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 September 30, ~~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 asuch 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 October ~~27, 2017,~~30, 2018, the number of shares outstanding of the Registrant’s common stock was ~~442,185,905~~413,081,733 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 and Nine Months Ended September 30, ~~2017,~~2018, and ~~2016~~2017	3
	Condensed Consolidated Balance Sheet (unaudited) at September 30, ~~2017,~~2018, and December 31, ~~2016~~2017	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the Nine Months Ended September 30, ~~2017,~~2018, and ~~2016~~2017	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the Nine Months Ended September 30, ~~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	14
	Note 3. Other Income, Net of Losses	18
	Note 4. Reserves for Insurance Losses and Loss Adjustment Expenses	18
	Note 5. Other Operating Expenses	19
	Note 6. Investment Securities	20
	Note 7. Finance Receivables and Loans, Net	24
	Note 8. Investment in Operating Leases, Net	31
	Note 9. Securitizations and Variable Interest Entities	31
	Note 10. Other Assets	35
	Note 11. Deposit Liabilities	35
	Note 12. Debt	36
	Note 13. Accrued Expenses and Other Liabilities	38
	Note 14. Accumulated Other Comprehensive Loss	38
	Note 15. Earnings per Common Share	40
	Note 16. Regulatory Capital and Other Regulatory Matters	40
	Note 17. Derivative Instruments and Hedging Activities	43
	Note 18. Income Taxes	50
	Note 19. Fair Value	50
	Note 20. Offsetting Assets and Liabilities	57
	Note 21. Segment Information	59
	Note 22. Parent and Guarantor Condensed Consolidating Financial Statements	61
	Note 23. Contingencies and Other Risks	70
	Note 24. Subsequent Events	71
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6572
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~111~~123
Item 4.	Controls and Procedures	~~112~~124
Part II — Other Information		~~113~~125
Item 1.	Legal Proceedings	~~113~~125
Item 1A.	Risk Factors	~~113~~125
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~113~~125
Item 3.	Defaults Upon Senior Securities	~~113~~125
Item 4.	Mine Safety Disclosures	~~113~~125
Item 5.	Other Information	~~113~~125
Item 6.	Exhibits	~~114~~126
Signatures		~~115~~127



Table of Contents		PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,					Nine months ended September 30,
($ in millions)	2017			2016			2017			2016			2018			2017		2018			2017
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,486		$	1,307		$	4,301		$	3,807		$	1,708		$	1,486	$	4,898		$	4,301
Interest on loans held-for-sale													4			—		10			—
Interest and dividends on investment securities and other earning assets	157			101			437			302			198			157		562			437
Interest on cash and cash equivalents	11			3			23			10			18			11		50			23
Operating leases	434			649			1,465			2,119			368			434		1,124			1,465
Total financing revenue and other interest income	2,088			2,060			6,226			6,238			2,296			2,088		6,644			6,226
Interest expense
Interest on deposits	285			212			766			608			462			285		1,212			766
Interest on short-term borrowings	34			14			94			39			29			34		101			94
Interest on long-term debt	416			430			1,257			1,308			451			416		1,296			1,257
Total interest expense	735			656			2,117			1,955			942			735		2,609			2,117
Net depreciation expense on operating lease assets	272			408			982			1,352			247			272		785			982
Net financing revenue and other interest income	1,081			996			3,127			2,931			1,107			1,081		3,250			3,127
Other revenue
Insurance premiums and service revenue earned	252			238			720			704			258			252		753			720
Gain on mortgage and automotive loans, net	15			—			65			4			17			15		19			65
Loss on extinguishment of debt	(4		)	—			(6		)	(4		)
Other gain on investments, net	23			52			73			145			22			23		37			73
Other income, net of losses	95			98			313			289			101			91		307			307
Total other revenue	381			388			1,165			1,138			398			381		1,116			1,165
Total net revenue	1,462			1,384			4,292			4,069			1,505			1,462		4,366			4,292
Provision for loan losses	314			258			854			650			233			314		652			854
Noninterest expense
Compensation and benefits expense	264			248			814			742			274			264		872			814
Insurance losses and loss adjustment expenses	65			69			278			287			77			65		241			278
Other operating expenses	424			418			1,249			1,189			456			424		1,347			1,249
Total noninterest expense	753			735			2,341			2,218			807			753		2,460			2,341
Income from continuing operations before income tax expense	395			391			1,097			1,201			465			395		1,254			1,097
Income tax expense from continuing operations	115			130			350			336			91			115		280			350
Net income from continuing operations	280			261			747			865			374			280		974			747
Income (loss) from discontinued operations, net of tax	2			(52		)	1			(46		)	—			2		(1		)	1
Net income	282			209			748			819			374			282		973			748
Other comprehensive income (loss), net of tax	48			(4		)	144			262
Other comprehensive (loss) income, net of tax													(133		)	48		(531		)	144
Comprehensive income	$	330		$	205		$	892		$	1,081		$	241		$	330	$	442		$	892

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 September 30,					Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(in dollars) (a)	2017		2016			2017		2016			2018		2017		2018		2017
Basic earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.73		$	0.89	$	0.62	$	2.27	$	1.63
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Income from discontinued operations, net of tax											—		—		—		—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	0.89	$	0.63	$	2.26	$	1.63
Diluted earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.72		$	0.88	$	0.62	$	2.25	$	1.63
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Income from discontinued operations, net of tax											—		—		—		—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	0.88	$	0.63	$	2.25	$	1.63
Cash dividends declared per common share	$	0.12	$	0.08		$	0.28	$	0.08		$	0.15	$	0.12	$	0.41	$	0.28


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

Refer to Note 1715 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)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Assets
Cash and cash equivalents
Noninterest-bearing	$	810		$	1,547		$	802		$	844
Interest-bearing	3,614			4,387			2,970			3,408
Total cash and cash equivalents	4,424			5,934			3,772			4,252
Available-for-sale securities (refer to Note 7 for discussion of investment securities pledged as collateral)	23,099			18,926
Held-to-maturity securities (fair value of $1,807 and $789)	1,839			839
Equity securities							514			518
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral)							24,122			22,303
Held-to-maturity securities (fair value of $2,139 and $1,865)							2,246			1,899
Loans held-for-sale, net	18			—			425			108
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	118,871			118,944			126,605			122,893
Allowance for loan losses	(1,286		)	(1,144		)	(1,248		)	(1,276		)
Total finance receivables and loans, net	117,585			117,800			125,357			121,617
Investment in operating leases, net	8,931			11,470			8,578			8,741
Premiums receivable and other insurance assets	2,054			1,905			2,291			2,047
Other assets	6,063			6,854			5,796			5,663
Total assets	$	164,013		$	163,728		$	173,101		$	167,148
Liabilities
Deposit liabilities
Noninterest-bearing	$	129		$	84		$	180		$	108
Interest-bearing	89,987			78,938			101,199			93,148
Total deposit liabilities	90,116			79,022			101,379			93,256
Short-term borrowings	10,175			12,673			7,338			11,413
Long-term debt	45,122			54,128			45,542			44,226
Interest payable	552			351			712			375
Unearned insurance premiums and service revenue	2,583			2,500			3,020			2,604
Accrued expenses and other liabilities	1,892			1,737			2,025			1,780
Total liabilities	150,440			150,411			160,016			153,654
Contingencies (refer to Note 25)
Contingencies (refer to Note 23)
Equity
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 489,593,314 and 485,707,644; and outstanding 443,796,233 and 467,000,306)	21,223			21,166
Common stock and paid-in capital ($0.01 par value, shares authorized 1,100,000,000; issued 492,366,900 and 489,883,553; and outstanding 416,590,508 and 437,053,936)							21,322			21,245
Accumulated deficit	(6,533		)	(7,151		)	(5,716		)	(6,406		)
Accumulated other comprehensive loss	(197		)	(341		)	(781		)	(235		)
Treasury stock, at cost (45,797,081 and 18,707,338 shares)	(920		)	(357		)
Treasury stock, at cost (75,776,392 and 52,829,617 shares)							(1,740		)	(1,110		)
Total equity	13,573			13,317			13,085			13,494
Total liabilities and equity	$	164,013		$	163,728		$	173,101		$	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)	September 30, 2017			December 31, 2016				September 30, 2018			December 31, 2017
Assets							��
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	$	20,020		$	24,630			$	17,694		$	20,623
Allowance for loan losses	(134		)	(173		)		(123		)	(136		)
Total finance receivables and loans, net	19,886			24,457				17,571			20,487
Investment in operating leases, net	704			1,745				206			444
Other assets	1,037			1,390				622			689
Total assets	$	21,627		$	27,592			$	18,399		$	21,620
Liabilities
Long-term debt	$	10,046		$	13,259			$	11,457		$	10,197
Accrued expenses and other liabilities	10			12				26			9
Total liabilities	$	10,056		$	13,271			$	11,483		$	10,206

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

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Condensed Consolidated Statement of Changes in Equity (unaudited)

Ally Financial Inc. • Form 10-Q


($ in millions)	Common stock and paid-in capital		Preferred stock			Accumulated deficit			Accumulated other comprehensive (loss) income			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						819									819
Preferred stock dividends						(30		)							(30		)
Series A preferred stock redemption			(696		)										(696		)
Share-based compensation	49														49
Other comprehensive income									262						262
Common stock repurchases												(173		)	(173		)
Common stock dividend ($0.08 per share)						(40		)							(40		)
Balance at September 30, 2016	$	21,149	$	—		$	(7,361	)	$	31		$	(189	)	$	13,630
Balance at January 1, 2017	$	21,166	$	—		$	(7,151	)	$	(341	)	$	(357	)	$	13,317		$	21,166	$	(7,151	)	$	(341	)	$	(357	)	$	13,317
Net income						748									748					748									748
Share-based compensation	57														57			57											57
Other comprehensive income									144						144								144						144
Common stock repurchases												(563		)	(563		)									(563		)	(563		)
Common stock dividends ($0.28 per share)						(130		)							(130		)			(130		)							(130		)
Balance at September 30, 2017	$	21,223	$	—		$	(6,533	)	$	(197	)	$	(920	)	$	13,573		$	21,223	$	(6,533	)	$	(197	)	$	(920	)	$	13,573
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																				973									973
Share-based compensation																		77											77
Other comprehensive loss																							(531		)				(531		)
Common stock repurchases																										(630		)	(630		)
Common stock dividends ($0.41 per share)																				(179		)							(179		)
Balance at September 30, 2018																		$	21,322	$	(5,716	)	$	(781	)	$	(1,740	)	$	13,085


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

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

Table of Contents

Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q


Nine months ended September 30, ($ in millions)	2017			2016			2018			2017
Operating activities
Net income	$	748		$	819		$	973		$	748
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	1,434			1,807			1,280			1,434
Provision for loan losses	854			650			652			854
Gain on mortgage and automotive loans, net	(65		)	(4		)	(19		)	(65		)
Other gain on investments, net	(73		)	(145		)	(37		)	(73		)
Loss on extinguishment of debt	6			4
Originations and purchases of loans held-for-sale	(252		)	(141		)	(889		)	(252		)
Proceeds from sales and repayments of loans originated as held-for-sale	236			184
Proceeds from sales and repayments of loans held-for-sale							830			236
Net change in
Deferred income taxes	289			322			272			289
Interest payable	202			112			338			202
Other assets	(57		)	16			(136		)	(57		)
Other liabilities	(19		)	(65		)	(9		)	(19		)
Other, net	70			30			89			76
Net cash provided by operating activities	3,373			3,589			3,344			3,373
Investing activities
Purchases of equity securities							(652		)	(612		)
Proceeds from sales of equity securities							715			728
Purchases of available-for-sale securities	(9,022		)	(11,027		)	(5,669		)	(8,410		)
Proceeds from sales of available-for-sale securities	2,926			8,546			637			2,198
Proceeds from maturities and repayments of available-for-sale securities	2,002			2,411
Proceeds from repayments of available-for-sale securities							2,509			2,002
Purchases of held-to-maturity securities	(709		)	(650		)	(436		)	(709		)
Proceeds from maturities and repayments of held-to-maturity securities	32			—
Proceeds from repayments of held-to-maturity securities							107			32
Purchases of finance receivables and loans held-for-investment	(3,125		)	(2,924		)	(4,778		)	(3,125		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	1,323			4,221
Proceeds from sales of finance receivables and loans initially held-for-investment							53			1,323
Originations and repayments of finance receivables and loans held-for-investment and other, net	1,021			(5,384		)	(558		)	1,021
Purchases of operating lease assets	(2,844		)	(2,360		)	(2,991		)	(2,844		)
Disposals of operating lease assets	4,409			4,631			2,461			4,409
Acquisitions, net of cash acquired	—			(309		)
Net change in restricted cash	497			622
Net change in nonmarketable equity investments	(20		)	(401		)	(3		)	(20		)
Other, net	(159		)	(157		)	(241		)	(155		)
Net cash used in investing activities	(3,669		)	(2,781		)	(8,846		)	(4,162		)

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


Nine months ended September 30, ($ in millions)	2017			2016			2018			2017
Financing activities
Net change in short-term borrowings	(2,500		)	(1,673		)	(4,074		)	(2,500		)
Net increase in deposits	11,050			9,240			8,063			11,050
Proceeds from issuance of long-term debt	13,302			11,229			14,756			13,302
Repayments of long-term debt	(22,376		)	(20,758		)	(12,994		)	(22,376		)
Repurchase and redemption of preferred stock	—			(696		)
Repurchase of common stock	(563		)	(173		)	(630		)	(563		)
Dividends paid	(130		)	(70		)	(179		)	(130		)
Net cash used in financing activities	(1,217		)	(2,901		)
Effect of exchange-rate changes on cash and cash equivalents	3			2
Net decrease in cash and cash equivalents	(1,510		)	(2,091		)
Cash and cash equivalents at beginning of year	5,934			6,380
Cash and cash equivalents at September 30,	$	4,424		$	4,289
Net cash provided by (used in) financing activities							4,942			(1,217		)
Effect of exchange-rate changes on cash and cash equivalents and restricted cash							(2		)	3
Net decrease in cash and cash equivalents and restricted cash							(562		)	(2,003		)
Cash and cash equivalents and restricted cash at beginning of year							5,269			7,881
Cash and cash equivalents and restricted cash at September 30,							$	4,707		$	5,878
Supplemental disclosures
Cash paid for
Interest	$	1,910		$	1,860		$	2,242		$	1,910
Income taxes	32			16			21			32
Noncash items
Held-to-maturity securities received in consideration for loans sold	56			—			26			56
Finance receivables and loans transferred to loans held-for-sale	1,326			4,231			815			1,326
Other disclosures
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale	29			28			18			29

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



September 30, ($ in millions)	2018		2017
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet	$	3,772	$	4,424
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	935		1,454
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows	$	4,707	$	5,878


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 10for 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 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 one of the largest and most respected online banks, uniquely positioned for the observed shifting trends in consumer ~~and commercial~~ banking preferences for digital banking. 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,~~products. We also promote a cash back credit ~~card, and mortgage lending offerings through Ally Home.~~card. We have recently integrated a growing digital wealth management 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 ~~lending solutions~~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 September 30, ~~2017,~~2018, and for the three months and nine months ended September 30, ~~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) income and are subject to impairment. Our held-to-maturity debt securities are carried at amortized cost and are subject to impairment.

We assess our available-for-sale and held-to-maturity 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. 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 a 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 fair value recorded in earnings, and equity securities that are recognized using other measurement principles.

Effective January 1, 2018, equity securities that 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 do not have a readily determinable fair value, and other equity investments that 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, less impairment. Our remaining investments in equity securities are recorded at cost, less impairment and adjusted for observable price changes 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 of the same issuer.

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 17.

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 the 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 VIE. 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 are the primary beneficiary of the VIE, and would consolidate the entity. Consolidation of the VIE 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 these three criteria for sale accounting, the transfer would be accounted for as a secured borrowing consistent with the preceding paragraph. 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

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

~~Ally Financial Inc. • Form 10-Q~~

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-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. This note was updated to address the Dodd-Frank Act risk retention rules and differs from our description in Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K.

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, does not result in the recognition of 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 ~~changed 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 ~~allowed 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 modified 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 required that all excess tax benefits and tax deficiencies related to share-based payment awards be recognizedchange in ~~income tax expense or benefit in the income statement in the period in which they occur. The amendments also addressed the classification and~~ presentation of ~~certain items on the~~our Condensed Consolidated Statement of Cash Flows and additional disclosures surrounding restricted 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 these amendmentsbalances, but did not ~~have~~result in a ~~material impact~~change to ~~the financial statements.~~

~~Recently Issued Accounting Standards~~our Condensed Consolidated Statement of 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 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 ~~has~~ issued several additional ASUs to clarify guidance and provide implementation support for ASU 2014-09. ~~Management has considered these additional~~The clarifying guidance elaborates on the key concepts within ASU 2014-09 and clarifies how those concepts interact with other GAAP requirements. 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 upon adoption either through a full retrospective application or on a modified retrospective 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. Our implementation efforts to date related to this standard have included identifying revenue streams that are within the scope of this guidance, the evaluation of associated contracts and accounting policies, the evaluation of processes and systems of internal control, and the assessment of disclosure requirements of the standard. 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, revenue on certain noninsurance contracts, brokering commissions through our insurance operations, sales of off-lease vehicles, remarketing fee income through SmartAuction, and commission and fee income generated through Ally Invest. Management does not expect these amendments 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 and expense upon the origination of the contract and the immediate recognition of certain expenses upon the origination of the contract that are currently deferred. Additionally, upon implementation we expect to expand our financial statement disclosures as required by the standard. Our assessment is not final; however, we do not expect the impact of the new guidance to these

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

~~Ally Financial Inc. • Form 10-Q~~

~~specific contracts to be material to the financial statements.~~Nonfinancial Assets, respectively. We ~~currently plan~~elected to adopt this guidance using the modified retrospective approach applied to all contracts with customers that were not completed as of January 1, ~~2018, and expect~~2018. The adoption of the amendments resulted in a reduction to ~~use the modified retrospective approach.~~our opening retained earnings of approximately $126 million, net of income taxes. Refer to 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 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. ~~While~~The adoption of the ~~amendment requiring equity investments~~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 17 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~~accumulated other comprehensive income. Our policy is to use the portfolio method with respect to reclassification of stranded income tax effects in

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

Ally Financial Inc. • Form 10-Q

accumulated other comprehensive loss. The amendments in ASU 2018-02 provide entities an election to reclassify the income tax effect of ~~Comprehensive Income, we do not anticipate~~ the Tax Act from accumulated other ~~amendments will have a material impact~~comprehensive income to ~~our financial statements.~~retained earnings. We ~~currently plan~~elected to ~~adopt these amendments on~~early-adopt this standard as of January 1, 2018, and ~~expect~~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~~retained earnings.

Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the ~~modified retrospective approach~~Disclosure Requirements for Fair Value Measurement (ASU 2018-13)

In August 2018, the FASB issued ASU 2018-13. The amendments in this update modify, remove, and add certain disclosure requirements for fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The ASU is effective on January 1, 2020, and early adoption is permitted. The amendments include (i) the removal of certain disclosure requirements related to transfers between fair value input levels and the valuation process for Level 3 fair value measurements, (ii) modification of the disclosures on measurement uncertainty and certain disclosures related to investments in entities that calculate net asset value, and (iii) additional disclosure requirements related to changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The modification of the narrative disclosure on measurement uncertainty, the disclosure of changes in unrealized gains and losses, and disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We elected to early-adopt the amendments that allow for removal and modification of certain disclosure requirements as ~~required.~~of September 30, 2018. Refer to Note 19 for further details. We plan to adopt the amendments that require additional fair value measurement disclosures on January 1, 2020, and are currently evaluating the impact these amendments will have to our financial statements.

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 operating leases and sales type and direct financing leases ~~(sales type~~(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.~~lessors. The amendments also require additional disclosures for all lease types for both lessees and lessors. The FASB has subsequently issued additional ASUs intended to clarify guidance, provide implementation support, and provide an additional transition election. The amendments are effective on January 1, 2019, with early adoption permitted. The amendments must be applied on a modified retrospective basis, ~~with~~and we anticipate selecting the transition option that will allow us to record a cumulative adjustment ~~to the beginning~~as of the ~~earliest fiscal year presented in~~adoption date. We are completing our review of lease contracts and ensuring our control environment and reporting processes reflect the ~~financial statements in~~requirements of the ~~period of adoption. Management is currently evaluating the impact of these~~ amendments. Upon adoption, ~~we expect to record a~~our balance sheet ~~gross-up, reflecting our~~will include a right-of-use asset and lease liability for our operating leases where we are the lessee, ~~(for example,~~which primarily include our ~~facility leases). We are currently reviewing our operating~~facilities leases. In addition, we will no longer capitalize certain initial direct costs in connection with lease ~~contracts~~originations where we are the ~~lessee~~lessor. We anticipate electing certain practical expedients permitted within the ASU that would allow us to ~~determine~~not reassess (i) current lease classifications, (ii) whether existing contracts meet the ~~impact~~definition of a lease under the amendments to the lease guidance, and (iii) whether current initial direct costs meet the new criteria for capitalization, for all existing leases as of the ~~gross-up and~~adoption date. We do not anticipate the ~~changes~~adoption of these amendments will have a material impact to ~~capitalizable costs.~~our financial statements. We ~~are also reviewing our leases where we are the lessor to determine the impact of the changes to capitalizable costs. We currently~~ plan to adopt these amendments on January 1, 2019, and expect to use the modified retrospective approach as currently 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. The amount of the change in the allowance for credit losses will also be impacted by the composition of our portfolio at the adoption date, as well as economic conditions and forecasts at that time. Management created a ~~formal~~cross-functional working group to govern the implementation of these amendments, ~~consisting~~including consideration of model development, data integrity, technology, reporting and disclosure requirements, key ~~stakeholders from finance, risk,~~accounting interpretations, control environment, and ~~accounting and is currently evaluating the impact of the amendments.~~corporate governance. 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 plan to adopt these amendments on January 1, 2020, and 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. The amendments will not impact financial results, but will result in a change in the presentation of restricted cash and restricted cash equivalents within the

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~statement of cash flows.~~the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We ~~currently~~ plan to adopt these amendments on January 1, ~~2018,~~2020, and expect to use the modified retrospective approach as required.

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 and are currently ~~evaluating~~in the ~~impact~~process of ~~these~~ensuring our control environment and reporting processes reflect the requirements of the amendments. We ~~currently~~ plan to adopt these amendments on January 1, 2019, and expect to use the modified retrospective approach as required.

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

In August 2017, the FASB issued ASU 2017-12, which enhances the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The amendments are effective on2. Revenue from Contracts with Customers

On January 1, ~~2019, with early adoption permitted. Entities must apply~~2018, we adopted the amendments to ~~cash flow and net investment hedge relationships that exist on~~the revenue recognition principles using the modified retrospective approach applied to contracts with customers outstanding as of the date of ~~adoption using a modified retrospective approach. All transition requirements~~adoption. Results for reporting periods beginning after January 1, 2018, are presented in accordance with the amendments to the revenue recognition principles, while prior period amounts have not been adjusted and ~~elections must~~continue to be ~~applied~~presented in accordance with the accounting standards in effect for those periods. Refer to ~~hedging relationships existing as~~Note 1 for additional information.

Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of the ~~adoption date~~amendments to the 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 ~~effect of adoption should be reflected as~~scope of the ~~beginning~~amendments to the revenue recognition principles. Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of the ~~fiscal year~~amendments to the revenue recognition principles. Under the previous guidance, a portion of ~~adoption. The presentation~~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 ~~disclosure requirements must be applied prospectively. We are currently evaluating~~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 ~~impact these amendments will have to our financial statements and are evaluating the potential of early adopting the standard on January 1, 2018.~~

~~2. Acquisitions~~

~~On June 1, 2016, we acquired 100%~~term of the ~~equity~~contract. Upon adoption of ~~TradeKing Group, Inc. (TradeKing), a digital wealth management company~~the amendments to the revenue recognition principles, all revenue associated with an online broker-dealer, digital portfolio management platform, and educational content for $298 million in cash. TradeKing, which has been rebranded as Ally Invest, operates as a wholly-owned subsidiary of Ally Financial Inc. 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. Goodwillnoninsurance 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 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 Ally Invest is included within Corporatecontract term, and ~~Other.~~all advertising costs are recognized as expense when incurred.

The following table ~~summarizes~~presents the ~~allocation~~impact to our Condensed Consolidated Balance Sheet as of ~~cash consideration paid for TradeKing and~~January 1, 2018, as a result of adopting the ~~amounts of~~amendments to the ~~identifiable assets acquired and liabilities assumed recognized at the acquisition date.~~revenue recognition principles.

($ 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 and $8 million of amortization on these intangible assets during the~~ ~~three months and nine months ended~~ ~~September 30, 2017, respectively, and $3 million during both the~~ ~~three months and nine months ended~~ ~~September 30, 2016.~~


~~(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 the carrying amount of goodwill at the beginning and end of the reporting period.



($ 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

1314

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~On August 1, 2016, we acquired assets~~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 September 30, 2018					Nine months ended September 30, 2018
($ in millions)	As reported		Effect of adoption			As reported		Effect of adoption
Other revenue
Insurance premiums and service revenue earned	$	258	$	(8	)	$	753	$	(23	)
Total other revenue	398		(8		)	1,116		(23		)
Total net revenue	1,505		(8		)	4,366		(23		)
Noninterest expense
Compensation and benefits expense	274		—			872		(2		)
Other operating expenses	456		(4		)	1,347		(9		)
Total noninterest expense	807		(4		)	2,460		(11		)
Income from continuing operations before income tax expense	465		(4		)	1,254		(12		)
Income tax expense from continuing operations	91		(1		)	280		(3		)
Net income from continuing operations	374		(3		)	974		(9		)
Net income	374		(3		)	973		(9		)
Comprehensive income	$	241	$	(3	)	$	442	$	(9	)



September 30, 2018 ($ in millions)	As reported			Effect of adoption
Assets
Premiums receivable and other insurance assets	$	2,291		$	133
Other assets	5,796			44
Total assets	$	173,101		$	177
Liabilities
Unearned insurance premiums and service revenue	$	3,020		$	312
Total liabilities	160,016			312
Equity
Accumulated deficit	(5,716		)	(135		)
Total equity	13,085			(135		)
Total liabilities and equity	$	173,101		$	177

The following is a description of our primary revenue sources that ~~constitute a business~~are derived from Blue Yield, an online automotive lender exchange which we rebranded as Clearlane, 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.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 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 $24 million and $68 million of this balance were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months and nine months ended September 30, 2018, respectively. At September 30, 2018, we had unearned revenue of

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

$2.6 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $190 million during the remainder of 2018, $696 million in 2019, $610 million in 2020, $479 million in 2021, and $633 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 $1.5 billion at September 30, 2018, and recognized $108 million and $317 million of expense during the three months and nine months ended September 30, 2018, respectively.

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, 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. 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 — We have agreements with third parties to 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 we are 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

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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. Gross interchange fee income was $3 million and $9 million, and interchange expense was $2 million and $7 million, for the three months and nine months ended September 30, 2018, respectively.

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.

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 September 30, 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	$	—	$	129	$	—	$	—	$	—	$	129
Remarketing fee income	19		—		—		—		—		19
Brokerage commissions and other revenue	—		—		—		—		15		15
Brokered/agent commissions	—		3		—		—		—		3
Deposit account and other banking fees	—		—		—		—		3		3
Other	4		—		—		—		—		4
Total revenue from contracts with customers	23		132		—		—		18		173
All other revenue	57		150		2		14		2		225
Total other revenue (a)	$	80	$	282	$	2	$	14	$	20	$	398


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



Nine months ended September 30, 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	$	—	$	377	$	—	$	—	$	—	$	377
Remarketing fee income	63		—		—		—		—		63
Brokerage commissions and other revenue	—		—		—		—		46		46
Brokered/agent commissions	—		11		—		—		—		11
Deposit account and other banking fees	—		—		—		—		9		9
Other	10		1		—		—		—		11
Total revenue from contracts with customers	73		389		—		—		55		517
All other revenue	136		405		5		36		17		599
Total other revenue (a)	$	209	$	794	$	5	$	36	$	72	$	1,116


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

In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized ~~$20~~net remarketing gains of $27 million and $61 million for the three months and nine months ended September 30, 2018, respectively, on the sale 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 beginning after January 1, 2015, we have classified operations as discontinued when operations and cash flows will be eliminated fromoff-lease vehicles. These gains are included in depreciation expense on operating lease assets in our ongoing operations and we do 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 of Comprehensive Income. ~~The Notes to the Condensed Consolidated Financial Statements have been adjusted to exclude discontinued operations unless otherwise noted.~~

Our discontinued operations relate to previous discontinued operations in our Automotive Finance operations, Insurance operations, and Corporate Finance operating segments, and other operations for which we continue to have wind-down, legal, and minimal operational costs. Select financial information of discontinued operations is summarized below.

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Pretax loss $ (1 ) $ (46 ) $ (2 ) $ (44 )
Tax (benefit) expense (3 ) 6
(3 ) 2

~~4. Other Income, Net of Losses~~

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

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Remarketing fees $ 26
$ 26
$ 82
$ 79
Late charges and other administrative fees 25
25
77
72
Servicing fees 11
18
41
49
Income from equity-method investments 7
3
12
14
Other, net 26
26
101
75
Total other income, net of losses $ 95

$ 98

$ 313

$ 289

1417

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

5.3. Other Income, Net of Losses

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



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2018		2017		2018		2017
Late charges and other administrative fees	$	29	$	25	$	83	$	77
Remarketing fees	19		26		63		82
Servicing fees	5		11		21		41
Income from equity-method investments	5		7		18		12
Other, net	43		22		122		95
Total other income, net of losses	$	101	$	91	$	307	$	307

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	276			291			235			276
Prior years (a)	2			(4		)	6			2
Total net insurance losses and loss adjustment expenses incurred	278			287			241			278
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year	(248		)	(266		)	(205		)	(248		)
Prior years	(31		)	(27		)	(27		)	(31		)
Total net insurance losses and loss adjustment expenses paid or payable	(279		)	(293		)	(232		)	(279		)
Foreign exchange and other	1			1			—			1
Net reserves for insurance losses and loss adjustment expenses at September 30,	41			44			41			41
Plus: Reinsurance recoverable	132			106			98			132
Total gross reserves for insurance losses and loss adjustment expenses at September 30,	$	173		$	150		$	139		$	173


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

~~6. Other Operating Expenses~~

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

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Insurance commissions $ 106
$ 99
$ 309
$ 290
Technology and communications 72
70
212
203
Lease and loan administration 41
34
116
100
Advertising and marketing 33
27
96
75
Vehicle remarketing and repossession 29
24
82
70
Regulatory and licensing fees 27
26
82
68
Professional services 28
25
81
75
Premises and equipment depreciation 22
19
67
61
Occupancy 11
13
34
38
Non-income taxes 6
10
22
27
Other 49
71
148
182
Total other operating expenses $ 424
$ 418
$ 1,249
$ 1,189

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

5. Other Operating Expenses

Details of other operating expenses were as follows.



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2018		2017		2018		2017
Insurance commissions	$	113	$	106	$	332	$	309
Technology and communications	75		72		220		212
Lease and loan administration	42		41		124		116
Advertising and marketing	38		33		106		96
Professional services	33		28		100		81
Regulatory and licensing fees	33		27		98		82
Vehicle remarketing and repossession	27		29		85		82
Premises and equipment depreciation	22		22		64		67
Occupancy	11		11		33		34
Non-income taxes	10		6		24		22
Amortization of intangible assets	2		2		8		8
Other	50		47		153		140
Total other operating expenses	$	456	$	424	$	1,347	$	1,249

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

7.6. Investment Securities

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


	September 30, 2017									December 31, 2016									September 30, 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 (a)	$	2,112	$	—	$	(39	)	$	2,073	$	1,680	$	—	$	(60	)	$	1,620
U.S. Treasury and federal agencies																			$	2,007	$	—	$	(103	)	$	1,904	$	1,831	$	—	$	(54	)	$	1,777
U.S. States and political subdivisions	849		12		(10		)	851		794		7		(19		)	782		887		4		(26		)	865		850		11		(7		)	854
Foreign government	157		2		(2		)	157		157		5		—			162		158		—		(3		)	155		153		2		(1		)	154
Agency mortgage-backed residential	14,423		54		(133		)	14,344		10,473		29		(212		)	10,290		16,641		2		(629		)	16,014		14,412		35		(156		)	14,291
Mortgage-backed residential	2,326		16		(32		)	2,310		2,162		5		(70		)	2,097		2,670		1		(110		)	2,561		2,517		11		(34		)	2,494
Mortgage-backed commercial	509		2		(2		)	509		537		2		(2		)	537		632		1		(2		)	631		541		1		(1		)	541
Asset-backed	1,036		4		(1		)	1,039		1,396		6		(2		)	1,400		735		1		(3		)	733		933		4		(1		)	936
Corporate debt	1,291		10		(10		)	1,291		1,452		7		(16		)	1,443		1,302		—		(43		)	1,259		1,262		5		(11		)	1,256
Total debt securities (b) (c)	22,703		100		(229		)	22,574		18,651		61		(381		)	18,331
Equity securities	563		12		(50		)	525		642		7		(54		)	595
Total available-for-sale securities	$	23,266	$	112	$	(279	)	$	23,099	$	19,293	$	68	$	(435	)	$	18,926
Total available-for-sale securities (a) (b) (c)																			$	25,032	$	9	$	(919	)	$	24,122	$	22,499	$	69	$	(265	)	$	22,303
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential (d)	$	1,799	$	4	$	(36	)	$	1,767	$	839	$	—	$	(50	)	$	789	$	2,197	$	—	$	(107	)	$	2,090	$	1,863	$	3	$	(37	)	$	1,829
Asset-backed retained notes	40		—		—			40		—		—		—			—		49		—		—			49		36		—		—			36
Total held-to-maturity securities	$	1,839	$	4	$	(36	)	$	1,807	$	839	$	—	$	(50	)	$	789	$	2,246	$	—	$	(107	)	$	2,139	$	1,899	$	3	$	(37	)	$	1,865


(a)	~~Includes $304 million of U.S. Treasury securities that are included in a fair value hedging relationship as of September 30, 2017. Refer to~~ ~~Note 19~~ ~~for additional information.~~


~~(b)~~	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 September 30, ~~2017,~~2018, and December 31, ~~2016, respectively.~~2017.


(b)	Certain available-for-sale securities are included in fair value hedging relationships. Refer to Note 17 for additional information.

(c)

~~Investment~~Available-for-sale securities with a fair value of ~~$6,705 million~~$5.5 billion and ~~$4,881 million~~$7.8 billion at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, were pledged to secure advances from the ~~Federal Home Loan Bank (FHLB),~~FHLB, short-term borrowings or repurchase agreements, or for other purposes as required by contractual obligation or law. Under these agreements, we have granted the counterparty the right to sell or pledge ~~$1,339 million~~$1.4 billion and ~~$737 million~~$1.0 billion of the underlying investment securities at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.


(d)	~~Agency mortgage-backed residential debt~~Held-to-maturity securities ~~are held for liquidity risk management purposes. Securities~~ with a fair value of ~~$115~~$992 million and ~~$87~~$664 million at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, were pledged to secure advances from the FHLB.

1620

Table of Contents

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
September 30, 2017
Fair value of available-for-sale debt securities (a)
U.S. Treasury	$	2,073	1.8	%	$	—	—	%	$	467	1.7	%	$	1,606	1.8	%	$	—	—	%
September 30, 2018
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies																					$	1,904	1.9	%	$	7	1.7	%	$	932	1.9	%	$	965	1.9	%	$	—	—	%
U.S. States and political subdivisions	851		2.9		69		1.6		35		2.4		197		2.7		550		3.2		865		3.1		44		2.5		57		2.4		257		2.6		507		3.5
Foreign government	157		2.5		—		—		69		2.6		88		2.4		—		—		155		2.5		18		3.4		61		2.3		73		2.4		3		2.9
Agency mortgage-backed residential	14,344		3.1		—		—		—		—		3		2.9		14,341		3.1		16,014		3.2		—		—		—		—		56		1.9		15,958		3.2
Mortgage-backed residential	2,310		3.0		—		—		—		—		—		—		2,310		3.0		2,561		3.2		—		—		—		—		—		—		2,561		3.2
Mortgage-backed commercial	509		3.1		—		—		—		—		31		2.9		478		3.1		631		3.6		—		—		3		3.0		46		3.6		582		3.6
Asset-backed	1,039		3.0		2		1.6		762		3.1		137		3.1		138		2.7		733		3.3		—		—		533		3.3		99		3.7		101		3.0
Corporate debt	1,291		2.9		135		2.5		595		2.6		515		3.2		46		4.9		1,259		3.1		134		2.9		515		2.8		582		3.3		28		5.1
Total available-for-sale debt securities	$	22,574	2.9		$	206	2.2		$	1,928	2.6		$	2,577	2.2		$	17,863	3.1
Amortized cost of available-for-sale debt securities	$	22,703			$	206			$	1,929			$	2,609			$	17,959
Total available-for-sale securities																					$	24,122	3.1		$	203	2.8		$	2,101	2.5		$	2,078	2.5		$	19,740	3.3
Amortized cost of available-for-sale securities																					$	25,032			$	203			$	2,154			$	2,181			$	20,494
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential	$	1,799	3.1	%	$	—	—	%	$	—	—	%	$	—	—	%	$	1,799	3.1	%	$	2,197	3.2	%	$	—	—	%	$	—	—	%	$	—	—	%	$	2,197	3.2	%
Asset-backed retained notes	40		1.7		—		—		39		1.6		1		3.0		—		—		49		2.0		—		—		48		2.0		1		3.3		—		—
Total held-to-maturity securities	$	1,839	3.1		$	—	—		$	39	1.6		$	1	3.0		$	1,799	3.1		$	2,246	3.1		$	—	—		$	48	2.0		$	1	3.3		$	2,197	3.2
December 31, 2016
Fair value of available-for-sale debt securities (a)
U.S. Treasury	$	1,620	1.7	%	$	2	4.6	%	$	60	1.6	%	$	1,558	1.7	%	$	—	—	%
December 31, 2017
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies																					$	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 ~~(b)~~	$	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.


~~(b)~~	~~Our held-to-maturity securities portfolio as of December 31, 2016, consisted of agency mortgage-backed residential debt securities.~~

~~The balances of cash equivalents were $304 million and $291 million at September 30, 2017, and~~ ~~December 31, 2016, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.~~

1721

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The balances of cash equivalents were $54 million and $10 million at September 30, 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 September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Taxable interest	$	141	$	93	$	390	$	276	$	172	$	141	$	490	$	390
Taxable dividends	3		4		8		13		4		3		10		8
Interest and dividends exempt from U.S. federal income tax	6		4		17		13		6		6		18		17
Interest and dividends on investment securities	$	150	$	101	$	415	$	302	$	182	$	150	$	518	$	415

The following table presents gross gains and losses realized upon the sales of available-for-sale ~~securities.~~securities, and net gains or losses on equity securities held during the period. There were no other-than-temporary impairments ~~upon the sales~~ of available-for-sale securities for either period.


	Three months ended September 30,					Nine months ended September 30,						Three months ended September 30,					Nine months ended September 30,
($ in millions)	2017			2016		2017			2016			2018		2017			2018			2017
Available-for-sale securities
Gross realized gains	$	24		$	52	$	75		$	146		$	1	$	24		$	8		$	75
Gross realized losses (a)	(1		)	—		(2		)	(1		)	—		(1		)	—			(2		)
Net realized gains on available-for-sale securities												1		23			8			73
Net realized gain on equity securities												15					55
Net unrealized gain (loss) on equity securities (b)												6					(26		)
Other gain on investments, net	$	23		$	52	$	73		$	145		$	22	$	23		$	37		$	73


(a)	Certain available-for-sale securities were sold at a loss in ~~2017~~2018 and ~~2016~~2017 as a result of market conditions within these respective periods (e.g., a downgrade in the rating of a debt security). Any such sales were made in accordance with our ~~risk management~~risk-management policies and practices.

(b)

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 September 30, ~~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 September 30, 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 September 30, 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.


	September 30, 2017										December 31, 2016										September 30, 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			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	$	2,029	$	(39	)	$	—	$	—		$	1,612	$	(60	)	$	—	$	—
U.S. Treasury and federal agencies																					$	268	$	(5	)	$	1,635	$	(98	)	$	471	$	(8	)	$	1,305	$	(46	)
U.S. States and political subdivisions	311		(4		)	138		(6		)	524		(19		)	—		—			504		(12		)	211		(14		)	242		(2		)	183		(5		)
Foreign government	78		(2		)	—		—			38		—			—		—			73		(2		)	30		(1		)	80		(1		)	4		—
Agency mortgage-backed residential	7,444		(115		)	730		(18		)	8,052		(196		)	587		(16		)	9,600		(258		)	5,991		(371		)	4,066		(19		)	5,671		(137		)
Mortgage-backed residential	103		(1		)	825		(31		)	813		(17		)	860		(53		)	1,701		(49		)	711		(61		)	857		(2		)	773		(32		)
Mortgage-backed commercial	164		(2		)	15		—			47		(1		)	149		(1		)	60		(1		)	20		(1		)	76		(1		)	21		—
Asset-backed	341		(1		)	86		—			375		(2		)	127		—			410		(2		)	76		(1		)	220		(1		)	91		—
Corporate debt	388		(6		)	108		(4		)	744		(14		)	46		(2		)	897		(23		)	312		(20		)	529		(4		)	194		(7		)
Total temporarily impaired debt securities	10,858		(170		)	1,902		(59		)	12,205		(309		)	1,769		(72		)
Temporarily impaired equity securities	101		(8		)	119		(42		)	151		(8		)	269		(46		)
Total temporarily impaired available-for-sale securities	$	10,959	$	(178	)	$	2,021	$	(101	)	$	12,356	$	(317	)	$	2,038	$	(118	)	$	13,513	$	(352	)	$	8,986	$	(567	)	$	6,541	$	(38	)	$	8,242	$	(227	)
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential																					$	940	$	(25	)	$	1,116	$	(82	)	$	773	$	(5	)	$	687	$	(32	)
Asset-backed retained notes																					22		—			17		—			35		—			—		—
Total held-to-maturity debt securities																					$	962	$	(25	)	$	1,133	$	(82	)	$	808	$	(5	)	$	687	$	(32	)

1823

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)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Consumer automotive (a)	$	67,077	$	65,793	$	69,995	$	68,071
Consumer mortgage
Mortgage Finance (b)	9,760		8,294		14,840		11,657
Mortgage — Legacy (c)	2,255		2,756		1,666		2,093
Total consumer mortgage	12,015		11,050		16,506		13,750
Total consumer	79,092		76,843		86,501		81,821
Commercial
Commercial and industrial
Automotive	31,985		35,041		31,424		33,025
Other	3,774		3,248		4,132		3,887
Commercial real estate — Automotive	4,020		3,812
Commercial real estate					4,548		4,160
Total commercial	39,779		42,101		40,104		41,072
Total finance receivables and loans (d)	$	118,871	$	118,944	$	126,605	$	122,893


(a)	~~Includes $24 million~~Certain finance receivables and ~~$43 million of~~loans are included in fair value ~~adjustment for loans in hedge accounting relationships at~~ ~~September 30, 2017, and~~ ~~December 31, 2016, respectively.~~hedging relationships. Refer to Note 1917 for additional information.


(b)	Includes loans originated as interest-only mortgage loans of ~~$24~~$16 million and ~~$30~~$20 million at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, ~~35%~~38% of which are expected to start principal amortization in 2019, and ~~44%~~45% in 2020. The remainder of these loans ~~have already~~has exited the interest-only period.


(c)	Includes loans originated as interest-only mortgage loans of ~~$538~~$381 million and ~~$714~~$496 million at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively, 2% of which ~~are expected to start principal amortization in 2018, and 1% beyond 2020. The remainder of these loans~~99% have ~~already~~ exited the interest-only period.


(d)	Totals include net ~~increases of $494 million and $359 million at~~ ~~September 30, 2017, and December 31, 2016, respectively, for~~ unearned income, unamortized premiums and discounts, and deferred fees and ~~costs.~~ costs of $606 million and $551 million at September 30, 2018, and December 31, 2017, respectively.

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



Three months ended September 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at July 1, 2018	$	1,053		$	66		$	138		$	1,257
Charge-offs (a)	(343		)	(7		)	(3		)	(353		)
Recoveries	110			8			—			118
Net charge-offs	(233		)	1			(3		)	(235		)
Provision for loan losses	229			(4		)	8			233
Other (b)	(6		)	1			(2		)	(7		)
Allowance at September 30, 2018	$	1,043		$	64		$	141		$	1,248

(a)

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements in our 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.



Three months ended September 30, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at July 1, 2017	$	1,002		$	83		$	140		$	1,225
Charge-offs (a)	(327		)	(7		)	(10		)	(344		)
Recoveries	85			6			—			91
Net charge-offs	(242		)	(1		)	(10		)	(253		)
Provision for loan losses	314			—			—			314
Other	—			(1		)	1			—
Allowance at September 30, 2017	$	1,074		$	81		$	131		$	1,286

(a)

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Three months ended September 30, 2016 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at July 1, 2016	$	862		$	109		$	118	$	1,089
Nine months ended September 30, 2018 ($ in millions)												Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2018												$	1,066		$	79		$	131		$	1,276
Charge-offs (a)	(293		)	(10		)	—		(303		)	(1,004		)	(27		)	(5		)	(1,036		)
Recoveries	74			16			—		90			336			20			6			362
Net charge-offs	(219		)	6			—		(213		)	(668		)	(7		)	1			(674		)
Provision for loan losses	269			(15		)	4		258			650			(7		)	9			652
Allowance at September 30, 2016	$	912		$	100		$	122	$	1,134
Other (b)												(5		)	(1		)	—			(6		)
Allowance at September 30, 2018												$	1,043		$	64		$	141		$	1,248
Allowance for loan losses at September 30, 2018
Individually evaluated for impairment												$	43		$	24		$	35		$	102
Collectively evaluated for impairment												1,000			40			106			1,146
Finance receivables and loans at gross carrying value
Ending balance												$	69,995		$	16,506		$	40,104		$	126,605
Individually evaluated for impairment												483			231			184			898
Collectively evaluated for impairment												69,512			16,275			39,920			125,707

(a)

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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~


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



Nine months ended September 30, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2017	$	932		$	91		$	121		$	1,144
Charge-offs (a)	(958		)	(22		)	(10		)	(990		)
Recoveries	266			19			—			285
Net charge-offs	(692		)	(3		)	(10		)	(705		)
Provision for loan losses	841			(6		)	19			854
Other (b)	(7		)	(1		)	1			(7		)
Allowance at September 30, 2017	$	1,074		$	81		$	131		$	1,286
Allowance for loan losses at September 30, 2017
Individually evaluated for impairment	$	35		$	30		$	21		$	86
Collectively evaluated for impairment	1,039			51			110			1,200
Finance receivables and loans at gross carrying value
Ending balance	$	67,077		$	12,015		$	39,779		$	118,871
Individually evaluated for impairment	403			237			146			786
Collectively evaluated for impairment	66,674			11,778			39,633			118,085

(a)

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016 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.~~

Nine months ended September 30, 2016 ($ in millions)
Consumer automotive Consumer mortgage Commercial Total
Allowance at January 1, 2016 $ 834
$ 114
$ 106
$ 1,054
Charge-offs (a) (773 ) (29 ) (1 ) (803 )
Recoveries 233
25
1
259
Net charge-offs (540 ) (4 ) —
(544 )
Provision for loan losses 644
(10 ) 16
650
Other (b) (26 ) —
—
(26 )
Allowance at September 30, 2016 $ 912
$ 100
$ 122
$ 1,134
Allowance for loan losses at September 30, 2016

Individually evaluated for impairment
$ 24

$ 35

$ 25

$ 84
Collectively evaluated for impairment
888

65

97

1,050
Finance receivables and loans at gross carrying value

Ending balance
$ 64,816

$ 10,857

$ 39,286

$ 114,959
Individually evaluated for impairment
349

251

111

711
Collectively evaluated for impairment
64,467

10,606

39,175

114,248

~~(a)~~

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to ~~Note 1~~ ~~to the Consolidated Financial Statements in our 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.

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 September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Consumer automotive	$	28	$	57	$	1,326	$	4,216	$	578	$	28	$	578	$	1,326
Consumer mortgage	3		6		9		12		—		3		5		9
Commercial	—		—		—		28		238		—		238		—
Total sales and transfers	$	31	$	63	$	1,335	$	4,256	$	816	$	31	$	821	$	1,335

2025

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.~~loans based on unpaid principal balance at the time of purchase.


	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Consumer automotive	$	83	$	—	$	762	$	—	$	251	$	83	$	652	$	762
Consumer mortgage	1,183		467		2,319		2,855		1,743		1,183		3,890		2,319
Commercial									14		—		14		—
Total purchases of finance receivables and loans	$	1,266	$	467	$	3,081	$	2,855	$	2,008	$	1,266	$	4,556	$	3,081

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
September 30, 2017
September 30, 2018
Consumer automotive	$	1,742	$	414	$	261	$	2,417	$	64,660	$	67,077	$	1,831	$	442	$	262	$	2,535	$	67,460	$	69,995
Consumer mortgage
Mortgage Finance	75		1		5		81		9,679		9,760		56		6		10		72		14,768		14,840
Mortgage — Legacy	40		21		58		119		2,136		2,255		36		14		51		101		1,565		1,666
Total consumer mortgage	115		22		63		200		11,815		12,015		92		20		61		173		16,333		16,506
Total consumer	1,857		436		324		2,617		76,475		79,092		1,923		462		323		2,708		83,793		86,501
Commercial
Commercial and industrial
Automotive	16		—		13		29		31,956		31,985		—		—		15		15		31,409		31,424
Other	—		—		8		8		3,766		3,774		4		—		15		19		4,113		4,132
Commercial real estate — Automotive	3		—		—		3		4,017		4,020
Commercial real estate													—		—		—		—		4,548		4,548
Total commercial	19		—		21		40		39,739		39,779		4		—		30		34		40,070		40,104
Total consumer and commercial	$	1,876	$	436	$	345	$	2,657	$	116,214	$	118,871	$	1,927	$	462	$	353	$	2,742	$	123,863	$	126,605
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

2126

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)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Consumer automotive	$	573	$	598	$	620	$	603
Consumer mortgage
Mortgage Finance	7		10		18		25
Mortgage — Legacy	81		89		81		92
Total consumer mortgage	88		99		99		117
Total consumer	661		697		719		720
Commercial
Commercial and industrial
Automotive	78		33		78		27
Other	61		84		99		44
Commercial real estate — Automotive	7		5
Commercial real estate					7		1
Total commercial	146		122		184		72
Total consumer and commercial finance receivables and loans	$	807	$	819	$	903	$	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 at least 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.


	September 30, 2017						December 31, 2016						September 30, 2018						December 31, 2017
($ in millions)	Performing		Nonperforming		Total		Performing		Nonperforming		Total		Performing		Nonperforming		Total		Performing		Nonperforming		Total
Consumer automotive	$	66,504	$	573	$	67,077	$	65,195	$	598	$	65,793	$	69,375	$	620	$	69,995	$	67,468	$	603	$	68,071
Consumer mortgage
Mortgage Finance	9,753		7		9,760		8,284		10		8,294		14,822		18		14,840		11,632		25		11,657
Mortgage — Legacy	2,174		81		2,255		2,667		89		2,756		1,585		81		1,666		2,001		92		2,093
Total consumer mortgage	11,927		88		12,015		10,951		99		11,050		16,407		99		16,506		13,633		117		13,750
Total consumer	$	78,431	$	661	$	79,092	$	76,146	$	697	$	76,843	$	85,782	$	719	$	86,501	$	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.


	September 30, 2017						December 31, 2016						September 30, 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	$	30,189	$	1,796	$	31,985	$	33,160	$	1,881	$	35,041	$	28,789	$	2,635	$	31,424	$	30,982	$	2,043	$	33,025
Other	2,913		861		3,774		2,597		651		3,248		3,328		804		4,132		2,986		901		3,887
Commercial real estate — Automotive	3,891		129		4,020		3,653		159		3,812
Commercial real estate													4,333		215		4,548		4,023		137		4,160
Total commercial	$	36,993	$	2,786	$	39,779	$	39,410	$	2,691	$	42,101	$	36,450	$	3,654	$	40,104	$	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.

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
September 30, 2018
Consumer automotive	$	492	$	483	$	108	$	375	$	43
Consumer mortgage
Mortgage Finance	14		14		5		9		1
Mortgage — Legacy	222		217		63		154		23
Total consumer mortgage	236		231		68		163		24
Total consumer	728		714		176		538		67
Commercial
Commercial and industrial
Automotive	78		78		8		70		10
Other	112		99		40		59		25
Commercial real estate	7		7		5		2		—
Total commercial	197		184		53		131		35
Total consumer and commercial finance receivables and loans	$	925	$	898	$	229	$	669	$	102
December 31, 2017
Consumer automotive	$	438	$	430	$	91	$	339	$	36
Consumer mortgage
Mortgage Finance	8		8		4		4		—
Mortgage — Legacy	228		223		58		165		27
Total consumer mortgage	236		231		62		169		27
Total consumer	674		661		153		508		63
Commercial
Commercial and industrial
Automotive	27		27		9		18		3
Other	54		44		10		34		11
Commercial real estate	1		1		—		1		—
Total commercial	82		72		19		53		14
Total consumer and commercial finance receivables and loans	$	756	$	733	$	172	$	561	$	77


(a)	Adjusted for charge-offs.

2228

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~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
September 30, 2017
Consumer automotive $ 411
$ 403
$ 86
$ 317
$ 35
Consumer mortgage
Mortgage Finance 8
8
4
4
—
Mortgage — Legacy 234
229
56
173
30
Total consumer mortgage 242
237
60
177
30
Total consumer 653
640
146
494
65
Commercial
Commercial and industrial
Automotive 78
78
51
27
3
Other 70
61
10
51
17
Commercial real estate — Automotive 7
7
3
4
1
Total commercial 155
146
64
82
21
Total consumer and commercial finance receivables and loans $ 808

$ 786

$ 210

$ 576

$ 86
December 31, 2016
Consumer automotive $ 407
$ 370
$ 131
$ 239
$ 28
Consumer mortgage
Mortgage Finance 8
8
3
5
—
Mortgage — Legacy 243
239
56
183
34
Total consumer mortgage 251
247
59
188
34
Total consumer 658
617
190
427
62
Commercial
Commercial and industrial
Automotive 33
33
7
26
3
Other 99
84
—
84
19
Commercial real estate — Automotive 5
5
2
3
1
Total commercial 137
122
9
113
23
Total consumer and commercial finance receivables and loans $ 795

$ 739

$ 199

$ 540

$ 85


~~(a)~~	~~Adjusted for charge-offs.~~

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

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


	2017				2016				2018				2017
Three months ended September 30, ($ in millions)	Average balance		Interest income		Average balance		Interest income		Average balance		Interest income		Average balance		Interest income
Consumer automotive	$	389	$	5	$	347	$	4	$	485	$	7	$	389	$	5
Consumer mortgage
Mortgage Finance	8		—		8		—		12		1		8		—
Mortgage — Legacy	231		2		245		2		217		2		231		2
Total consumer mortgage	239		2		253		2		229		3		239		2
Total consumer	628		7		600		6		714		10		628		7
Commercial
Commercial and industrial
Automotive	77		1		48		1		83		—		77		1
Other	63		—		63		—		101		—		63		—
Commercial real estate — Automotive	7		—		6		—
Commercial real estate									7		—		7		—
Total commercial	147		1		117		1		191		—		147		1
Total consumer and commercial finance receivables and loans	$	775	$	8	$	717	$	7	$	905	$	10	$	775	$	8


	2017				2016				2018				2017
Nine months ended September 30, ($ in millions)	Average balance		Interest income		Average balance		Interest income		Average balance		Interest income		Average balance		Interest income
Consumer automotive	$	368	$	15	$	340	$	12	$	477	$	21	$	368	$	15
Consumer mortgage
Mortgage Finance	8		—		8		—		10		1		8		—
Mortgage — Legacy	236		7		250		7		219		7		236		7
Total consumer mortgage	244		7		258		7		229		8		244		7
Total consumer	612		22		598		19		706		29		612		22
Commercial
Commercial and industrial
Automotive	55		2		35		1		65		2		55		2
Other	73		8		58		1		76		—		73		8
Commercial real estate — Automotive	6		—		6		—
Commercial real estate									5		—		6		—
Total commercial	134		10		99		2		146		2		134		10
Total consumer and commercial finance receivables and loans	$	746	$	32	$	697	$	21	$	852	$	31	$	746	$	32

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. 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 $~~715~~790 million and ~~$663~~$712 million at September 30, ~~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 $7$4 million and $2$6 million at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K for additional information.

2429

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


	2017					2016					2018					2017
Three months ended September 30, ($ in millions)	Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		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	7,165	$	80	$	75	4,427	$	70	$	58	6,759	$	67	$	67	7,165	$	80	$	75
Consumer mortgage
Mortgage Finance	2	—		—		2	—		—		10	4		4		2	—		—
Mortgage — Legacy	37	4		4		35	6		6		65	8		6		37	4		4
Total consumer mortgage	39	4		4		37	6		6		75	12		10		39	4		4
Total consumer	7,204	84		79		4,464	76		64		6,834	79		77		7,204	84		79
Commercial
Commercial and industrial
Automotive	3	13		13		—	—		—		—	—		—		3	13		13
Commercial real estate — Automotive	1	3		3		—	—		—
Commercial real estate											—	—		—		1	3		3
Total commercial	4	16		16		—	—		—		—	—		—		4	16		16
Total consumer and commercial finance receivables and loans	7,208	$	100	$	95	4,464	$	76	$	64	6,834	$	79	$	77	7,208	$	100	$	95


	2017					2016					2018					2017
Nine months ended September 30, ($ in millions)	Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		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	19,374	$	298	$	262	14,816	$	238	$	202	19,699	$	302	$	270	19,374	$	298	$	262
Consumer mortgage
Mortgage Finance	3	—		—		5	2		2		18	7		7		3	—		—
Mortgage — Legacy	109	19		18		92	14		14		154	24		22		109	19		18
Total consumer mortgage	112	19		18		97	16		16		172	31		29		112	19		18
Total consumer	19,486	317		280		14,913	254		218		19,871	333		299		19,486	317		280
Commercial
Commercial and industrial
Automotive	3	13		13		—	—		—		3	4		4		3	13		13
Other	2	44		44		—	—		—		2	55		51		2	44		44
Commercial real estate — Automotive	1	3		3		—	—		—
Commercial real estate											—	—		—		1	3		3
Total commercial	6	60		60		—	—		—		5	59		55		6	60		60
Total consumer and commercial finance receivables and loans	19,492	$	377	$	340	14,913	$	254	$	218	19,876	$	392	$	354	19,492	$	377	$	340

2530

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present information about finance receivables and loans recorded at gross carrying value that have redefaulted during the reporting period and were within 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 September 30, ($ 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	2,222	$	25	$	18	1,959	$	23	$	14	2,466	$	27	$	19	2,222	$	25	$	18
Consumer mortgage
Mortgage Finance	—	—		—		—	—		—		—	—		—		—	—		—
Mortgage — Legacy	1	—		—		1	—		—		—	—		—		1	—		—
Total consumer finance receivables and loans	2,223	$	25	$	18	1,960	$	23	$	14	2,466	$	27	$	19	2,223	$	25	$	18


	2017					2016					2018					2017
Nine months ended September 30, ($ 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	6,354	$	74	$	51	5,617	$	69	$	39	7,217	$	84	$	54	6,354	$	74	$	51
Consumer mortgage
Mortgage Finance	1	1		—		—	—		—		—	—		—		1	1		—
Mortgage — Legacy	1	—		—		4	—		—		1	—		—		1	—		—
Total consumer finance receivables and loans	6,356	$	75	$	51	5,621	$	69	$	39	7,218	$	84	$	54	6,356	$	75	$	51

9.8. Investment in Operating Leases, Net

Investments in operating leases were as follows.


($ in millions)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Vehicles	$	11,001		$	14,584		$	10,174		$	10,556
Accumulated depreciation	(2,070		)	(3,114		)	(1,596		)	(1,815		)
Investment in operating leases, net	$	8,931		$	11,470		$	8,578		$	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 September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
($ in millions)	2017			2016			2017			2016			2018			2017			2018			2017
Depreciation expense on operating lease assets (excluding remarketing gains)	$	323		$	470		$	1,062		$	1,555		$	274		$	323		$	846		$	1,062
Remarketing gains	(51		)	(62		)	(80		)	(203		)
Remarketing gains, net													(27		)	(51		)	(61		)	(80		)
Net depreciation expense on operating lease assets	$	272		$	408		$	982		$	1,352		$	247		$	272		$	785		$	982

~~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). AAn SPE is a legal entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity by securitizing certain of our financial ~~assets and operating lease~~ assets. SPEs 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 securitize consumer~~The nature, purpose, 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 useactivities of nonconsolidated securitization entities ~~which may or may not be~~are similar to those of our consolidated onsecuritization entities with the primary difference being the nature and extent of our ~~Condensed Consolidated Balance Sheet.~~continuing involvement. Additionally, to qualify for off-balance sheet

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 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 Consolidated Balance Sheet. Upon the sale of the loans, we recognize a gain or loss on sale for the difference between the assets recognized, the assets derecognized, and the liabilities recognized as part of the transaction. We had a pretax gain on sales of financial assets into nonconsolidated ~~consumer automotive securitization trusts was $0~~VIEs of $1 million ~~and $2 million~~ for both the three months and nine months ended September 30, ~~2017, respectively. There were~~2018. We had no pretax ~~gains~~gain or ~~losses~~loss for the three months ended September 30, 2017, and a pretax gain of $2 million for the nine months ended September 30, ~~2016.~~2017.

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

We 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.

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.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


($ in millions)	Carrying value of total assets			Carrying value of total liabilities			Assets sold to nonconsolidated VIEs (a)		Maximum exposure to loss in nonconsolidated VIEs			Carrying value of total assets			Carrying value of total liabilities			Assets sold to nonconsolidated VIEs (a)		Maximum exposure to loss in nonconsolidated VIEs
September 30, 2017
September 30, 2018
On-balance sheet variable interest entities
Consumer automotive												$	16,982	(b)	$	7,113	(c)
Commercial automotive												9,961			4,394
Off-balance sheet variable interest entities
Consumer automotive (d) (e)												52		(f)	—			$	1,462	$	1,514	(g)
Commercial other												762		(h)	346		(i)	—		988		(j)
Total												$	27,757		$	11,853		$	1,462	$	2,502
December 31, 2017
On-balance sheet variable interest entities
Consumer automotive	$	17,462	(b)	$	7,529	(c)						$	17,597	(b)	$	7,677	(c)
Commercial automotive	12,590			2,557								12,550			2,558
Off-balance sheet variable interest entities
Consumer automotive	42		(d)	—			$	2,293	$	2,334	(e)	37		(f)	—			$	1,964	$	2,001	(g)
Commercial other	575		(f)	238		(g)	—		756		(h)	592		(h)	248		(i)	—		790		(j)
Total	$	30,669		$	10,324		$	2,293	$	3,090		$	30,776		$	10,483		$	1,964	$	2,791
December 31, 2016
On-balance sheet variable interest entities
Consumer automotive	$	20,869	(b)	$	8,557	(c)
Commercial automotive	16,278			4,764
Off-balance sheet variable interest entities
Consumer automotive	24		(f)	—			$	2,899	$	2,923	(e)
Commercial other	460		(f)	169		(g)	—		651		(h)
Total	$	37,631		$	13,490		$	2,899	$	3,574


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


(b)	Includes ~~$8.4 billion and $9.6~~$8.5 billion of assets that ~~are~~were not encumbered by VIE beneficial interests held by third parties at both September 30, ~~2017,~~2018, and December 31, ~~2016, respectively.~~2017. Ally or consolidated affiliates hold the interests in these assets.


(c)	Includes ~~$30~~$24 million and ~~$50~~$29 million of liabilities that ~~are~~were not obligations to third-party beneficial interest holders at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.

(d)

During the three months ended September 30, 2018, we indicated our intent to exercise clean-up call options related to two nonconsolidated securitization-related VIEs. The options enable us to repurchase the remaining transferred financial assets at our discretion once the asset pool declines to a predefined level and redeem the related outstanding debt. As a result of this event, we became the primary beneficiary of the VIEs, which included $223 million of consumer automotive loans and $219 million of related debt, and the VIEs were consolidated on our Condensed Consolidated Balance Sheet. The related amounts were removed from assets sold to nonconsolidated VIEs and maximum exposure to loss in nonconsolidated VIEs.

(e)

In September 2018, we sold residual interests related to an on-balance sheet VIE to an unrelated third party. As a result of this sale, we are no longer the primary beneficiary of the VIE, and as such have deconsolidated its assets and liabilities from our Condensed Consolidated Balance Sheet including $545 million and $497 million of consumer automotive loans and long-term debt, respectively. We received cash proceeds of $24 million related to this sale, and recognized a pretax gain on sale of $1 million. We will continue to service the assets previously transferred to the VIE.

(f)

Represents retained notes and certificated residual interests, of which ~~$40~~$49 million isand $36 million were classified as held-to-maturity securities at September 30, 2018, and $2December 31, 2017, respectively, and $3 million isand $1 million was classified as other assets at September 30, ~~2017.~~2018, and December 31, 2017, respectively. 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.~~securitizations.

~~(e)~~(g)

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)~~(h)	Amounts are classified as other assets.


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

~~(h)~~(j)

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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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 nine months ended September 30, ~~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.


Nine months ended September 30, ($ in millions)	Consumer automotive			Consumer automotive			Consumer mortgage
2018
Cash proceeds from transfers completed during the period				$	24		$	—
Cash disbursements for repurchases during the period ~~(a)~~				(3		)	—
Servicing fees				14			—
Cash flows received on retained interests in securitization entities				13			—
Representation and warranty recoveries				—			2
2017
Cash proceeds from transfers completed during the period	$	1,187		$	1,187		$	—
Cash disbursements for repurchases during the period ~~(a)~~	(491		)	(491		)	—
Servicing fees	25			25			—
Cash flows received on retained interests in securitization entities	16			16			—
Other cash flows	4			4			—
2016
Cash proceeds from transfers completed during the period	$	1,659
Servicing fees	27
Other cash flows	6


(a)	During the second quarter of 2017, we elected to not renew a retail automotive credit conduit facility and also purchased the related retail automotive loans and settled associated retained interests.

Delinquencies and Net Credit Losses

The following tables ~~represent on-balance sheet finance receivables~~present quantitative information about delinquencies 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)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
On-balance sheet finance receivables and loans
Consumer automotive	$	67,077	$	65,793	$	675	$	730
Consumer mortgage	12,015		11,050		85		85
Commercial automotive	36,005		38,853		13		7
Commercial other	3,774		3,248		8		—
Total on-balance sheet finance receivables and loans	118,871		118,944		781		822
Off-balance sheet securitization entities
Consumer automotive	2,293		2,392		14		13		$	1,462	$	1,964	$	12	$	16
Total off-balance sheet securitization entities	2,293		2,392		14		13
Whole-loan sales (a)	1,655		3,164		4		6
Consumer automotive									787		1,399		3		4
Total	$	122,819	$	124,500	$	799	$	841	$	2,249	$	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
	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2018		2017		2018		2017
Off-balance sheet securitization entities
Consumer automotive	$	2	$	3	$	7	$	9
Whole-loan sales (a)
Consumer automotive	1		1		2		3
Total	$	3	$	4	$	9	$	12


(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~~

Net credit losses
Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
On-balance sheet finance receivables and loans
Consumer automotive $ 242
$ 219
$ 692
$ 540
Consumer mortgage 1
(6 ) 3
4
Commercial automotive 1
—
1
—
Commercial other 9
—
9
—
Total on-balance sheet finance receivables and loans 253
213
705
544
Off-balance sheet securitization entities
Consumer automotive 3
2
9
6
Total off-balance sheet securitization entities 3
2
9
6
Whole-loan sales (a) 1
1
3
2
Total $ 257
$ 216
$ 717
$ 552


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

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~11. 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 $11 million and $41 million during the three months and nine months ended September 30, 2017, respectively, compared to $18 million and $49 million during the three months and nine months ended September 30, 2016.

~~Automotive Finance Serviced Assets~~

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

($ in millions) September 30, 2017 December 31, 2016
On-balance sheet automotive finance loans and leases
Consumer automotive $ 66,721
$ 65,646
Commercial automotive 36,005
38,853
Operating leases 8,853
11,311
Other 71
67
Off-balance sheet automotive finance loans
Securitizations 2,312
2,412
Whole-loan sales 1,668
3,191
Total serviced automotive finance loans and leases $ 115,630
$ 121,480

~~12.~~10. Other Assets

The components of other assets were as follows.


($ in millions)	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Property and equipment at cost	$	1,024		$	901		$	1,203		$	1,064
Accumulated depreciation	(587		)	(525		)	(667		)	(608		)
Net property and equipment	437			376			536			456
Restricted cash collections for securitization trusts (a)	1,260			1,694
Nonmarketable equity investments (b)	1,065			1,046
Nonmarketable equity investments (a)							1,235			1,233
Restricted cash collections for securitization trusts (b)							695			812
Accrued interest and rent receivables							588			550
Net deferred tax assets	659			994			432			461
Accrued interest and rent receivables	508			476
Goodwill (c)	240			240			240			240
Restricted cash and cash equivalents (d)							132			94
Other accounts receivable	212			100			119			116
Cash reserve deposits held for securitization trusts (d)	120			184
Restricted cash and cash equivalents	112			111
Cash reserve deposits held for securitization trusts (e)							108			111
Fair value of derivative contracts in receivable position ~~(e)~~(f)	37			95			70			39
Cash collateral placed with counterparties	20			167			68			29
Other assets	1,393			1,371			1,573			1,522
Total other assets	$	6,063		$	6,854		$	5,796		$	5,663

(a)

Includes investments in FHLB stock of $732 million and $745 million at September 30, 2018, and December 31, 2017, respectively; FRB stock of $447 million and $445 million at September 30, 2018, and December 31, 2017, respectively; and equity securities without a readily determinable fair value of $56 million at September 30, 2018, measured at cost with adjustments for impairment and observable changes in price. During the nine months ended September 30, 2018, we recorded $1 million in impairment related to equity securities without a readily determinable fair value.


(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 $581 million and $577 million at September 30, 2017, and December 31, 2016, respectively; and Federal Reserve Bank (FRB) stock of $445 million and $435 million at September 30, 2017, and December 31, 2016, respectively.

(c)

Includes goodwill of $27 million within our Insurance operations at both September 30, ~~2017,~~2018, and December 31, ~~2016;~~2017; $193 million within Corporate and Other at both September 30, ~~2017,~~2018, and December 31, ~~2016;~~2017; and $20 million within Automotive Finance operations at both September 30, ~~2017,~~2018, and December 31, ~~2016.~~2017. No changes to the carrying amount of goodwill were recorded during the nine months ended September 30, ~~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 1917.

11. Deposit Liabilities

Deposit liabilities consisted of the following.



($ in millions)	September 30, 2018		December 31, 2017
Noninterest-bearing deposits	$	180	$	108
Interest-bearing deposits
Savings and money market checking accounts	52,896		49,267
Certificates of deposit	48,300		43,869
Dealer deposits	3		12
Total deposit liabilities	$	101,379	$	93,256

At September 30, 2018, and December 31, 2017, certificates of deposit included $20.4 billion and $18.9 billion, respectively, of those in denominations of $100 thousand or more. At September 30, 2018, and December 31, 2017, certificates of deposit included $5.5 billion and $5.3 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~13. Deposit Liabilities~~

~~Deposit liabilities consisted of the following.~~

($ in millions)
September 30, 2017 December 31, 2016
Noninterest-bearing deposits $ 129
$ 84
Interest-bearing deposits
Savings and money market checking accounts 50,287
46,976
Certificates of deposit 39,686
31,795
Dealer deposits 14
167
Total deposit liabilities $ 90,116
$ 79,022

At September 30, 2017, and December 31, 2016, certificates of deposit included $16.2 billion and $12.1 billion, respectively, of those in denominations of $100 thousand or more. At September 30, 2017, and December 31, 2016, certificates of deposit included $4.5 billion and $3.5 billion, respectively, of those in denominations in excess of $250 thousand federal insurance limits.

~~14.~~12. Debt

Short-term Borrowings

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


	September 30, 2017						December 31, 2016						September 30, 2018						December 31, 2017
($ in millions)	Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total		Unsecured		Secured (a)		Total
Demand notes	$	3,379	$	—	$	3,379	$	3,622	$	—	$	3,622	$	2,575	$	—	$	2,575	$	3,171	$	—	$	3,171
Federal Home Loan Bank	—		5,625		5,625		—		7,875		7,875		—		3,525		3,525		—		7,350		7,350
Financial instruments sold under agreements to repurchase	—		1,171		1,171		—		1,176		1,176		—		1,238		1,238		—		892		892
Total short-term borrowings	$	3,379	$	6,796	$	10,175	$	3,622	$	9,051	$	12,673	$	2,575	$	4,763	$	7,338	$	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.

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 September 30, ~~2017,~~2018, the financial instruments sold under agreements to repurchase consisted of ~~$537~~$812 million of U.S. Treasury ~~securities set to mature within the next 30 days,~~ and ~~$634~~$426 million of agency mortgage-backed residential debt securities set to mature as follows: ~~$480 million~~$1.1 billion within ~~the next~~ 30 days, and ~~$154~~$142 million within 3161 to 6090 days. Refer to Note 76 and Note 2220 for further details. 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 in exchange for $500 million, which was recorded as a short-term secured borrowing. The asset-backed automotive financial instruments that we sold subject to the repurchase agreement were secured by finance receivables that we have securitized. Refer to Note 10 for additional information on our securitization activities. This repurchase agreement was terminated in September 2017.

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 September 30, 2018, we placed cash collateral totaling $15 million and received no cash collateral. At December 31, 2017, we placed cash collateral totaling $10 million ~~with counterparties under these~~and received cash collateral ~~arrangements associated with our repurchase agreements.~~

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

totaling $1 million.

Long-term Debt

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


	September 30, 2017							December 31, 2016							September 30, 2018							December 31, 2017
($ in millions)	Unsecured		Secured			Total		Unsecured		Secured			Total		Unsecured		Secured			Total		Unsecured		Secured			Total
Long-term debt
Due within one year	$	3,828	$	6,642		$	10,470	$	4,274	$	10,279		$	14,553	$	2,043	$	7,619		$	9,662	$	3,482	$	7,499		$	10,981
Due after one year (a)	13,129		21,249			34,378		15,450		23,810			39,260		11,135		24,683			35,818		11,909		21,128			33,037
Fair value adjustment (b)	289		(15		)	274		326		(11		)	315		135		(73		)	62		240		(32		)	208
Total long-term debt (c)	$	17,246	$	27,876		$	45,122	$	20,050	$	34,078		$	54,128	$	13,313	$	32,229		$	45,542	$	15,631	$	28,595		$	44,226


(a)	Includes $2.6 billion of trust preferred securities at both September 30, ~~2017,~~2018, and December 31, ~~2016.~~2017.


(b)	Represents the ~~fair value~~basis adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to Note 1917 for additional information.


(c)	Includes advances from the FHLB of Pittsburgh of ~~$8.4~~$14.0 billion and ~~$6.1~~$10.3 billion at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.

The following table presents the scheduled remaining maturity of long-term debt at September 30, ~~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	$	1,590		$	3,582		$	1,680		$	2,252		$	637		$	8,475		$	289		$	18,505		$	1,245		$	1,681		$	2,251		$	679		$	1,066		$	7,417		$	135		$	14,474
Original issue discount	(24		)	(100		)	(39		)	(39		)	(43		)	(1,014		)	—			(1,259		)	(26		)	(38		)	(39		)	(43		)	(47		)	(968		)	—			(1,161		)
Total unsecured	1,566			3,482			1,641			2,213			594			7,461			289			17,246			1,219			1,643			2,212			636			1,019			6,449			135			13,313
Secured
Long-term debt	1,048			7,379			7,617			6,818			3,179			1,850			(15		)	27,876			1,556			7,670			7,784			8,977			4,659			1,656			(73		)	32,229
Total long-term debt	$	2,614		$	10,861		$	9,258		$	9,031		$	3,773		$	9,311		$	274		$	45,122		$	2,775		$	9,313		$	9,996		$	9,613		$	5,678		$	8,105		$	62		$	45,542

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


	September 30, 2017					December 31, 2016					September 30, 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)	$	6,676		$	5,482	$	4,895		$	4,231	$	6,335		$	5,487	$	8,371		$	7,443
Mortgage assets held-for-investment and lending receivables	11,888			11,888		10,954			10,954		16,299			16,299		13,579			13,579
Consumer automotive finance receivables ~~(b)~~	21,261			4,818		27,846			5,751		17,813			10,333		19,787			6,200
Commercial automotive finance receivables	16,142			16,018		19,487			19,280		14,371			14,337		16,567			16,472
Investment in operating leases, net	737			7		2,040			913
Operating leases											213			—		457			—
Total assets restricted as collateral (c) (d)	$	56,704		$	38,213	$	65,222		$	41,129	$	55,031		$	46,456	$	58,761		$	43,694
Secured debt	$	34,672	(e)	$	18,781	$	43,129	(e)	$	22,149	$	36,992	(e)	$	29,118	$	36,837	(e)	$	23,278


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


(b)	A portion of the restricted investment securities at September 30, ~~2017,~~2018, and December 31, ~~2016, and consumer automotive finance receivables at December 31, 2016,~~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 $~~21.4~~25.9 billion and $~~19.0~~25.2 billion at September 30, ~~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 FRB Discount Window. Ally Bank had assets pledged and restricted as collateral to the FRB totaling ~~$2.3~~$2.4 billion and ~~$2.4~~$2.3 billion at September 30, ~~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 1210 for additional information.


(e)	Includes $~~6.8~~4.8 billion and $~~9.1~~8.2 billion of short-term borrowings at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.

Trust Preferred Securities

At September 30, ~~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.

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

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 but excluding February 15, 2040, distributions will beare 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 September 30, ~~2017,~~2018, Ally Bank had exclusive access to ~~$3.7~~$3.5 billion of funding capacity from committed credit facilities. Funding programs supported by the FRB and the FHLB complement Ally Bank’s private collateralized funding vehicles.

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 September 30, ~~2017~~2018, all of our ~~$14.7~~$9.2 billion of committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of September 30, ~~2017~~2018, we had ~~$2.6~~$5.0 billion of committed funding capacity from revolving facilities with a remaining tenor greater than 364 days.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Committed Funding Facilities


	Outstanding				Unused capacity (a)				Total capacity				Outstanding				Unused capacity (a)				Total capacity
($ in millions)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Bank funding
Secured (b)	$	1,350	$	3,250	$	2,325	$	350	$	3,675	$	3,600
Secured													$	3,500	$	1,785	$	—	$	890	$	3,500	$	2,675
Parent funding
Secured	8,180		11,550		2,820		1,975		11,000		13,525		3,345		6,330		2,380		2,920		5,725		9,250
Unsecured	—		—		—		1,250		—		1,250
Total committed facilities	$	9,530	$	14,800	$	5,145	$	3,575	$	14,675	$	18,375	$	6,845	$	8,115	$	2,380	$	3,810	$	9,225	$	11,925


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


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

~~15.~~13. Accrued Expenses and Other Liabilities

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


($ in millions)	September 30, 2017		December 31, 2016
($ in millions)					September 30, 2018		December 31, 2017
Accounts payable	$	863	$	649	$	846	$	746
Employee compensation and benefits	227		232		236		248
Reserves for insurance losses and loss adjustment expenses	173		149		139		140
Deferred revenue	34		56
Fair value of derivative contracts in payable position (a)	30		95		70		41
Cash collateral received from counterparties	14		10		50		17
Deferred revenue					27		32
Other liabilities	551		546		657		556
Total accrued expenses and other liabilities	$	1,892	$	1,737	$	2,025	$	1,780


(a)	For additional information on derivative instruments and hedging activities, refer to Note 1917.

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~16.~~14. Accumulated Other Comprehensive ~~(Loss) Income~~Loss

The following table presents changes, net of tax, in each component of accumulated other comprehensive ~~(loss) income.~~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) income			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	258			5		—		(1		)	262
Balance at September 30, 2016	$	99		$	14	$	8	$	(90	)	$	31
Balance at December 31, 2016	$	(273	)	$	14	$	8	$	(90	)	$	(341	)	$	(273	)	$	14		$	8	$	(90	)	$	(341	)
2017 net change	142			2		1		(1		)	144			142			2			1		(1		)	144
Balance at September 30, 2017	$	(131	)	$	16	$	9	$	(91	)	$	(197	)	$	(131	)	$	16		$	9	$	(91	)	$	(197	)
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														(545		)	(1		)	17		(2		)	(531		)
Balance at September 30, 2018														$	(731	)	$	19		$	28	$	(97	)	$	(781	)


(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 1917.


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

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



Three months ended September 30, 2018 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized losses arising during the period	$	(174	)		$	41			$	(133	)
Less: Net realized gains reclassified to income from continuing operations	1			(a)	(1		)	(b)	—
Net change	(175		)		42				(133		)
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		)
Cash flow hedges (c)
Net unrealized losses arising during the period	(1		)		1				—
Other comprehensive loss	$	(176	)		$	43			$	(133	)


(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 17.



Three months ended September 30, 2017 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	95			$	(22	)		$	73
Less: Net realized gains reclassified to income from continuing operations	25			(a)	2			(b)	27
Net change	70				(24		)		46
Translation adjustments
Net unrealized gains arising during the period	8				(3		)		5
Net investment hedges (c)
Net unrealized losses arising during the period	(6		)		3				(3		)
Cash flow hedges (c)
Net unrealized gains arising during the period	1				(1		)		—
Other comprehensive income	$	73			$	(25	)		$	48


(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 1917.


Three months ended September 30, 2016 ($ in millions)	Before tax				Tax effect				After tax
Nine months ended September 30, 2018 ($ in millions)												Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	41			$	(4	)		$	37
Net unrealized losses arising during the period												$	(705	)		$	166			$	(539	)
Less: Net realized gains reclassified to income from continuing operations	52			(a)	(11		)	(b)	41			8			(a)	(2		)	(b)	6
Net change	(11		)		7				(4		)	(713		)		168				(545		)
Translation adjustments
Net unrealized losses arising during the period	(2		)		1				(1		)	(6		)		1				(5		)
Net investment hedges (c)
Net unrealized gains arising during the period	2				(1		)		1			5				(1		)		4
Other comprehensive income	$	(11	)		$	7			$	(4	)
Cash flow hedges (c)
Net unrealized gains arising during the period												22				(5		)		17
Defined benefit pension plans
Net unrealized losses arising during the period												(2		)		—				(2		)
Other comprehensive loss												$	(694	)		$	163			$	(531	)


(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 1917.

3439

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Nine months ended September 30, 2017 ($ in millions)	Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	278			$	(64	)		$	214
Less: Net realized gains reclassified to income from continuing operations	75			(a)	(3		)	(b)	72
Net change	203				(61		)		142
Translation adjustments
Net unrealized gains arising during the period	14				(5		)		9
Net investment hedges (c)
Net unrealized losses arising during the period	(12		)		5				(7		)
Cash flow hedges (c)
Net unrealized gains arising during the period	2				(1		)		1
Defined benefit pension plans
Net unrealized losses arising during the period	(1		)		—				(1		)
Other comprehensive income	$	206			$	(62	)		$	144


(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 1917.

Nine months ended September 30, 2016 ($ in millions)
Before Tax Tax Effect After Tax
Investment securities
Net unrealized gains arising during the period $ 506
$ (133 ) $ 373
Less: Net realized gains reclassified to income from continuing operations 145
(a) (30 ) (b) 115
Net change 361
(103 ) 258
Translation adjustments
Net unrealized gains arising during the period 10
(4 ) 6
Less: Net realized losses reclassified to income from discontinued operations, net of tax (1 ) —
(1 )
Net change 11
(4 ) 7
Net investment hedges (c)
Net unrealized losses arising during the period (4 ) 2
(2 )
Defined benefit pension plans
Net unrealized losses arising during the period (1 ) —
(1 )
Other comprehensive income $ 367
$ (105 ) $ 262


~~(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~~

~~17.~~15. Earnings per Common Share

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
($ in millions, except per share data; shares in thousands) (a)	2017		2016			2017		2016			2018		2017		2018			2017
Net income from continuing operations	$	280	$	261		$	747	$	865
Preferred stock dividends	—		—			—		(30		)
Net income from continuing operations attributable to common shareholders	280		261			747		835
Net income from continuing operations attributable to common stockholders											$	374	$	280	$	974		$	747
Income (loss) from discontinued operations, net of tax	2		(52		)	1		(46		)	—		2		(1		)	1
Net income attributable to common shareholders	$	282	$	209		$	748	$	789
Net income attributable to common stockholders											$	374	$	282	$	973		$	748
Basic weighted-average common shares outstanding (b)	449,169		482,393			457,612		483,993			422,187		449,169		429,625			457,612
Diluted weighted-average common shares outstanding (b)	451,078		483,575			458,848		484,762			424,784		451,078		432,038			458,848
Basic earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.73		$	0.89	$	0.62	$	2.27		$	1.63
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Income from discontinued operations, net of tax											—		—		—			—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	0.89	$	0.63	$	2.26		$	1.63
Diluted earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.72		$	0.88	$	0.62	$	2.25		$	1.63
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Income from discontinued operations, net of tax											—		—		—			—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	0.88	$	0.63	$	2.25		$	1.63


(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 the three months and nine months ended September 30, ~~2017,~~2018, and ~~2016.~~2017.

~~18.~~16. 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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

capital framework in the United States. Certain aspects of U.S. Basel III, including the capital buffers ~~and certain regulatory capital deductions,~~ are subject to a phase-in period through December 31, 2018.

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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

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 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, but is 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 ~~September 27, 2017,~~May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted. This legislation included targeted amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and other financial services laws, including amendments that affect whether and, if so, how the FRB ~~released~~applies enhanced prudential standards to BHCs like us with total consolidated assets equal to or greater than $100 billion and less than $250 billion. On October 31, 2018, the FRB and other U.S. banking agencies issued proposals that would tailor the application of prudential standards to U.S. BHCs and apply enhanced standards to certain large savings and loan holding companies. Additionally, the proposals tailor the application of the agencies’ capital and liquidity rules. These proposals seek to align the regulatory requirements that apply to large banking organizations with their risk profiles. We are currently evaluating the impacts these proposals may have to us.

On April 13, 2018, the FRB and other U.S. banking agencies proposed a ~~proposal~~revision to ~~simplify certain~~their regulatory capital ~~requirements, including~~rules to address the ~~requirements~~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 ~~above-mentioned~~implementation of ASU 2016-13 will significantly increase our allowance for credit losses upon adoption. If finalized, the proposed changes to the regulatory capital ~~deductions and adjustments~~rules would allow Ally to phase in the impact to our regulatory capital as a result of the increase to our allowance for ~~investments in unconsolidated financial institutions, mortgage servicing assets, and certain deferred tax assets.~~credit losses on a straight-line basis over a three-year period. In addition, ~~on August 22, 2017,~~ the ~~FRB proposed an amendment~~U.S. banking agencies are proposing to make amendments to the ~~transition provisions~~stress testing regulations that would exclude the impact of the adoption of ASU 2016-13 until the 2020 stress testing cycle. We continue to monitor and evaluate these regulatory developments. Until the U.S. ~~Basel III~~banking agencies decide whether and, if so, how to amend their regulatory capital rules ~~that would, in anticipation of the simplification proposal, indefinitely postpone certain phase-in requirements~~to account for provisions related to the simplification proposal, including the provisions related to the above-mentioned capital deductions and adjustments. Both the simplification proposal and the proposed transitions amendments would primarily apply to non-advanced approaches banking organizations such as Ally. We are evaluating the effect these proposals would haveASU 2016-13, its ultimate impact on our regulatory capital ~~position.~~and, therefore, our business, results of operations, and financial condition is unclear.

On ~~March 7, 2016, Ally Bank received approval from~~April 10, 2018, the FRB issued a proposal that would seek 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 $445 million of FRB stock at September 30, 2017. In addition, in connectionmore closely align forward-looking stress testing results with the ~~application~~FRB’s non-stress capital requirements for ~~membership~~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 ~~Federal Reserve System, Ally Bank made commitments~~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 ~~FRB relating~~global Basel III capital framework (commonly known as Basel IV), many of which—if adopted in the

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Notes to capital, liquidity, and business plan requirements. These commitments 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 was at least 15%.Condensed Consolidated Financial Statements (unaudited)

On August 22, 2017, the FRB lifted the capital, liquidity, and business plan commitments that Ally Bank made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio of at least 15%. As a result of this development, during the three months ended September 30, 2017, Ally Bank paid a dividend of $2.9 billion to Ally Financial Inc.~~, which was utilized to reduce less cost-efficient borrowings~~ • Form 10-Q

United States—could heighten regulatory capital standards even more. At this time, it is not clear how all of these proposals and ~~further enhance our funding profile.~~revisions will be harmonized and finalized in the United States.

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

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


	September 30, 2017				December 31, 2016				Required minimum			Well-capitalized minimum		September 30, 2018				December 31, 2017				Required minimum (a)		Well-capitalized minimum
($ in millions)	Amount		Ratio		Amount		Ratio		Required minimum			Well-capitalized minimum										Required minimum (a)		Well-capitalized minimum
($ in millions)														Amount		Ratio		Amount		Ratio		Required minimum (a)		Well-capitalized minimum
Capital ratios																						Required minimum (a)		Well-capitalized minimum
Common Equity Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	13,175	9.72	%	$	12,978	9.37	%	4.50	%		(a)		$	13,376	9.41	%	$	13,237	9.53	%	4.50	%	(b)
Ally Bank	16,454		15.39		17,888		16.70		4.50			6.50	%	16,590		13.32		17,059		15.04		4.50		6.50	%
Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	15,539	11.46	%	$	15,147	10.93	%	6.00	%		6.00	%	$	15,810	11.12	%	$	15,628	11.25	%	6.00	%	6.00	%
Ally Bank	16,454		15.39		17,888		16.70		6.00			8.00		16,590		13.32		17,059		15.04		6.00		8.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	17,891	13.19	%	$	17,419	12.57	%	8.00	%		10.00	%	$	18,029	12.68	%	$	17,974	12.94	%	8.00	%	10.00	%
Ally Bank	17,215		16.10		18,458		17.24		8.00			10.00		17,606		14.13		17,886		15.77		8.00		10.00
Tier 1 leverage (to adjusted quarterly average assets) ~~(b)~~(c)
Ally Financial Inc.	$	15,539	9.51	%	$	15,147	9.54	%	4.00	%		(a)		$	15,810	9.23	%	$	15,628	9.53	%	4.00	%	(b)
Ally Bank	16,454		12.89		17,888		15.21		4.00		(c)	5.00	%	16,590		11.27		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 September 30, 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)~~	On August 22, 2017, the FRB lifted the capital, liquidity, and business plan commitments that Ally Bank made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio of at least ~~15%. Ally Bank now manages its capital and liquidity subject to applicable regulatory requirements.~~

At September 30, ~~2017,~~2018, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was subject.

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

~~Ally Financial Inc. • Form 10-Q~~

Capital Planning and Stress Tests

~~As a BHC with $50 billion or more of 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 capital plan, Ally must seek the approval of~~In addition, even if the FRB ~~before making a capital distribution if, among other factors, Ally would~~does not ~~meet its regulatory capital requirements after making the proposed capital distribution.~~

As part of the 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 a non-objectionobject to our capital plan, Ally may be precluded from or limited in paying dividends or other capital distributions without the ~~FRB, including the proposed~~FRB’s approval under certain circumstances—for example, when we would not meet minimum regulatory capital ~~actions contained in our submission. The~~ratios and capital actions included a 50% increase in the quarterly cash dividend on common stock from $0.08 per share to $0.12 per share, and a 9% increase in our share repurchase program, which has been authorized by the Ally Board of Directors, permitting us to repurchase up to $760 million of our common stock from time to time from the third quarter of 2017 through the second quarter of 2018. In addition, we submittedbuffers after giving effect to the ~~FRB the results~~distributions.

Table of our company-run mid-cycle stress test conducted under multiple macroeconomic scenarios and disclosed the results of this stress test under the most severe scenario on October 5, 2017, in accordance with regulatory requirements.Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents information related to our common ~~shares~~stock for each quarter since the commencement of our common ~~share~~stock repurchase programs and initiation of a quarterly cash dividend on common stock.

($ in millions, except per share data; shares in thousands) 3rd quarter 2017 2nd quarter 2017 1st quarter 2017 4th quarter 2016 3rd quarter 2016
Common shares repurchased during period (a)
Approximate dollar value $ 190
$ 204
$ 169
$ 167
$ 159
Number of shares 8,507
10,485
8,097
8,745
8,298
Number of common shares outstanding
Beginning of period 452,292
462,193
467,000
475,470
483,753
End of period 443,796
452,292
462,193
467,000
475,470
Cash dividends declared per common share (b) $ 0.12
$ 0.08
$ 0.08
$ 0.08
$ 0.08



	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
Second quarter	195		7,280	432,691	425,752	0.13
Third quarter	250		9,194	425,752	416,591	0.15


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


(b)	On October ~~10, 2017,~~9, 2018, the Ally Board of Directors (the Board) declared a quarterly cash dividend ~~payment~~ of ~~$0.12~~$0.15 per share on all common stock, payable on November 15, ~~2017.~~2018. Refer to Note 2624 for further information regarding this common ~~share~~stock dividend.

Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On June 28, 2018, we received from the FRB a non-objection to our capital plan, which includes increases in both our share repurchase program and our planned dividends. Consistent with the capital plan, the Board authorized a 32% increase in our share repurchase program, permitting us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019. Also consistent with the capital plan, on October 9, 2018, the Board declared a quarterly cash dividend of $0.15 per share of our common stock. Refer to Note 24 for further information on the most recent dividend. On October 5, 2018, we submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable regulatory requirements.

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. 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 ~~Ally~~ Board, ~~of Directors,~~ and other ~~considerations.~~considerations including the degree of severity of stress scenarios assigned by 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. ~~For the 2017 cycle, the FRB's qualitative assessment of Ally's capital plan began in the third quarter of 2017.~~ 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, and modified ~~Ally's~~Ally’s reporting requirements to reduce ~~certain reporting burdens related to capital planning and stress testing.~~unnecessary burdens.

~~19.~~17. Derivative Instruments and Hedging Activities

We enter into derivative instruments, such as interest rate, foreign-currency, and equity swaps, futures, forwards, and options in connection with our ~~market risk management~~risk-management activities. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, including available-for-sale securities, 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 other market risks related to our investment ~~portfolio and certain of our executive share-based compensation plans.~~

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

~~Ally Financial Inc. • Form 10-Q~~

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, and options~~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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Derivatives qualifying for hedge accounting can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, fair value hedges of ~~U.S. Treasury positions~~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. As of September 30, 2017, there were no open hedges related to our held-for-investment retail automotive loan assets.~~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. We may also use 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 exposure of our fixed-rate automotive loans, as well as forwards, options, and swaptions to economically hedge our net fixed-versus-variable interest rate exposure.risk.

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

Foreign Exchange Risk

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

We enter into foreign-currency forwards with external counterparties as net investment hedges of foreign exchange exposure on our 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 ~~foreign currency~~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~~Equity 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 and receive collateral. For these clearinghouse derivatives, these payments are recognized as settlements rather than collateral.

Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified ~~credit risk-related~~credit-risk-related event. No such specified ~~credit risk related~~credit-risk-related events occurred during the ~~third quarter of 2017~~three months ended September 30, 2018, or ~~2016.~~2017.

We placed cash collateral totaling ~~$10~~$51 million and ~~securities~~noncash collateral totaling ~~$145~~$120 million supporting our derivative positions at September 30, ~~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~~noncash collateral pledged ~~as collateral~~ under ~~repurchase agreements. At September 30, 2017, and December 31, 2016, we placed cash collateral totaling $10 million and $45 million, respectively, with~~

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~counterparties under collateral arrangements associated with~~ repurchase agreements. Refer to Note 1412 for details on the repurchase agreements. The receivables for cash collateral placed are included on our Condensed Consolidated Balance Sheet in other assets.

We received cash collateral from counterparties totaling ~~$14~~$45 million and ~~$10~~noncash collateral totaling $12 million at September 30, ~~2017,~~2018, and $17 million and $2 million at December 31, ~~2016,~~2017, respectively, ~~primarily to support these derivative positions. This amount also excludes~~in accounts maintained by counterparties. These amounts exclude cash and ~~securities~~noncash collateral pledged ~~as collateral~~ under repurchase agreements. Refer to Note 1412 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 September 30, 2017, and December 31, 2016, we received noncash collateral of $2 million and $6 million, respectively. Included in these amounts is noncash collateral where we have been granted the right to sell or pledge the underlying assets. We have not sold or pledged any of the noncash collateral received under these agreements.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Balance Sheet Presentation

The following table summarizes the ~~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.


	September 30, 2017						December 31, 2016						September 30, 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) (f) (g)	$	—	$	—	$	6,140	$	19	$	21	$	4,731
Futures (h)	1		—		60		—		—		—
Swaps													$	—	$	—	$	29,050	$	—	$	—	$	6,915
Foreign exchange contracts
Forwards	3		—		176		1		—		171		—		1		150		—		1		136
Total derivatives designated as accounting hedges	4		—		6,376		20		21		4,902		—		1		29,200		—		1		7,051
Derivatives not designated as accounting hedges
Interest rate contracts
Swaps	—		—		—		—		—		137
Futures and forwards	—		—		116		—		—		—		—		—		9		—		—		23
Written options	1		30		9,452		—		73		14,518		1		69		7,074		1		39		8,327
Purchased options	30		—		9,335		73		—		14,517		68		—		7,011		38		—		8,237
Total interest rate risk	31		30		18,903		73		73		29,172		69		69		14,094		39		39		16,587
Foreign exchange contracts
Futures and forwards	2		—		130		1		—		92		1		—		192		—		1		124
Total foreign exchange risk	2		—		130		1		—		92		1		—		192		—		1		124
Equity contracts
Written options	—		—		—		—		1		—
Purchased options	—		—		—		1		—		—
Total equity risk	—		—		—		1		1		—
Total derivatives not designated as accounting hedges	33		30		19,033		75		74		29,264		70		69		14,286		39		40		16,711
Total derivatives	$	37	$	30	$	25,409	$	95	$	95	$	34,166	$	70	$	70	$	43,486	$	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 $0 million and $7 million at September 30, 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 September 30, 2017, and December 31, 2016, respectively.~~

~~(c)~~

Includes fair value hedges consisting of receive-fixed swaps on fixed-rate unsecured debt obligations with $0 million and $8 million in a receivable position, $0 million and $14 million in a payable position, and a $3.1 billion and $1.7 billion notional amount at September 30, 2017, and December 31, 2016, respectively. The hedge notional amount of $3.1 billion at September 30, 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 $1.6 billion and $240 million notional amount at September 30, 2017, and December 31, 2016, respectively. Other fair value hedges include pay-fixed swaps on portfolios of held-for-investment automotive loan assets with $0 million and $10 million in a receivable position, $0 million and $1 million in a payable position, and a $0.0 billion and $2.8 billion notional amount at September 30, 2017, and December 31, 2016, respectively.


~~(e)~~	Includes cash flow hedge of pay-fixed swap on variable-rate borrowings of a secured credit facility with $0 million in a receivable and payable position, and $1.3 billion of notional amount at September 30, 2017.


~~(f)~~	~~Includes fair value hedge of pay-fixed swaps on fixed-rate U.S. Treasury securities with $0 million in a receivable and payable position, and $225 million of notional amount at September 30, 2017.~~

~~(g)~~


~~(h)~~	Includes fair value hedge of future contract on fixed-rate U.S. Treasury securities with $1 million in a receivable position, $0 million in a payable position, and $60 million of notional amount at September 30, 2017.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



($ in millions)	Carrying amount of the hedged items				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
	Carrying amount of the hedged items				Total					Discontinued (a)
	September 30, 2018		December 31, 2017		September 30, 2018			December 31, 2017		September 30, 2018		December 31, 2017
Assets
Available-for-sale securities (b)	$	1,433	$	173	$	4		$	2	$	4	$	2
Finance receivables and loans, net (c)	41,080		2,305		(52		)	18		8		19
Liabilities
Long-term debt	$	14,200	$	14,640	$	62		$	208	$	87	$	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 $19.4 billion as of September 30, 2018. The basis adjustment associated with the last-of-layer relationship is a $60 million liability as of September 30, 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 September 30, Nine months ended September 30,
($ in millions)
2017 2016 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) $ —
$ 16
$ 1
$ (18 )
Interest and dividends on investment securities 4
—
1
—
Interest on long-term debt (b) (5 ) (31 ) 19
211
(Loss) gain recognized in earnings on hedged items
Interest rate contracts
Interest and fees on finance receivables and loans (c) —
(17 ) (3 ) 16
Interest and dividends on investment securities (4 ) —
(1 ) —
Interest on long-term debt (d) 5
32
(18 ) (214 )
Total derivatives qualifying for hedge accounting —
—
(1 ) (5 )
Derivatives not designated as accounting hedges
Gain (loss) recognized in earnings on derivatives
Interest rate contracts
Gain on mortgage and automotive loans, net —
—
1
—
Other income, net of losses —
(5 ) (3 ) (2 )
Total interest rate contracts —
(5 ) (2 ) (2 )
Foreign exchange contracts (e)
Interest on long-term debt —
—
—
(2 )
Other income, net of losses (3 ) (1 ) (7 ) (4 )
Total foreign exchange contracts (3 ) (1 ) (7 ) (6 )
Equity contracts
Compensation and benefits expense —
2
—
—
Total equity contracts —
2
—
—
Loss recognized in earnings on derivatives $ (3 ) $ (4 ) $ (10 ) $ (13 )



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2018			2017			2018		2017
Gain (loss) recognized in earnings
Interest rate contracts
Gain on mortgage and automotive loans, net	$	—		$	—		$	—	$	1
Other income, net of losses	—			—			—		(3		)
Total interest rate contracts	—			—			—		(2		)
Foreign exchange contracts
Other income, net of losses	(1		)	(3		)	5		(7		)
Total foreign exchange contracts	(1		)	(3		)	5		(7		)
(Loss) gain recognized in earnings	$	(1	)	$	(3	)	$	5	$	(9	)

~~(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 $0 million and $4 million for the ~~three months ended~~ ~~September 30, 2017, and 2016, respectively, and $1 million and $16 million for the~~ ~~nine months ended~~ ~~September 30, 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 $7 million for both the ~~three months ended~~ ~~September 30, 2017, and 2016, and $19 million and $34 million for the~~ ~~nine months ended~~ September 30, 2017, and 2016, respectively. Amounts also 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~~ ~~September 30, 2017, and 2016, respectively, and $1 million and $4 million for the~~ ~~nine months ended~~ ~~September 30, 2017, and 2016, respectively.~~


~~(c)~~	~~Amounts exclude losses related to amortization of deferred loan basis adjustments on the de-designated hedged item of $6 million for both the~~ ~~three months ended~~ ~~September 30, 2017, and 2016, and $17 million and $15 million for the~~ ~~nine months ended~~ ~~September 30, 2017, and 2016, respectively.~~

~~(d)~~

~~Amounts exclude gains related to amortization of deferred debt basis adjustments on the de-designated hedged item of $19 million and $23 million for the~~ ~~three months ended~~ ~~September 30, 2017, and 2016, respectively, and $59 million and $62 million for the~~ ~~nine months ended~~ September 30, 2017, and 2016, respectively. Amounts also exclude losses related to amortization of deferred debt basis adjustments (FHLB advances) on the de-designated hedge item of $1 million for the ~~three months ended~~ ~~September 30, 2017, and $2 million for the~~ ~~nine months ended~~ ~~September 30, 2017.~~


~~(e)~~	~~Amounts exclude gains and losses related to the revaluation of the related foreign-denominated debt or receivable. Gains of $3 million and $1 million were recognized for the~~ ~~three months ended~~ ~~September 30, 2017, and 2016, respectively, and gains of $8 million and $4 million were recognized for the~~ ~~nine months ended~~ ~~September 30, 2017, and 2016, respectively.~~

4246

Table of Contents

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 September 30, ($ in millions)	2018			2017		2018			2017			2018			2017
Gain (loss) on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—		$	—	$	—		$	—		$	20		$	—
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—			—		—			—			(20		)	—
Hedged fixed-rate FHLB advances	—			—		—			—			10			5
Derivatives designated as hedging instruments on fixed-rate FHLB advances	—			—		—			—			(10		)	(5		)
Hedged available-for-sale securities	—			—		(2		)	(3		)	—			—
Derivatives designated as hedging instruments on available-for-sale securities	—			—		2			3			—			—
Hedged fixed-rate retail automotive loans	(9		)	—		—			—			—			—
Derivatives designated as hedging instruments on fixed-rate retail automotive loans	9			—		—			—			—			—
Total gain (loss) on fair value hedging relationships	$	—		$	—	$	—		$	—		$	—		$	—
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	1,708		$	1,486	$	198		$	157		$	451		$	416



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets						Interest on long-term debt
Nine months ended September 30, ($ in millions)	2018			2017			2018			2017			2018			2017
Gain (loss) on fair value hedging relationships
Interest rate contracts
Hedged fixed-rate unsecured debt	$	—		$	—		$	—		$	—		$	64		$	(23	)
Derivatives designated as hedging instruments on fixed-rate unsecured debt	—			—			—			—			(63		)	24
Hedged fixed-rate FHLB advances	—			—			—			—			53			5
Derivatives designated as hedging instruments on fixed-rate FHLB advances	—			—			—			—			(53		)	(5		)
Hedged available-for-sale securities	—			—			(7		)	(1		)	—			—
Derivatives designated as hedging instruments on available-for-sale securities	—			—			7			1			—			—
Hedged fixed-rate retail automotive loans	(60		)	(3		)	—			—			—			—
Derivatives designated as hedging instruments on fixed-rate retail automotive loans	60			1			—			—			—			—
Total (loss) gain on fair value hedging relationships	$	—		$	(2	)	$	—		$	—		$	1		$	1
Total amounts presented in the Condensed Consolidated Statement of Comprehensive Income	$	4,898		$	4,301		$	562		$	437		$	1,296		$	1,257

Table of Contents

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 ~~used in~~designated as fair value and cash flow ~~and net investment hedge accounting relationships.~~hedges reported in our Condensed Consolidated Statement of Comprehensive Income.

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Cash flow hedges
Interest rate contracts
Gain recognized in other comprehensive loss $ 2
$ —
$ 2
$ —
Net investment hedges
Foreign exchange contracts
(Loss) gain recognized in other comprehensive loss (a) $ (6 ) $ 2
$ (12 ) $ (4 )



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets				Interest on deposits				Interest on long-term debt
Three months ended September 30, ($ in millions)	2018			2017			2018		2017		2018		2017		2018			2017
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—		$	—		$	—	$	—	$	—	$	—	$	13		$	19
Interest for qualifying accounting hedges of unsecured debt	—			—			—		—		—		—		3			7
Amortization of deferred secured debt basis adjustments (FHLB advances)	—			—			—		—		—		—		(6		)	(1		)
Interest for qualifying accounting hedges of secured debt (FHLB advances)	—			—			—		—		—		—		2			1
Amortization of deferred loan basis adjustments	(3		)	(6		)	—		—		—		—		—			—
Interest for qualifying accounting hedges of retail automotive loans held-for-investment	7			—			—		—		—		—		—			—
Total gain (loss) on fair value hedging relationships	4			(6		)	—		—		—		—		12			26
Gain on cash flow hedging relationships
Interest rate contracts
Interest for qualifying accounting hedges of variable-rate borrowings	—			—			—		—		—		—		3			—
Interest for qualifying accounting hedges of deposit liabilities	—			—			—		—		2		—		—			—
Total gain on cash flow hedging relationships	$	—		$	—		$	—	$	—	2		—		$	3		$	—

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Interest and fees on finance receivables and loans						Interest and dividends on investment securities and other earning assets					Interest on deposits				Interest on long-term debt
Nine months ended September 30, ($ in millions)	2018			2017			2018			2017		2018		2017		2018			2017
Gain (loss) on fair value hedging relationships
Interest rate contracts
Amortization of deferred unsecured debt basis adjustments	$	—		$	—		$	—		$	—	$	—	$	—	$	42		$	59
Interest for qualifying accounting hedges of unsecured debt	—			—			—			—		—		—		7			19
Amortization of deferred secured debt basis adjustments (FHLB advances)	—			—			—			—		—		—		(12		)	(2		)
Interest for qualifying accounting hedges of secured debt (FHLB advances)	—			—			—			—		—		—		6			1
Interest for qualifying accounting hedges of available-for-sale securities	—			—			(1		)	—		—		—		—			—
Amortization of deferred loan basis adjustments	(11		)	(17		)	—			—		—		—		—			—
Interest for qualifying accounting hedges of retail automotive loans held-for-investment	5			(1		)	—			—		—		—		—			—
Total (loss) gain on fair value hedging relationships	(6		)	(18		)	(1		)	—		—		—		43			77
Gain on cash flow hedging relationships
Interest rate contracts
Interest for qualifying accounting hedges of variable-rate borrowings	—			—			—			—		—		—		6			—
Interest for qualifying accounting hedges of deposit liabilities	—			—			—			—		2		—		—			—
Total gain on cash flow hedging relationships	$	—		$	—		$	—		$	—	2		—		$	6		$	—

During the next twelve months, we estimate $21 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 September 30,					Nine months ended September 30,
($ in millions)	2018			2017		2018		2017
Interest rate contracts
(Loss) gain recognized in other comprehensive loss	$	(1	)	$	2	$	22	$	2

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



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2018			2017			2018		2017
Foreign exchange contracts (a) (b)
(Loss) gain recognized in other comprehensive loss	$	(2	)	$	(6	)	$	5	$	(12	)


(a)	~~The~~There were no amounts ~~represent~~excluded from effectiveness testing for the ~~effective portion of net investment hedges. There are offsetting amounts recognized in~~three months and nine months ended September 30, 2018, or 2017.

(b)

Gains and losses reclassified from accumulated other comprehensive loss ~~related to~~are reported as other income, net of losses, in the ~~revaluation~~Condensed Consolidated Statement 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~~Comprehensive Income. There were ~~gains of $7 million and losses of $2 million~~no amounts reclassified for the three months ~~ended September 30, 2017,~~ and ~~2016, respectively, and gains of $14 million and $9 million for the~~ nine months ended September 30, ~~2017, and 2016.~~2018, or 2017.

~~20.~~

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

18. Income Taxes

We recognized total income tax expense from continuing operations of ~~$115~~$91 million and ~~$350~~$280 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$130~~$115 million and ~~$336~~$350 million for the same periods in ~~2016.~~2017. The ~~decrease~~decreases in income tax expense for the three months ended September 30, 2017, compared to the same period in 2016, was primarily driven by the realization of capital gains allowing for a partial release of valuation allowance. The increase in income tax expense for theand nine months ended September 30, ~~2017,~~2018, compared to the same ~~period~~periods in ~~2016, was~~2017, were primarily driven by the reduction of the U.S. federal corporate tax rate enacted as a result of the Tax Act and a nonrecurring tax benefit from the release of valuation allowance against state net operating loss carryforwards as a result of a state tax law enactment in the third quarter of 2018. This decrease was partially offset by the tax effects of an increase in pretax earnings, nondeductible Federal Deposit Insurance Corporation (FDIC) premiums as a result of the Tax Act, and a nonrecurring tax benefit in 2017 from the ~~second quarter~~release of 2016 due to a U.S. tax reserve release related to a prior-year federal return that reduced our liability for unrecognized tax benefits by $175 million. This benefit was partially offset by the establishment of a valuation allowance ~~on capital~~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 ~~carryforwards~~to retained earnings, which eliminated the stranded federal income tax effects in accumulated other comprehensive loss resulting from the ~~second quarter~~Tax Act. Our policy is to use the portfolio method with respect to reclassification of ~~2016, and a decrease~~stranded income tax effects in ~~pretax earnings.~~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 certain foreign tax ~~credits~~credit carryforwards, state net operating loss carryforwards, and state ~~net operating~~capital loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance on the deferred tax assets relating to ~~foreign tax credits and state net operating loss~~these carryforwards.

~~21.~~19. Fair Value

Fair Value Measurements

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

Judgment is used in estimating inputs to our internal valuation models used to estimate our Level 3 fair value measurements. Level 3 inputs such as interest rate movements, prepayment speeds, credit losses, and discount rates are inherently difficult to estimate. Changes to these inputs can have a significant effect on fair value measurements. Accordingly, our estimates of fair value are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

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.~~

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~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).

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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

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

We also execute OTC and centrally-cleared derivative contracts, such as interest rate swaps, swaptions, foreign-currency denominated forward contracts, ~~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 contracts, we utilize unadjusted prices obtained from the clearing house as the basis for valuation, and they are also classified as Level 2.~~

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

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

4451

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Recurring Fair Value

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


	Recurring fair value measurements										Recurring fair value measurements
September 30, 2017 ($ in millions)	Level 1		Level 2			Level 3		Total
September 30, 2018 ($ in millions)											Level 1		Level 2		Level 3		Total
Assets
Investment securities
Equity securities (a)											$	503	$	—	$	11	$	514
Available-for-sale securities
Debt securities
U.S. Treasury	$	2,073	$	—		$	—	$	2,073
U.S. Treasury and federal agencies											1,903		1		—		1,904
U.S. States and political subdivisions	—		851			—		851			—		865		—		865
Foreign government	8		149			—		157			7		148		—		155
Agency mortgage-backed residential	—		14,344			—		14,344			—		16,014		—		16,014
Mortgage-backed residential	—		2,310			—		2,310			—		2,561		—		2,561
Mortgage-backed commercial	—		509			—		509			—		631		—		631
Asset-backed	—		1,039			—		1,039			—		733		—		733
Corporate debt	—		1,291			—		1,291			—		1,259		—		1,259
Total debt securities	2,081		20,493			—		22,574
Equity securities (a)	525		—			—		525
Total available-for-sale securities	2,606		20,493			—		23,099			1,910		22,212		—		24,122
Mortgage loans held-for-sale	—		—			9		9
Mortgage loans held-for-sale (b)											—		—		13		13
Interests retained in financial asset sales	—		—			5		5			—		—		4		4
Derivative contracts in a receivable position
Interest rate	1		30			1		32			—		68		1		69
Foreign currency	—		5			—		5			—		1		—		1
Total derivative contracts in a receivable position	1		35			1		37			—		69		1		70
Total assets	$	2,607	$	20,528		$	15	$	23,150		$	2,413	$	22,281	$	29	$	24,723
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate	$	—	$	(30	)	$	—	$	(30	)	$	—	$	69	$	—	$	69
Foreign currency											—		1		—		1
Total derivative contracts in a payable position	—		(30		)	—		(30		)	—		70		—		70
Total liabilities	$	—	$	(30	)	$	—	$	(30	)	$	—	$	70	$	—	$	70


(a)	Our investment in any one industry did not exceed ~~15%~~13%.


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

4552

Table of Contents

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

4653

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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

Level 3 recurring fair value measurements
Net realized/unrealized gains Fair value at September 30, 2017 Net unrealized gains included in earnings still held at September 30, 2017
($ in millions) Fair value at July 1, 2017 included in earnings included in OCI Purchases Sales Issuances Settlements
Assets

Mortgage loans held-for-sale $ 3
$ 1
$ —
$ 49
$ (44 ) $ —
$ —
$ 9
$ —
Other assets

Interests retained in financial asset sales 5
—
—
—
—
—
—
5
—
Derivative assets 1
—
—
—
—
—
—
1
—
Total assets $ 9
$ 1

$ —
$ 49
$ (44 ) $ —
$ —
$ 15
$ —


	Level 3 recurring fair value measurements																				Level 3 recurring fair value measurements
	Fair value at July 1, 2016		Net realized/unrealized gains					Purchases		Sales		Issuances		Settlements			Fair value at September 30, 2016		Net unrealized gains included in earnings still held at September 30, 2016				Net realized/unrealized gains															Fair value at September 30, 2018		Net unrealized losses included in earnings still held at September 30, 2018
($ in millions)	Fair value at July 1, 2016		included in earnings			included in OCI		Purchases		Sales		Issuances		Settlements			Fair value at September 30, 2016				Fair value at July 1, 2018		included in earnings			included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at September 30, 2018
Assets
Equity securities																					$	12	$	—		$	—	$	—	$	—		$	—	$	(1	)	$	11	$	(1	)
Mortgage loans held-for-sale (a)																					13		2		(b)	—		86		(88		)	—		—			13		—
Other assets
Interests retained in financial asset sales	$	31	$	1	(a)	$	—	$	—	$	2	$	—	$	(2	)	$	32	$	—	4		—			—		—		—			—		—			4		—
Derivative assets																					1		—			—		—		—			—		—			1		—
Total assets	$	31	$	1		$	—	$	—	$	2	$	—	$	(2	)	$	32	$	—	$	30	$	2		$	—	$	86	$	(88	)	$	—	$	(1	)	$	29	$	(1	)


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


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

Level 3 recurring fair value measurements
Net realized/unrealized gains Fair value at September 30, 2017 Net unrealized gains included in earnings still held at September 30, 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 $ —
$ 1
$ —
$ 72
$ (64 ) $ —
$ —
$ 9
$ —
Other assets
Interests retained in financial asset sales 29
1
—
—
8
—
(33 ) 5
—
Derivative assets —
1
—
—
—
—
—
1
1
Total assets $ 29
$ 3
$ —
$ 72
$ (56 ) $ —
$ (33 ) $ 15
$ 1


	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 September 30, 2016		Net unrealized gains included in earnings still held at September 30, 2016		Fair value at July 1, 2017		Net realized/unrealized gains				Purchases		Sales			Issuances		Settlements		Fair value at September 30, 2017		Net unrealized gains included in earnings still held at September 30, 2017
($ in millions)	Fair value at Jan. 1, 2016		included in earnings			included in OCI		Purchases		Sales		Issuances		Settlements			Fair value at September 30, 2016				Fair value at July 1, 2017		included in earnings		included in OCI		Purchases		Sales			Issuances		Settlements		Fair value at September 30, 2017
Assets
Mortgage loans held-for-sale (a)																					$	3	$	1	$	—	$	49	$	(44	)	$	—	$	—	$	9	$	—
Other assets
Interests retained in financial asset sales	$	40	$	4	(a)	$	—	$	—	$	8	$	—	$	(20	)	$	32	$	—	5		—		—		—		—			—		—		5		—
Derivative assets																					1		—		—		—		—			—		—		1		—
Total assets	$	40	$	4		$	—	$	—	$	8	$	—	$	(20	)	$	32	$	—	$	9	$	1	$	—	$	49	$	(44	)	$	—	$	—	$	15	$	—


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



	Level 3 recurring fair value measurements
			Net realized/unrealized (losses) gains																Fair value at September 30, 2018		Net unrealized losses included in earnings still held at September 30, 2018
($ in millions)	Fair value at Jan. 1, 2018		included in earnings				included in OCI		Purchases		Sales			Issuances		Settlements
Assets
Equity securities (a)	$	19	$	(4	)	(b)	$	—	$	—	$	—		$	—	$	(4	)	$	11	$	(6	)
Mortgage loans held-for-sale (c)	13		4			(d)	—		218		(222		)	—		—			13		—
Other assets
Interests retained in financial asset sales	5		—				—		—		—			—		(1		)	4		—
Derivative assets	1		—				—		—		—			—		—			1		—
Total assets	$	38	$	—			$	—	$	218	$	(222	)	$	—	$	(5	)	$	29	$	(6	)


(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,~~gain on investments, net, in the Condensed Consolidated Statement of ~~losses,~~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.

4754

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



	Level 3 recurring fair value measurements
	Fair value at Jan. 1, 2017		Net realized/unrealized gains					Purchases		Sales			Issuances		Settlements			Fair value at September 30, 2017		Net unrealized gains included in earnings still held at September 30, 2017
($ in millions)	Fair value at Jan. 1, 2017		included in earnings			included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at September 30, 2017
Assets
Mortgage loans held-for-sale (a)	$	—	$	1		$	—	$	72	$	(64	)	$	—	$	—		$	9	$	—
Other assets
Interests retained in financial asset sales	29		1		(b)	—		—		8			—		(33		)	5		—
Derivative assets	—		1		(c)	—		—		—			—		—			1		1
Total assets	$	29	$	3		$	—	$	72	$	(56	)	$	—	$	(33	)	$	15	$	1


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


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


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

Nonrecurring Fair Value

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

The following tables display 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		Total gain (loss) included in earnings for the nine months ended		Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total gain (loss) included in earnings
September 30, 2017 ($ 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			Total gain (loss) included in earnings
September 30, 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
Assets																								Lower-of-cost or fair value or valuation reserve allowance			Total gain (loss) included in earnings
Loans held-for-sale, net	$	—	$	—	$	9	$	9	$	—		n/m	(a)	n/m	(a)	$	—	$	—	$	157	$	157	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Automotive	—		—		29		29		$	(4	)	n/m	(a)	n/m	(a)	—		—		64		64		(10		)	n/m	(a)
Other	—		—		35		35		(16		)	n/m	(a)	n/m	(a)	—		—		33		33		(25		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		64		64		(20		)	n/m	(a)	n/m	(a)	—		—		97		97		(35		)	n/m	(a)
Other assets
Nonmarketable equity investments																—		1		—		1		—			n/m	(a)
Repossessed and foreclosed assets (c)	—		—		13		13		(2		)	n/m	(a)	n/m	(a)	—		—		13		13		(1		)	n/m	(a)
Other	—		—		3		3		—			n/m	(a)	n/m	(a)
Total assets	$	—	$	—	$	89	$	89	$	(22	)	n/m		n/m		$	—	$	1	$	267	$	268	$	(36	)	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 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
December 31, 2017 ($ 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
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.

~~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 included in earnings for the three months ended Total gain included in earnings for the nine months ended
September 30, 2016 ($ in millions)
Level 1 Level 2 Level 3 Total
Assets
Loans held-for-sale, net $ —
$ —
$ 56
$ 56
$ —
n/m (a) n/m (a)
Commercial finance receivables and loans, net (b)

Commercial and industrial
Automotive —
—
30
30
(7 ) n/m (a) n/m (a)
Other —
—
45
45
(17 ) n/m (a) n/m (a)
Total commercial finance receivables and loans, net —
—
75
75
(24 ) n/m (a) n/m (a)
Other assets

Repossessed and foreclosed assets (c) —
—
15
15
(4 ) n/m (a) n/m (a)
Other —
—
7
7
—
n/m (a) n/m (a)
Total assets $ —
$ —
$ 153
$ 153
$ (28 ) n/m 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. 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.

4956

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Fair Value of Financial Instruments

The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is required in interpreting current market data to develop the market assumptions and inputs necessary to estimate fair value. As such, the actual amount received to sell an asset or the amount paid to settle a liability could differ from our estimates. Fair value information presented herein was based on information available at September 30, ~~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
September 30, 2017
September 30, 2018
Financial assets
Held-to-maturity securities	$	1,839	$	—	$	1,807	$	—	$	1,807	$	2,246	$	—	$	2,139	$	—	$	2,139
Loans held-for-sale, net	9		—		—		9		9		412		—		—		419		419
Finance receivables and loans, net	117,585		—		—		119,498		119,498		125,357		—		—		127,106		127,106
Nonmarketable equity investments (a)	1,053		—		1,026		26		1,052
Nonmarketable equity investments											1,179		—		1,179		—		1,179
Financial liabilities
Deposit liabilities(a)	$	90,116	$	—	$	—	$	88,151	$	88,151	$	50,300	$	—	$	—	$	50,128	$	50,128
Short-term borrowings	10,175		—		—		10,177		10,177		7,338		—		—		7,342		7,342
Long-term debt	45,122		—		29,776		17,880		47,656		45,542		—		26,425		20,953		47,378
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

(a)

~~Excludes investments~~

In connection with aour 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 ~~of $12 million~~ and Level 3 fair value, respectively. Refer to Note 11 for information regarding the composition of ~~$35 million at September 30, 2017,~~our deposits portfolio, and Note 1 for ~~which fair value is measured at net asset value (or its equivalent) as a practical expedient.~~further information regarding recently adopted accounting standards.

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~~ — 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 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.

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

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. For our credit facilities, which are floating rate in nature and where pricing occurs on a more frequent basis, the carrying amount or par value is considered to be a reasonable estimate of fair value. As of June 30, 2017, we began using quoted market prices of similar instruments for certain of our long-term debt associated with asset-backed securitizations for which observable market information exists. As a result, the corresponding financial instruments have been transferred from Level 3 to Level 2 within the fair value hierarchy following the change in valuation technique driven by the availability of an independent pricing service.

~~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.~~20. Offsetting Assets and Liabilities

Our derivative contracts and repurchase/reverse repurchase transactions are supported by qualifying master netting and master repurchase agreements. These agreements are legally enforceable bilateral agreements that ~~(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 obligation. Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding derivatives. A party posts additional collateral when their obligation rises or removes collateral when it falls, such that the net replacement cost of the nondefaulting party is covered in the event of counterparty default.

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

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 September 30, ~~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
September 30, 2017 ($ in millions)				Financial instruments							Collateral (a) (b) (c)				Net amount
September 30, 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				$			36		$	—			$	36			$	—			$	(4	)			$				32					$				—			$	—			$	69
Derivative assets in net liability positions	—						—			—				—				—				—
Derivative assets with no offsetting arrangements	1				—			1				—				—				1				1				—			1								—				—				1
Total assets (d)	$	37			$	—		$	37			$	—			$	(4	)		$	33			$	70			$	—		$	70					$	—			$	—			$	70
Liabilities
Derivative liabilities in net liability positions	$	(30	)		$	—		$	(30	)		$	—			$	—			$	(30	)
Derivative liabilities in net asset positions	—				—			—				—				—				—
Total derivative liabilities (d)	(30		)		—			(30		)		—				—				(30		)
Derivative liabilities in net liability positions (d)																								$	70			$	—		$	70		$	—			$	—			$	70
Securities sold under agreements to repurchase (e)	(1,171		)		—			(1,171		)		—				1,171				—				1,238				—			1,238			—				(1,238		)		—
Total liabilities	$	(1,201	)		$	—		$	(1,201	)		$	—			$	1,171			$	(30	)		$	1,308			$	—		$	1,308		$	—			$	(1,238	)		$	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. $2 $12 million of noncash derivative collateral pledged to us was excluded at September 30, ~~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 $2 million at September 30, 2017. We have not sold or pledged any of the noncash collateral received under these agreements as of September 30, 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$12 million at ~~December 31, 2016.~~September 30, 2018. We have not sold or pledged any of the noncash collateral received under these agreements as of ~~December 31, 2016.~~September 30, 2018.


(d)	For additional information on derivative instruments and hedging activities, refer to Note 1917.


(e)	For additional information on securities sold under agreements to repurchase, refer to Note 1412.

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 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 17.


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

~~23.~~21. Segment Information

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

We report our results of operations on a 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 — One of the largest full service automotive finance operations in the ~~U.S.~~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 — 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-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.

~~Table of Contents~~

~~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~~middle-market companies. Our primary focus is on businesses owned by private equity sponsors with loans typically used for leveraged buyouts, mergers and acquisitions, debt refinancing, restructurings, and working capital. In 2017, we introduced a commercial real estate product to serve companies in the healthcare industry.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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 debt issuances,~~ and the residual impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, and reclassifications and eliminations between the reportable operating segments. Additionally, financial results related to Ally Invest are currently included within Corporate and Other.

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

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

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


Three months ended September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other			Consolidated (a)		Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other			Consolidated (a)
2018
Net financing revenue and other interest income														$	956	$	14	$	44	$	50	$	43		$	1,107
Other revenue														80		282		2		14		20			398
Total net revenue														1,036		296		46		64		63			1,505
Provision for loan losses														229		—		2		8		(6		)	233
Total noninterest expense														424		241		36		20		86			807
Income (loss) from continuing operations before income tax expense														$	383	$	55	$	8	$	36	$	(17	)	$	465
Total assets														$	114,675	$	7,776	$	14,896	$	4,459	$	31,295		$	173,101
2017
Net financing revenue and other interest income	$	950	$	15	$	32	$	39	$	45		$	1,081	$	950	$	15	$	32	$	39	$	45		$	1,081
Other revenue	82		272		2		5		20			381		82		272		2		5		20			381
Total net revenue	1,032		287		34		44		65			1,462		1,032		287		34		44		65			1,462
Provision for loan losses	312		—		4		3		(5		)	314		312		—		4		3		(5		)	314
Total noninterest expense	420		218		28		19		68			753		420		218		28		19		68			753
Income from continuing operations before income tax expense	$	300	$	69	$	2	$	22	$	2		$	395	$	300	$	69	$	2	$	22	$	2		$	395
Total assets	$	112,141	$	7,432	$	9,804	$	3,699	$	30,937		$	164,013	$	112,141	$	7,432	$	9,804	$	3,699	$	30,937		$	164,013
2016
Net financing revenue and other interest income (loss)	$	933	$	14	$	25	$	30	$	(6	)	$	996
Other revenue	74		264		—		4		46			388
Total net revenue	1,007		278		25		34		40			1,384
Provision for loan losses	270		—		1		3		(16		)	258
Total noninterest expense	418		222		16		16		63			735
Income (loss) from continuing operations before income tax expense	$	319	$	56	$	8	$	15	$	(7	)	$	391
Total assets	$	113,669	$	7,259	$	7,933	$	3,232	$	25,304		$	157,397


(a)	Net financing revenue and other interest income after the provision for loan losses totaled ~~$767~~$874 million and ~~$738~~$767 million for the three months ended September 30, ~~2017,~~2018, and ~~2016,~~2017, respectively.

5460

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Nine months ended September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other			Consolidated (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														$	2,790	$	39	$	131	$	153	$	137		$	3,250
Other revenue														209		794		5		36		72			1,116
Total net revenue														2,999		833		136		189		209			4,366
Provision for loan losses														658		—		4		2		(12		)	652
Total noninterest expense														1,308		740		102		64		246			2,460
Income (loss) from continuing operations before income tax expense														$	1,033	$	93	$	30	$	123	$	(25	)	$	1,254
Total assets														$	114,675	$	7,776	$	14,896	$	4,459	$	31,295		$	173,101
2017
Net financing revenue and other interest income	$	2,774	$	44	$	98	$	121	$	90		$	3,127	$	2,774	$	44	$	98	$	121	$	90		$	3,127
Other revenue	290		781		3		33		58			1,165		290		781		3		33		58			1,165
Total net revenue	3,064		825		101		154		148			4,292		3,064		825		101		154		148			4,292
Provision for loan losses	846		—		6		15		(13		)	854		846		—		6		15		(13		)	854
Total noninterest expense	1,283		737		77		57		187			2,341		1,283		737		77		57		187			2,341
Income (loss) from continuing operations before income tax expense	$	935	$	88	$	18	$	82	$	(26	)	$	1,097	$	935	$	88	$	18	$	82	$	(26	)	$	1,097
Total assets	$	112,141	$	7,432	$	9,804	$	3,699	$	30,937		$	164,013	$	112,141	$	7,432	$	9,804	$	3,699	$	30,937		$	164,013
2016
Net financing revenue and other interest income (loss)	$	2,758	$	44	$	71	$	87	$	(29	)	$	2,931
Other revenue	228		777		—		14		119			1,138
Total net revenue	2,986		821		71		101		90			4,069
Provision for loan losses	649		—		4		12		(15		)	650
Total noninterest expense	1,255		733		48		49		133			2,218
Income (loss) from continuing operations before income tax expense	$	1,082	$	88	$	19	$	40	$	(28	)	$	1,201
Total assets	$	113,669	$	7,259	$	7,933	$	3,232	$	25,304		$	157,397


(a)	Net financing revenue and other interest income after the provision for loan losses totaled ~~$2,273 million~~$2.6 billion and ~~$2,281 million~~$2.3 billion for the nine months ended September 30, ~~2017,~~2018, and ~~2016,~~2017, respectively.

~~24.~~22. Parent and Guarantor Condensed Consolidating Financial Statements

Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of September 30, ~~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.

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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~Condensed Consolidating Statements of Comprehensive Income~~

Three months ended September 30, 2017 ($ in millions)
Parent Guarantors Nonguarantors Consolidating adjustments Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans $ 13
$ —
$ 1,473
$ —
$ 1,486
Interest and fees on finance receivables and loans — intercompany 2
—
1
(3 ) —
Interest and dividends on investment securities and other earning assets —
—
157
—
157
Interest on cash and cash equivalents 2
—
9
—
11
Interest-bearing cash — intercompany 1
—
2
(3 ) —
Operating leases 3
—
431
—
434
Total financing revenue and other interest income 21
—
2,073
(6 ) 2,088
Interest expense
Interest on deposits —
—
286
(1 ) 285
Interest on short-term borrowings 16
—
18
—
34
Interest on long-term debt 278
—
138
—
416
Interest on intercompany debt 3
—
2
(5 ) —
Total interest expense 297
—
444
(6 ) 735
Net depreciation expense on operating lease assets 3
—
269
—
272
Net financing revenue (279 ) —
1,360
—
1,081
Cash dividends from subsidiaries
Bank subsidiary 2,900
2,900
—
(5,800 ) —
Nonbank subsidiaries 101
—
—
(101 ) —
Other revenue
Insurance premiums and service revenue earned —
—
252
—
252
Gain on mortgage and automotive loans, net 9
—
6
—
15
Loss on extinguishment of debt (1 ) —
(3 ) —
(4 )
Other gain on investments, net —
—
23
—
23
Other income, net of losses 138
—
199
(242 ) 95
Total other revenue 146
—
477
(242 ) 381
Total net revenue 2,868
2,900
1,837
(6,143 ) 1,462
Provision for loan losses 161
—
153
—
314
Noninterest expense
Compensation and benefits expense 17
—
247
—
264
Insurance losses and loss adjustment expenses —
—
65
—
65
Other operating expenses 208
—
459
(243 ) 424
Total noninterest expense 225
—
771
(243 ) 753
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries 2,482
2,900
913
(5,900 ) 395
Income tax (benefit) expense from continuing operations (135 ) —
250
—
115
Net income from continuing operations 2,617
2,900
663
(5,900 ) 280
Income (loss) from discontinued operations, net of tax 4
—
(2 ) —
2
Undistributed (loss) income of subsidiaries
Bank subsidiary (2,524 ) (2,524 ) —
5,048
—
Nonbank subsidiaries 185
—
—
(185 ) —
Net income 282
376
661
(1,037 ) 282
Other comprehensive income, net of tax 48
36
51
(87 ) 48
Comprehensive income $ 330
$ 412
$ 712
$ (1,124 ) $ 330

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

Three months ended September 30, 2016 ($ in millions)
Parent Guarantors Nonguarantors Consolidating adjustments Ally consolidated
Financing (loss) revenue and other interest income
Interest and fees on finance receivables and loans $ (15 ) $ —
$ 1,322
$ —
$ 1,307
Interest and fees on finance receivables and loans — intercompany 2
—
2
(4 ) —
Interest and dividends on investment securities and other earning assets —
—
102
(1 ) 101
Interest on cash and cash equivalents 1
—
2
—
3
Interest-bearing cash — intercompany —
—
2
(2 ) —
Operating leases 4
—
645
—
649
Total financing (loss) revenue and other interest income (8 ) —
2,075
(7 ) 2,060
Interest expense
Interest on deposits 2
—
210
—
212
Interest on short-term borrowings 10
—
4
—
14
Interest on long-term debt 289
—
141
—
430
Interest on intercompany debt 5
—
2
(7 ) —
Total interest expense 306
—
357
(7 ) 656
Net depreciation expense on operating lease assets 3
—
405
—
408
Net financing revenue (317 ) —
1,313
—
996
Cash dividends from subsidiaries
Nonbank subsidiaries 170
—
—
(170 ) —
Other revenue
Insurance premiums and service revenue earned —
—
238
—
238
(Loss) gain on mortgage and automotive loans, net (7 ) —
7
—
—
Other gain on investments, net —
—
52
—
52
Other income, net of losses 298
—
231
(431 ) 98
Total other revenue 291
—
528
(431 ) 388
Total net revenue 144
—
1,841
(601 ) 1,384
Provision for loan losses 147
—
111
—
258
Noninterest expense
Compensation and benefits expense 143
—
105
—
248
Insurance losses and loss adjustment expenses —
—
69
—
69
Other operating expenses 307
—
541
(430 ) 418
Total noninterest expense 450
—
715
(430 ) 735
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries (453 ) —
1,015
(171 ) 391
Income tax (benefit) expense from continuing operations (88 ) —
218
—
130
Net (loss) income from continuing operations (365 ) —
797
(171 ) 261
Loss from discontinued operations, net of tax (47 ) —
(5 ) —
(52 )
Undistributed income of subsidiaries
Bank subsidiary 325
325
—
(650 ) —
Nonbank subsidiaries 296
—
—
(296 ) —
Net income 209
325
792
(1,117 ) 209
Other comprehensive loss, net of tax (4 ) (3 ) (9 ) 12
(4 )
Comprehensive income $ 205
$ 322
$ 783
$ (1,105 ) $ 205

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

Nine months ended September 30, 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 $ (57 ) $ —
$ 4,358
$ —
$ 4,301
Interest and fees on finance receivables and loans — intercompany 10
—
5
(15 ) —
Interest and dividends on investment securities and other earning assets —
—
439
(2 ) 437
Interest on cash and cash equivalents 6
—
17
—
23
Interest-bearing cash — intercompany 1
—
5
(6 ) —
Operating leases 9
—
1,456
—
1,465
Total financing (loss) revenue and other interest income (31 ) —
6,280
(23 ) 6,226
Interest expense
Interest on deposits 2
—
765
(1 ) 766
Interest on short-term borrowings 52
—
42
—
94
Interest on long-term debt 834
—
423
—
1,257
Interest on intercompany debt 12
—
10
(22 ) —
Total interest expense 900
—
1,240
(23 ) 2,117
Net depreciation expense on operating lease assets 8
—
974
—
982
Net financing revenue (939 ) —
4,066
—
3,127
Cash dividends from subsidiaries
Bank subsidiary 2,900
2,900
—
(5,800 ) —
Nonbank subsidiaries 528
—
—
(528 ) —
Other revenue
Insurance premiums and service revenue earned —
—
720
—
720
Gain on mortgage and automotive loans, net 39
—
26
—
65
Loss on extinguishment of debt (1 ) —
(5 ) —
(6 )
Other gain on investments, net —
—
73
—
73
Other income, net of losses 569
—
635
(891 ) 313
Total other revenue 607
—
1,449
(891 ) 1,165
Total net revenue 3,096
2,900
5,515
(7,219 ) 4,292
Provision for loan losses 350
—
504
—
854
Noninterest expense
Compensation and benefits expense 157
—
657
—
814
Insurance losses and loss adjustment expenses —
—
278
—
278
Other operating expenses 709
—
1,431
(891 ) 1,249
Total noninterest expense 866
—
2,366
(891 ) 2,341
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries 1,880

2,900

2,645

(6,328 ) 1,097
Income tax (benefit) expense from continuing operations (362 ) —
712
—
350
Net income from continuing operations 2,242
2,900
1,933
(6,328 ) 747
Income (loss) from discontinued operations, net of tax 6
—
(5 ) —
1
Undistributed (loss) income of subsidiaries
Bank subsidiary (1,760 ) (1,760 ) —
3,520
—
Nonbank subsidiaries 260
—
—
(260 ) —
Net income 748
1,140
1,928
(3,068 ) 748
Other comprehensive income, net of tax 144
91
140
(231 ) 144
Comprehensive income $ 892
$ 1,231
$ 2,068
$ (3,299 ) $ 892

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

Nine months ended September 30, 2016 ($ in millions)
Parent Guarantors Nonguarantors Consolidating adjustments Ally consolidated
Financing (loss) revenue and other interest income
Interest and fees on finance receivables and loans $ (82 ) $ —
$ 3,889
$ —
$ 3,807
Interest and fees on finance receivables and loans — intercompany 8
—
6
(14 ) —
Interest and dividends on investment securities and other earning assets —
—
303
(1 ) 302
Interest on cash and cash equivalents 4
—
6
—
10
Interest-bearing cash — intercompany —
—
7
(7 ) —
Operating leases 14
—
2,105
—
2,119
Total financing (loss) revenue and other interest income (56 ) —
6,316
(22 ) 6,238
Interest expense
Interest on deposits 6
—
602
—
608
Interest on short-term borrowings 31
—
8
—
39
Interest on long-term debt 868
—
440
—
1,308
Interest on intercompany debt 14
—
8
(22 ) —
Total interest expense 919
—
1,058
(22 ) 1,955
Net depreciation expense on operating lease assets 11
—
1,341
—
1,352
Net financing revenue (986 ) —
3,917
—
2,931
Cash dividends from subsidiaries
Nonbank subsidiaries 800
—
—
(800 ) —
Other revenue
Insurance premiums and service revenue earned —
—
704
—
704
(Loss) gain on mortgage and automotive loans, net (11 ) —
15
—
4
Loss on extinguishment of debt (2 ) —
(2 ) —
(4 )
Other gain on investments, net —
—
145
—
145
Other income, net of losses 989
—
661
(1,361 ) 289
Total other revenue 976
—
1,523
(1,361 ) 1,138
Total net revenue 790
—
5,440
(2,161 ) 4,069
Provision for loan losses 295
—
355
—
650
Noninterest expense
Compensation and benefits expense 430
—
312
—
742
Insurance losses and loss adjustment expenses —
—
287
—
287
Other operating expenses 963
—
1,586
(1,360 ) 1,189
Total noninterest expense 1,393
—
2,185
(1,360 ) 2,218
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries (898 ) —
2,900
(801 ) 1,201
Income tax (benefit) expense from continuing operations (196 ) (82 ) 614
—
336
Net (loss) income from continuing operations (702 ) 82
2,286
(801 ) 865
Loss from discontinued operations, net of tax (39 ) —
(7 ) —
(46 )
Undistributed income (loss) of subsidiaries
Bank subsidiary 932
932
—
(1,864 ) —
Nonbank subsidiaries 628
(2 ) —
(626 ) —
Net income 819
1,012
2,279
(3,291 ) 819
Other comprehensive income, net of tax 262
143
234
(377 ) 262
Comprehensive income $ 1,081
$ 1,155
$ 2,513
$ (3,668 ) $ 1,081

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~Condensed Consolidating Balance Sheet~~

September 30, 2017 ($ in millions)
Parent (a) Guarantors Nonguarantors (a) Consolidating adjustments Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing $ 74
$ —
$ 736
$ —
$ 810
Interest-bearing 5
—
3,609
—
3,614
Interest-bearing — intercompany 1,495
—
558
(2,053 ) —
Total cash and cash equivalents 1,574

—

4,903

(2,053 )
4,424
Available-for-sale securities —
—
23,099
—
23,099
Held-to-maturity securities —
—
1,923
(84 ) 1,839
Loans held-for-sale, net —
—
18
—
18
Finance receivables and loans, net
Finance receivables and loans, net 7,694
—
111,177
—
118,871
Intercompany loans to
Nonbank subsidiaries 788
—
394
(1,182 ) —
Allowance for loan losses (197 ) —
(1,089 ) —
(1,286 )
Total finance receivables and loans, net 8,285
—
110,482
(1,182 ) 117,585
Investment in operating leases, net 23
—
8,908
—
8,931
Intercompany receivables from
Bank subsidiary 59
—
—
(59 ) —
Nonbank subsidiaries 76
—
91
(167 ) —
Investment in subsidiaries
Bank subsidiary 16,383
16,383
—
(32,766 ) —
Nonbank subsidiaries 9,045
—
—
(9,045 ) —
Premiums receivable and other insurance assets —
—
2,085
(31 ) 2,054
Other assets 3,174
—
4,910
(2,021 ) 6,063
Total assets $ 38,619

$ 16,383

$ 156,419

$ (47,408 )
$ 164,013
Liabilities
Deposit liabilities
Noninterest-bearing $ —
$ —
$ 129
$ —
$ 129
Interest-bearing 14
—
89,973
—
89,987
Interest-bearing — intercompany —
—
1,495
(1,495 ) —
Total deposit liabilities 14
—
91,597
(1,495 ) 90,116
Short-term borrowings 3,379
—
6,796
—
10,175
Long-term debt 19,969
—
25,153
—
45,122
Intercompany debt to
Bank subsidiary 84
—
—
(84 ) —
Nonbank subsidiaries 952
—
788
(1,740 ) —
Intercompany payables to
Nonbank subsidiaries 149
—
108
(257 ) —
Interest payable 278
—
274
—
552
Unearned insurance premiums and service revenue —
—
2,583
—
2,583
Accrued expenses and other liabilities 221
—
3,692
(2,021 ) 1,892
Total liabilities 25,046
—
130,991
(5,597 ) 150,440
Total equity 13,573
16,383
25,428
(41,811 ) 13,573
Total liabilities and equity $ 38,619
$ 16,383
$ 156,419
$ (47,408 ) $ 164,013


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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

December 31, 2016 ($ in millions)
Parent (a) Guarantors Nonguarantors (a) Consolidating adjustments Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing $ 720
$ —
$ 827
$ —
$ 1,547
Interest-bearing 100
—
4,287
—
4,387
Interest-bearing — intercompany —
—
401
(401 ) —
Total cash and cash equivalents 820
—
5,515
(401 ) 5,934
Trading securities —
—
82
(82 ) —
Available-for-sale securities —
—
19,253
(327 ) 18,926
Held-to-maturity securities —
—
839
—
839
Finance receivables and loans, net
Finance receivables and loans, net 4,705
—
114,239
—
118,944
Intercompany loans to
Bank subsidiary 1,125
—
—
(1,125 ) —
Nonbank subsidiaries 1,779
—
626
(2,405 ) —
Allowance for loan losses (115 ) —
(1,029 ) —
(1,144 )
Total finance receivables and loans, net 7,494
—
113,836
(3,530 ) 117,800
Investment in operating leases, net 42
—
11,428
—
11,470
Intercompany receivables from
Bank subsidiary 299
—
—
(299 ) —
Nonbank subsidiaries 107
—
67
(174 ) —
Investment in subsidiaries
Bank subsidiary 17,727
17,727
—
(35,454 ) —
Nonbank subsidiaries 10,318
—
—
(10,318 ) —
Premiums receivable and other insurance assets —
—
1,936
(31 ) 1,905
Other assets 4,347
—
5,085
(2,578 ) 6,854
Total assets $ 41,154
$ 17,727
$ 158,041
$ (53,194 ) $ 163,728
Liabilities
Deposit liabilities
Noninterest-bearing $ —
$ —
$ 84
$ —
$ 84
Interest-bearing 167
—
78,771
—
78,938
Total deposit liabilities 167
—
78,855
—
79,022
Short-term borrowings 3,622
—
9,051
—
12,673
Long-term debt 21,798
—
32,330
—
54,128
Intercompany debt to
Bank subsidiary 330
—
—
(330 ) —
Nonbank subsidiaries 1,027
—
2,903
(3,930 ) —
Intercompany payables to
Nonbank subsidiaries 153
—
351
(504 ) —
Interest payable 253
—
98
—
351
Unearned insurance premiums and service revenue —
—
2,500
—
2,500
Accrued expenses and other liabilities 487
—
3,911
(2,661 ) 1,737
Total liabilities 27,837
—
129,999
(7,425 ) 150,411
Total equity 13,317
17,727
28,042
(45,769 ) 13,317
Total liabilities and equity $ 41,154
$ 17,727
$ 158,041
$ (53,194 ) $ 163,728


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statements of Comprehensive Income



Three months ended September 30, 2018 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(4	)	$	—		$	1,712		$	—		$	1,708
Interest and fees on finance receivables and loans — intercompany	3			—			2			(5		)	—
Interest on loans held-for-sale	—			—			4			—			4
Interest and dividends on investment securities and other earning assets	—			—			198			—			198
Interest on cash and cash equivalents	2			—			16			—			18
Interest-bearing cash — intercompany	1			—			3			(4		)	—
Operating leases	1			—			367			—			368
Total financing revenue and other interest income	3			—			2,302			(9		)	2,296
Interest expense
Interest on deposits	—			—			462			—			462
Interest on short-term borrowings	12			—			17			—			29
Interest on long-term debt	250			—			201			—			451
Interest on intercompany debt	5			—			4			(9		)	—
Total interest expense	267			—			684			(9		)	942
Net depreciation expense on operating lease assets	2			—			245			—			247
Net financing (loss) revenue	(266		)	—			1,373			—			1,107
Cash dividends from subsidiaries
Bank subsidiary	550			550			—			(1,100		)	—
Nonbank subsidiaries	88			—			—			(88		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			258			—			258
Gain on mortgage and automotive loans, net	16			—			1			—			17
Other gain on investments, net	—			—			22			—			22
Other income, net of losses	105			—			187			(191		)	101
Total other revenue	121			—			468			(191		)	398
Total net revenue	493			550			1,841			(1,379		)	1,505
Provision for loan losses	30			—			203			—			233
Noninterest expense
Compensation and benefits expense	19			—			255			—			274
Insurance losses and loss adjustment expenses	—			—			77			—			77
Other operating expenses	175			—			472			(191		)	456
Total noninterest expense	194			—			804			(191		)	807
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries	269			550			834			(1,188		)	465
Income tax (benefit) expense from continuing operations	(88		)	—			179			—			91
Net income from continuing operations	357			550			655			(1,188		)	374
Income (loss) from discontinued operations, net of tax	—			—			—			—			—
Undistributed (loss) income of subsidiaries
Bank subsidiary	(31		)	(31		)	—			62			—
Nonbank subsidiaries	48			—			—			(48		)	—
Net income	374			519			655			(1,174		)	374
Other comprehensive loss, net of tax	(133		)	(104		)	(133		)	237			(133		)
Comprehensive income	$	241		$	415		$	522		$	(937	)	$	241

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Three months ended September 30, 2017 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	13		$	—		$	1,473		$	—		$	1,486
Interest and fees on finance receivables and loans — intercompany	2			—			1			(3		)	—
Interest and dividends on investment securities and other earning assets	—			—			157			—			157
Interest on cash and cash equivalents	2			—			9			—			11
Interest-bearing cash — intercompany	1			—			2			(3		)	—
Operating leases	3			—			431			—			434
Total financing revenue and other interest income	21			—			2,073			(6		)	2,088
Interest expense
Interest on deposits	—			—			286			(1		)	285
Interest on short-term borrowings	16			—			18			—			34
Interest on long-term debt	278			—			138			—			416
Interest on intercompany debt	3			—			2			(5		)	—
Total interest expense	297			—			444			(6		)	735
Net depreciation expense on operating lease assets	3			—			269			—			272
Net financing (loss) revenue	(279		)	—			1,360			—			1,081
Cash dividends from subsidiaries
Bank subsidiary	2,900			2,900			—			(5,800		)	—
Nonbank subsidiaries	101			—			—			(101		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			252			—			252
Gain on mortgage and automotive loans, net	9			—			6			—			15
Other gain on investments, net	—			—			23			—			23
Other income, net of losses	137			—			196			(242		)	91
Total other revenue	146			—			477			(242		)	381
Total net revenue	2,868			2,900			1,837			(6,143		)	1,462
Provision for loan losses	161			—			153			—			314
Noninterest expense
Compensation and benefits expense	17			—			247			—			264
Insurance losses and loss adjustment expenses	—			—			65			—			65
Other operating expenses	208			—			459			(243		)	424
Total noninterest expense	225			—			771			(243		)	753
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries	2,482			2,900			913			(5,900		)	395
Income tax (benefit) expense from continuing operations	(135		)	—			250			—			115
Net income from continuing operations	2,617			2,900			663			(5,900		)	280
Income (loss) from discontinued operations, net of tax	4			—			(2		)	—			2
Undistributed (loss) income of subsidiaries
Bank subsidiary	(2,524		)	(2,524		)	—			5,048			—
Nonbank subsidiaries	185			—			—			(185		)	—
Net income	282			376			661			(1,037		)	282
Other comprehensive income, net of tax	48			36			51			(87		)	48
Comprehensive income	$	330		$	412		$	712		$	(1,124	)	$	330

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Nine months ended September 30, 2018 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	6		$	—		$	4,892		$	—		$	4,898
Interest and fees on finance receivables and loans — intercompany	9			—			4			(13		)	—
Interest on loans held-for-sale	—			—			10			—			10
Interest and dividends on investment securities and other earning assets	—			—			563			(1		)	562
Interest on cash and cash equivalents	6			—			44			—			50
Interest-bearing cash — intercompany	5			—			7			(12		)	—
Operating leases	4			—			1,120			—			1,124
Total financing revenue and other interest income	30			—			6,640			(26		)	6,644
Interest expense
Interest on deposits	—			—			1,212			—			1,212
Interest on short-term borrowings	32			—			69			—			101
Interest on long-term debt	765			—			531			—			1,296
Interest on intercompany debt	12			—			14			(26		)	—
Total interest expense	809			—			1,826			(26		)	2,609
Net depreciation expense on operating lease assets	7			—			778			—			785
Net financing (loss) revenue	(786		)	—			4,036			—			3,250
Cash dividends from subsidiaries
Bank subsidiary	2,050			2,050			—			(4,100		)	—
Nonbank subsidiaries	389			—			—			(389		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			753			—			753
Gain on mortgage and automotive loans, net	44			—			3			(28		)	19
Other gain on investments, net	—			—			37			—			37
Other income, net of losses	301			—			593			(587		)	307
Total other revenue	345			—			1,386			(615		)	1,116
Total net revenue	1,998			2,050			5,422			(5,104		)	4,366
Provision for loan losses	143			—			537			(28		)	652
Noninterest expense
Compensation and benefits expense	67			—			805			—			872
Insurance losses and loss adjustment expenses	—			—			241			—			241
Other operating expenses	530			—			1,404			(587		)	1,347
Total noninterest expense	597			—			2,450			(587		)	2,460
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries	1,258			2,050			2,435			(4,489		)	1,254
Income tax (benefit) expense from continuing operations	(210		)	—			490			—			280
Net income from continuing operations	1,468			2,050			1,945			(4,489		)	974
(Loss) income from discontinued operations, net of tax	(2		)	—			1			—			(1		)
Undistributed (loss) income of subsidiaries
Bank subsidiary	(576		)	(576		)	—			1,152			—
Nonbank subsidiaries	83			—			—			(83		)	—
Net income	973			1,474			1,946			(3,420		)	973
Other comprehensive loss, net of tax	(531		)	(436		)	(546		)	982			(531		)
Comprehensive income	$	442		$	1,038		$	1,400		$	(2,438	)	$	442

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Nine months ended September 30, 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	$	(57	)	$	—		$	4,358		$	—		$	4,301
Interest and fees on finance receivables and loans — intercompany	10			—			5			(15		)	—
Interest and dividends on investment securities and other earning assets	—			—			439			(2		)	437
Interest on cash and cash equivalents	6			—			17			—			23
Interest-bearing cash — intercompany	1			—			5			(6		)	—
Operating leases	9			—			1,456			—			1,465
Total financing (loss) revenue and other interest income	(31		)	—			6,280			(23		)	6,226
Interest expense
Interest on deposits	2			—			765			(1		)	766
Interest on short-term borrowings	52			—			42			—			94
Interest on long-term debt	834			—			423			—			1,257
Interest on intercompany debt	12			—			10			(22		)	—
Total interest expense	900			—			1,240			(23		)	2,117
Net depreciation expense on operating lease assets	8			—			974			—			982
Net financing (loss) revenue	(939		)	—			4,066			—			3,127
Cash dividends from subsidiaries
Bank subsidiary	2,900			2,900			—			(5,800		)	—
Nonbank subsidiaries	528			—			—			(528		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			720			—			720
Gain on mortgage and automotive loans, net	39			—			26			—			65
Other gain on investments, net	—			—			73			—			73
Other income, net of losses	568			—			630			(891		)	307
Total other revenue	607			—			1,449			(891		)	1,165
Total net revenue	3,096			2,900			5,515			(7,219		)	4,292
Provision for loan losses	350			—			504			—			854
Noninterest expense
Compensation and benefits expense	157			—			657			—			814
Insurance losses and loss adjustment expenses	—			—			278			—			278
Other operating expenses	709			—			1,431			(891		)	1,249
Total noninterest expense	866			—			2,366			(891		)	2,341
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries	1,880			2,900			2,645			(6,328		)	1,097
Income tax (benefit) expense from continuing operations	(362		)	—			712			—			350
Net income from continuing operations	2,242			2,900			1,933			(6,328		)	747
Income (loss) from discontinued operations, net of tax	6			—			(5		)	—			1
Undistributed (loss) income of subsidiaries
Bank subsidiary	(1,760		)	(1,760		)	—			3,520			—
Nonbank subsidiaries	260			—			—			(260		)	—
Net income	748			1,140			1,928			(3,068		)	748
Other comprehensive income, net of tax	144			91			140			(231		)	144
Comprehensive income	$	892		$	1,231		$	2,068		$	(3,299	)	$	892

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Balance Sheet



September 30, 2018 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	50		$	—	$	752		$	—		$	802
Interest-bearing	5			—		2,965			—			2,970
Interest-bearing — intercompany	913			—		569			(1,482		)	—
Total cash and cash equivalents	968			—		4,286			(1,482		)	3,772
Equity securities	—			—		514			—			514
Available-for-sale securities	—			—		24,122			—			24,122
Held-to-maturity securities	—			—		2,269			(23		)	2,246
Loans held-for-sale, net	—			—		425			—			425
Finance receivables and loans, net
Finance receivables and loans, net	4,379			—		122,226			—			126,605
Intercompany loans to
Nonbank subsidiaries	821			—		405			(1,226		)	—
Allowance for loan losses	(98		)	—		(1,150		)	—			(1,248		)
Total finance receivables and loans, net	5,102			—		121,481			(1,226		)	125,357
Investment in operating leases, net	7			—		8,571			—			8,578
Intercompany receivables from
Bank subsidiary	113			—		—			(113		)	—
Nonbank subsidiaries	44			—		121			(165		)	—
Investment in subsidiaries
Bank subsidiary	16,057			16,057		—			(32,114		)	—
Nonbank subsidiaries	6,999			—		—			(6,999		)	—
Premiums receivable and other insurance assets	—			—		2,291			—			2,291
Other assets	2,220			—		4,999			(1,423		)	5,796
Total assets	$	31,510		$	16,057	$	169,079		$	(43,545	)	$	173,101
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	180		$	—		$	180
Interest-bearing	3			—		101,196			—			101,199
Interest-bearing — intercompany	—			—		913			(913		)	—
Total deposit liabilities	3			—		102,289			(913		)	101,379
Short-term borrowings	2,575			—		4,763			—			7,338
Long-term debt	14,111			—		31,431			—			45,542
Intercompany debt to
Bank subsidiary	23			—		—			(23		)	—
Nonbank subsidiaries	974			—		821			(1,795		)	—
Intercompany payables to
Bank subsidiary	45			—		—			(45		)	—
Nonbank subsidiaries	117			—		81			(198		)	—
Interest payable	242			—		470			—			712
Unearned insurance premiums and service revenue	—			—		3,020			—			3,020
Accrued expenses and other liabilities	335			—		3,148			(1,458		)	2,025
Total liabilities	18,425			—		146,023			(4,432		)	160,016
Total equity	13,085			16,057		23,056			(39,113		)	13,085
Total liabilities and equity	$	31,510		$	16,057	$	169,079		$	(43,545	)	$	173,101

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



December 31, 2017 ($ in millions)	Parent			Guarantors		Nonguarantors			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	74		$	—	$	770		$	—		$	844
Interest-bearing	5			—		3,403			—			3,408
Interest-bearing — intercompany	1,138			—		695			(1,833		)	—
Total cash and cash equivalents	1,217			—		4,868			(1,833		)	4,252
Equity securities	—			—		518			—			518
Available-for-sale securities	—			—		22,303			—			22,303
Held-to-maturity securities	—			—		1,973			(74		)	1,899
Loans held-for-sale, net	—			—		108			—			108
Finance receivables and loans, net
Finance receivables and loans, net	7,434			—		115,459			—			122,893
Intercompany loans to
Nonbank subsidiaries	879			—		408			(1,287		)	—
Allowance for loan losses	(185		)	—		(1,091		)	—			(1,276		)
Total finance receivables and loans, net	8,128			—		114,776			(1,287		)	121,617
Investment in operating leases, net	19			—		8,722			—			8,741
Intercompany receivables from
Bank subsidiary	80			—		—			(80		)	—
Nonbank subsidiaries	71			—		77			(148		)	—
Investment in subsidiaries
Bank subsidiary	16,962			16,962		—			(33,924		)	—
Nonbank subsidiaries	8,111			—		—			(8,111		)	—
Premiums receivable and other insurance assets	—			—		2,082			(35		)	2,047
Other assets	2,207			—		5,105			(1,649		)	5,663
Total assets	$	36,795		$	16,962	$	160,532		$	(47,141	)	$	167,148
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	108		$	—		$	108
Interest-bearing	12			—		93,136			—			93,148
Interest-bearing — intercompany	—			—		1,139			(1,139		)	—
Total deposit liabilities	12			—		94,383			(1,139		)	93,256
Short-term borrowings	3,171			—		8,242			—			11,413
Long-term debt	17,966			—		26,260			—			44,226
Intercompany debt to
Bank subsidiary	74			—		—			(74		)	—
Nonbank subsidiaries	1,103			—		879			(1,982		)	—
Intercompany payables to
Bank subsidiary	4			—		—			(4		)	—
Nonbank subsidiaries	132			—		127			(259		)	—
Interest payable	200			—		175			—			375
Unearned insurance premiums and service revenue	—			—		2,604			—			2,604
Accrued expenses and other liabilities	639			—		2,790			(1,649		)	1,780
Total liabilities	23,301			—		135,460			(5,107		)	153,654
Total equity	13,494			16,962		25,072			(42,034		)	13,494
Total liabilities and equity	$	36,795		$	16,962	$	160,532		$	(47,141	)	$	167,148

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statement of Cash Flows


Nine months ended September 30, 2017 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Nine months ended September 30, 2018 ($ in millions)																Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash provided by operating activities	$	3,701		$	2,900		$	3,019		$	(6,247	)	$	3,373		$	1,417		$	2,050		$	4,366		$	(4,489	)	$	3,344
Investing activities
Purchases of equity securities																—			—			(652		)	—			(652		)
Proceeds from sales of equity securities																—			—			715			—			715
Purchases of available-for-sale securities	—			—			(9,022		)	—			(9,022		)	—			—			(5,669		)	—			(5,669		)
Proceeds from sales of available-for-sale securities	—			—			2,926			—			2,926			—			—			637			—			637
Proceeds from maturities and repayments of available-for-sale securities	—			—			2,002			—			2,002
Proceeds from repayments of available-for-sale securities																—			—			2,509			—			2,509
Purchases of held-to-maturity securities	—			—			(709		)	—			(709		)	—			—			(436		)	—			(436		)
Proceeds from maturities and repayments of held-to-maturity securities	—			—			32			—			32
Proceeds from repayments of held-to-maturity securities																—			—			107			—			107
Net change in investment securities — intercompany	7			—			281			(288		)	—			—			—			51			(51		)	—
Purchases of finance receivables and loans held-for-investment	(35		)	—			(3,090		)	—			(3,125		)	(131		)	—			(5,577		)	930			(4,778		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	96			—			1,227			—			1,323
Proceeds from sales of finance receivables and loans initially held-for-investment																983			—			—			(930		)	53
Originations and repayments of finance receivables and loans held-for-investment and other, net	259			—			2,718			(1,956		)	1,021			2,092			—			(2,650		)	—			(558		)
Net change in loans — intercompany	2,159			—			232			(2,391		)	—			45			—			(6		)	(39		)	—
Purchases of operating lease assets	—			—			(2,844		)	—			(2,844		)	—			—			(2,991		)	—			(2,991		)
Disposals of operating lease assets	7			—			4,402			—			4,409			9			—			2,452			—			2,461
Capital contributions to subsidiaries	(1,200		)	—			—			1,200			—			(58		)	(6		)	—			64			—
Returns of contributed capital	1,031			—			—			(1,031		)	—			222			—			—			(222		)	—
Net change in restricted cash	(19		)	—			521			(5		)	497
Net change in nonmarketable equity investments	—			—			(20		)	—			(20		)	(14		)	—			11			—			(3		)
Other, net	(25		)	—			(43		)	(91		)	(159		)	1			—			(241		)	(1		)	(241		)
Net cash provided by (used in) investing activities	2,280			—			(1,387		)	(4,562		)	(3,669		)	3,149			(6		)	(11,740		)	(249		)	(8,846		)
Financing activities
Net change in short-term borrowings — third party	(245		)	—			(2,255		)	—			(2,500		)	(596		)	—			(3,478		)	—			(4,074		)
Net (decrease) increase in deposits	(153		)	—			12,698			(1,495		)	11,050			(9		)	—			7,846			226			8,063
Proceeds from issuance of long-term debt — third party	355			—			10,986			1,961			13,302			51			—			14,705			—			14,756
Repayments of long-term debt — third party	(4,125		)	—			(18,251		)	—			(22,376		)	(3,393		)	—			(9,601		)	—			(12,994		)
Net change in debt — intercompany	(366		)	—			(2,166		)	2,532			—			(143		)	—			(73		)	216			—
Repurchase of common stock	(563		)	—			—			—			(563		)	(630		)	—			—			—			(630		)
Dividends paid — third party	(130		)	—			—			—			(130		)	(179		)	—			—			—			(179		)
Dividends paid and returns of contributed capital — intercompany	—			(2,900		)	(4,459		)	7,359			—			—			(2,050		)	(2,661		)	4,711			—
Capital contributions from parent	—			—			1,200			(1,200		)	—			—			6			58			(64		)	—
Net cash used in financing activities	(5,227		)	(2,900		)	(2,247		)	9,157			(1,217		)
Net cash (used in) provided by financing activities																(4,899		)	(2,044		)	6,796			5,089			4,942
Effect of exchange-rate changes on cash and cash equivalents	—			—			3			—			3			—			—			(2		)	—			(2		)
Net increase (decrease) in cash and cash equivalents	754			—			(612		)	(1,652		)	(1,510		)
Cash and cash equivalents at beginning of year	820			—			5,515			(401		)	5,934
Cash and cash equivalents at September 30,	$	1,574		$	—		$	4,903		$	(2,053	)	$	4,424
Net decrease in cash and cash equivalents and restricted cash																(333		)	—			(580		)	351			(562		)
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 September 30,																$	1,062		$	—		$	5,127		$	(1,482	)	$	4,707

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



September 30, 2018 ($ in millions)	Parent		Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet	$	968	$	—	$	4,286	$	(1,482	)	$	3,772
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	94		—		841		—			935
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows	$	1,062	$	—	$	5,127	$	(1,482	)	$	4,707


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

6268

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Nine months ended September 30, 2016 ($ in millions)	Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Nine months ended September 30, 2017 ($ in millions)																Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Operating activities
Net cash provided by operating activities	$	709		$	—		$	3,782		$	(902	)	$	3,589		$	3,701		$	2,900		$	3,019		$	(6,247	)	$	3,373
Investing activities
Purchases of equity securities																—			—			(612		)	—			(612		)
Proceeds from sales of equity securities																—			—			728			—			728
Purchases of available-for-sale securities	—			—			(11,027		)	—			(11,027		)	—			—			(8,410		)	—			(8,410		)
Proceeds from sales of available-for-sale securities	—			—			8,546			—			8,546			—			—			2,198			—			2,198
Proceeds from maturities and repayments of available-for-sale securities	—			—			2,411			—			2,411
Proceeds from repayments of available-for-sale securities																—			—			2,002			—			2,002
Purchases of held-to-maturity securities	—			—			(650		)	—			(650		)	—			—			(709		)	—			(709		)
Proceeds from repayments of held-to-maturity securities																—			—			32			—			32
Net change in investment securities — intercompany																7			—			281			(288		)	—
Purchases of finance receivables and loans held-for-investment	—			—			(2,924		)	—			(2,924		)	(35		)	—			(3,090		)	—			(3,125		)
Proceeds from sales of finance receivables and loans originated as held-for-investment	—			—			4,221			—			4,221
Proceeds from sales of finance receivables and loans initially held-for-investment																96			—			1,227			—			1,323
Originations and repayments of finance receivables and loans held-for-investment and other, net	934			—			(6,318		)	—			(5,384		)	259			—			2,718			(1,956		)	1,021
Net change in loans — intercompany	1,788			—			(41		)	(1,747		)	—			2,159			—			232			(2,391		)	—
Purchases of operating lease assets	—			—			(2,360		)	—			(2,360		)	—			—			(2,844		)	—			(2,844		)
Disposals of operating lease assets	16			—			4,615			—			4,631			7			—			4,402			—			4,409
Acquisitions, net of cash acquired	(309		)	—			—			—			(309		)
Capital contributions to subsidiaries	(3,112		)	—			—			3,112			—			(1,200		)	—			—			1,200			—
Returns of contributed capital	2,168			8			—			(2,176		)	—			1,031			—			—			(1,031		)	—
Net change in restricted cash	(136		)	—			758						622
Net change in nonmarketable equity investments	—			—			(401		)	—			(401		)	—			—			(20		)	—			(20		)
Other, net	(156		)	—			(103		)	102			(157		)	(20		)	—			(39		)	(96		)	(155		)
Net cash provided by (used in) investing activities	1,193			8			(3,273		)	(709		)	(2,781		)	2,304			—			(1,904		)	(4,562		)	(4,162		)
Financing activities
Net change in short-term borrowings — third party	72			—			(1,745		)	—			(1,673		)	(245		)	—			(2,255		)	—			(2,500		)
Net (decrease) increase in deposits	(36		)	—			9,276			—			9,240			(153		)	—			12,698			(1,495		)	11,050
Proceeds from issuance of long-term debt — third party	1,084			—			10,145			—			11,229			355			—			10,986			1,961			13,302
Repayments of long-term debt — third party	(2,279		)	—			(18,479		)	—			(20,758		)	(4,125		)	—			(18,251		)	—			(22,376		)
Net change in debt — intercompany	(30		)	—			(1,788		)	1,818			—			(366		)	—			(2,166		)	2,532			—
Redemption of preferred stock	(696		)	—			—			—			(696		)
Repurchase of common stock	(173		)	—			—			—			(173		)	(563		)	—			—			—			(563		)
Dividends paid — third party	(70		)	—			—			—			(70		)	(130		)	—			—			—			(130		)
Dividends paid and returns of contributed capital — intercompany	—			(8		)	(2,968		)	2,976			—			—			(2,900		)	(4,459		)	7,359			—
Capital contributions from parent	—			—			3,112			(3,112		)	—			—			—			1,200			(1,200		)	—
Net cash used in financing activities	(2,128		)	(8		)	(2,447		)	1,682			(2,901		)	(5,227		)	(2,900		)	(2,247		)	9,157			(1,217		)
Effect of exchange-rate changes on cash and cash equivalents	—			—			2			—			2			—			—			3			—			3
Net decrease in cash and cash equivalents	(226		)	—			(1,936		)	71			(2,091		)
Cash and cash equivalents at beginning of year	1,635			—			5,595			(850		)	6,380
Cash and cash equivalents at September 30,	$	1,409		$	—		$	3,659		$	(779	)	$	4,289
Net increase (decrease) in cash and cash equivalents and restricted cash																778			—			(1,129		)	(1,652		)	(2,003		)
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 September 30,																$	1,767		$	—		$	6,164		$	(2,053	)	$	5,878

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



September 30, 2017 ($ in millions)	Parent		Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Cash and cash equivalents as disclosed on the Condensed Consolidated Balance Sheet	$	1,574	$	—	$	4,903	$	(2,053	)	$	4,424
Restricted cash included in other assets on the Condensed Consolidated Balance Sheet (a)	193		—		1,261		—			1,454
Total cash and cash equivalents and restricted cash as disclosed in the Condensed Consolidated Statement of Cash Flows	$	1,767	$	—	$	6,164	$	(2,053	)	$	5,878


(a)	Restricted cash balances relate primarily to Ally securitization arrangements. Refer toNote 10for 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

23. 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 business 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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

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 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 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.

Descriptions of our material legal matters follow. We do not believe, however, that an estimate of reasonably possible losses or a range of reasonably possible losses—whether in excess of any related accrual or where no accrual exists—can be made for any of these matters for some or all of the reasons identified in the preceding 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 (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.~~ 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 (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.~~ 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 (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.~~ 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~~initially removed to the U.S. District Court for the Eastern District of Michigan, were then remanded back 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. A motion for summary disposition and discovery requests are pending. 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 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.~~the 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, we do not believe that these other contingent exposures will be material 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

24. Subsequent Events

Declaration of Quarterly Dividend ~~Payment~~

On October ~~10, 2017,~~9, 2018, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.12~~$0.15 per share on all common stock. The dividend is payable on November 15, ~~2017,~~2018, to ~~shareholders~~stockholders of record at the close of business on November 1, ~~2017.~~2018.

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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 September 30,					Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
($ in millions, except per share data; shares in thousands)	2017		2016			2017		2016			2018		2017		2018			2017
Total financing revenue and other interest income	$	2,088	$	2,060		$	6,226	$	6,238		$	2,296	$	2,088	$	6,644		$	6,226
Total interest expense	735		656			2,117		1,955			942		735		2,609			2,117
Net depreciation expense on operating lease assets	272		408			982		1,352			247		272		785			982
Net financing revenue and other interest income	1,081		996			3,127		2,931			1,107		1,081		3,250			3,127
Total other revenue	381		388			1,165		1,138			398		381		1,116			1,165
Total net revenue	1,462		1,384			4,292		4,069			1,505		1,462		4,366			4,292
Provision for loan losses	314		258			854		650			233		314		652			854
Total noninterest expense	753		735			2,341		2,218			807		753		2,460			2,341
Income from continuing operations before income tax expense	395		391			1,097		1,201			465		395		1,254			1,097
Income tax expense from continuing operations	115		130			350		336			91		115		280			350
Net income from continuing operations	280		261			747		865			374		280		974			747
Income (loss) from discontinued operations, net of tax	2		(52		)	1		(46		)	—		2		(1		)	1
Net income	$	282	$	209		$	748	$	819		$	374	$	282	$	973		$	748
Basic earnings per common share (a):
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.73		$	0.89	$	0.62	$	2.27		$	1.63
Net income	0.63		0.43			1.63		1.63			0.89		0.63		2.26			1.63
Weighted-average common shares outstanding	449,169		482,393			457,612		483,993			422,187		449,169		429,625			457,612
Diluted earnings per common share (a):
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.72		$	0.88	$	0.62	$	2.25		$	1.63
Net income	0.63		0.43			1.63		1.63			0.88		0.63		2.25			1.63
Weighted-average common shares outstanding	451,078		483,575			458,848		484,762			424,784		451,078		432,038			458,848
Market price per common share:
High closing	$	24.26	$	20.04		$	24.26	$	20.04		$	27.98	$	24.26	$	30.83		$	24.26
Low closing	20.79		15.73			18.22		14.90			26.36		20.79		25.25			18.22
Period-end closing	24.26		19.47			24.26		19.47			26.45		24.26		26.45			24.26
Cash dividends declared per common share	$	0.12	$	0.08		$	0.28	$	0.08		$	0.15	$	0.12	$	0.41		$	0.28
Period-end common shares outstanding	443,796		475,470			443,796		475,470			416,591		443,796		416,591			443,796


(a)	Includes shares related to share-based compensation that vested but were not yet issued for the three months and nine months ended September 30, ~~2017,~~2018, and ~~2016.~~2017.

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Ally Financial Inc. • Form 10-Q

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

At and for the
three months ended September 30,

At and for the
nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Selected period-end balance sheet data:
Total assets $ 164,013
$ 157,397
$ 164,013
$ 157,397
Total deposit liabilities $ 90,116
$ 75,744
$ 90,116
$ 75,744
Long-term debt $ 45,122
$ 56,836
$ 45,122
$ 56,836
Total equity $ 13,573
$ 13,630
$ 13,573
$ 13,630
Financial ratios:
Return on average assets (a) 0.68 % 0.53 % 0.62 % 0.70 %
Return on average equity (a) 8.26 % 6.08 % 7.42 % 8.01 %
Equity to assets (a) 8.27 % 8.75 % 8.29 % 8.72 %
Common dividend payout ratio 19.05 % 18.60 % 17.18 % 4.91 %
Net interest spread (a) (b) (c) 2.59 % 2.57 % 2.57 % 2.54 %
Net yield on interest-earning assets (a) (c) (d) 2.74 % 2.69 % 2.70 % 2.66 %



September 30, ($ in millions)	2018		2017
Selected period-end balance sheet data:
Total assets	$	173,101	$	164,013
Total deposit liabilities	$	101,379	$	90,116
Long-term debt	$	45,542	$	45,122
Total equity	$	13,085	$	13,573



	Three months ended September 30,				Nine months ended September 30,
	2018		2017		2018		2017
Financial ratios:
Return on average assets (a)	0.87	%	0.68	%	0.77	%	0.62	%
Return on average equity (a)	11.30	%	8.26	%	9.90	%	7.42	%
Equity to assets (a)	7.68	%	8.27	%	7.75	%	8.29	%
Common dividend payout ratio (b)	16.85	%	19.05	%	18.14	%	17.18	%
Net interest spread (a) (c)	2.49	%	2.59	%	2.50	%	2.57	%
Net yield on interest-earning assets (a) (d)	2.67	%	2.74	%	2.67	%	2.70	%


(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 and nine month ended September 30, 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.

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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,~~ 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 1816 to the Condensed Consolidated Financial Statements for further information. The following table presents selected regulatory capital data.


	September 30, 2017						September 30, 2016						September 30, 2018						September 30, 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	9.72		%	9.62		%	9.53		%	9.28		%	9.41		%	9.39		%	9.72		%	9.62		%
Tier 1 capital ratio	11.46		%	11.42		%	11.13		%	11.08		%	11.12		%	11.09		%	11.46		%	11.42		%
Total capital ratio	13.19		%	13.15		%	12.80		%	12.74		%	12.68		%	12.65		%	13.19		%	13.15		%
Tier 1 leverage ratio (to adjusted quarterly average assets) (b)	9.51		%	9.51		%	9.73		%	9.71		%	9.23		%	9.23		%	9.51		%	9.51		%
Total equity	$	13,573		$	13,573		$	13,630		$	13,630		$	13,085		$	13,085		$	13,573		$	13,573
Goodwill and certain other intangibles	(278		)	(287		)	(273		)	(295		)	(287		)	(287		)	(278		)	(287		)
Deferred tax assets arising from net operating loss and tax credit carryforwards (c)	(328		)	(410		)	(400		)	(667		)	(221		)	(221		)	(328		)	(410		)
Other adjustments	208			208			(44		)	(44		)	799			799			208			208
Common Equity Tier 1 capital	13,175			13,084			12,913			12,624			13,376			13,376			13,175			13,084
Trust preferred securities	2,490			2,490			2,488			2,488			2,493			2,493			2,490			2,490
Deferred tax assets arising from net operating loss and tax credit carryforwards	(82		)	—			(267		)	—			—			—			(82		)	—
Other adjustments	(44		)	(44		)	(47		)	(47		)	(59		)	(59		)	(44		)	(44		)
Tier 1 capital	15,539			15,530			15,087			15,065			15,810			15,810			15,539			15,530
Qualifying subordinated debt and other instruments qualifying as Tier 2	1,109			1,109			1,169			1,169			1,030			1,030			1,109			1,109
Qualifying allowance for credit losses and other adjustments	1,243			1,243			1,087			1,087			1,189			1,189			1,243			1,243
Total capital	$	17,891		$	17,882		$	17,343		$	17,321		$	18,029		$	18,029		$	17,891		$	17,882
Risk-weighted assets (d)	$	135,603		$	135,971		$	135,522		$	135,958		$	142,222		$	142,503		$	135,603		$	135,971

(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.

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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) 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 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 one of the largest and most respected online banks, uniquely positioned for the observed shifting trends in consumer ~~and commercial~~ banking preferences for digital banking. Ally Bank’s assets and operating results are included within our Automotive Finance, Mortgage Finance, and Corporate Finance segments, as well as Corporate and Other, based on its 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,~~products. We also promote a cash back credit ~~card, and mortgage lending offerings through Ally Home.~~card. We have recently integrated a growing digital wealth management 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 ~~lending solutions~~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.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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. 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. Noninterest costs associated with deposit gathering activities were $64 million and $195 million during the three months and nine months ended September 30, 2017, respectively, and $60 million and $185 million during the three months and nine months ended September 30, 2016, and are allocated to each segment based on their relative balance sheets.


	Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,						Nine months ended September 30,
($ in millions)	2017		2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2018			2017		Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance	$	1,032	$	1,007		2	$	3,064		$	2,986		3	$	1,036		$	1,032	—	$	2,999		$	3,064		(2)
Insurance	287		278			3	825			821			—	296			287		3	833			825			1
Mortgage Finance	34		25			36	101			71			42	46			34		35	136			101			35
Corporate Finance	44		34			29	154			101			52	64			44		45	189			154			23
Corporate and Other	65		40			63	148			90			64	63			65		(3)	209			148			41
Total	$	1,462	$	1,384		6	$	4,292		$	4,069		5	$	1,505		$	1,462	3	$	4,366		$	4,292		2
Income (loss) from continuing operations before income tax expense
Dealer Financial Services
Automotive Finance	$	300	$	319		(6)	$	935		$	1,082		(14)	$	383		$	300	28	$	1,033		$	935		10
Insurance	69		56			23	88			88			—	55			69		(20)	93			88			6
Mortgage Finance	2		8			(75)	18			19			(5)	8			2		n/m	30			18			67
Corporate Finance	22		15			47	82			40			105	36			22		64	123			82			50
Corporate and Other	2		(7		)	129	(26		)	(28		)	7	(17		)	2		n/m	(25		)	(26		)	4
Total	$	395	$	391		1	$	1,097		$	1,201		(9)	$	465		$	395	18	$	1,254		$	1,097		14

n/m = not meaningful

Our Dealer Financial Services is one of the largest full service automotive finance operations in the country and offers a wide range of financial services and insurance products to approximately ~~18,500~~17,900 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.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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 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. As~~dealers, which are independently owned businesses and are the primary customers of our automotive finance business. The automotive marketplace ~~evolves,~~is dynamic and evolving and we are focused on meeting the needs of both our ~~growth strategy continues to focus on diversifying the franchise by expanding into different products, responding to the growing trends for a more streamlined~~dealer and ~~digital automotive financing process to serve both dealers~~consumer customers and ~~consumers, and continuing~~will continue to strengthen and expand upon the 17,900 dealer relationships we have. To enhance our ~~network of dealer relationships. In the first quarter of 2017,~~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, 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 ~~nearly 12,000~~over 11,000 dealer relationships, of which ~~over 10,500~~approximately 89% are franchised dealers ~~from~~(from brands such as Ford, Nissan, Kia, Hyundai, Toyota, Honda, and ~~others; RV dealers; and~~others) 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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

flagship vehicle service contract offering, ~~and~~which provides coverage for new and used vehicles of virtually all makes and models. ~~During~~We also offer ClearGuard, on the ~~third quarter of 2017,~~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 ~~were awarded a long-term commitment to continue as~~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 and nine months ended September 30, ~~2017,~~2018, we purchased ~~$1.2~~$1.7 billion and ~~$2.3~~$3.9 billion of mortgage loans that were originated by third parties. InThrough our direct-to-consumer channel, introduced late in 2016, we ~~introduced our direct-to-consumer 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~~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~~well diversified across multiple industries including retail, manufacturing, distribution, service companies, and other specialty sectors. These specialty sectors ~~including~~include our Healthcare and Technology Finance ~~and Healthcare. Our Technology Finance vertical provides financing solutions to venture-backed, technology-based companies.~~verticals. The Healthcare vertical provides financing across the healthcare spectrum including services, pharmaceuticals, manufacturing, and medical devices and supplies. Our Technology Finance vertical provides financing solutions to venture capital-backed, technology-based companies. Additionally, in late in 2017, we launched a commercial real estate product focused on lending to skilled nursing facilities, senior housing, medical office buildings, and hospitals.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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 debt issuances,~~ 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.

In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering that combines the platform we acquired from the June 2016 acquisition of TradeKing Group, Inc. (TradeKing) ~~in June 2016~~ 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 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~~5.9 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, ~~and~~which emphasizes our relentless customer-centric focus and commitment to constantly create and reinvent our product offerings and digital ~~experiences.~~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 ~~franchise~~direct online bank and ~~our~~ strong retention rates of ~~a loyal~~our customer ~~base within our online bank.~~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 September 30, Nine months ended September 30,
($ in millions)
2017
2016
Favorable/(unfavorable) % change 2017 2016 Favorable/(unfavorable) % change
Net financing revenue and other interest income

Total financing revenue and other interest income
$ 2,088

$ 2,060

1 $ 6,226
$ 6,238
—
Total interest expense
735

656

(12) 2,117
1,955
(8)
Net depreciation expense on operating lease assets
272

408

33 982
1,352
27
Net financing revenue and other interest income
1,081

996

9 3,127
2,931
7
Other revenue

Insurance premiums and service revenue earned
252

238

6 720
704
2
Gain on mortgage and automotive loans, net
15

—

n/m 65
4
n/m
Loss on extinguishment of debt
(4 )
—

n/m (6 ) (4 ) (50)
Other gain on investments, net
23

52

(56) 73
145
(50)
Other income, net of losses
95

98

(3) 313
289
8
Total other revenue
381

388

(2) 1,165
1,138
2
Total net revenue
1,462

1,384

6 4,292
4,069
5
Provision for loan losses
314

258

(22) 854
650
(31)
Noninterest expense

Compensation and benefits expense
264

248

(6) 814
742
(10)
Insurance losses and loss adjustment expenses
65

69

6 278
287
3
Other operating expenses
424

418

(1) 1,249
1,189
(5)
Total noninterest expense
753

735

(2) 2,341
2,218
(6)
Income from continuing operations before income tax expense
395

391

1 1,097
1,201
(9)
Income tax expense from continuing operations
115

130

12 350
336
(4)
Net income from continuing operations
$ 280

$ 261

7 $ 747
$ 865
(14)

~~n/m = not meaningful~~



	Three months ended September 30,					Nine months ended September 30,
($ in millions)	2018		2017		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	2,296	$	2,088	10	$	6,644	$	6,226	7
Total interest expense	942		735		(28)	2,609		2,117		(23)
Net depreciation expense on operating lease assets	247		272		9	785		982		20
Net financing revenue and other interest income	1,107		1,081		2	3,250		3,127		4
Other revenue
Insurance premiums and service revenue earned	258		252		2	753		720		5
Gain on mortgage and automotive loans, net	17		15		13	19		65		(71)
Other gain on investments, net	22		23		(4)	37		73		(49)
Other income, net of losses	101		91		11	307		307		—
Total other revenue	398		381		4	1,116		1,165		(4)
Total net revenue	1,505		1,462		3	4,366		4,292		2
Provision for loan losses	233		314		26	652		854		24
Noninterest expense
Compensation and benefits expense	274		264		(4)	872		814		(7)
Insurance losses and loss adjustment expenses	77		65		(18)	241		278		13
Other operating expenses	456		424		(8)	1,347		1,249		(8)
Total noninterest expense	807		753		(7)	2,460		2,341		(5)
Income from continuing operations before income tax expense	465		395		18	1,254		1,097		14
Income tax expense from continuing operations	91		115		21	280		350		20
Net income from continuing operations	$	374	$	280	34	$	974	$	747	30

We earned net income from continuing operations of $374 million and $974 million for the three months and nine months ended September 30, 2018, respectively, compared to $280 million and $747 million for the three months and nine months ended September 30, 2017. During the three months and nine months ended September 30, 2018, results were favorably impacted by a decrease in the provision for loan losses primarily due to favorable credit performance within our consumer automotive loan portfolio, higher 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 yields on our earning assets. Additionally, results were 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 ~~respectively, compared~~(the Tax Act) and a nonrecurring tax benefit from a state tax law enactment during the three months ended September 30, 2018. These items were partially offset by higher interest expense, lower net operating lease revenue due to ~~$261~~runoff of our legacy GM lease portfolio, and higher noninterest expense. Additionally, for the nine months ended September 30, 2018, we experienced lower gains on the sale of automotive loans and lower gains on investments, both of which were largely offset by higher insurance premiums earned and lower insurance weather-related losses.

Net financing revenue and other interest income increased $26 million and ~~$865~~$123 million for the three months and nine months ended September 30, ~~2016. The increase for~~2018, respectively, compared to the three months ended September 30, 2017, was primarily driven by higher net financing revenue across all lending operations resulting from continued focus on optimizing portfolio growth through originating across a broader credit spectrum within our Automotive Finance operations despite the runoff in the GM lease portfolio, growth within our Mortgage Finance and Corporate Finance operations, and higher interest and dividends from growth in our investment securities portfolio. Results were also favorably impacted by higher gains on the sale of automotive loans, higher insurance premiums earned coupled with lower weather-related insurance losses primarily due to the ceding of such losses subject to a reinsurance agreement we entered into in April 2017, and a decrease in income tax expense due to the realization of capital gains allowing for a partial release of valuation allowance. These favorable items were partially offset by higher provision expense primarily related to $53 million of incremental provision expense driven by estimated impacts from hurricanes, lower investment gains, and higher noninterest expense driven by incremental costs related to the growth of our consumer and commercial product offerings. During the nine months ended September 30, ~~2017, results were favorably impacted by higher~~2017. Within our automotive finance business, retail automotive net financing revenue continued to benefit from our efforts to reposition our origination profile to further drive capital optimization and expand risk-adjusted returns, a higher interest rate environment, and higher average retail asset levels. Commercial automotive net financing revenue also increased during both periods due to ~~increased income~~higher benchmark interest rates and an increase in non-floorplan dealer loan balances, partially offset by a decrease in average outstanding floorplan assets resulting from a reduction in the number of dealer floorplan lines and lower average dealer inventory levels. Income from our portfolio of investment securities portfolio, loan growth and increased yields across our retail and commercial automotive, mortgage, and Corporate Finance lending portfolios, and higher gains on the sale of automotive loans. These items were more than offset by runoff in our GM operating lease portfolio, and higher provision expense related to our focus on originating across a broader credit spectrum with appropriate risk-adjusted returns, and $53 million of increased provision expense related to estimated impacts from hurricanes. The decline in net income from continuing operations for the nine months ended September 30, 2017, was also driven by lower investment gains, higher noninterest expense to support the growth of our consumer and commercial product offerings, and a nonrecurring tax benefit realized in the second quarter of 2016.

~~Net financing revenue~~ and other ~~interest income~~earning assets, including cash and cash equivalents, increased ~~$85~~$48 million and ~~$196~~$152 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016. Income from our portfolio~~2017, due to both higher yields and higher balances of investment securities ~~and other~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

earning assets, including cash and cash equivalents, increased $64 million and $148 million for the three months and nine months ended September 30, 2017, respectively, 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 from our Automotive Finance operations increased during both periods despite continued runoff of our GM lease portfolio. Retail automotive financing revenue continued to benefit from our efforts to reposition our origination profile to focus on capital optimization and risk-adjusted returns, as well as higher average retail asset levels resulting from asset growth and higher loan balances. Commercial automotive financing revenue also increased in both periods due to higher benchmark interest rates and an increase in average outstanding floorplan assets. Net financing revenue and other interest income within our Mortgage Finance operations was favorably impacted ~~in both periods~~ by increased loan balances primarily as a result of bulk purchases of high-quality

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

jumbo and LMI mortgage loans. Net financing revenue and other interest income within our Corporate Finance operations was favorably impacted ~~in both periods~~ by our strategy to ~~responsibly~~prudently grow assets and our product suite within existing verticals while selectively pursuing opportunities to broaden industry and product diversification. ~~Total~~These increases to net financing revenue and other interest income were partially offset by the runoff of our legacy GM lease portfolio, which was substantially wound-down as of June 30, 2018. Additionally, total interest expense increased ~~12%~~28% and 8%23% for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016.~~2017. While we continue to shift borrowings toward more cost-effective deposit funding and 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 ~~interest on deposits resulting from deposit growth~~market rates across all funding sources. Additionally, our overall borrowing levels were higher to support the ~~business and due~~growth in our lending operations. Our total deposit liabilities increased to ~~higher market rates across funding sources.~~$101.4 billion as of September 30, 2018, as compared to $93.3 billion as of December 31, 2017.

Insurance premiums and service revenue earned increased ~~$14~~$6 million and ~~$16~~$33 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the ~~three months and nine months ended September 30, 2016,~~same periods in 2017, primarily due to higher vehicle inventory insurance ~~rates, partially offset by ceding of premiums under a reinsurance agreement we entered into in April 2017.~~rates.

Gain on mortgage and automotive loans ~~increased $15~~was $17 million and ~~$61~~$19 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, as compared to $15 million and $65 million for the same periods in ~~2016. During~~2017. The decrease for the ~~three months and~~ nine months ended September 30, ~~2017, we sold certain~~2018, was due to lower levels of whole-loan sales. We continue to utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization, including the sale of previously written-down retail automotive loans related to consumers in Chapter 13 ~~bankruptcy where borrowers continue to make payments to proactively manage our overall credit exposure, asset levels, and capital utilization.~~bankruptcy.

Other gain on investments was ~~$23~~$22 million and ~~$73~~$37 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$52~~$23 million and ~~$145~~$73 million for the same periods in ~~2016.~~2017. The ~~decreases were~~gain on investments for the three months and nine months ended September 30, 2018, includes $6 million of unrealized gains and $26 million of unrealized losses, respectively, due ~~primarily~~to changes 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. Additionally, the decrease for the nine months ended September 30, 2018, was attributable to higher ~~levels of~~ sales of investment securities in ~~2016~~2017 that did not recur in the current period.

~~Other income decreased $3~~The provision for loan losses was $233 million and ~~increased $24~~$652 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the same periods in 2016. The increase for the nine months ended September 30, 2017, was primarily due to contributions from our Corporate Finance operations, which included an $11 million equity investment gain in the first quarter of 2017, and an increase in loan syndication income in the second quarter of 2017.

~~The provision for loan losses was~~ $314 million and $854 million for the ~~three months and nine months ended September 30, 2017, respectively, compared to $258 million and $650 million for the~~ same periods in ~~2016.~~2017. The ~~increases~~decreases in provision for loan losses were primarily driven by our consumer automotive portfolio where we experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, as well as continued disciplined underwriting and higher ~~net~~recoveries on charge-offs ~~as a result~~driven by improved used vehicle values. Additionally, our automotive and mortgage loan portfolios were impacted by $53 million of ~~our focus on originating across a broader credit spectrum by focusing on risk-adjusted returns. Provision expense increased due to~~additional reserves associated with the estimated impacts of ~~hurricane activity~~hurricanes Harvey and Irma during the third quarter of ~~2017, resulting~~2017. These items were partially offset by asset growth in ~~an increase in provision expense of $53 million, which most notably impacted~~ our ~~retail~~consumer automotive ~~loan~~ portfolio. Refer to the Risk Management section of this MD&A for further discussion.

Noninterest expense was ~~$753~~$807 million and ~~$2.3~~$2.5 billion for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$735~~$753 million and ~~$2.2~~$2.3 billion for the same periods in ~~2016.~~2017. The increases were ~~primarily~~ driven by expenses related to supporting the growth of our retail deposits and consumer ~~and commercial products, including the addition and integration of Ally Invest and Clearlane, as well as the~~loan portfolios. We also continue to make investments in product expansion ofinitiatives in our direct-to-consumer mortgage offering, ~~as we continue~~in our technology platform to enhance the customer experience and expand our digital ~~wealth management franchise, expand our product suite,~~capabilities, and ~~grow digital platforms~~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 first quarter of 2018, as well as certain employee separation expenses incurred during the second quarter of 2018. The increase for ~~consumers and dealers. These increases were~~the nine months ended September 30, 2018, was partially offset by lower insurance losses and loss adjustment expenses, ~~during the three months and nine months ended September 30, 2017, compared to the same periods in 2016,~~ primarily ~~due to the ceding of~~driven by lower weather-related ~~losses subject to a reinsurance agreement and lower VSC~~ losses.

We recognized total income tax expense from continuing operations of ~~$115~~$91 million and ~~$350~~$280 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$130~~$115 million and ~~$336~~$350 million for the same periods in ~~2016.~~2017. The ~~decrease~~decreases in income tax expense for the three months ended September 30, 2017, compared to the same period in 2016, was primarily driven by the realization of capital gains allowing for a partial release of valuation allowance. The increase in income tax expense for theand nine months ended September 30, ~~2017,~~2018, compared to the same ~~period~~periods in ~~2016, was~~2017, were primarily driven by the reduction in the U.S. federal corporate tax rate enacted as a result of the Tax Act and a nonrecurring tax benefit from the release of valuation allowance against state net operating loss carryforwards as a result of a state tax law enactment in the third quarter of 2018. This decrease was partially offset by the tax effects of an increase in pretax earnings, nondeductible Federal Deposit Insurance Corporation (FDIC) premiums as a result of the Tax Act, and a nonrecurring tax benefit in 2017 from the ~~second quarter~~release of 2016 due to a U.S. tax reserve release related to a prior-year federal return that reduced our liability for unrecognized tax benefits by $175 million. This benefit was partially offset by the establishment of a valuation allowance ~~on capital loss carryforwards in the second quarter of 2016,~~against our capital-in-nature deferred tax assets and ~~a decrease in pretax earnings. We continue to explore potential strategies to utilize~~ foreign tax ~~credits, which may result in a valuation allowance release within the next twelve months.~~credit carryforwards.

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Table of Contents

~~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 September 30,					Nine months ended September 30,					Three months ended September 30,					Nine months ended September 30,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2017		2016		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Consumer	$	987	$	911	8	$	2,873	$	2,654	8	$	1,097	$	987	11	$	3,167	$	2,873	10
Commercial	341		267		28	970		781		24	381		341		12	1,094		970		13
Loans held-for-sale											1		—		n/m	1		—		n/m
Operating leases	434		649		(33)	1,465		2,119		(31)	368		434		(15)	1,124		1,465		(23)
Other interest income	2		3		(33)	5		8		(38)	2		2		—	5		5		—
Total financing revenue and other interest income	1,764		1,830		(4)	5,313		5,562		(4)	1,849		1,764		5	5,391		5,313		1
Interest expense	542		489		(11)	1,557		1,452		(7)	646		542		(19)	1,816		1,557		(17)
Net depreciation expense on operating lease assets	272		408		33	982		1,352		27	247		272		9	785		982		20
Net financing revenue and other interest income	950		933		2	2,774		2,758		1	956		950		1	2,790		2,774		1
Other revenue
Gain on automotive loans, net	14		—		n/m	73		10		n/m	18		14		29	18		73		(75)
Other income	68		74		(8)	217		218		—	62		68		(9)	191		217		(12)
Total other revenue	82		74		11	290		228		27	80		82		(2)	209		290		(28)
Total net revenue	1,032		1,007		2	3,064		2,986		3	1,036		1,032		—	2,999		3,064		(2)
Provision for loan losses	312		270		(16)	846		649		(30)	229		312		27	658		846		22
Noninterest expense
Compensation and benefits expense	124		119		(4)	378		363		(4)	120		124		3	381		378		(1)
Other operating expenses	296		299		1	905		892		(1)	304		296		(3)	927		905		(2)
Total noninterest expense	420		418		—	1,283		1,255		(2)	424		420		(1)	1,308		1,283		(2)
Income from continuing operations before income tax expense	$	300	$	319	(6)	$	935	$	1,082	(14)	$	383	$	300	28	$	1,033	$	935	10
Total assets	$	112,141	$	113,669	(1)	$	112,141	$	113,669	(1)	$	114,675	$	112,141	2	$	114,675	$	112,141	2

n/m = not meaningful

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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


	Three months ended September 30,							Nine months ended September 30,							Three months ended September 30,							Nine months ended September 30,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Net operating lease revenue
Operating lease revenue	$	434		$	649		(33)	$	1,465		$	2,119		(31)	$	368		$	434		(15)	$	1,124		$	1,465		(23)
Depreciation expense
Depreciation expense on operating lease assets (excluding remarketing gains)	323			470			31	1,062			1,555			32	274			323			15	846			1,062			20
Remarketing gains	(51		)	(62		)	(18)	(80		)	(203		)	(61)
Remarketing gains, net															(27		)	(51		)	(47)	(61		)	(80		)	(24)
Net depreciation expense on operating lease assets	272			408			33	982			1,352			27	247			272			9	785			982			20
Total net operating lease revenue	$	162		$	241		(33)	$	483		$	767		(37)	$	121		$	162		(25)	$	339		$	483		(30)
Investment in operating leases, net	$	8,931		$	12,689		(30)	$	8,931		$	12,689		(30)	$	8,578		$	8,931		(4)	$	8,578		$	8,931		(4)

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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~



	Three months ended September 30,								Nine months ended September 30,
	2018				2017				2018				2017
($ in millions)	Average balance		Yield		Average balance		Yield		Average balance		Yield		Average balance		Yield
Finance receivables and loans, net (a) (b)
Consumer automotive (c)	$	70,547	6.20	%	$	66,909	5.82	%	$	69,745	6.06	%	$	66,166	5.76	%
Commercial
Wholesale floorplan	28,381		4.35		31,107		3.56		29,013		4.10		32,130		3.30
Other commercial automotive (d)	6,070		4.71		5,891		4.18		6,112		4.53		5,750		4.12
Investment in operating leases, net (e)	8,634		5.56		9,320		6.90		8,615		5.26		10,114		6.38


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

(e)

Yield includes gains on the sale of off-lease vehicles of $27 million and $61 million for three months and nine months ended September 30, 2018, respectively, compared to $51 million and $80 million for the three months and nine months ended September 30, 2017. Excluding these gains on sale, the annualized yield would be 4.32% and 4.30% for the three months and nine months ended September 30, 2018, respectively, compared to 4.73% and 5.33% for three months and nine months ended September 30, 2017.

Our Automotive Finance operations earned income from continuing operations before income tax expense of $383 million and $1.0 billion for the three months and nine months ended September 30, 2018, respectively, compared to $300 million and $935 million for the three months and nine months ended September 30, ~~2017, respectively, compared to $319 million and $1.1 billion for the three months and nine months ended September 30, 2016.~~2017. During the three months and nine months ended September 30, ~~2017,~~2018, we continued to focus on repositioning our origination profile to ~~focus on~~further drive capital optimization, and expanding risk-adjusted returns. As a result, we experienced higher consumer financing revenue primarily due to an increase in ~~retail~~consumer portfolio yields and ~~assets, as well as~~asset levels. We also experienced higher commercial financing revenue ~~primarily~~due to higher yields resulting from ~~an increase in average outstanding dealer floorplan assets, and higher yields as a result of~~ higher benchmark interest ~~rates. Additionally, we realized increases~~rates, partially offset by a decrease in ~~gains on the sale of automotive loans of $14 million and $63 million during the three months and nine months ended September 30, 2017, respectively. These~~asset balances. Results were also favorably impacted by a decrease in provision for loan losses primarily due to favorable ~~items~~credit performance within our consumer loan portfolio. Results were ~~more than offset~~unfavorably impacted by a decrease in net operating lease revenue ~~primarily resulting~~ from the runoff of our legacy GM lease portfolio, ~~for the three months~~ and ~~nine months ended September 30, 2017, compared~~higher interest expense due to ~~the same periods in 2016, as well as less favorable remarketing activity for~~higher benchmark rates. For the nine months ended September 30, ~~2017, compared to the same period in 2016, due to~~2018, results were also unfavorably impacted by lower ~~used vehicle prices and a decline in lease termination volume. We also experienced higher provision for~~gains on automotive loan losses primarily resulting from higher net charge-offs driven by the changing composition of our portfolio associated with our focus on originating across a more broad credit spectrum, consistent with our underwriting strategy, and retail asset growth, as well as estimated impacts resulting from hurricane activity during the three months ended September 30, 2017.sales.

Consumer financing revenue increased ~~$76~~$110 million and ~~$219~~$294 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016.~~2017. The increases were primarily due to improved portfolio yields as a result of ~~the execution of~~ our continued focus on expanding risk-adjusted returns, ~~as well as~~a higher interest rate environment, and higher average retail asset levels resulting from sustained asset growth.

Commercial financing revenue increased ~~$74~~$40 million and ~~$189~~$124 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016.~~2017. The increases were primarily due to higher yields resulting from higher benchmark interest rates and an increase in non-floorplan dealer loan balances, partially offset by a decrease in average outstanding floorplan assets resulting from ~~higher~~a reduction in the number of dealer floorplan lines and lower average ~~vehicle prices.~~dealer inventory levels.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Interest expense was $646 million and $1.8 billion for the three months and nine months ended September 30, 2018, respectively, compared to $542 million and $1.6 billion for the same periods in 2017. The increases were ~~also~~primarily due to ~~an increase in non-floorplan dealer loan balances.~~higher funding costs as a result of a rising interest rate environment.

~~We recognized gains~~During both the three months and nine months ended September 30, 2018, we recorded a gain of $18 million from the sale of automotive loans, compared to gains of $14 million and $73 million, respectively, for the same periods in 2017. We continue to utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization, including the sale of previously written-down retail automotive loans related to consumers in Chapter 13 bankruptcy.

Other income decreased 9% and 12% for the three months and nine months ended September 30, 2018, respectively, compared to the same periods in 2017. The decreases were primarily due to a decrease in servicing fee income resulting from lower levels of off-balance sheet retail serviced assets, as well as a decrease in remarketing fee income primarily resulting from lower lease termination volumes.

Total net operating lease revenue decreased $41 million and $144 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$0 million and $10 million for~~ the same periods in ~~2016. During~~2017. The decreases were primarily due to the three months and nine months ended September 30, 2017, we sold certain previously written-down retail automotive loans related to consumers in Chapter 13 bankruptcy where borrowers continue to make payments to proactively manage our overall credit exposure, asset levels, and capital utilization. A portion of the total gains on sale for the nine months ended September 30, 2017, was offset within Corporate and Other as a resultrunoff of our ~~FTP methodology.~~

~~Total net operating~~legacy GM lease ~~revenue decreased 33%~~portfolio, which was substantially wound-down as of June 30, 2018. We recognized remarketing gains of $27 million and ~~37%~~$61 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~the same periods in 2016, primarily due to the runoff of our GM lease portfolio, as well as less favorable remarketing activity. We recognized remarketing~~ gains of $51 million and $80 million for the ~~three months and nine months September 30, 2017, respectively, compared to gains of $62 million and $203 million for the~~ same periods in 2016. For the nine months ended September 30, 2017, compared to the same period in 2016, remarketing gains were down due to lower used vehicle prices and a decline in lease termination volume. During the three months ended September 30, 2017, compared to the same period in 2016, remarketing gains were down due to lower termination volume partially offset by a more favorable termination mix, which included fewer cars and more trucks and sport utility vehicles.2017. Refer to the Lease Residual Risk Management section of this MD&A for further discussion.

The provision for loan losses was ~~$312~~$229 million and ~~$846~~$658 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$270~~$312 million and ~~$649~~$846 million for the same periods in ~~2016.~~2017. The ~~increase~~decreases in provision for loan losses for the three months ~~ended September 30, 2017, was primarily due to estimated impacts of Hurricanes Harvey~~ and ~~Irma, which increased provision expense in our consumer automotive portfolio by $48 million. Additionally, the increase in provision for loan losses for the~~ nine months ended September 30, ~~2017, was~~2018, were primarily ~~due to higher net charge-offs in~~driven by our consumer automotive portfolio where we experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, as ~~a result~~well as continued disciplined underwriting and higher recoveries on charge-offs driven by improved used vehicle values. Additionally, results were impacted by $48 million of ~~our focus on originating across a broader credit spectrum~~additional reserves associated with the estimated impacts of hurricanes Harvey and ~~retail~~Irma during the three months ended September 30, 2017. These items were partially offset by asset ~~growth.~~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 and nine months ended September 30, ~~2017,~~2018, our ~~average buy rate~~portfolio yield for ~~retail originations~~consumer automotive loans has increased 3138 and 4330 basis points, respectively, relative to the same periods in ~~2016.~~2017, while continuing to maintain consistent, disciplined underwriting within our new and used retail originations. We set our buy rates using a granular, risk-based methodology factoring in several variables including interest costs, projected net average annualized loss rates ~~(NAALR)~~ at the time of origination, anticipated operating costs, and targeted return on equity. The increases in ~~our average buy rate~~rates on recent loan originations were primarily the result of ~~an increase to~~a higher interest ~~rates~~rate environment and our strategy to increase our targeted return on equity ~~and more~~through a 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 higher risk-adjusted returns. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was ~~$8.9~~$8.5 billion, or approximately ~~13.3%~~12.1% of our total consumer automotive loans at September 30, ~~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 table presents retail loan originations by credit ~~tier.~~tier and product type.


					Used retail				New retail
Credit Tier (a)	Volume ($ in billions)		% Share of volume	Average FICO®	Volume ($ in billions)		% Share of volume	Average FICO®	Volume ($ in billions)		% Share of volume	Average FICO®
Three months ended September 30, 2018
S					$	1.1	26	737	$	1.3	45	744
A					1.9		44	676	1.1		38	675
B					1.0		23	645	0.4		14	645
C					0.3		7	614	0.1		3	614
Total retail originations					$	4.3	100	681	$	2.9	100	698
Three months ended September 30, 2017
S	$	2.7	38	751	$	1.0	28	745	$	1.7	47	755
A	2.9		40	668	1.6		44	667	1.3		36	669
B	1.4		19	641	0.9		25	641	0.5		14	641
C	0.2		3	607	0.1		3	605	0.1		3	610
Total retail originations	$	7.2	100	691	$	3.6	100	680	$	3.6	100	703
Three months ended September 30, 2016
Nine months ended September 30, 2018
S	$	2.7	32	762	$	3.8	27	738	$	4.7	47	746
A	3.4		41	670	6.0		43	675	3.6		37	675
B	1.9		22	643	3.3		24	644	1.4		14	645
C	0.4		5	610	0.9		6	611	0.3		2	614
Total retail originations	$	8.4	100	689	$	14.0	100	681	$	10.0	100	701
Nine months ended September 30, 2017
S	$	7.7	34	758	$	3.0	25	753	$	4.7	43	761
A	9.5		42	666	5.4		46	665	4.1		38	669
B	4.6		20	640	2.9		25	640	1.7		16	641
C	0.8		4	608	0.5		4	607	0.3		3	610
Total retail originations	$	22.6	100	689	$	11.8	100	678	$	10.8	100	701
Nine months ended September 30, 2016
S	$	7.9	32	759
A	10.6		42	669
B	5.2		21	642
C	1.3		5	607
D	0.1		—	577
Total retail originations	$	25.1	100	686

(a)

Represents ~~Ally's~~Ally’s internal credit score, incorporating numerous borrower and structure attributes including: 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 asbelow Tier DC during the ~~three months and nine months ended~~ ~~September 30, 2017, and the three months ended September 30, 2016; and Tier E during both the~~ ~~three months and nine months ended~~ ~~September 30, 2017, and 2016.~~

periods presented.

Retail originations in Tier S represented 38% and 34% of originations during the three and nine months ended September 30, 2017, respectively, compared to 32% during both the three months and nine months ended September 30, 2016, while Tier C declined to 3% and 4% during the three months and nine months ended September 30, 2017, respectively, from 5% during the same periods in 2016.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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


	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
0–71	20	%	18	%	19	%	18	%
72–75	66		66		67		67
0–71									20	%	20	%	20	%	19	%
72–75									67		66		67		67
76 +	14		16		14		15		13		14		13		14
Total retail originations (a)	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%


(a)	Excludes RV loans.

~~As we continue the execution~~

Table of ~~our targeted underwriting strategy to originate consumer automotive assets across a broad risk spectrum, retail~~Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Retail originations with a term of 76 months or more represented ~~14%~~13% of total retail originations for both the three months and nine months ended September 30, ~~2017,~~2018, compared to ~~16% and 15%, respectively,~~14% for both of the same periods in ~~2016.~~2017. Substantially all of the loans originated with a term of 76 months or more during the three months and nine months ended September 30, ~~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.

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


September 30,	2017		2016		2018		2017
Pre-2013	2	%	6	%
2013	4		8
Pre-2014					2	%	6	%
2014	8		15		5		8
2015	22		35		12		22
2016	33		36		20		33
2017	31		—		30		31
2018					31		—
Total	100	%	100	%	100	%	100	%

The 2018, 2017, ~~2016,~~ and ~~2015~~2016 vintages comprise ~~86%~~81% of the overall retail portfolio as of September 30, ~~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 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 September 30, ($ in millions)	2017		2016		2017	2016	2018		2017		2018	2017
Used retail							$	4,279	$	3,640	52	45
New retail standard	$	3,537	$	4,477	43	48	2,753		3,537		34	43
Used retail	3,640		3,759		45	40
Lease	922		986		11	11	977		922		12	11
New retail subvented	41		119		1	1	136		41		2	1
Total consumer automotive financing originations (a)	$	8,140	$	9,341	100	100	$	8,145	$	8,140	100	100


(a)	Includes Commercial Services Group (CSG) originations of ~~$849~~$837 million and ~~$877~~$849 million for the three months ended September 30, ~~2017,~~2018, and ~~2016,~~2017, respectively, and RV originations of ~~$106~~$48 million and ~~$133~~$106 million for the three months ended September 30, 2018, and 2017, ~~and 2016,~~ respectively.



	Consumer automotive financing originations				% Share of Ally originations
Nine months ended September 30, ($ in millions)	2018		2017		2018	2017
Used retail	$	13,972	$	11,856	51	46
New retail standard	9,724		10,667		36	42
Lease	3,252		2,961		12	12
New retail subvented	240		120		1	—
Total consumer automotive financing originations (a)	$	27,188	$	25,604	100	100


(a)	Includes CSG originations of $2.7 billion for both the nine months ended September 30, 2018, and 2017, respectively, and RV originations of $238 million and $367 million for the nine months ended September 30, 2018, and 2017, respectively.



	Consumer automotive financing originations				% Share of Ally originations
Three months ended September 30, ($ in millions)	2018		2017		2018	2017
Growth channel	$	3,815	$	3,270	47	40
Chrysler dealers	2,244		2,261		27	28
GM dealers	2,086		2,609		26	32
Total consumer automotive financing originations	$	8,145	$	8,140	100	100

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Ally Financial Inc. • Form 10-Q

Consumer automotive financing originations % Share of Ally originations
Nine months ended September 30, ($ in millions)
2017 2016 2017 2016
New retail standard $ 10,667
$ 12,881
42 46
Used retail 11,856
11,875
46 43
Lease 2,961
2,690
12 10
New retail subvented 120
323
— 1
Total consumer automotive financing originations (a) $ 25,604
$ 27,769
100 100


~~(a)~~	Includes Commercial Services Group (CSG) originations of $2.7 billion and $2.6 billion for the nine months ended September 30, 2017, and 2016, respectively, and RV originations of $367 million and $409 million for the nine months ended September 30, 2017, and 2016, respectively.

Consumer automotive financing originations % Share of Ally originations
Three months ended September 30, ($ in millions)
2017 2016 2017 2016
Growth $ 3,270
$ 3,326
40 36
GM 2,609
3,275
32 35
Chrysler 2,261
2,740
28 29
Total consumer automotive financing originations $ 8,140
$ 9,341
100 100

Consumer automotive financing originations % Share of Ally originations
Nine months ended September 30, ($ in millions)
2017 2016 2017 2016
Growth $ 10,266
$ 10,127
40 36
GM 8,018
9,908
31 36
Chrysler 7,320
7,734
29 28
Total consumer automotive financing originations $ 25,604
$ 27,769
100 100



	Consumer automotive financing originations				% Share of Ally originations
Nine months ended September 30, ($ in millions)	2018		2017		2018	2017
Growth channel	$	12,316	$	10,266	45	40
GM dealers	7,472		8,018		28	31
Chrysler dealers	7,400		7,320		27	29
Total consumer automotive financing originations	$	27,188	$	25,604	100	100

During the three months and nine months ended September 30, ~~2017,~~2018, total consumer originations ~~decreased $1.2 billion~~increased $5 million and ~~$2.2~~$1.6 billion, respectively, compared to the same periods in ~~2016.~~2017. The ~~decreases~~increases were primarily due to ~~lower~~larger volume from the ~~GM and Chrysler channels and~~Growth channel, with our continued focus on originations of volume levels across a more broad credit spectrum. The decrease in GM and Chrysler volume during the nine months ended September 30, 2017, was somewhat offset by higher volume in the Growth channel.obtaining appropriate risk-adjusted returns.

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

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


	Three months ended September 30,				Nine months ended September 30,				Used retail				New retail				Lease
	2017		2016		2017		2016
Three months ended September 30,									2018		2017		2018		2017		2018		2017
740 +	26	%	25	%	25	%	23	%	18	%	19	%	24	%	29	%	49	%	47	%
739–660	35		36		35		37
659–620	23		24		24		24
619–540	9		9		10		10
660–739									39		37		34		32		34		37
620–659									27		29		22		21		10		10
540–619									12		12		6		7		5		4
< 540	1		1		1		1		1		1		1		1		—		—
Unscored (a)	6		5		5		5		3		2		13		10		2		2
Total consumer automotive financing originations	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%


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



	Used retail				New retail				Lease
Nine months ended September 30,	2018		2017		2018		2017		2018		2017
740 +	18	%	18	%	26	%	28	%	49	%	45	%
660–739	39		37		34		32		34		39
620–659	28		29		21		21		10		10
540–619	12		13		6		7		5		4
< 540	1		1		1		1		—		—
Unscored (a)	2		2		12		11		2		2
Total consumer automotive financing originations	100	%	100	%	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% of total consumer originations for both the three months and nine months ended September 30, ~~2017, and 2016,~~2018, as compared to 10% and 11% ~~of total consumer originations~~ for ~~both~~ the three months and nine months ended September 30, 2017, ~~and 2016.~~respectively. Consumer loans and leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations for ~~both~~ the three months and nine months ended September 30, ~~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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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~~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				Average balance						Average balance
	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,						Nine months ended September 30,
($ in millions)	2017		2016		2017		2016		2018			2017			2018			2017
GM new vehicles	$	17,528	$	15,368	$	17,658	$	14,897	42		%	52		%	42		%	51		%
Chrysler new vehicles	8,112		9,025		8,692		9,076		33			24			31			25
Growth new vehicles	4,480		4,138		4,555		4,161		13			13			14			13
Used vehicles	3,874		3,903		3,996		3,874		12			11			13			11
Total									100		%	100		%	100		%	100		%
Total commercial wholesale finance receivables	$	33,994	$	32,434	$	34,901	$	32,008	$	28,381		$	31,107		$	29,013		$	32,130

~~Commercial~~Average commercial wholesale financing ~~average volume increased $1.6~~receivables outstanding decreased $2.7 billion and ~~$2.9~~$3.1 billion during the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the same periods in ~~2016,~~2017. The decreases were primarily driven by a reduction in the number of dealer relationships due to ~~higher~~the competitive environment across the automotive lending market, as well as lower dealer inventory levels ~~and an increase in our mix of 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 $651 million and $592 million to an average of $5.9 billion and $5.8 billion for the three months and nine months ended September 30, 2017, respectively, compared to an average of $5.3 billion and $5.2 billion for the three months and nine months ended September 30, 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 collateralized financing to mid-market companies, corporations,~~Other commercial automotive loans, inclusive of our commercial lease portfolio, increased 3% and ~~municipalities~~6% for the ~~acquisition~~three months and nine months ended September 30, 2018, respectively, compared to the same periods in 2017, to an average of ~~transportation assets including tractors~~$6.1 billion for both three months and ~~trailers, among other things.~~nine months ended September 30, 2018.

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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 September 30,							Nine months ended September 30,							Three months ended September 30,							Nine months ended September 30,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Insurance premiums and other income
Insurance premiums and service revenue earned	$	252		$	238		6	$	720		$	704		2	$	258		$	252		2	$	753		$	720		5
Investment income, net (a)	32			36			(11)	94			104			(10)
Interest and dividends on investment securities and cash and cash equivalents, net (a)															14			15			(7)	39			44			(11)
Other gain on investments, net (b)															22			19			16	33			55			(40)
Other income	3			4			(25)	11			13			(15)	2			1			100	8			6			33
Total insurance premiums and other income	287			278			3	825			821			—	296			287			3	833			825			1
Expense
Insurance losses and loss adjustment expenses	65			69			6	278			287			3	77			65			(18)	241			278			13
Acquisition and underwriting expense
Compensation and benefits expense	17			16			(6)	54			51			(6)	18			17			(6)	57			54			(6)
Insurance commissions expense	106			99			(7)	309			290			(7)	113			106			(7)	332			309			(7)
Other expenses	30			38			21	96			105			9	33			30			(10)	110			96			(15)
Total acquisition and underwriting expense	153			153			—	459			446			(3)	164			153			(7)	499			459			(9)
Total expense	218			222			2	737			733			(1)	241			218			(11)	740			737			—
Income from continuing operations before income tax expense	$	69		$	56		23	$	88		$	88		—
Income (loss) from continuing operations before income tax expense															$	55		$	69		(20)	$	93		$	88		6
Total assets	$	7,432		$	7,259		2	$	7,432		$	7,259		2	$	7,776		$	7,432		5	$	7,776		$	7,432		5
Insurance premiums and service revenue written	$	272		$	252		8	$	732		$	711		3	$	323		$	272		19	$	876		$	732		20
Combined ratio (b)	86.0		%	92.5		%		101.5		%	103.2		%
Combined ratio (c)															92.6		%	86.0		%		97.2		%	101.5		%

(a)

Includes ~~realized gains on investments~~interest expense of ~~$19~~$17 million and ~~$55~~$49 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, and ~~$24 million and $67 million for the~~ ~~three months and nine months ended~~ ~~September 30, 2016; and interest expense of~~ $13 million and $37 million for the three months and nine months ended September 30, ~~2017, respectively, and $12 million and $36 million~~2017. Amounts for the three months and nine months ended September 30, ~~2016.~~2017, were adjusted to include $2 million and $5 million, respectively, of interest on cash and cash equivalents previously classified as other income to conform to the current period presentation.


(b)	Includes unrealized gains on equity securities of $7 million for the three months ended September 30, 2018, and unrealized losses of $21 million for the nine months ended September 30, 2018. These 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 income.

Our Insurance operations earned income from continuing operations before income tax expense of $55 million and $93 million for the three months and nine months ended September 30, 2018, respectively, compared to income of $69 million and $88 million for the three months and nine months ended September 30, ~~2017, respectively, compared~~2017. The decrease for the three months ended September 30, 2018, was primarily driven by higher non-weather-related losses. The increase for the nine months ended September 30, 2018, was primarily driven by lower weather-related losses and higher vehicle inventory insurance rates. This increase was partially offset by unrealized losses on investments of $21 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 that equity investments be measured at fair value with changes in fair value recognized in net income instead of ~~$56~~through other comprehensive (loss) income.

Insurance premiums and service revenue earned was $258 million and ~~$88~~$753 million for the three months and nine months ended September 30, 2016, respectively. The increase for the three months ended September 30, 2017, was primarily due to higher vehicle inventory insurance rates, and lower weather-related losses as a result of a reinsurance agreement entered into in April 2017, partially offset by lower investment income. Income for the nine months ended September 30, 2017, was relatively flat,2018, respectively, compared to ~~the same period in 2016. This was driven by lower weather-related losses as a result of the reinsurance agreement, and lower operating expenses slightly offset by lower realized investment income.~~

~~Insurance premiums and service revenue earned was~~ $252 million and $720 million for the three months and nine months ended September 30, ~~2017, respectively, compared~~2017. The increase for the three months and nine months ended September 30, 2018, was primarily due to ~~$238~~higher vehicle inventory insurance rates.

Insurance losses and loss adjustment expenses totaled $77 million and ~~$704~~$241 million for the three months and nine months ended September 30, ~~2016. The increases for the three months and nine months ended September 30, 2017, were primarily due~~2018, respectively, compared to ~~higher vehicle inventory insurance rates, partially offset by ceding of premiums under a reinsurance agreement we entered into in April 2017.~~

~~Insurance losses and loss adjustment expenses totaled~~ $65 million and $278 million for the same periods in 2017. The increase for the three ~~months and nine~~ months ended September 30, ~~2017, respectively, compared to $69 million~~2018, was primarily driven by higher non-weather-related losses, including VSC and ~~$287 million for the same periods in 2016. The decreases for the three months and nine months ended September 30, 2017, were primarily due to the ceding of weather-related~~GAP losses, ~~subject to a reinsurance agreement and lower VSC losses. The ceding of weather-related losses~~which primarily drove the ~~decrease~~increase in the combined ratio to ~~86.0% and 101.5%~~92.6% for the three months ~~and nine months~~ ended September 30, ~~2017, respectively,~~2018, as compared to ~~92.5% and 103.2% for~~86.0% during the ~~three months and nine months ended September 30, 2016.~~same period in

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Ally Financial Inc. • Form 10-Q

2017. The decrease for the nine months ended September 30, 2018, was primarily driven by higher weather-related losses incurred during the three months ended March 31, 2017, prior to entering into a reinsurance agreement in April 2017. The decrease in weather-related losses contributed to a decline in the combined ratio to 97.2% for the nine months ended September 30, 2018, down from 101.5% during the same period in 2017. In April 2018, we renewed our annual reinsurance program and continue to utilize this coverage to manage our risk of weather-related loss.

Premium and Service Revenue Written

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
($ in millions)	2017			2016			2017			2016			2018			2017			2018			2017
Vehicle service contracts
New retail	$	122		$	124		$	333		$	332		$	121		$	122		$	352		$	333
Used retail	119			109			351			327			145			119			419			351
Reinsurance (a)	(53		)	(50		)	(153		)	(139		)	(38		)	(53		)	(127		)	(153		)
Total vehicle service contracts (b)	188			183			531			520			228			188			644			531
Vehicle inventory insurance	58			49			130			135			68			58			157			130
Other finance and insurance (c)	26			20			71			56			27			26			75			71
Total	$	272		$	252		$	732		$	711		$	323		$	272		$	876		$	732


(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 ~~$272~~$323 million and ~~$732~~$876 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$252~~$272 million and ~~$711~~$732 million for the same periods in ~~2016.~~2017. The increase for the three months and nine months ended September 30, ~~2017,~~2018, was primarily due to higher vehicle inventory insurance rates, ~~and growth in our consumer finance protection and insurance products. The increase for the nine months ended September 30, 2017, was primarily due to~~ higher VSC ~~and GAP~~ volume, and ~~higher vehicle inventory insurance rates, partially offset by the ceding of vehicle inventory insurance premiums under a~~lower dealer reinsurance ~~agreement.~~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.

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Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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


($ in millions)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Cash
Noninterest-bearing cash	$	262	$	273	$	263	$	298
Interest-bearing cash	915		612		880		983
Total cash	1,177		885		1,143		1,281
Equity securities					503		518
Available-for-sale securities
Debt securities
U.S. Treasury	358		299
U.S. Treasury and federal agencies					546		380
U.S. States and political subdivisions	772		744		765		773
Foreign government	157		162		155		154
Agency mortgage-backed residential	632		633		732		613
Mortgage-backed residential	184		227		142		174
Mortgage-backed commercial	40		39		3		22
Asset-backed	—		6
Corporate debt	1,291		1,443		1,259		1,256
Total debt securities	3,434		3,553
Equity securities	525		595
Total available-for-sale securities	3,959		4,148		3,602		3,372
Total cash and securities	$	5,136	$	5,033	$	5,248	$	5,171

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Ally Financial Inc. • Form 10-Q

Mortgage Finance

Results of Operations

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended September 30,					Nine months ended September 30,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2017		2016		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	78	$	64	22	$	221	$	185	19	$	126	$	78	62	$	345	$	221	56
Interest expense	46		39		(18)	123		114		(8)	82		46		(78)	214		123		(74)
Net financing revenue and other interest income	32		25		28	98		71		38	44		32		38	131		98		34
Gain on mortgage loans, net	1		—		n/m	2		—		n/m	2		1		100	4		2		100
Other income, net of losses	1		—		n/m	1		—		n/m	—		1		(100)	1		1		—
Total other revenue	2		—		n/m	3		—		n/m	2		2		—	5		3		67
Total net revenue	34		25		36	101		71		42	46		34		35	136		101		35
Provision for loan losses	4		1		n/m	6		4		(50)	2		4		50	4		6		33
Noninterest expense
Compensation and benefits expense	6		4		(50)	16		10		(60)	8		6		(33)	24		16		(50)
Other operating expenses	22		12		(83)	61		38		(61)	28		22		(27)	78		61		(28)
Total noninterest expense	28		16		(75)	77		48		(60)	36		28		(29)	102		77		(32)
Income from continuing operations before income tax expense	$	2	$	8	(75)	$	18	$	19	(5)	$	8	$	2	n/m	$	30	$	18	67
Total assets	$	9,804	$	7,933	24	$	9,804	$	7,933	24	$	14,896	$	9,804	52	$	14,896	$	9,804	52

n/m = not meaningful

Our Mortgage Finance operations earned income from continuing operations before income tax expense of $8 million and $30 million for the three months and nine months ended September 30, 2018, respectively, compared to $2 million and $18 million for the three months and nine months ended September 30, ~~2017, respectively, compared to $8 million and $19 million~~2017. The increases for the three months and nine months ended September 30, ~~2016. The decreases for the three months and nine months ended September 30, 2017,~~2018, were primarily due to increases ~~in noninterest expense driven by continued expansion 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.~~loans, direct-to-consumer originations, an increase in the gain on sale of mortgage loans, and a decrease in the provision for loan losses. The increases were partially offset by higher noninterest expense driven by continued build out of the direct-to-consumer offering and asset growth.

Net financing revenue and other interest income was $44 million and $131 million for the three months and nine months ended September 30, 2018, respectively, compared to $32 million and $98 million for the three months and nine months ended September 30, ~~2017, respectively, compared to $25 million and $71 million for the three months and nine months ended September 30, 2016.~~2017. The increases in net financing revenue and other interest income were primarily due to increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage loans. During the three months and nine months ended September 30, ~~2017,~~2018, we purchased ~~$1.2~~$1.7 billion and ~~$2.3~~$3.9 billion, respectively, of mortgage loans that were originated by third parties, compared to ~~$467 million~~$1.2 billion and ~~$2.9~~$2.3 billion for the same periods in ~~2016.~~2017.

Gain on sale of mortgage loans, ~~increased $1~~net, was $2 million and $2$4 million for ~~both~~ the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to $1 million and $2 million for the ~~same periods in 2016, as~~three months and nine months ended September 30, 2017. The increases were a result of higher direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment partner.

The provision for loan losses ~~increased $3 million and~~decreased $2 million for both the three months and nine months ended September 30, ~~2017, respectively,~~2018, compared to the same periods in ~~2016.~~2017. The ~~increase for the three months and nine months ended September 30, 2017,~~decreases were primarily due to ~~estimated impacts~~reserve increases in the prior year associated with the hurricanes experienced in the third quarter of ~~hurricane activity, which occurred during the three months ended September 30,~~ 2017. The portfolio continues to demonstrate strong credit performance consistent with expectations.

Total noninterest expense was $36 million and $102 million for the three months and nine months ended September 30, 2018, respectively, compared to $28 million and $77 million for the three months and nine months ended September 30, ~~2017, respectively, compared to $16 million and $48 million for the three months and nine months ended September 30, 2016.~~2017. The increases were driven by continued expansion of the direct-to-consumer offering and asset growth.

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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 September 30, 2018
740 +	$	1,469	80
720–739	206		11
700–719	154		9
680–699	3		—
Total consumer mortgage financing volume	$	1,832	100
Three months ended September 30, 2017
740 +	$	1,009	83
720–739	121		10
700–719	79		6
680–699	7		1
660–679	4		—
Total consumer mortgage financing volume	$	1,220	100
Nine months ended September 30, 2018
740 +	$	3,344	80
720–739	450		11
700–719	332		8
680–699	65		1
660–679	1		—
Total consumer mortgage financing volume	$	4,192	100
Nine months ended September 30, 2017
740 +	$	1,965	83
720–739	249		10
700–719	136		6
680–699	18		1
660–679	10		—
Total consumer mortgage financing volume	$	2,378	100

The following table presents the net UPB, net UPB as a percentage of total, 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)
September 30, 2017
September 30, 2018
Adjustable-rate	$	2,507	26	3.35	%	$	40	58.28	%	774	$	2,887	20	3.39	%	$	39	55.96	%	773
Fixed-rate	7,045		74	4.04		168		62.21		771	11,665		80	4.12		249		62.04		772
Total	$	9,552	100	3.86		$	208	61.17		772	$	14,552	100	3.97		$	288	60.84		772
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.

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Corporate Finance

Results of Operations

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended September 30,					Nine months ended September 30,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2017		2016		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change	2018		2017		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans	$	62	$	48	29	$	186	$	138	35	$	79	$	62	27	$	237	$	186	27
Interest on loans held-for-sale											3		—		n/m	8		—		n/m
Interest expense	23		18		(28)	65		51		(27)	32		23		(39)	92		65		(42)
Net financing revenue and other interest income	39		30		30	121		87		39	50		39		28	153		121		26
Total other revenue	5		4		25	33		14		136	14		5		180	36		33		9
Total net revenue	44		34		29	154		101		52	64		44		45	189		154		23
Provision for loan losses	3		3		—	15		12		(25)	8		3		(167)	2		15		87
Noninterest expense
Compensation and benefits expense	12		9		(33)	36		29		(24)	13		12		(8)	40		36		(11)
Other operating expenses	7		7		—	21		20		(5)	7		7		—	24		21		(14)
Total noninterest expense	19		16		(19)	57		49		(16)	20		19		(5)	64		57		(12)
Income from continuing operations before income tax expense	$	22	$	15	47	$	82	$	40	105	$	36	$	22	64	$	123	$	82	50
Total assets	$	3,699	$	3,232	14	$	3,699	$	3,232	14	$	4,459	$	3,699	21	$	4,459	$	3,699	21

n/m = not meaningful

Our Corporate Finance operations earned income from continuing operations before income tax expense of ~~$22~~$36 million and ~~$82~~$123 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$15~~$22 million and ~~$40~~$82 million for the same periods in ~~2016.~~2017. The increases ~~for the three months and nine months ended September 30, 2017,~~ were due primarily to higher asset levels driven by our strategy to ~~responsibly~~prudently grow ~~assets~~the loan portfolio and ~~extend~~expand our product suite while selectively pursuing opportunities to broaden industry and product ~~diversification. Results~~breadth. Additionally, for the three months ended September 30, 2018, results were favorably impacted by higher syndication and fee income, partially offset by higher provision expense. For the nine months ended September 30, ~~2017,~~2018, results were ~~also~~ favorably impacted by alower provision expense due primarily to improved overall credit performance as well as higher syndication and other fee income partially, offset by lower investment-related income primarily driven by an $11 million gain on an equity investment induring the first quarter of ~~2017, the full collection of funds related to a nonaccrual loan in the second quarter of 2017, and higher loan syndication income.~~2017.

Net financing revenue and other interest income was ~~$39~~$50 million and ~~$121~~$153 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$30~~$39 million and ~~$87~~$121 million for the same periods in ~~2016.~~2017. The ~~increases were~~increase was primarily due to ~~asset~~the growth ~~across all business verticals, which resulted in a 16%~~of our lending portfolio, represented by an 18% increase in the gross carrying value of finance receivables and loans as of September 30, ~~2017,~~2018, compared to September 30, 2016. Additionally, interest and fees on finance receivables and loans for the nine months ended September 30, 2017, was favorably impacted by the payoff of a nonaccrual loan exposure in the second quarter of 2017, which resulted in the recognition of $9 million of interest income.2017.

Other revenue was $5$14 million and ~~$33~~$36 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to $4$5 million and ~~$14~~$33 million for the same periods in ~~2016.~~2017. The ~~increase~~increases for the three months and nine months ended September 30, 2018, were primarily driven by higher syndication and other fee income. For the nine months ended September 30, ~~2017, was primarily driven~~2018, these increases were partially offset by an $11 million realized gain on the sale of an equity investment during the first quarter of 2017 and ~~higher loan syndication income.~~

~~The provision for loan losses remained flat for the three months ended September 30, 2017, and increased $3~~a $6 million unrealized loss on equity investments for the nine months ended September 30, ~~2017, compared to~~2018, following the ~~same periods~~adoption of ASU 2016-01 on January 1, 2018, which requires that equity investments be measured at fair value with changes in ~~2016.~~ fair value recognized in net income.

The ~~increase~~provision for ~~the nine months ended September 30, 2017, was primarily due to higher provision expense for individually impaired loans, compared to the same period in 2016.~~

~~Total noninterest expense was $19~~loan losses increased $5 million and ~~$57~~decreased $13 million for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to ~~$16~~the same periods in 2017. The increase for the three months ended September 30, 2018, was primarily driven by higher provision expense for individually impaired loans. The decrease for the nine months ended September 30, 2018, was primarily due to improved overall credit performance in the portfolio as well as a $6 million recovery of a previously charged-off loan in the second quarter of 2018. This was partially offset by higher specific reserves for individually impaired loans.

Total noninterest expense was $20 million and ~~$49~~$64 million for the three months and nine months ended September 30, 2018, respectively, compared to $19 million and $57 million for the same periods in ~~2016.~~2017. The increases were primarily due to ~~the addition of new business verticals resulting~~higher compensation and benefits expense and other noninterest costs associated with growth in ~~higher expenses to support the growth of~~ the business.

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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, and total serviced loans of our Corporate Finance operations.


($ in millions)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Loans held-for-sale, net	$	9	$	—	$	112	$	77
Finance receivables and loans	3,703		3,180		4,356		3,910
Unfunded lending commitments (a)	1,601		1,483		1,713		1,813
Total serviced loans					5,152		3,893

(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.

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.


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Industry
Services	28.5	%	27.4	%	31.7	%	31.0	%
Health services	14.5		12.0		16.2		15.6
Automotive and transportation	12.3		13.5		12.4		10.3
Wholesale	8.2		8.9		8.4		8.7
Machinery, equipment, and electronics	7.3		6.6
Other manufactured products	7.1		8.8
Chemicals and metals	6.4		5.8		6.0		5.0
Food and beverages	4.4		4.2		5.6		4.1
Other manufactured products					5.4		7.1
Machinery, equipment, and electronics					5.1		7.9
Paper, printing, and publishing					2.9		3.0
Retail trade	3.4		5.1		2.6		2.6
Paper, printing, and publishing	2.9		3.2
Other	5.0		4.5		3.7		4.7
Total finance receivables and loans	100.0	%	100.0	%	100.0	%	100.0	%

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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 debt issuances,~~ and the residual impacts of our corporate FTP and treasury ALM activities. Corporate and Other also includes certain equity investments, which primarily consist of FHLB and FRB stock, the management of our legacy mortgage portfolio, which primarily consists of loans originated prior to January 1, 2009, the activity related to Ally Invest, and reclassifications and eliminations between the reportable operating segments.


	Three months ended September 30,							Nine months ended September 30,							Three months ended September 30,							Nine months ended September 30,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable)% change	2018			2017			Favorable/(unfavorable) % change	2018			2017			Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans (a)															$	25		$	18		39	$	56		$	52		8
Interest on loans held-for-sale															—			—			n/m	1			—			n/m
Interest and dividends on investment securities and other earning assets	$	131		$	77		70	$	361		$	229		58	169			131			29	481			361			33
Finance revenue (a)	18			18			—	52			50			4
Interest on cash and cash equivalents	9			1			n/m	18			3			n/m	16			9			78	43			18			139
Other, net	(2		)	(4		)	50	(6		)	(9		)	33	(2		)	(2		)	—	(6		)	(6		)	—
Total financing revenue and other interest income	156			92			70	425			273			56	208			156			33	575			425			35
Interest expense
Original issue discount amortization (b)	23			21			(10)	66			57			(16)	25			23			(9)	74			66			(12)
Other interest expense (c)	88			77			(14)	269			245			(10)	140			88			(59)	364			269			(35)
Total interest expense	111			98			(13)	335			302			(11)	165			111			(49)	438			335			(31)
Net financing revenue and other interest income	45			(6		)	n/m	90			(29		)	n/m	43			45			(4)	137			90			52
Other revenue
Loss on mortgage and automotive loans, net	—			—			n/m	(10		)	(6		)	(67)	(3		)	—			—	(3		)	(10		)	70
Loss on extinguishment of debt	(4		)	—			n/m	(6		)	(4		)	(50)
Other gain on investments, net	4			28			(86)	18			78			(77)	1			4			(75)	8			18			(56)
Other income, net of losses	20			18			11	56			51			10	22			16			38	67			50			34
Total other revenue	20			46			(57)	58			119			(51)	20			20			—	72			58			24
Total net revenue	65			40			63	148			90			64	63			65			(3)	209			148			41
Provision for loan losses	(5		)	(16		)	(69)	(13		)	(15		)	(13)	(6		)	(5		)	20	(12		)	(13		)	(8)
Total noninterest expense (d)	68			63			(8)	187			133			(41)	86			68			(26)	246			187			(32)
Income (loss) from continuing operations before income tax expense	$	2		$	(7	)	129	$	(26	)	$	(28	)	7
(Loss) income from continuing operations before income tax expense															$	(17	)	$	2		n/m	$	(25	)	$	(26	)	4
Total assets	$	30,937		$	25,304		22	$	30,937		$	25,304		22	$	31,295		$	30,937		1	$	31,295		$	30,937		1

n/m = not meaningful


(a)	Primarily related to financing revenue from our legacy mortgage portfolio and 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 the residual impacts of our FTP methodology and impacts of hedging activities of certain debt obligations.

(d)

Includes reductions of $208 million and $634 million for the three months and nine months ended September 30, 2018, respectively, and $194 million and $606 million for the three months and nine months ended September 30, 2017, ~~respectively, and $190 million and $578 million for the~~ ~~three months and nine months ended~~ ~~September 30, 2016, 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.

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Ally Financial Inc. • Form 10-Q

The following table presents the scheduled remaining amortization of the original issue discount at September 30, ~~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	$	1,135	$	1,096	$	1,057	$	1,014	$	—			$	1,135	$	1,097	$	1,058	$	1,015	$	968	$	—
Total amortization (b)	24		100		39		39		43		1,014		$	1,259	26		38		39		43		47		968		$	1,161


(a)	The maximum annual scheduled amortization for any individual year is ~~$153~~$152 million in 2030.


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

Corporate and Other ~~earned income~~incurred a loss from continuing operations before income tax expense of $17 million and $25 million for the three months and nine months ended September 30, 2018, respectively, compared to income of $2 million and ~~incurred~~ a loss of $26 million for the three months and nine months ended September 30, ~~2017, respectively, compared~~2017. The decrease in income for the three months ended September 30, 2018, was due to ~~losses of $7~~higher interest expense driven primarily by higher funding costs and higher noninterest expenses due primarily to support growth in the business. These items were partially offset by higher financing revenue and other interest income due primarily to higher investment security yields and balances and increased interest rates on cash and cash equivalents. The decrease in loss for the nine months ended September 30, 2018, was primarily driven by higher investment security yields and balances and higher interest on cash and cash equivalents which was largely offset by higher funding costs and higher noninterest expenses to support the growth in the business.

Financing revenue and other interest income was $208 million and ~~$28~~$575 million for the three months and nine months ended September 30, ~~2016. The increase in income for the three months ended September 30, 2017, was primarily due~~2018, respectively, compared 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, partially offset by lower gains on sales of investment securities, lower provision benefit within our legacy mortgage portfolio, and higher interest expense from increased interest on deposits resulting from deposit growth and increased LIBOR rates on secured borrowings. The decrease in loss for the nine months ended September 30, 2017, 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 driven by an increase in compensation and benefits to support the growth of the business, a decrease in gains on sales of investment securities, and an increase in interest expense driven by increased interest on deposits resulting from deposit growth and increased LIBOR rates on secured borrowings.

~~Financing revenue and other interest income was~~ $156 million and $425 million for the three months and nine months ended September 30, ~~2017, respectively, compared to $92 million and $273 million for the three months and nine months ended September 30, 2016.~~2017. The ~~increases were~~increase was primarily driven by increased interest and dividends from investment securities and other earning assets compared to ~~the same periods in 2016,~~2017, primarily as a result of higher yields and growth in the size of the investment portfolio. Results for the three months and nine months ended September 30, 2018, were also favorably impacted by increases in interest on cash and cash equivalents, as a result of higher yields.

~~Interest~~Total interest expense was $165 million and $438 million for the three months and nine months ended September 30, 2018, respectively, compared to $111 million and $335 million for the three months and nine months ended September 30, 2017, respectively, compared to $98 million and $302 million for the three months and nine months ended September 30, 2016. Interest expense increased over the three months and nine months ended September 30, 2017, compared to the same period in 2016,2017. The increases were primarily driven ~~primarily~~ 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 higher-cost unsecured ~~debt~~ borrowings as maturities are replaced with lower cost funding.

~~Other gain on investments~~Total other revenue was $4$20 million and ~~$18~~$72 million for the three months and nine months ended September 30, 2018, respectively, compared to $20 million and $58 million for the three months and nine months ended September 30, 2017, ~~respectively, compared~~respectively. The increase for the nine months ended September 30, 2018, was primarily due to ~~$28~~lower losses on the retirement of debt and favorable derivative activity in the current year. Results for the nine months ended September 30, 2018, were also favorably impacted by a lower loss on mortgage and automotive loans, net, driven by the sales of automotive loans in both periods and the corresponding impact to the Corporate and Other segment as a result of our FTP methodology. The increase was partially offset by a lower gain on investments, net, primarily as a result of higher sales of investment securities in 2017 that did not recur in the current period.

Noninterest expense was $86 million and ~~$78~~$246 million for the three months and nine months ended September 30, ~~2016. The decreases were due primarily~~2018, respectively, compared to ~~higher levels of sales of investment securities in 2016 that did not recur in the current period.~~

~~Noninterest expense was~~ $68 million and $187 million for the three months and nine months ended September 30, ~~2017, respectively, compared to $63 million and $133 million for the three months and nine months ended September 30, 2016.~~2017. The increases were primarily due to ~~increased expenses from the Ally Invest integration~~higher compensation and ~~operations included in our results subsequent to acquisition in the second quarter of 2016~~benefit costs and ~~increased~~other operating expenses to support ~~the~~ growth ofin the business. Additionally, expenses increased as a result of a one-time tax reform-related bonus paid to eligible Ally employees during the nine months ended September 30, 2018.

Total assets were $31.3 billion as of September 30, 2018, compared to $30.9 billion as of September 30, ~~2017, compared to $25.3 billion as of September 30, 2016.~~2017. The increase was primarily the result of growth ofin our available-for-sale and held-to-maturity securities portfolios. The increase was partially offset by a reduction of cash and cash equivalents and the continued runoff of our legacy mortgage portfolio. At September 30, ~~2017,~~2018, the gross carrying value of the legacy mortgage portfolio was ~~$2.3~~$1.7 billion, compared to ~~$2.9~~$2.3 billion at September 30, ~~2016.~~2017.

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Ally Financial Inc. • Form 10-Q

Cash and Securities

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


($ in millions)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Cash
Noninterest-bearing cash	$	525	$	1,249	$	516	$	523
Interest-bearing cash	2,699		3,770		2,090		2,425
Total cash	3,224		5,019		2,606		2,948
Available-for-sale securities
Debt securities
U.S. Treasury	1,715		1,321
U.S. Treasury and federal agencies					1,358		1,397
U.S. States and political subdivisions	79		38		100		81
Agency mortgage-backed residential	13,712		9,657		15,282		13,678
Mortgage-backed residential	2,126		1,870		2,419		2,320
Mortgage-backed commercial	469		498		628		519
Asset-backed	1,039		1,394		733		936
Total available-for-sale securities	19,140		14,778		20,520		18,931
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	1,767		789		2,090		1,829
Asset-backed retained notes	40		—		49		36
Total held-to-maturity securities	1,807		789		2,139		1,865
Total cash and securities	$	24,171	$	20,586	$	25,265	$	23,744

Ally Invest

~~On June 1, 2016, we acquired 100% of the equity of TradeKing, a digital wealth management company with an online broker-dealer, digital portfolio management platform, and educational content.~~ In May 2017, we launched Ally Invest, our digital brokerage and wealth management offering that combines the platform we acquired from the June 2016 acquisition of TradeKing with our award-winning online banking ~~platform.~~products in a 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 our online broker-dealer. Average customer trades per day has declined during the second and third quarters of 2017 due primarily to lower market volatility and seasonal trends. 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.last five quarters.


	3rd Quarter 2017		2nd Quarter 2017		1st Quarter 2017		4th Quarter 2016		3rd Quarter 2016		3rd quarter 2018		2nd quarter 2018		1st quarter 2018		4th quarter 2017		3rd quarter 2017
Trading days (a)	62.5		63		62		62.5		64		62.5		64.0		61.0		62.5		62.5
Average customer trades per day (in thousands)	15.5		16.5		19.1		17.5		17.1		19.1		18.0		21.8		16.8		15.5
Funded accounts (b) (in thousands)	255		250		251		244		240		287		271		259		245		239
Total net customer assets ($ in millions)	$	5,204	$	5,007	$	4,987	$	4,771	$	4,678	$	6,608	$	5,990	$	5,473	$	5,354	$	5,203
Total customer cash balances ($ in millions)	$	1,168	$	1,154	$	1,232	$	1,253	$	1,177	$	1,178	$	1,166	$	1,111	$	1,144	$	1,168


(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 third quarter of 2018 primarily due to funded account growth. Average customer trades per day of 19.1 thousand represented a 6% increase from the prior quarter and a 23% increase from the prior year. Additionally, funded accounts have increased since our acquisition of TradeKing as a result of continued focus on marketing campaigns, while net customer assets have increased due to market appreciation and growth in funded accounts.

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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. Our~~businesses, and all employees are responsible for managing risk. We use multiple layers of defense to identify, monitor, and manage current and emerging risks.

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

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

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

Our risk-management framework is overseen by the Risk Committee (RC) of the Ally Board of Directors (the Board)~~, various risk committees, the executive leadership team, and our associates.~~. The ~~Risk Committee of the Board (RC), 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~~Our primary types of risk include ~~credit,~~the following:

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

Insurance/underwriting risk — The risk of loss or of adverse change in the value of insurance liabilities, due to inadequate pricing and provisioning assumptions.

Liquidity risk — The risk that our financial condition or overall safety and soundness is adversely affected by the actual or perceived inability to liquidate assets or obtain adequate funding or to easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Refer to discussion in the section titled Liquidity Management, Funding, and Regulatory Capital within this MD&A.

Market risk — The risk of loss arising from changes in the value of our assets or liabilities (including derivatives) caused by movements in market variables such as interest rates, foreign-exchange rates, and equity and commodity prices. Market risk includes interest rate risk, investment risk, and lease residual ~~market, operational, insurance/underwriting, business/~~risk.

Business/strategic ~~reputation, and liquidity. For more information~~risk — The risk resulting from the pursuit of business plans that turn out to be unsuccessful due to a variety of factors.

Reputation risk — The risk arising from negative public opinion on our business practices, whether true or not, that will cause a decline in the customer base, litigation, or revenue reductions.

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

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

Compliance risk — The risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-regulatory organizations applicable to the banking organization (applicable rules and standards).

Conduct risk — The risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the markets in which we operate.

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

The independent risk-management function is accountable for independently identifying, monitoring, measuring, and reporting on our various risks and for designing an effective risk-management framework and structure. The independent risk-management function is also responsible for developing, maintaining, and implementing enterprise risk-management policies. In addition, the Enterprise Risk Management ~~MD&A section~~Committee (ERMC) is responsible for supporting the Chief Risk Officer’s oversight of senior management’s responsibility to execute on our strategy within our risk appetite set by the RC and the Chief Risk Officer’s implementation of our ~~2016 Annual Report on~~independent risk-management program. The Chief Risk Officer reports to the RC, as well as administratively to the Chief Executive Officer.

All business lines are subject to full and unrestricted audits by Audit Services. The Chief Audit Executive reports to the Audit Committee of the Board (AC), as well as administratively to the Chief Executive Officer, and is primarily responsible for assisting the AC in fulfilling its

Table of Contents

Management’s Discussion and Analysis

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

governance and oversight responsibilities. Audit Services is granted free and unrestricted access to any and all of our 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 business lines that create or influence credit risk are subject to full and unrestricted reviews by the Loan Review Group. This group is also 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.

Loan and Lease Exposure

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


($ in millions)	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Finance receivables and loans
Automotive Finance	$	103,082	$	104,646	$	105,621	$	105,129
Mortgage Finance	9,760		8,294		14,840		11,657
Corporate Finance	3,703		3,180		4,356		3,910
Corporate and Other (a)	2,326		2,824		1,788		2,197
Total finance receivables and loans	118,871		118,944		126,605		122,893
Loans held-for-sale
Automotive Finance					255		—
Mortgage Finance (b)	9		—		13		13
Corporate Finance	9		—		112		77
Corporate and Other					45		18
Total loans held-for-sale	18		—		425		108
Total on-balance sheet loans	118,889		118,944		127,030		123,001
Off-balance sheet securitized loans
Automotive Finance (c)	2,293		2,392		1,462		1,964
Whole-loan sales
Automotive Finance (c)	1,655		3,164		787		1,399
Total off-balance sheet loans					2,249		3,363
Operating lease assets
Automotive Finance(c)	8,931		11,470
Automotive Finance					8,578		8,741
Total loan and lease exposure	$	131,768	$	135,970	$	137,857	$	135,105
Serviced loans and leases
Automotive Finance	$	115,630	$	121,480
Mortgage Finance	9,769		8,294
Corporate Finance	3,467		2,991
Corporate and Other	2,255		2,757
Total serviced loans and leases	$	131,121	$	135,522


(a)	Includes ~~$2.3~~$1.7 billion and ~~$2.8~~$2.1 billion of consumer mortgage loans in our legacy mortgage portfolio at September 30, ~~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 toon 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~~been declining as the lease ~~portfolio.~~portfolio has been decreasing.

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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

reductions in used vehicle values. Operating lease assets, net of accumulated depreciation, decreased ~~$2.5 billion~~$163 million to ~~$8.9~~$8.6 billion at September 30, ~~2017,~~2018, from ~~$11.5~~$8.7 billion at December 31, ~~2016.~~2017.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Credit Risk ~~Management~~

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

Credit risk is a major source of potential economic loss to ~~Ally.~~us. 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~~credit-risk-management processes, and monitor credit 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~~credit-risk-management practices, and directly reports its findings to the RC ~~and the Ally Financial Inc. General Auditor~~ on a regular basis.

To mitigate risk, we have implemented specific policies and practices across ~~all~~business lines, ~~of business,~~ utilizing both qualitative and quantitative analyses. This reflects our commitment to ~~maintain~~maintaining an independent and ongoing assessment of credit risk and credit quality. Our policies require an objective and timely assessment of the overall quality of the consumer and commercial loan and 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~~assess whether we can withstand a severe economic downturn. In addition, we establish and maintain underwriting policies and ~~guardrails~~limits across our portfolios and higher risk segments (e.g., nonprime) based on our risk appetite.

Another important aspect to managing credit risk involves the need to carefully monitor and manage the performance and pricing of our loan products to ~~ensure that we~~ generate appropriate risk-adjusted ~~returns and are adequately compensated for the risk we are taking.~~returns. When considering pricing, various granular risk-based factors are considered such as expected loss rates, loss volatility, anticipated operating costs, and targeted returns on equity. We carefully monitor credit losses and trends in credit losses in conjunction with pricing at contract ~~inception. 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 higher risk-adjusted returns. 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. 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.

Due to the high level of hurricane activity in the third quarter, we identified over half a million consumer automotive loan customers that resided in areas that may have been affected by hurricane activity. Within our loan and lease portfolios, hurricane activity most notably impacted our automotive finance borrowers in the states of Texas and Florida during the three months ended September 30, 2017. In response to these events, we placed a temporary moratorium on collection activities, including repossession, and have offered flexibility to borrowers through granting payment extensions that have generally ranged from 30 to 90 days. We continue to actively work with borrowers to assess and manage individual circumstances and to monitor and manage credit risk. We have also offered temporary assistance programs to impacted borrowers in our mortgage lending portfolio including special forbearances and a moratorium on certain fees and default activities. Additionally, in partnership with our dealer network, we took actions to ensure that vehicle inventory was moved to safer locations, which reduced exposure to loss from weather-related events.

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 1917 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 and nine months ended September 30, ~~2017,~~2018, the U.S. economy continued to modestly expand and consumer confidence remained strong. The labor market remained healthy during the period, with the unemployment rate falling to ~~4.2%~~3.7% as of September 30, ~~2017.~~2018. Within the U.S. automotive market, new light vehicle sales have moderated from historic highs, and ~~were down~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~modestly~~remain relatively stable year over year at a Seasonally Adjusted Annual Rate of 16.9 million and 17.1 million for the three months and nine months ended September 30, ~~2017.~~2018, respectively. 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 September 30, ~~2017~~2018, this primarily included ~~$103.1~~$105.9 billion of automotive finance ~~receivables and~~ loans ~~and~~within our Automotive Finance operations, $~~12.0~~16.5 billion of consumer mortgage ~~finance receivables and loans. Our~~loans within our Mortgage Finance operations ~~consist~~and Corporate and Other, and $4.5 billion of commercial 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~~lending operations.

Table of ~~high-quality jumbo~~Contents

Management’s Discussion and LMI mortgage loans originated by third parties. In late 2016, we introduced direct-to-consumer 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.Analysis

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)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Consumer
Finance receivables and loans
Loans at gross carrying value	$	79,092	$	76,843	$	661	$	697	$	—	$	—	$	86,501	$	81,821	$	719	$	720	$	—	$	—
Loans held-for-sale	9		—		—		—		—		—		30		13		—		—		—		—
Total consumer loans (b)	79,101		76,843		661		697		—		—		86,531		81,834		719		720		—		—
Commercial
Finance receivables and loans
Loans at gross carrying value	39,779		42,101		146		122		—		—		40,104		41,072		184		72		—		—
Loans held-for-sale	9		—		—		—		—		—		395		95		—		—		—		—
Total commercial loans	39,788		42,101		146		122		—		—		40,499		41,167		184		72		—		—
Total on-balance sheet loans	$	118,889	$	118,944	$	807	$	819	$	—	$	—	$	127,030	$	123,001	$	903	$	792	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$274~~$326 million and ~~$286~~$270 million at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


(b)	Includes outstanding CSG loans of ~~$7.0~~$7.5 billion and ~~$6.7~~$7.3 billion at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively, and RV loans of $1.8 billion ~~and $1.7 billion~~ at both September 30, ~~2017~~2018, and December 31, ~~2016~~2017~~, respectively.~~.

Total on-balance sheet loans outstanding at September 30, ~~2017~~2018, ~~decreased~~increased $~~55 million~~4.0 billion to $~~118.9~~127.0 billion from December 31, ~~2016~~2017, reflecting an increase of $4.7 billion in the consumer portfolio and a decrease of ~~$2,313~~$668 million in the commercial portfolio. The increase in consumer on-balance sheet loans was primarily due to loan growth that was driven by the execution of bulk loan purchases in our Mortgage Finance portfolio and ~~an increase of $2,258 million~~the continued momentum in ~~the~~our consumer ~~portfolio.~~automotive Growth channel. The decrease in commercial on-balance sheet loans outstanding was primarily due to a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market, as well as ~~seasonality and~~ lower dealer inventory ~~levels. The increase in consumer on-balance sheet loans was primarily due to~~levels during the ~~execution of bulk loan purchases in our Mortgage Finance portfolio, and our consumer automotive loan originations which outpaced portfolio runoff.~~period.

Total TDRs outstanding at September 30, ~~2017,~~2018, increased ~~$52~~$78 million to ~~$715~~$790 million from December 31, ~~2016.~~2017. The increase was primarily driven by growth in and performance of our retail automotive loan portfolio, ~~where we experienced a deliberate shift~~as well as the addition of one account in our loan origination profile to achieve higher risk-adjusted returns, hurricane activity that occurred during the three months ended September 30, 2017, and overall loan portfolio growth, partially offset by sales of certain previously written-down retail automotive loans related to consumers in Chapter 13 bankruptcy.Corporate Finance portfolio. Refer to Note 87 to the Condensed Consolidated Financial Statements for additional information.

Total nonperforming loans at September 30, ~~2017~~2018, ~~decreased~~increased $12111 million to $~~807~~903 million from December 31, ~~2016~~2017, reflecting an increase of $112 million of commercial nonperforming loans and a decrease of ~~$36~~$1 million of consumer nonperforming ~~loans and an increase of $24 million of commercial nonperforming~~ loans. The decrease in total consumer nonperforming loans from December 31, 2016, was primarily due to the sale of certain consumer automotive loans in Chapter 13 bankruptcy status, partially offset by the changing composition of the portfolio due to our underwriting strategy to originate consumer automotive assets across a broad risk spectrum. The increase in total commercial nonperforming loans was primarily ~~due to~~driven by a higher number of accounts and higher average balances of nonperforming loans in our commercial automotive portfolio, as well as the downgrade of ~~ten~~two accounts within ~~the commercial automotive~~our Corporate Finance portfolio. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for at least 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.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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 September 30,								Nine months ended September 30,								Three months ended September 30,								Nine months ended September 30,
	Net charge-offs				Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)				Net charge-offs (recoveries)					Net charge-off ratios (a)
($ in millions)	2017		2016		2017		2016		2017		2016		2017		2016		2018		2017		2018		2017		2018			2017		2018		2017
Consumer	$	243	$	213	1.2	%	1.1	%	$	695	$	544	1.2	%	1.0	%	$	232	$	243	1.1	%	1.2	%	$	675		$	695	1.1	%	1.2	%
Commercial	10		—		0.1		—		10		—		—		—		3		10		—		0.1		(1		)	10		—		—
Total finance receivables and loans at gross carrying value	$	253	$	213	0.8		0.8		$	705	$	544	0.8		0.6		$	235	$	253	0.7		0.8		$	674		$	705	0.7		0.8


(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 $235 million and $674 million for the three months and nine months ended September 30, 2018, respectively, compared to $253 million and $705 million for the three months and nine months endedSeptember 30, ~~2017, respectively, compared to~~ ~~$213 million~~ ~~and $544 million~~2017. The decreases in net charge-offs for the three months and nine months endedSeptember 30, ~~2016. The increases during the~~ ~~three months and nine months endedSeptember 30, 2017~~,2018, were primarily driven by ~~the seasoning of recent vintages reflecting~~ our ~~underwriting strategy to originate~~ consumer automotive ~~assets across a broad risk spectrum~~portfolio where we

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Management’s Discussion and ~~expand our risk-adjusted returns,~~Analysis

Ally Financial Inc. • Form 10-Q

experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, as well as ~~lower average sales proceeds~~continued disciplined underwriting and higher recoveries on ~~repossessed vehicles.~~charge-offs driven by improved used vehicle values.

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.

Consumer Credit Portfolio

During the three months and nine months ended September 30, ~~2017,~~2018, the credit performance of the consumer portfolio reflected both our underwriting strategy to originate a diversified portfolio of consumer automotive assets, ~~across a broad risk spectrum,~~ including used, nonsubvented new, higher LTV, extended term, Growth channel, ~~nonprime,~~ and ~~nonsubvented~~nonprime finance receivables and loans, ~~in order to generate a more profitable mix of business with appropriate risk-adjusted returns,~~ as well as ~~our~~high-quality jumbo and LMI mortgage loans that are acquired through bulk loan purchases and direct-to-consumer mortgage originations of high-quality jumbo and LMI mortgage loans. Within our consumer automotive portfolio, the performance in the lower credit tiers has deteriorated relative to initial expectations at the time of origination.originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses represented approximately ~~13.3%~~12.1% of our total consumer automotive loans at September 30, ~~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)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Consumer automotive (b) (c)	$	67,077	$	65,793	$	573	$	598	$	—	$	—	$	69,995	$	68,071	$	620	$	603	$	—	$	—
Consumer mortgage
Mortgage Finance	9,760		8,294		7		10		—		—		14,840		11,657		18		25		—		—
Mortgage — Legacy	2,255		2,756		81		89		—		—		1,666		2,093		81		92		—		—
Total consumer finance receivables and loans	$	79,092	$	76,843	$	661	$	697	$	—	$	—	$	86,501	$	81,821	$	719	$	720	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$199~~$250 million and ~~$240~~$219 million at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


(b)	~~Includes $24 million~~Certain finance receivables and ~~$43 million of~~loans are included in fair value ~~adjustment for loans in hedge accounting relationships at September 30, 2017, and December 31, 2016, respectively.~~hedging relationships. Refer to Note 1917 to the Condensed Consolidated Financial Statements for additional information.


(c)	Includes outstanding CSG loans of ~~$7.0~~$7.5 billion and ~~$6.7~~$7.3 billion at September 30, ~~2017~~,2018, and December 31, ~~2016~~,2017, respectively, and RV loans of $1.8 billion ~~and $1.7 billion~~ at both September 30, ~~2017~~2018, and December 31, ~~2016~~2017~~, respectively.~~.

Total consumer outstanding finance receivables and loans increased $~~2.2~~4.7 billion at September 30, ~~2017~~2018, compared with December 31, ~~2016~~2017., reflecting an increase of $2.8 billion of consumer mortgage finance receivables and loans and an increase of $1.9 billion of consumer automotive finance receivables and loans. The increase in consumer mortgage finance receivables and loans was primarily due to growth within the Mortgage Finance portfolio ~~was primarily due to~~as a result of the execution of bulk loan purchases totaling $3.9 billion during the nine months ended September 30, 2018, partially offset by total consumer mortgage portfolio runoff. The increase in consumer automotive finance receivables and loans was primarily related to continued momentum in our loan originations which outpaced portfolio runoff. Additionally, the consumer automotive loan portfolio increased as a result of our election to not renew a retail automotive credit conduit facility during the second quarter of 2017 and the related purchase of approximately $521 million of retail automotive loans.Growth channel.

Total consumer nonperforming finance receivables and loans at September 30, ~~2017~~, 2018, decreased~~$36~~ $1 million to ~~$661~~$719 million from December 31, ~~2016~~,2017, reflecting a decrease of ~~$25~~$18 million of consumer mortgage nonperforming finance receivables and loans and an increase of $17 million of consumer automotive finance receivables and ~~loans and a decrease of $11 million~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~of consumer mortgage nonperforming finance receivables and~~ loans. The decrease in nonperforming consumer automotive finance receivables and loans was primarily due to the sale of certain consumer automotive loans in Chapter 13 bankruptcy status, partially offset by the changing composition of the portfolio due to our underwriting strategy to originate consumer automotive assets across a broad risk spectrum. The decrease in nonperforming consumer mortgage finance receivables and loans was primarily due to a strong macroeconomic environment. 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 0.8% and 0.9% at September 30, ~~2017~~,2018, and December 31, ~~2016~~,2017, respectively.

Consumer automotive loans accruing and past due 30 days or more decreased ~~$117~~$198 million to ~~$2.0~~$2.1 billion at September 30, ~~2017~~,2018, compared with December 31, ~~2016~~,2017, primarily due to ~~seasonal trends.~~seasonality. Consumer automotive loans accruing and past due 30 days or more increased $96 million to $2.1 billion as of September 30, 2018, compared to September 30, 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 due to lower original loan balances and slower collateral depreciation.

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


	Three months ended September 30,									Nine months ended September 30,								Three months ended September 30,									Nine months ended September 30,
	Net charge-offs					Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)				Net charge-offs (recoveries)					Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)
($ in millions)	2017		2016			2017		2016		2017		2016		2017		2016		2018			2017		2018		2017		2018		2017		2018		2017
Consumer automotive	$	242	$	219		1.4	%	1.4	%	$	692	$	540	1.4	%	1.1	%	$	233		$	242	1.3	%	1.4	%	$	668	$	692	1.3	%	1.4	%
Consumer mortgage
Mortgage Finance	1		—			—		—		1		—		—		—		1			1		—		—		3		1		—		—
Mortgage — Legacy	—		(6		)	—		(0.9	)	2		4		0.1		0.1		(2		)	—		(0.4	)	—		4		2		0.3		0.1
Total consumer finance receivables and loans	$	243	$	213		1.2		1.1		$	695	$	544	1.2		1.0		$	232		$	243	1.1		1.2		$	675	$	695	1.1		1.2


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

Our net charge-offs from total consumer finance receivables and loans were $232 million and $675 million for the three months and nine months ended September 30, 2018, respectively, compared to $243 million and $695 million for the three months and nine months endedSeptember 30, ~~2017, respectively, compared to $213 million and $544 million~~2017. The decreases in net charge-offs for the three months and nine months endedSeptember 30, ~~2016. The increases during the~~ ~~three months and nine months ended~~ ~~September 30, 2017,~~2018, were primarily 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,~~portfolio where we experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, as well as ~~lower average sales proceeds~~continued disciplined underwriting and higher recoveries on ~~repossessed vehicles. The increases were partially offset~~charge-offs driven by ~~our limited collection actions and extension program for borrowers within the hurricane-affected areas that likely delayed potential losses during the three months ended September 30, 2017.~~improved used vehicle values.

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


	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
($ in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Consumer automotive	$	7,218	$	8,355	$	22,643	$	25,079	$	7,168	$	7,218	$	23,936	$	22,643
Consumer mortgage (a)	87		—		131		7		175		87		520		131
Total consumer loan originations	$	7,305	$	8,355	$	22,774	$	25,086	$	7,343	$	7,305	$	24,456	$	22,774


(a)	~~Includes $49~~Excludes bulk loan purchases associated with our Mortgage Finance operations and includes $86 million and ~~$72~~$218 million of loans originated as held-for-sale for the three months and nine months ended September 30, ~~2017, respectively.~~2018, and $49 million and $72 million for the three months and nine months ended September 30, 2017.

Total ~~automotive-originated loans decreased $1.1 billion~~consumer loan originations increased $38 million and ~~$2.4~~$1.7 billion for the three months and nine months ended September 30, ~~2017,~~2018, respectively, compared to the ~~same periods~~three months and nine months ended September 30, 2017. The increase in ~~2016. The decreases were~~consumer loan originations for the nine months ended September 30, 2018, was primarily due to ~~lower~~higher consumer automotive volume in the ~~GM and Chrysler channels and~~Growth channel, with our continued focus on ~~selective originations based on improved~~obtaining appropriate risk-adjusted returns.

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

Ally Financial Inc. • Form 10-Q

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 $~~67.1~~70.0 billion and $~~65.8~~68.1 billion at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively. Total mortgage and home equity loans were ~~$12.0~~$16.5 billion and ~~$11.1~~$13.8 billion at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.


	September 30, 2017 (a)				December 31, 2016				September 30, 2018 (a)				December 31, 2017
	Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage
California									8.4	%	36.6	%	8.2	%	34.6	%
Texas	13.3	%	6.8	%	13.6	%	6.6	%	12.9		6.2		13.2		6.5
California	8.1		34.1		7.8		34.2
Florida	8.3		4.8		8.2		4.4		8.7		4.7		8.5		4.8
Pennsylvania	4.6		1.4		4.7		1.5		4.5		1.4		4.6		1.5
Illinois	4.2		3.3		4.3		3.4		4.1		3.1		4.2		3.2
Georgia	4.2		2.4		4.3		2.2		4.2		2.7		4.2		2.5
North Carolina	3.7		1.7		3.6		1.6		3.8		1.7		3.7		1.8
New York									3.1		2.4		3.0		2.2
Ohio	3.5		0.4		3.5		0.5		3.5		0.4		3.4		0.5
New York	3.1		2.1		3.2		1.9
Missouri	2.9		1.0		2.8		1.2
New Jersey									2.7		2.1		2.6		2.1
Other United States	44.1		42.0		44.0		42.5		44.1		38.7		44.4		40.3
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 September 30, ~~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%~~25.4% and ~~24.2%~~24.7% of our total outstanding consumer finance receivables and loans at September 30, ~~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 September 30, ~~2017~~2018, decreased $8$13 million to $127 million from December 31, ~~2016~~2017. Foreclosed mortgage assets at ~~September 30, 2017, decreased $2~~increased $1 million to $11 million from December 31, ~~2016~~2017.

Commercial Credit Portfolio

During the three months and nine months ended September 30, ~~2017,~~2018, the credit performance of the commercial portfolio remained strong, as nonperforming finance receivables and loans and net charge-offs ~~realized~~ remained ~~relatively~~ low. For information on our commercial credit risk practices and policies regarding delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements ~~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)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Commercial and industrial
Automotive	$	31,985	$	35,041	$	78	$	33	$	—	$	—	$	31,424	$	33,025	$	78	$	27	$	—	$	—
Other (b)	3,774		3,248		61		84		—		—		4,132		3,887		99		44		—		—
Commercial real estate — Automotive	4,020		3,812		7		5		—		—
Commercial real estate													4,548		4,160		7		1		—		—
Total commercial finance receivables and loans	$	39,779	$	42,101	$	146	$	122	$	—	$	—	$	40,104	$	41,072	$	184	$	72	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$75~~$76 million and ~~$46~~$51 million at September 30, ~~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.

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Ally Financial Inc. • Form 10-Q

Total commercial finance receivables and loans outstanding decreased $~~2.3 billion~~968 million from December 31, ~~2016~~2017, to ~~$39.8~~$40.1 billion at September 30, ~~2017~~2018. The decrease was primarily due to a reduction in the number of dealer relationships due to the competitive environment across the automotive lending market, ~~as well as seasonality and~~ lower dealer inventory ~~levels.~~levels during the period, and the transfer of approximately $238 million of equipment finance loans to our held-for-sale portfolio. This decrease was ~~slightly~~partially offset by ~~the ongoing demand for~~growth in automotive dealer term loans, ~~and from growth in~~as well as within our Corporate Finance portfolio in line with our business strategy.

Total commercial nonperforming finance receivables and loans were ~~$146~~$184 million at September 30, ~~2017,~~2018, reflecting an increase of ~~$24~~$112 million when compared to December 31, ~~2016.~~2017. The increase was primarily ~~due to~~driven by a higher number of accounts and higher average balances of nonperforming loans in our commercial automotive portfolio, as well as the downgrade of ~~ten~~two accounts within ~~the commercial automotive portfolio. This increase was partially offset by a decrease in the~~our Corporate Finance ~~portfolio primarily due to the payoff of one account and the recognition of a partial charge-off on one account that was restructured during the period.~~portfolio. Nonperforming commercial finance receivables and loans as a percentage of outstanding commercial finance receivables and loans increased ~~slightly~~ to ~~0.4%~~0.5% at September 30, ~~2017~~2018, compared to ~~0.3%~~0.2% at December 31, ~~2016~~2017.

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


	Three months ended September 30,								Nine months ended September 30,								Three months ended September 30,								Nine months ended September 30,
	Net charge-offs				Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)				Net charge-offs				Net charge-off ratios (a)				Net charge-offs (recoveries)					Net charge-off ratios (a)
($ in millions)	2017		2016		2017		2016		2017		2016		2017		2016		2018		2017		2018		2017		2018			2017		2018		2017
Commercial and industrial
Automotive	$	1	$	—	—	%	—	%	$	1	$	—	—	%	—	%	$	3	$	1	—	%	—	%	$	5		$	1	—	%	—	%
Other	9		—		1.0		—		9		—		0.3		—		—		9		—		1.0		(6		)	9		(0.2	)	0.3
Total commercial finance receivables and loans	$	10	$	—	0.1		—		$	10	$	—	—		—		$	3	$	10	—		0.1		$	(1	)	$	10	—		—


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

Our net charge-offs from total commercial finance receivables and loans were $3 million for the three months ended September 30, 2018, and net recoveries were $1 million for the nine months ended September 30, 2018, compared to net charge-offs of $10 million for both of the same periods in 2017. The decreases in net charge-offs for the three months and nine months ended September 30, 2018, were primarily driven by a partial charge-off on a restructured loan within the Corporate Finance portfolio during the third quarter of 2017 ~~compared to no~~that did not repeat in the current period. The decrease in net charge-offs for the ~~same periods in 2016. The increases in the three months and~~ nine months ended September 30, ~~2017, were primarily driven~~2018, was also impacted by ~~one account~~a recovery recognized from a previously charged-off loan within the Corporate Finance portfolio ~~that was restructured~~ during the ~~period, resulting in the recognition~~second quarter of ~~a partial charge-off.~~2018.

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~~$4.5 billion and ~~$3.8~~$4.2 billion at September 30, ~~2017~~2018, and December 31, ~~2016~~2017, respectively.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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.


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
Texas	16.0	%	16.1	%	15.8	%	15.7	%
Florida	9.4		10.2		12.1		10.3
California	8.5		7.9		8.5		8.2
Michigan	7.6		7.6		7.4		7.7
New Jersey	3.8		4.2
Georgia	3.7		3.6		4.3		4.6
South Carolina	3.7		2.7		3.7		3.5
North Carolina	3.6		3.6		3.6		3.6
Pennsylvania	3.2		3.1
New Jersey					3.2		3.6
Utah					2.8		1.6
Missouri	2.5		2.5		2.5		2.4
Other United States	38.0		38.5		36.1		38.8
Total commercial real estate finance receivables and loans	100.0	%	100.0	%	100.0	%	100.0	%

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Ally Financial Inc. • Form 10-Q

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 ~~$95~~$573 million from December 31, ~~2016,~~2017, to ~~$2.8~~$3.7 billion at September 30, ~~2017.~~2018. The increase was primarily due to the ~~Corporate Finance portfolio and is in line with~~reclassification of certain accounts to special mention within the ~~overall growth in Corporate Finance loan balances.~~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.

September 30, 2017 December 31, 2016
Industry

Automotive
75.5 %
81.2 %
Services
7.4

6.3
Health/Medical
3.8

2.3
Other
13.3

10.2
Total commercial criticized finance receivables and loans 100.0 % 100.0 %

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~



	September 30, 2018		December 31, 2017
Industry
Automotive	79.7	%	76.3	%
Services	5.7		6.7
Health/Medical	4.5		4.9
Other	10.1		12.1
Total commercial criticized finance receivables and loans	100.0	%	100.0	%

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 September 30, 2017 ($ in millions)

Consumer automotive
Consumer mortgage
Total consumer
Commercial
Total
Allowance at July 1, 2017
$ 1,002

$ 83

$ 1,085

$ 140

$ 1,225
Charge-offs (a)
(327 )
(7 )
(334 )
(10 )
(344 )
Recoveries
85

6

91

—

91
Net charge-offs
(242 )
(1 )
(243 )
(10 )
(253 )
Provision for loan losses
314

—

314

—

314
Other
—

(1 )
(1 )
1

—
Allowance at September 30, 2017
$ 1,074

$ 81

$ 1,155

$ 131

$ 1,286
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2017 (b)
1.6 %
0.7 %
1.5 %
0.3 %
1.1 %
Net charge-offs to average finance receivables and loans outstanding for the three months ended September 30, 2017
1.4 %
— %
1.2 %
0.1 %
0.8 %
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2017 (b)
187.2 %
93.0 %
174.8 %
89.7 %
159.3 %
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2017
1.1

23.9

1.2

3.4

1.3

~~(a)~~

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


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

Three months ended September 30, 2016 ($ in millions)

Consumer automotive
Consumer mortgage
Total consumer
Commercial
Total
Allowance at July 1, 2016
$ 862

$ 109

$ 971

$ 118

$ 1,089
Charge-offs (a)
(293 )
(10 )
(303 )
—

(303 )
Recoveries
74

16

90

—

90
Net charge-offs
(219 )
6

(213 )
—

(213 )
Provision for loan losses
269

(15 )
254

4

258
Allowance at September 30, 2016
$ 912

$ 100

$ 1,012

$ 122

$ 1,134
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2016 (b)
1.4 %
0.9 %
1.3 %
0.3 %
1.0 %
Net charge-offs to average finance receivables and loans outstanding for the three months ended September 30, 2016
1.4 %
(0.2 )%
1.1 %
— %
0.8 %
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2016 (b)
168.2 %
100.4 %
157.6 %
109.1 %
150.4 %
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2016
1.0

(4.1 )
1.2

n/m

1.3



Three months ended September 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at July 1, 2018	$	1,053		$	66		$	1,119		$	138		$	1,257
Charge-offs (a)	(343		)	(7		)	(350		)	(3		)	(353		)
Recoveries	110			8			118			—			118
Net charge-offs	(233		)	1			(232		)	(3		)	(235		)
Provision for loan losses	229			(4		)	225			8			233
Other (b)	(6		)	1			(5		)	(2		)	(7		)
Allowance at September 30, 2018	$	1,043		$	64		$	1,107		$	141		$	1,248
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2018 (c)	1.5		%	0.4		%	1.3		%	0.4		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the three months ended September 30, 2018	1.3		%	—		%	1.1		%	—		%	0.7		%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2018 (c)	168.3		%	64.4		%	154.1		%	76.5		%	138.2		%
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2018	1.1			n/m			1.2			13.3			1.3

n/m = not meaningful

(a)

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


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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

Nine months ended September 30, 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) (958 ) (22 ) (980 ) (10 ) (990 )
Recoveries 266
19
285
—
285
Net charge-offs (692 ) (3 ) (695 ) (10 ) (705 )
Provision for loan losses 841
(6 ) 835
19
854
Other (b) (7 ) (1 ) (8 ) 1
(7 )
Allowance at September 30, 2017 $ 1,074
$ 81
$ 1,155
$ 131
$ 1,286
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2017 (c) 1.6 % 0.7 % 1.5 % 0.3 % 1.1 %
Net charge-offs to average finance receivables and loans outstanding for the nine months ended September 30, 2017 1.4 % — % 1.2 % — % 0.8 %
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2017 (c) 187.2 % 93.0 % 174.8 % 89.7 % 159.3 %
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2017 1.2
18.8
1.2
9.9
1.4

~~(a)~~

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to ~~Note 1~~ ~~to the~~ ~~Consolidated Financial Statements included in our 2016 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.

105

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Ally Financial Inc. • Form 10-Q

Nine months ended September 30, 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) (773 ) (29 ) (802 ) (1 ) (803 )
Recoveries 233
25
258
1
259
Net charge-offs (540 ) (4 ) (544 ) —
(544 )
Provision for loan losses 644
(10 ) 634
16
650
Other (b) (26 ) —
(26 ) —
(26 )
Allowance at September 30, 2016 $ 912
$ 100
$ 1,012
$ 122
$ 1,134
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2016 (c) 1.4 % 0.9 % 1.3 % 0.3 % 1.0 %
Net charge-offs to average finance receivables and loans outstanding for the nine months ended September 30, 2016 1.1 % — % 1.0 % — % 0.6 %
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2016 (c) 168.2 % 100.4 % 157.6 % 109.1 % 150.4 %
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2016 1.3
n/m
1.4
n/m
1.6



Three months ended September 30, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at July 1, 2017	$	1,002		$	83		$	1,085		$	140		$	1,225
Charge-offs (a)	(327		)	(7		)	(334		)	(10		)	(344		)
Recoveries	85			6			91			—			91
Net charge-offs	(242		)	(1		)	(243		)	(10		)	(253		)
Provision for loan losses	314			—			314			—			314
Other	—			(1		)	(1		)	1			—
Allowance at September 30, 2017	$	1,074		$	81		$	1,155		$	131		$	1,286
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2017 (b)	1.6		%	0.7		%	1.5		%	0.3		%	1.1		%
Net charge-offs to average finance receivables and loans outstanding for the three months ended September 30, 2017	1.4		%	—		%	1.2		%	0.1		%	0.8		%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2017 (b)	187.2		%	93.0		%	174.8		%	89.7		%	159.3		%
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2017	1.1			23.9			1.2			3.4			1.3

(a)


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



Nine months ended September 30, 2018 ($ in millions)	Consumer automotive			Consumer mortgage			Total consumer			Commercial			Total
Allowance at January 1, 2018	$	1,066		$	79		$	1,145		$	131		$	1,276
Charge-offs (a)	(1,004		)	(27		)	(1,031		)	(5		)	(1,036		)
Recoveries	336			20			356			6			362
Net charge-offs	(668		)	(7		)	(675		)	1			(674		)
Provision for loan losses	650			(7		)	643			9			652
Other (b)	(5		)	(1		)	(6		)	—			(6		)
Allowance at September 30, 2018	$	1,043		$	64		$	1,107		$	141		$	1,248
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2018 (c)	1.5		%	0.4		%	1.3		%	0.4		%	1.0		%
Net charge-offs to average finance receivables and loans outstanding for the nine months ended September 30, 2018	1.3		%	0.1		%	1.1		%	—		%	0.7		%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2018 (c)	168.3		%	64.4		%	154.1		%	76.5		%	138.2		%
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2018	1.2			6.5			1.2			n/m			1.4

n/m = not meaningful

(a)

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements ~~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.

106

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Ally Financial Inc. • Form 10-Q



Nine months ended September 30, 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)	(958		)	(22		)	(980		)	(10		)	(990		)
Recoveries	266			19			285			—			285
Net charge-offs	(692		)	(3		)	(695		)	(10		)	(705		)
Provision for loan losses	841			(6		)	835			19			854
Other (b)	(7		)	(1		)	(8		)	1			(7		)
Allowance at September 30, 2017	$	1,074		$	81		$	1,155		$	131		$	1,286
Allowance for loan losses to finance receivables and loans outstanding at September 30, 2017 (c)	1.6		%	0.7		%	1.5		%	0.3		%	1.1		%
Net charge-offs to average finance receivables and loans outstanding for the nine months ended September 30, 2017	1.4		%	—		%	1.2		%	—		%	0.8		%
Allowance for loan losses to total nonperforming finance receivables and loans at September 30, 2017 (c)	187.2		%	93.0		%	174.8		%	89.7		%	159.3		%
Ratio of allowance for loan losses to annualized net charge-offs at September 30, 2017	1.2			18.8			1.2			9.9			1.4

(a)


(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 September 30, ~~2017, increased $143~~2018, declined $48 million compared to September 30, ~~2016.~~2017, reflecting a decrease of $31 million in the consumer automotive allowance and a decrease of $17 million in the consumer mortgage allowance. The ~~increase~~reduction in our consumer automotive allowance resulted from overall improved credit performance, as well as higher reserves we maintained in the prior-year period as a result of hurricanes Harvey and Irma in the third quarter of 2017, partially offset by growth in the portfolio. The decrease in the consumer mortgage allowance was primarily driven by our consumer automotive portfolio and reflects the changing composition of our asset mix across a broader credit spectrum, consistent with our underwriting strategy, and higher consumer automotive loan balances. Additionally, we increased the allowance for loan losses by $53 million during the period due to estimated impacts of Hurricanes Harvey and Irma. We utilized a variety of available information to assess our ability to collect outstanding balances from affected customers. Our analysis included factors such as damage to loan collateral, customer insurance coverage and financial hardship, the effects of temporarily offering loan extensions to borrowers and suspending certain collection activities, as well as historical data, market data, and many other factors. We continue to closely monitor available information to evaluate our allowance for loan losses. This increase was partially offset by a decrease in the allowance for loan lossesrun-off in our legacy mortgage portfolio ~~as it continues to run off.~~

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

lower hurricane-related reserves, partially offset by growth in our Mortgage Finance portfolio.

The allowance for commercial loan losses increased $9$10 million at September 30, ~~2017,~~2018, compared to September 30, ~~2016.~~2017. The increase was primarily driven by ~~growth experienced~~higher reserves for individually impaired loans in our Corporate Finance ~~portfolio. There was no increase to the allowance for~~and commercial loans during the quarter attributable to the impacts of Hurricanes Harvey and Irma primarily due to insurance coverage requirements maintained by our borrowers and due to proactive risk management activities taken in partnership with our dealer network to safeguard vehicle inventories.automotive portfolios.

Allowance for Loan Losses by Type

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


	2017						2016						2018						2017
September 30, ($ in millions)	Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses		Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses		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	$	1,074	1.6	%	83.5	%	$	912	1.4	%	80.4	%	$	1,043	1.5	%	83.6	%	$	1,074	1.6	%	83.5	%
Consumer mortgage
Mortgage Finance	16		0.2		1.2		19		0.2		1.7		20		0.1		1.6		16		0.2		1.2
Mortgage — Legacy	65		2.9		5.1		81		2.8		7.2		44		2.6		3.5		65		2.9		5.1
Total consumer mortgage	81		0.7		6.3		100		0.9		8.9		64		0.4		5.1		81		0.7		6.3
Total consumer loans	1,155		1.5		89.8		1,012		1.3		89.3		1,107		1.3		88.7		1,155		1.5		89.8
Commercial
Commercial and industrial
Automotive	36		0.1		2.8		33		0.1		2.9		37		0.1		3.0		36		0.1		2.8
Other	71		1.9		5.5		65		2.0		5.7		77		1.9		6.1		71		1.9		5.5
Commercial real estate — Automotive	24		0.6		1.9		24		0.6		2.1
Commercial real estate													27		0.6		2.2		24		0.6		1.9
Total commercial loans	131		0.3		10.2		122		0.3		10.7		141		0.4		11.3		131		0.3		10.2
Total allowance for loan losses	$	1,286	1.1		100.0	%	$	1,134	1.0		100.0	%	$	1,248	1.0		100.0	%	$	1,286	1.1		100.0	%

107

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Ally Financial Inc. • Form 10-Q

Provision for Loan Losses

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
($ in millions)	2017			2016			2017			2016			2018			2017			2018			2017
Consumer
Consumer automotive	$	314		$	269		$	841		$	644		$	229		$	314		$	650		$	841
Consumer mortgage
Mortgage Finance	4			1			6			4			2			4			4			6
Mortgage — Legacy	(4		)	(16		)	(12		)	(14		)	(6		)	(4		)	(11		)	(12		)
Total consumer mortgage	—			(15		)	(6		)	(10		)	(4		)	—			(7		)	(6		)
Total consumer loans	314			254			835			634			225			314			643			835
Commercial
Commercial and industrial
Automotive	(1		)	2			5			4			—			(1		)	7			5
Other	2			3			14			11			8			2			—			14
Commercial real estate — Automotive	(1		)	(1		)	—			1
Commercial real estate													—			(1		)	2			—
Total commercial loans	—			4			19			16			8			—			9			19
Total provision for loan losses	$	314		$	258		$	854		$	650		$	233		$	314		$	652		$	854

The provision for consumer loan losses ~~increased $60~~decreased $89 million and ~~$201~~$192 million for the three months and nine months endedSeptember 30, ~~2017~~,2018, respectively, compared to the same periods in ~~2016~~.2017. The ~~increases~~decreases during the three months and nine months ended September 30, ~~2017,~~2018, were primarily driven by our consumer automotive ~~portfolio.~~portfolio where we experienced strong overall credit performance driven by favorable macroeconomic trends including low unemployment, as well as continued disciplined underwriting and higher recoveries on charge-offs driven by improved used vehicle values. Additionally, results were impacted by $53 million of additional reserves associated with the estimated impacts of hurricanes Harvey and Irma during the third quarter of 2017.

The provision for commercial loan losses increased $8 million and decreased $10 million for the three months and nine months ended September 30, 2018, respectively, compared to the same periods in 2017. The increase in provision for commercial loan losses for the three months ended September 30, ~~2017,~~2018, was primarily ~~due~~attributable to ~~estimated impacts~~increases in reserves for individually impaired loans in our Corporate Finance and commercial automotive portfolios. The decrease in provision for commercial loan losses for the nine months ended September 30, 2018, was primarily driven by our Corporate Finance portfolio where we recognized a $6 million recovery of ~~Hurricanes Harvey and Irma, which increased provision expense~~a previously charged-off loan in the second quarter of 2018.

Insurance/Underwriting Risk

The underwriting of our ~~consumer automotive portfolio~~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 ~~$48 million~~the active management of claim settlement activities using experienced claims personnel and ~~increased provision expense~~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 business lines, 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 ~~consumer mortgage loan portfolio~~prior reported loss reserves and changes to the estimated values are routinely monitored by $5credentialed 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.

98108

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Market Risk

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

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

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

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

We also have exposure to changes in the value of equity securities, primarily related to our Insurance operations. We use equity derivatives to manage our exposure to equity price fluctuations.

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

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 deposits without contractual maturities, which consist of our savings, money market, and checking accounts, whereby deposit pass-through levels increase as the absolute level of the Federal Funds Rate increases. Based on current market conditions, actual beta on our total retail deposits portfolio has been approximately 32% since the third quarter of 2015. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.

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

The net financing revenue sensitivity tests measure the potential change in our pretax net financing revenue over the following twelve months. A number of alternative rate scenarios are tested, including immediate and gradual parallel shocks to the implied market forward curve. Management also evaluates nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types. Relative to our baseline forecast, which is based on the implied forward curve, our net financing revenue over the next twelve months would decrease by $59 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 as of September 30, 2018, and December 31, 2017.



	September 30, 2018						December 31, 2017
Change in interest rates ($ in millions)	Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
-100 basis points	$	(21	)	$	(31	)	$	(22	)	$	15
+100 basis points	(3		)	(70		)	(18		)	(106		)
+200 basis points	(3		)	(135		)	(68		)	(294		)


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

The implied forward rate curve was higher and flatter compared to December 31, 2017, as short-end rates have increased more than long-end rates. The impact of this change is reflected in our baseline net financing revenue projections. We remain moderately liability-sensitive as of September 30, 2018, in the upward interest rate shock scenarios as our simulation models assume liabilities will initially

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~~million. Additionally,~~reprice faster than assets. Exposure in the ~~increase in provision for loan losses for the nine months ended~~+100 and +200 instantaneous shock scenarios has decreased as of September 30, ~~2017, was~~2018, primarily due to 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 the impact of higher ~~net charge-offs in our consumer automotive portfolio~~interest rates on deposits as a result of our ~~focus on originating across a broader credit spectrum and retail asset growth.~~assumption that deposit pass-through levels increase with higher interest rates.

The ~~provision for commercial loan losses decreased $4 million for~~exposure in the ~~three months ended~~downward instantaneous interest rate shock scenario has increased as of September 30, 2017, and increased $3 million for the nine months ended September 30, 2017. The decrease during the three months ended September 30, 2017, was primarily driven by specific reserve releases in the current period in our commercial automotive portfolio. The increase for the nine months ended September 30, 2017, was2018, primarily due to ~~higher provision expense for individually impaired loans within~~changes to our derivative hedging position as noted above.

Our risk position is influenced by the ~~Corporate Finance portfolio, compared to the same period in 2016.~~net impact of derivative hedging which includes interest rate swaps designated as fair value hedges of certain fixed-rate assets and fixed-rate debt instruments, and pay-fixed interest rate swaps designated as cash flow hedges of certain floating-rate debt instruments. The size, maturity, and mix of our hedging activities changes frequently as we adjust our broader ALM objectives.

~~Lease Residual Risk Management~~Net Financing Revenue Sensitivity Analysis

~~We are exposed to residual risk on vehicles in the consumer lease portfolio. This lease residual~~Interest rate risk represents our most significant exposure to market risk. We actively monitor the ~~possibility~~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 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 portionsinterest rate sensitivities of our ~~residual exposure for lease programs~~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 ~~them. For information~~both contractual and non-contractual maturities. During the first quarter of 2017, we implemented a dynamic pass-through modeling assumption on our ~~valuation~~deposits without contractual maturities, which consist of ~~automotive lease residuals~~our savings, money market, and checking accounts, whereby deposit pass-through levels increase as the absolute level of the Federal Funds Rate increases. Based on current market conditions, actual beta on our total retail deposits portfolio has been approximately 32% since the third quarter of 2015. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.

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 ~~periodic revisions through adjustments~~immediate and gradual parallel shocks to ~~depreciation expense~~the implied market forward curve. Management also evaluates nonparallel shocks to interest rates and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types. Relative to our baseline forecast, which is based on ~~current and forecasted market conditions, refer to~~ the ~~section titled~~ ~~Critical Accounting Estimates~~ — ~~Valuation of Automotive Lease Assets and Residuals~~ ~~within~~implied forward curve, our net financing revenue over the ~~MD&A included in our 2016 Annual Report on Form 10-K.~~next twelve months would decrease by $59 million if interest rates remain unchanged.

~~Lease Vehicle Terminations and Remarketing~~

The following table summarizes the volume of lease terminations and average gain 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 September 30, Nine months ended September 30,
2017 2016 2017 2016
Off-lease vehicles terminated (in units)

64,465

80,999
213,893
235,820
Average gain per vehicle ($ per unit)

$ 791

$ 767
$ 374
$ 860
Method of vehicle sales

Auction

Internet
57 %
55 % 56 % 55 %
Physical
11

14
13
13
Sale to dealer, lessee, and other
32

31
31
32

The number of off-lease vehicles remarketed during the three months and nine months ended September 30, 2017, decreased 20% and 9%, respectively, compared to the same periods in 2016. 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 GM lease portfolio.

Average gain per vehicle increased for the three months ended September 30, 2017, compared to the same period in 2016, but decreased for the nine months ended September 30, 2017, compared to the same period in 2016. The increase for the three months ended September 30, 2017, was primarily due to a more favorable termination mix. The decrease for the nine months ended September 30, 2017, was primarily due to declining used vehicle values, which were more pronounced in the car market. 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 9 to the Condensed Consolidated Financial Statements, and Note 1 to the Consolidated Financial Statements in our 2016 Annual Report on Form 10-K.

~~Lease Portfolio Mix~~

~~We monitor the concentration of our outstanding operating leases.~~ The following table presents the ~~mix~~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 as of ~~leased vehicles by type, based on volume of units.~~September 30, 2018, and December 31, 2017.

September 30,
2017
2016
Sport utility vehicle
55 %
51 %
Truck
24

16
Car
21

33



	September 30, 2018						December 31, 2017
Change in interest rates ($ in millions)	Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
-100 basis points	$	(21	)	$	(31	)	$	(22	)	$	15
+100 basis points	(3		)	(70		)	(18		)	(106		)
+200 basis points	(3		)	(135		)	(68		)	(294		)


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

~~Market Risk~~

~~Our automotive~~The implied forward rate curve was higher and flatter compared to December 31, 2017, as short-end rates have increased more than long-end rates. The impact of this change is reflected in our baseline net financing ~~mortgage, and insurance activities give rise to market risk representing the potential loss~~revenue projections. We remain moderately liability-sensitive as of September 30, 2018, 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 toupward 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 ofshock scenarios as our simulation models assume liabilities will initially

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~~which are exposed~~reprice faster than assets. Exposure in ~~varying degrees~~the +100 and +200 instantaneous shock scenarios has decreased as of September 30, 2018, primarily due to 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 the impact of higher interest rates on deposits as a result of our assumption that deposit pass-through levels increase with higher interest rates.

The exposure in the downward instantaneous interest rate shock scenario has increased as of September 30, 2018, primarily due to changes into our derivative hedging position as noted above.

Our risk position is influenced by the net impact of derivative hedging which includes interest rate swaps designated as fair value ~~due to movements in interest rates. Interest rate risk arises from the mismatch between~~hedges of certain fixed-rate assets and ~~the related liabilities used for funding. We enter into various financial~~fixed-rate debt instruments, ~~including derivatives, to maintain the desired level of exposure to the risk of~~and pay-fixed interest rate swaps designated as cash flow hedges of certain floating-rate debt instruments. The size, maturity, 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~~mix of our hedging activities ~~from~~changes frequently as we adjust 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.broader ALM objectives.

Net Financing Revenue Sensitivity Analysis

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 ~~portfolio,~~without contractual maturities, which consist of our savings, money market, and checking accounts, whereby deposit pass-through levels increase as the absolute level of the Federal Funds Rate increases. Based on current market ~~interest rates rise. As a result,~~conditions, actual beta on our ~~baseline forecast assumes a medium-term deposit beta~~total retail deposits portfolio has been approximately 32% since the third quarter of ~~30% to 50%, steadily increasing to approximately 75% over the longer term.~~2015. We continually monitor industry and competitive repricing activity along with other market factors when contemplating deposit pricing actions.

Simulations are used to assess changes in net financing revenue in multiple interest ~~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 non-contractual 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 $19 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.

~~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 $59 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 September 30, 2018, and December 31, 2017.


	September 30, 2017						December 31, 2016						September 30, 2018						December 31, 2017
Change in interest rates ($ in millions)	Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
Change in interest rates ($ in millions)													Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
-100 basis points	$	12		$	43		$	(14	)	$	46		$	(21	)	$	(31	)	$	(22	)	$	15
+100 basis points	(1		)	(62		)	(2		)	(62		)	(3		)	(70		)	(18		)	(106		)
+200 basis points	(50		)	(261		)	(19		)	(153		)	(3		)	(135		)	(68		)	(294		)


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

The implied forward rate curve ~~has flattened since~~was higher and flatter compared to December 31, ~~2016,~~2017, as short-end rates have increased ~~and~~more than long-end ~~rates have decreased.~~rates. The impact of this change is reflected in our baseline net financing revenue projections. We remain moderately liability-sensitive as of September 30, ~~2017,~~2018, in the upward interest rate shock scenarios as our simulation models assume liabilities will initially

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reprice faster than assets. Exposure in the +100 and +200 instantaneous shock ~~scenario is largely unchanged~~scenarios has decreased as of September 30, ~~2017, as positive impacts from changes~~2018, primarily due to 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 ~~funding mix and deposit repricing assumptions were~~sensitivity to a rise in short-term interest rates beyond the implied forward curve. This was partially offset by ~~changes to our derivative hedging position that increased liability sensitivity during~~ the ~~period. The exposure in the +200~~impact of higher interest ~~rate shock has increased largely~~rates on deposits as a result of our assumption that deposit pass-through levels increase with higher interest rates.

The exposure in the downward instantaneous interest rate shock scenario ~~continues to benefit net financing revenue~~has increased as of September 30, ~~2017.~~

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 continue2018, primarily due to ~~believe~~changes to our ~~deposits may ultimately be less sensitive to interest rate changes, which would reduce our overall exposure to rising interest rate~~

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~~shocks. Assuming a static retail deposit beta of 50% would result in a consolidated interest rate risk~~derivative 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.~~

September 30, 2017
December 31, 2016
Change in interest rates ($ in millions)

Gradual (a)
Instantaneous
Gradual (a)
Instantaneous
+100 basis points
$ 51

$ 63

$ 50

$ 77
+200 basis points
90

73

88

119


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

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

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 in our 2017 Annual Report on Form 10-K.

Lease Vehicle Terminations and Remarketing



	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Off-lease vehicles terminated (in units)	29,018			64,465			109,659			213,893
Average gain per vehicle ($ per unit)	$	944		$	791		$	561		$	374
Method of vehicle sales
Auction
Internet	51		%	57		%	53		%	56		%
Physical	17			11			14			13
Sale to dealer, lessee, and other	32			32			33			31

Over the last twelve months, our operating lease portfolio, net of accumulated depreciation, decreased 4% from $8.9 billion at September 30, 2017, to $8.6 billion at September 30, 2018. The number of off-lease vehicles remarketed during the three months and nine months ended September 30, 2018, decreased 55% and 49%, respectively, compared to the same periods in 2017. The decreases in net operating lease assets and remarketing volume are primarily due to the wind down of our legacy GM lease portfolio. The residual risk associated with our operating lease portfolio has declined during this run-off period. We expect future termination volume to be more consistent with trends experienced during the nine months ended September 30, 2018.

We recognized an average gain per vehicle of $944 and $561 for the three months and nine months ended September 30, 2018, respectively, compared to $791 and $374 for the same periods in 2017. The increases in average gain per vehicle for the three months and nine months ended September 30, 2018, compared to the same periods in 2017, are primarily due to a more favorable mix of terminated leased vehicles and strength in the used vehicle market. Declining used vehicle values during the three months ended March 31, 2017, were more pronounced in the car market; however, beginning in the second quarter of 2017 our lease termination activity has experienced an increase in the mix of trucks and sport utility vehicles which drove more favorable remarketing results. We expect to maintain our current mix of trucks and sport utility vehicles in our future lease terminations. For more information on our investment in operating leases, refer to Note 8 to the Condensed Consolidated Financial Statements, and Note 1 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K.

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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 outstanding.

Our overall lease residual exposure has declined in recent years largely as a result of the runoff of our legacy GM lease portfolio, and as a result our exposure to Chrysler vehicles has grown and now represents approximately 87% of our lease units as of September 30, 2018. The following table presents the mix of leased vehicles by manufacturer, based on volume of units outstanding.

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 resulting from the pursuit of business plans that turn out to be unsuccessful due to a variety of factors, including 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 and financial business plan. With oversight from the Board, executive management seeks to consistently apply core operating principles while executing our strategic plan in accordance with our risk appetite approved by the RC. 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 arising from negative public opinion on our business practices, whether true or not, that will cause a decline in the customer base, litigation, or revenue reductions. 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 business lines. 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. Our 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 that need to be 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.

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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 business lines. 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. Operational risk includes business disruption risk, fraud risk, human capital risk, legal risk, model risk, process execution and management risk, and supplier (third party) risk.

Business disruption risk — The risk of significant disruption to our operations resulting from natural disasters, external technology outages, or other external events.

Fraud risk — The risk from deliberate misrepresentation or concealment of information material to a transaction with the intent to deceive another and that is reasonably relied on or used in decision making. Fraud can occur internally (e.g., employees) or externally (e.g., criminal activity, third-party suppliers).

Human capital risk — The risk caused by high turnover, inadequate or improper staffing levels, departure/unavailability of key personnel, or inadequate training and includes our exposure to worker’s compensation and employment litigation.

Legal risk — The risk arising from the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect our operations or condition.

Model risk — The potential for adverse consequences from decisions based on incorrect or misused model assumptions, inputs, outputs, and reports. This risk may include fundamental errors within the model that produce inaccurate outputs or that the model is used incorrectly or inappropriately.

Process execution and management risk — The risk caused by failure to execute or adhere to policies, standards, procedures, processes, controls, and activities as designed and documented.

Supplier (third party) risk — The risk associated with third-party suppliers and their delivery of products and/or services and effect on overall business performance. This includes a supplier’s failure to comply with information technology requirements, information and physical security, laws, rules, regulations, and legal agreements.

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.

Information Technology/Security Risk

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

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

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

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

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

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The RC reviews cybersecurity risks, incidents, and developments in connection with its oversight of our independent 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 are also actively engaged in overseeing the service providers that supply or support the operating systems and infrastructure on which we depend and, with effective challenge from the independent risk-management function, managing related operational and other risks.

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

Compliance Risk

Compliance risk is the risk of legal or regulatory sanctions, financial loss, or damage to reputation resulting from failure to comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and other standards of self-regulatory organizations applicable to the banking organization (applicable rules and standards). Examples of such risks include compliance with regulations set forth by banking agencies including fair and responsible banking, anti-money laundering, or community reinvestment act, risks associated with offering our products or services, or risks associated with deviating from internal policies and procedures including those that are established to promote sound risk-management and internal-control practices. Compliance risk also includes fiduciary risk, which includes risks arising from our duty to exercise loyalty, act in the best interest of our clients, and care for assets according to an appropriate standard of care. This risk generally exists to the extent that we exercise discretion in managing assets on behalf of a customer.

We recognize that an effective compliance program, including driving a culture of compliance, plays a key role in managing and overseeing compliance risk, and that a proactive compliance environment and program are essential to help meet various legal, regulatory, or other requirements or expectations. To manage compliance risk, we maintain a system of policies, change-management protocols, control frameworks, and other formal governance structures designed to provide a holistic enterprise approach to managing such risks, which includes consideration of identifying, assessing, monitoring, and communicating compliance risks throughout the Company. Our compliance function is led by the Chief Compliance Officer who reports to our Chief Executive Officer. The Chief Compliance Officer has the authority and responsibility for the oversight and administration of our Enterprise Compliance Program, which includes ongoing reporting of significant compliance-related matters to the Board and various committees established to govern compliance-related risks. The Compliance Risk Management Committee, established by the Chief Compliance Officer, serves to facilitate compliance risk management and to oversee the implementation of Ally’s compliance risk-management strategies and covers compliance matters across the enterprise including matters impacting customers, products, geographies, and services.

Conduct Risk

Conduct risk includes the risk of customer harm, employee harm, reputational damage, regulatory sanction, or financial loss resulting from the behavior of our employees and contractors toward customers, counterparties, other employees and contractors, or the markets in which we operate.

All business lines are responsible for identifying and managing conduct risk and driving a culture consistent with our “LEAD” core values and “Do it Right” philosophy. We manage conduct risk through a variety of enterprise programs, policies, and procedures. Our Code of Conduct and Ethics and various other training programs and resources serve as a guide to our associates regarding expectations around appropriate conduct, ethical behavior, and a culture of compliance with laws, regulations, policies, and standards. Our Code of Conduct and Ethics requires officers and employees to take personal responsibility for maintaining the highest standards of honesty, trustworthiness, and ethical conduct; to understand and manage the risks associated with their positions; and to escalate concerns about risk management including reporting of violations of the code, our policies, or other laws and regulations. Associates are required to complete training about our Code of Conduct and Ethics upon on-boarding and annually thereafter to affirm compliance to our Code of Conduct and Ethics. Conduct risk is also considered through various human resource and management activities including associate recruiting and on-boarding and management of performance and compensation. Conduct risk is also managed through our Enterprise Fraud, Security, and Investigations program, which identifies, monitors, and investigates potential fraud or conduct violations through a variety of measures including the administration of an anonymous reporting hotline.

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Liquidity Management, Funding, and Regulatory Capital

Overview

The purpose of liquidity management is to ~~ensure our ability~~enable the organization 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 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~~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 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 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 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 was at least 15%.

On August 22, 2017, the FRB lifted the capital, liquidity, and business plan commitments that Ally Bank made in connection with its application for membership in the Federal Reserve System, including the commitment to maintain a Tier 1 leverage ratio of at least 15%. As a result of this development, during the three months ended September 30, 2017, Ally Bank paid a dividend of $2.9 billion to Ally Financial Inc., which was utilized to reduce less cost-efficient borrowings and further enhance our funding profile. We also anticipate an additional $400 million of dividends to be paid from Ally Bank to Ally Financial Inc. during the fourth quarter of 2017.

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~~risk-management accountabilities.

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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.


September 30, 2017 ($ in millions)
September 30, 2018 ($ in millions)
Unencumbered highly liquid U.S. federal government and U.S. agency securities	$	12,434	$	15,466
Liquid cash and equivalents	4,243		3,254
Committed funding facilities
Total capacity	14,675		9,225
Outstanding	9,530		6,845
Unused capacity (a)	5,145		2,380
Total available liquidity	$	21,822	$	21,100


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

~~As of September 30, 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 September 30, 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 September 30, ~~2017.~~2018. Refer to Note 1816 to the Condensed Consolidated Financial Statements and the section titled Regulation and Supervision in Part I, Item 1 of our ~~2016~~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 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.


	3rd Quarter 2017		2nd Quarter 2017		1st Quarter 2017		4th Quarter 2016		3rd Quarter 2016		2nd Quarter 2016		1st Quarter 2016		3rd quarter 2018		2nd quarter 2018		1st quarter 2018		4th quarter 2017		3rd quarter 2017		2nd quarter 2017		1st quarter 2017
Number of retail bank accounts (in thousands)	2,603		2,474		2,366		2,269		2,203		2,134		2,062		3,079		2,947		2,864		2,740		2,603		2,474		2,366
Deposits ($ in millions)
Retail	$	74,928	$	71,094	$	69,971	$	66,584	$	63,880	$	61,239	$	58,977	$	84,629	$	81,736	$	81,657	$	77,925	$	74,928	$	71,094	$	69,971
Brokered (a)	15,045		14,937		14,327		12,187		11,570		11,269		10,979		16,567		16,839		15,661		15,211		15,045		14,937		14,327
Other (b)	143		152		188		251		294		294		309		183		159		128		120		143		152		188
Total deposits	$	90,116	$	86,183	$	84,486	$	79,022	$	75,744	$	72,802	$	70,265	$	101,379	$	98,734	$	97,446	$	93,256	$	90,116	$	86,183	$	84,486


(a)	Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.2 billion as of the end of each quarter ~~in 2017, and $200 million as of December 31, 2016.~~presented.


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

During the first nine months of ~~2017,~~2018, our deposit base grew ~~$11.1~~$8.1 billion. The recent growth in total deposits has been primarily attributable to our retail deposit ~~portfolio,~~ portfolio—particularly within retail CDs and our online savings ~~and money market accounts.~~product. 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 Ally Invest customer cash and an increase in brokered certificates of deposit.~~ Refer to Note 1311 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. ~~During~~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 ~~first nine months~~normal course of ~~2017, we raised $5.8 billion through the completion of term securitization~~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 total amount of loan servicing fees earned is disclosed in Note 3 to the Condensed Consolidated Financial Statements. We may also retain a portion of senior and subordinated interests issued by the 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 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K and Note 9 to the Condensed Consolidated Financial Statements.

During the first nine months of 2018, we raised $6.7 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 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. During the nine months ended September 30, 2017, we reduced the capacity of this facility to $9.5 billion. Refer to the section below titled~~ ~~Recent Funding Developments~~ ~~for further information regarding this facility.~~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 September 30, ~~2017,~~2018, there was ~~$5.6~~$3.7 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 September 30, ~~2017,~~2018, all of our ~~$14.7~~$9.2 billion of secured committed capacity was revolving. Our revolving facilities generally have an original tenor ranging from 364 days to two years. As of September 30, ~~2017,~~2018, we had ~~$2.6~~$5.0 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 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 September 30, ~~2017,~~2018, we had pledged ~~$21.4~~$25.9 billion of assets and investment securities to the FHLB resulting in ~~$16.0~~$18.8 billion in total funding capacity with ~~$14.0~~$17.5 billion of debt outstanding.

At September 30, 2018, $55.0 billion of our total assets were restricted as collateral for the payment of debt obligations accounted for as secured borrowings and repurchase agreements. Refer to Note 12 to the 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 ~~$3.4~~$2.6 billion at September 30, ~~2017.~~2018. We also have short-term and long-term unsecured debt outstanding from retail term note programs. These programs are composed of callable fixed-rate instruments with fixed-maturity dates and floating-rate notes. There were ~~$431~~$343 million of retail term notes outstanding at September 30, ~~2017.~~2018. The remainder of our unsecured debt is composed of institutional term debt. Refer to Note 1412 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 had access to a term facility with a commitment of $850 million, and a revolving facility with a commitment of $400 million. In the third quarter of 2017, we extinguished the corresponding debt and terminated these facilities in order to improve our funding profile through the utilization of more cost-efficient funding.

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 September 30, ~~2017,~~2018, we had $1.2 billion debt outstanding under repurchase agreements.

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Additionally, we have access to the FRB Discount Window and can borrow funds to meet short-term liquidity demands. However, the FRB is not a primary source of funding for day to day business. Instead, it is a liquidity source that can be accessed in stressed environments or periods of market disruption. We have assets pledged and restricted as collateral to the FRB totaling ~~$2.3~~$2.4 billion. We had no debt outstanding with the FRB as of September 30, ~~2017.~~2018.

Recent Funding Developments

During the first nine 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 ~~$11.2~~$13.3 billion. Key funding highlights from January 1, ~~2017,~~2018, to date were as follows:

We closed, renewed, increased, and/or extended ~~$5.2~~$6.6 billion in U.S. secured credit facilities during the nine months ended September 30, ~~2017.~~2018.

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We continued to access the public and private term asset-backed securitization markets raising ~~$5.8~~$6.7 billion during the nine months ended September 30, ~~2017.~~2018. In the first nine months of ~~2017,~~2018, we raised ~~approximately $4.4~~$4.1 billion through securitizations backed by retail automotive ~~loans, which includes $3.3 billion raised through on-balance sheet public securitizations and $1.1 billion raised through an off-balance sheet public securitization.~~loans. We also raised ~~$1.4~~approximately $2.6 billion through public securitizations backed by dealer floorplan automotive assets.

In October ~~2017,~~2018, we renewed a secured credit facility for $2.0 billion, which reduced ~~the~~its capacity ~~of our largest~~by $625 million, and also raised approximately $700 million through a private ~~committed funding facility~~securitization backed by ~~$1.5 billion to $8.0 billion.~~retail automotive loans.

Funding Sources

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


	September 30, 2017			December 31, 2016			September 30, 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	$	34,687	24	$	43,140	30	$	37,065	24	$	36,869	25
Institutional term debt and unsecured bank funding	16,526		11	19,276		13
Institutional term debt							12,835		8	15,099		10
Retail debt programs (a)	3,810		3	4,070		3	2,918		2	3,463		2
Total debt (b)	55,023		38	66,486		46	52,818		34	55,431		37
Deposits	90,116		62	79,022		54	101,379		66	93,256		63
Total on-balance sheet funding	$	145,139	100	$	145,508	100	$	154,197	100	$	148,687	100


(a)	Includes $~~431~~343 million and ~~$448~~$292 million of retail term notes at September 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, respectively.


(b)	Excludes fair value adjustment as described in Note 1917 to the Condensed Consolidated Financial Statements.

Refer to Note 1412 to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at September 30, ~~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 ~~$3.4~~$3.3 billion for the nine months ended September 30, ~~2017,~~2018, compared to ~~$3.6~~$3.4 billion for the same period in ~~2016.~~2017. Activity was largely consistent ~~year-over-year,~~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 ~~$3.7~~$8.8 billion for the nine months ended September 30, ~~2017,~~2018, compared to ~~$2.8~~$4.2 billion for the same period in ~~2016.~~2017. The ~~change~~increase during the nine months ended September 30, 2018, was ~~the result~~primarily due to $2.1 billion lower proceeds from disposals of an increase in net cash outflows from purchases, sales, maturities, and repayments of available-for-sale securities of $4.0 billion. Also contributing to the change was a decrease in net cash inflows from operating lease ~~activity~~assets, net of ~~$0.7 billion. This was partially offset by~~purchases, and a ~~decrease~~$4.5 billion net increase in ~~net~~ cash outflows from purchases, sales, originations and repayments of finance receivables and loans ~~of $3.3~~as originations and purchases outpaced sales during the nine months ended September 30, 2018. This was partially offset by a $1.7 billion ~~and a~~ decrease ~~of $0.4 billion~~ in net ~~cash used by nonmarketable equity investments due primarily to the purchase~~outflows from purchases, sales, maturities, and repayments of FRB stock in 2016 as a requirement of Ally Bank’s membership in the Federal Reserve System. Additionally, net cash outflows due to acquisitions decreased by $0.3 billion as a result of acquisitions in 2016 that did not recur in the current period.available-for-sales securities.

Net cash ~~used in~~provided by financing activities for the nine months ended September 30, ~~2017,~~2018, was ~~$1.2~~$4.9 billion, compared to ~~$2.9~~net cash used of $1.2 billion for the ~~nine months ended September 30, 2016.~~same period in 2017. The ~~reduction~~increase in net cash ~~used in~~provided by financing activities was primarily attributable to a $9.4 billion decrease in net cash outflows for repayment of long-term debt and an increase inof $1.5 billion from cash ~~flows associated with deposits~~inflows due to issuance of ~~approximately $1.8 billion, and the nonrecurring net cash outflow of $0.7 billion related to the repurchase and redemption of Series A preferred stock in 2016.~~long-term debt. This was partially offset by ~~a $0.8 billion~~an increase in net cash outflows ~~due~~related to ~~a larger decline in~~ short-term borrowings ~~during~~of approximately $1.6 billion between the ~~nine months ended September 30, 2017, compared to the same period~~two periods and a decrease in ~~2016, driven by a reduction in FHLB borrowings.~~net cash inflows associated with deposits of $3.0 billion.

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Capital Planning and Stress Tests

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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
Second quarter	195		7,280	432,691	425,752	0.13
Third quarter	250		9,194	425,752	416,591	0.15


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


(b)	On October ~~10, 2017,~~9, 2018, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.12~~$0.15 per share on all common stock, payable on November 15, ~~2017.~~2018. Refer to Note 2624 to the Condensed Consolidated Financial Statements for further information regarding this common ~~share~~stock dividend.

Ally submitted its 2018 capital plan and company-run stress test results to the FRB on April 5, 2018. On June 21, 2018, we publicly disclosed summary results of the stress test under the severely adverse scenario in accordance with applicable regulatory requirements. On June 28, 2018, we received from the FRB a non-objection to our capital plan, which includes increases in both our share repurchase program and our planned dividends. Consistent with the capital plan, the Board authorized a 32% increase in our share repurchase program, permitting us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019. Also consistent with the capital plan, on October 9, 2018, the Board declared a quarterly cash dividend of $0.15 per share of our common stock. Refer to Note 24 to the Condensed Consolidated Financial Statements for further information on the most recent dividend. On October 5, 2018, we submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable regulatory requirements.

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Regulatory Capital

Refer to Note 1816 to the Condensed Consolidated Financial Statements and the section titled Selected Financial Data within this MD&A.

Credit Ratings

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

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



Rating agency	Short-term	Senior unsecured debt	Outlook	Date of last action
Fitch	B	BB+	Positive	~~September 8, 2017~~August 28, 2018 (a)
Moody’s	Not Prime	Ba3	Stable	October 20, 2015 (b)
S&P	B	BB+	~~Stable~~Positive	October ~~16, 2017~~17, 2018 (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 ~~changed the~~maintained a Positive outlook ~~from Stable to Positive~~ on ~~September 8, 2017.~~August 28, 2018.

(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 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 ~~maintained a~~changed the outlook from Stable ~~outlook~~to Positive on October ~~16, 2017.~~17, 2018.


(d)	DBRS 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.

Insurance Financial Strength Ratings

Substantially all of our Insurance operations have a Financial Strength Rating (FSR) and an Issuer Credit Rating (ICR) from the A.M. Best Company. The FSR is intended to be an indicator of the ability of the insurance company to meet its senior most obligations to policyholders. Lower ratings generally result in fewer opportunities to write business, as insureds, particularly large commercial insureds, and insurance companies purchasing reinsurance have guidelines requiring high FSR ratings. On August ~~16, 2017,~~29, 2018, A.M. Best affirmed the FSR of B++ (good) ~~and~~, affirmed the ICR of bbb+., and changed the outlook from Stable to Positive.

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:

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

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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.

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 September 30, ($ in millions)	Average balance (a)			Interest income/Interest expense		Yield/rate		Average balance (a)			Interest income/Interest expense		Yield/rate		Volume			Yield/rate			Total			Average balance (a)			Interest income/interest expense		Yield/rate		Average balance (a)			Interest income/interest expense		Yield/rate		Volume			Yield/rate			Total
Assets
Interest-bearing cash and cash equivalents	$	3,148		$	11	1.39	%	$	2,530		$	3	0.47	%	$	1		$	7		$	8		$	3,159		$	18	2.26	%	$	3,148		$	11	1.39	%	$	—		$	7		$	7
Investment securities (b)	24,197			150		2.46		18,139			101		2.22		34			15			49			26,179			182		2.76		24,197			150		2.46		12			20			32
Loans held-for-sale, net	6			—		—		1			—		—		—			—			—			318			4		4.99		6			—		—		4			—			4
Finance receivables and loans, net (c) (d)	119,051			1,486		4.95		113,294			1,307		4.59		66			113			179
Finance receivables and loans, net (b) (c)																								124,986			1,708		5.42		119,051			1,486		4.95		74			148			222
Investment in operating leases, net ~~(e)~~(d)	9,320			162		6.90		13,232			241		7.25		(71		)	(8		)	(79		)	8,634			121		5.56		9,320			162		6.90		(12		)	(29		)	(41		)
Other earning assets	914			7		3.04		—			—		—		7			—			7			1,134			16		5.60		914			7		3.04		2			7			9
Total interest-earning assets	156,636			1,816		4.60		147,196			1,652		4.46								164			164,410			2,049		4.94		156,636			1,816		4.60								233
Noninterest-bearing cash and cash equivalents	720							1,369																502							720
Other assets	7,740							8,764																7,331							7,740
Allowance for loan losses	(1,226		)					(1,103		)														(1,260		)					(1,226		)
Total assets	$	163,870						$	156,226															$	170,983						$	163,870
Liabilities
Interest-bearing deposit liabilities	$	88,115		$	285	1.28	%	$	74,166		$	212	1.14	%	$	40		$	33		$	73		$	99,815		$	462	1.84	%	$	88,115		$	285	1.28	%	$	38		$	139		$	177
Short-term borrowings	9,137			34		1.48		5,194			14		1.07		11			9			20			5,531			29		2.08		9,137			34		1.48		(13		)	8			(5		)
Long-term debt ~~(d)~~(b)	47,965			416		3.44		58,425			430		2.93		(77		)	63			(14		)	46,967			451		3.81		47,965			416		3.44		(9		)	44			35
Total interest-bearing liabilities	145,217			735		2.01		137,785			656		1.89								79			152,313			942		2.45		145,217			735		2.01								207
Noninterest-bearing deposit liabilities	106							97																149							106
Total funding sources	145,323			735		2.01		137,882			656		1.89											152,462			942		2.45		145,323			735		2.01
Other liabilities	5,001							4,674																5,388							5,001
Total liabilities	150,324							142,556																157,850							150,324
Total equity	13,546							13,670																13,133							13,546
Total liabilities and equity	$	163,870						$	156,226															$	170,983						$	163,870
Net financing revenue and other interest income				$	1,081						$	996									$	85					$	1,107						$	1,081									$	26
Net interest spread ~~(f)~~(e)						2.59	%						2.57	%															2.49	%						2.59	%
Net yield on interest-earning assets ~~(g)~~(f)						2.74	%						2.69	%															2.67	%						2.74	%


(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 17 to the ~~three months ended~~Condensed Consolidated Financial Statements ~~September 30, 2016, were adjusted to include previously excluded equity investments with an average balance~~for further information about the effects of $589 million and related dividend 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~~Yield includes gains on the sale of ~~$51~~off-lease vehicles of $27 million and ~~$62~~$51 million for the three months ended September 30, ~~2017,~~2018, and ~~2016,~~2017, respectively. Excluding these gains on sale, the annualized yield would be 4.32% and 4.73% ~~and 5.38% at~~for the three months ended September 30, ~~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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	2017							2016							Increase (decrease) due to									2018							2017							Increase (decrease) due to
Nine months ended September 30, ($ in millions)	Average balance (a)			Interest income/Interest expense		Yield/rate		Average balance (a)			Interest income/Interest expense		Yield/rate		Volume			Yield/rate			Total			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	$	2,837		$	23	1.08	%	$	2,700		$	10	0.49	%	$	1		$	12		$	13		$	3,235		$	50	2.07	%	$	2,837		$	23	1.08	%	$	3		$	24		$	27
Federal funds sold and securities purchased under resale agreements	—			—		—		1			—		—		—			—			—
Investment securities (b)	22,327			415		2.49		17,977			302		2.24		73			40			113			25,723			518		2.69		22,327			415		2.49		63			40			103
Loans held-for-sale, net	3			—		—		12			—		—		—			—			—			251			10		5.33		3			—		—		10			—			10
Finance receivables and loans, net (c) (d)	118,757			4,301		4.84		112,332			3,807		4.53		218			276			494
Investment in operating leases, net (e)	10,114			483		6.38		14,412			767		7.11		(229		)	(55		)	(284		)
Finance receivables and loans, net (b) (c)																								124,005			4,898		5.28		118,757			4,301		4.84		190			407			597
Investment in operating leases, net (d)																								8,615			339		5.26		10,114			483		6.38		(72		)	(72		)	(144		)
Other earning assets	859			22		3.42		—			—		—		15			7			22			1,161			44		5.07		859			22		3.42		8			14			22
Total interest-earning assets	154,897			5,244		4.53		147,434			4,886		4.43								358			162,990			5,859		4.81		154,897			5,244		4.53								615
Noninterest-bearing cash and cash equivalents	1,013							1,515																514							1,013
Other assets	7,827							8,816																7,366							7,827
Allowance for loan losses	(1,181		)					(1,084		)														(1,272		)					(1,181		)
Total assets	$	162,556						$	156,681															$	169,598						$	162,556
Liabilities
Interest-bearing deposit liabilities	$	85,403		$	766	1.20	%	$	71,286		$	608	1.14	%	$	120		$	38		$	158		$	97,505		$	1,212	1.66	%	$	85,403		$	766	1.20	%	$	109		$	337		$	446
Short-term borrowings	8,798			94		1.43		5,445			39		0.96		24			31			55			7,536			101		1.79		8,798			94		1.43		(13		)	20			7
Long-term debt (d)	50,395			1,257		3.33		61,318			1,308		2.85		(233		)	182			(51		)
Long-term debt (b)																								46,107			1,296		3.76		50,395			1,257		3.33		(107		)	146			39
Total interest-bearing liabilities	144,596			2,117		1.96		138,049			1,955		1.89								162			151,148			2,609		2.31		144,596			2,117		1.96								492
Noninterest-bearing deposit liabilities	98							94																130							98
Total funding sources	144,694			2,117		1.96		138,143			1,955		1.89											151,278			2,609		2.31		144,694			2,117		1.96
Other liabilities	4,385							4,873																5,182							4,385
Total liabilities	149,079							143,016																156,460							149,079
Total equity	13,477							13,665																13,138							13,477
Total liabilities and equity	$	162,556						$	156,681															$	169,598						$	162,556
Net financing revenue and other interest income				$	3,127						$	2,931									$	196					$	3,250						$	3,127									$	123
Net interest spread (f)						2.57	%						2.54	%
Net yield on interest-earning assets (g)						2.70	%						2.66	%
Net interest spread (e)																													2.50	%						2.57	%
Net yield on interest-earning assets (f)																													2.67	%						2.70	%


(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 17 to the ~~nine months ended~~Condensed Consolidated Financial Statements ~~September 30, 2016, were adjusted to include previously excluded equity investments with an average balance~~for further information about the effects of $652 million and related dividend income on equity investments of $13 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~~Yield includes gains on the sale of ~~$80~~off-lease vehicles of $61 million and ~~$203~~$80 million for the nine months ended September 30, ~~2017,~~2018, and ~~2016,~~2017, respectively. Excluding these gains on sale, the annualized yield would be 4.30% and 5.33% ~~and 5.23% at~~for the nine months ended September 30, ~~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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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 business 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~~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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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;~~

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~~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~~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.

~~111~~123

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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 September 30, ~~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 2523 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 September 30, ~~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 September 30, ~~2017.~~2018.

Three months ended September 30, 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)
July 2017 2,580
$ 21.43
2,580
$ 705
August 2017 3,196
22.56
3,196
633
September 2017 2,731
22.88
2,731
570
Total 8,507
22.32
8,507



Three months ended September 30, 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)
July 2018	3,978	$	27.39	3,978	$	891
August 2018	3,543	27.03		3,543	795
September 2018	1,673	26.92		1,673	750
Total	9,194	27.17		9,194


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


(b)	Excludes brokerage commissions.


(c)	On June 28, ~~2017,~~2018, we announced a common stock repurchase program of up to ~~$760 million.~~$1.0 billion. The program commenced in the third quarter of ~~2017~~2018 and will expire on June 30, ~~2018.~~2019. Refer to Note 1816 to the Condensed Consolidated Financial Statements for a discussion of our ~~2017~~2018 capital plan.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

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



Exhibit	Description	Method of Filing

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 September 30, ~~2017,~~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.

~~114~~126

Table of Contents

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 ~~31st~~1st day of ~~October, 2017~~November, 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

~~115~~127



($ 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



	Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total gain included in earnings for the three months ended		Total gain included in earnings for the nine months ended
September 30, 2016 ($ in millions)	Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value or valuation reserve allowance			Total gain included in earnings for the three months ended		Total gain included in earnings for the nine months ended
Assets
Loans held-for-sale, net	$	—	$	—	$	56	$	56	$	—		n/m	(a)	n/m	(a)
Commercial finance receivables and loans, net (b)
Commercial and industrial
Automotive	—		—		30		30		(7		)	n/m	(a)	n/m	(a)
Other	—		—		45		45		(17		)	n/m	(a)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		75		75		(24		)	n/m	(a)	n/m	(a)
Other assets
Repossessed and foreclosed assets (c)	—		—		15		15		(4		)	n/m	(a)	n/m	(a)
Other	—		—		7		7		—			n/m	(a)	n/m	(a)
Total assets	$	—	$	—	$	153	$	153	$	(28	)	n/m		n/m



September 30, 2017 ($ in millions)	Parent (a)			Guarantors		Nonguarantors (a)			Consolidating adjustments			Ally consolidated
Assets
Cash and cash equivalents
Noninterest-bearing	$	74		$	—	$	736		$	—		$	810
Interest-bearing	5			—		3,609			—			3,614
Interest-bearing — intercompany	1,495			—		558			(2,053		)	—
Total cash and cash equivalents	1,574			—		4,903			(2,053		)	4,424
Available-for-sale securities	—			—		23,099			—			23,099
Held-to-maturity securities	—			—		1,923			(84		)	1,839
Loans held-for-sale, net	—			—		18			—			18
Finance receivables and loans, net
Finance receivables and loans, net	7,694			—		111,177			—			118,871
Intercompany loans to
Nonbank subsidiaries	788			—		394			(1,182		)	—
Allowance for loan losses	(197		)	—		(1,089		)	—			(1,286		)
Total finance receivables and loans, net	8,285			—		110,482			(1,182		)	117,585
Investment in operating leases, net	23			—		8,908			—			8,931
Intercompany receivables from
Bank subsidiary	59			—		—			(59		)	—
Nonbank subsidiaries	76			—		91			(167		)	—
Investment in subsidiaries
Bank subsidiary	16,383			16,383		—			(32,766		)	—
Nonbank subsidiaries	9,045			—		—			(9,045		)	—
Premiums receivable and other insurance assets	—			—		2,085			(31		)	2,054
Other assets	3,174			—		4,910			(2,021		)	6,063
Total assets	$	38,619		$	16,383	$	156,419		$	(47,408	)	$	164,013
Liabilities
Deposit liabilities
Noninterest-bearing	$	—		$	—	$	129		$	—		$	129
Interest-bearing	14			—		89,973			—			89,987
Interest-bearing — intercompany	—			—		1,495			(1,495		)	—
Total deposit liabilities	14			—		91,597			(1,495		)	90,116
Short-term borrowings	3,379			—		6,796			—			10,175
Long-term debt	19,969			—		25,153			—			45,122
Intercompany debt to
Bank subsidiary	84			—		—			(84		)	—
Nonbank subsidiaries	952			—		788			(1,740		)	—
Intercompany payables to
Nonbank subsidiaries	149			—		108			(257		)	—
Interest payable	278			—		274			—			552
Unearned insurance premiums and service revenue	—			—		2,583			—			2,583
Accrued expenses and other liabilities	221			—		3,692			(2,021		)	1,892
Total liabilities	25,046			—		130,991			(5,597		)	150,440
Total equity	13,573			16,383		25,428			(41,811		)	13,573
Total liabilities and equity	$	38,619		$	16,383	$	156,419		$	(47,408	)	$	164,013



	At and for the three months ended September 30,						At and for the nine months ended September 30,
($ in millions)	2017			2016			2017			2016
Selected period-end balance sheet data:
Total assets	$	164,013		$	157,397		$	164,013		$	157,397
Total deposit liabilities	$	90,116		$	75,744		$	90,116		$	75,744
Long-term debt	$	45,122		$	56,836		$	45,122		$	56,836
Total equity	$	13,573		$	13,630		$	13,573		$	13,630
Financial ratios:
Return on average assets (a)	0.68		%	0.53		%	0.62		%	0.70		%
Return on average equity (a)	8.26		%	6.08		%	7.42		%	8.01		%
Equity to assets (a)	8.27		%	8.75		%	8.29		%	8.72		%
Common dividend payout ratio	19.05		%	18.60		%	17.18		%	4.91		%
Net interest spread (a) (b) (c)	2.59		%	2.57		%	2.57		%	2.54		%
Net yield on interest-earning assets (a) (c) (d)	2.74		%	2.69		%	2.70		%	2.66		%



Three months ended September 30, 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)
July 2017	2,580	$	21.43	2,580	$	705
August 2017	3,196	22.56		3,196	633
September 2017	2,731	22.88		2,731	570
Total	8,507	22.32		8,507

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