1		124
Equity contracts
Written options	—		—		—		—		1		—		—		1		—		—		—		—
Purchased options	—		—		—		1		—		—
Total equity risk	—		—		—		1		1		—		—		1		—		—		—		—
Total derivatives not designated as accounting hedges	62		63		27,001		75		74		29,264		56		56		12,522		39		40		16,711
Total derivatives	$	80	$	81	$	31,090	$	95	$	95	$	34,166	$	56	$	56	$	32,917	$	39	$	41	$	23,762


~~(a)~~	~~Derivative contracts in a receivable position are classified as other assets on the~~ ~~Condensed Consolidated Balance Sheet, and include accrued interest of~~ ~~$3 million~~ ~~and~~ ~~$7 million~~ at ~~March 31, 2017, and~~ ~~December 31, 2016, respectively.~~


~~(b)~~	~~Derivative contracts in a liability position are classified as accrued expenses and other liabilities on the~~ ~~Condensed Consolidated Balance Sheet, and include accrued interest of~~ ~~$0 million~~ ~~and~~ ~~$1 million~~ at ~~March 31, 2017, and~~ ~~December 31, 2016, respectively.~~

~~(c)~~

~~Includes fair value hedges consisting of receive-fixed swaps on fixed-rate unsecured debt obligations with~~ ~~$11 million~~ ~~and~~ ~~$8 million~~ ~~in a receivable position,~~ ~~$18 million~~ ~~and~~ ~~$14 million~~ ~~in a payable position, and a~~ ~~$2.6 billion~~ ~~and~~ ~~$1.7 billion~~ ~~notional amount at~~ ~~March 31, 2017, and~~ ~~December 31, 2016, respectively. The hedge notional amount of $2.6 billion at March 31, 2017, is associated with debt maturing in approximately five or more years.~~


~~(d)~~	Includes fair value hedges consisting of receive-fixed swaps on fixed-rate secured debt obligations (FHLB advances) with $0 million and $0 million in a receivable position, $0 million and $7 million in a payable position, and a $0 million and $240 million notional amount at March 31, 2017, and December 31, 2016, respectively.


~~(e)~~	~~Other fair value hedges include pay-fixed swaps on portfolios of held-for-investment automotive loan assets with~~ ~~$7 million~~ ~~and $10 million in a receivable position,~~ ~~$0 million~~ ~~and $1 million in a payable position, and a~~ ~~$1.4 billion~~ ~~and $2.8 billion notional amount at~~ ~~March 31, 2017, and~~ ~~December 31, 2016, respectively.~~

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Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



($ in millions)	Carrying amount of the hedged items				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
	Carrying amount of the hedged items				Total					Discontinued (a)
	March 31, 2018		December 31, 2017		March 31, 2018			December 31, 2017		March 31, 2018		December 31, 2017
Assets
Available-for-sale securities (b)	$	985	$	173	$	—		$	2	$	2	$	2
Finance receivables and loans, net (c)	22,121		2,305		(31		)	18		14		19
Liabilities
Long-term debt	$	14,958	$	14,640	$	127		$	208	$	163	$	235


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


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

(c)

The hedged item represents the carrying value of the hedged portfolio of assets. The amount that is identified as the last of layer in the hedge relationship is $9.7 billion as of March 31, 2018. The basis adjustment associated with the last-of-layer relationship is $45 million liability as of March 31, 2018, which would be allocated across the entire remaining closed pool upon termination or maturity of the hedge relationship. A last-of-layer hedge strategy did not exist at December 31, 2017.

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 March 31,
($ in millions)
2017 2016
Derivatives qualifying for hedge accounting
Gain (loss) recognized in earnings on derivatives
Interest rate contracts
Interest and fees on finance receivables and loans (a) $ 2
$ (28 )
Interest on long-term debt (b) (c) 4
191
(Loss) gain recognized in earnings on hedged items
Interest rate contracts
Interest and fees on finance receivables and loans (d) (4 ) 28
Interest on long-term debt (e) (f) (3 ) (196 )
Total derivatives qualifying for hedge accounting (1 ) (5 )
Derivatives not designated as accounting hedges
(Loss) gain recognized in earnings on derivatives
Interest rate contracts
Other income, net of losses (2 ) 2
Total interest rate contracts (2 ) 2
Foreign exchange contracts (g)
Interest on long-term debt —
(1 )
Other income, net of losses (1 ) (4 )
Total foreign exchange contracts (1 ) (5 )
Equity contracts
Compensation and benefits expense —
(1 )
Total equity contracts —
(1 )
Loss recognized in earnings on derivatives $ (4 ) $ (9 )



	Three months ended March 31,
($ in millions)	2018		2017
Gain (loss) recognized in earnings
Interest rate contracts
Other income, net of losses	$	2	$	(2	)
Total interest rate contracts	2		(2		)
Foreign exchange contracts (a)
Other income, net of losses	—		(1		)
Total foreign exchange contracts	—		(1		)
Gain (loss) recognized in earnings	$	2	$	(3	)


(a)	Amounts exclude losses related to interest for qualifying accounting hedges of retail automotive loans held-for-investment, which are primarily offset by the fixed coupon payments of the loans. The losses were $1 million and $7 million for the ~~three months ended~~ ~~March 31, 2017, and 2016, respectively.~~


~~(b)~~	~~Amounts exclude gains related to interest for qualifying accounting hedges of unsecured debt, which are primarily offset by the fixed coupon payment on the long-term debt. The gains were~~ ~~$5 million~~ ~~and~~ ~~$16 million~~ ~~for the~~ ~~three months ended~~ ~~March 31, 2017, and~~ ~~2016, respectively.~~


~~(c)~~	Amounts exclude gains related to interest for qualifying accounting hedges of secured debt (FHLB advances), which are primarily offset by the fixed coupon payment on the long-term debt. The gains were $0 million and $1 million for the ~~three months ended~~ ~~March 31, 2017, and~~ ~~2016, respectively.~~


~~(d)~~	~~Amounts exclude losses related to amortization of deferred loan basis adjustments on the de-designated hedged item of~~ ~~$5 million~~ ~~for both the~~ ~~three months ended~~ ~~March 31, 2017, and~~ ~~2016~~.


~~(e)~~	~~Amounts exclude gains related to amortization of deferred debt basis adjustments on the de-designated hedged item of~~ ~~$20 million~~ ~~and~~ ~~$18 million~~ ~~for the~~ ~~three months ended~~ ~~March 31, 2017, and 2016, respectively.~~


~~(f)~~	~~Amounts exclude losses related to amortization of deferred debt basis adjustments (FHLB advances) on the de-designated hedge item of~~ ~~$1 million~~ ~~and $0 million for the three months ended March 31, 2017, and 2016, respectively.~~


~~(g)~~	Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or ~~receivable.~~receivables. Gains of $1$0 million and $4$1 million were recognized for the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, respectively.

Losses of $2 million and $6 million were recognized in other comprehensive income for the three months ended March 31, 2017, and 2016, respectively. These amounts represent the effective portion of net investment hedges. There are offsetting amounts recognized in accumulated other comprehensive loss related to the revaluation of the related net investment in foreign operations, including the tax impacts of the hedge and related net investment, as disclosed separately in Note 16. There were gains of $3 million and $11 million for the three months ended March 31, 2017, and 2016, respectively.

~~20. Income Taxes~~

We recognized total income tax expense from continuing operations of $113 million for the three months ended March 31, 2017, compared to income tax expense of $150 million for the same period in 2016. The decrease in income tax expense for the three months ended March 31, 2017, compared to the same period in 2016, was primarily driven by a decrease in pretax earnings and a tax benefit for the current quarter related to stock compensation and associated movements in our share price.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table summarizes the location and amounts of gains and losses on derivative instruments designated as fair value hedges reported in our Condensed Consolidated Statement of Comprehensive Income. We had no gains or losses on derivative instruments designated as cash flow hedges for the periods shown.



	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 March 31, ($ in millions)	2018			2017			2018			2017		2018			2017
Gain (loss) on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—		$	—		$	—		$	—	$	36		$	(2	)
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—			—			—			—		(35		)	3
Hedged fixed-rate FHLB advances	—			—			—			—		33			(1		)
Derivatives designated as hedging instruments on fixed-rate FHLB advances	—			—			—			—		(33		)	1
Hedged available-for-sale securities	—			—			(3		)	—		—			—
Derivatives designated as hedging instruments on available-for-sale securities	—			—			3			—		—			—
Hedged fixed-rate retail automotive loans	(45		)	(4		)	—			—		—			—
Derivatives designated as hedging instruments on fixed-rate retail automotive loans	45			2			—			—		—			—
Total (loss) gain on fair value hedging relationships	$	—		$	(2	)	$	—		$	—	$	1		$	1
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	1,543		$	1,368		$	176		$	134	$	411		$	424

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets					Interest on long-term debt
Three months ended March 31, ($ in millions)	2018			2017			2018			2017		2018			2017
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—		$	—		$	—		$	—	$	15		$	20
Interest for qualifying accounting hedges of unsecured debt	—			—			—			—		3			5
Amortization of deferred secured debt basis adjustments (FHLB advances)	—			—			—			—		(1		)	(1		)
Interest for qualifying accounting hedges of secured debt (FHLB advances)	—			—			—			—		2			—
Interest for qualifying accounting hedges of available-for-sale securities	—			—			(1		)	—		—			—
Amortization of deferred loan basis adjustments	(4		)	(5		)	—			—		—			—
Interest for qualifying accounting hedges of retail automotive loans held-for-investment	(7		)	(1		)	—			—		—			—
Total (loss) gain on fair value hedging relationships	(11		)	(6		)	(1		)	—		19			24
Gain on cash flow hedging relationships
Interest rate contracts (a)
Interest for qualifying accounting hedges of variable-rate borrowings	—			—			—			—		1			—
Total gain on cash flow hedging relationships	$	—		$	—		$	—		$	—	$	1		$	—
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	1,543		$	1,368		$	176		$	134	$	411		$	424


(a)	During the next twelve months, we estimate $13 million will be reclassified into pretax earnings from derivatives designated as cash flow hedges.

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



	Three months ended March 31,
($ in millions)	2018		2017
Cash flow hedges
Interest rate contracts
Gain recognized in other comprehensive loss	$	18	$	—

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



	Gain (loss) recognized in other comprehensive (loss) income on derivatives
Three months ended March 31, ($ in millions)	2018		2017
Foreign exchange contracts (a) (b)	$	4	$	(2	)


(a)	There were no amounts excluded from effectiveness testing for the three months ended March 31, 2018, or 2017, respectively.


(b)	Gains and losses reclassified from accumulated other comprehensive loss are reported as other income, net of losses, on the Condensed Consolidated Statement of Comprehensive Income. There were no amounts reclassified for the three months ended March 31, 2018, or 2017, respectively.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

19. Income Taxes

We recognized total income tax expense from continuing operations of $76 million for the three months ended March 31, 2018, compared to income tax expense of $113 million for the same period in 2017. The decrease in income tax expense for the three months ended March 31, 2018, compared to the same period in 2017, was primarily driven by the reduction of the U.S. federal corporate tax rate enacted as a result of the Tax Act, partially offset by tax benefits in 2017 from the release of valuation allowance against our capital-in-nature deferred tax assets and foreign tax credit carryforwards.

As further described in Note 1, we elected to early-adopt ASU 2018-02 effective January 1, 2018. As a result of this adoption, we reclassified $42 million from accumulated other comprehensive loss to retained earnings, which eliminated the stranded federal income tax effects in accumulated other comprehensive loss resulting from the Tax Act. Our policy is to use the portfolio method with respect to reclassification of stranded income tax effects in accumulated other comprehensive loss.

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. We continue to believe it is more likely than not that the benefit for ~~capital loss carryforwards,~~ certain foreign tax credits ~~and~~carryforwards, state net operating loss carryforwards, and state capital loss carryforwards will not be realized. In recognition of this risk, we continue to provide a ~~full valuation allowance on capital loss carryforwards and a~~ partial valuation allowance on the deferred tax assets relating to ~~foreign tax credits and state net operating loss~~these carryforwards.

~~21.~~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.

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~~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.


Transfers	Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfer occurred. There were no transfers between any levels for the three months ended March 31, ~~2017.~~2018.

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

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

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

Interests retained in financial asset sales — Includes certain noncertificated interests retained from the sale of automotive finance receivables. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent market transactions, experience with similar assets, current business conditions, and analysis of the underlying collateral, as

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

available. To estimate cash flows, we utilize various significant assumptions, including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).

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

We also execute ~~over-the-counter (OTC)~~OTC and centrally-cleared derivative contracts, such as interest rate swaps, ~~a cross-currency swap,~~ swaptions, foreign-currency denominated ~~forward contracts, prepaid equity~~ forward contracts, caps, floors, and agency to-be-announced securities. ~~For OTC contracts, we~~We utilize third-party-developed valuation models that are widely accepted in the market to value these ~~OTC~~ 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 ~~OTC~~ derivative contracts as Level 2 because all significant inputs into these models were market observable. ~~For centrally-cleared~~

~~Table~~We also enter into interest rate lock commitments and forward-sale commitments that are executed as part of ~~Contents~~

~~Notes to~~our mortgage business, certain of which meet the accounting definition of a derivative and therefore are recorded as derivatives on our Condensed Consolidated ~~Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

~~contracts, we utilize unadjusted prices obtained from the clearing house as the basis for valuation, and~~Balance Sheet. Because these derivatives are valued using internal pricing models with unobservable inputs, they are ~~also~~ classified as Level ~~2. We did not have any derivative instruments classified as Level 3 as of March 31, 2017, or December 31, 2016.~~3.

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

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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										Recurring fair value measurements
March 31, 2017 ($ in millions)	Level 1		Level 2			Level 3		Total
March 31, 2018 ($ in millions)											Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)											$	668	$	—	$	12	$	680
Available-for-sale securities
Debt securities
U.S. Treasury	$	2,225	$	—		$	—	$	2,225		1,769		—		—		1,769
U.S. States and political subdivisions	—		795			—		795			—		831		—		831
Foreign government	9		137			—		146			7		142		—		149
Agency mortgage-backed residential	—		11,862			—		11,862			—		14,883		—		14,883
Mortgage-backed residential	—		1,996			—		1,996			—		2,384		—		2,384
Mortgage-backed commercial	—		534			—		534			—		580		—		580
Asset-backed	—		1,051			—		1,051			—		900		—		900
Corporate debt	—		1,255			—		1,255			—		1,230		—		1,230
Total debt securities	2,234		17,630			—		19,864
Equity securities (a)	444		—			—		444
Total available-for-sale securities	2,678		17,630			—		20,308			1,776		20,950		—		22,726
Mortgage loans held-for-sale	—		—			1		1
Mortgage loans held-for-sale (b)											—		—		7		7
Interests retained in financial asset sales	—		—			31		31			—		—		5		5
Derivative contracts in a receivable position (b)
Derivative contracts in a receivable position
Interest rate	—		80			—		80			—		55		1		56
Total derivative contracts in a receivable position	—		80			—		80			—		55		1		56
Total assets	$	2,678	$	17,710		$	32	$	20,420		$	2,444	$	21,005	$	25	$	23,474
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position (b)
Derivative contracts in a payable position
Interest rate	$	—	$	(80	)	$	—	$	(80	)	$	—	$	55	$	—	$	55
Foreign currency	—		(1		)	—		(1		)
Other											1		—		—		1
Total derivative contracts in a payable position	—		(81		)	—		(81		)	1		55		—		56
Total liabilities	$	—	$	(81	)	$	—	$	(81	)	$	1	$	55	$	—	$	56


(a)	Our investment in any one industry did not exceed ~~16%~~13%.


(b)	~~For additional information on derivative instruments and hedging activities, refer~~Carried at fair value due to ~~Note 19~~. fair value option elections.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


	Recurring fair value measurements											Recurring fair value measurements
December 31, 2016 ($ in millions)	Level 1			Level 2			Level 3		Total
December 31, 2017 ($ in millions)												Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)												$	518	$	—	$	—	$	518
Available-for-sale securities
Debt securities
U.S. Treasury	$	1,620		$	—		$	—	$	1,620		1,777		—		—		1,777
U.S. States and political subdivisions	—			782			—		782			—		854		—		854
Foreign government	11			151			—		162			8		146		—		154
Agency mortgage-backed residential	—			10,290			—		10,290			—		14,291		—		14,291
Mortgage-backed residential	—			2,097			—		2,097			—		2,494		—		2,494
Mortgage-backed commercial	—			537			—		537			—		541		—		541
Asset-backed	—			1,400			—		1,400			—		936		—		936
Corporate debt	—			1,443			—		1,443			—		1,256		—		1,256
Total debt securities	1,631			16,700			—		18,331
Equity securities (a)	595			—			—		595
Total available-for-sale securities	2,226			16,700			—		18,926			1,785		20,518		—		22,303
Other assets
Mortgage loans held-for-sale (b)												—		—		13		13
Interests retained in financial asset sales	—			—			29		29			—		—		5		5
Derivative contracts in a receivable position (b)
Derivative contracts in a receivable position
Interest rate	—			92			—		92			—		38		1		39
Foreign currency	—			2			—		2
Other	1			—			—		1
Total derivative contracts in a receivable position	1			94			—		95			—		38		1		39
Total assets	$	2,227		$	16,794		$	29	$	19,050		$	2,303	$	20,556	$	19	$	22,878
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position (b)
Derivative contracts in a payable position
Interest rate	$	—		$	(94	)	$	—	$	(94	)	$	—	$	39	$	—	$	39
Other	(1		)	—			—		(1		)
Foreign currency												—		2		—		2
Total derivative contracts in a payable position	(1		)	(94		)	—		(95		)	—		41		—		41
Total liabilities	$	(1	)	$	(94	)	$	—	$	(95	)	$	—	$	41	$	—	$	41


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


(b)	~~For additional information on derivative instruments and hedging activities, refer~~Carried at fair value due to ~~Note 19~~. fair value option elections.

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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.

Level 3 recurring fair value measurements
Net realized/unrealized
gains Fair value at
March 31, 2017 Net unrealized gains included in earnings
still held at
March 31,
2017
($ in millions) Fair value at Jan. 1, 2017 included in earnings included in OCI Purchases Sales Issuances Settlements
Assets

Mortgage loans held-for-sale $ —
$ —
$ —
$ 3
$ (2 ) $ —
$ —
$ 1
$ —
Other assets

Interests retained in financial asset sales 29
—
—
—
4
—
(2 ) 31
—
Total assets $ 29
$ —

$ —
$ 3
$ 2
$ —
$ (2 ) $ 32
$ —


	Level 3 recurring fair value measurements																				Level 3 recurring fair value measurements
	Fair value at Jan. 1, 2016		Net realized/unrealized gains					Purchases		Sales		Issuances		Settlements			Fair value at March 31, 2016		Net unrealized gains included in earnings still held at March 31, 2016				Net realized/unrealized (losses) gains																Fair value at March 31, 2018		Net unrealized losses included in earnings still held at March 31, 2018
($ in millions)	Fair value at Jan. 1, 2016		included in earnings			included in OCI		Purchases		Sales		Issuances		Settlements			Fair value at March 31, 2016				Fair value at Jan. 1, 2018		included in earnings				included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at March 31, 2018
Assets
Equity securities (a)																					$	19	$	(4	)	(b)	$	—	$	—	$	—		$	—	$	(3	)	$	12	$	(5	)
Mortgage loans held-for-sale (c)																					13		1			(d)	—		59		(66		)	—		—			7		—
Other assets
Interests retained in financial asset sales	$	40	$	2	(a)	$	—	$	—	$	4	$	—	$	(15	)	$	31	$	—	5		—				—		—		—			—		—			5		—
Derivative assets																					1		—				—		—		—			—		—			1		—
Total assets	$	40	$	2		$	—	$	—	$	4	$	—	$	(15	)	$	31	$	—	$	38	$	(3	)		$	—	$	59	$	(66	)	$	—	$	(3	)	$	25	$	(5	)


(a)	In connection with our adoption of ASU 2016-01 on January 1, 2018, certain of our equity securities previously measured using the cost method of accounting are now measured at fair value on a recurring basis, and have been categorized as Level 3 within the fair value hierarchy. Accordingly, the fair value of such investments has been included in the opening balance of the reconciliation above.


(b)	Reported as other ~~income,~~loss on investments, net, ~~of losses,~~ in the Condensed Consolidated Statement of Comprehensive Income.


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


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



	Level 3 recurring fair value measurements
	Fair value at Jan. 1, 2017		Net realized/unrealized gains				Purchases		Sales			Issuances		Settlements			Fair value at March 31, 2017		Net unrealized gains included in earnings still held at March 31, 2017
($ in millions)	Fair value at Jan. 1, 2017		included in earnings		included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at March 31, 2017
Assets
Mortgage loans held-for-sale (a)	$	—	$	—	$	—	$	3	$	(2	)	$	—	$	—		$	1	$	—
Other assets
Interests retained in financial asset sales	29		—		—		—		4			—		(2		)	31		—
Total assets	$	29	$	—	$	—	$	3	$	2		$	—	$	(2	)	$	32	$	—


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

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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 the assets and liabilities measured at fair value on a nonrecurring basis.

Nonrecurring
fair value measurements Lower-of-cost or
fair value
or valuation
reserve
allowance
Total gain (loss) included in earnings for
the three months ended

March 31, 2017 ($ in millions)
Level 1 Level 2 Level 3 Total
Assets
Commercial finance receivables and loans, net (a)
Commercial and industrial
Automotive $ —
$ —
$ 29
$ 29
$ (3 ) n/m (b)
Other —
—
61
61
(21 ) n/m (b)
Total commercial finance receivables and loans, net —
—
90
90
(24 ) n/m (b)
Other assets

Repossessed and foreclosed assets (c) —
—
15
15
(2 ) n/m (b)
Other —
—
4
4
—
n/m (b)
Total assets $ —
$ —
$ 109
$ 109
$ (26 ) n/m

~~n/m = not meaningful~~


~~(a)~~	~~Represents the portion of the portfolio specifically impaired during 2017. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.~~


~~(b)~~	We consider the applicable valuation or loan loss allowance 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 or loan loss allowance.


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


	Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total gain (loss) included in earnings for the three months ended		Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total gain (loss) included in earnings for the three months ended
March 31, 2016 ($ in millions)	Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value or valuation reserve allowance													Lower-of-cost or fair value or valuation reserve allowance
March 31, 2018 ($ in millions)														Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value or valuation reserve allowance			Total gain (loss) included in earnings for the three months ended
Assets																						Lower-of-cost or fair value or valuation reserve allowance
Loans held-for-sale, net	$	—	$	—	$	39	$	39	$	—		n/m	(a)	$	—	$	—	$	119	$	119	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Commercial and industrial
Automotive	—		—		17		17		(3		)	n/m	(a)	—		—		51		51		(10		)	n/m	(a)
Other	—		—		28		28		(15		)	n/m	(a)	—		—		22		22		(11		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		45		45		(18		)	n/m	(a)	—		—		73		73		(21		)	n/m	(a)
Other assets
Repossessed and foreclosed assets (c)	—		—		12		12		(3		)	n/m	(a)	—		—		13		13		(1		)	n/m	(a)
Other	—		—		6		6		—			n/m	(a)
Total assets	$	—	$	—	$	102	$	102	$	(21	)	n/m		$	—	$	—	$	205	$	205	$	(22	)	n/m

n/m = not meaningful


(a)	We consider the applicable valuation or loan loss allowance 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 or loan loss allowance.


(b)	Represents the portion of the portfolio specifically impaired during ~~2016.~~2018. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


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

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~



	Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total gain (loss) included in earnings for the three months ended
December 31, 2017 ($ in millions)	Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value or valuation reserve allowance
Assets
Loans held-for-sale, net	$	—	$	—	$	77	$	77	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Automotive	—		—		20		20		(3		)	n/m	(a)
Other	—		—		22		22		(12		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		42		42		(15		)	n/m	(a)
Other assets
Repossessed and foreclosed assets (c)	—		—		14		14		(1		)	n/m	(a)
Other	—		—		3		3		—			n/m	(a)
Total assets	$	—	$	—	$	136	$	136	$	(16	)	n/m

n/m = not meaningful


(a)	We consider the applicable valuation or loan loss allowance 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 or loan loss allowance.


(b)	Represents the portion of the portfolio specifically impaired during 2017. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


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

Fair Value Option for Financial Assets

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Fair Value of Financial Instruments

The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is required in interpreting current market data to develop the market assumptions and inputs necessary to estimate fair value. As such, the actual amount received to sell an asset or the amount paid to settle a liability could differ from our estimates. Fair value information presented herein was based on information available at March 31, ~~2017~~2018, and December 31, ~~2016~~2017.


			Estimated fair value										Estimated fair value
($ in millions)	Carrying value		Level 1		Level 2		Level 3		Total		Carrying value		Level 1		Level 2		Level 3		Total
March 31, 2017
March 31, 2018
Financial assets
Held-to-maturity securities	$	1,104	$	—	$	1,063	$	—	$	1,063	$	1,967	$	—	$	1,895	$	—	$	1,895
Loans held-for-sale, net											119		—		—		119		119
Finance receivables and loans, net	117,847		—		—		119,420		119,420		124,049		—		—		125,530		125,530
Nonmarketable equity investments	833		—		795		59		854		1,210		—		1,210		—		1,210
Financial liabilities
Deposit liabilities	$	84,486	$	—	$	—	$	82,715	$	82,715
Deposit liabilities (a)											$	49,025	$	—	$	—	$	48,845	$	48,845
Short-term borrowings	8,371		—		—		8,372		8,372		9,564		—		—		9,567		9,567
Long-term debt	51,061		—		19,604		33,511		53,115		45,076		—		28,384		18,589		46,973
December 31, 2016
December 31, 2017
Financial assets
Held-to-maturity securities	$	839	$	—	$	789	$	—	$	789	$	1,899	$	—	$	1,865	$	—	$	1,865
Loans held-for-sale, net											95		—		—		95		95
Finance receivables and loans, net	117,800		—		—		118,750		118,750		121,617		—		—		123,302		123,302
Nonmarketable equity investments	1,046		—		1,012		55		1,067		1,233		—		1,190		49		1,239
Financial liabilities
Deposit liabilities	$	79,022	$	—	$	—	$	78,469	$	78,469
Deposit liabilities (a)											$	45,869	$	—	$	—	$	45,827	$	45,827
Short-term borrowings	12,673		—		—		12,675		12,675		11,413		—		—		11,417		11,417
Long-term debt	54,128		—		22,036		34,084		56,120		44,226		—		27,807		18,817		46,624

The following describes the methodologies and assumptions used to determine fair value for the significant classes of financial instruments. In addition to the valuation methods discussed below, we also followed guidelines for determining whether a market was not active and a transaction was not distressed. We assumed the price that would be received in an orderly transaction (including a market-based return) and not in forced liquidation or distressed sale.

~~Cash and cash equivalents~~

(a)

In connection with our adoption of ASU 2016-01 on January 1, 2018, deposit liabilities with no defined or contractual maturities are no longer included in the table above. Amounts for December 31, 2017, have been adjusted to conform to the current presentation and exclude $47.4 billion and $45.2 billion of deposit liabilities with no defined or contractual maturities from the carrying value and Level 3 fair value, respectively. Refer to Note 12 for information regarding the composition of our deposits portfolio, and Note 1 for further information regarding recently adopted accounting standards. — 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. Accordingly, the carrying value approximates the fair value of these instruments.

~~Held-to-maturity securities~~ — Held-to-maturity securities, which consist of asset-backed retained notes and residential mortgage-backed debt securities issued by government agencies, are carried at amortized cost. For fair value disclosure purposes, held-to-maturity securities are classified as Level 2, with fair value based on observable market prices, when available.

~~Finance receivables and loans, net~~ — With the exception of mortgage loans held-for-investment, the fair value of finance receivables and loans was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables and loans (an income approach using Level 3 inputs). The carrying value of commercial receivables in certain markets and certain automotive and other receivables for which interest rates reset on a short-term basis with applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

rate adjustment feature. The fair value of commercial receivables in other markets was based on discounted future cash flows using applicable spreads to approximate current rates applicable to similar assets in those markets.

The fair value of mortgage loans held-for-investment was based on a discounted cash flow basis utilizing cash flow projections from models that utilized prepayment, default, and discount rate assumptions. These valuations consider unique attributes of the loans such as geography, delinquency status, product type, and other factors.

~~Nonmarketable equity investments~~ — Nonmarketable equity investments primarily include investments in FHLB and FRB stock and other equity investments carried at cost. As a member of the FHLB and FRB, Ally Bank is required to hold FHLB and FRB stock. The stock can be sold only to the FHLB and FRB upon termination of membership, or redeemed at the sole discretion of the FHLB and FRB, respectively. The fair value of FHLB and FRB stock is equal to the stock’s par value since the stock is bought, sold, and/or redeemed at par. FHLB and FRB stock is carried at cost, which generally represents the stock’s par value.

~~Deposit liabilities~~ — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and dealer deposits. The fair value of deposits at Level 3 was estimated by discounting projected cash flows based on discount factors derived from the forward interest rate swap curve.

~~Short-term borrowings and Long-term debt~~ — Level 2 debt was valued using quoted market prices for similar instruments, when available, or other means for substantiation with observable inputs. Debt valued by discounting projected cash flows using internally derived inputs, such as prepayment speeds and discount rates, was classified as Level 3.

~~Financial instruments for which carrying value approximates fair value~~ — Certain financial instruments that are not carried at fair value on the consolidated balance sheet are carried at amounts that approximate fair value primarily due to their short term nature and limited credit risk. These instruments include restricted cash, cash collateral, accrued interest receivable, accrued interest payable, trade receivables and payables, and other short term receivables and payables.

~~22.~~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 ~~(1)~~(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 ~~(2)~~(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 ~~value of our total obligation to each other.~~obligation. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. ~~The securing~~A party posts additional collateral when their obligation rises or removes collateral when it falls, such that the net replacement cost of the nondefaulting party is covered in the event of counterparty default.

In certain instances as it relates to our derivative instruments, we have the option to report derivative assets and liabilities as well as assets and liabilities associated with cash collateral received or delivered that is governed by a master netting agreement on a net basis as long as certain qualifying criteria are met. Similarly, for our repurchase/reverse repurchase transactions, we have the option to report recognized

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At March 31, ~~2017,~~2018, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance Sheet.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

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


	Gross amounts of recognized assets/(liabilities)				Gross amounts offset in the Condensed Consolidated Balance Sheet			Net amounts of assets/(liabilities) presented in the Condensed Consolidated Balance Sheet																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 in the Condensed Consolidated Balance Sheet															Gross amounts not offset on the Condensed Consolidated Balance Sheet
March 31, 2017 ($ in millions)				Financial instruments							Collateral (a) (b) (c)				Net amount
March 31, 2018 ($ in millions)																											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				Financial instruments				Collateral (a) (b) (c)				Net amount
Assets
Derivative assets in net asset positions				$			78		$	—			$	78			$	(5	)		$	(8	)			$				65					$				—			$	—			$	55
Derivative assets in net liability positions	2						—			2				(2		)		—				—
Derivative assets with no offsetting arrangements																								1				—			1								—				—				1
Total assets (d)	$	80			$	—		$	80			$	(7	)		$	(8	)		$	65			$	56			$	—		$	56					$	—			$	—			$	56
Liabilities
Derivative liabilities in net liability positions(d)	$	(76	)		$	—		$	(76	)		$	2			$	14			$	(60	)		$	56			$	—		$	56		$	—			$	(1	)		$	55
Derivative liabilities in net asset positions	(5		)		—			(5		)		5				—				—
Total derivative liabilities (d)	(81		)		—			(81		)		7				14				(60		)
Securities sold under agreements to repurchase (e)	(1,146		)		—			(1,146		)		—				1,146				—				707				—			707			—				(707		)		—
Total liabilities	$	(1,227	)		$	—		$	(1,227	)		$	7			$	1,160			$	(60	)		$	763			$	—		$	763		$	—			$	(708	)		$	55


(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. $6 $2 million of noncash derivative collateral pledged to us was excluded at March 31, ~~2017.~~ ~~We do not record such collateral received on ourCondensed Consolidated Balance Sheetunless certain conditions are met.~~


~~(c)~~	Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $6 million at March 31, 2017. We have not sold or pledged any of the noncash collateral received under these agreements as of March 31, 2017.


~~(d)~~	~~For additional information on derivative instruments and hedging activities, refer to~~ ~~Note 19~~.


~~(e)~~	~~For additional information on securities sold under agreements to repurchase, refer to~~ ~~Note 14~~.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Gross amounts of recognized assets/(liabilities) Gross amounts offset in the Condensed Consolidated Balance Sheet Net amounts of assets/(liabilities)
presented in the
Condensed Consolidated Balance Sheet
Gross amounts not offset in the Condensed Consolidated Balance Sheet
December 31, 2016 ($ in millions)
Financial instruments Collateral
(a) (b) (c) Net amount
Assets
Derivative assets in net asset positions $ 87
$ —
$ 87
$ (4 ) $ (9 ) $ 74
Derivative assets in net liability positions 8
—
8
(8 ) —
—
Total assets (d) $ 95
$ —
$ 95
$ (12 ) $ (9 ) $ 74
Liabilities
Derivative liabilities in net liability positions $ (91 ) $ —
$ (91 ) $ 8
$ 13
$ (70 )
Derivative liabilities in net asset positions (4 ) —
(4 ) 4
—
—
Total derivative liabilities (d) (95 ) —
(95 ) 12
13
(70 )
Securities sold under agreements to repurchase (e) (676 ) —
(676 ) —
676
—
Total liabilities $ (771 ) $ —
$ (771 ) $ 12
$ 689
$ (70 )


~~(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.~~ ~~$6 million of noncash derivative collateral pledged to us was excluded at December 31, 2016.~~2018. We do not record such collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met.

(c)

Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $6$2 million at ~~December~~March 31, ~~2016.~~2018. We have not sold or pledged any of the noncash collateral received under these agreements as of ~~December~~March 31, ~~2016.~~2018.


(d)	For additional information on derivative instruments and hedging activities, refer to Note 1918.


(e)	For additional information on securities sold under agreements to repurchase, refer to Note 1413.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Gross amounts of recognized assets/liabilities		Gross amounts offset on the Condensed Consolidated Balance Sheet		Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet
							Gross amounts not offset on the Condensed Consolidated Balance Sheet
December 31, 2017 ($ in millions)							Financial instruments		Collateral (a) (b) (c)			Net amount
Assets
Derivative assets in net asset positions	$	38	$	—	$	38	$	—	$	—		$	38
Derivative assets with no offsetting arrangements	1		—		1		—		—			1
Total assets (d)	$	39	$	—	$	39	$	—	$	—		$	39
Liabilities
Derivative liabilities in net liability positions (d)	$	41	$	—	$	41	$	—	$	(1	)	$	40
Securities sold under agreements to repurchase (e)	892		—		892		—		(892		)	—
Total liabilities	$	933	$	—	$	933	$	—	$	(893	)	$	40


(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. $2 million of noncash derivative collateral pledged to us was excluded at December 31, 2017. We do not record such collateral received on our Condensed Consolidated Balance Sheet unless certain conditions are met.


(c)	Certain agreements grant us the right to sell or pledge the noncash assets we receive as collateral. Noncash collateral pledged to us where the agreement grants us the right to sell or pledge the underlying assets had a fair value of $2 million at December 31, 2017. We have not sold or pledged any of the noncash collateral received under these agreements as of December 31, 2017.


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


(e)	For additional information on securities sold under agreements to repurchase, refer to Note 13.

~~23.~~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 line-of-business basis through four operating segments: Automotive Finance operations, Insurance operations, Mortgage Finance operations, and Corporate Finance operations, with the remaining activity reported in Corporate and Other. The operating segments are determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by management. The following is a description of each of our reportable operating segments.

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

Insurance operations — ~~Offers~~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 ~~vehicle service contracts, vehicle maintenance contracts,~~VSCs, VMCs, and ~~guaranteed asset protection~~GAP products. We also underwrite select commercial insurance coverages, which primarily insure ~~dealers'~~dealers’ wholesale vehicle inventory.

Mortgage Finance operations — Primarily consists of the management of a held-for-investment consumer mortgage finance loan portfolio, which includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties. In late 2016, we introduced our ~~direct~~direct-to-consumer mortgage offering, named Ally Home, consisting of a variety of jumbo and conforming fixed- and adjustable-rate mortgage products ~~through~~with the assistance of a third-party fulfillment partner. ~~Under~~Jumbo mortgage loans are generally held on our ~~current arrangement, conforming mortgages~~balance sheet and are accounted for as held-for-investment. Conforming mortgage loans are generally originated as held-for-sale and then sold ~~while jumbo mortgages are originated as held-for-investment. Servicing is performed by a third party~~to the fulfillment partner, and we retain no mortgage servicing rights associated with those loans that are ~~created.~~sold.

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~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Corporate Finance operations — Primarily provides senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle market companies. Our primary focus is on businesses owned by private equity sponsors with loans typically used for

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. In 2017, we introduced a commercial real estate product to serve companies in the healthcare industry.

Corporate and Other primarily consists of ~~activity related to~~ 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, ~~the amortization of the~~original issue discount, ~~associated with new debt issuances and bond exchanges,~~ and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. Additionally, ~~beginning in June 2016,~~ financial ~~information~~results related to ~~TradeKing is~~Ally Invest are currently included within Corporate and Other.

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

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

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


Three months ended March 31, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other			Consolidated (a)		Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other			Consolidated (a)
2018
Net financing revenue and other interest income														$	909	$	12	$	43	$	46	$	39		$	1,049
Other revenue														66		246		1		8		33			354
Total net revenue														975		258		44		54		72			1,403
Provision for loan losses														259		—		2		—		—			261
Total noninterest expense														448		231		34		25		76			814
Income (loss) from continuing operations before income tax expense														$	268	$	27	$	8	$	29	$	(4	)	$	328
Total assets														$	114,934	$	7,557	$	12,780	$	4,375	$	30,375		$	170,021
2017
Net financing revenue and other interest income	$	892	$	15	$	34	$	34	$	4		$	979	$	892	$	15	$	34	$	34	$	4		$	979
Other revenue	101		264		—		18		13			396		101		264		—		18		13			396
Total net revenue	993		279		34		52		17			1,375		993		279		34		52		17			1,375
Provision for loan losses	268		—		1		6		(4		)	271		268		—		1		6		(4		)	271
Total noninterest expense	437		239		24		21		57			778		437		239		24		21		57			778
Income (loss) from continuing operations before income tax expense	$	288	$	40	$	9	$	25	$	(36	)	$	326	$	288	$	40	$	9	$	25	$	(36	)	$	326
Total assets	$	115,154	$	7,230	$	8,362	$	3,438	$	27,917		$	162,101	$	115,154	$	7,230	$	8,362	$	3,438	$	27,917		$	162,101
2016
Net financing revenue and other interest income (loss)	$	896	$	14	$	20	$	28	$	(7	)	$	951
Other revenue	77		254		—		6		39			376
Total net revenue	973		268		20		34		32			1,327
Provision for loan losses	209		—		3		6		2			220
Total noninterest expense	427		218		15		17		33			710
Income (loss) from continuing operations before income tax expense	$	337	$	50	$	2	$	11	$	(3	)	$	397
Total assets	$	112,289	$	7,194	$	7,493	$	2,839	$	26,690		$	156,505


(a)	Net financing revenue and other interest income after the provision for loan losses totaled ~~$708~~$788 million and ~~$731~~$708 million for the three months ended March 31, 2018, and March 31, 2017, ~~and 2016,~~ respectively.

~~24.~~23. Parent and Guarantor Condensed Consolidating Financial Statements

Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of March 31, ~~2017~~2018, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and unconditionally guarantee the senior notes on a joint and several basis.

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

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

Investments in subsidiaries are accounted for by the parent company and the Guarantors using the equity-method for this presentation. Results of operations of subsidiaries are therefore classified in the parent company’s and Guarantors’ investment in subsidiaries accounts. The

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

elimination entries set forth in the following condensed consolidating financial statements eliminate distributed and undistributed income of subsidiaries, investments in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.

Condensed Consolidating Statements of Comprehensive Income


Three months ended March 31, 2017 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Financing (loss) revenue and other interest income
Three months ended March 31, 2018 ($ in millions)															Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(35	)	$	—	$	1,403		$	—		$	1,368		$	11		$	—		$	1,532		$	—		$	1,543
Interest and fees on finance receivables and loans — intercompany	4			—		3			(7		)	—			2			—			1			(3		)	—
Interest and dividends on investment securities and other earning assets	—			—		135			(1		)	134			—			—			176			—			176
Interest on cash and cash equivalents	2			—		3			—			5			2			—			14			(1		)	15
Interest-bearing cash — intercompany	—			—		1			(1		)	—			2			—			2			(4		)	—
Operating leases	3			—		540			—			543			2			—			380			—			382
Total financing (loss) revenue and other interest income	(26		)	—		2,085			(9		)	2,050
Total financing revenue and other interest income															19			—			2,105			(8		)	2,116
Interest expense
Interest on deposits	1			—		230			—			231			—			—			354			(3		)	351
Interest on short-term borrowings	17			—		10			—			27			10			—			22			—			32
Interest on long-term debt	281			—		143			—			424			258			—			153			—			411
Interest on intercompany debt	4			—		4			(8		)	—			3			—			2			(5		)	—
Total interest expense	303			—		387			(8		)	682			271			—			531			(8		)	794
Net depreciation expense on operating lease assets	2			—		387			—			389			4			—			269			—			273
Net financing revenue	(331		)	—		1,311			(1		)	979			(256		)	—			1,305			—			1,049
Cash dividends from subsidiaries
Bank subsidiary															1,000			1,000			—			(2,000		)	—
Nonbank subsidiaries	41			—		—			(41		)	—			169			—			—			(169		)	—
Other revenue
Insurance premiums and service revenue earned	—			—		241			—			241			—			—			256			—			256
(Loss) gain on mortgage and automotive loans, net	(2		)	—		16			—			14
Loss on extinguishment of debt	—			—		(1		)	—			(1		)
Other gain on investments, net	—			—		27			—			27
Gain on mortgage and automotive loans, net															28			—			1			(28		)	1
Other loss on investments, net															—			—			(12		)	—			(12		)
Other income, net of losses	268			—		224			(377		)	115			96			—			221			(208		)	109
Total other revenue	266			—		507			(377		)	396			124			—			466			(236		)	354
Total net revenue	(24		)	—		1,818			(419		)	1,375			1,037			1,000			1,771			(2,405		)	1,403
Provision for loan losses	107			—		164			—			271			81			—			208			(28		)	261
Noninterest expense
Compensation and benefits expense	122			—		163			—			285			23			—			283			—			306
Insurance losses and loss adjustment expenses	—			—		88			—			88			—			—			63			—			63
Other operating expenses	288			—		494			(377		)	405			182			—			471			(208		)	445
Total noninterest expense	410			—		745			(377		)	778			205			—			817			(208		)	814
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries	(541		)	—		909			(42		)	326
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries															751			1,000			746			(2,169		)	328
Income tax (benefit) expense from continuing operations	(134		)	—		247			—			113			(56		)	—			132			—			76
Net (loss) income from continuing operations	(407		)	—		662			(42		)	213
Income (loss) from discontinued operations, net of tax	2			—		(1		)	—			1
Undistributed income of subsidiaries
Net income from continuing operations															807			1,000			614			(2,169		)	252
Loss from discontinued operations, net of tax															(1		)	—			(1		)	—			(2		)
Undistributed (loss) income of subsidiaries
Bank subsidiary	389			389		—			(778		)	—			(597		)	(597		)	—			1,194			—
Nonbank subsidiaries	230			—		—			(230		)	—			41			—			—			(41		)	—
Net income	214			389		661			(1,050		)	214			250			403			613			(1,016		)	250
Other comprehensive income, net of tax	20			5		19			(24		)	20
Comprehensive income	$	234		$	394	$	680		$	(1,074	)	$	234
Other comprehensive loss, net of tax															(328		)	(276		)	(339		)	615			(328		)
Comprehensive (loss) income															$	(78	)	$	127		$	274		$	(401	)	$	(78	)

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended March 31, 2016 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Three months ended March 31, 2017 ($ in millions)															Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Financing (loss) revenue and other interest income
Interest and fees on finance receivables and loans	$	(38	)	$	—	$	1,273		$	—		$	1,235		$	(35	)	$	—	$	1,403		$	—		$	1,368
Interest and fees on finance receivables and loans — intercompany	3			—		2			(5		)	—			4			—		3			(7		)	—
Interest and dividends on investment securities and other earning assets	—			—		102			—			102			—			—		135			(1		)	134
Interest on cash and cash equivalents	1			—		2			—			3			2			—		3			—			5
Interest-bearing cash — intercompany	—			—		2			(2		)	—			—			—		1			(1		)	—
Operating leases	5			—		764			—			769			3			—		540			—			543
Total financing (loss) revenue and other interest income	(29		)	—		2,145			(7		)	2,109			(26		)	—		2,085			(9		)	2,050
Interest expense
Interest on deposits	2			—		191			—			193			1			—		230			—			231
Interest on short-term borrowings	10			—		3			—			13			17			—		10			—			27
Interest on long-term debt	289			—		153			—			442			281			—		143			—			424
Interest on intercompany debt	4			—		3			(7		)	—			4			—		4			(8		)	—
Total interest expense	305			—		350			(7		)	648			303			—		387			(8		)	682
Net depreciation expense on operating lease assets	4			—		506			—			510			2			—		387			—			389
Net financing revenue	(338		)	—		1,289			—			951			(331		)	—		1,311			(1		)	979
Cash dividends from subsidiaries
Nonbank subsidiaries	482			—		—			(482		)	—			41			—		—			(41		)	—
Other revenue
Insurance premiums and service revenue earned	—			—		230			—			230			—			—		241			—			241
(Loss) gain on mortgage and automotive loans, net	(3		)	—		4			—			1			(2		)	—		16			—			14
Loss on extinguishment of debt	(2		)	—		(2		)	—			(4		)
Other gain on investments, net	—			—		54			—			54			—			—		27			—			27
Other income, net of losses	374			—		217			(496		)	95			268			—		223			(377		)	114
Total other revenue	369			—		503			(496		)	376			266			—		507			(377		)	396
Total net revenue	513			—		1,792			(978		)	1,327			(24		)	—		1,818			(419		)	1,375
Provision for loan losses	60			—		160			—			220			107			—		164			—			271
Noninterest expense
Compensation and benefits expense	147			—		105			—			252			122			—		163			—			285
Insurance losses and loss adjustment expenses	—			—		73			—			73			—			—		88			—			88
Other operating expenses	340			—		542			(497		)	385			288			—		494			(377		)	405
Total noninterest expense	487			—		720			(497		)	710			410			—		745			(377		)	778
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries	(34		)	—		912			(481		)	397
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries															(541		)	—		909			(42		)	326
Income tax (benefit) expense from continuing operations	(43		)	—		193			—			150			(134		)	—		247			—			113
Net (loss) income from continuing operations	9			—		719			(481		)	247			(407		)	—		662			(42		)	213
Income (loss) from discontinued operations, net of tax	6			—		(3		)	—			3			2			—		(1		)	—			1
Undistributed income (loss) of subsidiaries
Undistributed income of subsidiaries
Bank subsidiary	270			270		—			(540		)	—			389			389		—			(778		)	—
Nonbank subsidiaries	(35		)	—		—			35			—			230			—		—			(230		)	—
Net income	250			270		716			(986		)	250			214			389		661			(1,050		)	214
Other comprehensive income, net of tax	146			84		151			(235		)	146			20			5		19			(24		)	20
Comprehensive income	$	396		$	354	$	867		$	(1,221	)	$	396		$	234		$	394	$	680		$	(1,074	)	$	234

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Balance Sheet


March 31, 2017 ($ in millions)	Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
March 31, 2018 ($ in millions)															Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	690		$	—	$	823		$	—		$	1,513		$	56		$	—	$	712		$	—		$	768
Interest-bearing	800			—		1,989			—			2,789			5			—		2,948			—			2,953
Interest-bearing — intercompany	—			—		641			(641		)	—			735			—		577			(1,312		)	—
Total cash and cash equivalents	1,490			—		3,453			(641		)	4,302			796			—		4,237			(1,312		)	3,721
Equity securities															—			—		680			—			680
Available-for-sale securities	6			—		20,308			(6		)	20,308			—			—		22,726			—			22,726
Held-to-maturity securities	—			—		1,155			(51		)	1,104			—			—		2,033			(66		)	1,967
Loans held-for-sale, net	—			—		1			—			1			—			—		126			—			126
Finance receivables and loans, net
Finance receivables and loans, net	4,864			—		114,138			—			119,002			6,443			—		118,884			—			125,327
Intercompany loans to
Bank subsidiary	425			—		—			(425		)	—
Nonbank subsidiaries	1,376			—		456			(1,832		)	—			1,311			—		415			(1,726		)	—
Allowance for loan losses	(121		)	—		(1,034		)	—			(1,155		)	(145		)	—		(1,133		)	—			(1,278		)
Total finance receivables and loans, net	6,544			—		113,560			(2,257		)	117,847			7,609			—		118,166			(1,726		)	124,049
Investment in operating leases, net	35			—		10,426			—			10,461			14			—		8,516			—			8,530
Intercompany receivables from
Bank subsidiary	32			—		—			(32		)	—			86			—		—			(86		)	—
Nonbank subsidiaries	46			—		255			(301		)	—			41			—		61			(102		)	—
Investment in subsidiaries
Bank subsidiary	18,405			18,405		—			(36,810		)	—			16,163			16,163		—			(32,326		)	—
Nonbank subsidiaries	9,680			—		—			(9,680		)	—			7,520			—		—			(7,520		)	—
Premiums receivable and other insurance assets	—			—		1,974			(30		)	1,944			—			—		2,197			—			2,197
Other assets	4,275			—		4,764			(2,905		)	6,134			2,221			—		5,072			(1,268		)	6,025
Total assets	$	40,513		$	18,405	$	155,896		$	(52,713	)	$	162,101		$	34,450		$	16,163	$	163,814		$	(44,406	)	$	170,021
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	102		$	—		$	102		$	—		$	—	$	122		$	—		$	122
Interest-bearing	85			—		84,299			—			84,384			6			—		97,318			—			97,324
Interest-bearing — intercompany															—			—		735			(735		)	—
Total deposit liabilities	85			—		84,401			—			84,486			6			—		98,175			(735		)	97,446
Short-term borrowings	4,901			—		3,470			—			8,371			2,957			—		6,607			—			9,564
Long-term debt	20,156			—		30,905			—			51,061			16,808			—		28,268			—			45,076
Intercompany debt to
Bank subsidiary	51			—		—			(51		)	—			65			—		—			(65		)	—
Nonbank subsidiaries	1,097			—		1,807			(2,904		)	—			992			—		1,311			(2,303		)	—
Intercompany payables to
Bank subsidiary	127			—		—			(127		)	—
Nonbank subsidiaries	180			—		57			(237		)	—			115			—		106			(221		)	—
Interest payable	231			—		151			—			382			209			—		285			—			494
Unearned insurance premiums and service revenue	—			—		2,514			—			2,514			—			—		2,904			—			2,904
Accrued expenses and other liabilities	320			—		4,506			(2,904		)	1,922			216			—		2,473			(1,234		)	1,455
Total liabilities	27,148			—		127,811			(6,223		)	148,736			21,368			—		140,129			(4,558		)	156,939
Total equity	13,365			18,405		28,085			(46,490		)	13,365			13,082			16,163		23,685			(39,848		)	13,082
Total liabilities and equity	$	40,513		$	18,405	$	155,896		$	(52,713	)	$	162,101		$	34,450		$	16,163	$	163,814		$	(44,406	)	$	170,021


(a)	Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership.

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Ally Financial Inc. • Form 10-Q


December 31, 2016 ($ in millions)	Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
December 31, 2017 ($ in millions)															Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	720		$	—	$	827		$	—		$	1,547		$	74		$	—	$	770		$	—		$	844
Interest-bearing	100			—		4,287			—			4,387			5			—		3,403			—			3,408
Interest-bearing — intercompany	—			—		401			(401		)	—			1,138			—		695			(1,833		)	—
Total cash and cash equivalents	820			—		5,515			(401		)	5,934			1,217			—		4,868			(1,833		)	4,252
Trading securities	—			—		82			(82		)	—
Equity securities															—			—		518			—			518
Available-for-sale securities	—			—		19,253			(327		)	18,926			—			—		22,303			—			22,303
Held-to-maturity securities	—			—		839			—			839			—			—		1,973			(74		)	1,899
Loans held-for-sale, net															—			—		108			—			108
Finance receivables and loans, net
Finance receivables and loans, net	4,705			—		114,239			—			118,944			7,434			—		115,459			—			122,893
Intercompany loans to
Bank subsidiary	1,125			—		—			(1,125		)	—
Nonbank subsidiaries	1,779			—		626			(2,405		)	—			879			—		408			(1,287		)	—
Allowance for loan losses	(115		)	—		(1,029		)	—			(1,144		)	(185		)	—		(1,091		)	—			(1,276		)
Total finance receivables and loans, net	7,494			—		113,836			(3,530		)	117,800			8,128			—		114,776			(1,287		)	121,617
Investment in operating leases, net	42			—		11,428			—			11,470			19			—		8,722			—			8,741
Intercompany receivables from
Bank subsidiary	299			—		—			(299		)	—			80			—		—			(80		)	—
Nonbank subsidiaries	107			—		67			(174		)	—			71			—		77			(148		)	—
Investment in subsidiaries
Bank subsidiary	17,727			17,727		—			(35,454		)	—			16,962			16,962		—			(33,924		)	—
Nonbank subsidiaries	10,318			—		—			(10,318		)	—			8,111			—		—			(8,111		)	—
Premiums receivable and other insurance assets	—			—		1,936			(31		)	1,905			—			—		2,082			(35		)	2,047
Other assets	4,347			—		5,085			(2,578		)	6,854			2,207			—		5,105			(1,649		)	5,663
Total assets	$	41,154		$	17,727	$	158,041		$	(53,194	)	$	163,728		$	36,795		$	16,962	$	160,532		$	(47,141	)	$	167,148
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	84		$	—		$	84		$	—		$	—	$	108		$	—		$	108
Interest-bearing	167			—		78,771			—			78,938			12			—		93,136			—			93,148
Interest-bearing — intercompany															—			—		1,139			(1,139		)	—
Total deposit liabilities	167			—		78,855			—			79,022			12			—		94,383			(1,139		)	93,256
Short-term borrowings	3,622			—		9,051			—			12,673			3,171			—		8,242			—			11,413
Long-term debt	21,798			—		32,330			—			54,128			17,966			—		26,260			—			44,226
Intercompany debt to
Bank subsidiary	330			—		—			(330		)	—			74			—		—			(74		)	—
Nonbank subsidiaries	1,027			—		2,903			(3,930		)	—			1,103			—		879			(1,982		)	—
Intercompany payables to
Bank subsidiary															4			—		—			(4		)	—
Nonbank subsidiaries	153			—		351			(504		)	—			132			—		127			(259		)	—
Interest payable	253			—		98			—			351			200			—		175			—			375
Unearned insurance premiums and service revenue	—			—		2,500			—			2,500			—			—		2,604			—			2,604
Accrued expenses and other liabilities	487			—		3,911			(2,661		)	1,737			639			—		2,790			(1,649		)	1,780
Total liabilities	27,837			—		129,999			(7,425		)	150,411			23,301			—		135,460			(5,107		)	153,654
Total equity	13,317			17,727		28,042			(45,769		)	13,317			13,494			16,962		25,072			(42,034		)	13,494
Total liabilities and equity	$	41,154		$	17,727	$	158,041		$	(53,194	)	$	163,728		$	36,795		$	16,962	$	160,532		$	(47,141	)	$	167,148


(a)	Amounts presented are based upon the legal transfer of the underlying assets to VIEs in order to reflect legal ownership.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statement of Cash Flows


Three months ended March 31, 2017 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Three months ended March 31, 2018 ($ in millions)															Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash (used in) provided by operating activities	$	(149	)	$	—	$	1,284		$	40		$	1,175
Net cash provided by operating activities															$	456		$	1,000		$	1,812		$	(2,171	)	$	1,097
Investing activities
Purchases of equity securities															—			—			(374		)	—			(374		)
Proceeds from sales of equity securities															—			—			220			—			220
Purchases of available-for-sale securities	—			—		(2,833		)	—			(2,833		)	—			—			(2,360		)	—			(2,360		)
Proceeds from sales of available-for-sale securities	—			—		1,045			—			1,045			—			—			328			—			328
Proceeds from maturities and repayments of available-for-sale securities	—			—		589			—			589
Proceeds from repayments of available-for-sale securities															—			—			795			—			795
Purchases of held-to-maturity securities	—			—		(215		)	—			(215		)	—			—			(155		)	—			(155		)
Proceeds from maturities and repayments of held-to-maturity securities	—			—		5			—			5
Proceeds from repayments of held-to-maturity securities															—			—			35			—			35
Net change in investment securities — intercompany	1			—		261			(262		)	—			—			—			9			(9		)	—
Purchases of loans held-for-investment	(15		)	—		(390		)	—			(405		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	—			—		1,164			—			1,164
Originations and repayments of loans held-for-investment and other	931			—		(1,145		)	(960		)	(1,174		)
Purchases of finance receivables and loans held-for-investment															—			—			(2,317		)	820			(1,497		)
Proceeds from sales of finance receivables and loans initially held-for-investment															820			—			—			(820		)	—
Originations and repayments of finance receivables and loans held-for-investment and other, net															432			—			(1,732		)	—			(1,300		)
Net change in loans — intercompany	1,146			—		170			(1,316		)	—			(423		)	—			1			422			—
Purchases of operating lease assets	—			—		(893		)	—			(893		)	—			—			(969		)	—			(969		)
Disposals of operating lease assets	1			—		1,544			—			1,545			4			—			972			—			976
Capital contributions to subsidiaries	(83		)	—		—			83			—			(49		)	(6		)	—			55			—
Returns of contributed capital	645			—		—			(645		)	—			38			—			—			(38		)	—
Net change in restricted cash	(27		)	—		385			(3		)	355
Net change in nonmarketable equity investments	—			—		213			—			213			—			—			(19		)	—			(19		)
Other, net	(26		)	—		58			(91		)	(59		)	(3		)	—			(80		)	1			(82		)
Net cash provided by (used in) investing activities	2,573			—		(42		)	(3,194		)	(663		)	819			(6		)	(5,646		)	431			(4,402		)
Financing activities
Net change in short-term borrowings — third party	1,278			—		(5,581		)	—			(4,303		)	(214		)	—			(1,634		)	—			(1,848		)
Net (decrease) increase in deposits	(82		)	—		5,533			—			5,451			(6		)	—			3,776			403			4,173
Proceeds from issuance of long-term debt — third party	330			—		3,196			962			4,488			15			—			6,650			—			6,665
Repayments of long-term debt — third party	(2,870		)	—		(4,703		)	—			(7,573		)	(1,152		)	—			(4,619		)	—			(5,771		)
Net change in debt — intercompany	(203		)	—		(1,146		)	1,349			—			(127		)	—			422			(295		)	—
Repurchase of common stock	(169		)	—		—			—			(169		)	(185		)	—			—			—			(185		)
Dividends paid — third party	(38		)	—		—			—			(38		)	(58		)	—			—			—			(58		)
Dividends paid and returns of contributed capital — intercompany	—			—		(686		)	686			—			—			(1,000		)	(1,208		)	2,208			—
Capital contributions from parent	—			—		83			(83		)	—			—			6			49			(55		)	—
Net cash used in financing activities	(1,754		)	—		(3,304		)	2,914			(2,144		)
Net cash (used in) provided by financing activities															(1,727		)	(994		)	3,436			2,261			2,976
Effect of exchange-rate changes on cash and cash equivalents	—			—		—			—			—			—			—			(2		)	—			(2		)
Net increase (decrease) in cash and cash equivalents	670			—		(2,062		)	(240		)	(1,632		)
Cash and cash equivalents at beginning of year	820			—		5,515			(401		)	5,934
Cash and cash equivalents at March 31,	$	1,490		$	—	$	3,453		$	(641	)	$	4,302
Net decrease in cash and cash equivalents and restricted cash															(452		)	—			(400		)	521			(331		)
Cash and cash equivalents and restricted cash at beginning of year															1,395			—			5,707			(1,833		)	5,269
Cash and cash equivalents and restricted cash at March 31,															$	943		$	—		$	5,307		$	(1,312	)	$	4,938

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, 2018 ($ in millions)	Parent		Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet	$	796	$	—	$	4,237	$	(1,312	)	$	3,721
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	147		—		1,070		—			1,217
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows	$	943	$	—	$	5,307	$	(1,312	)	$	4,938


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 11for additional details describing the nature of restricted cash balances.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended March 31, 2016 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Three months ended March 31, 2017 ($ in millions)															Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash (used in) provided by operating activities	$	(24	)	$	—	$	1,708		$	(482	)	$	1,202		$	(149	)	$	—	$	1,284		$	40		$	1,175
Investing activities
Purchases of equity securities															—			—		(137		)	—			(137		)
Proceeds from sales of equity securities															—			—		314			—			314
Purchases of available-for-sale securities	—			—		(4,870		)	—			(4,870		)	—			—		(2,696		)	—			(2,696		)
Proceeds from sales of available-for-sale securities	—			—		4,175			—			4,175			—			—		731			—			731
Proceeds from maturities and repayments of available-for-sale securities	—			—		409			—			409
Proceeds from repayments of available-for-sale securities															—			—		589			—			589
Purchases of held-to-maturity securities	—			—		(118		)	—			(118		)	—			—		(215		)	—			(215		)
Purchases of loans held-for-investment	—			—		(1,402		)	—			(1,402		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	—			—		2,594			—			2,594
Originations and repayments of loans held-for-investment and other	(292		)	—		(392		)	—			(684		)
Proceeds from repayments of held-to-maturity securities															—			—		5			—			5
Net change in investment securities — intercompany															1			—		261			(262		)	—
Purchases of finance receivables and loans held-for-investment															(15		)	—		(390		)	—			(405		)
Proceeds from sales of finance receivables and loans initially held-for-investment															—			—		1,164			—			1,164
Originations and repayments of finance receivables and loans held-for-investment and other, net															931			—		(1,145		)	(960		)	(1,174		)
Net change in loans — intercompany	683			—		(44		)	(639		)	—			1,146			—		170			(1,316		)	—
Purchases of operating lease assets	—			—		(701		)	—			(701		)	—			—		(893		)	—			(893		)
Disposals of operating lease assets	2			—		1,533			—			1,535			1			—		1,544			—			1,545
Capital contributions to subsidiaries	(128		)	—		—			128			—			(83		)	—		—			83			—
Returns of contributed capital	223			—		—			(223		)	—			645			—		—			(645		)	—
Net change in restricted cash	—			—		48			—			48
Net change in nonmarketable equity investments	—			—		(315		)	—			(315		)	—			—		213			—			213
Other, net	(32		)	—		12			—			(20		)	(26		)	—		64			(94		)	(56		)
Net cash provided by investing activities	456			—		929			(734		)	651
Net cash provided by (used in) investing activities															2,600			—		(421		)	(3,194		)	(1,015		)
Financing activities
Net change in short-term borrowings — third party	187			—		(2,926		)	—			(2,739		)	1,278			—		(5,581		)	—			(4,303		)
Net (decrease) increase in deposits	(10		)	—		3,790			—			3,780			(82		)	—		5,533			—			5,451
Proceeds from issuance of long-term debt — third party	178			—		4,066			—			4,244			330			—		3,196			962			4,488
Repayments of long-term debt — third party	(580		)	—		(7,910		)	—			(8,490		)	(2,870		)	—		(4,703		)	—			(7,573		)
Net change in debt — intercompany	(68		)	—		(684		)	752			—			(203		)	—		(1,146		)	1,349			—
Repurchase of common stock	(14		)	—		—			—			(14		)	(169		)	—		—			—			(169		)
Dividends paid — third party	(15		)	—		—			—			(15		)	(38		)	—		—			—			(38		)
Dividends paid and returns of contributed capital — intercompany	—			—		(705		)	705			—			—			—		(686		)	686			—
Capital contributions from parent	—			—		128			(128		)	—			—			—		83			(83		)	—
Net cash used in financing activities	(322		)	—		(4,241		)	1,329			(3,234		)	(1,754		)	—		(3,304		)	2,914			(2,144		)
Effect of exchange-rate changes on cash and cash equivalents	—			—		2			—			2			—			—		—			—			—
Net increase (decrease) in cash and cash equivalents	110			—		(1,602		)	113			(1,379		)
Cash and cash equivalents at beginning of year	1,635			—		5,595			(850		)	6,380
Cash and cash equivalents at March 31,	$	1,745		$	—	$	3,993		$	(737	)	$	5,001
Net increase (decrease) in cash and cash equivalents and restricted cash															697			—		(2,441		)	(240		)	(1,984		)
Cash and cash equivalents and restricted cash at beginning of year															989			—		7,293			(401		)	7,881
Cash and cash equivalents and restricted cash at March 31,															$	1,686		$	—	$	4,852		$	(641	)	$	5,897

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, 2017 ($ in millions)	Parent		Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet	$	1,490	$	—	$	3,453	$	(641	)	$	4,302
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	196		—		1,399		—			1,595
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows	$	1,686	$	—	$	4,852	$	(641	)	$	5,897


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 11for additional details describing the nature of restricted cash balances.

~~25.~~

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

24. Contingencies and Other Risks

Legal Matters

Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability in connection with pending or threatened legal proceedings and other matters. These legal matters may be formal or informal and include litigation and arbitration with one or more identified claimants, certified or purported class actions with yet-to-be-identified claimants, and regulatory or other governmental information-gathering requests, examinations, investigations, and enforcement proceedings. Our legal matters exist in varying stages of adjudication, arbitration, negotiation, or investigation and span our lines of business 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.

We accrue for a legal matter 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 could be material to our consolidated financial condition, results of operations, or cash flows, we provide disclosure in this note as prescribed by ASC 450, Contingencies.

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

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

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. As a result, we ~~cannot state with confidence~~often are unable to determine how or when threatened or pending legal matters will be resolved and what losses may be incurred. Actual losses may be higher or lower than any amounts accrued or estimated for those matters, possibly to a significant degree.

On the basis of information currently available, advice of counsel, available insurance coverage, and established reserves, it is the opinion of management that, except as described in the next paragraph, the eventual outcome of our existing legal matters will not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. It is possible, however, that an unfavorable resolution of legal matters may be material to our consolidated financial condition, results of operations, or cash flows in a particular period.

Descriptions of our material legal matters follow. In each case, the matter could have material adverse consequences for us, including substantial damages or settlements, injunctions, governmental fines or penalties, and reputational or operational risks. We do not believe, however, that an estimate of reasonably possible losses or a range of reasonably possible ~~losses in excess of established reserves—~~losses—whether in excess of any related accrual or where no accrual exists—can be made for any of these ~~matters.~~matters for some or all of the reasons identified in the preceding paragraph.

Securities Litigation

In October 2016, a purported class action—Bucks County Employees Retirement Fund v. Ally Financial Inc. et al.—was filed in the Circuit Court for Wayne County in the State of ~~Michigan.~~Michigan (Case No. 16-013616-CZ). This matter was removed to the U.S. District Court for the Eastern District of Michigan on November 18, ~~2016, and is currently pending there as Case No. 2:16-CV-14104.~~2016. The complaint alleges material misstatements and omissions in connection with Ally’s initial public offering in April 2014, including a failure to adequately disclose the severity of rising subprime automotive loan delinquency rates, deficient underwriting measures employed in the origination of subprime automotive loans, and aggressive tactics used with low-income borrowers. The request for relief includes an indeterminate amount of damages, fees, and costs and other remedies. In January 2017, another purported class action—National Shopmen Pension Fund v. Ally Financial Inc. et al.—was filed in the Circuit Court for Oakland County in the State of ~~Michigan.~~Michigan (Case No. 2017-156719-CB). This matter was removed to the U.S. District Court for the Eastern District of Michigan on January 30, ~~2017, and is currently pending there as Case No. 2:17-CV-10289.~~2017. In March 2017, a third purported class action—James McIntire v. Ally Financial Inc. et al.—was filed in the Circuit Court for Wayne County in the State of ~~Michigan.~~Michigan (Case No. 17-003811-CZ). This matter was removed to the U.S. District Court for the Eastern District of Michigan on March 15, ~~2017, and is currently pending there as Case No. 2:17-CV-10833.~~2017. The allegations and requested relief in the National Shopmen Pension Fund and James McIntire complaints are substantially similar to those included in the complaint filed by Bucks County Employees Retirement Fund. All three matters were remanded from the U.S. District Court for the Eastern District of Michigan to the state circuit courts on May 26, 2017, and have been consolidated for discovery in Wayne County Circuit Court as In re Ally Financial, Inc. Securities Litigation (Case No. 16-013616-CB). In November 2017, the plaintiffs filed a consolidated amended complaint. In April 2018, the court entered a scheduling order setting deadlines for briefing of defendants’ joint motion for summary disposition. We intend to vigorously defend against each of these actions.

Automotive Subprime Matters

In October 2014, we received a document request from the SEC in connection with its investigation related to subprime automotive finance and related securitization activities. Separately, in December 2014, we received a subpoena from the ~~DOJ~~U.S. Department of Justice requesting similar information. In May 2015 and December 2016, we received information requests from the New York Department of Financial Services requesting similar information. We ~~have cooperated with~~responded timely to each of ~~these agencies with respect to these matters.~~

~~Indirect Automotive Finance Matters~~

~~In December 2013, Ally Financial Inc. and Ally Bank entered into a Consent Order issued by~~ the U.S. Consumer Financial Protection Bureau (CFPB) and a Consent Order jointly submitted with the DOJ and entered by the U.S. District Court for the Eastern District of Michigan (United States v. Ally Financial Inc. and Ally Bank, Civil Action No. 13-15180), in each case, pertaining to allegations of discrimination involving the automotive finance business. The Consent Orders require Ally to create a compliance plan addressing, at a minimum, the communication of Ally’s expectations of Equal Credit Opportunity Act (ECOA) compliance to our automotive dealer clients, maintenance of Ally’s existing limits on dealer finance income for contracts acquired by Ally, and monitoring for potential discrimination both at the dealer level and within our portfolio of contracts acquired across all of our automotive dealer clients. Ally formed a compliance committee consisting of certain Ally Financial Inc. and Ally Bank directors to oversee Ally’s execution of the Consent Orders’ terms. Ally is required to meet certain stipulations under the Consent Orders, including a requirement to make monetary payments when ongoing remediation targets are not attained.

Since 2013, Ally has recognized expenses of approximately $240 million for judgments, fines, and monetary remuneration payments to customers related to the Consent Orders. The Consent Orders terminate, according to their terms, in 2017, and preclude the CFPB and the DOJ from pursuing any potential violations of the ECOA against Ally Financial Inc. or Ally Bank for conduct undertaken pursuant to the Consent Orders during the period of the Consent Orders. If the CFPB or the DOJ were to assert that Ally Financial Inc. or Ally Bank is violating the ECOA after the Consent Orders terminate, further legal proceedings could occur.

~~Table of Contents~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Ally Financial Inc. • Form 10-Q~~

requests.

Other Contingencies

Ally and its subsidiaries, including Ally Bank, are or may be subject to potential liability under various other contingent exposures, including indemnification, tax, self-insurance, and other miscellaneous contingencies. We accrue for a 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. No assurance exists that our accruals will not need to be adjusted in the future, and actual losses may be higher or lower than any amounts accrued or estimated for those exposures, possibly to a significant degree. On the basis of information currently available, ~~available insurance coverage, and established reserves, it is the opinion of management~~we do not believe that ~~the eventual outcome of our~~these other contingent exposures will ~~not have a~~be material ~~adverse effect on~~to our consolidated financial condition, results of operations, or cash flows. Refer to Note 1 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K for additional information related to our policy for establishing reserves for legal and regulatory matters.

~~26.~~

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

25. Subsequent Events

Declaration of Quarterly Dividend ~~Payment~~

On April ~~14, 2017,~~10, 2018, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.08~~$0.13 per share on all common stock. The dividend is payable on May 15, ~~2017,~~2018, to ~~shareholders~~stockholders of record at the close of business on May 1, ~~2017.~~2018.

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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

Selected Financial Data

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

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


	Three months ended March 31,				Three months ended March 31,
($ in millions, except per share data; shares in thousands)	2017		2016
($ in millions, except per share data; shares in thousands)					2018			2017
Total financing revenue and other interest income	$	2,050	$	2,109	$	2,116		$	2,050
Total interest expense	682		648		794			682
Net depreciation expense on operating lease assets	389		510		273			389
Net financing revenue and other interest income	979		951		1,049			979
Total other revenue	396		376		354			396
Total net revenue	1,375		1,327		1,403			1,375
Provision for loan losses	271		220		261			271
Total noninterest expense	778		710		814			778
Income from continuing operations before income tax expense	326		397		328			326
Income tax expense from continuing operations	113		150		76			113
Net income from continuing operations	213		247		252			213
Income from discontinued operations, net of tax	1		3
(Loss) income from discontinued operations, net of tax					(2		)	1
Net income	$	214	$	250	$	250		$	214
Basic earnings per common share (a):
Net income from continuing operations	$	0.46	$	0.48	$	0.58		$	0.46
Net income	0.46		0.49		0.57			0.46
Weighted-average common shares outstanding	465,961		484,233		436,213			465,961
Diluted earnings per common share (a):
Net income from continuing operations	$	0.46	$	0.48	$	0.57		$	0.46
Net income	0.46		0.49		0.57			0.46
Weighted-average common shares outstanding	466,829		484,654		438,931			466,829
Market price per common share:
High closing	$	23.48	$	18.88	$	30.83		$	23.48
Low closing	19.13		15.33		25.94			19.13
Period-end closing	20.33		18.72		27.15			20.33
Cash dividends per common share	$	0.08	$	—
Cash dividends declared per common share					$	0.13		$	0.08
Period-end common shares outstanding	462,193		483,475		432,691			462,193


(a)	Includes shares related to share-based compensation that vested but were not yet issued for thethree months ~~ended~~ March 31, ~~2017,~~2018, and ~~2016, respectively.~~2017.

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The following table presents selected Condensed Consolidated Balance Sheet and ratio data.


	At and for the three months ended March 31,						At and for the three months ended March 31,
($ in millions)	2017			2016			2018			2017
Selected period-end balance sheet data:
Total assets	$	162,101		$	156,505		$	170,021		$	162,101
Total deposit liabilities	$	84,486		$	70,265		$	97,446		$	84,486
Long-term debt	$	51,061		$	62,044		$	45,076		$	51,061
Preferred stock	$	—		$	696
Total equity	$	13,365		$	13,823		$	13,082		$	13,365
Financial ratios:
Return on average assets (a)	0.54		%	0.64		%	0.61		%	0.54		%
Return on average equity (a)	6.46		%	7.38		%	7.68		%	6.46		%
Equity to assets (a)	8.35		%	8.66		%	7.88		%	8.35		%
Common dividend payout ratio	17.39		%	—		%
Net interest spread (a) (b) (c)	2.47		%	2.48		%
Net yield on interest-earning assets (a) (c) (d)	2.60		%	2.59		%
Common dividend payout ratio (b)							22.81		%	17.39		%
Net interest spread (a) (c)							2.48		%	2.47		%
Net yield on interest-earning assets (a) (d)							2.64		%	2.60		%


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


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


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


~~(c)~~	~~Amounts for the three months ended March 31, 2016, were adjusted to include previously excluded equity investments and related income on equity investments. Refer to the section titled~~ ~~Statistical Table~~ ~~for additional information.~~


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

5865

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

As of January 1, 2015, Ally became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which reflect new and higher capital requirements, capital buffers, and new regulatory capital definitions, deductions and adjustments. Certain aspects of U.S. Basel III, including the new capital buffers, ~~and regulatory capital deductions, will be phased in over several years.~~are subject to a phase-in period through December 31, 2018. To assess our capital adequacy against the full impact of U.S. Basel III, we also present ~~"fully phased-in"~~“fully phased-in” information that reflects regulatory capital rules that will take effect ~~as of January 1, 2019.~~once the transition period has ended. Refer to Note 1817 to the Condensed Consolidated Financial Statements for further information. The following table presents selected regulatory capital data.


	March 31, 2017						March 31, 2016						March 31, 2018						March 31, 2017
($ in millions)	Transitional			Fully Phased-in (a)			Transitional			Fully Phased-in (a)			Transitional			Fully phased-in (a)			Transitional			Fully phased-in (a)
Common Equity Tier 1 capital ratio	9.40		%	9.28		%	9.47		%	9.20		%	9.26		%	9.24		%	9.40		%	9.28		%
Tier 1 capital ratio	11.09		%	11.05		%	11.57		%	11.54		%	10.98		%	10.96		%	11.09		%	11.05		%
Total capital ratio	12.70		%	12.66		%	13.00		%	12.96		%	12.57		%	12.55		%	12.70		%	12.66		%
Tier 1 leverage ratio (to adjusted quarterly average assets) (b)	9.51		%	9.50		%	9.87		%	9.87		%	9.26		%	9.26		%	9.51		%	9.50		%
Total equity	$	13,365		$	13,365		$	13,823		$	13,823		$	13,082		$	13,082		$	13,365		$	13,365
Preferred stock	—			—			(696		)	(696		)
Goodwill and certain other intangibles	(281		)	(291		)	(27		)	(27		)	(292		)	(292		)	(281		)	(291		)
Deferred tax assets arising from net operating loss and tax credit carryforwards (c)	(493		)	(616		)	(496		)	(826		)	(309		)	(309		)	(493		)	(616		)
Other adjustments	332			332			52			52			598			598			332			332
Common Equity Tier 1 capital	12,923			12,790			12,656			12,326			13,079			13,079			12,923			12,790
Preferred stock	—			—			696			696
Trust preferred securities	2,489			2,489			2,487			2,487			2,492			2,492			2,489			2,489
Deferred tax assets arising from net operating loss and tax credit carryforwards	(123		)	—			(330		)	—			—			—			(123		)	—
Other adjustments	(44		)	(44		)	(47		)	(47		)	(59		)	(59		)	(44		)	(44		)
Tier 1 capital	15,245			15,235			15,462			15,462			15,512			15,512			15,245			15,235
Qualifying subordinated debt and other instruments qualifying as Tier 2	1,103			1,103			871			871			1,029			1,029			1,103			1,103
Qualifying allowance for credit losses and other adjustments	1,111			1,111			1,030			1,030			1,219			1,219			1,111			1,111
Total capital	$	17,459		$	17,449		$	17,363		$	17,363		$	17,760		$	17,760		$	17,459		$	17,449
Risk-weighted assets (d)	$	137,438		$	137,859		$	133,586		$	134,018		$	141,246		$	141,561		$	137,438		$	137,859

(a)

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


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


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


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

5966

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Overview

Ally Financial Inc. (together with its consolidated subsidiaries unless the context requires otherwise, Ally, the Company, or we, us, or our) is a leading digital financial services company and top 25 U.S. financial holding company (FHC) offering diversified financial products and services for consumers, businesses, automotive dealers, and corporate clients. ~~Our legacy dates back to 1919, and~~ Ally ~~was redesigned in 2009~~operates with a distinctive brand, an innovative approach, and a relentless focus on our customers. We ~~reconverted to~~are a Delaware corporation ~~in 2009~~ and are registered as a bank holding company (BHC) under the Bank Holding Company Act of 1956 as amended and ~~a financial holding company~~an FHC under the Gramm-Leach-Bliley Act of 1999 as amended. We are one of the largest full service automotive finance operations in the country with a legacy that dates back to 1919, a deep expertise in automotive lending, and a complementary automotive-focused insurance business. Our wholly-owned banking subsidiary, Ally Bank, has received numerous industry awards for its services and capabilities and is ~~an award-winning~~one of the largest and most respected online ~~bank,~~banks, uniquely positioned for the observed shifting trends in consumer banking preferences for digital banking. Ally Bank’s assets and ~~an indirect, wholly-owned subsidiary of Ally Financial Inc. Collectively, Ally Financial Inc.~~operating results are included within our Automotive Finance, Mortgage Finance, and Corporate Finance segments, as well as Corporate and Other, based on its ~~subsidiaries~~underlying business activities.

We offer mortgage lending services and a variety of deposit and other banking products, including CDs, online savings, money market and checking accounts, and IRA ~~products, automotive lending products to customers and dealers, corporate finance lending, insurance products and services,~~products. We also promote a cash back credit ~~card, mortgage lending offerings, and~~card. We have recently integrated a growing digital wealth management ~~solutions.~~and online brokerage platform to enable consumers to have a variety of options in managing their savings and wealth. Additionally, through our corporate finance business, we primarily offer senior secured leveraged cash flow and asset-based loans to middle-market companies.

Discontinued Operations

During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates to previous discontinued operations for which we continue to have wind-down, legal, and minimal operational costs. For all periods presented, the operating results for these operations have been removed from continuing operations. ~~Refer to Note 3 to the Condensed Consolidated Financial Statements for more details.~~ The MD&A has been adjusted to exclude discontinued operations unless otherwise noted.

Primary Lines of Business

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

Segment results include cost of funds associated with product offerings. For products originated at Ally Bank, the cost of funds is more beneficial than products originated at other entities as Ally Bank is a deposit gathering organization, which helps fund assets at a lower cost. Noninterest costs associated with deposit gathering activities were $65 million and $68 million during the three months ended March 31, 2017, and 2016, respectively, and are allocated to each segment based on their relative balance sheet. Ally Bank's assets and operating results are included within our Automotive Finance, Mortgage Finance, and Corporate Finance segments based on its underlying business activities.


	Three months ended March 31,							Three months ended March 31,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance	$	993		$	973		2	$	975		$	993		(2)
Insurance	279			268			4	258			279			(8)
Mortgage Finance	34			20			70	44			34			29
Corporate Finance	52			34			53	54			52			4
Corporate and Other	17			32			(47)	72			17			n/m
Total	$	1,375		$	1,327		4	$	1,403		$	1,375		2
Income (loss) from continuing operations before income tax expense
Dealer Financial Services
Automotive Finance	$	288		$	337		(15)	$	268		$	288		(7)
Insurance	40			50			(20)	27			40			(33)
Mortgage Finance	9			2			n/m	8			9			(11)
Corporate Finance	25			11			127	29			25			16
Corporate and Other	(36		)	(3		)	n/m	(4		)	(36		)	89
Total	$	326		$	397		(18)	$	328		$	326		1

n/m = not meaningful

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Our Dealer Financial Services is one of the largest full service automotive finance operations ~~offer~~in the country and offers a wide range of financial services and insurance products to ~~over 18,000~~approximately 18,700 automotive dealerships and approximately 4.3 million ~~of their~~consumer automotive customers. Dealer Financial Services consists of two separate reportable segments—Automotive Finance and Insurance operations.

Our automotive finance services include providing retail installment sales contracts, loans and leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, warehouse lines to companies, fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles and equipment, and vehicle remarketing services. Our success as an automotive finance provider is driven by the consistent and broad range of products and services we offer to

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

dealers ~~who~~that originate loans and leases tofor their retail customers ~~who are acquiring~~to acquire new and used vehicles. Ally and other automotive finance providers purchase these loans and leases from automotive ~~dealers.~~dealers, which are independently owned businesses and are the primary customers of our automotive finance business. As the marketplace evolves, our ~~growth~~ strategy continues to focus on diversifying ~~the franchise~~our operations by expanding into different products, responding to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers, and continuing to strengthen and expand our network of dealer relationships. ~~In the first quarter of 2017,~~To enhance our automotive finance offerings, relationships, and digital capabilities, we recently built upon the platform acquired from the ~~2016~~ purchase of Blue Yield and introduced Clearlane, an online automotive lender exchange, expanding our direct-to-consumer capabilities and providing an end-to-end digital platform for consumers seeking financing and dealers looking to drive online sales.

The Growth channel was established to focus on developing dealer relationships beyond our existing relationships that primarily were developed through our role as a captive finance company historically for the General Motors Company (GM) and Fiat Chrysler Automobiles US LLC (Chrysler) brands, and was ~~recently~~ expanded to include our direct-to-consumer lending ~~offering.~~offering, and other online automotive retailers. We have established relationships with thousands of Growth channel dealers through our customer-centric approach and specialized incentive ~~programs.~~programs designed to drive loyalty amongst dealers to Ally products and services. The success of the Growth channel has been a key enabler to converting our business model from a focused captive finance company to a leading market competitor. In this channel, we currently have ~~over 11,500~~approximately 12,000 dealer relationships, of which approximately ~~10,500~~11,000 are franchised dealers ~~from~~(from brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and ~~others; RV dealers; and~~others), recreational vehicle (RV) dealers, or used vehicle only retailers ~~which~~that have a national presence.

Our Insurance operations offer both consumer finance protection and insurance products sold primarily through the automotive dealer channel, and commercial insurance products sold directly to dealers. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we provide vehicle service contracts (VSCs), vehicle maintenance contracts (VMCs), guaranteed asset protection (GAP) products, and other ancillary products desired by consumers. We also underwrite ~~select~~selected commercial insurance coverages, which primarily insure ~~dealers'~~dealers’ wholesale vehicle inventory. Ally Premier Protection is our flagship vehicle service contract offering, ~~and~~which provides coverage for new and used vehicles of virtually all makes and models. We also offer ClearGuard, on the SmartAuction platform, which is a protection product designed to minimize the risk to dealers from arbitration claims for eligible vehicles sold at auction. Additionally, we are the preferred VSC and protection plan provider for GM Canada.

Our Mortgage Finance operations ~~primarily~~ consist of ~~the management of a~~ held-for-investment and held-for-sale consumer mortgage finance loan ~~portfolio, which includes~~portfolios. We acquire mortgage loans through two primary channels including bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third ~~parties.~~parties, as well as direct-to-consumer mortgage offerings through Ally Home. The combination of our bulk portfolio purchase program and our direct-to-consumer strategy provides the capacity to expand revenue sources and further grow and diversify our finance receivable portfolio with an attractive asset class while also deepening relationships with existing Ally customers.

Our bulk loan purchase program acquires loans beyond our current customer base and seeks to purchase only from sellers with the financial capacity to support strong representations and warranties and who have the industry knowledge and experience to originate high-quality assets. Our bulk loan purchases are held-for-investment. During the three months ended March 31, ~~2017,~~2018, we purchased ~~$327 million~~$1.3 billion of mortgage loans that were originated by third parties. InThrough our direct-to-consumer channel, introduced late in 2016, we ~~introduced our direct mortgage offering, named Ally Home, consisting of~~offer a variety of competitively-priced jumbo and conforming fixed- and adjustable-rate mortgage products through a third-party fulfillment partner. Under our current arrangement, our direct-to-consumer conforming mortgages are originated as held-for-sale and sold, while jumbo mortgages are originated as held-for-investment. ~~Servicing is performed by a third party and~~Currently, we retain no mortgage servicing rights associated with loans that are ~~created.~~ ~~In addition to our core product offerings through Ally Home, in March 2017,~~sold. Loans that we ~~broadened our product suite with the addition of the HomeReady® mortgage loan,~~retain are serviced by a ~~Fannie Mae product designed to serve creditworthy, low- to moderate-income borrowers.~~

third party.

Our Corporate Finance operations primarily provide senior secured leveraged cash flow and asset-based loans to mostly U.S.-based middle market companies. ~~The~~We believe our attractive deposit-based funding model coupled with our expanded product offerings and deep industry relationships provide an advantage over our competition, which includes other banks as well as publicly and privately held finance companies. Our Corporate Finance lending portfolio is almost entirely ~~comprised~~composed of first lien, first out loans. Our primary focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. The portfolio is well diversified across multiple industries including retail, manufacturing, distribution, service companies, and other specialty sectors. These specialty sectors include our Healthcare and Technology Finance ~~and Healthcare~~ verticals. ~~Our Technology Finance vertical provides financing solutions to venture-backed, technology-based companies.~~ The Healthcare vertical provides financing across the healthcare spectrum including services, pharmaceuticals, ~~biotechnology,~~ manufacturing, and medical devices and supplies. ~~In addition, during the first quarter~~Our Technology Finance vertical provides financing

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

solutions to venture capital-backed, technology-based companies. Additionally, later in 2017, we ~~hired an experienced team in the healthcare~~launched a commercial real estate ~~space in order~~product focused on lending to ~~continue to make strategic investments in sectors with strong competitive dynamics~~skilled nursing facilities, senior housing, medical office buildings, and ~~attractive returns.~~hospitals.

Corporate and Other primarily consists of ~~activity related to~~ 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, ~~the amortization of the~~original issue discount, ~~associated with new debt issuances and bond exchanges,~~ and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes activity related to the Ally CashBack ~~Credit Card,~~credit card, certain equity investments, which primarily consist of Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. ~~Additionally, beginning in~~

In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering that combines the platform we acquired from the June 2016 ~~with the~~ acquisition of TradeKing Group, Inc. (TradeKing)~~, financial information~~ with our award-winning online banking products in a single, convenient customer experience that provides low-cost investing with competitive deposit products. Through Ally Invest, we are able to offer a broader array of personal finance products through a fully-integrated digital consumer platform centered around self-directed products and digital advisory services. Our value proposition is based on the combination of attractive pricing, a broad product offering for active and passive investors, and outstanding client-focused and user-friendly customer service that is accessible 24 hours a day, seven days a week, via the phone, web or email—consistent with the Ally brand. Financial results related to ~~TradeKing is~~our online brokerage operations are currently included within Corporate and Other.

~~In addition, we are well positioned as~~We continue to invest in enhancing the ~~marketplace continues to evolve and are working~~customer experience with integrated features across product lines on our digital platform. We also continue to build on our existing foundation of approximately ~~5.6~~5.8 million consumer automotive financing and primary deposit customers, strong brand, and innovative ~~culture, and leading digital platform to expand our products and services and to create an integrated customer experience. In 2016, we launched~~culture. Upon launching our first ever enterprise-wide campaign themed ~~"Do~~“Do It ~~Right." The campaign introduces~~Right,” we introduced a broad audience to our full suite of digital financial services, which emphasizes our relentless customer-centric focus and ~~helps crystallize~~commitment to constantly create and reinvent our ~~culture for~~product offerings and digital experiences to meet the needs of consumers. Our product offerings and brand continue to gain traction in the marketplace, as demonstrated by industry recognition of our award-winning direct online bank and strong retention rates of our customer base.

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Consolidated Results of Operations

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

Three months ended March 31,
($ in millions)
2017
2016
Favorable/(unfavorable) % change
Net financing revenue and other interest income

Total financing revenue and other interest income
$ 2,050

$ 2,109

(3)
Total interest expense
682

648

(5)
Net depreciation expense on operating lease assets
389

510

24
Net financing revenue and other interest income
979

951

3
Other revenue

Insurance premiums and service revenue earned
241

230

5
Gain on mortgage and automotive loans, net
14

1

n/m
Loss on extinguishment of debt
(1 )
(4 )
75
Other gain on investments, net
27

54

(50)
Other income, net of losses
115

95

21
Total other revenue
396

376

5
Total net revenue
1,375

1,327

4
Provision for loan losses
271

220

(23)
Noninterest expense

Compensation and benefits expense
285

252

(13)
Insurance losses and loss adjustment expenses
88

73

(21)
Other operating expenses
405

385

(5)
Total noninterest expense
778

710

(10)
Income from continuing operations before income tax expense
326

397

(18)
Income tax expense from continuing operations
113

150

25
Net income from continuing operations
$ 213

$ 247

(14)

~~n/m = not meaningful~~



	Three months ended March 31,
($ in millions)	2018			2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	2,116		$	2,050	3
Total interest expense	794			682		(16)
Net depreciation expense on operating lease assets	273			389		30
Net financing revenue and other interest income	1,049			979		7
Other revenue
Insurance premiums and service revenue earned	256			241		6
Gain on mortgage and automotive loans, net	1			14		(93)
Other (loss) gain on investments, net	(12		)	27		(144)
Other income, net of losses	109			114		(4)
Total other revenue	354			396		(11)
Total net revenue	1,403			1,375		2
Provision for loan losses	261			271		4
Noninterest expense
Compensation and benefits expense	306			285		(7)
Insurance losses and loss adjustment expenses	63			88		28
Other operating expenses	445			405		(10)
Total noninterest expense	814			778		(5)
Income from continuing operations before income tax expense	328			326		1
Income tax expense from continuing operations	76			113		33
Net income from continuing operations	$	252		$	213	18

We earned net income from continuing operations of $252 million for the three months ended March 31, 2018, compared to $213 million for the three months ended March 31, ~~2017, compared to $247 million for~~2017. During the three months ended March 31, ~~2016. The decrease was driven~~2018, results were favorably impacted by higher ~~noninterest expense due~~net financing revenue across our lending operations resulting from a continued focus on optimizing portfolio growth within our Automotive Finance operations, and growth within our Mortgage Finance and Corporate Finance operations. Higher investment securities balances and a more favorable interest rate environment also contributed to higher ~~weather-related~~yields on our earning assets. Results were also favorably impacted by the reduction in the U.S. federal corporate tax rate enacted as a result of the Tax Cuts and Jobs Act of 2017 (the Tax Act), a decrease in the provision for loan losses, and lower insurance ~~losses, as well as incremental costs related to the roll-out of new product offerings including wealth management, direct-to-consumer automotive (Clearlane), and mortgage lending. While results~~losses. These items were ~~unfavorably impacted~~partially offset by lower net operating lease revenue ~~as a result of less favorable lease remarketing activity and~~due to runoff ofin our legacy GM lease portfolio, ~~as well as~~ higher ~~provision~~noninterest expense, ~~driven by higher charge-offs in our consumer automotive portfolio, these~~and $40 million of unrealized losses on equity securities due to declines ~~were largely offset by growth~~ in the ~~commercial and retail automotive portfolios and our strategic shift to originate a more profitable mix~~fair value of business with appropriate risk-adjusted returns. Net income from continuing operations was also favorably impacted by lower income tax expense, higher gains on the sale of automotive loans, and higher insurance premiums earned.securities.

Net financing revenue and other interest income increased ~~$28~~$70 million for the three months ended March 31, ~~2017,~~2018, compared to the three months ended March 31, ~~2016.~~2017. Income from our portfolio of investment securities and other earning assets, including cash and cash equivalents, increased $52 million for the three months ended March 31, 2018, compared to the same period in 2017, due primarily to growth of investment securities balances as we continue to utilize this portfolio to manage liquidity and generate a stable source of income. Net financing revenue and other interest income atfrom our Automotive Finance operations ~~was favorably impacted~~increased, despite continued runoff of our legacy GM lease portfolio, which we expect to be substantially wound-down by ~~higher consumer~~the second quarter of 2018. Retail automotive financing revenue ~~primarily due~~continued to ~~an increase in retail portfolio yields~~benefit from ~~the execution of~~ our ~~continued strategic~~actions and efforts to reposition our origination profile to focus on ~~expanding~~capital optimization and risk-adjusted returns, as well as higher ~~commercial~~average retail asset levels. Commercial automotive financing revenue ~~primarily resulting from an increase in dealer floorplan assets. The increases were~~also increased during the period due to higher benchmark interest rates, partially offset by a decrease in ~~operating lease revenue, net of depreciation, primarily~~average outstanding floorplan assets resulting from ~~the runoff of our GM lease portfolio as well as less favorable remarketing activity for the three months ended March 31, 2017, compared to the same period in 2016 as a result of~~ lower ~~used vehicle prices.~~average dealer inventory levels. Net financing revenue and other interest income atwithin our Mortgage Finance operations was favorably impacted by increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. Net financing revenue and other interest income atwithin our Corporate Finance operations was favorably impacted by ~~continued asset growth across all business segments in line with~~ our ~~growth strategy.~~strategy to responsibly grow assets and our product suite within existing verticals while selectively pursuing opportunities to broaden industry and product diversification. Total interest expense increased 5%16% for the three months ended March 31, ~~2017,~~2018, compared to the ~~same period in 2016.~~three months ended March 31, 2017. While we continue to shift borrowings toward more cost-effective deposit funding and ~~continue~~ to reduce our dependence on market-based funding through reductions in higher-cost secured and unsecured debt, interest expense increased as a result of higher market rates across all funding ~~costs associated with increased LIBOR rates on secured borrowings and higher~~sources. Additionally, our overall borrowing ~~levels to support the business.~~

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Ally Financial Inc. • Form 10-Q

levels were higher to support the growth in our lending operations. Our total deposit liabilities increased to $97.4 billion as of March 31, 2018, as compared to $93.3 billion as of December 31, 2017.

Gain on mortgage and automotive loans ~~increased $13~~decreased to $1 million for the three months ended March 31, ~~2017,~~2018, as compared to $14 million for the three months ended March 31, ~~2016. We continued to opportunistically utilize whole-loan sales and off-balance sheet securitizations as sources of funding during~~2017. During the three months ended March 31, ~~2017.~~2017, we utilized whole-loan sales to proactively manage our overall credit exposure, asset levels, funding, and capital utilization, including the sale of retail automotive loans, as well as previously written-down retail automotive loans related to consumers in Chapter 13 bankruptcy.

Other ~~gain~~loss on investments was $12 million for the three months ended March 31, 2018, compared to a gain of $27 million for the three months ended March 31, ~~2017, compared~~2017. The loss on investments for the three months ended March 31, 2018, includes $40 million of unrealized losses due to ~~$54~~the decline in the fair value of our portfolio of equity securities. Beginning January 1, 2018, as a result of a change in accounting principles, unrealized gains and losses on equity securities are included in net income. Refer to Note 1 to the Condensed Consolidated Financial Statements for further discussion.

The provision for loan losses was $261 million for the three months ended March 31, ~~2016. The decrease was due primarily to higher sales of investment securities in 2016 resulting from favorable market conditions that did not repeat in the current period.~~

~~Other income increased $20 million for the three months ended March 31, 2017,~~2018, compared to the same period in 2016, primarily due to contributions from operations of TradeKing included in our results subsequent to acquisition in the second quarter of 2016, and an equity investment gain at our Corporate Finance operations.

~~The provision for loan losses was~~ $271 million for the three months ended March 31, ~~2017, compared to $220 million for the three months ended March 31, 2016.~~2017. The ~~increase~~decrease in provision for loan losses was primarily ~~due to higher net charge-offs~~driven by our automotive finance business where we experienced overall favorable credit performance including lower than anticipated losses associated with the hurricanes experienced in the third quarter of 2017. This favorability was partially offset by growth in our consumer automotive portfolio as a result of our strategy to originate a more profitable mix of business by focusing on risk-adjusted returns. This was partially offset by lower portfolio growth in our Mortgage Finance portfolio, and lower net charge-offs in our Mortgage Legacy portfolio. Refer to the Risk Management section of this MD&A for further discussion.

Noninterest expense was $814 million for the three months ended March 31, 2018, compared to $778 million for the three months ended March 31, ~~2017, compared to $710 million for the same period in 2016.~~2017. The increase was ~~primarily due~~driven by expenses related to ~~an increase~~supporting the growth of our retail deposits and consumer automotive loan portfolios. We also continue to make investments in product expansion initiatives to grow our direct-to-consumer mortgage offering, in our technology platform to enhance the customer experience in our digital wealth management offering, and in marketing activities to promote brand awareness. Additionally, compensation and benefits expense was impacted by a one-time tax reform-related bonus paid to eligible Ally employees during the three months ended March 31, 2018. These increases were partially offset by lower insurance losses and loss adjustment expenses, primarily driven by severe hailstorms in the first quarter of ~~$15 million for~~2017 and the ceding of weather-related losses during the three months ended March 31, ~~2017, compared~~2018, subject to ~~the three months ended March 31, 2016. The increase was primarily due to severe hailstorms, particularly~~a reinsurance agreement entered into in late March, which drove higher weather-related insurance losses. Also contributing to the increase to noninterest expense was the addition and integration of TradeKing and Clearlane, as well as the growth of our direct-to-consumer mortgage offering as we continue to enhance our digital wealth management franchise, expand our product suite, and grow digital platforms for consumers and dealers.April 2017.

We recognized total income tax expense from continuing operations of $76 million for the three months ended March 31, 2018, compared to $113 million for the three months ended March 31, ~~2017, compared to $150 million for the three months ended March 31, 2016.~~2017. The decrease in income tax expense for the three months ended March 31, ~~2017,~~2018, compared to the ~~same period in 2016,~~three months ended March 31, 2017, was primarily driven by the reduction in the U.S. federal corporate tax rate enacted as a ~~decrease~~result of the Tax Act, partially offset by tax benefits in ~~pretax earnings~~2017 from the release of valuation allowance against our capital-in-nature deferred tax assets and aforeign tax ~~benefit for the current quarter related to stock compensation and associated movements in our share price.~~credit carryforwards.

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~~Management's~~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 March 31,
($ in millions) 2017 2016 Favorable/(unfavorable) % change
Net financing revenue and other interest income
Consumer $ 924
$ 866
7
Commercial 304
252
21
Operating leases 543
769
(29)
Other interest income 2
3
(33)
Total financing revenue and other interest income 1,773
1,890
(6)
Interest expense 492
484
(2)
Net depreciation expense on operating lease assets 389
510
24
Net financing revenue and other interest income 892
896
—
Other revenue
Gain on automotive loans, net 24
5
n/m
Other income 77
72
7
Total other revenue 101
77
31
Total net revenue 993
973
2
Provision for loan losses 268
209
(28)
Noninterest expense
Compensation and benefits expense 129
126
(2)
Other operating expenses 308
301
(2)
Total noninterest expense 437
427
(2)
Income from continuing operations before income tax expense $ 288
$ 337
(15)
Total assets $ 115,154
$ 112,289
3

~~n/m = not meaningful~~



	Three months ended March 31,
($ in millions)	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Consumer	$	1,012	$	924	10
Commercial	342		304		13
Operating leases	382		543		(30)
Other interest income	2		2		—
Total financing revenue and other interest income	1,738		1,773		(2)
Interest expense	556		492		(13)
Net depreciation expense on operating lease assets	273		389		30
Net financing revenue and other interest income	909		892		2
Other revenue
Gain on automotive loans, net	—		24		(100)
Other income	66		77		(14)
Total other revenue	66		101		(35)
Total net revenue	975		993		(2)
Provision for loan losses	259		268		3
Noninterest expense
Compensation and benefits expense	131		129		(2)
Other operating expenses	317		308		(3)
Total noninterest expense	448		437		(3)
Income from continuing operations before income tax expense	$	268	$	288	(7)
Total assets	$	114,934	$	115,154	—

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


	Three months ended March 31,						Three months ended March 31,
($ in millions)	2017		2016			Favorable/(unfavorable) % change	2018			2017		Favorable/(unfavorable) % change
Net operating lease revenue
Operating lease revenue	$	543	$	769		(29)	$	382		$	543	(30)
Depreciation expense
Depreciation expense on operating lease assets (excluding remarketing gains and losses)	386		565			32	291			386		25
Remarketing losses (gains)	3		(55		)	(105)
Remarketing (gains) losses							(18		)	3		n/m
Net depreciation expense on operating lease assets	389		510			24	273			389		30
Total net operating lease revenue	$	154	$	259		(41)	$	109		$	154	(29)
Investment in operating leases, net	$	10,461	$	14,958		(30)	$	8,530		$	10,461	(18)

n/m = not meaningful

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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



	2018				2017
Three months ended March 31, ($ in millions)	Average balance (a)		Yield		Average balance (a)		Yield
Finance receivables and loans, net (b)
Consumer automotive (c)	$	68,727	5.90	%	$	65,579	5.66	%
Commercial
Wholesale floorplan	29,359		3.83		32,466		3.10
Other commercial automotive (d)	6,104		4.32		5,553		4.09
Investment in operating leases, net (e)	8,629		5.12		10,931		5.71


(a)	Average balances are calculated using a daily average 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 2017 Annual Report on Form 10-K.


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


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


(e)	Yield includes gains on sale of $18 million and losses on sale of $3 million for the three months ended March 31, 2018, and 2017, respectively. Excluding these gains and losses on sale, the annualized yield would be 4.28% and 5.82% for the three months ended March 31, 2018, and 2017, respectively.

Our Automotive Finance operations earned income from continuing operations before income tax expense of $268 million for the three months ended March 31, 2018, compared to $288 million for the three months ended March 31, ~~2017, compared to $337 million for~~2017. During the three months ended March 31, ~~2016. Results~~2018, we continued to focus on repositioning our origination profile to drive capital optimization, and expanding risk-adjusted returns. As a result, we experienced higher consumer financing revenue primarily due to an increase in consumer portfolio yields and assets. We also experienced higher commercial financing revenue primarily due to higher yields resulting from higher benchmark interest rates, and a decrease in provision for ~~the three months ended~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~March 31, 2017,~~loan losses resulting from favorable credit performance. These favorable items were ~~unfavorably impacted~~more than offset by a decrease in net operating lease revenue primarily resulting from the continued runoff of our legacy GM lease ~~portfolio as well as less favorable remarketing activity~~portfolio. Results were also unfavorably impacted by higher interest expense, due primarily to higher market rates.

Consumer financing revenue increased $88 million for the three months ended March 31, ~~2017,~~2018, compared to the same period in ~~2016~~2017, primarily due to improved portfolio yields as a result of lower used vehicle prices. The decrease was also due to an increase in provision for loan losses primarily resulting from higher net charge-offs driven by the changing composition of our portfolio to a more profitable mix of business consistent with our underwriting strategy. The decrease for the three months ended March 31, 2017, was partially offset by higher consumer financing revenue primarily due to an increase in retail portfolio yields from the execution of our continued ~~strategic~~ focus on expanding risk-adjusted returns, as well as higher ~~commercial financing revenue primarily resulting from an increase in dealer floorplan assets.~~average retail loan balances.

~~Consumer~~Commercial financing revenue increased ~~$58~~$38 million for the three months ended March 31, ~~2017,~~2018, compared to the same period in ~~2016.~~2017. The increase was primarily due to higher yields resulting from higher benchmark interest rates, partially offset by a decrease in average ~~retail asset levels and improved portfolio yields as a result of the execution of our continued strategic focus on expanding risk-adjusted returns.~~outstanding floorplan assets resulting from lower average dealer inventory levels. The increase was also due to an increase in non-floorplan dealer loan balances.

~~Commercial financing revenue increased $52~~Interest expense was $556 million for the three months ended March 31, ~~2017,~~2018, compared to $492 million in the same period in ~~2016.~~2017. The increase was primarily due to ~~an increase in floorplan assets resulting from growing dealer vehicle inventories and~~ higher ~~average vehicle prices. The increase was also due to higher benchmark rates and an increase in non-floorplan dealer loan balances.~~funding costs as a result of a rising interest rate environment.

~~We recognized~~During the three months ended March 31, 2018, we had no gains from the sale of automotive loans, as compared to a gain of $24 million for the same period in 2017. During the three months ended March 31, 2017, we utilized whole-loan sales to proactively manage our overall credit exposure, asset levels, funding, and capital utilization, including the sale of retail automotive loans, as well as previously written-down retail automotive loans related to consumers in Chapter 13 bankruptcy.

Other income decreased 14% for the three months ended March 31, 2018, compared to the same period in 2017, primarily due to a decrease in servicing fee income resulting from lower levels of off-balance sheet retail serviced assets.

Total net operating lease revenue decreased 29% for the three months ended March 31, 2018, compared to the same period in 2017. The decrease was primarily due to the runoff of our legacy GM lease portfolio, which we expect to be substantially wound-down by the second quarter of 2018. The decrease was partially offset by more favorable remarketing gains. We recognized remarketing gains of $18 million for the three months ended March 31, ~~2017,~~2018, compared to $5remarketing losses of $3 million for the same period in ~~2016 as we continued to opportunistically utilize whole-loan sales and off-balance sheet securitizations as sources of funding during the three months ended March 31,~~ 2017. ~~A portion of these gains recognized for both periods was partially offset within Corporate and Other as a result of our FTP methodology.~~

~~Total net operating lease revenue decreased 41% for the three months ended March 31, 2017, compared~~Refer to the ~~same period in 2016.~~ Lease Residual Risk Management section of this MD&A for further discussion.

The ~~decrease in net operating lease revenue~~provision for loan losses was due to the runoff of our GM lease portfolio as well as less favorable remarketing activity in 2017 compared to the same period in 2016 as a result of lower used vehicle prices. We recognized remarketing losses of $3$259 million for the three months ended March 31, ~~2017,~~2018, compared to ~~gains of $55~~$268 million for the same period in ~~2016.~~

2017. The decrease in provision for loan losses ~~was $268 million~~ for the three months ended March 31, ~~2017, compared to $209 million for the same period in 2016. The increase in provision for loan losses~~2018, was primarily ~~due to higher net charge-offs in~~driven by our consumer automotive portfolio ~~as a result~~where we experienced overall favorable credit performance including lower than anticipated losses associated with the hurricanes experienced in the third quarter of ~~our strategy to originate a more profitable mix of business.~~2017. This favorability was partially offset by growth in the consumer automotive loan portfolio. Refer to the Risk Management section of this MD&A for further discussion.

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Ally Financial Inc. • Form 10-Q

Automotive Financing Volume

Consumer Automotive Financing

~~During~~For the three months ended March 31, ~~2017, the~~2018, our average buy rate for retail originations increased 32 basis points, relative to the three months ended March 31, ~~2016.~~2017, without reducing the credit quality of our origination mix. We set our buy rates using a granular, risk-based methodology factoring in several variables ~~such as~~including interest costs, projected net average annualized loss rates ~~(NAALR)~~ at the time of origination, anticipated operating costs, and targeted return on equity. The increase in our average buy rate was primarily the result of an increase toof interest rates and our strategy to increase our targeted return on equity and more focused deployment of ~~shareholder~~stockholder capital. While we have seen an increase in provision expense and charge-offs in our consumer automotive loan portfolio over the past year in part due to deteriorating credit performance in our lower credit tiers, this increase was also a result of a deliberate shift in origination mix designed to achieve a higher risk-adjusted return. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was ~~$9.0~~$8.7 billion, or approximately ~~13.7%~~12.6% of our total consumer automotive loans at March 31, ~~2017,~~2018, as compared to ~~$9.1~~$8.8 billion, or approximately ~~13.8%~~12.9% of our total consumer automotive loans at December 31, ~~2016.~~2017.

The following ~~tables present~~table presents retail loan originations by credit tier.


Credit Tier (a)	Volume ($ in billions)		% Share of volume	Average FICO®	Volume ($ in billions)		% Share of volume	Average FICO®
Three months ended March 31, 2018
S					$	3.2	38	743
A					3.2		38	674
B					1.6		19	642
C					0.4		5	608
Total retail originations					$	8.4	100	690
Three months ended March 31, 2017
S	$	2.6	33	762	$	2.6	33	762
A	3.3		42	666	3.3		42	666
B	1.7		22	641	1.7		22	641
C	0.3		3	608	0.3		3	608
Total retail originations	$	7.9	100	689	$	7.9	100	689
Three months ended March 31, 2016
S	$	2.5	30	758
A	3.6		44	667
B	1.6		20	640
C	0.5		6	604
Total retail originations	$	8.2	100	684

(a)

Represents ~~Ally's~~Ally’s internal credit score, incorporating numerous borrower and structure attributes including: ~~FICO® Score;~~ severity and aging of delinquency; number of credit inquiries; loan-to-value ratio; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring. We originated an insignificant amount of retail loans classified as Tier D and Tier E during the three months ended March 31, ~~2017,~~2018, and March 31, ~~2016, respectively.~~2017.

Retail originations in Tier S represented 33% of originations during the three months ended March 31, 2017, compared to 30% during the three months ended March 31, 2016, while Tier C declined to 3% from 6% during the same period. Our overall origination mix continues to be in line with our strategy to optimize risk-adjusted returns.

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


Three months ended March 31,	2017		2016		2018		2017
0–71	20	%	19	%
72–75	67		68
0–71					21	%	20	%
72–75					66		67
76 +	13		13		13		13
Total retail originations (a)	100	%	100	%	100	%	100	%


(a)	Excludes RV loans.

~~As we continue the execution of our targeted underwriting strategy to originate consumer automotive assets across a broad risk spectrum, retail~~Retail originations with a term of 76 months or more represented 13% of total retail originations for both the three months ended March 31, ~~2017,~~2018, and ~~2016.~~March 31, 2017. Substantially all of the loans originated with a term of 76 months or more during the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, were considered to be prime and in credit tiers S, A, or B. We define prime retail automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of 620 or greater.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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


Three months ended March 31,	2017		2016
Pre-2013	3	%	10	%
2013	6		12
March 31,					2018		2017
Pre-2014					3	%	9	%
2014	12		21		6		12
2015	27		44		17		27
2016	40		13		26		40
2017	12		—		36		12
2018					12		—
Total	100	%	100	%	100	%	100	%

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

The 2018, 2017, ~~2016,~~ and ~~2015~~2016 vintages comprise ~~79%~~74% of the overall retail portfolio ~~for the three months ended~~as of March 31, ~~2017,~~2018, and have higher average buy rates ~~and expected losses~~ than older vintages. The increases in average buy rate and expected loss were due to the execution of our targeted underwriting strategy to originate consumer automotive assets across a broad risk spectrum, and our continued ~~strategic~~ focus on expanding risk-adjusted returns.

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


	Consumer automotive financing originations				% Share of Ally originations		Consumer automotive financing originations				% Share of Ally originations
Three months ended March 31, ($ in millions)	2017		2016		2017	2016	2018		2017		2018	2017
Used retail							$	4,769	$	4,211	50	48
New retail standard	$	3,693	$	4,040	42	45	3,606		3,693		38	42
Used retail	4,211		4,092		48	45
Lease	924		833		10	9	1,047		924		11	10
New retail subvented	37		76		—	1	42		37		1	—
Total consumer automotive financing originations (a)	$	8,865	$	9,041	100	100	$	9,464	$	8,865	100	100


(a)	Includes Commercial Services Group (CSG) originations of ~~$989~~$992 million and ~~$835~~$989 million for the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, respectively, and RV originations of ~~$130~~$100 million and ~~$128~~$130 million for the three months ended March 31, 2018, and 2017, ~~and 2016,~~ respectively.

Consumer automotive
financing originations % Share of
Ally originations
Three months ended March 31, ($ in millions)
2017 2016 2017 2016
Growth (a) $ 3,502
$ 3,367
40 37
GM 2,867
3,329
32 37
Chrysler 2,496
2,345
28 26
Total consumer automotive financing originations $ 8,865
$ 9,041
100 100



	Consumer automotive financing originations				% Share of Ally originations
Three months ended March 31, ($ in millions)	2018		2017		2018	2017
Growth channel	$	4,183	$	3,502	44	40
GM dealers	2,846		2,867		30	32
Chrysler dealers	2,435		2,496		26	28
Total consumer automotive financing originations	$	9,464	$	8,865	100	100


~~(a)~~	~~Includes Carvana purchased originations of $68 million for the three months ended March 31, 2017.~~

During the three months ended March 31, ~~2017,~~2018, total consumer originations ~~decreased $176~~increased $599 million compared to the same period in ~~2016.~~2017. The ~~decrease~~increase was due to ~~lower~~larger volume from the GMGrowth channel, ~~and~~with our continued ~~strategic~~ focus on ~~profitable originations over volume levels. The decrease in GM volume during the three months ended March 31, 2017, was partially offset by higher volume in the Growth and Chrysler channels.~~obtaining appropriate risk-adjusted returns.

We have included origination metrics by loan term and FICO® ~~Score.~~Score within this MD&A. However, the proprietary way we evaluate risk is based on multiple inputs as described in the section titled Automotive Financing Volume — Acquisition and Underwriting within the MD&A ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

The following table presents the percentage of total retail loan and lease originations, in dollars, by FICO® Score.


Three months ended March 31,	2017		2016		2018		2017
740 +	25	%	22	%	25	%	25	%
739–660	35		36
659–620	24		25
619–540	9		11
739–660					36		35
659–620					23		24
619–540					9		9
< 540	1		1		1		1
Unscored (a)	6		5		6		6
Total consumer automotive financing originations	100	%	100	%	100	%	100	%


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

Originations with a FICO® Score of less than 620 (considered nonprime) represented 10% ~~and 12%~~ of total consumer originations for both the three months ended March 31, ~~2017,~~2018, and ~~2016, respectively.~~2017. Consumer loans and leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations for the three months ended March 31, ~~2017.~~2018. Nonprime applications that are not automatically declined by our proprietary credit-scoring models for risk reasons are manually reviewed and decisioned by an experienced underwriting team. The nonprime portfolio is subject to more stringent underwriting criteria for certain loan attributes (e.g., payment-to-income, mileage, and maximum amount financed) and generally does not include any loans with a term of 76 months or more. For discussion of our credit risk management practices and performance, refer to the section titled Risk Management.

For discussion of manufacturer marketing incentives, refer to our 2017 Annual Report on Form 10-K, ~~for the year ended December 31, 2016,~~ Item 7, ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations — Automotive Finance Operations.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Commercial Wholesale Financing Volume

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


	Average balance				Average balance
Three months ended March 31, ($ in millions)	2017		2016		2018			2017
GM new vehicles	$	17,455	$	14,290	43		%	49		%
Chrysler new vehicles	9,283		9,217		28			26
Growth new vehicles	4,536		4,108		15			13
Used vehicles	4,180		3,870		14			12
Total					100		%	100		%
Total commercial wholesale finance receivables	$	35,454	$	31,485	$	29,359		$	32,466

~~Commercial~~Average commercial wholesale financing ~~average volume increased $4.0~~receivables outstanding decreased $3.1 billion during the three months ended March 31, ~~2017,~~2018, compared to the same period in ~~2016,~~2017. The decrease was primarily due to ~~higher~~a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market, as well as lower dealer inventory levels ~~and an increase in trucks and sport utility vehicles, which have higher average prices than cars.~~during the period. Dealer inventory levels are dependent on a number of factors including manufacturer production schedules and vehicle mix, sales incentives, and industry sales—all of which can influence future wholesale balances.

Other Commercial Automotive Financing

We also provide other forms of commercial financing for the automotive industry including automotive dealer term loans and automotive fleet financing. Automotive dealer term 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 and/or other dealership assets, and are typically personally guaranteed by the individual owners of the dealership. Automotive dealer loans, inclusive of our commercial lease portfolio, increased $0.5 billion to an average of $5.6 billion for the three months ended March 31, 2017, compared to an average of $5.1 billion for the three months ended March 31, 2016. 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. ~~In 2016, we began offering~~We also offer collateralized financing to mid-market companies, corporations, and municipalities for purchases such as construction and energy equipment, business aircraft, marine, healthcare equipment, rail cars, and more. Other commercial automotive loans, inclusive of our commercial lease portfolio, increased 10% for the ~~acquisition~~three months ended March 31, 2018, compared to the same period in 2017, to an average of ~~transportation assets including tractors and trailers, among other things.~~$6.1 billion.

6876

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~~Management's~~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 March 31,							Three months ended March 31,
($ in millions)	2017			2016			Favorable/ (unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Insurance premiums and other income
Insurance premiums and service revenue earned	$	241		$	230		5	$	256		$	241		6
Investment income, net (a)	35			34			3
Interest and dividends on investment securities, net (a)								10			14			(29)
Other (loss) gain on investments, net (b)								(14		)	21			(167)
Other income	3			4			(25)	6			3			100
Total insurance premiums and other income	279			268			4	258			279			(8)
Expense
Insurance losses and loss adjustment expenses	88			73			(21)	63			88			28
Acquisition and underwriting expense
Compensation and benefits expense	19			18			(6)	21			19			(11)
Insurance commissions expense	99			94			(5)	110			99			(11)
Other expenses	33			33			—	37			33			(12)
Total acquisition and underwriting expense	151			145			(4)	168			151			(11)
Total expense	239			218			(10)	231			239			3
Income from continuing operations before income tax expense	$	40		$	50		(20)	$	27		$	40		(33)
Total assets	$	7,230		$	7,194		1	$	7,557		$	7,230		5
Insurance premiums and service revenue written	$	240		$	222		8	$	275		$	240		15
Combined ratio (b)	98.1		%	94.0		%
Combined ratio (c)								88.8		%	98.1		%


(a)	Includes ~~realized gains on investments~~interest expense of ~~$21~~$16 million and ~~$22~~$11 million for the three months ended March 31, ~~2017,~~2018, and ~~2016, respectively; and interest expense of $11 million and $12 million for the~~ ~~three months ended~~ ~~March 31,~~ 2017, ~~and 2016,~~ respectively.


(b)	Other loss on investments for the three months ended March 31, 2018, includes unrealized losses on equity securities of $35 million, which are included in net income as a result of the adoption of Accounting Standards Update (ASU) 2016-01 on January 1, 2018.


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

Our Insurance operations earned income from continuing operations before income tax expense of $27 million for the three months ended March 31, 2018, compared to $40 million for the three months ended March 31, ~~2017, compared to $50 million for the three months ended March 31, 2016.~~2017. The decrease for the three months ended March 31, ~~2017,~~2018, includes unrealized losses on investments in equity securities of $35 million related to the decrease in fair value of equity securities. As further described in Note 1 to the Condensed Consolidated Financial Statements, we adopted ASU 2016-01 on January 1, 2018, which requires equity investments to be measured at fair value with changes in fair value recognized in net income instead of through other comprehensive (loss) income. This decrease was ~~primarily due to higher~~mostly offset by lower weather-related losses ~~driven by severe hailstorms.~~and the ceding of weather-related losses subject to a reinsurance agreement.

Insurance premiums and service revenue earned was $256 million for the three months ended March 31, 2018, compared to $241 million for the three months ended March 31, ~~2017, compared to $230 million for the three months ended March 31, 2016.~~2017. The increase for the three months ended March 31, ~~2017,~~2018, was primarily due to higher dealer margin and vehicle inventory insurance ~~rate increases and higher dealer floorplan balances.~~rates, partially offset by ceding of reinsurance premiums under a reinsurance agreement.

Insurance losses and loss adjustment expenses totaled ~~$88~~$63 million for the three months ended March 31, ~~2017,~~2018, compared to ~~$73~~$88 million for the same period in ~~2016.~~2017. The ~~increase~~decrease for the three months ended March 31, 2018, was ~~due to higher~~primarily driven by weather losses and the ceding of weather-related losses ~~driven by severe hailstorms, particularly in late March.~~subject to a reinsurance agreement. The ~~same higher weather-related~~lower weather losses primarily drove the ~~increase~~decrease in the combined ratio to 88.8% for the three months ended March 31, 2018, compared to 98.1% for the three months ended March 31, ~~2017, compared~~2017. In April 2018, we renewed our annual reinsurance program and continue to ~~94.0% for the three months ended March 31, 2016. During the three months ended March 31, 2017, weather losses increased $16 million compared~~utilize such coverage to the prior year and represented the worst performing first quarter for weather losses in over 20 years. Effective in April 2017, we entered into a one-year reinsurance agreement to reduce volatility associated with weather-related losses on vehicle inventory insurance. Management believes that despite the costs associated with such reinsurance coverage, anticipated pricing actions to raise premiums in states most severely impacted by weather losses combined with the purchasemanage our risk of ~~reinsurance should reduce volatility in our results and contribute to profitability.~~loss.

6977

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Ally Financial Inc. • Form 10-Q

Premium and Service Revenue Written

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


	Three months ended March 31,						Three months ended March 31,
($ in millions)	2017			2016			2018			2017
Vehicle service contracts
New retail	$	103		$	96		$	107		$	103
Used retail	113			109			131			113
Reinsurance (a)	(49		)	(41		)	(47		)	(49		)
Total vehicle service contracts (b)	167			164			191			167
Vehicle inventory insurance	52			41			62			52
Other finance and insurance (c)	21			17			22			21
Total	$	240		$	222		$	275		$	240


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

(b)

VSC revenue is earned over the life of the service contract on a basis proportionate to the anticipated cost pattern.Refer to the section titled Recently Adopted Accounting Standards in Note 1 to the Condensed Consolidated Financial Statements for further information regarding our adoption of the amendments to the revenue recognition principles of Accounting Standards Codification 606, Revenue from Contracts with Customers, and Note 2 to the Condensed Consolidated Financial Statements for further discussion of this revenue stream and the related impacts of adoption.


(c)	Other finance and insurance includes GAP coverage, ~~excess wear and tear,~~VMCs, ClearGuard, and other ancillary products.

Insurance premiums and service revenue written was ~~$240~~$275 million for the three months ended March 31, ~~2017,~~2018, compared to ~~$222~~$240 million for the same period in ~~2016.~~2017. The increase for the three months ended March 31, 2018, was primarily due to higher vehicle inventory insurance ~~rate increases~~rates, higher VSC volume, and ~~higher dealer floorplan balances, partially offset by an increase in~~lower dealer reinsurance participation.

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 ~~tolerance,~~appetite, liquidity requirements, regulatory requirements, and rating agency considerations, among other factors.

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


($ in millions)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Cash
Noninterest-bearing cash	$	227	$	273	$	265	$	298
Interest-bearing cash	970		612		859		983
Total cash	1,197		885		1,124		1,281
Equity securities					668		518
Available-for-sale securities
Debt securities
U.S. Treasury	374		299		396		380
U.S. States and political subdivisions	762		744		751		773
Foreign government	146		162		149		154
Agency mortgage-backed residential	622		633		629		613
Mortgage-backed residential	209		227		163		174
Mortgage-backed commercial	39		39		6		22
Asset-backed	—		6
Corporate debt	1,255		1,443		1,230		1,256
Total debt securities	3,407		3,553
Equity securities	444		595
Total available-for-sale securities	3,851		4,148		3,324		3,372
Total cash and securities	$	5,048	$	5,033	$	5,116	$	5,171

7078

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~~Management's~~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 March 31,					Three months ended March 31,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	71	$	57	25	$	105	$	71	48
Interest expense	37		37		—	62		37		(68)
Net financing revenue and other interest income	34		20		70	43		34		26
Gain on mortgage loans, net						1		—		n/m
Total net revenue						44		34		29
Provision for loan losses	1		3		67	2		1		(100)
Noninterest expense
Compensation and benefits expense	5		3		(67)	8		5		(60)
Other operating expenses	19		12		(58)	26		19		(37)
Total noninterest expense	24		15		(60)	34		24		(42)
Income from continuing operations before income tax expense	$	9	$	2	n/m	$	8	$	9	(11)
Total assets	$	8,362	$	7,493	12	$	12,780	$	8,362	53

n/m = not meaningful

Our Mortgage Finance operations earned income from continuing operations before income tax expense of $8 million and $9 million for the three months ended March 31, 2018, and 2017, ~~compared to $2 million~~respectively. The decrease for the three months ended March 31, ~~2016. The increase~~2018, was primarily due to an increase in noninterest expense driven by continued build out of the direct-to-consumer offering and asset growth, as well as higher provision for loan losses. This decrease was partially offset by an increase in net financing revenue and other interest income driven by increased portfolio loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. In addition, the provision for loan losses was favorable due to lower portfolio growth. The increase in income from continuing operations before income tax expense was partially offset by higher noninterest expense to support our bulk acquisition strategyloans and ~~the launch of direct mortgage~~direct-to-consumer originations.

Net financing revenue and other interest income was $43 million and $34 million for the three months ended March 31, 2018, and 2017, ~~compared to $20 million for the three months ended March 31, 2016.~~respectively. The increase in net financing revenue and other interest income was primarily due to increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. During the three months ended March 31, ~~2017,~~2018, we purchased ~~$327 million~~$1.3 billion of mortgage loans that were originated by third parties, compared to ~~purchases~~$327 million during the same period in 2017.

Gain on sale of ~~$1.4 billion in 2016.~~

~~The provision for loan losses decreased $2~~mortgage loans increased $1 million for the three months ended March 31, ~~2017,~~2018, compared to the same period in ~~2016.~~ 2017, as a result of direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment partner.

The ~~decrease~~provision for loan losses increased $1 million for the three months ended March 31, 2018, compared to 2017. The increase for the three months ended March 31, 2018, was primarily ~~due to lower~~driven by higher portfolio growth compared to the same period in ~~2016.~~2017. The portfolio continues to demonstrate strong credit performance consistent with expectations.

Total noninterest expense was $34 million for the three months ended March 31, 2018, compared to $24 million for the three months ended March 31, ~~2017, compared to $15 million for the three months ended March 31, 2016.~~2017. The increase was ~~primarily due to higher noninterest expense to support our bulk acquisition strategy~~driven by continued expansion of the direct-to-consumer offering and ~~the launch of direct mortgage originations.~~asset growth.

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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



FICO® Score	Volume ($ in millions)		% Share of volume
Three months ended March 31, 2018
740 +	$	1,094	79
720–739	132		9
700–719	105		8
680–699	55		4
Total consumer mortgage financing volume	$	1,386	100
Three months ended March 31, 2017
740 +	$	266	81
720–739	34		10
700–719	20		6
680–699	5		2
660–679	2		1
Total consumer mortgage financing volume	$	327	100

The following table presents the net UPB, net UPB as a percentage of total, ~~weighted average~~weighted-average coupon (WAC), premium net of discounts, loan-to-value (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)	Net UPB (a) ($ in millions)		% of total net UPB	WAC		Net premium ($ in millions)		Average refreshed LTV (b)		Average refreshed FICO® (c)
March 31, 2017
March 31, 2018
Adjustable-rate	$	2,489	31	3.34	%	$	41	57.22	%	771	$	2,860	23	3.36	%	$	43	57.18	%	771
Fixed-rate	5,669		69	4.01		132		59.89		770	9,603		77	4.02		227		61.36		770
Total	$	8,158	100	3.81		$	173	59.08		770	$	12,463	100	3.87		$	270	60.40		770
December 31, 2016
December 31, 2017
Adjustable-rate	$	2,488	31	3.34	%	$	42	57.94	%	773	$	2,579	23	3.35	%	$	42	56.82	%	774
Fixed-rate	5,633		69	4.02		131		60.47		772	8,824		77	4.02		212		62.02		771
Total	$	8,121	100	3.81		$	173	59.69		772	$	11,403	100	3.87		$	254	60.84		772


(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.

7280

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~~Management's~~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 March 31,
($ in millions) 2017 2016 Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans $ 54
$ 44
23
Interest expense 20
16
(25)
Net financing revenue and other interest income 34
28
21
Total other revenue 18
6
n/m
Total net revenue 52
34
53
Provision for loan losses 6
6
—
Noninterest expense

Compensation and benefits expense 14
10
(40)
Other operating expenses 7
7
—
Total noninterest expense 21
17
(24)
Income from continuing operations before income tax expense $ 25
$ 11
127
Total assets $ 3,438
$ 2,839
21

~~n/m = not meaningful~~



	Three months ended March 31,
($ in millions)	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans	$	74	$	54	37
Interest expense	28		20		(40)
Net financing revenue and other interest income	46		34		35
Total other revenue	8		18		(56)
Total net revenue	54		52		4
Provision for loan losses	—		6		100
Noninterest expense
Compensation and benefits expense	15		14		(7)
Other operating expenses	10		7		(43)
Total noninterest expense	25		21		(19)
Income from continuing operations before income tax expense	$	29	$	25	16
Total assets	$	4,375	$	3,438	27

Our Corporate Finance operations earned income from continuing operations before income tax expense of $29 million for the three months ended March 31, 2018, compared to $25 million for the three months ended March 31, ~~2017, compared to $11 million for the three months ended March 31, 2016.~~2017. The increase was aprimarily the result of higher ~~net financing revenue~~asset levels driven by our strategy to responsibly grow the loan portfolio and ~~other interest~~expand our product suite while selectively pursuing opportunities to broaden industry and product breadth. Results were also favorably impacted by a decrease in provision for loan losses, as well as higher syndication and fee income ~~due primarily to asset growth, and higher other revenue due to a gain on an equity investment. The increase~~during the first quarter of 2018. This was partially offset by ~~higher compensation and benefits expense to support the growth of the business.~~lower investment income.

Net financing revenue and other interest income was $46 million for the three months ended March 31, 2018, compared to $34 million for the three months ended March 31, ~~2017, compared to $28 million for the three months ended March 31, 2016.~~2017. The increase was primarily due to ~~asset~~the growth ~~across all business segments in line with~~of our ~~growth strategy,~~lending portfolio driven by higher new loan originations, which resulted in a ~~23%~~25% increase in the gross carrying value of finance receivables and loans as of March 31, ~~2017,~~2018, compared to March 31, ~~2016.~~2017.

Other revenue was $8 million for the three months ended March 31, 2018, compared to $18 million for the three months ended March 31, ~~2017, compared to $6 million for the three months ended March 31, 2016.~~2017. The ~~increase~~decrease was primarily driven by ana nonrecurring gain of $11 million ~~gain~~ on the sale of an equity investment during the first quarter of 2017. Additionally, we recognized a $5 million unrealized loss on an equity investment during the three months ended March 31, 2018, following the adoption of ASU 2016-01 on January 1, 2018, which requires equity investments to be measured at fair value with changes in fair value recognized in net income. Equity investment activity was partially offset by a $4 million increase in syndication and fee income for the three months ended March 31, 2018.

The provision for loan losses decreased $6 million for the three months ended March 31, 2018, compared to the same period in 2017. This decrease was primarily due to lower provision expense for individually impaired loans as well as favorable overall credit performance in the portfolio. This was partially offset by the impact related to increases in asset levels.

Total noninterest expense was $25 million for the three months ended March 31, 2018, compared to $21 million for the three months ended March 31, ~~2017, compared to $17 million for the three months ended March 31, 2016.~~2017. The increase was primarily due to ~~higher~~increases in compensation and ~~benefit expenses to support the~~benefits expense and other noninterest costs associated with growth in our business.

Table of ~~the business.~~Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Credit Portfolio

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


($ in millions)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Loans held-for-sale, net					$	101	$	77
Finance receivables and loans	$	3,432	$	3,180	4,278		3,910
Unfunded lending commitments (a)	$	1,485	$	1,483	2,132		1,813

(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 should the client fail to fulfill a contractual commitment. As many of these commitments are subject to borrowing base agreements and other restrictive covenants or may expire without being fully drawn, the contract amounts are not necessarily indicative of future cash requirements.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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


	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Industry
Services	28.4	%	27.4	%	30.6	%	31.0	%
Health services					14.1		15.6
Automotive and transportation	11.7		13.5		12.6		10.3
Health services	11.1		12.0
Wholesale					8.3		8.7
Machinery, equipment, and electronics	9.0		6.6		7.7		7.9
Wholesale	8.7		8.9
Chemicals and metals					6.2		5.0
Other manufactured products	8.1		8.8		5.9		7.1
Chemicals and metals	5.7		5.8
Food and beverages					4.8		4.1
Retail trade	4.7		5.1		3.1		2.6
Food and beverages	4.0		4.2
Paper, printing, and publishing	3.0		3.2		2.4		3.0
Other	5.6		4.5		4.3		4.7
Total finance receivables and loans	100.0	%	100.0	%	100.0	%	100.0	%

7482

Table of Contents

~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Corporate and Other

The following table summarizes the activities of Corporate and ~~Other. Corporate and~~ Other, which primarily ~~consists~~consist of ~~activity related to~~ 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, ~~the amortization of the~~original issue discount, ~~associated with new debt issuances and bond exchanges,~~ and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to ~~TradeKing since acquisition,~~Ally Invest, and reclassifications and eliminations between the reportable operating segments.


	Three months ended March 31,							Three months ended March 31,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans (a)								$	10		$	15		(33)
Interest and dividends on investment securities and other earning assets								150			109			38
Interest on cash and cash equivalents								13			4			n/m
Other, net								(2		)	(2		)	—
Total financing revenue and other interest income	$	126		$	92		37	171			126			36
Interest expense
Original issue discount amortization	21			18			(17)
Other interest expense	101			81			(25)
Original issue discount amortization (b)								24			21			(14)
Other interest expense (c)								108			101			(7)
Total interest expense	122			99			(23)	132			122			(8)
Net financing revenue and other interest income (a)	4			(7		)	157
Net financing revenue and other interest income								39			4			n/m
Other revenue
Loss on mortgage and automotive loans, net	(10		)	(4		)	(150)	—			(10		)	100
Loss on extinguishment of debt	(1		)	(4		)	75
Other gain on investments, net	6			32			(81)	6			6			—
Other income, net of losses	18			15			20	27			17			59
Total other revenue	13			39			(67)	33			13			154
Total net revenue	17			32			(47)	72			17			n/m
Provision for loan losses	(4		)	2			n/m	—			(4		)	(100)
Total noninterest expense (b)	57			33			(73)
Total noninterest expense (d)								76			57			(33)
Loss from continuing operations before income tax expense	$	(36	)	$	(3	)	n/m	$	(4	)	$	(36	)	89
Total assets	$	27,917		$	26,690		5	$	30,375		$	27,917		9

n/m = not meaningful


(a)	~~Refer~~Primarily related to ~~the table that follows for further details on the components of net~~ financing revenue from our legacy mortgage portfolio and ~~other interest income.~~impacts related to hedging activities associated with our consumer automotive loan portfolio.


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


(c)	Includes ~~a reduction~~the residual impacts of ~~$212~~our FTP methodology and impacts of hedging activities of certain debt obligations.


(d)	Includes reductions of $220 million and ~~$202~~$212 million for the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, respectively, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense.

The following table ~~summarizes the components of net financing revenue and other interest income for Corporate and Other.~~

Three months ended March 31,
($ in millions) 2017 2016
Original issue discount amortization (a) $ (21 ) $ (18 )
Net impact of the funds-transfer pricing methodology 15
3
Other (including legacy mortgage net financing revenue and other interest income) 10
8
Net financing revenue and other interest income for Corporate and Other $ 4
$ (7 )


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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~The following table~~ presents the scheduled remaining amortization of the original issue discount at March 31, ~~2017.~~2018.


Year ended December 31, ($ in millions)	2017		2018		2019		2020		2021		2022 and thereafter (a)		Total		2018		2019		2020		2021		2022		2023 and thereafter (a)		Total
Original issue discount
Outstanding balance at year end	$	1,235	$	1,134	$	1,095	$	1,056	$	1,014	$	—			$	1,135	$	1,096	$	1,057	$	1,014	$	967	$	913
Total amortization (b)	69		101		39		39		42		1,014		$	1,304	76		39		39		43		47		967		$	1,211


(a)	The maximum annual scheduled amortization for any individual year is $153 million in 2030.


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

~~Loss~~Corporate and Other incurred a loss from continuing operations before income tax expense of $4 million for ~~Corporate and Other was~~the three months ended March 31, 2018, compared to a loss of $36 million for the three months ended March 31, ~~2017, compared to $3 million for the three months ended March 31, 2016.~~2017. The ~~increase~~decrease in loss for the three months ended March 31, ~~2017,~~2018, was primarily due to an increase in financing revenue and other interest income driven by an increase in interest and dividends on investment securities and other earning assets. The decrease in loss was partially offset by an increase in noninterest expense,

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

including compensation and benefits, and an increase in interest expense driven by increased interest on deposits resulting from deposit growth and higher market rates as well as increased LIBOR rates on secured borrowings, partially offset by a decrease in unsecured debt as maturities have been refinanced with lower cost funding. Additionally, the increase in loss was driven by lower gains on sales of investment securities. The increase in loss was partially offset by an increase in financing revenue and other interest income driven by increased interest and dividends on investment securities and other earning assets and a decrease in the provision for loan losses resulting from lower net charge-offs as the legacy mortgage portfolio continues to runoff.borrowings.

Financing revenue and other interest income was $171 million for the three months ended March 31, 2018, compared to $126 million for the three months ended March 31, ~~2017, compared to $92 million for the three months ended March 31, 2016.~~2017. The increase was primarily driven by increased interest and dividends onfrom investment securities and other earning assets compared to 2017, primarily as a result of growth in the ~~same periods~~size of the investment portfolio. Results for the three months ended March 31, 2018, were also favorably impacted by increases in ~~2016.~~interest on cash and cash equivalents, as a result of higher yields.

~~Interest~~Total interest expense was $132 million for the three months ended March 31, 2018, compared to $122 million for the three months ended March 31, ~~2017, compared to $99 million for~~2017. Total interest expense increased during the three months ended March 31, ~~2016. The increase was~~2018, compared to the same period in 2017, driven primarily ~~driven~~ by increased interest on deposits resulting from higher market rates and deposit growth ~~and~~as well as increased LIBOR rates on secured borrowings. The increase was partially offset by a decrease in ~~borrowings including~~ higher-cost unsecured debt borrowings as maturities are ~~refinanced~~replaced with lower cost funding.

~~Other gain~~We had no loss on ~~investments was $6~~mortgage and automotive loans for the three months ended March 31, 2018, compared to a loss of $10 million for the three months ended March 31, 2017. The loss during the three months ended March 31, 2017, ~~compared to $32 million for~~was driven by the ~~three months ended~~ ~~March 31, 2016. The decrease was due primarily to higher sales~~sale of ~~investment securities in 2016 resulting from favorable market conditions that did not repeat in~~automotive loans and the ~~current period.~~

~~The provision for loan losses decreased $6 million for the~~ ~~three months ended~~ ~~March 31, 2017, compared~~corresponding impact to the ~~same period in 2016,~~Corporate and Other segment as a result of ~~lower~~our FTP methodology.

Other income, net ~~charge-offs as~~of losses was $27 million for the ~~legacy mortgage portfolio continues~~three months ended March 31, 2018, compared to ~~runoff.~~$17 million for the three months ended March 31, 2017. The increase was driven primarily by favorable derivative activity.

Noninterest expense was $76 million for the three months ended March 31, 2018, compared to $57 million for the three months ended March 31, ~~2017, compared to $33 million for the~~ ~~three months ended~~ ~~March 31, 2016.~~2017. The ~~increase was~~increases were primarily due to increased compensation and benefit costs from a one-time tax reform-related bonus paid to eligible Ally employees during the three months ended March 31, 2018, as well as other expenses ~~from~~to support the ~~TradeKing integration and operations included in our results subsequent to acquisition in~~growth of the ~~second quarter of 2016.~~business.

Total assets were $30.4 billion as of March 31, 2018, compared to $27.9 billion as of March 31, ~~2017, compared to $26.7 billion as of March 31, 2016.~~2017. The increase was primarily the result of growth ofin our available-for-sale and held-to-maturity securities ~~portfolios as well as the June 1, 2016, acquisition of TradeKing, which had total assets of $285 million as of March 31, 2017.~~portfolios. The increase was partially offset by a reduction of cash and cash equivalents, other assets, and the continued runoff of our legacy mortgage portfolio. At March 31, ~~2017,~~2018, the gross carrying value of the legacy mortgage portfolio was ~~$2.6~~$2.0 billion, compared to ~~$3.2~~$2.6 billion at March 31, ~~2016.~~2017.

~~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)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Cash
Noninterest-bearing cash	$	1,261	$	1,249	$	480	$	523
Interest-bearing cash	1,814		3,770		2,094		2,425
Total cash	3,075		5,019		2,574		2,948
Available-for-sale securities
Debt securities
U.S. Treasury	1,851		1,321		1,373		1,397
U.S. States and political subdivisions	33		38		80		81
Agency mortgage-backed residential	11,240		9,657		14,254		13,678
Mortgage-backed residential	1,787		1,870		2,221		2,320
Mortgage-backed commercial	495		498		574		519
Asset-backed	1,051		1,394		900		936
Total available-for-sale securities	16,457		14,778		19,402		18,931
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	1,011		789		1,864		1,829
Asset-backed retained notes	52		—		31		36
Total held-to-maturity securities	1,063		789		1,895		1,865
Total cash and securities	$	20,595	$	20,586	$	23,871	$	23,744

~~TradeKing~~

~~On June 1, 2016,~~

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Ally Invest

In May 2017, we ~~acquired 100% of the equity of TradeKing a~~launched Ally Invest, our digital ~~wealth management company with an online broker-dealer, digital portfolio management platform, and educational content. The addition of~~ brokerage and wealth management ~~is a natural extension~~offering that combines the platform we acquired from the June 2016 acquisition of TradeKing with our award-winning online banking ~~franchise, creating~~products in a ~~full suite of financial products for savings and investments.~~single, convenient customer experience that provides low-cost investing with competitive deposit products. The following table presents the trading days and average customer trades per day during each respective quarter and the number of funded accounts, total net customer assets, and total customer cash balances as of the end of each ~~full~~ quarter since ~~acquisition for TradeKing's online broker-dealer.~~2017.


	1st Quarter 2017		4th Quarter 2016		3rd Quarter 2016		1st quarter 2018		4th quarter 2017		3rd quarter 2017		2nd quarter 2017		1st quarter 2017
Trading days (a)	62		62.5		64		61.0		62.5		62.5		63.0		62.0
Average customer trades per day (in thousands)	19		18		17
Funded accounts (b) (in thousands)	251		244		240
Average customer trades per day (in thousands)							21.8		16.8		15.5		16.5		19.0
Funded accounts (b) (in thousands)							259		245		239		234		235
Total net customer assets ($ in millions)	$	4,987	$	4,771	$	4,678	$	5,473	$	5,354	$	5,203	$	5,006	$	4,984
Total customer cash balances ($ in millions)	$	1,232	$	1,253	$	1,177	$	1,111	$	1,144	$	1,168	$	1,154	$	1,233


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


(b)	Represents open and funded brokerage accounts.

Average customer trades per day increased during the first quarter of 2018 due to the combination of seasonality and increased market volatility. Average customer trades per day of 21.8 thousand represented a 30% increase from the prior quarter and a 15% increase from the prior year. Additionally, funded accounts have increased since our acquisition of TradeKing as a result of a continued focus on marketing campaigns, while net customer assets have increased due to market appreciation and growth in funded accounts. Finally, total customer cash has trended lower in recent periods as customers have shifted a higher percentage of assets into investment positions.

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Ally Financial Inc. • Form 10-Q

Risk Management

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

Lines of Business — Responsible for managing all of the risks that emanate from their risk-taking activities.

Risk Management — Responsible for establishing and maintaining our risk management program and promulgating it enterprise-wide. Risk management also provides an independent review and challenge to the Lines of Business adherence to our risk management program.

Internal Audit/Loan Review — Provides its own independent assessments over our internal controls and governance.

Our risk management program is overseen by the Ally Board of Directors (the Board)~~, various risk committees, the executive leadership team, and our associates.~~. The Risk ~~and Compliance~~ Committee of the Board ~~(RCC), together with the Board,~~(RC) sets the risk appetite across our company while risk-oriented management committees, the ~~risk committees,~~ executive leadership team, and our associates identify and monitor current and emerging risks and ~~ensure~~manage those risks ~~are managed to be~~ within our risk appetite. ~~Ally's~~Ally’s primary types of risk include ~~credit,~~the following:

Credit risk — The risk of loss arising from an obligor not meeting its contractual obligations to Ally.

Lease Residual risk — The risk of loss arising from the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of the values used in establishing the pricing at lease ~~residual,~~inception.

Market risk — The risk of loss arising from changes in the fair value of our assets or liabilities (including derivatives) caused by movements in market ~~operational, insurance/underwriting, business/strategic, reputation,~~variables, such as interest rates, foreign-exchange rates, and ~~liquidity. For more information~~equity and commodity prices.

Operational risk — The risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events.

Insurance/Underwriting risk — The risk of loss associated with insured events occurring, the severity of insured events, and the timing of claim payments arising from insured events.

Business/Strategic risk — The risk resulting from the pursuit of business plans that turn out to be unsuccessful because of, for example, uninformed business decisions, inadequate resource allocation, or failure to respond well to changes in the business and competitive environment.

Reputation risk — The risk to earnings or capital arising from negative public opinion.

Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by an inability, or perceived inability, to meet our financial obligations, and to withstand unforeseen liquidity stress events (refer to discussion in the section titled Liquidity Management, Funding, and Regulatory Capital within this MD&A).

Our risk-governance structure starts within each line of business, including committees established to oversee risk in their respective areas. The lines of business are responsible for their risk-based performance and compliance with risk management policies and applicable law.

The risk-management function is accountable for independently identifying, monitoring, measuring, and reporting on our various risks and for designing an effective risk management ~~process, refer~~framework and structure. The risk-management function is also responsible for developing, maintaining, and implementing enterprise-risk-management policies. In addition, the Enterprise Risk Management Committee (ERMC) is responsible for supporting the Chief Risk Officer’s oversight of senior management’s responsibility to execute on Ally’s strategy within our risk appetite set by the RC and the Chief Risk Officer’s implementation of Ally’s risk-management and compliance programs. The Chief Risk Officer reports to the ~~Risk Management MD&A section~~RC, as well as the Chief Executive Officer.

All lines of business and enterprise functions are subject to full and unrestricted audits by Audit Services. The General Auditor reports to both the Chief Executive Officer and the Audit Committee of the Board (AC), and is primarily responsible for assisting the AC in fulfilling its governance and oversight responsibilities. Audit Services is granted free and unrestricted access to any and all of our ~~2016 Annual Report on~~records, physical properties, technologies, management, and employees.

In addition, our Loan Review Group provides an independent assessment of the quality of our extensions of credit and credit risk management practices, and all lines of business and enterprise functions that create or influence credit risk are subject to full and unrestricted reviews by the Loan Review Group. This group also is granted free and unrestricted access to any and all of our records, physical properties, technologies, management and employees, and reports its findings directly to the RC.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form ~~10-K.~~10-Q

Loan and Lease Exposure

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


($ in millions)	March 31, 2017		December 31, 2016
($ in millions)					March 31, 2018		December 31, 2017
Finance receivables and loans
Automotive Finance	$	104,566	$	104,646	$	106,253	$	105,129
Mortgage Finance	8,331		8,294		12,733		11,657
Corporate Finance	3,432		3,180		4,278		3,910
Corporate and Other (a)	2,673		2,824		2,063		2,197
Total finance receivables and loans	119,002		118,944		125,327		122,893
Loans held-for-sale
Mortgage Finance (b)	1		—		7		13
Corporate Finance					101		77
Corporate and Other					18		18
Total loans held-for-sale					126		108
Total on-balance sheet loans	119,003		118,944		125,453		123,001
Off-balance sheet securitized loans
Automotive Finance (c)	3,067		2,392		1,658		1,964
Whole-loan sales
Automotive Finance (c)	2,787		3,164		1,167		1,399
Total off-balance sheet loans					2,825		3,363
Operating lease assets
Automotive Finance	10,461		11,470		8,530		8,741
Total loan and lease exposure	$	135,318	$	135,970	$	136,808	$	135,105
Serviced loans and leases
Automotive Finance	$	120,693	$	121,480	$	117,134	$	116,878
Mortgage Finance	8,332		8,294		12,743		11,670
Corporate Finance	3,231		2,991		4,519		3,893
Corporate and Other	2,606		2,757		1,950		2,093
Total serviced loans and leases	$	134,862	$	135,522	$	136,346	$	134,534


(a)	Includes ~~$2.6~~$2.0 billion and ~~$2.8~~$2.1 billion of consumer mortgage loans in our ~~Mortgage — Legacy~~legacy mortgage portfolio at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.


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


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

The risks inherent in our loan and lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact to our borrowers. The potential financial statement impact of these exposures varies depending on the accounting classification and future expected disposition strategy. We retain the majority of our 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 lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, has declined with the decrease in the lease portfolio.

Since the end of 2014, we have experienced growth in our consumer retail automotive loan portfolio and a significant reduction in lease assets. This shift in our portfolio mix over the past several years has contributed to an increase in provision expense for loan losses. Consumer lease residuals are not included in the allowance for loan losses as changes in the expected residual values on consumer leases are included in depreciation expense over the remaining life of the lease. Our risk to future fluctuations in used vehicle values ~~is diminishing~~has diminished in recent years as our lease assets have declined ~~materially and will continue to decline as the number of lease terminations continues to outpace lease originations. All~~materially. While all leases are exposed to potential reductions in used vehicle values, ~~while~~ only ~~those~~ loans where we take possession of the vehicle are affected by potential reductions in used vehicle values. Operating lease assets, net of accumulated depreciation, decreased ~~$1.0 billion~~$211 million to ~~$10.5~~$8.5 billion at March 31, ~~2017,~~2018, from ~~$11.5~~$8.7 billion at December 31, ~~2016.~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

2017.

Credit Risk Management

Credit risk is defined as the risk of loss arising from an obligor not meeting its contractual obligations to Ally. Therefore, credit risk is a major source of potential economic loss to ~~us.~~Ally. Credit risk is monitored by ~~several groups and functions throughout the organization, including enterprise and line of business committees and~~ the risk ~~management function.~~committees, executive leadership team, and our associates. Together, they oversee credit decisioning, account servicing activities, and credit risk management processes, and monitor credit

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Ally Financial Inc. • Form 10-Q

risk exposures to ensure they are managed in a ~~safe-and-sound~~safe and sound manner and are within our risk appetite. In addition, our Loan Review Group provides an independent assessment of the quality of our credit portfolios and credit risk management practices, and directly reports its findings to the ~~RCC and the Ally Financial Inc. General Auditor~~RC on a regular basis.

To mitigate risk, we have implemented specific policies and practices across all lines of business, utilizing both qualitative and quantitative analyses. This reflects our commitment to maintain 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 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 leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and procedures to ensure and monitor compliance with relevant laws and regulations. Our consumer and commercial loan and lease portfolios are subject to regular stress tests that are based on plausible, but unexpected, economic scenarios to ensure that we can withstand a severe economic downturn. In addition, we establish and maintain underwriting policies and guardrails across our portfolios and higher risk segments (e.g., nonprime) based on our risk appetite.

Another important aspect to managing credit risk involves the need to carefully monitor and manage the performance and pricing of our loan products to ensure that we generate appropriate risk-adjusted returns and are adequately compensated for the risk we are taking. When considering pricing, various granular risk-based factors are considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit losses and trends in credit losses in conjunction with pricing at contract ~~inception. While we have seen an increase in provision expense~~inception and charge-offs in our consumer automotive loan portfolio over the past year in part due to deteriorating credit performance in our lower credit tiers, this increase was also a result of a deliberate shift in origination mix designed to achieve a higher risk-adjusted return. We continue to closely monitor our loan performance and profitability performance in light of forecasted economic conditions, and manage credit risk and expectations of losses in the portfolio.

We manage credit risk based on the risk profile of the borrower, the source of repayment, the underlying collateral, and current market conditions. We monitor the credit risk profile of individual borrowers and the aggregate portfolio of borrowers either within a designated geographic region or a particular product or industry segment. We perform quarterly analyses of the consumer automotive, consumer mortgage, and commercial portfolios using a range of indicators to assess the adequacy of the allowance for loan losses based on historical and current trends. Refer to Note 87 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 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 extension of the loan maturity date and rewriting the loan terms. For mortgage loans, as part of certain programs, we offer mortgage loan modifications to qualified borrowers. ~~Numerous initiatives~~These programs are in place to provide support to our mortgage customers in financial distress, including principal forgiveness, maturity extensions, delinquent interest capitalization, and changes to contractual interest rates.

Furthermore, we manage our ~~counterparty~~ 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~~safe and sound manner. Counterparty credit risk is derived from multiple exposure types, including derivatives, securities trading, securities financing transactions, financial futures, cash balances (e.g., due from depository institutions, restricted accounts, and cash equivalents), and investment in debt securities. For more information on derivative counterparty credit risk, refer to Note 1918 to the Condensed Consolidated Financial Statements.

We closely monitor ~~macro-economic~~macroeconomic trends given the nature of our business and the potential impacts on our exposure to credit risk. During the three months ended March 31, ~~2017,~~2018, the U.S. economy continued to modestly expand and consumer confidence remained strong. The labor market remained healthy during the period, with ~~nonfarm payrolls increasing and~~ the ~~annual~~ unemployment rate ~~falling to 4.5%~~remaining at 4.1% as of March 31, ~~2017.~~2018. Within the U.S. automotive market, new light vehicle sales ~~remained at~~have moderated from historic highs, ~~but~~and were relatively flat year over year at a Seasonally Adjusted Annual Rate of 17.2 million for the three months ended March 31, ~~2017.~~2018. We continue to experience modest downward pressure on used vehicle values and expect that to continue throughout ~~2017.~~2018.

On-balance Sheet Portfolio

Our on-balance sheet portfolio includes both finance receivables and loans, and loans held-for-sale. At March 31, ~~2017~~2018, this primarily included $~~104.6~~106.3 billion of automotive finance ~~receivables and~~ loans ~~and~~within our Automotive Finance operations, $~~10.9~~14.7 billion of consumer mortgage ~~finance receivables and loans. Our~~loans within our Mortgage Finance operations ~~consist~~and Corporate and Other, and $4.4 billion of corporate finance loans within our Corporate Finance operations. Refer to the ~~management~~section above titled Primary Lines of Business for further information about our held-for-investment mortgage loan portfolio which includes bulk purchases of high-quality jumbo and LMI mortgage loans. In late 2016, we introduced direct mortgage originations consisting of jumbo mortgage loans that are originated as held-for-investment and conforming mortgage loans that are originated as held-for-sale.lending operations.

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Ally Financial Inc. • Form 10-Q

The following table presents our total on-balance sheet consumer and commercial finance receivables and loans.


	Outstanding				Nonperforming (a)				Accruing past due 90 days or more				Outstanding				Nonperforming (a)				Accruing past due 90 days or more
($ in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Consumer
Finance receivables and loans
Loans at gross carrying value	$	76,600	$	76,843	$	678	$	697	$	—	$	—	$	84,001	$	81,821	$	716	$	720	$	—	$	—
Loans held-for-sale	1		—		—		—		—		—		7		13		—		—		—		—
Total consumer loans (b)	76,601		76,843		678		697		—		—		84,008		81,834		716		720		—		—
Commercial
Finance receivables and loans
Loans at gross carrying value	42,402		42,101		120		122		—		—		41,326		41,072		147		72		—		—
Loans held-for-sale													119		95		—		—		—		—
Total commercial loans	42,402		42,101		120		122		—		—		41,445		41,167		147		72		—		—
Total on-balance sheet loans	$	119,003	$	118,944	$	798	$	819	$	—	$	—	$	125,453	$	123,001	$	863	$	792	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$310~~$285 million and ~~$286~~$270 million at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


(b)	Includes outstanding CSG loans of ~~$6.8~~$7.5 billion and ~~$6.7~~$7.3 billion at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively, and RV loans of ~~$1.7~~$1.8 billion at both March 31, ~~2017~~2018, and December 31, ~~2016~~2017.

Total on-balance sheet loans outstanding at March 31, ~~2017~~2018, increased $~~59 million~~2.5 billion to $~~119.0~~125.5 billion from December 31, ~~2016~~2017, reflecting an increase of ~~$301~~$2.2 billion in the consumer portfolio and an increase of $278 million in the commercial portfolio. The increase in consumer on-balance sheet loans was primarily due to our consumer automotive loan originations which outpaced portfolio runoff and ~~a decrease of $242 million~~growth in the ~~consumer portfolio.~~Mortgage Finance portfolio as a result of the execution of bulk loan purchases. The increase in commercial on-balance sheet loans outstanding was primarily due to ~~the~~ growth in our Corporate Finance portfolio in line with our business strategy, as well as the ongoing demand for automotive dealer term loans. The decrease in consumer on-balance sheet loans was primarily due to the completion of $1.2 billion in loan sales and off-balance sheet securitizations of consumer automotive assets, mostly offset by our loan originations that outpaced portfolio runoff during the three months ended March 31, 2017.strategy.

Total TDRs outstanding at March 31, ~~2017,~~2018, increased ~~$41~~$30 million to ~~$704~~$742 million from December 31, ~~2016~~.2017. The increase was primarily driven by growth in our retail automotive loan portfolio which continues to reflect our strategy to originate loans across a broad credit spectrum. Refer to Note 87 to the Condensed Consolidated Financial Statements for additional information.

Total nonperforming loans at March 31, ~~2017~~2018, ~~decreased~~increased $2171 million to $~~798~~863 million from December 31, ~~2016~~2017, reflecting ~~a decrease~~an increase of ~~$19~~$75 million of ~~consumer~~commercial nonperforming loans and a decrease of $2$4 million of ~~commercial~~consumer nonperforming loans. The ~~decrease~~increase in total commercial nonperforming loans ~~from December 31, 2016,~~ was primarily ~~due to~~driven by a higher number of accounts and higher average balances of loans on nonperforming status within our commercial automotive portfolio, as well as the ~~seasonality~~downgrade of one account within the ~~consumer automotive~~Corporate Finance portfolio. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Refer to Note 1 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K for additional information.

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


	Three months ended March 31,								Three months ended March 31,
	Net charge-offs (recoveries)				Net charge-off ratios (a)				Net charge-offs (recoveries)				Net charge-off ratios (a)
($ in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Consumer	$	253	$	179	1.3	%	1.0	%	$	259	$	253	1.3	%	1.3	%
Commercial	—		—		—		—		—		—		—		—
Total finance receivables and loans at gross carrying value	$	253	$	179	0.9		0.6		$	259	$	253	0.8		0.9


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

Net charge-offs were ~~$253~~$259 million for the three months endedMarch 31, 2018, compared to $253 million for the three months ended March 31, 2017~~, compared to~~ ~~$179 million~~ ~~for the~~ ~~three months endedMarch 31, 2016~~. ~~The increase during the~~ ~~three months endedMarch 31, 2017~~, was driven by the seasoning of recent vintages reflecting our underwriting strategy to originate consumer automotive assets across a broad risk spectrum and expand our risk-adjusted returns, as well as lower average sales proceeds on repossessed vehicles.

The following discussions titled Consumer Credit Portfolio and Commercial Credit Portfolio relate to consumer and commercial finance receivables and loans recorded at gross carrying value. Finance receivables and loans recorded at gross carrying value have an associated allowance for loan losses.

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Consumer Credit Portfolio

During the three months ended March 31, ~~2017,~~2018, the credit performance of the consumer portfolio reflected both our underwriting strategy to originate consumer automotive assets across a broad ~~risk~~credit spectrum, including used, higher LTV, extended term, Growth channel, nonprime, and nonsubvented finance receivables and loans, ~~and our continued bulk purchases of~~as well as high-quality jumbo and LMI mortgage ~~loans. Within our consumer automotive portfolio, we have observed deteriorating performance in the lower credit tiers of the portfolio versus expectations.~~loans that are acquired through bulk loan purchases and direct-to-consumer mortgage originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately ~~13.7%~~12.6% of our total consumer automotive loans at March 31, ~~2017,~~2018, compared to approximately ~~13.8%~~12.9% at December 31, ~~2016.~~2017. 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 ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K.

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


	Outstanding				Nonperforming (a)				Accruing past due 90 days or more				Outstanding				Nonperforming (a)				Accruing past due 90 days or more
($ in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Consumer automotive (b) (c)	$	65,663	$	65,793	$	573	$	598	$	—	$	—	$	69,318	$	68,071	$	601	$	603	$	—	$	—
Consumer mortgage
Mortgage Finance	8,331		8,294		10		10		—		—		12,733		11,657		28		25		—		—
Mortgage — Legacy	2,606		2,756		95		89		—		—		1,950		2,093		87		92		—		—
Total consumer finance receivables and loans	$	76,600	$	76,843	$	678	$	697	$	—	$	—	$	84,001	$	81,821	$	716	$	720	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$243~~$236 million and ~~$240~~$219 million at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


(b)	~~Includes $34 million~~Certain finance receivables and ~~$43 million of~~loans are included in fair value ~~adjustment for loans in hedge accounting relationships at March 31, 2017, and December 31, 2016, respectively.~~hedging relationships. Refer to Note 1918 to the Condensed Consolidated Financial Statements for additional information.


(c)	Includes outstanding CSG loans of ~~$6.8~~$7.5 billion and ~~$6.7~~$7.3 billion at March 31, 2018, and December 31, 2017, respectively, and RV loans of $1.8 billion at both March 31, ~~2017~~2018, and December 31, ~~2016, respectively, and RV loans of $1.7 billion at both~~ ~~March 31,~~ 2017~~, and~~ ~~December 31, 2016~~.

Total consumer outstanding finance receivables and loans ~~decreased~~increased $~~243 million~~2.2 billion at March 31, ~~2017~~2018, compared with December 31, ~~2016~~2017., reflecting an increase of $1.2 billion of consumer automotive finance receivables and loans and an increase of $933 million of consumer mortgage finance receivables and loans. The ~~decrease~~increase in consumer automotive finance receivables and loans was primarily related to ~~the completion of $1.2 billion~~continued momentum in ~~loan sales and off-balance sheet securitizations, which was mostly offset by~~ our ~~loan originations that outpaced portfolio runoff during the three months ended March 31, 2017.~~Growth channel. The ~~decrease~~increase in consumer mortgage finance receivables and loans was primarily due to ~~runoff in~~growth within the ~~legacy~~Mortgage Finance portfolio as a result of the execution of bulk loan purchases totaling $1.3 billion during the three months ended March 31, 2018, partially offset by total consumer mortgage ~~loan portfolio.~~portfolio runoff.

Total consumer nonperforming finance receivables and loans at March 31, ~~2017~~, 2018, decreased~~$19~~ $4 million to ~~$678~~$716 million from December 31, ~~2016~~,2017, reflecting a decrease of ~~$25 million of consumer automotive finance receivables and loans and an increase of $6~~$2 million of consumer mortgage nonperforming finance receivables and ~~loans. The~~loans and a decrease ~~in nonperforming~~of $2 million of consumer automotive finance receivables and ~~loans was primarily due to seasonality. The increase in nonperforming consumer mortgage finance receivables and loans was primarily due to the increase in TDRs during the period.~~loans. Refer to Note 87 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~~ remained flat at 0.9% at both March 31, ~~2017~~,2018, and December 31, ~~2016~~.2017.

Consumer automotive loans accruing and past due 30 days or more decreased ~~$608~~$525 million to ~~$1.6~~$1.8 billion at March 31, ~~2017~~,2018, compared with December 31, ~~2016~~,2017, primarily due to seasonality. Consumer automotive loans accruing and past due 30 days or more increased $260 million to $1.8 billion as of March 31, 2018, compared to March 31, 2017, driven by growth in the overall size of the retail automotive loan portfolio as well as slightly higher delinquency rates associated with a measured increase in the mix of used vehicle financings as part of our continued diversification strategy. Used vehicle loans within our portfolio generally have higher delinquency rates and higher loss frequency, but lower loss severity relative to new vehicle loans as used vehicle collateral performance is generally more predictable than new vehicle collateral due to faster reductions in the value of the collateral in the earlier years of a vehicle’s life.

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


	Three months ended March 31,								Three months ended March 31,
	Net charge-offs				Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)
($ in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Consumer automotive	$	251	$	173	1.5	%	1.1	%	$	253	$	251	1.5	%	1.5	%
Consumer mortgage
Mortgage Finance	—		—		—		—		1		—		—		—
Mortgage — Legacy	2		6		0.2		0.7		5		2		1.0		0.2
Total consumer finance receivables and loans	$	253	$	179	1.3		1.0		$	259	$	253	1.3		1.3


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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Our net charge-offs from total consumer finance receivables and loans were $259 million for the three months ended March 31, 2018, compared to $253 million for the three months endedMarch 31, 2017~~, compared to $179 million for the~~ .~~three months endedMarch 31, 2016. The increase during the~~ ~~three months ended~~ ~~March 31, 2017, was~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

driven by the seasoning of recent vintages reflecting our underwriting strategy to originate consumer automotive assets across a broad risk spectrum and expand our risk-adjusted returns, as well as lower average sales proceeds on repossessed vehicles.

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 March 31,				Three months ended March 31,
($ in millions)	2017		2016		2018		2017
Consumer automotive	$	7,941	$	8,208	$	8,417	$	7,941
Consumer mortgage (a)	3		4		151		3
Total consumer loan originations	$	7,944	$	8,212	$	8,568	$	7,944


(a)	~~Includes $3~~ Excludes bulk loan purchases associated with our Mortgage Finance operations and includes $60 million of loans originated as ~~held-for-sale.~~held-for-sale for the three months ended March 31, 2018.

Total ~~automotive-originated loans decreased $267~~consumer loan originations increased $624 million for the three months ended March 31, ~~2017,~~2018, compared to ~~2016, as we~~the three months ended March 31, 2017. The increase was primarily due to higher consumer automotive volume in the Growth channel, with our continued ~~to execute our strategic~~ focus ~~of selective originations based~~ on ~~improved~~obtaining appropriate risk-adjusted returns.

The following table shows the percentage of total consumer finance receivables and loans recorded at gross carrying value by state concentration. Total consumer automotive loans were $~~65.7~~69.3 billion and $~~65.8~~68.1 billion at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively. Total mortgage and home equity loans were ~~$10.9~~$14.7 billion and ~~$11.1~~$13.8 billion at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


	March 31, 2017 (a)				December 31, 2016				March 31, 2018 (a)				December 31, 2017
	Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage
California									8.3	%	35.6	%	8.2	%	34.6	%
Texas	13.5	%	6.6	%	13.6	%	6.6	%	13.1		6.3		13.2		6.5
California	7.9		34.4		7.8		34.2
Florida	8.2		4.4		8.2		4.4		8.6		4.7		8.5		4.8
Pennsylvania	4.7		1.4		4.7		1.5		4.5		1.4		4.6		1.5
Illinois	4.3		3.4		4.3		3.4		4.2		3.1		4.2		3.2
Georgia	4.3		2.3		4.3		2.2		4.2		2.5		4.2		2.5
North Carolina	3.7		1.5		3.6		1.6		3.8		1.7		3.7		1.8
Ohio	3.5		0.5		3.5		0.5		3.4		0.4		3.4		0.5
New York	3.1		1.9		3.2		1.9		3.0		2.3		3.0		2.2
Missouri	2.8		1.2		2.8		1.2		2.9		0.9		2.9		0.9
Other United States	44.0		42.4		44.0		42.5		44.0		41.1		44.1		41.5
Total consumer loans	100.0	%	100.0	%	100.0	%	100.0	%	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 March 31, ~~2017~~2018.

We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of consumer loans are in ~~Texas~~California and ~~California,~~Texas, which represented an aggregate of ~~24.3%~~24.9% and ~~24.2%~~24.7% of our total outstanding consumer finance receivables and loans at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, 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, ~~(included~~which is included in other assets on ~~the~~our Condensed Consolidated Balance ~~Sheet)~~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 ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K.

Repossessed consumer automotive loan assets in our Automotive Finance operations at March 31, ~~2017~~2018, ~~decreased $14 million to $121~~remained flat at $140 million from December 31, ~~2016~~2017. Foreclosed mortgage assets were $10 million at both March 31, ~~2017, remained flat at $13 million as compared to~~2018, and December 31, ~~2016~~2017.

Commercial Credit Portfolio

During the three months ended March 31, ~~2017,~~2018, the credit performance of the commercial portfolio remained strong, as nonperforming finance receivables and loans remained ~~relatively stable~~low and no net charge-offs were realized. For information on our commercial credit risk practices and

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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


	Outstanding				Nonperforming (a)				Accruing past due 90 days or more				Outstanding				Nonperforming (a)				Accruing past due 90 days or more
($ in millions)	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Commercial and industrial
Automotive	$	34,911	$	35,041	$	34	$	33	$	—	$	—	$	32,781	$	33,025	$	68	$	27	$	—	$	—
Other (b)	3,499		3,248		81		84		—		—		4,184		3,887		74		44		—		—
Commercial real estate — Automotive	3,992		3,812		5		5		—		—
Commercial real estate													4,361		4,160		5		1		—		—
Total commercial finance receivables and loans	$	42,402	$	42,101	$	120	$	122	$	—	$	—	$	41,326	$	41,072	$	147	$	72	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$67~~$49 million and ~~$46~~$51 million at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


(b)	Other commercial primarily includes senior secured commercial ~~lending.~~lending largely associated with our Corporate Finance operations.

Total commercial finance receivables and loans outstanding increased $~~301~~254 million from December 31, ~~2016~~2017, to ~~$42.4~~$41.3 billion at March 31, ~~2017~~2018. The increase was primarily due to ~~the~~ growth in our Corporate Finance portfolio in line with our business strategy, ~~as well as~~and the ongoing demand for automotive dealer term loans. The increases were partially offset by a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market, as well as lower dealer inventory levels during the period.

Total commercial nonperforming finance receivables and loans were ~~$120~~$147 million at March 31, ~~2017,~~2018, reflecting ~~a decrease~~an increase of $2$75 million when compared to December 31, ~~2016.~~2017. The ~~decrease~~increase was primarily ~~due to payments received~~driven by a higher number of accounts and higher average balances of loans on ~~loans~~nonperforming status within our commercial automotive portfolio. Additionally, the ~~Corporate Finance portfolio. Credit performance within the~~increase in our Corporate Finance portfolio ~~remains strong as impaired loans declined to 2.4%~~was driven by the downgrade of the portfolio at March 31, 2017, as compared to 2.6% at December 31, 2016. Additionally, there were no net charge-offs within the Corporate Finance portfolio during both the three months ended March 31, 2017, and 2016.one account. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans ~~remained flat at~~increased to ~~0.3%~~0.4% at ~~both~~ March 31, ~~2017~~2018, ~~and~~compared to 0.2% at December 31, ~~2016~~2017.

~~Our~~We had no net charge-offs from ~~total~~ commercial finance receivables and loans ~~resulted in no net charge-offs~~ for both the three months ended March 31, ~~2017,~~2018, and ~~March 31, 2016.~~2017.

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 ~~$4.0~~$4.4 billion and ~~$3.8~~$4.2 billion at March 31, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.

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


	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Texas	15.7	%	16.1	%	15.9	%	15.7	%
Florida	10.4		10.2		11.8		10.3
California	8.3		7.9		7.9		8.2
Michigan	7.6		7.6		7.3		7.7
Georgia					4.5		4.6
New Jersey	3.9		4.2		3.5		3.6
North Carolina					3.5		3.6
South Carolina	3.9		2.7		3.4		3.5
North Carolina	3.6		3.6
Georgia	3.5		3.6
Pennsylvania	3.0		3.1		2.7		3.0
Missouri	2.6		2.5		2.6		2.4
Other United States	37.5		38.5		36.9		37.4
Total commercial real estate finance receivables and loans	100.0	%	100.0	%	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 increased $203 million from December 31, 2016, to $2.9 billion at March 31, 2017. The increase was primarily due to the downgrade of one account within the commercial automotive portfolio.

8392

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Total criticized exposures increased $377 million from December 31, 2017, to $3.5 billion at March 31, 2018. The increase was primarily due to the reclassification of certain accounts to special mention within the commercial automotive portfolio.

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


	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Industry
Automotive	81.6	%	81.2	%	78.9	%	76.3	%
Health/Medical					7.0		4.9
Services	6.6		6.3		6.6		6.7
Electronics	2.5		4.2
Other	9.3		8.3		7.5		12.1
Total commercial criticized finance receivables and loans	100.0	%	100.0	%	100.0	%	100.0	%

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Allowance for Loan Losses

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

Three months ended March 31, 2017 ($ in millions)

Consumer automotive
Consumer mortgage
Total consumer
Commercial
Total
Allowance at January 1, 2017
$ 932

$ 91

$ 1,023

$ 121

$ 1,144
Charge-offs (a)
(341 )
(9 )
(350 )
—

(350 )
Recoveries
90

7

97

—

97
Net charge-offs
(251 )
(2 )
(253 )
—

(253 )
Provision for loan losses
267

(3 )
264

7

271
Other (b)
(7 )
—

(7 )
—

(7 )
Allowance at March 31, 2017
$ 941

$ 86

$ 1,027

$ 128

$ 1,155
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2017 (c)
1.4 %
0.8 %
1.3 %
0.3 %
1.0 %
Net charge-offs to average finance receivables and loans outstanding for the three months ended March 31, 2017
1.5 %
0.1 %
1.3 %
— %
0.9 %
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2017 (c)
164.3 %
82.2 %
151.6 %
106.2 %
144.8 %
Ratio of allowance for loan losses to net charge-offs at March 31, 2017
0.9

10.2

1.0

n/m

1.1



Three months ended March 31, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at January 1, 2018	$	1,066		$	79		$	1,145		$	131		$	1,276
Charge-offs (a)	(365		)	(12		)	(377		)	—			(377		)
Recoveries	112			6			118			—			118
Net charge-offs	(253		)	(6		)	(259		)	—			(259		)
Provision for loan losses	253			1			254			7			261
Allowance at March 31, 2018	$	1,066		$	74		$	1,140		$	138		$	1,278
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2018 (b)	1.5		%	0.5		%	1.4		%	0.3		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the three months ended March 31, 2018	1.5		%	0.2		%	1.3		%	—		%	0.8		%
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2018 (b)	177.5		%	63.7		%	159.2		%	93.7		%	148.0		%
Ratio of allowance for loan losses to annualized net charge-offs at March 31, 2018	1.1			2.8			1.1			n/m			1.2

n/m = not meaningful

(a)

Represents the amount of the gross carrying value directly ~~written-off.~~written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K for more information regarding our charge-off policies.


(b)	~~Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.~~


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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

Three months ended March 31, 2016 ($ in millions)

Consumer automotive
Consumer mortgage
Total consumer
Commercial
Total
Allowance at January 1, 2016
$ 834

$ 114

$ 948

$ 106

$ 1,054
Charge-offs (a)
(253 )
(10 )
(263 )
—

(263 )
Recoveries
80

4

84

—

84
Net charge-offs
(173 )
(6 )
(179 )
—

(179 )
Provision for loan losses
207

7

214

6

220
Other (b)
(18 )
—

(18 )
—

(18 )
Allowance at March 31, 2016
$ 850

$ 115

$ 965

$ 112

$ 1,077
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2016 (c)
1.3 %
1.1 %
1.3 %
0.3 %
1.0 %
Net charge-offs to average finance receivables and loans outstanding for the three months ended March 31, 2016
1.1 %
0.3 %
1.0 %
— %
0.6 %
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2016 (c)
172.9 %
99.0 %
158.8 %
123.3 %
154.2 %
Ratio of allowance for loan losses to net charge-offs at March 31, 2016
1.2

4.4

1.3

n/m

1.5



Three months ended March 31, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at January 1, 2017	$	932		$	91		$	1,023		$	121		$	1,144
Charge-offs (a)	(341		)	(9		)	(350		)	—			(350		)
Recoveries	90			7			97			—			97
Net charge-offs	(251		)	(2		)	(253		)	—			(253		)
Provision for loan losses	267			(3		)	264			7			271
Other (b)	(7		)	—			(7		)	—			(7		)
Allowance at March 31, 2017	$	941		$	86		$	1,027		$	128		$	1,155
Allowance for loan losses to finance receivables and loans outstanding at March 31, 2017 (c)	1.4		%	0.8		%	1.3		%	0.3		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the three months ended March 31, 2017	1.5		%	0.1		%	1.3		%	—		%	0.9		%
Allowance for loan losses to total nonperforming finance receivables and loans at March 31, 2017 (c)	164.3		%	82.2		%	151.6		%	106.2		%	144.8		%
Ratio of allowance for loan losses to annualized net charge-offs at March 31, 2017	0.9			10.2			1.0			n/m			1.1

n/m = not meaningful

(a)

Represents the amount of the gross carrying value directly ~~written-off.~~written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2017 Annual Report on Form 10-K for more information regarding our charge-off policies.


(b)	Primarily related to the transfer of finance receivables and loans from held-for-investment to held-for-sale.


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

The allowance for consumer loan losses at March 31, ~~2017,~~2018, increased ~~$62~~$113 million compared to March 31, ~~2016.~~2017. The increase was primarily ~~due to higher reserve requirements reflecting the changing composition of the~~driven by our consumer automotive portfolio toand reflects the composition of our asset mix across a ~~more profitable mix of business~~broad credit spectrum, consistent with ~~Ally’s~~our underwriting strategy, and higher consumer automotive loan ~~balances in our consumer portfolios. This increase was partially offset by lower~~balances. Additionally, as of March 31, 2018, we continue to maintain a reserve ~~balances in our consumer mortgage portfolios.~~of $20 million due to estimated impacts of the hurricanes, and we expect to incur related losses throughout 2018.

The allowance for commercial loan losses increased ~~$16~~$10 million at March 31, ~~2017,~~2018, compared to March 31, ~~2016,~~2017. The increase was primarily driven by ~~higher loan balances within~~ our commercial ~~portfolios.~~automotive portfolio where we had higher reserves for impaired loans.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Allowance for Loan Losses by Type

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

2017
2016
March 31, ($ 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
$ 941

1.4 %
81.5 %
$ 850

1.3 %
78.9 %
Consumer mortgage

Mortgage Finance
11

0.1

1.0

18

0.2

1.7
Mortgage — Legacy
75

2.9

6.4

97

3.0

9.0
Total consumer mortgage
86

0.8

7.4

115

1.1

10.7
Total consumer loans
1,027

1.3

88.9

965

1.3

89.6
Commercial

Commercial and industrial

Automotive
33

0.1

2.8

31

0.1

2.9
Other
70

2.0

6.1

57

2.0

5.3
Commercial real estate — Automotive
25

0.6

2.2

24

0.7

2.2
Total commercial loans
128

0.3

11.1

112

0.3

10.4
Total allowance for loan losses
$ 1,155

1.0

100.0 %
$ 1,077

1.0

100.0 %

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~



	2018						2017
March 31, ($ in millions)	Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses		Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses
Consumer
Consumer automotive	$	1,066	1.5	%	83.4	%	$	941	1.4	%	81.5	%
Consumer mortgage
Mortgage Finance	20		0.2		1.6		11		0.1		1.0
Mortgage — Legacy	54		2.8		4.2		75		2.9		6.4
Total consumer mortgage	74		0.5		5.8		86		0.8		7.4
Total consumer loans	1,140		1.4		89.2		1,027		1.3		88.9
Commercial
Commercial and industrial
Automotive	40		0.1		3.1		33		0.1		2.8
Other	69		1.7		5.4		70		2.0		6.1
Commercial real estate	29		0.7		2.3		25		0.6		2.2
Total commercial loans	138		0.3		10.8		128		0.3		11.1
Total allowance for loan losses	$	1,278	1.0		100.0	%	$	1,155	1.0		100.0	%

Provision for Loan Losses

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


	Three months ended March 31,					Three months ended March 31,
($ in millions)	2017			2016		2018			2017
Consumer
Consumer automotive	$	267		$	207	$	253		$	267
Consumer mortgage
Mortgage Finance	1			3		2			1
Mortgage — Legacy	(4		)	4		(1		)	(4		)
Total consumer mortgage	(3		)	7		1			(3		)
Total consumer loans	264			214		254			264
Commercial
Commercial and industrial
Automotive	—			1		4			—
Other	6			4		—			6
Commercial real estate — Automotive	1			1
Commercial real estate						3			1
Total commercial loans	7			6		7			7
Total provision for loan losses	$	271		$	220	$	261		$	271

The provision for consumer loan losses ~~increased~~ ~~$50~~decreased $10 million for the three months endedMarch 31, ~~2017~~,2018, compared to ~~2016~~.the three months ended March 31, 2017. The ~~increase~~decrease during the three months ended March 31, ~~2017, is~~2018, was primarily ~~due to higher net charge-offs in~~driven by our consumer automotive portfolio where we experienced overall favorable credit performance including lower than anticipated losses associated with the hurricanes experienced in the third quarter of 2017. We lowered our reserve for these hurricane losses from $45 million as ~~a result~~ of ~~our strategy~~December 31, 2017, to ~~originate a more profitable mix~~$20 million as of ~~business consistent with Ally’s underwriting strategy. The increase~~March 31, 2018, and expect to incur related losses throughout 2018. This favorability was partially offset by ~~lower reserve requirements~~growth in ~~our~~the consumer automotive ~~portfolio, lower portfolio growth in our Mortgage Finance portfolio, and lower net charge-offs in our legacy mortgage~~loan portfolio.

The provision for commercial loan losses was $7 million for both the three months ended March 31, ~~2017, compared~~2018, and March 31, 2017. The decrease in provision expense for Corporate Finance was mostly offset by an increase in provision expense in the commercial automotive portfolio, primarily due to ~~$6 million~~changes in provision expense for ~~the same period in 2016.~~individually impaired loans within these portfolios.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Lease Residual Risk Management

We are exposed to residual risk on vehicles in the consumer lease portfolio. This lease residual risk represents the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at lease inception. However, certain automotive manufacturers have provided their guarantee for portions of our residual exposure for lease programs with them. For information on our valuation of automotive 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 Lease Assets and Residuals within the MD&A included in our ~~2016~~2017 Annual Report on Form 10-K.

Lease Vehicle Terminations and Remarketing

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


	Three months ended March 31,						Three months ended March 31,
	2017			2016			2018			2017
Off-lease vehicles terminated (in units)	77,761			78,820
Average (loss) gain per vehicle ($ per unit)	$	(45	)	$	700
Off-lease vehicles terminated (in units)							44,722			77,761
Average gain (loss) per vehicle ($ per unit)							$	404		$	(45	)
Method of vehicle sales
Auction
Internet	57		%	57		%	56		%	57		%
Physical	13			13			13			13
Sale to dealer, lessee, and other	30			30			31			30

The number of off-lease vehicles remarketed during the three months ended March 31, ~~2017,~~2018, decreased ~~slightly~~42% compared to the ~~same period in 2016.~~three months ended March 31, 2017. The residual risk associated with our operating lease portfolio should continue to decline as the number of lease terminations continues to outpace lease originations as a result of the runoff of our legacy GM lease ~~portfolio.~~

~~Table~~portfolio, which we expect to be substantially wound-down by the second quarter of ~~Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

2018.

We recognized an average gain per vehicle of $404 for the three months ended March 31, 2018, compared to an average loss per vehicle of $45 for the same period in 2017. Declining used vehicle values during the three months ended March 31, 2017, ~~due to declining used vehicle values, which~~ were more pronounced in the car ~~market. We expect used vehicle values to continue to decline~~market; however, as expected, our lease termination activity has subsequently experienced an increase in the ~~near term,~~mix of trucks and ~~also~~sport utility vehicles. The favorable average gain per vehicle performance for the three months ended March 31, 2018 was primarily the result of this more favorable termination mix. We expect the mix of trucks and sport utility vehicles in our future lease terminations to continue to increase. For more information on our investment in operating leases, refer to Note 98 to the Condensed Consolidated Financial Statements, and Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K.

Lease Portfolio Mix

We monitor the concentration of our outstanding operating leases. The following table presents the mix of leased vehicles by type, based on volume of ~~units.~~units outstanding.


March 31,	2017		2016		2018		2017
Sport utility vehicle					55	%	53	%
Truck					29		19
Car	28	%	37	%	16		28
Truck	19		14
Sport utility vehicle	53		49

Our overall lease residual exposure has declined in recent years largely as a result of the runoff of our legacy GM lease portfolio. Primarily because of this, our exposure to Chrysler vehicles has grown and now represents approximately 86% of our lease units as of March 31, 2018. The following table presents the mix of leased vehicles by manufacturer, based on volume of units outstanding.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Market Risk

Our automotive financing, mortgage, investing, and insurance activities give rise to market risk representing the potential loss in the fair value of assets or liabilities and earnings caused by movements in market variables, such as interest rates, foreign-exchange rates, equity prices, market perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases.

We are exposed to interest rate risk arising from changes in interest rates related to financing, investing, and cash management activities. More specifically, we have entered into contracts to provide financing and to retain various assets related to securitization activities all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate and other fluctuations. ~~Refer to Note 19 to the Condensed Consolidated Financial Statements for further information.~~

We are also exposed to some 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 equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to price risk influenced by capital market movements. We enter into equity options to economically hedge our exposure to the equity markets. Additionally, we have exposure to equity price risk related to certain share-based compensation programs.

Although the diversity of our activities from our complementary lines of business may partially mitigate market risk, we also actively manage this risk. We maintain risk management control systems to monitor interest rates, foreign-currency exchange rates, equity price risks, and any of their related hedge positions. Positions are monitored 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 further information.

Net Financing Revenue Sensitivity Analysis

Interest rate risk represents our most significant exposure to market risk. We actively monitor the level of exposure so that movements in interest rates do not adversely affect future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our financial instruments.

We prepare our forward-looking baseline forecasts of net financing revenue taking into consideration anticipated future business growth, asset/liability positioning, and interest rates based on the implied forward curve. The analysis is highly dependent upon a variety of assumptions including the repricing characteristics of retail deposits with both contractual and non-contractual maturities. During the first quarter of 2017 we implemented a dynamic pass-through modeling assumption on our retailliquid ~~products deposits~~deposit portfolio, whereby deposit ~~pass-through~~pass- through levels increase as the absolute level of short-term market interest rates rise. ~~As a result, our~~Our baseline forecast assumes a medium-term cumulative deposit beta on retail liquid products of 30% to 50%, steadily increasing to approximately 75% over the longer term. We assume betas for deposits with contractual maturities will exceed retail liquid product levels. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.

Simulations are used to assess changes in net financing revenue in multiple interest ~~rates~~rate scenarios relative to the baseline forecast. The changes in net financing revenue relative to the baseline are defined as the sensitivity. Our ~~simulation incorporates~~simulations incorporate contractual cash flows and repricing characteristics for all assets, liabilities, and off-balance sheet exposures and ~~incorporates~~incorporate the effects of changing interest rates on the prepayment and attrition rates of certain assets and liabilities. ~~The analysis is highly dependent upon a variety of assumptions including the repricing characteristics of deposits with noncontractual maturities.~~ Our simulation does not assume any specific future actions are taken to mitigate the impacts of changing interest rates. ~~Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue over the next twelve months would increase by $16 million if interest rates remain unchanged.~~

The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to ~~both current spot rates and~~ the implied market forward curve. WeManagement also ~~evaluate~~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.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~Our twelve-month pretax~~ Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue ~~sensitivity based on~~over the next twelve months would decrease by $30 million if interest rates remain unchanged.

The following table presents the pretax dollar impact to forecasted net financing revenue over the next 12 months assuming 100 basis point and 200 basis point instantaneous parallel and gradual parallel shock increases, and assuming 100 basis point instantaneous parallel and gradual parallel shock decreases to the implied market ~~forward-curve was~~forward curve as ~~follows.~~of March 31, 2018, and December 31, 2017.


	March 31, 2017						December 31, 2016						March 31, 2018						December 31, 2017
Change in interest rates, ($ in millions)	Instantaneous			Gradual (a)			Instantaneous			Gradual (a)
Change in interest rates ($ in millions)													Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
-100 basis points	$	3		$	(21	)	$	46		$	(14	)	$	(39	)	$	(88	)	$	(22	)	$	15
+100 basis points	(52		)	(21		)	(62		)	(2		)	(4		)	(51		)	(18		)	(106		)
+200 basis points	(171		)	(67		)	(153		)	(19		)	(22		)	(124		)	(68		)	(294		)


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

~~Implied~~The implied forward rate curve was higher and flatter compared to December 31, 2017, as short-end rates have increased ~~since December 31, 2016, and are~~more than long-end rates. The impact of this change is reflected in our baseline net financing revenue projections. We remain moderately ~~liability-sensitive~~liability-

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

sensitive as of March 31, ~~2017,~~2018, in the upward interest rate shock scenarios as our simulation models assume liabilities will initially reprice faster than assets. ~~The shift to a less liability-sensitive position~~Exposure in the +100 and +200 instantaneous shock scenarios have decreased as of March 31, ~~2017, is~~2018, primarily due to ~~higher variable-rate commercial loan balances,~~the hedge program we initiated in the first quarter of 2018 of pay-fixed interest rate swaps on certain automotive assets that allows us to reduce our sensitivity to a rise in short-term interest rates beyond the implied forward curve. This was partially offset by anthe impact of higher interest rates on deposits as a result of our assumption that deposit pass-through levels increase ~~in our net receive-fixed~~with higher interest ~~rate swaps position.~~rates.

The exposure in the downward instantaneous interest rate shock scenario ~~continues to benefit net financing revenue, shifting closer to a neutral position~~has increased as of March 31, ~~2017. The impact of a downward shock scenario is less favorable than the prior period~~2018, primarily due to ~~the impact of variable-rate commercial loans.~~

The future repricing behavior of retail deposit liabilities, particularly non-maturity deposits, remains a significant driver of interest rate sensitivity. Our upward interest rate shock scenarios assume a longer term liquid products deposit beta of approximately 75%. We continuechanges to ~~believe~~ our deposits may ultimately be less sensitive to interest rate changes, which would reduce our overall exposure to rising interest rate shocks. Assuming a static liquid products retail deposit beta of 50% would result in a consolidated interest rate riskderivative hedging position ~~that is asset sensitive in the upward interest rate shock scenarios.~~as noted above.

Our ~~pro-forma rate sensitivity assuming a static 50% deposit pass-through based on the forward-curve was as follows.~~

March 31, 2017
December 31, 2016
Change in interest rates, ($ in millions)

Instantaneous
Gradual (a)
Instantaneous
Gradual (a)
+100 basis points
$ 45

$ 22

$ 77

$ 50
+200 basis points
57

39

119

88


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

~~Our current liability-sensitive~~ risk position is influenced by the net impact of ~~off balance sheet~~derivative hedging ~~positions,~~ which ~~continue to generate positive financing revenue in the current interest rate environment. This position~~ includes ~~both receive-fixed~~ interest rate swaps designated as fair value hedges of certain fixed-rate ~~liabilities, including unsecured~~assets and fixed-rate debt instruments, and pay-fixed interest rate swaps designated as ~~fair value~~cash flow hedges of certain ~~retail automotive assets.~~floating-rate debt instruments. The size, maturity, and mix of our hedging activities ~~change~~changes frequently as we adjust our broader ~~asset~~ALM objectives.

Operational Risk

Operational risk is the risk of loss or harm arising from inadequate or failed processes or systems, human factors, or external events. Operational risk is an inherent risk element in each of our businesses and ~~liability~~related support activities. Such risk can manifest in various ways, including errors, business interruptions, and inappropriate behavior of employees, and can potentially result in financial losses and other damage to us. We consider the following types of operational risk: model, compliance, legal, fraud, supplier management, ~~objectives.~~fiduciary, and information technology, which includes the risk of cyberattacks.

To monitor and mitigate such risk, we maintain a system of policies and a control framework designed to provide a sound and well-controlled operational environment. This framework employs practices and tools designed to maintain risk identification, risk governance, risk and control assessment and testing, risk monitoring, and transparency through risk reporting mechanisms. The goal is to maintain operational risk at appropriate levels based on our financial strength, the characteristics of the businesses and the markets in which we operate, and the related competitive and regulatory environment.

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

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

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

In order to help mitigate cybersecurity risks, Ally devotes substantial resources to protect the Company from cyber-related incidents. We regularly assess vulnerabilities and threats to our environment utilizing various resources including independent third-party assessments to evaluate whether our layered system of controls effectively mitigates risk. We also invest in new technologies and infrastructure in order to respond to evolving risks within our environment. We continue to partner with other industry peers in order to share knowledge and information to further our security environment and invest in training and employee awareness to cyber-related risks. Additionally, as a further protective measure, we maintain insurance coverage that, subject to terms and conditions, may cover certain aspects of cybersecurity and information risks; however, such insurance may not be sufficient to cover losses. Management monitors a significant amount of operational metrics and data surrounding cybersecurity operations, and the organization monitors compliance with established guardrails around such metrics in connection with management’s risk appetite framework. Senior leadership regularly reviews, questions, and challenges such information.

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

Notwithstanding these risk and control initiatives, we may incur losses attributable to operational risks from time to time, and there can be no assurance these losses will not be incurred in the future or will not be substantial. For further information on security, technology, systems, infrastructure, and other operational risks, refer to the section titled Risk Factors in Part I, Item 1A of our 2017 Annual Report on Form 10-K.

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Insurance/Underwriting Risk

The underwriting of our VSCs and insurance policies includes an assessment of the risk to determine acceptability and categorization for appropriate pricing. The acceptability of a particular risk is based on expected losses, expenses and other factors specific to the product in question. With respect to VSCs, considerations include the quality of the vehicles produced, the price of replacement parts, repair labor rates, and new model introductions. Insurance risk also includes event risk, which is synonymous with pure risk, hazard risk, or insurance risk, and presents no chance of gain, only of loss.

We mitigate losses by the active management of claim settlement activities using experienced claims personnel and the evaluation of current period reported claims. Losses for these events may be compared to prior claims experience, expected claims, or loss expenses from similar incidents to assess the reasonableness of incurred losses.

In some instances, reinsurance is used to reduce the risk associated with volatile lines of businesses, such as catastrophe risk in vehicle inventory insurance. Our vehicle inventory insurance product is covered by excess of loss protection, including catastrophe coverage for weather-related events. In addition, loss control techniques such as storm path monitoring to assist dealers in preparing for severe weather help to mitigate loss potential.

In accordance with industry and accounting practices and applicable insurance laws and regulatory requirements, we maintain reserves for reported losses, losses incurred but not reported, losses expected to be incurred in the future for contracts in force and loss adjustment expenses. The estimated values of our prior reported loss reserves and changes to the estimated values are routinely monitored by credentialed actuaries. Our reserve estimates are regularly reviewed by management; however, since the reserves are based on estimates and numerous assumptions, the ultimate liability may differ from the amount estimated.

Business/Strategic Risk

Business/strategic risk is embedded in every facet of our organization and is one of our primary risk types. It is the risk that results from incorrect assumptions, inappropriate business plans, ineffective business strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic or competitive environments, in the geographic locations in which we operate, competitor actions, changing customer preferences, product obsolescence, and technology developments. We aim to mitigate this risk within our business units through portfolio diversification, product innovations, and close monitoring of the execution of our strategic and capital plan, and ensuring flexibility of the cost base (e.g., through outsourcing).

The strategic plan is reviewed and approved annually by the Board, as are the capital plan, financial business plan, and risk appetite. With oversight by the Board, executive management seeks to ensure that consistency is applied while executing our strategic plan, core operating principles, and risk appetite. The executive management team continuously monitors business performance throughout the year to assess strategic risk and find early warning signals so that risks can be proactively managed. Executive management regularly reviews actual performance versus the plan, updates the Board via reporting routines and implements changes as deemed appropriate.

Significant strategic actions, such as capital actions, material acquisitions or divestitures, and recovery and resolution plans are reviewed and approved by the Board as required. At the business level, as we introduce new products, we monitor their performance relative to expectations. With oversight by the Board, executive management performs similar analyses throughout the year, and evaluates changes to the financial forecast or the risk, capital, or liquidity positions as deemed appropriate to balance and optimize achieving our targeted risk appetite, stockholder returns, and maintaining our targeted financial strength.

Reputation Risk

Reputation risk is the risk that negative perceptions of our conduct or business practices will adversely affect our profitability or operations through an inability to establish new or maintain existing customer/client relationships. Reputation risk may result from many of our activities, including those related to the management of our business/strategic, operational, and credit risks. We manage reputation risk through established policies and controls in our businesses and risk management processes to mitigate reputation risks in a timely manner and through proactive monitoring and identification of potential reputation risk events. We have established processes and procedures to respond to events that give rise to reputation risk, including educating individuals and organizations that influence public opinion, external communication strategies to mitigate the risk, and informing key stakeholders of potential reputation risks. Primary responsibility for the identification, escalation and resolution of reputation risk issues resides with our lines of business. Each employee is under an obligation, within the scope of their activities, to analyze and assess any imminent or intended transaction in terms of possible risk factors in order to minimize reputation risks. Further, Ally’s strong “LEAD” culture and distinct “Do it Right” philosophy also strengthen our efforts to mitigate reputational risks by promoting a transparent culture where every associate is expected to act as a risk manager. Ally’s culture is proactive with its core principles embedded at all levels of the organization so that any associate, at any time, can and should call attention to risks to ensure they are fully addressed and taken into account. Our organization and governance structure provides oversight of reputation risks, and key risk indicators are reported regularly and directly to management and the RC, which provide primary oversight of reputation risk.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Liquidity Management, Funding, and Regulatory Capital

Overview

The purpose of liquidity management is to ensure our ability to meet loan and 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, borrowing facilities, repurchase agreements, as well as funding programs supported by the ~~Federal Reserve~~FRB and the FHLB of Pittsburgh.

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

The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing our liquidity, funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate Treasury is responsible for managing our liquidity positions within prudent operating guidelines and targets approved by ALCO and the ~~Risk and Compliance Committee of the Ally Board of Directors.~~RC. As part of managing liquidity risk, we prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by the Liquidity Risk group within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.

Funding Strategy

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

We diversify our overall funding in order to reduce reliance on any one source of funding and to achieve a well-balanced funding portfolio across a spectrum of risk, duration, 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.

Since becoming a BHC in December 2008, a significant portion of asset originations have been directed to Ally Bank in order to reduce parent company exposures and funding requirements, and to utilize our growing consumer deposit-taking capabilities. This has allowed us to use bank funding for a wider array of our automotive finance assets and to provide a sustainable long-term funding channel for the business, while also improving the cost of funds for the enterprise. On March 7, 2016, Ally Bank received approval from the ~~Federal Reserve~~FRB to become a state member bank. Ally Bank is now regulated by the FRB through the Federal Reserve Bank of Chicago, as well as the Utah Department of Financial Institutions. In addition, in connection with the application for membership in the Federal Reserve System, Ally Bank made commitments to the FRB relating to capital, liquidity, and business plan requirements. These commitments ~~are~~were consistent with the prior requirements under the now-terminated Capital and Liquidity Maintenance Agreement with the FDIC, including the requirement to maintain capital at a level such that Ally Bank’s Tier 1 leverage ratio iswas at least 15%. ~~For this purpose,~~On August 22, 2017, banking agencies lifted the capital, liquidity, and business plan commitments that Ally Bank had made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio ~~is determined in accordance with the FRB's regulations related to capital adequacy. Continuation~~ of ~~the Ally Bank Tier 1 leverage ratio requirement could further restrict balance sheet growth within Ally Bank and could unfavorably impact liquidity~~ at ~~AFI. We continue to have ongoing dialogue with our regulators about a more normalized level of capital maintenance.~~least 15%.

Liquidity Risk Management

Multiple metrics are used to frame the level of liquidity risk, manage the liquidity position, and identify related trends. These metrics include coverage ratios and stress tests that measure the sufficiency of the liquidity portfolio, stability ratios that measure longer-term structural liquidity, and concentration ratios that ensure 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.

89100

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed credit facility capacity that, taken together, would allow us to operate and to meet our contractual and contingent obligations in the event that market-wide disruptions and enterprise-specific events disrupt normal access to funding. ~~The~~We hold available liquidity ~~is held~~ at various entities, ~~and considers~~taking into consideration regulatory restrictions and tax implications that may limit our ability to transfer funds across entities. The following table summarizes our total available liquidity.


March 31, 2017 ($ in millions)
March 31, 2018 ($ in millions)
Unencumbered highly liquid U.S. federal government and U.S. agency securities	$	13,128	$	11,481
Liquid cash and equivalents	3,811		3,255
Committed funding facilities ~~(a)~~
Total capacity	16,935		8,725
Outstanding	15,930		5,755
Unused capacity ~~(b)~~(a)	1,005		2,970
Total available liquidity	$	17,944	$	17,706


(a)	~~Committed funding facilities include both on- and off-balance sheet facilities.~~


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

~~As of March 31, 2017, assuming~~Assuming a long-term capital markets stress ~~we expect that~~with no issuance of unsecured debt or term securitizations, our available liquidity as of March 31, 2018, would allow us to continue to fund ~~all~~ planned loan originations and meet all of our financial obligations for more than 36 ~~months, assuming no issuance of unsecured debt or term securitizations.~~months.

In addition, our Modified Liquidity Coverage Ratio exceeded 100% at March 31, ~~2017.~~2018. Refer to Note 1817 to the Condensed Consolidated Financial Statements and the section titled Regulation and Supervision in Part I, Item 1 of our 2017 Annual Report on Form 10-K for further discussion of our liquidity requirements.

Deposits

~~Ally Bank gathers~~We obtain retail deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels. These retail deposits provide our Automotive Finance, Mortgage Finance, and Corporate Finance operations with a stable and low-cost funding source. Retail deposit growth is a key driver of optimizing funding costs and reducing reliance on capital markets-based funding. We believe deposits provide a stable, low-cost source of funds that are less sensitive to interest rate changes, market volatility, or changes in credit ratings when compared to other funding sources. We have continued to expand our deposit gathering efforts through both direct and indirect marketing channels. Current retail deposit offerings consist of a variety of products including CDs, savings accounts, money market accounts, IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-party intermediaries, including a deposit related to ~~TradeKing~~Ally Invest customer cash balances.

The following table shows Ally ~~Bank's~~Bank’s number of accounts and our deposit balances by type as of the end of each quarter since ~~2016.~~2017.


	1st Quarter 2017		4th Quarter 2016		3rd Quarter 2016		2nd Quarter 2016		1st Quarter 2016		1st quarter 2018		4th quarter 2017		3rd quarter 2017		2nd quarter 2017		1st quarter 2017
Number of retail bank accounts (in thousands)	2,366		2,269		2,203		2,134		2,062		2,864		2,740		2,603		2,474		2,366
Deposits ($ in millions)
Retail	$	69,971	$	66,584	$	63,880	$	61,239	$	58,977	$	81,657	$	77,925	$	74,928	$	71,094	$	69,971
Brokered (a)	14,327		12,187		11,570		11,269		10,979		15,661		15,211		15,045		14,937		14,327
Other (b)	188		251		294		294		309		128		120		143		152		188
Total deposits	$	84,486	$	79,022	$	75,744	$	72,802	$	70,265	$	97,446	$	93,256	$	90,116	$	86,183	$	84,486


(a)	~~Includes~~Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank ~~related to TradeKing customer cash balances.~~by a third party of $1.2 billion as of March 31, 2018, and as of the end of each quarter in 2017.


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

During the first three months of ~~2017,~~2018, our deposit base grew ~~$5.5~~$4.2 billion. The recent growth in total deposits has been primarily attributable to our retail deposit ~~portfolio,~~ portfolio—particularly within retail CDs, as we capitalized on a shift in consumer preference from savings accounts to CDs. Our savings and money market ~~accounts.~~accounts also continued to grow in 2018. Strong retention rates and customer acquisition, reflecting the strength of the brand, continue to drive growth in retail deposits. Our brokered deposit portfolio has also continued to grow, driven by the addition of TradeKing customer cash and an increase in brokered certificates of deposit. Brokered deposit balances include $1.2 billion and $200 million of customer cash balances related to TradeKing deposited at Ally Bank by a third party at March 31, 2017, and December 31, 2016, respectively. Refer to Note 1312 to the Condensed Consolidated Financial Statements for a summary of deposit funding by type.

Secured Financings, Securitizations, and Off-balance Sheet Arrangements

In addition to building a larger deposit base, secured funding continues to be a significant source of financing. Securitization has proven to be a reliable and cost-effective funding source, and we continue to remain active in the well-established securitization markets to finance our automotive loan products. Through securitizations, we are able to convert our financial assets, including finance receivables and operating leases, into cash earlier than what would have occurred in the normal course of business.

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As part of these securitization transactions, we sell assets to various securitization entities. In turn, the securitization entities establish separate trusts to which they transfer the assets in exchange for the proceeds from the sale of securities issued by the trust. The trusts’ activities are generally limited to acquiring the assets, issuing securities, making payments on the securities, and periodically reporting to the investors.

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

As part of our securitization transactions, we typically agree to service the transferred assets for a fee, and we may also earn other related fees. The amount of the fees earned is disclosed in Note 10 to the Condensed Consolidated Financial Statements. We may also retain a portion of senior and subordinated interests issued by the trusts. Subordinate interests typically provide credit support to the more highly rated senior interest in a securitization transaction and may be subject to all or a portion of the first loss position related to the sold assets.

Certain of these securitization transactions meet the criteria to be accounted for as off-balance sheet arrangements if we either do not hold a potentially significant economic interest or do not provide servicing or asset management functions for the financial assets held by the securitization entity. Certain of our securitization transactions do not meet the required criteria to be accounted for as off-balance sheet arrangements; therefore, they are accounted for as secured borrowings. For information regarding our off-balance sheet arrangements and securitization activities, refer to Note 1 and Note 9 to the Condensed Consolidated Financial Statements.

During the first three months of ~~2017,~~2018, we raised ~~$3.0~~$3.1 billion through the completion of term securitization transactions backed by retail automotive loans and dealer floorplan automotive ~~assets, which includes $1.1 billion through the completion of~~

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~~one off-balance sheet securitization transaction backed by retail automotive loans.~~assets. Additionally, for retail automotive loans and ~~lease notes,~~leases, the term structure of the transaction locks in funding for a specified pool of loans and leases, ~~for the life of the underlying asset,~~ creating an effective tool for managing interest rate and liquidity risk.

We manage secured funding execution risk by maintaining a diverse investor base and available committed credit facility capacity. We have access to private committed funding facilities, the largest of which is a syndicated credit facility of ~~sixteen~~five lenders secured by automotive receivables. This facility can fund automotive retail and dealer floorplan loans, as well as leases. ~~During~~In March ~~2016,~~2018, this facility was renewed with ~~$11.0~~$4.0 billion of capacity and the maturity was extended to March ~~2018. In March 2017, we reduced the capacity of this facility to $10.0 billion.~~2020. In the event this facility is not renewed at maturity, the outstanding debt will be repaid over time as the underlying collateral amortizes. At March 31, ~~2017,~~2018, there was ~~$9.8~~$2.4 billion outstanding under this facility. Our ability to access the unused capacity in the secured facility depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.

The total capacity in our committed secured funding facilities is provided by banks through private transactions. The committed secured funding facilities can be revolving in nature and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the closing date. At March 31, ~~2017,~~2018, all of our ~~$15.7~~$8.7 billion of secured committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of March 31, ~~2017,~~2018, we had ~~$3.1~~$6.6 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days. In addition to our syndicated revolving credit facility, we also maintain various bilateral ~~and multilateral~~ secured credit facilities that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool of automotive assets.

We also have access to funding through advances with the FHLB. These advances are primarily secured by consumer mortgage and commercial real estate automotive finance receivables and loans. As of March 31, ~~2017,~~2018, we had pledged ~~$16.8~~$27.0 billion of assets and investment securities to the FHLB resulting in ~~$12.1~~$20.2 billion in total funding capacity with ~~$8.0~~$18.6 billion of debt outstanding.

At March 31, 2018, $55.8 billion of our total assets were restricted as collateral for the payment of debt obligations accounted for as secured borrowings and repurchase agreements. Refer to Note 13 to the Consolidated Financial Statements for further discussion.

Unsecured Financings

We obtain unsecured funding from the sale of floating-rate demand notes under our Demand Notes program. The holder has the option to require us to redeem these notes at any time without restriction. Demand Notes outstanding were ~~$3.7~~$3.0 billion at March 31, ~~2017.~~2018. We also have short-term and long-term unsecured debt outstanding from retail term note programs. These programs ~~generally consist~~are composed of callable fixed-rate instruments with fixed-maturity ~~dates.~~dates and floating-rate notes. There were ~~$450~~$307 million of retail term notes outstanding at March 31, ~~2017.~~2018. The remainder of our unsecured debt is composed of institutional term debt. Refer to Note 1413 to the Condensed Consolidated Financial Statements for additional information about our outstanding short-term borrowings and long-term unsecured debt.

In December 2016, we closed a private unsecured committed funding facility under which we have access to a term facility with a commitment of $850 million, and a revolving facility with a commitment of $400 million. In January 2017, both the revolving facility and term facility were fully drawn.

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 financial instruments sold in repurchase agreements include U.S. government and federal agency obligations, and certificated residual interests related to asset-backed securitizations. As of March 31, ~~2017,~~2018, we had ~~$1.6 billion~~$707 million debt outstanding under repurchase agreements.

Additionally, we have access to the ~~Federal Reserve Bank~~FRB Discount Window and can borrow funds to meet short-term liquidity demands. However, the ~~Federal Reserve Bank~~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

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or periods of market disruption. We have assets pledged and restricted as collateral to the ~~Federal Reserve Bank~~FRB totaling $2.3 billion. We had no debt outstanding with the ~~Federal Reserve~~FRB as of March 31, ~~2017.~~2018.

Recent Funding Developments

During the first three months ~~of 2017,~~2018, we accessed the public and private markets to execute secured funding transactions, ~~whole-loan sales,~~ unsecured funding transactions, and funding facility renewals totaling ~~$4.3~~$8.7 billion. Key funding highlights from January 1, ~~2017,~~2018, to date were as follows:

We closed, renewed, increased, and/or extended ~~$1.3~~a net of $5.6 billion in U.S. secured credit facilities during the three months ended March 31, ~~2017.~~2018.

We continued to access the public and private term asset-backed securitization markets raising ~~$3.0~~$3.1 billion during the three months ended March 31, ~~2017. During~~2018. In the ~~quarter,~~first three months of 2018, we raised approximately ~~$1.3~~$2.1 billion through securitizations backed by retail automotive loans. We also raised ~~$650 million~~$1.0 billion through a public securitization backed by dealer floorplan automotive ~~assets, which represented our first floorplan securitization since 2015. Additionally,~~assets.

In April 2018, we raised ~~approximately $1.1~~$1.0 billion through ~~an off-balance sheet~~a public securitization backed by retail automotive loans.

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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.


	March 31, 2017			December 31, 2016			March 31, 2018			December 31, 2017
($ in millions)	On-balance sheet funding		% Share of funding	On-balance sheet funding		% Share of funding	On-balance sheet funding		% Share of funding	On-balance sheet funding		% Share of funding
Secured financings	$	37,010	26	$	43,140	30	$	36,722	24	$	36,869	25
Institutional term debt and unsecured bank funding	18,022		12	19,276		13
Institutional term debt							14,527		10	15,099		10
Retail debt programs (a)	4,101		3	4,070		3	3,264		2	3,463		2
Total debt (b)	59,133		41	66,486		46	54,513		36	55,431		37
Deposits	84,486		59	79,022		54	97,446		64	93,256		63
Total on-balance sheet funding	$	143,619	100	$	145,508	100	$	151,959	100	$	148,687	100


(a)	Includes $~~450~~307 million and ~~$448~~$292 million of retail term notes at March 31, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.


(b)	Excludes fair value adjustment as described in Note 1918 to the Condensed Consolidated Financial Statements.

Refer to Note 1413 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at March 31, ~~2017~~2018.

Cash Flows

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

Net cash provided by operating activities was ~~$1.2~~$1.1 billion for ~~both~~ the three months ended March 31, ~~2017, and 2016, respectively.~~2018, compared to $1.2 billion for the same period in 2017. Activity was largely consistent year-over-year, as cash flows from our consumer and commercial lending activities offset declines in our leasing business.

Net cash used in investing activities was ~~$0.7~~$4.4 billion for the three months ended March 31, ~~2017,~~2018, compared to ~~net cash provided by investing activities of $0.7~~$1.0 billion for the ~~three months ended March 31, 2016.~~same period in 2017. The change was the result of a decrease in net cash inflows from purchases, sales, originations, and repayments of finance receivables and loans of $0.9 billion as loan originations and purchases outpaced repayments and loan salesincrease during the three months ended March 31, ~~2017. Also contributing~~2018, was due to ~~the decrease was~~an increase in loan purchases of $1.1 billion, an increase in net cash outflows related to investment activity of $0.3 billion, a nonrecurring loan sale of $1.2 billion during the three months ended March 31, 2017, and $0.6 billion fewer proceeds from ~~purchases, sales, maturities, and repayments~~net disposals of ~~available-for-sale securities of $0.9 billion. This was partially offset by an increase of $0.5 billion in net~~operating lease assets during the three months ended March 31, 2018.

Net cash provided by ~~nonmarketable equity investments due primarily to lower holdings in our investment in FHLB stock in 2017, compared to the purchase of FRB stock in 2016.~~

~~Net cash used in~~ financing activities for the three months ended March 31, ~~2017,~~2018, was ~~$2.1~~$3.0 billion, compared to ~~$3.2 billion for the three months ended March 31, 2016. The reduction in~~ net cash used in financing activities of $2.1 billion for the same period in 2017. The increase in net cash provided by financing activities was primarily attributable to ~~lower net~~$0.9 billion in cash inflows due to issuances of long-term debt exceeding repayments of long-term debt, compared to a net outflow of $3.1 billion for the three months ended March 31, ~~2017, compared~~2017. Additionally, there was a decrease in net cash outflows related to ~~$4.2 billion for the three months ended March 31, 2016. The net increase in cash flows associated with deposit~~short-term borrowings of approximately ~~$1.7 billion~~$2.5 billion. This was ~~largely~~partially offset by ~~decreases~~a decrease in ~~short-term borrowings~~net cash inflows associated with deposits of ~~$1.6~~$1.3 billion.

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Capital Planning and Stress Tests

As part of the ~~2016~~2017 Comprehensive Capital Analysis and Review (CCAR) process, on April 5, 2017, we submitted our 2017 capital plan and stress test results to the FRB. On June 23, 2017, we publicly disclosed summary results of the stress test under the most severe scenario in accordance with regulatory requirements. On June 28, 2017, we received ~~approval for~~a non-objection to our capital plan from the FRB, including the proposed capital actions ~~including~~contained in our submission. The capital actions included a 50% increase in the quarterly cash dividend ofon common stock from $0.08 per share ofto $0.12 per share, and a 9% increase in our ~~common stock, subject to quarterly approval~~share repurchase program, which has been authorized by the Board, ~~of Directors, and the ability~~permitting us to repurchase up to ~~$700~~$760 million of our common stock from time to time from the third quarter of 2017 through the second quarter of ~~2017. Our first common stock dividend was paid during~~2018. In addition, we submitted to the ~~third quarter~~FRB the results of ~~2016~~our company-run mid-cycle stress test conducted under multiple macroeconomic scenarios and ~~we paid a cash dividend~~disclosed the results of ~~$0.08 per share~~this stress test under the most severe scenario on ~~our common stock during each subsequent quarter. On~~October 5, 2017, in accordance with regulatory requirements. Additionally, in connection with the 2017 CCAR process, on April ~~14, 2017,~~10, 2018, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.08~~$0.13 per share on all common ~~stock. Refer~~stock, payable on May 15, 2018.

The following table presents information related to ~~Note 26 to~~our common stock for each quarter since the ~~Condensed Consolidated Financial Statements for further information regarding this common share dividend. Additionally, the Ally Board~~commencement of ~~Directors authorized a~~our common stock repurchase ~~program~~programs and initiation of ~~up to $700 million beginning in the third quarter of 2016 and continuing through the second quarter of 2017. Under this program, we have repurchased $495 million, or 25,140,190 shares of~~a quarterly cash dividend on common ~~stock, which reduced total shares by approximately 5.2% since inception. At March 31, 2017, we had 462,193,424 shares of common stock outstanding.~~

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	Common stock repurchased during period (a)			Number of common shares outstanding		Cash dividends declared per common share (b)
($ in millions, except per share data; shares in thousands)	Approximate dollar value		Number of shares	Beginning of period	End of period	Cash dividends declared per common share (b)
2016
Third quarter	$	159	8,298	483,753	475,470	$	0.08
Fourth quarter	167		8,745	475,470	467,000	0.08
2017
First quarter	$	169	8,097	467,000	462,193	$	0.08
Second quarter	204		10,485	462,193	452,292	0.08
Third quarter	190		8,507	452,292	443,796	0.12
Fourth quarter	190		7,033	443,796	437,054	0.12
2018
First quarter	$	185	6,473	437,054	432,691	$	0.13


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


(b)	On April 10, 2018, the Board declared a quarterly cash dividend of $0.13 per share on all common stock, payable on May 15, 2018. Refer to Note 25 to the Condensed Consolidated Financial Statements for further information regarding this common stock dividend.

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Regulatory Capital

Refer to Note 1817 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	B	BB+	~~Stable~~Positive	September ~~28, 2016~~8, 2017 (a)
Moody’s	Not Prime	Ba3	Stable	October 20, 2015 (b)
S&P	B	BB+	Stable	October ~~12, 2016~~16, 2017 (c)
DBRS	R-3	BBB (Low)	Stable	May ~~3, 2017~~1, 2018 (d)


(a)	Fitch affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and ~~maintained a~~changed the outlook from Stable ~~outlook~~to Positive on September ~~28, 2016.~~8, 2017.

(b)

~~Moody's~~Moody’s upgraded our senior unsecured debt rating to Ba3 from B1, affirmed our short-term rating of Not Prime, and changed the outlook to Stable on October 20, 2015. Effective December 1, 2014, we determined to not renew our contractual arrangement with ~~Moody's~~Moody’s related to their providing of our ~~corporate family,~~issuer, senior debt, and short-term ratings. Notwithstanding this, ~~Moody's~~Moody’s has determined to continue to provide these ratings on a discretionary basis. However, ~~Moody's~~Moody’s has no obligation to continue to provide these ratings, and could cease doing so at any time.


(c)	Standard & ~~Poor's~~Poor’s affirmed our senior unsecured debt rating of BB+, affirmed our short-term rating of B, and ~~changed the~~maintained a Stable outlook ~~from Positive to Stable~~ on October ~~12, 2016.~~16, 2017.


(d)	DBRS affirmed our ~~short-term rating of R-3, affirmed our~~ senior unsecured debt rating of BBB (Low), affirmed our short-term rating of R-3, and maintained a Stable outlook on ~~all ratings on~~ May ~~3, 2017.~~1, 2018.

Rating agencies indicate that they base their ratings on many quantitative and qualitative factors, including 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 109 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.~~follows:

Allowance for loan losses

Valuation of automotive lease assets and residuals

Fair value of financial instruments

Legal and regulatory reserves

Determination of provision for income taxes

During ~~2017,~~2018, we did not substantively change any material aspect of our overall methodologies and processes used in developing the above estimates from what was described in the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K.

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

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Statistical Table

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

Net Interest Margin Table

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


	2017							2016							Increase (decrease) due to									2018							2017							Increase (decrease) due to
Three months ended March 31, ($ in millions)	Average balance (a)			Interest income/ Interest expense		Yield/rate		Average balance (a)			Interest income/ Interest expense		Yield/rate		Volume			Yield/rate			Total			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	$	2,674		$	5	0.76	%	$	2,867		$	3	0.42	%	$	—		$	2		$	2		$	3,503		$	15	1.74	%	$	2,674		$	5	0.76	%	$	2		$	8		$	10
Investment securities (b)	20,481			126		2.49		17,594			102		2.33		17			7			24			25,206			163		2.62		20,481			126		2.49		29			8			37
Loans held-for-sale, net	—			—		—		35			—		—		—			—			—			28			—		—		—			—		—		—			—			—
Finance receivables and loans, net (c) (d)	117,974			1,368		4.70		111,525			1,235		4.45		71			62			133
Finance receivables and loans, net (b) (c)																								122,531			1,543		5.11		117,974			1,368		4.70		53			122			175
Investment in operating leases, net ~~(e)~~(d)	10,931			154		5.71		15,638			259		6.66		(78		)	(27		)	(105		)	8,629			109		5.12		10,931			154		5.71		(32		)	(13		)	(45		)
Other earning assets	817			8		3.97		—			—		—		8			—			8			1,110			13		4.75		817			8		3.97		3			2			5
Total interest-earning assets	152,877			1,661		4.41		147,659			1,599		4.36								62			161,007			1,843		4.64		152,877			1,661		4.41								182
Noninterest-bearing cash and cash equivalents	1,100							1,841																514							1,100
Other assets	8,013							8,929																7,286							8,013
Allowance for loan losses	(1,145		)					(1,060		)														(1,281		)					(1,145		)
Total assets	$	160,845						$	157,369															$	167,526						$	160,845
Liabilities
Interest-bearing deposit liabilities	$	82,160		$	231	1.14	%	$	68,148		$	193	1.14	%	$	40		$	(2	)	$	38		$	95,299		$	351	1.49	%	$	82,160		$	231	1.14	%	$	37		$	83		$	120
Short-term borrowings	8,223			27		1.33		5,609			13		0.93		6			8			14			8,342			32		1.56		8,223			27		1.33		—			5			5
Long-term debt ~~(d)~~(b)	52,549			424		3.27		64,841			442		2.74		(84		)	66			(18		)	45,535			411		3.66		52,549			424		3.27		(57		)	44			(13		)
Total interest-bearing liabilities	142,932			682		1.94		138,598			648		1.88								34			149,176			794		2.16		142,932			682		1.94								112
Noninterest-bearing deposit liabilities	93							92																114							93
Total funding sources	143,025			682		1.93		138,690			648		1.88											149,290			794		2.16		143,025			682		1.93
Other liabilities	4,383							5,053																5,040							4,383
Total liabilities	147,408							143,743																154,330							147,408
Total equity	13,437							13,626																13,196							13,437
Total liabilities and equity	$	160,845						$	157,369															$	167,526						$	160,845
Net financing revenue and other interest income				$	979						$	951									$	28					$	1,049						$	979									$	70
Net interest spread ~~(f)~~(e)						2.47	%						2.48	%															2.48	%						2.47	%
Net yield on interest-earning assets ~~(g)~~(f)						2.60	%						2.59	%															2.64	%						2.60	%


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

(b)

~~Amounts for~~Includes the effects of derivative financial instruments designated as hedges. Refer to Note 18 to the ~~three months ended~~Condensed Consolidated Financial Statements ~~March 31, 2016, were adjusted to include previously excluded equity investments with an average balance~~for further information about the effects of $738 million and related income on equity investments of $4 million. Yields on available-for-sale debt securities are based on fair value as opposed to amortized cost. Yields on held-to-maturity securities are based on amortized cost.our hedging activities.


(c)	Nonperforming finance receivables and loans are included in the average balances. For information on our accounting policies regarding nonperforming status, refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K.


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


~~(e)~~	~~Includes loss~~Yield includes gains on sale of $3$18 million and ~~gain~~losses on sale of ~~$55~~$3 million for the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, respectively. Excluding these gains and losses ~~or gains~~ on sale, the annualized yield would be 4.28% and 5.82% ~~and 5.25% at~~for the three months ended March 31, ~~2017,~~2018, and ~~2016,~~2017, respectively.


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


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

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~~Management's~~Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Recently Issued Accounting Standards

Refer to Note 1 to the Condensed Consolidated Financial Statements.

Cautionary Notice ~~About~~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, including the residual effects of the recent global economic crisis and responses to that crisis by governments, businesses, and households;~~conditions;

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

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

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

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

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

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 ~~regulatory normalization;~~digital focus;

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

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

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

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

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

adverse publicity or other reputational harm to ~~us;~~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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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;~~

~~Table of Contents~~

~~Management's Discussion~~sponsors and ~~Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

challenges to the dealer’s role as intermediary between manufacturers and purchasers;

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

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

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

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

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

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

our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or ~~facilities,~~infrastructure, including our capacity to withstand ~~cyber-attacks;~~cyberattacks;

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

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

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

our ability to successfully make and integrate acquisitions;

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

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

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

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

Our use of the term “loans” describes all of the products associated with our direct and indirect lending activities. The specific products include loans, retail installment sales contracts, lines of credit, leases, and other financing products. The term “lend” or “originate” refers to our direct origination of loans or our purchase or acquisition of loans.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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Controls and Procedures

Ally Financial Inc. • Form 10-Q

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the specified time periods. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), to allow for timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of internal control including the possibility of human error or the circumvention or overriding of controls through individual actions or collusion. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control ~~system's~~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 March 31, ~~2017,~~2018, 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 2524 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 30 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in our ~~2016~~2017 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 March 31, ~~2017.~~2018.

Purchases of Equity Securities by the Issuer

The following table presents repurchases of our common stock, by month, for the three months ended March 31, ~~2017.~~2018.

Three months ended March 31, 2017
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)
January 2017 3,289
$ 19.68
3,289
$ 309
February 2017 1,845
22.76
1,845
267
March 2017 2,963
21.02
2,963
205
Total 8,097
20.87
8,097



Three months ended March 31, 2018	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)
January 2018	1,254	$	30.19	1,254	$	342
February 2018	3,279	28.49		3,279	249
March 2018	1,940	27.68		1,940	195
Total	6,473	28.58		6,473


(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 19, 2016,~~June 28, 2017, we announced a common stock repurchase program of up to ~~$700~~$760 million. The program commenced in the third quarter of ~~2016~~2017 and will expire on June 30, ~~2017.~~2018.

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 ~~accompanying Index~~following index of ~~Exhibits~~exhibits are filed as a part of this report. ~~This Index is~~



Exhibit	Description	Method of Filing

10.1	Separation and Transition Services Agreement, effective April 18, 2018, by and between Ally Financial Inc. and Timothy M. Russi	Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of April 18, 2018, (File No. 1-3754), incorporated herein by reference.

12	Computation of Ratio of Earnings to Fixed Charges	Filed herewith.

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 quarterly period ended March 31, 2018, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Statement of Comprehensive Income (unaudited), (ii) Condensed Consolidated Balance Sheet (unaudited), (iii) Condensed Consolidated Statement of Changes in Equity (unaudited), (iv) Condensed Consolidated Statement of Cash Flows (unaudited), and (v) the Notes to the Condensed Consolidated Financial Statements (unaudited).	Filed herewith.

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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 report to be signed on its behalf by the undersigned, thereunto duly authorized, this ~~4th~~7th day of May, ~~2017~~2018.




	Ally Financial Inc. (Registrant)

	/S/ JENNIFER A. LAC~~HRISTOPHER~~ A.H~~ALMY~~LAIR
	~~Christopher~~Jennifer A. ~~Halmy~~LaClair Chief Financial Officer




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

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~~Ally Financial Inc. • Form 10-Q~~

~~INDEX OF EXHIBITS~~




~~Exhibit~~	~~Description~~	~~Method of Filing~~

12	~~Computation of Ratio of Earnings to Fixed Charges~~	~~Filed herewith.~~

~~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~~	~~Interactive Data File~~	~~Filed herewith.~~

~~100~~



($ in millions)
Purchase price
Cash consideration	$	298
Allocation of purchase price to net assets acquired
Intangible assets (a)	82
Cash and short-term investments (b)	50
Other assets	14
Deferred tax asset, net	4
Employee compensation and benefits	(41		)
Other liabilities	(4		)
Goodwill	$	193



	Level 3 recurring fair value measurements
			Net realized/unrealized gains														Fair value at March 31, 2017		Net unrealized gains included in earnings still held at March 31, 2017
($ in millions)	Fair value at Jan. 1, 2017		included in earnings		included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at March 31, 2017
Assets
Mortgage loans held-for-sale	$	—	$	—	$	—	$	3	$	(2	)	$	—	$	—		$	1	$	—
Other assets
Interests retained in financial asset sales	29		—		—		—		4			—		(2		)	31		—
Total assets	$	29	$	—	$	—	$	3	$	2		$	—	$	(2	)	$	32	$	—



Three months ended March 31, 2017	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)
January 2017	3,289	$	19.68	3,289	$	309
February 2017	1,845	22.76		1,845	267
March 2017	2,963	21.02		2,963	205
Total	8,097	20.87		8,097

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

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