0000040729 us-gaap:UnsecuredDebtMember us-gaap:DesignatedAsHedgingInstrumentMember ally:InterestondepositsMember 2018-01-01 2018-06-30

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~~June 30, ~~2017,~~2019, or



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-3754

ALLY FINANCIAL INC.

(Exact name of registrant as specified in its charter)



Delaware		38-0572512
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Ally Detroit Center

500 Woodward ~~Ave.~~Ave.

Floor 10, Detroit, Michigan

48226

(Address of principal executive offices)

(Zip Code)

~~(866)~~ (866) 710-4623

(Registrant’s telephone number, including area code)

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



Title of each class	Trading symbols
Common Stock, par value $0.01 per share	ALLY
8.125% Fixed Rate/Floating Rate Trust Preferred Securities, Series 2 of GMAC Capital Trust I	ALLY PRA

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

~~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).

Yesþ☑ No ¨☐

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



Large accelerated filerþ	☑		Accelerated filero	☐	Non-accelerated filero	☐	Smaller reporting companyo	☐
		~~(Do not check if a smaller reporting company)~~					Emerging growth companyo	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o ☐

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

Yes ¨☐ No þ☑

At ~~October 27, 2017,~~July 30, 2019, the number of shares outstanding of the Registrant’s common stock was ~~442,185,905~~390,415,331 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~~Six Months Ended ~~September~~June 30, ~~2017,~~2019, and ~~2016~~2018	3
	Condensed Consolidated Balance Sheet (unaudited) at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016~~2018	5
	Condensed Consolidated Statement of Changes in Equity (unaudited) for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017,~~2019, and ~~2016~~2018	7
	Condensed Consolidated Statement of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017,~~2019, and ~~2016~~2018	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
	Note 1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies	10
	Note 2. Revenue from Contracts with Customers	12
	Note 3. Other Income, Net of Losses	13
	Note 4. Reserves for Insurance Losses and Loss Adjustment Expenses	14
	Note 5. Other Operating Expenses	14
	Note 6. Investment Securities	15
	Note 7. Finance Receivables and Loans, Net	19
	Note 8. Leasing	26
	Note 9. Securitizations and Variable Interest Entities	29
	Note 10. Other Assets	32
	Note 11. Deposit Liabilities	32
	Note 12. Debt	33
	Note 13. Accrued Expenses and Other Liabilities	35
	Note 14. Accumulated Other Comprehensive (Loss) Income	36
	Note 15. Earnings per Common Share	39
	Note 16. Regulatory Capital and Other Regulatory Matters	39
	Note 17. Derivative Instruments and Hedging Activities	42
	Note 18. Income Taxes	49
	Note 19. Fair Value	50
	Note 20. Offsetting Assets and Liabilities	57
	Note 21. Segment Information	59
	Note 22. Parent and Guarantor Condensed Consolidating Financial Statements	61
	Note 23. Contingencies and Other Risks	70
	Note 24. Subsequent Events	70
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6571
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~111~~118
Item 4.	Controls and Procedures	~~112~~119
Part II — Other Information		~~113~~120
Item 1.	Legal Proceedings	~~113~~120
Item 1A.	Risk Factors	~~113~~120
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~113~~120
Item 3.	Defaults Upon Senior Securities	~~113~~120
Item 4.	Mine Safety Disclosures	~~113~~120
Item 5.	Other Information	~~113~~120
Item 6.	Exhibits	~~114~~121
Signatures		~~115~~122



Table of Contents		PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statement of Comprehensive Income (unaudited)

Ally Financial Inc. • Form 10-Q


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
($ in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	1,486		$	1,307		$	4,301		$	3,807		$	1,860		$	1,647		$	3,667		$	3,190
Interest on loans held-for-sale													3			6			5			6
Interest and dividends on investment securities and other earning assets	157			101			437			302			244			188			484			364
Interest on cash and cash equivalents	11			3			23			10			21			17			44			32
Operating leases	434			649			1,465			2,119			363			374			724			756
Total financing revenue and other interest income	2,088			2,060			6,226			6,238			2,491			2,232			4,924			4,348
Interest expense
Interest on deposits	285			212			766			608			651			399			1,243			750
Interest on short-term borrowings	34			14			94			39			37			40			81			72
Interest on long-term debt	416			430			1,257			1,308			407			434			826			845
Total interest expense	735			656			2,117			1,955			1,095			873			2,150			1,667
Net depreciation expense on operating lease assets	272			408			982			1,352			239			265			485			538
Net financing revenue and other interest income	1,081			996			3,127			2,931			1,157			1,094			2,289			2,143
Other revenue
Insurance premiums and service revenue earned	252			238			720			704			261			239			522			495
Gain on mortgage and automotive loans, net	15			—			65			4			2			1			12			2
Loss on extinguishment of debt	(4		)	—			(6		)	(4		)
Other gain on investments, net	23			52			73			145			39			27			147			15
Other income, net of losses	95			98			313			289			93			97			180			206
Total other revenue	381			388			1,165			1,138			395			364			861			718
Total net revenue	1,462			1,384			4,292			4,069			1,552			1,458			3,150			2,861
Provision for loan losses	314			258			854			650			177			158			459			419
Noninterest expense
Compensation and benefits expense	264			248			814			742			296			292			614			598
Insurance losses and loss adjustment expenses	65			69			278			287			127			101			186			164
Other operating expenses	424			418			1,249			1,189			458			446			911			891
Total noninterest expense	753			735			2,341			2,218			881			839			1,711			1,653
Income from continuing operations before income tax expense	395			391			1,097			1,201
Income tax expense from continuing operations	115			130			350			336
Income from continuing operations before income tax (benefit) expense													494			461			980			789
Income tax (benefit) expense from continuing operations													(90		)	113			21			189
Net income from continuing operations	280			261			747			865			584			348			959			600
Income (loss) from discontinued operations, net of tax	2			(52		)	1			(46		)
(Loss) income from discontinued operations, net of tax													(2		)	1			(3		)	(1		)
Net income	282			209			748			819			582			349			956			599
Other comprehensive income (loss), net of tax	48			(4		)	144			262			309			(70		)	615			(398		)
Comprehensive income	$	330		$	205		$	892		$	1,081		$	891		$	279		$	1,571		$	201

Statement continues on the next page.

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

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 June 30,				Six months ended June 30,
(in dollars) (a)	2017		2016			2017		2016			2019		2018		2019			2018
Basic earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.73		$	1.47	$	0.81	$	2.39		$	1.38
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Loss from discontinued operations, net of tax											—		—		(0.01		)	—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	1.46	$	0.81	$	2.39		$	1.38
Diluted earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.72		$	1.46	$	0.80	$	2.38		$	1.38
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Loss from discontinued operations, net of tax											—		—		(0.01		)	—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	1.46	$	0.81	$	2.37		$	1.37
Cash dividends declared per common share	$	0.12	$	0.08		$	0.28	$	0.08		$	0.17	$	0.13	$	0.34		$	0.26


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

Refer to Note 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			June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents
Noninterest-bearing	$	810		$	1,547		$	659		$	810
Interest-bearing	3,614			4,387			2,904			3,727
Total cash and cash equivalents	4,424			5,934			3,563			4,537
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							591			773
Available-for-sale securities (refer to Note 6 for discussion of investment securities pledged as collateral)							28,688			25,303
Held-to-maturity securities (fair value of $2,499 and $2,307)							2,461			2,362
Loans held-for-sale, net	18			—			275			314
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	118,871			118,944			129,210			129,926
Allowance for loan losses	(1,286		)	(1,144		)	(1,282		)	(1,242		)
Total finance receivables and loans, net	117,585			117,800			127,928			128,684
Investment in operating leases, net	8,931			11,470			8,407			8,417
Premiums receivable and other insurance assets	2,054			1,905			2,460			2,326
Other assets	6,063			6,854			6,075			6,153
Total assets	$	164,013		$	163,728		$	180,448		$	178,869
Liabilities
Deposit liabilities
Noninterest-bearing	$	129		$	84		$	162		$	142
Interest-bearing	89,987			78,938			116,163			106,036
Total deposit liabilities	90,116			79,022			116,325			106,178
Short-term borrowings	10,175			12,673			6,519			9,987
Long-term debt	45,122			54,128			37,466			44,193
Interest payable	552			351			744			523
Unearned insurance premiums and service revenue	2,583			2,500			3,171			3,044
Accrued expenses and other liabilities	1,892			1,737			1,907			1,676
Total liabilities	150,440			150,411			166,132			165,601
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 496,560,246 and 492,797,409; and outstanding 392,775,052 and 404,899,599)							21,403			21,345
Accumulated deficit	(6,533		)	(7,151		)	(4,682		)	(5,489		)
Accumulated other comprehensive loss	(197		)	(341		)
Treasury stock, at cost (45,797,081 and 18,707,338 shares)	(920		)	(357		)
Accumulated other comprehensive income (loss)							84			(539		)
Treasury stock, at cost (103,785,194 and 87,897,810 shares)							(2,489		)	(2,049		)
Total equity	13,573			13,317			14,316			13,268
Total liabilities and equity	$	164,013		$	163,728		$	180,448		$	178,869

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			June 30, 2019			December 31, 2018
Assets
Finance receivables and loans, net
Finance receivables and loans, net of unearned income	$	20,020		$	24,630		$	16,101		$	18,086
Allowance for loan losses	(134		)	(173		)	(98		)	(114		)
Total finance receivables and loans, net	19,886			24,457			16,003			17,972
Investment in operating leases, net	704			1,745			90			164
Other assets	1,037			1,390			614			767
Total assets	$	21,627		$	27,592		$	16,707		$	18,903
Liabilities
Long-term debt	$	10,046		$	13,259		$	9,030		$	10,482
Accrued expenses and other liabilities	10			12			11			12
Total liabilities	$	10,056		$	13,271		$	9,041		$	10,494

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

Table of Contents

Condensed Consolidated Statement of Changes in Equity (unaudited)

Ally Financial Inc. • Form 10-Q


																		Three months ended June 30,
($ 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) income			Treasury stock			Total equity
Balance at January 1, 2016	$	21,100	$	696		$	(8,110	)	$	(231	)	$	(16	)	$	13,439
Balance at April 1, 2018																		$	21,273	$	(6,318	)	$	(578	)	$	(1,295	)	$	13,082
Net income						819									819					349									349
Preferred stock dividends						(30		)							(30		)
Series A preferred stock redemption			(696		)										(696		)
Share-based compensation	49														49			30											30
Other comprehensive income									262						262
Other comprehensive loss																							(70		)				(70		)
Common stock repurchases												(173		)	(173		)									(195		)	(195		)
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
Common stock dividends ($0.13 per share)																				(57		)							(57		)
Balance at June 30, 2018																		$	21,303	$	(6,026	)	$	(648	)	$	(1,490	)	$	13,139
Balance at April 1, 2019																		$	21,379	$	(5,195	)	$	(225	)	$	(2,260	)	$	13,699
Net income						748									748					582									582
Share-based compensation	57														57			24											24
Other comprehensive income									144						144								309						309
Common stock repurchases												(563		)	(563		)									(229		)	(229		)
Common stock dividends ($0.28 per share)						(130		)							(130		)
Balance at September 30, 2017	$	21,223	$	—		$	(6,533	)	$	(197	)	$	(920	)	$	13,573
Common stock dividends ($0.17 per share)																				(69		)							(69		)
Balance at June 30, 2019																		$	21,403	$	(4,682	)	$	84		$	(2,489	)	$	14,316



	Six months ended June 30,
($ in millions)	Common stock and paid-in capital		Accumulated deficit			Accumulated other comprehensive (loss) income			Treasury stock			Total equity
Balance at December 31, 2017	$	21,245	$	(6,406	)	$	(235	)	$	(1,110	)	$	13,494
Cumulative effect of changes in accounting principles, net of tax (a)
Adoption of Accounting Standards Update 2014-09			(126		)							(126		)
Adoption of Accounting Standards Update 2016-01			(20		)	27						7
Adoption of Accounting Standards Update 2018-02			42			(42		)				—
Balance at January 1, 2018	$	21,245	$	(6,510	)	$	(250	)	$	(1,110	)	$	13,375
Net income			599									599
Share-based compensation	58											58
Other comprehensive loss						(398		)				(398		)
Common stock repurchases									(380		)	(380		)
Common stock dividends ($0.26 per share)			(115		)							(115		)
Balance at June 30, 2018	$	21,303	$	(6,026	)	$	(648	)	$	(1,490	)	$	13,139
Balance at December 31, 2018	$	21,345	$	(5,489	)	$	(539	)	$	(2,049	)	$	13,268
Cumulative effect of changes in accounting principles, net of tax (a)
Adoption of Accounting Standards Update 2017-08			(10		)	8						(2		)
Balance at January 1, 2019	$	21,345	$	(5,499	)	$	(531	)	$	(2,049	)	$	13,266
Net income			956									956
Share-based compensation	58											58
Other comprehensive income						615						615
Common stock repurchases									(440		)	(440		)
Common stock dividends ($0.34 per share)			(139		)							(139		)
Balance at June 30, 2019	$	21,403	$	(4,682	)	$	84		$	(2,489	)	$	14,316


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

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

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
Six months ended June 30, ($ in millions)							2019			2018
Operating activities
Net income	$	748		$	819		$	956		$	599
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization	1,434			1,807			752			865
Provision for loan losses	854			650			459			419
Gain on mortgage and automotive loans, net	(65		)	(4		)	(12		)	(2		)
Other gain on investments, net	(73		)	(145		)	(147		)	(15		)
Loss on extinguishment of debt	6			4
Originations and purchases of loans held-for-sale	(252		)	(141		)	(528		)	(730		)
Proceeds from sales and repayments of loans originated as held-for-sale	236			184
Proceeds from sales and repayments of loans held-for-sale							335			512
Net change in
Deferred income taxes	289			322			1			192
Interest payable	202			112			221			193
Other assets	(57		)	16			(21		)	(25		)
Other liabilities	(19		)	(65		)	(114		)	(24		)
Other, net	70			30			(58		)	25
Net cash provided by operating activities	3,373			3,589			1,844			2,009
Investing activities
Purchases of equity securities							(210		)	(500		)
Proceeds from sales of equity securities							511			535
Purchases of available-for-sale securities	(9,022		)	(11,027		)	(7,018		)	(4,094		)
Proceeds from sales of available-for-sale securities	2,926			8,546			2,568			390
Proceeds from maturities and repayments of available-for-sale securities	2,002			2,411
Proceeds from repayments of available-for-sale securities							1,805			1,621
Purchases of held-to-maturity securities	(709		)	(650		)	(268		)	(316		)
Proceeds from maturities and repayments of held-to-maturity securities	32			—
Proceeds from repayments of held-to-maturity securities							107			72
Purchases of finance receivables and loans held-for-investment	(3,125		)	(2,924		)	(2,386		)	(2,611		)
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							159			—
Originations and repayments of finance receivables and loans held-for-investment and other, net	1,021			(5,384		)	2,769			(638		)
Purchases of operating lease assets	(2,844		)	(2,360		)	(1,769		)	(2,107		)
Disposals of operating lease assets	4,409			4,631			1,321			1,763
Acquisitions, net of cash acquired	—			(309		)
Net change in restricted cash	497			622
Net change in nonmarketable equity investments	(20		)	(401		)	113			(46		)
Other, net	(159		)	(157		)	(209		)	(186		)
Net cash used in investing activities	(3,669		)	(2,781		)	(2,507		)	(6,117		)

Statement continues on the next page.

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

Table of Contents

Condensed Consolidated Statement of Cash Flows (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, ($ in millions)	2019			2018
Financing activities
Net change in short-term borrowings	(3,468		)	(4,305		)
Net increase in deposits	10,133			5,441
Proceeds from issuance of long-term debt	4,590			12,940
Repayments of long-term debt	(11,372		)	(9,800		)
Repurchase of common stock	(440		)	(380		)
Dividends paid	(139		)	(115		)
Net cash (used in) provided by financing activities	(696		)	3,781
Effect of exchange-rate changes on cash and cash equivalents and restricted cash	3			(3		)
Net decrease in cash and cash equivalents and restricted cash	(1,356		)	(330		)
Cash and cash equivalents and restricted cash at beginning of year	5,626			5,269
Cash and cash equivalents and restricted cash at June 30,	$	4,270		$	4,939
Supplemental disclosures
Cash paid for
Interest	$	1,884		$	1,455
Income taxes	24			17
Noncash items
Loans held-for-sale transferred to finance receivables and loans held-for-investment	125			—
Finance receivables and loans held-for-investment transferred to loans held-for-sale	20			—
Other disclosures
Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale	7			12

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

Nine months ended September 30, ($ in millions)
2017 2016
Financing activities

Net change in short-term borrowings
(2,500 )
(1,673 )
Net increase in deposits
11,050

9,240
Proceeds from issuance of long-term debt
13,302

11,229
Repayments of long-term debt
(22,376 )
(20,758 )
Repurchase and redemption of preferred stock
—

(696 )
Repurchase of common stock (563 ) (173 )
Dividends paid
(130 )
(70 )
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
Supplemental disclosures

Cash paid for

Interest
$ 1,910

$ 1,860
Income taxes
32

16
Noncash items

Held-to-maturity securities received in consideration for loans sold 56
—
Finance receivables and loans transferred to loans held-for-sale
1,326

4,231
Other disclosures

Proceeds from repayments of mortgage loans held-for-investment originally designated as held-for-sale
29

28



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


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies

Ally Financial Inc. (together with its consolidated subsidiaries unless the context otherwise requires, ~~otherwise,~~ Ally, the Company,or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services ~~company~~ and ~~top 25 U.S. financial holding company (FHC) offering diversified financial~~insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for ~~consumers, businesses, automotive dealers,~~equity sponsors and ~~corporate clients. Our legacy dates back to 1919, and Ally was redesigned in 2009 with a distinctive brand, innovative approach, and relentless focus on our customers.~~ middle-market companies. 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~~ a financial holding company (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 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 a variety of deposit and banking products including CDs, online savings, money market and checking accounts, IRA products, a cash back credit card, and mortgage lending offerings through Ally Home. 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 offer lending solutions to middle-market companies.amended.

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that affect income and expenses during the reporting period and related disclosures. In developing the estimates and assumptions, management uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and likelihood of possible outcomes. Our most significant estimates pertain to the allowance for loan losses, valuations of automotive lease assets and residuals, fair value of financial instruments, ~~legal and regulatory reserves,~~ and the determination of the provision for income taxes.

The Condensed Consolidated Financial Statements at ~~September~~June 30, ~~2017,~~2019, and for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016,~~2018, are unaudited but reflect all adjustments that are, in management’s opinion, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements (and the related Notes) included in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, as filed on February ~~27, 2017,~~20, 2019, with the U.S. Securities and Exchange Commission (SEC).

Significant Accounting Policies

Lease Accounting

At contract inception, we determine whether the contract is or contains a lease based on the terms and conditions of the contract. Lease contracts are recognized on our Condensed Consolidated Balance Sheet as right-of-use (ROU) assets and lease liabilities; however, we have elected not to recognize ROU assets and lease liabilities on real estate leases with terms of one year or less. Lease liabilities and their corresponding ROU assets are recorded based on the present value of the future lease payments over the expected lease term. As the interest rate implicit in the lease contract is typically not readily determinable, we utilize our incremental borrowing rate, which is the rate we would incur to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. The ROU asset also includes initial direct costs paid less lease incentives received from the lessor. Our lease contracts are generally classified as operating and, as a result, we recognize a single lease cost within other operating expenses on the income statement on a straight-line basis over the lease term. This update to our accounting policy resulted from our adoption of Accounting Standards Update (ASU) 2016-02 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.

Investments

Premiums on debt securities that have noncontingent call features that are callable at fixed prices on preset dates are amortized to the earliest call date as an adjustment to investment yield. All other premiums and discounts on debt securities are amortized over the stated maturity of the security as an adjustment to investment yield. This method of amortization differs from that described in Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, which describes our full accounting policy for Investments. This update to our amortization methodology resulted from the adoption of ASU 2017-08 on January 1, 2019, as further described within the section below titled Recently Adopted Accounting Standards.

Income Taxes

In calculating the provision for interim income taxes, in accordance with Accounting Standards Codification (ASC) 740, Income Taxes, we apply an estimated annual effective tax rate to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This method differs from that described in Note 1 to the Consolidated Financial Statements in our ~~2016~~2018 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 101 to the ~~Condensed~~ Consolidated Financial Statements ~~for discussion~~in our 2018 Annual Report on ~~VIEs.~~Form 10-K regarding additional significant accounting policies.

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

Table of Contents

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 Annual Report on Form 10-K regarding additional significant accounting policies.~~

Recently Adopted Accounting Standards

~~Stock Compensation — Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)~~

As of December 31, 2016, we adopted Accounting Standards Update (ASU) 2016-09. The amendments in this update changed several aspects of share-based payment accounting. The amendments allowed for an entity-wide accounting policy election to either account for forfeitures as they occur or estimate the number of awards that are expected to vest. We elected to account for forfeitures as they occur. 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 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 recognized 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 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 amendments did not have a material impact to the financial statements.

~~Recently Issued Accounting Standards~~

~~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). 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 ASUs when assessing 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 with a cumulative effect adjustment on the date 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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~specific contracts to be material to the financial statements. We currently plan to adopt this guidance as of January 1, 2018, and expect to use the modified retrospective approach.~~

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

In January 2016, the FASB issued 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. 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 no longer be recognized through other comprehensive income. Reporting entities may continue to elect to measure 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 income and not as a component of net income. The 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 applied on a modified retrospective basis with a cumulative effect adjustment as of the beginning of the fiscal year of initial adoption. While the amendment requiring equity investments to be measured at fair value with changes in fair value recognized in net income will create additional volatility in our Condensed Consolidated Statement of Comprehensive Income, we do not anticipate the other amendments will have a material impact to our financial statements. We currently plan to adopt these amendments on January 1, 2018, and expect to use the modified retrospective approach as required.

Leases (ASU 2016-02)

In February 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU 2016-02. The amendments in this update primarily ~~replace~~replaced the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases (previously referred to as capital leases) and lessor accounting requirements for operating leases and sales type and direct financing leases ~~(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~~ROU asset and lease liability equal to the present value of the lease payments. The ~~right-of-use~~ROU asset and lease liability should be derecognized in a manner that effectively yields a straight line lease expense over the lease term. In addition to the changes to the lessee operating lease accounting requirements, the amendments also ~~change~~changed 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 ~~amendments are effective~~FASB issued additional ASUs to clarify the guidance and provide certain practical expedients and an additional transition option. We adopted ASU 2016-02 and the subsequent ASUs that modified ASU 2016-02 (collectively, the amendments) on January 1, ~~2019, with~~2019. This includes the early adoption ~~permitted. The amendments must be applied on a~~of ASU 2019-01, which was issued in March 2019 to amend certain provisions included in ASU 2016-02.

We adopted this guidance using the modified retrospective basis with a cumulative adjustment to the beginning of the earliest fiscal year presented in the financial statements in the period of adoption. Management is currently evaluating the impact of these amendments. Upon adoption, we expect to record a balance sheet gross-up, reflecting our right-of-use asset and lease liability for our operating leases where we are the lessee (for example, our facility leases). We are currently reviewing our operating lease contracts where we are the lessee to determine the impact of the gross-up and the changes to capitalizable costs. 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 amendmentsapproach on January 1, 2019, and ~~expect~~have not adjusted prior period comparative information and will continue to ~~use~~disclose prior period financial information in accordance with the ~~modified retrospective approach as required.~~

~~Financial Instruments — Credit Losses (ASU 2016-13)~~

~~In June 2016,~~previous lease accounting guidance. We have elected certain practical expedients permitted within the ~~FASB issued ASU 2016-13. The~~ amendments ~~in this update introduce~~that allowed us to not reassess (i) current lease classifications, (ii) whether existing contracts meet the definition of 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~~lease under 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 incurred 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~~lease guidance, and (iii) whether current initial direct costs meet the new criteria for ~~reversals of credit losses when estimated credit losses decline. Credit losses~~capitalization, 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 earningsall existing leases as of the ~~beginning of the fiscal year upon adoption. The new~~adoption date. We made an 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~~policy election to retained earnings. Management created a formal working group to govern the implementation of these amendments consisting of key stakeholders from finance, risk, and accounting and is currently evaluatingcalculate the impact of adoption using the ~~amendments. We are~~remaining minimum lease payments and remaining lease term for each contract that was identified as a lease, discounted at our incremental borrowing rate as of the adoption date. The adoption of the amendments resulted in ~~the process~~a ROU asset of ~~designing~~approximately $161 million from operating leases for our various corporate facilities, a $29 million reduction to accrued expenses and ~~building the models~~other liabilities for accrued rent 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,~~unamortized tenant improvement allowances, and ~~expect to use the modified retrospective approach as required.~~

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

~~In November 2016, the FASB issued ASU 2016-18.~~approximately $190 million. 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 flowsadoption 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~~change our previously reported Condensed Consolidated Statements of ~~cash flows upon adoption. The amendments will~~Comprehensive Income and did not ~~impact financial results, but will~~ result in a ~~change in the presentation of restricted cash and restricted cash equivalents within the~~cumulative catch-up adjustment to opening retained earnings.

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~statement of cash flows. We currently plan to adopt these amendments on January 1, 2018, and expect to use the retrospective approach as required.~~

~~Receivables —~~ Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)

In March 2017, the FASB issued ASU 2017-08. The amendments in this update require premiums on purchased callable debt securities to be amortized to the security’s earliest call date. Prior to this ASU, premiums and discounts on purchased callable debt securities were generally required to be amortized to the security’s maturity date. The amendments do not require an accounting change for securities held at a discount. We adopted the amendments on January 1, 2019, on a modified retrospective basis, which resulted in an increase to our accumulated deficit of $10 million, net of income taxes, partially offset by an $8 million decrease to accumulated other comprehensive loss, net of income taxes.

Recently Issued Accounting Standards

Financial Instruments—Credit Losses (ASU 2016-13)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (CECL). The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. The FASB has also issued additional ASUs to clarify the scope and provide additional guidance for ASU 2016-13. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be recorded under the current incurred loss model for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. The amendments are effective on January 1, ~~2019, with early adoption permitted. The amendments~~2020, and must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon ~~adoption.~~adoption as required.

The new accounting model for credit losses represents a significant departure from existing GAAP, and will materially increase the allowance for credit losses on our finance receivables and loans, with a resulting negative adjustment to retained earnings. We expect that our consumer automotive loan portfolio will generate the majority of this increase. The amount of the change in the allowance for credit losses will also be impacted by the composition of our portfolio at the adoption date, as well as economic conditions and forecasts at that time. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our loan portfolios. Additionally, we currently expect to phase in the day-one impact of CECL into regulatory capital over a period of three years, as further described in Note 16. Management ~~is currently evaluating~~created a cross-functional working group to govern the ~~impact~~implementation of these amendments, including consideration of model development, data integrity, technology, reporting and disclosure requirements, key accounting interpretations, control environment, and corporate governance. We are in the process of validating and testing the models and procedures that will be used to calculate the credit loss reserves in accordance with these amendments. We ~~currently plan to adopt these amendments on January 1,~~performed limited parallel runs during the first two quarters of 2019, and ~~expect~~will continue to ~~use the modified retrospective approach as required.~~refine and enhance our estimation process with additional parallel testing throughout 2019. Additionally, we do not

~~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 on January 1, 2019, with early adoption permitted. Entities must apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. All transition requirements and elections must be applied to hedging relationships existing as of the adoption date and the effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The presentation and disclosure requirements must be applied prospectively. We are currently evaluating 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% of the equity of TradeKing Group, Inc. (TradeKing), a digital wealth management company 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. Goodwill is recognized as the excess of the acquisition price after the recognition of the net assets, including the identifiable intangible assets. Beginning in June 2016, financial information related to Ally Invest is included within Corporate and Other.

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

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


~~(a)~~	~~We recorded $3 million 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.

1311

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

~~On August 1, 2016, we acquired assets that constitute~~expect a ~~business from Blue Yield, an online automotive lender exchange which we rebranded~~material allowance for credit losses on our debt securities 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. As~~ a result of the ~~purchase, we recognized $20 million~~standard based upon the current composition of ~~goodwill within Automotive Finance operations.~~our portfolio.

~~3. Discontinued Operations~~2. Revenue from Contracts with Customers

~~Prior~~Our primary revenue sources, which include financing revenue and other interest income, are addressed by other GAAP and are not in the scope of ASC 606, Revenue from Contracts with Customers. As part of our Insurance operations, we recognize revenue from insurance contracts, which are addressed by other GAAP and are not included in the scope of this standard. Certain noninsurance contracts within our Insurance operations, including vehicle service contracts (VSCs), guaranteed asset protection (GAP) contracts, and vehicle maintenance contracts (VMCs), are included in the scope of this standard. All revenue associated with noninsurance contracts is recognized over the contract term on a basis proportionate to the ~~adoption~~anticipated cost emergence. Further, commissions and sales expense incurred to obtain these contracts are amortized over the terms of ~~ASU 2014-08, which was prospectively applied only~~the related policies and service contracts on the same basis as premiums and service revenue are earned, and all advertising costs are recognized as expense when incurred.

The following tables present a disaggregated view of our revenue from contracts with customers included in other revenue that falls within the scope of the revenue recognition principles of ASC 606, Revenue from Contracts with Customers. For further information regarding our revenue recognition policies and details about the nature of our respective revenue streams, refer to ~~newly identified disposals that qualify as discontinued operations beginning after January~~Note 1 ~~2015, we have classified operations as discontinued when operations~~ and cash flows will be eliminated from 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 NotesNote 3 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.2018 Annual Report on Form 10-K.

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



Three months ended June 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated
2019
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)	$	—	$	134	$	—	$	—	$	—	$	134
Remarketing fee income	19		—		—		—		—		19
Brokerage commissions and other revenue	—		—		—		—		17		17
Deposit account and other banking fees	—		—		—		—		4		4
Brokered/agent commissions	—		4		—		—		—		4
Other	5		—		—		—		—		5
Total revenue from contracts with customers	24		138		—		—		21		183
All other revenue	37		148		4		10		13		212
Total other revenue (d)	$	61	$	286	$	4	$	10	$	34	$	395
2018
Revenue from contracts with customers
Noninsurance contracts (a) (b) (c)	$	—	$	125	$	—	$	—	$	—	$	125
Remarketing fee income	21		—		—		—		—		21
Brokerage commissions and other revenue	—		—		—		—		15		15
Brokered/agent commissions	—		4		—		—		—		4
Deposit account and other banking fees	—		—		—		—		3		3
Other	4		—		—		—		—		4
Total revenue from contracts with customers	25		129		—		—		18		172
All other revenue	38		137		2		14		1		192
Total other revenue (d)	$	63	$	266	$	2	$	14	$	19	$	364

(a)

We had opening balances of $2.7 billion and $2.5 billion in unearned revenue associated with outstanding contracts at April 1, 2019, and April 1, 2018, respectively, and $202 million and $195 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the three months ended June 30, 2019, and June 30, 2018, respectively.


(b)	At June 30, 2019, we had unearned revenue of $2.8 billion associated with outstanding contracts, and with respect to this balance we expect to recognize revenue of $380 million during the remainder of 2019, $705 million in 2020, $605 million in 2021, $473 million in 2022, and $595 million thereafter. At June 30, 2018, we had unearned revenue of $2.6 billion associated with outstanding contracts.


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


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

~~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

1412

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



Six months ended June 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other		Consolidated
2019
Revenue from contracts with customers
Noninsurance contracts (a) (b)	$	—	$	265	$	—	$	—	$	—	$	265
Remarketing fee income	37		—		—		—		—		37
Brokerage commissions and other revenue	—		—		—		—		34		34
Deposit account and other banking fees	—		—		—		—		9		9
Brokered/agent commissions	—		7		—		—		—		7
Other	10		—		—		—		—		10
Total revenue from contracts with customers	47		272		—		—		43		362
All other revenue	82		374		6		21		16		499
Total other revenue (c)	$	129	$	646	$	6	$	21	$	59	$	861
2018
Revenue from contracts with customers
Noninsurance contracts (a) (b)	$	—	$	248	$	—	$	—	$	—	$	248
Remarketing fee income	44		—		—		—		—		44
Brokerage commissions and other revenue	—		—		—		—		31		31
Brokered/agent commissions	—		8		—		—		—		8
Deposit account and other banking fees	—		—		—		—		6		6
Other	6		1		—		—		—		7
Total revenue from contracts with customers	50		257		—		—		37		344
All other revenue	79		255		3		22		15		374
Total other revenue (c)	$	129	$	512	$	3	$	22	$	52	$	718

(a)

We had opening balances of $2.6 billion and $2.5 billion in unearned revenue associated with outstanding contracts at January 1, 2019, and January 1, 2018, respectively, and $401 million and $389 million of these balances were recognized as insurance premiums and service revenue earned in our Condensed Consolidated Statement of Comprehensive Income during the six months ended June 30, 2019, and June 30, 2018, respectively.

(b)

We had deferred insurance assets of $1.5 billion and $1.6 billion at January 1, 2019, and June 30, 2019, respectively, and recognized $225 million of expense during the six months ended June 30, 2019. We had deferred insurance assets of $1.4 billion and $1.5 billion at January 1, 2018, and June 30, 2018, respectively, and recognized $209 million of expense during the six months ended June 30, 2018.


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

In addition to the components of other revenue presented above, as part of our Automotive Finance operations, we recognized net remarketing gains of $23 million and $38 million for the three months and six months ended June 30, 2019, respectively, and $16 million and $34 million for the three months and six months ended, June 30, 2018, on the sale of off-lease vehicles. These gains are included in depreciation expense on operating lease assets in our Condensed Consolidated Statement of Comprehensive Income.

3. Other Income, Net of Losses

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



	Three months ended June 30,				Six months ended June 30,
($ in millions)	2019		2018		2019		2018
Late charges and other administrative fees	$	28	$	25	$	57	$	54
Remarketing fees	19		21		37		44
Income from equity-method investments	8		7		12		13
Servicing fees	4		8		10		16
Other, net	34		36		64		79
Total other income, net of losses	$	93	$	97	$	180	$	206

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

4. Reserves for Insurance Losses and Loss Adjustment Expenses

The following table shows a rollforward of our reserves for insurance losses and loss adjustment expenses.


($ in millions)	2017			2016			2019			2018
Total gross reserves for insurance losses and loss adjustment expenses at January 1,	$	149		$	169		$	134		$	140
Less: Reinsurance recoverable	108			120			96			108
Net reserves for insurance losses and loss adjustment expenses at January 1,	41			49			38			32
Net insurance losses and loss adjustment expenses incurred related to:
Current year	276			291			186			159
Prior years (a)	2			(4		)	—			5
Total net insurance losses and loss adjustment expenses incurred	278			287			186			164
Net insurance losses and loss adjustment expenses paid or payable related to:
Current year	(248		)	(266		)	(134		)	(121		)
Prior years	(31		)	(27		)	(27		)	(26		)
Total net insurance losses and loss adjustment expenses paid or payable	(279		)	(293		)	(161		)	(147		)
Foreign exchange and other	1			1
Net reserves for insurance losses and loss adjustment expenses at September 30,	41			44
Net reserves for insurance losses and loss adjustment expenses at June 30,							63			49
Plus: Reinsurance recoverable	132			106			90			100
Total gross reserves for insurance losses and loss adjustment expenses at September 30,	$	173		$	150
Total gross reserves for insurance losses and loss adjustment expenses at June 30,							$	153		$	149


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

6. 5. Other Operating Expenses

Details of other operating expenses were as follows.



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

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

1514

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 or 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									June 30, 2019									December 31, 2018
	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																			$	2,023	$	7	$	(12	)	$	2,018	$	1,911	$	—	$	(60	)	$	1,851
U.S. States and political subdivisions	849		12		(10		)	851		794		7		(19		)	782		585		13		—			598		816		3		(17		)	802
Foreign government	157		2		(2		)	157		157		5		—			162		146		3		—			149		145		1		(1		)	145
Agency mortgage-backed residential	14,423		54		(133		)	14,344		10,473		29		(212		)	10,290		18,971		191		(62		)	19,100		17,486		47		(395		)	17,138
Mortgage-backed residential	2,326		16		(32		)	2,310		2,162		5		(70		)	2,097		2,927		18		(11		)	2,934		2,796		1		(111		)	2,686
Agency mortgage-backed commercial																			1,303		48		—			1,351		3		—		—			3
Mortgage-backed commercial	509		2		(2		)	509		537		2		(2		)	537		712		2		(1		)	713		715		1		(2		)	714
Asset-backed	1,036		4		(1		)	1,039		1,396		6		(2		)	1,400		473		4		—			477		723		2		(2		)	723
Corporate debt	1,291		10		(10		)	1,291		1,452		7		(16		)	1,443		1,326		25		(3		)	1,348		1,286		1		(46		)	1,241
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)																			$	28,466	$	311	$	(89	)	$	28,688	$	25,881	$	56	$	(634	)	$	25,303
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential (d)	$	1,799	$	4	$	(36	)	$	1,767	$	839	$	—	$	(50	)	$	789	$	2,430	$	41	$	(3	)	$	2,468	$	2,319	$	6	$	(61	)	$	2,264
Asset-backed retained notes	40		—		—			40		—		—		—			—		31		—		—			31		43		—		—			43
Total held-to-maturity securities	$	1,839	$	4	$	(36	)	$	1,807	$	839	$	—	$	(50	)	$	789	$	2,461	$	41	$	(3	)	$	2,499	$	2,362	$	6	$	(61	)	$	2,307


(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 ~~September~~both June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.


(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~~$4.4 billion and ~~$4,881 million~~$9.2 billion at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively, were pledged to secure advances from the Federal Home Loan Bank (FHLB), short-term borrowings or repurchase agreements, or for other purposes as required by contractual obligation or law. Under these agreements, we have granted the counterparty the right to sell or pledge ~~$1,339~~$615 million and ~~$737~~$821 million of the underlying investment securities at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, 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 million~~$1.3 billion and ~~$87 million~~$1.2 billion at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively, were pledged to secure advances from the FHLB.

1615

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	%	$	—	—	%
June 30, 2019
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies																					$	2,018	1.7	%	$	73	2.0	%	$	1,430	1.6	%	$	515	1.8	%	$	—	—	%
U.S. States and political subdivisions	851		2.9		69		1.6		35		2.4		197		2.7		550		3.2		598		3.1		33		3.3		47		2.3		153		2.8		365		3.4
Foreign government	157		2.5		—		—		69		2.6		88		2.4		—		—		149		2.3		4		1.2		67		2.2		78		2.4		—		—
Agency mortgage-backed residential	14,344		3.1		—		—		—		—		3		2.9		14,341		3.1		19,100		3.4		—		—		—		—		50		1.9		19,050		3.4
Mortgage-backed residential	2,310		3.0		—		—		—		—		—		—		2,310		3.0		2,934		3.3		—		—		—		—		—		—		2,934		3.3
Agency mortgage-backed commercial																					1,351		3.1		—		—		3		3.2		932		3.1		416		3.1
Mortgage-backed commercial	509		3.1		—		—		—		—		31		2.9		478		3.1		713		3.7		—		—		—		—		36		3.9		677		3.7
Asset-backed	1,039		3.0		2		1.6		762		3.1		137		3.1		138		2.7		477		3.4		—		—		328		3.4		74		3.9		75		3.1
Corporate debt	1,291		2.9		135		2.5		595		2.6		515		3.2		46		4.9		1,348		3.2		143		3.0		549		3.0		634		3.4		22		5.6
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																					$	28,688	3.2		$	253	2.7		$	2,424	2.2		$	2,472	2.9		$	23,539	3.4
Amortized cost of available-for-sale securities																					$	28,466			$	253			$	2,420			$	2,412			$	23,381
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential	$	1,799	3.1	%	$	—	—	%	$	—	—	%	$	—	—	%	$	1,799	3.1	%	$	2,430	3.2	%	$	—	—	%	$	—	—	%	$	—	—	%	$	2,430	3.2	%
Asset-backed retained notes	40		1.7		—		—		39		1.6		1		3.0		—		—		31		3.1		—		—		31		2.1		—		—		—		—
Total held-to-maturity securities	$	1,839	3.1		$	—	—		$	39	1.6		$	1	3.0		$	1,799	3.1		$	2,461	3.2		$	—	—		$	31	2.1		$	—	—		$	2,430	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, 2018
Fair value of available-for-sale securities (a)
U.S. Treasury and federal agencies																					$	1,851	1.9	%	$	12	1.0	%	$	1,277	1.8	%	$	562	2.0	%	$	—	—	%
U.S. States and political subdivisions	782		3.1		64		1.7		29		2.3		172		2.8		517		3.4		802		3.0		49		1.9		43		2.3		252		2.6		458		3.4
Foreign government	162		2.6		—		—		58		2.8		104		2.4		—		—		145		2.4		18		3.1		60		2.3		67		2.4		—		—
Agency mortgage-backed residential	10,290		2.9		—		—		—		—		29		2.6		10,261		2.9		17,138		3.3		—		—		—		—		54		1.9		17,084		3.3
Mortgage-backed residential	2,097		2.9		—		—		—		—		—		—		2,097		2.9		2,686		3.3		—		—		—		—		—		—		2,686		3.3
Agency mortgage-backed commercial																					3		3.1		—		—		3		3.1		—		—		—		—
Mortgage-backed commercial	537		2.6		—		—		—		—		3		2.8		534		2.6		714		3.8		—		—		—		—		46		3.9		668		3.8
Asset-backed	1,400		2.8		—		—		1,059		2.8		143		3.2		198		2.6		723		3.5		—		—		478		3.4		121		4.0		124		3.3
Corporate debt	1,443		2.8		72		2.2		840		2.6		489		3.2		42		4.7		1,241		3.1		144		2.8		496		2.9		581		3.3		20		5.5
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
Amortized cost of held-to-maturity securities (b)	$	839	2.9	%	$	—	—	%	$	—	—	%	$	—	—	%	$	839	2.9	%
Total available-for-sale securities																					$	25,303	3.2		$	223	2.6		$	2,357	2.4		$	1,683	2.8		$	21,040	3.3
Amortized cost of available-for-sale securities																					$	25,881			$	224			$	2,405			$	1,743			$	21,509
Amortized cost of held-to-maturity securities
Agency mortgage-backed residential																					$	2,319	3.2	%	$	—	—	%	$	—	—	%	$	—	—	%	$	2,319	3.2	%
Asset-backed retained notes																					43		2.0		—		—		42		2.0		1		3.3		—		—
Total held-to-maturity securities																					$	2,362	3.2		$	—	—		$	42	2.0		$	1	3.3		$	2,319	3.2


(a)	Yield is calculated using the effective yield of each security at the end of the period, weighted based on the market value. The effective yield considers the contractual coupon and amortized cost, and excludes expected capital gains and losses.


~~(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~~$129 million and ~~$291~~$35 million at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016~~,2018, respectively, and were composed primarily of ~~money market~~money-market accounts and short-term securities, including U.S. Treasury bills.

1716

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents interest and dividends on investment securities.



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

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Taxable interest $ 141

$ 93
$ 390
$ 276
Taxable dividends 3

4
8
13
Interest and dividends exempt from U.S. federal income tax 6

4
17
13
Interest and dividends on investment securities $ 150

$ 101
$ 415
$ 302

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.~~the periods presented.



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

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Gross realized gains $ 24
$ 52
$ 75
$ 146
Gross realized losses (a) (1 ) —
(2 ) (1 )
Other gain on investments, net $ 23
$ 52
$ 73
$ 145

(a)

Certain available-for-sale securities were sold at a loss ~~in 2017~~during the three months and ~~2016~~six months ended June 30, 2019, and June 30, 2018, as a result of market conditions within these ~~respective~~ periods (e.g., a downgrade in the rating of a debt security) or a loss was realized based on corporate actions outside of our control (such as a call by the issuer). Any such sales were made in accordance with our ~~risk management~~risk-management policies and practices.

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. For additional information on our methodology, refer to Note 1 to the Consolidated Financial Statements in ~~accumulated other comprehensive income. Based~~our 2018 Annual Report 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.~~Form 10-K. As of ~~September~~June 30, ~~2017,~~2019, 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~~June 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.2019.



	June 30, 2019										December 31, 2018
	Less than 12 months					12 months or longer					Less than 12 months					12 months or longer
($ in millions)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	—	$	—		$	1,532	$	(12	)	$	31	$	—		$	1,758	$	(60	)
U.S. States and political subdivisions	—		—			46		—			259		(3		)	317		(14		)
Foreign government	5		—			8		—			6		—			74		(1		)
Agency mortgage-backed residential	1,033		(1		)	5,713		(61		)	5,537		(94		)	7,808		(301		)
Mortgage-backed residential	26		—			1,235		(11		)	1,024		(20		)	1,360		(91		)
Agency mortgage-backed commercial	10		—			—		—			—		—			—		—
Mortgage-backed commercial	280		(1		)	—		—			347		(1		)	36		(1		)
Asset-backed	6		—			75		—			294		(1		)	124		(1		)
Corporate debt	35		—			256		(3		)	576		(19		)	569		(27		)
Total temporarily impaired available-for-sale securities	$	1,395	$	(2	)	$	8,865	$	(87	)	$	8,074	$	(138	)	$	12,046	$	(496	)
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	$	447	$	(3	)	$	—	$	—		$	457	$	(6	)	$	1,376	$	(55	)
Asset-backed retained notes	11		—			—		—			16		—			19		—
Total held-to-maturity debt securities	$	458	$	(3	)	$	—	$	—		$	473	$	(6	)	$	1,395	$	(55	)

September 30, 2017 December 31, 2016

Less than 12 months
12 months or longer
Less than 12 months
12 months or longer
($ in millions)
Fair value
Unrealized loss
Fair value
Unrealized loss
Fair value
Unrealized loss
Fair value
Unrealized loss
Available-for-sale securities

Debt securities

U.S. Treasury
$ 2,029

$ (39 )
$ —

$ —

$ 1,612

$ (60 )
$ —

$ —
U.S. States and political subdivisions
311

(4 )
138

(6 )
524

(19 )
—

—
Foreign government
78

(2 )
—

—

38

—

—

—
Agency mortgage-backed residential 7,444
(115 ) 730
(18 ) 8,052
(196 ) 587
(16 )
Mortgage-backed residential
103

(1 )
825

(31 )
813

(17 )
860

(53 )
Mortgage-backed commercial 164
(2 ) 15
—
47
(1 ) 149
(1 )
Asset-backed
341

(1 )
86

—

375

(2 )
127

—
Corporate debt
388

(6 )
108

(4 )
744

(14 )
46

(2 )
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 )

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		June 30, 2019		December 31, 2018
Consumer automotive (a)	$	67,077	$	65,793	$	72,898	$	70,539
Consumer mortgage
Mortgage Finance (b)	9,760		8,294		16,485		15,155
Mortgage — Legacy (c)	2,255		2,756		1,315		1,546
Total consumer mortgage	12,015		11,050		17,800		16,701
Total consumer	79,092		76,843		90,698		87,240
Commercial
Commercial and industrial
Automotive	31,985		35,041		29,382		33,672
Other	3,774		3,248		4,353		4,205
Commercial real estate — Automotive	4,020		3,812
Commercial real estate					4,777		4,809
Total commercial	39,779		42,101		38,512		42,686
Total finance receivables and loans (d)	$	118,871	$	118,944	$	129,210	$	129,926


(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~~$12 million and ~~$30~~$18 million at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively, ~~35%~~34% of which are expected to start principal amortization in 2019, and ~~44%~~41% in 2020. The remainder of these loans have ~~already~~ exited the interest-only period.


(c)	Includes loans originated as interest-only mortgage loans of ~~$538~~$263 million and ~~$714~~$341 million at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, 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 $577 million and $587 million at June 30, 2019, and December 31, 2018, respectively.

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


Three months ended September 30, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at July 1, 2017	$	1,002		$	83		$	140		$	1,225
Three months ended June 30, 2019 ($ in millions)													Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at April 1, 2019													$	1,070		$	52		$	166		$	1,288
Charge-offs (a)	(327		)	(7		)	(10		)	(344		)	(301		)	(5		)	(12		)	(318		)
Recoveries	85			6			—			91			129			7			—			136
Net charge-offs	(242		)	(1		)	(10		)	(253		)	(172		)	2			(12		)	(182		)
Provision for loan losses	314			—			—			314			180			(5		)	2			177
Other	—			(1		)	1			—			—			—			(1		)	(1		)
Allowance at September 30, 2017	$	1,074		$	81		$	131		$	1,286
Allowance at June 30, 2019													$	1,078		$	49		$	155		$	1,282

(a)

Represents the amount of the gross carrying value directly written off. For consumer and commercial loans, the loss from a charge-off is measured as the difference between the gross carrying value of a loan and the fair value of the collateral, less costs to sell. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2018 Annual Report on Form 10-K for more information regarding our charge-off policies.


Three months ended September 30, 2016 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial		Total
Allowance at July 1, 2016	$	862		$	109		$	118	$	1,089
Three months ended June 30, 2018 ($ in millions)												Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at April 1, 2018												$	1,066		$	74		$	138		$	1,278
Charge-offs (a)	(293		)	(10		)	—		(303		)	(296		)	(8		)	(2		)	(306		)
Recoveries	74			16			—		90			114			6			6			126
Net charge-offs	(219		)	6			—		(213		)	(182		)	(2		)	4			(180		)
Provision for loan losses	269			(15		)	4		258			168			(4		)	(6		)	158
Allowance at September 30, 2016	$	912		$	100		$	122	$	1,134
Other												1			(2		)	2			1
Allowance at June 30, 2018												$	1,053		$	66		$	138		$	1,257

(a)

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q


Nine months ended September 30, 2017 ($ in millions)	Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2017	$	932		$	91		$	121		$	1,144
Six months ended June 30, 2019 ($ in millions)													Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2019													$	1,048		$	53		$	141		$	1,242
Charge-offs (a)	(958		)	(22		)	(10		)	(990		)	(653		)	(8		)	(17		)	(678		)
Recoveries	266			19			—			285			247			12			—			259
Net charge-offs	(692		)	(3		)	(10		)	(705		)	(406		)	4			(17		)	(419		)
Provision for loan losses	841			(6		)	19			854			437			(8		)	30			459
Other ~~(b)~~	(7		)	(1		)	1			(7		)	(1		)	—			1			—
Allowance at September 30, 2017	$	1,074		$	81		$	131		$	1,286
Allowance for loan losses at September 30, 2017
Allowance at June 30, 2019													$	1,078		$	49		$	155		$	1,282
Allowance for loan losses at June 30, 2019
Individually evaluated for impairment	$	35		$	30		$	21		$	86		$	42		$	20		$	49		$	111
Collectively evaluated for impairment	1,039			51			110			1,200			1,036			29			106			1,171
Finance receivables and loans at gross carrying value
Ending balance	$	67,077		$	12,015		$	39,779		$	118,871		$	72,898		$	17,800		$	38,512		$	129,210
Individually evaluated for impairment	403			237			146			786			496			220			196			912
Collectively evaluated for impairment	66,674			11,778			39,633			118,085			72,402			17,580			38,316			128,298

(a)


~~(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
Six months ended June 30, 2018 ($ in millions)													Consumer automotive			Consumer mortgage			Commercial			Total
Allowance at January 1, 2018													$	1,066		$	79		$	131		$	1,276
Charge-offs (a)	(773		)	(29		)	(1		)	(803		)	(661		)	(20		)	(2		)	(683		)
Recoveries	233			25			1			259			226			12			6			244
Net charge-offs	(540		)	(4		)	—			(544		)	(435		)	(8		)	4			(439		)
Provision for loan losses	644			(10		)	16			650			421			(3		)	1			419
Other ~~(b)~~	(26		)	—			—			(26		)	1			(2		)	2			1
Allowance at September 30, 2016	$	912		$	100		$	122		$	1,134
Allowance for loan losses at September 30, 2016
Allowance at June 30, 2018													$	1,053		$	66		$	138		$	1,257
Allowance for loan losses at June 30, 2018
Individually evaluated for impairment	$	24		$	35		$	25		$	84		$	42		$	24		$	27		$	93
Collectively evaluated for impairment	888			65			97			1,050			1,011			42			111			1,164
Finance receivables and loans at gross carrying value
Ending balance	$	64,816		$	10,857		$	39,286		$	114,959		$	70,473		$	15,131		$	39,940		$	125,544
Individually evaluated for impairment	349			251			111			711			480			228			198			906
Collectively evaluated for impairment	64,467			10,606			39,175			114,248			69,993			14,903			39,742			124,638

(a)


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

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



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


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

Three months ended September 30, Nine months ended September 30,
($ in millions)
2017
2016 2017 2016
Consumer automotive
$ 28

$ 57
$ 1,326
$ 4,216
Consumer mortgage
3

6
9
12
Commercial
—

—
—
28
Total sales and transfers
$ 31

$ 63
$ 1,335
$ 4,256

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

Three months ended September 30, Nine months ended September 30,
($ in millions) 2017 2016 2017 2016
Consumer automotive
$ 83

$ —
$ 762
$ —
Consumer mortgage
1,183

467
2,319
2,855
Total purchases of finance receivables and loans
$ 1,266
$ 467
$ 3,081
$ 2,855

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



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

($ in millions) 30–59 days past due 60–89 days past due 90 days or more past due Total past due Current Total finance receivables and loans
September 30, 2017
Consumer automotive $ 1,742
$ 414
$ 261
$ 2,417
$ 64,660
$ 67,077
Consumer mortgage
Mortgage Finance 75
1
5
81
9,679
9,760
Mortgage — Legacy 40
21
58
119
2,136
2,255
Total consumer mortgage 115
22
63
200
11,815
12,015
Total consumer 1,857
436
324
2,617
76,475
79,092
Commercial
Commercial and industrial
Automotive 16
—
13
29
31,956
31,985
Other —
—
8
8
3,766
3,774
Commercial real estate — Automotive 3
—
—
3
4,017
4,020
Total commercial 19

—

21

40

39,739

39,779
Total consumer and commercial $ 1,876

$ 436

$ 345

$ 2,657

$ 116,214

$ 118,871
December 31, 2016
Consumer automotive $ 1,850
$ 428
$ 302
$ 2,580
$ 63,213
$ 65,793
Consumer mortgage
Mortgage Finance 39
6
4
49
8,245
8,294
Mortgage — Legacy 45
18
57
120
2,636
2,756
Total consumer mortgage 84
24
61
169
10,881
11,050
Total consumer 1,934
452
363
2,749
74,094
76,843
Commercial
Commercial and industrial
Automotive 3
—
7
10
35,031
35,041
Other —
—
—
—
3,248
3,248
Commercial real estate — Automotive —
—
—
—
3,812
3,812
Total commercial 3

—

7

10

42,091

42,101
Total consumer and commercial $ 1,937

$ 452

$ 370

$ 2,759

$ 116,185

$ 118,944

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



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

($ in millions) September 30, 2017 December 31, 2016
Consumer automotive $ 573
$ 598
Consumer mortgage
Mortgage Finance 7
10
Mortgage — Legacy 81
89
Total consumer mortgage 88
99
Total consumer 661
697
Commercial
Commercial and industrial
Automotive 78
33
Other 61
84
Commercial real estate — Automotive 7
5
Total commercial 146
122
Total consumer and commercial finance receivables and loans $ 807

$ 819

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

The following table presents performing and nonperforming credit quality indicators in accordance with our internal accounting policies for our consumer finance receivables and loans recorded at gross carrying value. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or more, or when full collection is not expected. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2018 Annual Report on Form 10-K for additional information.



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

September 30, 2017 December 31, 2016
($ in millions) Performing Nonperforming Total Performing Nonperforming Total
Consumer automotive $ 66,504
$ 573
$ 67,077
$ 65,195
$ 598
$ 65,793
Consumer mortgage
Mortgage Finance 9,753
7
9,760
8,284
10
8,294
Mortgage — Legacy 2,174
81
2,255
2,667
89
2,756
Total consumer mortgage 11,927
88
12,015
10,951
99
11,050
Total consumer $ 78,431
$ 661
$ 79,092
$ 76,146
$ 697
$ 76,843

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						June 30, 2019						December 31, 2018
($ 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	$	26,629	$	2,753	$	29,382	$	30,799	$	2,873	$	33,672
Other	2,913		861		3,774		2,597		651		3,248		3,580		773		4,353		3,373		832		4,205
Commercial real estate — Automotive	3,891		129		4,020		3,653		159		3,812
Commercial real estate													4,517		260		4,777		4,538		271		4,809
Total commercial	$	36,993	$	2,786	$	39,779	$	39,410	$	2,691	$	42,101	$	34,726	$	3,786	$	38,512	$	38,710	$	3,976	$	42,686


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Impaired Loans and Troubled Debt Restructurings

Impaired Loans

Loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due according to the terms of the loan agreement. For more information on our impaired finance receivables and loans, refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2018 Annual Report on Form 10-K.

~~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
($ in millions)											Unpaid principal balance (a)		Gross carrying value		Impaired with no allowance		Impaired with an allowance		Allowance for impaired loans
June 30, 2019
Consumer automotive	$	411	$	403	$	86	$	317	$	35	$	506	$	496	$	101	$	395	$	42
Consumer mortgage
Mortgage Finance	8		8		4		4		—		14		14		6		8		—
Mortgage — Legacy	234		229		56		173		30		211		206		65		141		20
Total consumer mortgage	242		237		60		177		30		225		220		71		149		20
Total consumer	653		640		146		494		65		731		716		172		544		62
Commercial
Commercial and industrial
Automotive	78		78		51		27		3		89		89		18		71		19
Other	70		61		10		51		17		122		101		55		46		30
Commercial real estate — Automotive	7		7		3		4		1
Commercial real estate											6		6		6		—		—
Total commercial	155		146		64		82		21		217		196		79		117		49
Total consumer and commercial finance receivables and loans	$	808	$	786	$	210	$	576	$	86	$	948	$	912	$	251	$	661	$	111
December 31, 2016
December 31, 2018
Consumer automotive	$	407	$	370	$	131	$	239	$	28	$	503	$	495	$	105	$	390	$	44
Consumer mortgage
Mortgage Finance	8		8		3		5		—		15		15		6		9		1
Mortgage — Legacy	243		239		56		183		34		221		216		65		151		22
Total consumer mortgage	251		247		59		188		34		236		231		71		160		23
Total consumer	658		617		190		427		62		739		726		176		550		67
Commercial
Commercial and industrial
Automotive	33		33		7		26		3		203		203		112		91		10
Other	99		84		—		84		19		159		142		40		102		46
Commercial real estate — Automotive	5		5		2		3		1
Commercial real estate											4		4		4		—		—
Total commercial	137		122		9		113		23		366		349		156		193		56
Total consumer and commercial finance receivables and loans	$	795	$	739	$	199	$	540	$	85	$	1,105	$	1,075	$	332	$	743	$	123


(a)	Adjusted for charge-offs.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



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

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

$ 8

$ 717

$ 7


	2017				2016				2019				2018
Nine months ended September 30, ($ in millions)	Average balance		Interest income		Average balance		Interest income
Six months ended June 30, ($ in millions)									Average balance		Interest income		Average balance		Interest income
Consumer automotive	$	368	$	15	$	340	$	12	$	498	$	17	$	462	$	14
Consumer mortgage
Mortgage Finance	8		—		8		—		15		—		9		—
Mortgage — Legacy	236		7		250		7		211		5		220		5
Total consumer mortgage	244		7		258		7		226		5		229		5
Total consumer	612		22		598		19		724		22		691		19
Commercial
Commercial and industrial
Automotive	55		2		35		1		143		1		61		2
Other	73		8		58		1		117		—		66		—
Commercial real estate — Automotive	6		—		6		—
Commercial real estate									6		—		4		—
Total commercial	134		10		99		2		266		1		131		2
Total consumer and commercial finance receivables and loans	$	746	$	32	$	697	$	21	$	990	$	23	$	822	$	21

Troubled Debt Restructurings

Troubled Debt Restructurings (TDRs) are loan modifications where concessions were granted to borrowers experiencing financial difficulties. For consumer automotive loans, we may offer several types of assistance to aid our customers, including ~~extension~~payment extensions and rewrites 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~~$818 million and ~~$663~~$812 million at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~,2018, respectively.

~~Commercial~~Total commitments to lend additional funds to borrowers whose terms had been modified in a TDR were $7$15 million and $2$4 million at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively. Refer to Note 1 to the Consolidated Financial Statements in our ~~2016~~2018 Annual Report on Form 10-K for additional information.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


	2017					2016					2019					2018
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
Three months ended June 30, ($ in millions)											Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value
Consumer automotive	7,165	$	80	$	75	4,427	$	70	$	58	5,598	$	96	$	85	5,898	$	107	$	93
Consumer mortgage
Mortgage Finance	2	—		—		2	—		—		2	—		—		7	2		2
Mortgage — Legacy	37	4		4		35	6		6		18	3		3		27	6		7
Total consumer mortgage	39	4		4		37	6		6		20	3		3		34	8		9
Total consumer	7,204	84		79		4,464	76		64		5,618	99		88		5,932	115		102
Commercial
Commercial and industrial
Automotive	3	13		13		—	—		—		—	—		—		3	4		4
Commercial real estate — Automotive	1	3		3		—	—		—
Other											1	22		6		2	55		51
Total commercial	4	16		16		—	—		—		1	22		6		5	59		55
Total consumer and commercial finance receivables and loans	7,208	$	100	$	95	4,464	$	76	$	64	5,619	$	121	$	94	5,937	$	174	$	157


	2017					2016					2019					2018
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
Six months ended June 30, ($ in millions)											Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value		Number of loans	Pre-modification gross carrying value		Post-modification gross carrying value
Consumer automotive	19,374	$	298	$	262	14,816	$	238	$	202	13,025	$	225	$	196	12,940	$	235	$	203
Consumer mortgage
Mortgage Finance	3	—		—		5	2		2		3	—		—		8	3		3
Mortgage — Legacy	109	19		18		92	14		14		38	6		6		89	16		16
Total consumer mortgage	112	19		18		97	16		16		41	6		6		97	19		19
Total consumer	19,486	317		280		14,913	254		218		13,066	231		202		13,037	254		222
Commercial
Commercial and industrial
Automotive	3	13		13		—	—		—		6	41		41		3	4		4
Other	2	44		44		—	—		—		1	22		6		2	55		51
Commercial real estate — Automotive	1	3		3		—	—		—
Total commercial	6	60		60		—	—		—		7	63		47		5	59		55
Total consumer and commercial finance receivables and loans	19,492	$	377	$	340	14,913	$	254	$	218	13,073	$	294	$	249	13,042	$	313	$	277

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present information about finance receivables and loans recorded at gross carrying value that have redefaulted during the reporting period and were within 12twelve 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~~2018 Annual Report on Form 10-K for additional information) except for commercial finance receivables and loans, where redefault is defined as 90 days past due.



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



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

8. Leasing

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

Ally as the Lessee

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

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

The following table details our total investment in operating leases.

2017 2016
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
Consumer automotive 2,222
$ 25
$ 18
1,959
$ 23
$ 14
Consumer mortgage
Mortgage Finance —
—
—
—
—
—
Mortgage — Legacy 1
—
—
1
—
—
Total consumer finance receivables and loans 2,223
$ 25
$ 18
1,960
$ 23
$ 14



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


(a)	Date of adoption.


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


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

2017 2016
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
Consumer automotive 6,354
$ 74
$ 51
5,617
$ 69
$ 39
Consumer mortgage
Mortgage Finance 1
1
—
—
—
—
Mortgage — Legacy 1
—
—
4
—
—
Total consumer finance receivables and loans 6,356
$ 75
$ 51
5,621
$ 69
$ 39

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

~~9. Investment in Operating Leases, Net~~

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



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

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

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



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

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



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

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

Ally as the Lessor

Investment in Operating Leases

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

($ in millions) September 30, 2017 December 31, 2016
Vehicles $ 11,001
$ 14,584
Accumulated depreciation (2,070 ) (3,114 )
Investment in operating leases, net $ 8,931
$ 11,470

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

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

The following table details our investment in operating leases.



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

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



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

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
($ in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Depreciation expense on operating lease assets (excluding remarketing gains)(a)	$	323		$	470		$	1,062		$	1,555		$	262		$	281		$	523		$	572
Remarketing gains	(51		)	(62		)	(80		)	(203		)
Remarketing gains, net													(23		)	(16		)	(38		)	(34		)
Net depreciation expense on operating lease assets	$	272		$	408		$	982		$	1,352		$	239		$	265		$	485		$	538

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Finance Leases

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

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



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

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

We ~~are involved in several types of securitization~~securitize, transfer, and ~~financing transactions that utilize special-purpose~~service consumer and commercial automotive loans, and operating leases. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) using special purpose entities (SPEs). 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.

~~The transaction-specific~~ SPEs ~~involved in our securitization and other financing transactions~~ are often ~~considered VIEs.~~ variable interest entities (VIEs) and may or may not be included on our Condensed Consolidated Balance Sheet.

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

We securitize consumer and commercial automotive loans, and operating leases through private-label securitizations. We often securitize these loans and notes secured by operating leases (collectively referred to as financial assets) throughThe VIEs included on the ~~use of securitization entities, which may or may not be consolidated on our~~ Condensed Consolidated Balance ~~Sheet.~~Sheet represent SPEs where we are deemed to be the primary beneficiary, primarily due to our servicing activities and our beneficial interests in the VIE that could be potentially significant.

~~Table~~The nature, purpose, and activities of ~~Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

~~The pretax gain on~~There were no sales of financial assets into nonconsolidated ~~consumer automotive securitization trusts was $0 million and $2 million~~VIEs for both the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively. There were no pretax gains or losses for the three months~~2019, and ~~nine months ended September~~June 30, ~~2016.~~2018.

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

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

Refer to Note 1 and Note 11 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2018 Annual Report on Form 10-K for further description of our securitization activities and our involvement with VIEs.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following table presents our involvement in consolidated and nonconsolidated VIEs in which we hold variable interests. For additional detail related to the assets and liabilities of consolidated variable interest entities refer to the Condensed Consolidated Balance ~~Sheet.~~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
June 30, 2019
On-balance sheet variable interest entities
Consumer automotive	$	17,462	(b)	$	7,529	(c)						$	16,123	(b)	$	6,016	(c)
Commercial automotive	12,590			2,557								9,077			3,047
Off-balance sheet variable interest entities
Consumer automotive	42		(d)	—			$	2,293	$	2,334	(e)	33		(d)	—			$	796	$	829	(e)
Commercial other	575		(f)	238		(g)	—		756		(h)	926		(f)	329		(g)	—		1,187		(h)
Total	$	30,669		$	10,324		$	2,293	$	3,090		$	26,159		$	9,392		$	796	$	2,016
December 31, 2016
December 31, 2018
On-balance sheet variable interest entities
Consumer automotive	$	20,869	(b)	$	8,557	(c)						$	16,255	(b)	$	6,573	(c)
Commercial automotive	16,278			4,764								11,089			3,946
Off-balance sheet variable interest entities
Consumer automotive	24		(f)	—			$	2,899	$	2,923	(e)	45		(d)	—			$	1,235	$	1,280	(e)
Commercial other	460		(f)	169		(g)	—		651		(h)	806		(f)	326		(g)	—		1,054		(h)
Total	$	37,631		$	13,490		$	2,899	$	3,574		$	28,195		$	10,845		$	1,235	$	2,334


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


(b)	Includes ~~$8.4~~$8.5 billion and ~~$9.6~~$8.4 billion of assets that ~~are~~were not encumbered by VIE beneficial interests held by third parties at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively. Ally or consolidated affiliates hold the interests in these assets.


(c)	Includes ~~$30~~$22 million and ~~$50~~$25 million of liabilities that ~~are~~were not obligations to third-party beneficial interest holders at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

(d)

Represents retained notes and certificated residual interests, of which ~~$40~~$31 million isand $43 million were classified as held-to-maturity securities at June 30, 2019, and December 31, 2018, respectively, and $2 million iswas classified as other assets at ~~September~~both June 30, ~~2017.~~2019, and December 31, 2018. These assets represent our ~~compliance with the risk retention rules under the Dodd-Frank Act,~~ ~~requiring us to retain at least~~ five percent ofinterest in the credit risk of the assets underlying asset-backed ~~securitizations, which became effective on December 24, 2016.~~

securitizations.

(e)

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


(f)	Amounts are classified as other assets.


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

(h)

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

2730

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Cash Flows with Off-balance Sheet Securitization Entities

The following table summarizes cash flows received and paid related to ~~securitization entities~~SPEs and asset-backed financings where the transfer is accounted for as a sale and we have a continuing involvement with the transferred consumer automotive assets (e.g., servicing) that were outstanding during the ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016~~.2018. Additionally, this table contains information regarding cash flows received from and paid to nonconsolidated ~~securitization entities~~SPEs that existed during each period.



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

Nine months ended September 30, ($ in millions)
Consumer automotive
2017

Cash proceeds from transfers completed during the period
$ 1,187
Cash disbursements for repurchases during the period (a) (491 )
Servicing fees
25
Cash flows received on retained interests in securitization entities 16
Other cash flows
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
($ in millions)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Off-balance sheet securitization entities
Consumer automotive	$	796	$	1,235	$	9	$	13
Whole-loan sales (a)
Consumer automotive	392		634		2		3
Total	$	1,188	$	1,869	$	11	$	16

Total amount Amount 60 days or more past due
($ in millions) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
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
Total off-balance sheet securitization entities 2,293
2,392
14
13
Whole-loan sales (a) 1,655
3,164
4
6
Total $ 122,819
$ 124,500
$ 799
$ 841


(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									Net credit losses
	Three months ended September 30,					Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
($ in millions)	2017		2016			2017		2016		2019		2018		2019		2018
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		$	2	$	2	$	4	$	5
Total off-balance sheet securitization entities	3		2			9		6
Whole-loan sales (a)	1		1			3		2
Consumer automotive										1		—		1		1
Total	$	257	$	216		$	717	$	552	$	3	$	2	$	5	$	6


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

2931

Table of Contents

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			June 30, 2019			December 31, 2018
Property and equipment at cost	$	1,024		$	901		$	1,245		$	1,250
Accumulated depreciation	(587		)	(525		)	(640		)	(686		)
Net property and equipment	437			376			605			564
Restricted cash collections for securitization trusts (a)	1,260			1,694
Nonmarketable equity investments (b)	1,065			1,046
Nonmarketable equity investments (a)							1,303			1,410
Investment in qualified affordable housing projects (b)							724			649
Accrued interest, fees, and rent receivables							631			599
Restricted cash held for securitization trusts (c)							608			965
Other accounts receivable							396			203
Equity-method investments (d)							317			262
Goodwill (e)							240			240
Net deferred tax assets	659			994			173			317
Accrued interest and rent receivables	508			476
Goodwill (c)	240			240
Other accounts receivable	212			100
Cash reserve deposits held for securitization trusts (d)	120			184
Restricted cash and cash equivalents	112			111
Fair value of derivative contracts in receivable position (e)	37			95
Restricted cash and cash equivalents (f)							99			124
Fair value of derivative contracts in receivable position (g)							59			41
Cash collateral placed with counterparties	20			167			9			26
Other assets	1,393			1,371			911			753
Total other assets	$	6,063		$	6,854		$	6,075		$	6,153

(a)

~~Represents~~

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

(b)

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


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


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

~~(c)~~(e)

Includes goodwill of $27 million within our Insurance operations at both ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016;~~2018; $193 million within Corporate and Other at both ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016;~~2018; and $20 million within Automotive Finance operations at both ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016.~~2018. No changes to the carrying amount of goodwill were recorded during the ~~nine~~six months ended ~~September~~ June 30, ~~2017.~~2019.


~~(d)~~(f)	~~Represents~~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 ~~enhancement in the form of cash reserves for various securitization transactions.~~arrangements and corresponding collateral requirements.


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

11. Deposit Liabilities

Deposit liabilities consisted of the following.



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

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

12. Debt

~~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. Debt~~

Short-term Borrowings

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


	September 30, 2017						December 31, 2016						June 30, 2019						December 31, 2018
($ 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	$	2,462	$	—	$	2,462	$	2,477	$	—	$	2,477
Federal Home Loan Bank	—		5,625		5,625		—		7,875		7,875		—		3,625		3,625		—		6,825		6,825
Financial instruments sold under agreements to repurchase	—		1,171		1,171		—		1,176		1,176
Securities sold under agreements to repurchase													—		432		432		—		685		685
Total short-term borrowings	$	3,379	$	6,796	$	10,175	$	3,622	$	9,051	$	12,673	$	2,462	$	4,057	$	6,519	$	2,477	$	7,510	$	9,987


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

We periodically enter into term repurchase ~~agreements,~~ agreements—short-term borrowing agreements in which we sell ~~financial instruments~~securities to one or more investors while simultaneously committing to repurchase them at a specified future date, at the stated price plus accrued interest. As of ~~September~~June 30, ~~2017,~~2019, the ~~financial instruments~~ securities sold under agreements to repurchase consisted of ~~$537~~ $169 million of U.S. Treasury securities ~~set to mature within the next 30 days,~~ and ~~$634~~ $263 million of agency mortgage-backed residential debt securities set to mature as follows: ~~$480~~ $169 million within ~~the next~~ 30 days, and ~~$154~~$263 million within 31 to 60 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 September 30, 2017,~~ In some instances, we ~~placed~~may place or receive cash collateral ~~totaling $10 million~~ with counterparties under ~~these~~ collateral arrangements associated with our repurchase agreements.

At June 30, 2019, we did not place any collateral, and we received cash collateral totaling $3 million and noncash collateral totaling $1 million. At December 31,

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

2018, we did not place any collateral, and we received cash collateral totaling $8 million and noncash collateral totaling $4 million.

Long-term Debt

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



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

September 30, 2017 December 31, 2016
($ in millions) 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
Due after one year (a) 13,129
21,249
34,378
15,450
23,810
39,260
Fair value adjustment (b) 289
(15 ) 274
326
(11 ) 315
Total long-term debt (c) $ 17,246
$ 27,876
$ 45,122
$ 20,050
$ 34,078
$ 54,128


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


(b)	Includes $2.6 billion of trust preferred securities at both ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016.~~


~~(b)~~	~~Represents the fair value adjustment associated with the application of hedge accounting on certain of our long-term debt positions. Refer to~~ ~~Note 19~~ ~~for additional information.~~ 2018.


(c)	Includes advances net of hedge basis adjustment from the FHLB of Pittsburgh of ~~$8.4~~$14.7 billion and ~~$6.1~~$14.9 billion at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

The following table presents the scheduled remaining maturity of long-term debt at ~~September~~June 30, ~~2017,~~2019, assuming no early redemptions will occur. The amounts below include adjustments to the carrying value resulting from the application of hedge accounting. The actual payment of secured debt may vary based on the payment activity of the related pledged assets.


($ in millions)	2017			2018			2019			2020			2021			2022 and thereafter			Fair value adjustment			Total			2019			2020			2021			2022			2023			2024 and thereafter			Total
Unsecured
Long-term debt	$	1,590		$	3,582		$	1,680		$	2,252		$	637		$	8,475		$	289		$	18,505		$	873		$	2,256		$	696		$	1,084		$	11		$	8,273		$	13,193
Original issue discount	(24		)	(100		)	(39		)	(39		)	(43		)	(1,014		)	—			(1,259		)	(21		)	(43		)	(46		)	(51		)	(57		)	(904		)	(1,122		)
Total unsecured	1,566			3,482			1,641			2,213			594			7,461			289			17,246			852			2,213			650			1,033			(46		)	7,369			12,071
Secured
Long-term debt	1,048			7,379			7,617			6,818			3,179			1,850			(15		)	27,876			2,963			6,879			9,393			5,426			557			177			25,395
Total long-term debt	$	2,614		$	10,861		$	9,258		$	9,031		$	3,773		$	9,311		$	274		$	45,122		$	3,815		$	9,092		$	10,043		$	6,459		$	511		$	7,546		$	37,466

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


	September 30, 2017					December 31, 2016					June 30, 2019					December 31, 2018
($ 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	$	5,517		$	5,067	$	10,280		$	9,564
Mortgage assets held-for-investment and lending receivables	11,888			11,888		10,954			10,954		17,589			17,589		16,498			16,498
Consumer automotive finance receivables ~~(b)~~	21,261			4,818		27,846			5,751		11,287			7,319		17,015			9,715
Commercial automotive finance receivables	16,142			16,018		19,487			19,280		13,736			13,736		15,563			15,563
Investment in operating leases, net	737			7		2,040			913
Operating leases											96			—		170			—
Total assets restricted as collateral (c) (d)	$	56,704		$	38,213	$	65,222		$	41,129	$	48,225		$	43,711	$	59,526		$	51,340
Secured debt	$	34,672	(e)	$	18,781	$	43,129	(e)	$	22,149	$	29,452	(e)	$	25,386	$	39,596	(e)	$	32,072


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


(b)	A portion of the restricted investment securities at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016, and consumer automotive finance receivables at December 31, 2016,~~2018, were restricted under repurchase agreements. Refer to the section above titled Short-term Borrowings for information on the repurchase agreements.

(c)

Ally Bank has an advance agreement with the FHLB, and had assets pledged to secure borrowings that were restricted as collateral to the FHLB totaling $~~21.4~~27.4 billion and $~~19.0~~30.8 billion at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively. These assets were composed primarily of consumer mortgage finance receivables and loans and investment securities. Ally Bank has access to the FRB Discount ~~Window. Ally Bank~~Window and had assets pledged and restricted as collateral to the FRB totaling ~~$2.3 billion and~~ $2.4 billion at ~~September~~both June 30, ~~2017~~2019, and December 31, ~~2016, respectively.~~2018. 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~~4.1 billion and ~~$9.1~~$7.5 billion of short-term borrowings at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018, respectively.

Trust Preferred Securities

At ~~September~~both June 30, ~~2017,~~ 2019, and December 31, 2018, we ~~have~~had 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~~offered 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 secured credit facilities and other collateralized funding vehicles. The debt outstanding under our various funding facilities is included on our Condensed Consolidated Balance ~~Sheet.~~Sheet.

As of ~~September~~June 30, ~~2017,~~2019, Ally Bank had exclusive access to ~~$3.7 billion~~$250 million of funding capacity from committed secured credit facilities. ~~Funding programs supported~~Ally Bank’s credit facilities are complemented by the FRB and ~~the~~ FHLB ~~complement Ally Bank’s private collateralized~~ funding ~~vehicles.~~programs.

The total capacity in our ~~committed funding~~credit facilities is provided by banks through private transactions. The ~~committed secured funding~~ facilities can be revolving in nature, generally having an original tenor ranging from 364 days to two years, and allow for additional funding during the commitment period, or they can be amortizing and not allow for any further funding after the ~~closing date.~~ commitment period. At~~September~~ June 30, ~~2017~~, 2019, all of our ~~$14.7~~ $3.3 billion of ~~committed~~ capacity was ~~revolving. Our~~ revolving ~~facilities generally have an original tenor ranging~~and of this balance, $2.0 billion was from ~~364 days to two years. As of~~ ~~September 30, 2017, we had $2.6 billion of committed funding capacity from revolving~~ facilities with a remaining tenor greater than 364 days.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Committed ~~Funding~~Secured Credit Facilities



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

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
Bank funding
Secured (b) $ 1,350
$ 3,250
$ 2,325
$ 350
$ 3,675
$ 3,600
Parent funding
Secured 8,180
11,550
2,820
1,975
11,000
13,525
Unsecured —
—
—
1,250
—
1,250
Total committed facilities $ 9,530
$ 14,800
$ 5,145
$ 3,575
$ 14,675
$ 18,375


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


~~(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)					June 30, 2019		December 31, 2018
Accounts payable	$	863	$	649	$	580	$	516
Unfunded commitments for investment in qualified affordable housing projects					322		319
Employee compensation and benefits	227		232		197		255
Reserves for insurance losses and loss adjustment expenses	173		149		153		134
Cash collateral received from counterparties					38		41
Deferred revenue	34		56		28		27
Fair value of derivative contracts in payable position (a)	30		95		4		37
Cash collateral received from counterparties	14		10
Other liabilities	551		546		585		347
Total accrued expenses and other liabilities	$	1,892	$	1,737	$	1,907	$	1,676


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

3335

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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

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

($ in millions) Unrealized (losses) gains on investment securities (a) Translation adjustments and net investment hedges (b) Cash flow hedges (b) Defined benefit pension plans Accumulated other comprehensive (loss) income
Balance at December 31, 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 )
2017 net change 142
2
1
(1 ) 144
Balance at September 30, 2017 $ (131 ) $ 16
$ 9
$ (91 ) $ (197 )



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



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


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


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


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


Three months ended September 30, 2017 ($ in millions)	Before tax				Tax effect				After tax
Three months ended June 30, 2019 ($ in millions)												Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	95			$	(22	)		$	73		$	404			$	(95	)		$	309
Less: Net realized gains reclassified to income from continuing operations	25			(a)	2			(b)	27			24			(a)	(6		)	(b)	18
Net change	70				(24		)		46			380				(89		)		291
Translation adjustments
Net unrealized gains arising during the period	8				(3		)		5			4				(1		)		3
Net investment hedges (c)
Net unrealized losses arising during the period	(6		)		3				(3		)	(3		)		1				(2		)
Cash flow hedges (c)
Net unrealized gains arising during the period	1				(1		)		—			26				(6		)		20
Less: Net realized gains reclassified to income from continuing operations												4				(1		)		3
Net change												22				(5		)		17
Other comprehensive income	$	73			$	(25	)		$	48		$	403			$	(94	)		$	309


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


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


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



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


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


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


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

Three months ended September 30, 2016 ($ in millions)
Before tax Tax effect After tax
Investment securities
Net unrealized gains arising during the period $ 41
$ (4 ) $ 37
Less: Net realized gains reclassified to income from continuing operations 52
(a) (11 ) (b) 41
Net change (11 )
7

(4 )
Translation adjustments
Net unrealized losses arising during the period (2 ) 1
(1 )
Net investment hedges (c)
Net unrealized gains arising during the period 2
(1 ) 1
Other comprehensive income $ (11 ) $ 7

$ (4 )


~~(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~~.

3437

Table of Contents

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
Six months ended June 30, 2019 ($ in millions)												Before tax				Tax effect				After tax
Investment securities
Net unrealized gains arising during the period	$	278			$	(64	)		$	214		$	825			$	(194	)		$	631
Less: Net realized gains reclassified to income from continuing operations	75			(a)	(3		)	(b)	72			33			(a)	(8		)	(b)	25
Net change	203				(61		)		142			792				(186		)		606
Translation adjustments
Net unrealized gains arising during the period	14				(5		)		9			6				(2		)		4
Net investment hedges (c)
Net unrealized losses arising during the period	(12		)		5				(7		)	(5		)		2				(3		)
Cash flow hedges (c)
Net unrealized gains arising during the period	2				(1		)		1
Net unrealized losses arising during the period												21				(5		)		16
Less: Net realized gains reclassified to income from continuing operations												9				(2		)		7
Net change												12				(3		)		9
Defined benefit pension plans
Net unrealized losses arising during the period	(1		)		—				(1		)	(1		)		—				(1		)
Other comprehensive income	$	206			$	(62	)		$	144		$	804			$	(189	)		$	615


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


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


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



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


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


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


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

3538

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 June 30,					Six months ended June 30,
($ in millions, except per share data; shares in thousands) (a)	2017		2016			2017		2016			2019			2018		2019			2018
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
Income (loss) from discontinued operations, net of tax	2		(52		)	1		(46		)
Net income attributable to common shareholders	$	282	$	209		$	748	$	789
Net income from continuing operations attributable to common stockholders											$	584		$	348	$	959		$	600
(Loss) income from discontinued operations, net of tax											(2		)	1		(3		)	(1		)
Net income attributable to common stockholders											$	582		$	349	$	956		$	599
Basic weighted-average common shares outstanding (b)	449,169		482,393			457,612		483,993			398,100			430,628		401,098			433,405
Diluted weighted-average common shares outstanding (b)	451,078		483,575			458,848		484,762			399,916			432,554		402,921			435,727
Basic earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.73		$	1.47		$	0.81	$	2.39		$	1.38
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Loss from discontinued operations, net of tax											—			—		(0.01		)	—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	1.46		$	0.81	$	2.39		$	1.38
Diluted earnings per common share
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.72		$	1.46		$	0.80	$	2.38		$	1.38
Income (loss) from discontinued operations, net of tax	—		(0.11		)	—		(0.10		)
Loss from discontinued operations, net of tax											—			—		(0.01		)	—
Net income	$	0.63	$	0.43		$	1.63	$	1.63		$	1.46		$	0.81	$	2.37		$	1.37


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


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

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

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

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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

In July 2019, the FRB and other U.S. banking agencies issued a final rule to simplify certain capital requirements, including the requirements related to the above-mentioned capital deductions and adjustments for investments in unconsolidated financial institutions, mortgage servicing assets, and certain deferred tax assets. In addition, on August 22, 2017, the FRB proposed an amendment to the transition provisionsaspects of the ~~U.S. Basel III~~ capital rules ~~that would, in anticipation of the simplification proposal, indefinitely postpone certain phase-in requirements~~ 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. WeThe final rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, and investments in the capital instruments of unconsolidated financial institutions (collectively, threshold items). Under the current capital rule, a banking organization must deduct from Common Equity Tier 1 capital amounts of threshold items that individually exceed 10% of Common Equity Tier 1 capital. The aggregate amount of threshold items not deducted under the 10% threshold deduction but that nonetheless exceeds 15% of Common Equity Tier 1 capital minus certain deductions from and adjustments to Common Equity Tier 1 capital must also be deducted. Any amount of these threshold items not deducted from Common Equity Tier 1 capital are ~~evaluating~~currently risk weighted at 100%. The final rule removes the individual and aggregate deduction thresholds for threshold items and adopts a single 25% Common Equity Tier 1 capital deduction threshold for each item individually, and requires that any of the threshold items not deducted be risk weighted at 250%. The final rule also simplifies the calculation methodology for minority interests. These provisions take effect ~~these proposals would~~on April 1, 2020, and we do not expect them to have ona material impact to our ~~regulatory~~ capital position.

~~On March 7, 2016, Ally Bank received approval from~~In May 2018, targeted amendments to the Dodd-Frank Act and other financial-services laws were enacted through the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act), including amendments that affect whether and, if so, how the FRB applies enhanced prudential standards to ~~become a state member bank. Ally Bank is now regulated by~~BHCs like us with $100 billion or more but less than $250 billion in total consolidated assets. During the fourth quarter of 2018, the FRB 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 connection with the application for membershipand other U.S. banking agencies issued proposals that would implement these amendments in the ~~Federal Reserve System,~~EGRRCP Act and establish risk-based categories for determining the prudential standards and the capital and liquidity requirements that apply to large U.S. banking organizations. Under the proposals, Ally ~~Bank~~would be treated as a Category IV firm and, as such, would be (1) made ~~commitments~~subject to the FRB’s Comprehensive Capital Analysis and Review (CCAR) on a two-year cycle rather than the current one-year cycle, (2) made subject to supervisory stress testing on a two-year cycle rather than the current one-year cycle, (3) required to continue submitting an annual capital plan to the FRB ~~relating~~for non-objection, (4) allowed to continue excluding accumulated other comprehensive income (AOCI) from regulatory capital, (5) required to continue maintaining a buffer of unencumbered highly liquid assets to meet projected net cash outflows for 30 days, (6) required to conduct liquidity stress tests on a quarterly basis rather than the current monthly basis, (7) allowed to engage in more tailored liquidity risk management, including monthly rather than weekly calculations of collateral positions, the elimination of limits for activities that are not relevant to the firm, and ~~business~~fewer required elements of monitoring of intraday liquidity exposures, (8) exempted from company-run stress testing, the modified liquidity coverage ratio (LCR), and the proposed modified net stable funding ratio (NSFR), and (9) allowed to remain exempted from the supplementary leverage ratio, the countercyclical capital buffer, and single counterparty credit limits.

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

In April 2018, the FRB issued a proposal to more closely align forward-looking stress testing results with the ~~prior~~FRB’s non-stress regulatory capital requirements ~~under~~for banking organizations with $50 billion or more in total consolidated assets. The proposal would introduce a stress capital buffer based on firm-specific stress test performance, which would effectively replace the ~~now-terminated Capital~~non-stress capital conservation buffer. The proposal would also make several changes to the CCAR process, such as eliminating the CCAR quantitative objection, narrowing the set of planned capital actions assumed to occur in the stress scenario, and ~~Liquidity Maintenance Agreement with~~eliminating the ~~Federal Deposit Insurance Corporation (FDIC), including the requirement to maintain~~30% dividend payout ratio as a criterion for heightened scrutiny of a firm’s capital ~~at a level such that Ally Bank’s Tier 1 leverage ratio was at least 15%.~~

~~On August 22,~~plan. In December 2017, the ~~FRB lifted~~Basel Committee approved revisions to the global Basel III capital ~~liquidity, and business plan commitments that Ally Bank made in connection with its application for membership~~framework (commonly known as Basel IV), many of which—if adopted in the ~~Federal Reserve System, including~~United States—could heighten regulatory capital standards even more.

At this time, how all of these proposals and revisions will be harmonized and finalized in the ~~commitment~~United States is not clear or predictable and we continue to ~~maintain a Tier 1 leverage ratio of at least 15%. As a result of this development, during~~evaluate 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~~impacts these proposals and ~~further enhance our funding profile.~~revisions may have on us.

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


	September 30, 2017				December 31, 2016				Required minimum			Well-capitalized minimum		June 30, 2019				December 31, 2018				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)		$	13,887	9.52	%	$	13,397	9.14	%	4.50	%	(b)
Ally Bank	16,454		15.39		17,888		16.70		4.50			6.50	%	16,739		12.54		16,552		12.61		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	%	$	16,319	11.19	%	$	15,831	10.80	%	6.00	%	6.00	%
Ally Bank	16,454		15.39		17,888		16.70		6.00			8.00		16,739		12.54		16,552		12.61		6.00		8.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	17,891	13.19	%	$	17,419	12.57	%	8.00	%		10.00	%	$	18,572	12.73	%	$	18,046	12.31	%	8.00	%	10.00	%
Ally Bank	17,215		16.10		18,458		17.24		8.00			10.00		17,947		13.44		17,620		13.42		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)		$	16,319	9.05	%	$	15,831	9.00	%	4.00	%	(b)
Ally Bank	16,454		12.89		17,888		15.21		4.00		(c)	5.00	%	16,739		10.26		16,552		10.69		4.00		5.00	%


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


(b)	Currently, there is no ratio component for determining whether a BHC is ~~"well-capitalized."~~“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~~June 30, ~~2017,~~2019, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was subject.

~~Table of Contents~~

~~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~~Pending the adoption of ~~consolidated assets,~~ proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would implement the EGRRCP Act, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit ~~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~~will serve as a source of strength to Ally Bank. The FRB ~~must approve Ally's~~will either object to Ally’s proposed capital plan, ~~before Ally may take any~~in whole or in part, or provide a notice of non-objection. If the FRB objects to the proposed capital ~~action. Even with an approved capital~~plan, or if certain material events occur after approval of the plan, Ally must ~~seek the approval of~~submit a revised capital plan within 30 days. 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 for each quarter since the commencement of~~stock and distributions to our common ~~share repurchase programs and initiation of a quarterly cash dividend on common stock.~~stockholders over the last six quarters.

($ 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)
2018
First quarter	$	185	6,473	437,054	432,691	$	0.13
Second quarter	195		7,280	432,691	425,752	0.13
Third quarter	250		9,194	425,752	416,591	0.15
Fourth quarter	309		12,121	416,591	404,900	0.15
2019
First quarter	$	211	8,113	404,900	399,761	$	0.17
Second quarter	229		7,775	399,761	392,775	0.17


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


(b)	On ~~October 10, 2017,~~July 16, 2019, the Ally Board of Directors (the Board) declared a quarterly cash dividend ~~payment~~ of ~~$0.12~~$0.17 per share on all common stock, payable on ~~November~~August 15, ~~2017.~~2019. 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 included increases in both our stock-repurchase program and our planned dividends. Consistent with the capital plan, the Board authorizedincreases in our stock-repurchase program, permitting us to repurchase up to $1.0 billion of our common stock from time to time from the third quarter of 2018 through the second quarter of 2019. On October 5, 2018, we submitted to the FRB the results of our company-run mid-cycle stress test and publicly disclosed summary results under the severely adverse scenario in accordance with applicable regulatory requirements.

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

Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue to be subject to the FRB’s review of and ~~non-objection to~~approval by the ~~actions that we propose each year in our annual capital plan.~~Board. The amount and size of any future dividends and share repurchases also will ~~depend upon our results of operations, capital levels, future opportunities, consideration and approval by the Ally Board of Directors, and other considerations.~~

~~In January 2017, the FRB finalized a rule amending the capital planning and stress testing rules, effective for the 2017 cycle. The final rule, among other things, revised the capital plan rule~~be subject to ~~no longer subject large and noncomplex firms,~~various factors, including 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 capital planning process. Under the final rule, the qualitative assessment of Ally’s capital ~~plan is conducted outside of the CCAR process, through the supervisory review process. For the 2017 cycle, the FRB's qualitative assessment of Ally's~~and liquidity positions, regulatory considerations, any accounting standards that affect capital ~~plan began in the third quarter of 2017. The final rule also decreased the de minimis threshold for the amount~~or liquidity (including CECL), financial and operational performance, alternative uses of capital, ~~that Ally could distribute to shareholders outside of an approved capital plan without seeking prior approval of the FRB,~~common-stock price, and ~~modified Ally's reporting requirements to reduce certain reporting burdens related to capital planning~~general market conditions, and ~~stress testing.~~may be suspended at any time.

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

We enter into derivative instruments, which may include interest rate, foreign-currency, and equity swaps, futures, forwards, and options in connection with our ~~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.~~

~~Table of Contents~~

~~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.

Derivatives qualifying for hedge accounting can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances, pay-fixed swaps designated as fair value hedges of ~~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~~consumer 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~~borrowings and deposit liabilities, receive-fixed swaps designated as cash flow hedges of ~~September 30, 2017, there were no open~~the expected future cash flows in the form of interest receipts on certain securities within our available-for-sale portfolio, as well as interest rate floor contracts designated as cash flow hedges ~~related~~of the expected future cash flows in the form of interest receipts on a portion of our dealer floorplan commercial loans.

Table of Contents

Notes to ~~our held-for-investment retail automotive loan assets.~~Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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~~investment in foreign subsidiaries. Our equity is impacted by the cumulative translation adjustments resulting from the translation of foreign subsidiary results; this impact is reflected in our accumulated other comprehensive ~~loss.~~income. 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~~Investment 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~~We manage our risk ~~of counterparty default, we maintain collateral~~to financial counterparties through internal credit analysis, limits, and monitoring. Additionally, derivatives and repurchase agreements are entered into with approved counterparties using industry standard agreements.

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

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

Certain derivative instruments contain provisions that require us to either post additional collateral or immediately settle any outstanding liability balances upon the occurrence of a specified ~~credit risk-related~~credit-risk-related event. No such specified ~~credit risk related~~credit-risk-related events occurred during the ~~third quarter of 2017~~three months and six months ended June 30, 2019, or ~~2016.~~2018.

We placed cash and noncash collateral totaling ~~$10~~$9 million and ~~securities collateral totaling $145~~$165 million, respectively, supporting our derivative positions at ~~September~~June 30, ~~2017, and $122~~2019, compared to $26 million and ~~$72~~$105 million of cash and noncash collateral at December 31, ~~2016, respectively,~~ 2018, in accounts maintained by counterparties. ~~This amount primarily relates to~~ These amounts include collateral ~~posted to support our derivative positions. This amount also excludes~~placed at clearinghouses and exclude 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 and noncash collateral from counterparties totaling ~~$14~~$25 million and ~~$10~~$32 million, respectively, in accounts maintained by counterparties at ~~September~~June 30, ~~2017,~~2019, compared to $30 million and $3 million of cash and noncash collateral at December 31, ~~2016, respectively, primarily to support these derivative positions. This amount also excludes~~2018. These amounts include collateral received from clearinghouses and 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.

4043

Table of Contents

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.~~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.



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

September 30, 2017 December 31, 2016
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)
Derivatives designated as accounting hedges
Interest rate contracts
Swaps (c) (d) (e) (f) (g) $ —
$ —
$ 6,140
$ 19
$ 21
$ 4,731
Futures (h) 1
—
60
—
—
—
Foreign exchange contracts
Forwards 3
—
176
1
—
171
Total derivatives designated as accounting hedges 4
—
6,376
20
21
4,902
Derivatives not designated as accounting hedges
Interest rate contracts
Swaps —
—
—
—
—
137
Futures and forwards —
—
116
—
—
—
Written options 1
30
9,452
—
73
14,518
Purchased options 30
—
9,335
73
—
14,517
Total interest rate risk 31
30
18,903
73
73
29,172
Foreign exchange contracts
Futures and forwards 2
—
130
1
—
92
Total foreign exchange risk 2
—
130
1
—
92
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
Total derivatives $ 37
$ 30
$ 25,409
$ 95
$ 95
$ 34,166


~~(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.

4144

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



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


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


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

(c)

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

(d)

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

Statement of Comprehensive Income Presentation

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



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

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 )

~~(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.~~

4245

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



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

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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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



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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



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

The following table summarizes ~~derivative instruments used in~~the effect of cash flow ~~and~~hedges on accumulated other comprehensive income (loss).



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

The following table summarizes the effect of net investment ~~hedge accounting relationships.~~hedges on accumulated other comprehensive income (loss) and the 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 )



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


(a)	~~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 six months ended June 30, 2019, or 2018.

(b)

Gains and losses reclassified from accumulated other comprehensive ~~loss related to~~income (loss) 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 and six months ended ~~September~~ June 30, ~~2017, and 2016, respectively, and gains of $14 million and $9 million for the nine months ended September 30, 2017, and 2016.~~2019, or 2018.

~~20.~~ 18. Income Taxes

We recognized ~~total~~income tax benefit from continuing operations of $90 million and income tax expense from continuing operations of ~~$115 million and $350~~$21 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$130~~income tax expense of $113 million and ~~$336~~$189 million for the same periods in ~~2016.~~ 2018.

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The decreases in income tax expense for the three months and six months ended June 30, 2019, compared to the same periods in 2018, were primarily due to a release of valuation allowance on foreign tax credit carryforwards during the second quarter of 2019. The valuation allowance release during the three months ended June 30, 2019, was primarily driven by our current capacity to engage in certain securitization transactions and the market demand from investors related to these transactions, coupled with the anticipated timing of the forecasted expiration of certain tax credit carryforwards. This release of valuation allowance of approximately $200 million resulted in a significant variation in the customary relationship between pretax income and income tax expense. Additionally, the decrease in income tax expense for the ~~three~~six months ended ~~September~~ June 30, ~~2017,~~2019, 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 the nine months ended September 30, 2017, compared to the same period in 2016, was primarily driven by a nonrecurring tax benefit in the second quarter 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 benefit2018, was partially offset by the ~~establishment~~tax effects of ~~a valuation allowance on capital loss carryforwards in the second quarter of 2016, and a decrease~~an increase in pretax earnings.

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

~~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 and amounts that could be realized.

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


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

Level 2

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


Level 3	Unobservable inputs are supported by little or no market activity. The unobservable inputs represent ~~management's~~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).

•

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).

~~Available-for-sale securities~~ ~~— All classes~~50

Table 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 requiredContents

Notes 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).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 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.

•

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

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

Recurring fair value measurements
September 30, 2017 ($ in millions)
Level 1 Level 2 Level 3 Total
Assets
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury $ 2,073
$ —
$ —
$ 2,073
U.S. States and political subdivisions —
851
—
851
Foreign government 8
149
—
157
Agency mortgage-backed residential —
14,344
—
14,344
Mortgage-backed residential —
2,310
—
2,310
Mortgage-backed commercial —
509
—
509
Asset-backed —
1,039
—
1,039
Corporate debt —
1,291
—
1,291
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
Mortgage loans held-for-sale —
—
9
9
Interests retained in financial asset sales —
—
5
5
Derivative contracts in a receivable position
Interest rate 1
30
1
32
Foreign currency —
5
—
5
Total derivative contracts in a receivable position 1
35
1
37
Total assets $ 2,607
$ 20,528
$ 15
$ 23,150
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate $ —
$ (30 ) $ —
$ (30 )
Total derivative contracts in a payable position —
(30 ) —
(30 )
Total liabilities $ —
$ (30 ) $ —
$ (30 )


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

~~Table of Contents~~

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

~~Ally Financial Inc. • Form 10-Q~~

Recurring fair value measurements
December 31, 2016 ($ in millions)
Level 1 Level 2 Level 3 Total
Assets
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury $ 1,620
$ —
$ —
$ 1,620
U.S. States and political subdivisions —
782
—
782
Foreign government 11
151
—
162
Agency mortgage-backed residential —
10,290
—
10,290
Mortgage-backed residential —
2,097
—
2,097
Mortgage-backed commercial —
537
—
537
Asset-backed —
1,400
—
1,400
Corporate debt —
1,443
—
1,443
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
Other assets
Interests retained in financial asset sales —
—
29
29
Derivative contracts in a receivable position
Interest rate —
92
—
92
Foreign currency —
2
—
2
Other 1
—
—
1
Total derivative contracts in a receivable position 1
94
—
95
Total assets $ 2,227

$ 16,794

$ 29
$ 19,050
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate $ —
$ (94 ) $ —
$ (94 )
Other (1 ) —
—
(1 )
Total derivative contracts in a payable position (1 ) (94 ) —
(95 )
Total liabilities $ (1 )
$ (94 )
$ —

$ (95 )


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


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

4652

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



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


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


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. There were no transfers into or out of Level 3 in the periods presented. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our ~~risk management~~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 June 30, 2019		Net unrealized gains still held at June 30, 2019
($ 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 April 1, 2019		included in earnings			included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at June 30, 2019		included in earnings		included in OCI
Assets
Equity securities																					$	11	$	2	(a)	$	—	$	—	$	—		$	—	$	(4	)	$	9	$	2	$	—
Mortgage loans held-for-sale (b)																					15		3		(c)	—		156		(152		)	—		—			22		—		—
Other assets
Interests retained in financial asset sales	$	31	$	1	(a)	$	—	$	—	$	2	$	—	$	(2	)	$	32	$	—	4		—			—		—		—			—		(1		)	3		—		—
Derivative assets																					2		—		(c)	—		—		—			—		—			2		—		—
Total assets	$	31	$	1		$	—	$	—	$	2	$	—	$	(2	)	$	32	$	—	$	32	$	5		$	—	$	156	$	(152	)	$	—	$	(5	)	$	36	$	2	$	—


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


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


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


	Level 3 recurring fair value measurements																				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		Fair value at April 1, 2018		Net realized/unrealized gains					Purchases		Sales			Issuances		Settlements			Fair value at June 30, 2018		Net unrealized gains included in earnings still held at June 30, 2018
($ in millions)	Fair value at Jan. 1, 2017		included in earnings		included in OCI		Purchases		Sales			Issuances		Settlements									included in earnings			included in OCI
Assets
Mortgage loans held-for-sale	$	—	$	1	$	—	$	72	$	(64	)	$	—	$	—		$	9	$	—
Equity securities																					$	12	$	—		$	—	$	—	$	—		$	—	$	—		$	12	$	—
Mortgage loans held-for-sale (a)																					7		1		(b)	—		73		(68		)	—		—			13		—
Other assets
Interests retained in financial asset sales	29		1		—		—		8			—		(33		)	5		—		5		—			—		—		—			—		(1		)	4		—
Derivative assets	—		1		—		—		—			—		—			1		1		1		—			—		—		—			—		—			1		—
Total assets	$	29	$	3	$	—	$	72	$	(56	)	$	—	$	(33	)	$	15	$	1	$	25	$	1		$	—	$	73	$	(68	)	$	—	$	(1	)	$	30	$	—


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


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


	Level 3 recurring fair value measurements																				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				Net realized/unrealized gains															Fair value at June 30, 2019		Net unrealized gains still held at June 30, 2019
($ in millions)	Fair value at Jan. 1, 2016		included in earnings			included in OCI		Purchases		Sales		Issuances		Settlements			Fair value at September 30, 2016				Fair value at Jan. 1, 2019		included in earnings			included in OCI		Purchases		Sales			Issuances		Settlements			Fair value at June 30, 2019		included in earnings		included in OCI
Assets
Equity securities																					$	7	$	6	(a)	$	—	$	—	$	—		$	—	$	(4	)	$	9	$	6	$	—
Mortgage loans held-for-sale (b)																					8		4		(c)	—		246		(236		)	—		—			22		—		—
Other assets
Interests retained in financial asset sales	$	40	$	4	(a)	$	—	$	—	$	8	$	—	$	(20	)	$	32	$	—	4		—			—		—		—			—		(1		)	3		—		—
Derivative assets																					—		2		(c)	—		—		—			—		—			2		2		—
Total assets	$	40	$	4		$	—	$	—	$	8	$	—	$	(20	)	$	32	$	—	$	19	$	12		$	—	$	246	$	(236	)	$	—	$	(5	)	$	36	$	8	$	—


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


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


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

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


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


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


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

Nonrecurring Fair Value

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

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


	Nonrecurring fair value measurements								Lower-of-cost or fair value 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 reserve, valuation reserve, or cumulative impairment			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																		Total gain (loss) included in earnings
June 30, 2019 ($ in millions)																Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment			Total gain (loss) included in earnings
Assets																											Total gain (loss) included in earnings
Loans held-for-sale, net	$	—	$	—	$	9	$	9	$	—		n/m	(a)	n/m	(a)	$	—	$	—	$	253	$	253	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Automotive	—		—		29		29		$	(4	)	n/m	(a)	n/m	(a)	—		—		54		54		(19		)	n/m	(a)
Other	—		—		35		35		(16		)	n/m	(a)	n/m	(a)	—		—		17		17		(30		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		64		64		(20		)	n/m	(a)	n/m	(a)	—		—		71		71		(49		)	n/m	(a)
Other assets
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)
Nonmarketable equity investments																—		—		9		9		(1		)	n/m	(a)
Equity-method investments																—		—		3		3		(4		)	n/m	(a)
Total assets	$	—	$	—	$	89	$	89	$	(22	)	n/m		n/m		$	—	$	—	$	349	$	349	$	(55	)	n/m

n/m = not meaningful

(a)

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


(b)	Represents the portion of the portfolio specifically impaired during ~~2017.~~2019. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


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

4855

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		Nonrecurring fair value measurements								Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment			Total gain (loss) included in earnings
September 30, 2016 ($ in millions)	Level 1		Level 2		Level 3		Total
December 31, 2018 ($ in millions)																Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value reserve, valuation reserve, or cumulative impairment			Total gain (loss) included in earnings
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 (a)																$	—	$	—	$	210	$	210	$	(2	)	n/m	(b)
Other																—		—		96		96		—			n/m	(b)
Total loans held-for-sale, net																—		—		306		306		(2		)	n/m	(b)
Commercial finance receivables and loans, net (c)
Automotive	—		—		30		30		(7		)	n/m	(a)	n/m	(a)	—		—		84		84		(10		)	n/m	(b)
Other	—		—		45		45		(17		)	n/m	(a)	n/m	(a)	—		—		55		55		(46		)	n/m	(b)
Total commercial finance receivables and loans, net	—		—		75		75		(24		)	n/m	(a)	n/m	(a)	—		—		139		139		(56		)	n/m	(b)
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)
Nonmarketable equity investments																—		—		1		1		(1		)	n/m	(b)
Equity-method investments																—		—		3		3		—			n/m	(b)
Repossessed and foreclosed assets (d)																—		—		13		13		(1		)	n/m	(b)
Total assets	$	—	$	—	$	153	$	153	$	(28	)	n/m		n/m		$	—	$	—	$	462	$	462	$	(60	)	n/m

n/m = not meaningful


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

(b)


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


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

Fair Value Option for Financial Assets

We elected the fair value option for an insignificant amount of conforming mortgage loans held-for-sale. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related ~~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~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018.



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

Estimated fair value
($ in millions) Carrying value Level 1 Level 2 Level 3 Total
September 30, 2017
Financial assets
Held-to-maturity securities $ 1,839
$ —
$ 1,807
$ —
$ 1,807
Loans held-for-sale, net 9
—
—
9
9
Finance receivables and loans, net 117,585
—
—
119,498
119,498
Nonmarketable equity investments (a) 1,053
—
1,026
26
1,052
Financial liabilities
Deposit liabilities $ 90,116
$ —
$ —
$ 88,151
$ 88,151
Short-term borrowings 10,175
—
—
10,177
10,177
Long-term debt 45,122
—
29,776
17,880
47,656
December 31, 2016
Financial assets
Held-to-maturity securities $ 839
$ —
$ 789
$ —
$ 789
Finance receivables and loans, net 117,800
—
—
118,750
118,750
Nonmarketable equity investments 1,046
—
1,012
55
1,067
Financial liabilities
Deposit liabilities $ 79,022
$ —
$ —
$ 78,469
$ 78,469
Short-term borrowings 12,673
—
—
12,675
12,675
Long-term debt 54,128
—
22,036
34,084
56,120


(a)	Excludes investments with a carrying value of $12 million and fair value of $35 million at September 30, 2017, for which fair value is measured at net asset value (or its equivalent) as a practical expedient. Included in other assets on our Condensed Consolidated Balance Sheet.

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 assets and liabilities subject to a master netting agreement on a net basis if certain qualifying criteria are met. At ~~September~~June 30, ~~2017,~~2019, these instruments are reported as gross assets and gross liabilities on the Condensed Consolidated Balance ~~Sheet.~~Sheet.

5157

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
June 30, 2019 ($ 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(d)				$			36		$	—			$	36			$	—			$	(4	)			$				32					$				(2	)		$	(54	)		$	1
Derivative assets in net liability positions	—						—			—				—				—				—
Derivative assets with no offsetting arrangements	1				—			1				—				—				1				2				—			2								—				—				2
Total assets (d)	$	37			$	—		$	37			$	—			$	(4	)		$	33
Total assets																								$	59			$	—		$	59					$	(2	)		$	(54	)		$	3
Liabilities
Derivative liabilities in net liability positions	$	(30	)		$	—		$	(30	)		$	—			$	—			$	(30	)
Derivative liabilities in net liability positions (d)																								$	2			$	—		$	2		$	—			$	(1	)		$	1
Derivative liabilities in net asset positions	—				—			—				—				—				—				2				—			2			(2		)		—				—
Total derivative liabilities (d)	(30		)		—			(30		)		—				—				(30		)		4				—			4			(2		)		(1		)		1
Securities sold under agreements to repurchase (e)	(1,171		)		—			(1,171		)		—				1,171				—				432				—			432			—				(432		)		—
Total liabilities	$	(1,201	)		$	—		$	(1,201	)		$	—			$	1,171			$	(30	)		$	436			$	—		$	436		$	(2	)		$	(433	)		$	1


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

(b)

Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash collateral received. $2 There was $32 million of noncash derivative collateral, and $1 million of noncash collateral associated with our repurchase agreements, pledged to us that was excluded at ~~September~~June 30, ~~2017.~~ 2019. 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$33 million at ~~September~~June 30, ~~2017.~~2019. We have not sold or pledged any of the noncash collateral received under these agreements as of ~~September~~June 30, ~~2017.~~2019.


(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 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
December 31, 2016 ($ in millions)				Financial instruments							Collateral (a) (b) (c)				Net amount
December 31, 2018 ($ in millions)																											Gross amounts of recognized assets/liabilities						Gross amounts offset on the Condensed Consolidated Balance Sheet			Net amounts of assets/liabilities presented on the Condensed Consolidated Balance Sheet			Financial instruments			Collateral (a) (b) (c)				Net amount
Assets
Derivative assets in net asset positions				$			87		$	—			$	87			$	(4	)		$	(9	)			$				74					$			—		$	(4	)		$	37
Derivative assets in net liability positions	8						—			8				(8		)		—				—
Total assets (d)	$	95			$	—		$	95			$	(12	)		$	(9	)		$	74			$	41			$	—		$	41						$	—		$	(4	)		$	37
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		)
Derivative liabilities in net liability positions (d)																								$	37			$	—		$	37			$	—		$	—		$	37
Securities sold under agreements to repurchase (e)	(676		)		—			(676		)		—				676				—				685				—			685			—			(685		)	—
Total liabilities	$	(771	)		$	—		$	(771	)		$	12			$	689			$	(70	)		$	722			$	—		$	722		$	—		$	(685	)	$	37


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

(b)

Amounts disclosed are limited to the financial asset or liability balance and, accordingly, exclude excess collateral received or pledged and noncash collateral received. $6 There was $3 million of noncash derivative collateral, and $4 million of noncash collateral associated with our repurchase agreements, pledged to us that was excluded at December 31, ~~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$7 million at December 31, ~~2016.~~2018. We have not sold or pledged any of the noncash collateral received under these agreements as of December 31, ~~2016.~~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.

~~23.~~

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

21. Segment Information

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

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

Automotive Finance operations— One of the largest full service automotive finance operations in the ~~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 operating leases, offering term loans to dealers, financing dealer floorplans and other lines of credit to dealers, warehouse lines to ~~companies,~~automotive retailers, fleet financing, providing financing to companies and municipalities for the purchase or lease of vehicles, and ~~equipment, and vehicle remarketing~~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' wholesale~~dealers’ vehicle inventory.

Mortgage Finance operations — Primarily consists of the management of a held-for-investment consumer mortgage finance loan portfolio, which includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third parties. ~~In late 2016, we introduced our~~Our direct-to-consumer mortgage offering, named Ally Home, ~~consisting~~consists of a variety of jumbo and conforming fixed- and adjustable-rate mortgage products ~~through~~with the assistance of a third-party fulfillment ~~partner. Under~~provider. 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 provider, 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~~We also offer a commercial real estate product to serve companies in the healthcare industry.

Corporate and Other primarily consists of ~~activity related to~~ centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, ~~the amortization of the~~original issue discount, ~~associated with 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)
2017
Net financing revenue and other interest income $ 950
$ 15
$ 32
$ 39
$ 45
$ 1,081
Other revenue 82
272
2
5
20
381
Total net revenue 1,032
287
34
44
65
1,462
Provision for loan losses 312
—
4
3
(5 ) 314
Total noninterest expense 420
218
28
19
68
753
Income from continuing operations before income tax expense $ 300
$ 69
$ 2
$ 22
$ 2
$ 395
Total assets $ 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 million and $738 million for the~~ ~~three months ended~~ ~~September 30, 2017, and 2016, respectively.~~

5459

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

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


Nine months ended September 30, ($ in millions)	Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations		Corporate and Other			Consolidated (a)
2017
Three months ended June 30, ($ in millions)														Automotive Finance operations		Insurance operations		Mortgage Finance operations		Corporate Finance operations			Corporate and Other			Consolidated (a)
2019
Net financing revenue and other interest income	$	2,774	$	44	$	98	$	121	$	90		$	3,127	$	1,022	$	15	$	46	$	61		$	13		$	1,157
Other revenue	290		781		3		33		58			1,165		61		286		4		10			34			395
Total net revenue	3,064		825		101		154		148			4,292		1,083		301		50		71			47			1,552
Provision for loan losses	846		—		6		15		(13		)	854		180		—		—		3			(6		)	177
Total noninterest expense	1,283		737		77		57		187			2,341		444		301		36		22			78			881
Income (loss) from continuing operations before income tax expense	$	935	$	88	$	18	$	82	$	(26	)	$	1,097	$	459	$	—	$	14	$	46		$	(25	)	$	494
Total assets	$	112,141	$	7,432	$	9,804	$	3,699	$	30,937		$	164,013	$	114,955	$	8,241	$	16,584	$	4,980		$	35,688		$	180,448
2016
Net financing revenue and other interest income (loss)	$	2,758	$	44	$	71	$	87	$	(29	)	$	2,931
2018
Net financing revenue and other interest income														$	925	$	13	$	44	$	57		$	55		$	1,094
Other revenue	228		777		—		14		119			1,138		63		266		2		14			19			364
Total net revenue	2,986		821		71		101		90			4,069		988		279		46		71			74			1,458
Provision for loan losses	649		—		4		12		(15		)	650		170		—		—		(6		)	(6		)	158
Total noninterest expense	1,255		733		48		49		133			2,218		436		268		32		19			84			839
Income (loss) from continuing operations before income tax expense	$	1,082	$	88	$	19	$	40	$	(28	)	$	1,201	$	382	$	11	$	14	$	58		$	(4	)	$	461
Total assets	$	113,669	$	7,259	$	7,933	$	3,232	$	25,304		$	157,397	$	114,915	$	7,634	$	13,385	$	4,458		$	30,953		$	171,345


(a)	Net financing revenue and other interest income after the provision for loan losses totaled ~~$2,273~~$980 million and ~~$2,281~~$936 million for the ~~nine~~three months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016,~~2018, respectively.



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


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

~~24.~~

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

22. Parent and Guarantor Condensed Consolidating Financial Statements

Certain of our senior notes issued by the parent are guaranteed by 100% directly owned subsidiaries of Ally (the Guarantors). As of ~~September~~June 30, ~~2017~~2019, the Guarantors include Ally US LLC and IB Finance Holding Company, LLC (IB Finance), each of which fully and unconditionally guarantee the senior notes on a joint and several basis.

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

~~Investments~~Investment in subsidiaries ~~are~~is 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~~investment in subsidiaries, and intercompany balances and transactions between the parent, the Guarantors, and nonguarantors.

5561

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
Three months ended June 30, 2019 ($ in millions)																Parent			Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	13		$	—		$	1,473		$	—		$	1,486		$	(60	)	$	—	$	1,923	$	(3	)	$	1,860
Interest and fees on finance receivables and loans — intercompany	2			—			1			(3		)	—			3			—		1		(4		)	—
Interest on loans held-for-sale																—			—		3		—			3
Interest and dividends on investment securities and other earning assets	—			—			157			—			157			—			—		244		—			244
Interest on cash and cash equivalents	2			—			9			—			11			4			—		17		—			21
Interest-bearing cash — intercompany	1			—			2			(3		)	—			3			—		5		(8		)	—
Operating leases	3			—			431			—			434			(1		)	—		364		—			363
Total financing revenue and other interest income	21			—			2,073			(6		)	2,088
Total financing (loss) revenue and other interest income																(51		)	—		2,557		(15		)	2,491
Interest expense
Interest on deposits	—			—			286			(1		)	285			—			—		651		—			651
Interest on short-term borrowings	16			—			18			—			34			13			—		24		—			37
Interest on long-term debt	278			—			138			—			416			212			—		195		—			407
Interest on intercompany debt	3			—			2			(5		)	—			6			—		6		(12		)	—
Total interest expense	297			—			444			(6		)	735			231			—		876		(12		)	1,095
Net depreciation expense on operating lease assets	3			—			269			—			272			1			—		238		—			239
Net financing revenue	(279		)	—			1,360			—			1,081
Net financing (loss) revenue																(283		)	—		1,443		(3		)	1,157
Cash dividends from subsidiaries
Bank subsidiary	2,900			2,900			—			(5,800		)	—			500			500		—		(1,000		)	—
Nonbank subsidiaries	101			—			—			(101		)	—			94			—		—		(94		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			252			—			252			—			—		261		—			261
Gain on mortgage and automotive loans, net	9			—			6			—			15
Loss on extinguishment of debt	(1		)	—			(3		)	—			(4		)
(Loss) gain on mortgage and automotive loans, net																(1		)	—		3		—			2
Other gain on investments, net	—			—			23			—			23			—			—		39		—			39
Other income, net of losses	138			—			199			(242		)	95			91			—		145		(143		)	93
Total other revenue	146			—			477			(242		)	381			90			—		448		(143		)	395
Total net revenue	2,868			2,900			1,837			(6,143		)	1,462			401			500		1,891		(1,240		)	1,552
Provision for loan losses	161			—			153			—			314			5			—		173		(1		)	177
Noninterest expense
Compensation and benefits expense	17			—			247			—			264			9			—		287		—			296
Insurance losses and loss adjustment expenses	—			—			65			—			65			—			—		127		—			127
Other operating expenses	208			—			459			(243		)	424			159			—		442		(143		)	458
Total noninterest expense	225			—			771			(243		)	753			168			—		856		(143		)	881
Income from continuing operations before income tax (benefit) expense and undistributed (loss) income of subsidiaries	2,482			2,900			913			(5,900		)	395
Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries																228			500		862		(1,096		)	494
Income tax (benefit) expense from continuing operations	(135		)	—			250			—			115			(289		)	—		199		—			(90		)
Net income from continuing operations	2,617			2,900			663			(5,900		)	280			517			500		663		(1,096		)	584
Income (loss) from discontinued operations, net of tax	4			—			(2		)	—			2
Undistributed (loss) income of subsidiaries
Loss from discontinued operations, net of tax																(2		)	—		—		—			(2		)
Undistributed income (loss) of subsidiaries
Bank subsidiary	(2,524		)	(2,524		)	—			5,048			—			110			110		—		(220		)	—
Nonbank subsidiaries	185			—			—			(185		)	—			(43		)	—		—		43			—
Net income	282			376			661			(1,037		)	282			582			610		663		(1,273		)	582
Other comprehensive income, net of tax	48			36			51			(87		)	48			309			237		311		(548		)	309
Comprehensive income	$	330		$	412		$	712		$	(1,124	)	$	330		$	891		$	847	$	974	$	(1,821	)	$	891

5662

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
Three months ended June 30, 2018 ($ in millions)																Parent			Guarantors			Nonguarantors			Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(15	)	$	—		$	1,322		$	—		$	1,307		$	(1	)	$	—		$	1,648		$	—		$	1,647
Interest and fees on finance receivables and loans — intercompany	2			—			2			(4		)	—			4			—			1			(5		)	—
Interest on loans held-for-sale																—			—			6			—			6
Interest and dividends on investment securities and other earning assets	—			—			102			(1		)	101			—			—			188			—			188
Interest on cash and cash equivalents	1			—			2			—			3			2			—			14			1			17
Interest-bearing cash — intercompany	—			—			2			(2		)	—			2			—			2			(4		)	—
Operating leases	4			—			645			—			649			1			—			373			—			374
Total financing (loss) revenue and other interest income	(8		)	—			2,075			(7		)	2,060
Total financing revenue and other interest income																8			—			2,232			(8		)	2,232
Interest expense
Interest on deposits	2			—			210			—			212			—			—			395			4			399
Interest on short-term borrowings	10			—			4			—			14			10			—			30			—			40
Interest on long-term debt	289			—			141			—			430			257			—			177			—			434
Interest on intercompany debt	5			—			2			(7		)	—			4			—			8			(12		)	—
Total interest expense	306			—			357			(7		)	656			271			—			610			(8		)	873
Net depreciation expense on operating lease assets	3			—			405			—			408			1			—			264			—			265
Net financing revenue	(317		)	—			1,313			—			996
Net financing (loss) revenue																(264		)	—			1,358			—			1,094
Cash dividends from subsidiaries
Bank subsidiary																500			500			—			(1,000		)	—
Nonbank subsidiaries	170			—			—			(170		)	—			132			—			—			(132		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			238			—			238			—			—			239			—			239
(Loss) gain on mortgage and automotive loans, net	(7		)	—			7			—			—
Gain on mortgage and automotive loans, net																—			—			1			—			1
Other gain on investments, net	—			—			52			—			52			—			—			27			—			27
Other income, net of losses	298			—			231			(431		)	98			100			—			185			(188		)	97
Total other revenue	291			—			528			(431		)	388			100			—			452			(188		)	364
Total net revenue	144			—			1,841			(601		)	1,384			468			500			1,810			(1,320		)	1,458
Provision for loan losses	147			—			111			—			258			32			—			126			—			158
Noninterest expense
Compensation and benefits expense	143			—			105			—			248			25			—			267			—			292
Insurance losses and loss adjustment expenses	—			—			69			—			69			—			—			101			—			101
Other operating expenses	307			—			541			(430		)	418			173			—			461			(188		)	446
Total noninterest expense	450			—			715			(430		)	735			198			—			829			(188		)	839
(Loss) income from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries	(453		)	—			1,015			(171		)	391
Income from continuing operations before income tax (benefit) expense and undistributed income (loss) of subsidiaries																238			500			855			(1,132		)	461
Income tax (benefit) expense from continuing operations	(88		)	—			218			—			130			(66		)	—			179			—			113
Net (loss) income from continuing operations	(365		)	—			797			(171		)	261
Loss from discontinued operations, net of tax	(47		)	—			(5		)	—			(52		)
Undistributed income of subsidiaries
Net income from continuing operations																304			500			676			(1,132		)	348
(Loss) income from discontinued operations, net of tax																(1		)	—			2			—			1
Undistributed income (loss) of subsidiaries
Bank subsidiary	325			325			—			(650		)	—			52			52			—			(104		)	—
Nonbank subsidiaries	296			—			—			(296		)	—			(6		)	—			—			6			—
Net income	209			325			792			(1,117		)	209			349			552			678			(1,230		)	349
Other comprehensive loss, net of tax	(4		)	(3		)	(9		)	12			(4		)	(70		)	(56		)	(74		)	130			(70		)
Comprehensive income	$	205		$	322		$	783		$	(1,105	)	$	205		$	279		$	496		$	604		$	(1,100	)	$	279

5763

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
Six months ended June 30, 2019 ($ in millions)																Parent			Guarantors		Nonguarantors		Consolidating adjustments			Ally consolidated
Financing revenue and other interest income
Interest and fees on finance receivables and loans	$	(57	)	$	—		$	4,358		$	—		$	4,301		$	(120	)	$	—	$	3,790	$	(3	)	$	3,667
Interest and fees on finance receivables and loans — intercompany	10			—			5			(15		)	—			6			—		3		(9		)	—
Interest on loans held-for-sale																—			—		5		—			5
Interest and dividends on investment securities and other earning assets	—			—			439			(2		)	437			—			—		484		—			484
Interest on cash and cash equivalents	6			—			17			—			23			6			—		38		—			44
Interest-bearing cash — intercompany	1			—			5			(6		)	—			5			—		8		(13		)	—
Operating leases	9			—			1,456			—			1,465			1			—		723		—			724
Total financing (loss) revenue and other interest income	(31		)	—			6,280			(23		)	6,226			(102		)	—		5,051		(25		)	4,924
Interest expense
Interest on deposits	2			—			765			(1		)	766			—			—		1,243		—			1,243
Interest on short-term borrowings	52			—			42			—			94			26			—		55		—			81
Interest on long-term debt	834			—			423			—			1,257			423			—		403		—			826
Interest on intercompany debt	12			—			10			(22		)	—			11			—		11		(22		)	—
Total interest expense	900			—			1,240			(23		)	2,117			460			—		1,712		(22		)	2,150
Net depreciation expense on operating lease assets	8			—			974			—			982			2			—		483		—			485
Net financing revenue	(939		)	—			4,066			—			3,127
Net financing (loss) revenue																(564		)	—		2,856		(3		)	2,289
Cash dividends from subsidiaries
Bank subsidiary	2,900			2,900			—			(5,800		)	—			900			900		—		(1,800		)	—
Nonbank subsidiaries	528			—			—			(528		)	—			136			—		—		(136		)	—
Other revenue
Insurance premiums and service revenue earned	—			—			720			—			720			—			—		522		—			522
Gain on mortgage and automotive loans, net	39			—			26			—			65			3			—		9		—			12
Loss on extinguishment of debt	(1		)	—			(5		)	—			(6		)
Other gain on investments, net	—			—			73			—			73			—			—		147		—			147
Other income, net of losses	569			—			635			(891		)	313			194			—		289		(303		)	180
Total other revenue	607			—			1,449			(891		)	1,165			197			—		967		(303		)	861
Total net revenue	3,096			2,900			5,515			(7,219		)	4,292			669			900		3,823		(2,242		)	3,150
Provision for loan losses	350			—			504			—			854			32			—		445		(18		)	459
Noninterest expense
Compensation and benefits expense	157			—			657			—			814			21			—		593		—			614
Insurance losses and loss adjustment expenses	—			—			278			—			278			—			—		186		—			186
Other operating expenses	709			—			1,431			(891		)	1,249			314			—		900		(303		)	911
Total noninterest expense	866			—			2,366			(891		)	2,341			335			—		1,679		(303		)	1,711
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 from continuing operations before income tax (benefit) expense and undistributed income of subsidiaries																302			900		1,699		(1,921		)	980
Income tax (benefit) expense from continuing operations	(362		)	—			712			—			350			(350		)	—		371		—			21
Net income from continuing operations	2,242			2,900			1,933			(6,328		)	747			652			900		1,328		(1,921		)	959
Income (loss) from discontinued operations, net of tax	6			—			(5		)	—			1
Undistributed (loss) income of subsidiaries
Loss from discontinued operations, net of tax																(3		)	—		—		—			(3		)
Undistributed income of subsidiaries
Bank subsidiary	(1,760		)	(1,760		)	—			3,520			—			167			167		—		(334		)	—
Nonbank subsidiaries	260			—			—			(260		)	—			140			—		—		(140		)	—
Net income	748			1,140			1,928			(3,068		)	748			956			1,067		1,328		(2,395		)	956
Other comprehensive income, net of tax	144			91			140			(231		)	144			615			466		631		(1,097		)	615
Comprehensive income	$	892		$	1,231		$	2,068		$	(3,299	)	$	892		$	1,571		$	1,533	$	1,959	$	(3,492	)	$	1,571

5864

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



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

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

5965

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.~~



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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



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

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.~~

6167

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q

Condensed Consolidating Statement of Cash Flows



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

Nine months ended September 30, 2017 ($ 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
Investing activities

Purchases of available-for-sale securities —
—
(9,022 ) —
(9,022 )
Proceeds from sales of available-for-sale securities —
—
2,926
—
2,926
Proceeds from maturities and repayments of available-for-sale securities —
—
2,002
—
2,002
Purchases of held-to-maturity securities —
—
(709 ) —
(709 )
Proceeds from maturities and 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 (35 ) —
(3,090 ) —
(3,125 )
Proceeds from sales of finance receivables and loans originated as held-for-investment 96
—
1,227
—
1,323
Originations and repayments of finance receivables and loans held-for-investment and other, net 259
—
2,718
(1,956 ) 1,021
Net change in loans — intercompany 2,159
—
232
(2,391 ) —
Purchases of operating lease assets —
—
(2,844 ) —
(2,844 )
Disposals of operating lease assets 7
—
4,402
—
4,409
Capital contributions to subsidiaries (1,200 ) —
—
1,200
—
Returns of contributed capital 1,031
—
—
(1,031 ) —
Net change in restricted cash (19 ) —
521
(5 ) 497
Net change in nonmarketable equity investments —
—
(20 ) —
(20 )
Other, net (25 ) —
(43 ) (91 ) (159 )
Net cash provided by (used in) investing activities 2,280
—
(1,387 ) (4,562 ) (3,669 )
Financing activities
Net change in short-term borrowings — third party (245 ) —
(2,255 ) —
(2,500 )
Net (decrease) increase in deposits (153 ) —
12,698
(1,495 ) 11,050
Proceeds from issuance of long-term debt — third party 355
—
10,986
1,961
13,302
Repayments of long-term debt — third party (4,125 ) —
(18,251 ) —
(22,376 )
Net change in debt — intercompany (366 ) —
(2,166 ) 2,532
—
Repurchase of common stock (563 ) —
—
—
(563 )
Dividends paid — third party (130 ) —
—
—
(130 )
Dividends paid and returns of contributed capital — intercompany —
(2,900 ) (4,459 ) 7,359
—
Capital contributions from parent —
—
1,200
(1,200 ) —
Net cash used in financing activities (5,227 ) (2,900 ) (2,247 ) 9,157
(1,217 )
Effect of exchange-rate changes on cash and cash equivalents —
—
3
—
3
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

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



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


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

Table of Contents

Notes to Condensed Consolidated Financial Statements (unaudited)

Ally Financial Inc. • Form 10-Q



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

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

Nine months ended September 30, 2016 ($ in millions)
Parent Guarantors Nonguarantors Consolidating adjustments Ally consolidated
Operating activities
Net cash provided by operating activities $ 709
$ —
$ 3,782
$ (902 ) $ 3,589
Investing activities
Purchases of available-for-sale securities —
—
(11,027 ) —
(11,027 )
Proceeds from sales of available-for-sale securities —
—
8,546
—
8,546
Proceeds from maturities and repayments of available-for-sale securities —
—
2,411
—
2,411
Purchases of held-to-maturity securities —
—
(650 ) —
(650 )
Purchases of finance receivables and loans held-for-investment —
—
(2,924 ) —
(2,924 )
Proceeds from sales of finance receivables and loans originated as held-for-investment —
—
4,221
—
4,221
Originations and repayments of finance receivables and loans held-for-investment and other, net 934
—
(6,318 ) —
(5,384 )
Net change in loans — intercompany 1,788
—
(41 ) (1,747 ) —
Purchases of operating lease assets —
—
(2,360 ) —
(2,360 )
Disposals of operating lease assets 16
—
4,615
—
4,631
Acquisitions, net of cash acquired (309 ) —
—
—
(309 )
Capital contributions to subsidiaries (3,112 ) —
—
3,112
—
Returns of contributed capital 2,168
8
—
(2,176 ) —
Net change in restricted cash (136 ) —
758

622
Net change in nonmarketable equity investments —
—
(401 ) —
(401 )
Other, net (156 ) —
(103 ) 102
(157 )
Net cash provided by (used in) investing activities 1,193
8
(3,273 ) (709 ) (2,781 )
Financing activities
Net change in short-term borrowings — third party 72
—
(1,745 ) —
(1,673 )
Net (decrease) increase in deposits (36 ) —
9,276
—
9,240
Proceeds from issuance of long-term debt — third party 1,084
—
10,145
—
11,229
Repayments of long-term debt — third party (2,279 ) —
(18,479 ) —
(20,758 )
Net change in debt — intercompany (30 ) —
(1,788 ) 1,818
—
Redemption of preferred stock (696 ) —
—
—
(696 )
Repurchase of common stock (173 ) —
—
—
(173 )
Dividends paid — third party (70 ) —
—
—
(70 )
Dividends paid and returns of contributed capital — intercompany —
(8 ) (2,968 ) 2,976
—
Capital contributions from parent —
—
3,112
(3,112 ) —
Net cash used in financing activities (2,128 ) (8 ) (2,447 ) 1,682
(2,901 )
Effect of exchange-rate changes on cash and cash equivalents —
—
2
—
2
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



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


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

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

We accrue for a legal matter or other contingent exposure when a loss becomes probable and the amount of loss can be reasonably estimated. Accruals are evaluated each quarter and may be adjusted, upward or downward, based on our best judgment after consultation with counsel. No assurance exists that our accruals will not need to be adjusted in the future. When a probable or reasonably possible loss on a legal matter or other contingent exposure could be material to our

~~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. Refer to Note 1 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for additional information related to our policy for establishing accruals.

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

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

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 removedSubject 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 the U.S. District Court for the Eastern District of Michigan to the state circuit courts on May 26, 2017, and have been consolidated for discovery in Wayne County Circuit Court as In re Ally Financial, Inc. Securities Litigation (Case No. 16-013616-CB). 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 each of these agencies with respect to these matters.

~~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,foregoing, based on our ~~best judgment. No assurance exists that our accruals will not need to be adjusted in the future,~~current knowledge 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,~~after consultation with counsel, we do not believe that ~~these~~the ultimate outcomes of currently threatened or pending legal matters and other contingent exposures ~~will~~are likely to be material to our consolidated financial condition after taking into account existing accruals. In light of the uncertainties inherent in these matters and other exposures, however, one or more of them could be material to our results of operations or cash ~~flows. Refer to Note 1 to~~flows during a particular reporting period, depending on factors such as the ~~Consolidated Financial Statements included in~~amount of the loss or liability and the level of our ~~2016 Annual Report on Form 10-K~~income for ~~additional information related to our policy for establishing reserves for legal and regulatory matters.~~that period.

~~26.~~ 24. Subsequent Events

Declaration of Quarterly Dividend ~~Payment~~

On ~~October 10, 2017,~~July 16, 2019, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.12~~$0.17 per share on all common stock. The dividend is payable on ~~November~~August 15, ~~2017,~~2019, to ~~shareholders~~stockholders of record at the close of business on ~~November~~August 1, ~~2017.~~2019.

Health Credit Services Acquisition

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

6470

Table of Contents

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

Ally Financial Inc. • Form 10-Q

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

Cautionary Notice about Forward-Looking Statements and Other Terms

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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

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

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

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

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

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

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

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

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

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

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

our ability to successfully make and integrate acquisitions;

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

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

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

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

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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Selected Financial Data

The selected historical financial information set forth below should be read in conjunction with Management’s Discussion and Analysis ~~(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 and ~~market price~~earnings per common share data.


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
($ in millions, except per share data; shares in thousands)	2017		2016			2017		2016			2019			2018		2019			2018
Total financing revenue and other interest income	$	2,088	$	2,060		$	6,226	$	6,238		$	2,491		$	2,232	$	4,924		$	4,348
Total interest expense	735		656			2,117		1,955			1,095			873		2,150			1,667
Net depreciation expense on operating lease assets	272		408			982		1,352			239			265		485			538
Net financing revenue and other interest income	1,081		996			3,127		2,931			1,157			1,094		2,289			2,143
Total other revenue	381		388			1,165		1,138			395			364		861			718
Total net revenue	1,462		1,384			4,292		4,069			1,552			1,458		3,150			2,861
Provision for loan losses	314		258			854		650			177			158		459			419
Total noninterest expense	753		735			2,341		2,218			881			839		1,711			1,653
Income from continuing operations before income tax expense	395		391			1,097		1,201
Income tax expense from continuing operations	115		130			350		336
Income from continuing operations before income tax (benefit) expense											494			461		980			789
Income tax (benefit) expense from continuing operations											(90		)	113		21			189
Net income from continuing operations	280		261			747		865			584			348		959			600
Income (loss) from discontinued operations, net of tax	2		(52		)	1		(46		)
(Loss) income from discontinued operations, net of tax											(2		)	1		(3		)	(1		)
Net income	$	282	$	209		$	748	$	819		$	582		$	349	$	956		$	599
Basic earnings per common share (a):
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.73		$	1.47		$	0.81	$	2.39		$	1.38
Net income	0.63		0.43			1.63		1.63			1.46			0.81		2.39			1.38
Weighted-average common shares outstanding	449,169		482,393			457,612		483,993			398,100			430,628		401,098			433,405
Diluted earnings per common share (a):
Net income from continuing operations	$	0.62	$	0.54		$	1.63	$	1.72		$	1.46		$	0.80	$	2.38		$	1.38
Net income	0.63		0.43			1.63		1.63			1.46			0.81		2.37			1.37
Weighted-average common shares outstanding	451,078		483,575			458,848		484,762			399,916			432,554		402,921			435,727
Market price per common share:
High closing	$	24.26	$	20.04		$	24.26	$	20.04
Low closing	20.79		15.73			18.22		14.90
Period-end closing	24.26		19.47			24.26		19.47
Common share information:
Cash dividends declared per common share	$	0.12	$	0.08		$	0.28	$	0.08		$	0.17		$	0.13	$	0.34		$	0.26
Period-end common shares outstanding	443,796		475,470			443,796		475,470			392,775			425,752		392,775			425,752


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

6573

Table of Contents

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

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 %



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



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


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


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


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


~~(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.

6674

Table of Contents

~~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~~were subject to a phase-in period through December 31, 2018. To assess our capital adequacy against the full impact of U.S. Basel III, we also present ~~"fully phased-in"~~“fully phased-in” information that reflects regulatory capital rules that ~~will take~~took effect asat the conclusion of ~~January 1, 2019.~~the transition period. 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						June 30, 2019						June 30, 2018
($ 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		%	9.52		%	9.51		%	9.37		%	9.35		%
Tier 1 capital ratio	11.46		%	11.42		%	11.13		%	11.08		%	11.19		%	11.18		%	11.09		%	11.06		%
Total capital ratio	13.19		%	13.15		%	12.80		%	12.74		%	12.73		%	12.72		%	12.66		%	12.63		%
Tier 1 leverage ratio (to adjusted quarterly average assets) (b)	9.51		%	9.51		%	9.73		%	9.71		%	9.05		%	9.05		%	9.21		%	9.21		%
Total equity	$	13,573		$	13,573		$	13,630		$	13,630		$	14,316		$	14,316		$	13,139		$	13,139
Goodwill and certain other intangibles	(278		)	(287		)	(273		)	(295		)	(281		)	(281		)	(289		)	(289		)
Deferred tax assets arising from net operating loss and tax credit carryforwards (c)	(328		)	(410		)	(400		)	(667		)	(84		)	(84		)	(251		)	(251		)
Other adjustments	208			208			(44		)	(44		)	(64		)	(64		)	666			666
Common Equity Tier 1 capital	13,175			13,084			12,913			12,624			13,887			13,887			13,265			13,265
Trust preferred securities	2,490			2,490			2,488			2,488			2,494			2,494			2,492			2,492
Deferred tax assets arising from net operating loss and tax credit carryforwards	(82		)	—			(267		)	—
Other adjustments	(44		)	(44		)	(47		)	(47		)	(62		)	(62		)	(59		)	(59		)
Tier 1 capital	15,539			15,530			15,087			15,065			16,319			16,319			15,698			15,698
Qualifying subordinated debt and other instruments qualifying as Tier 2	1,109			1,109			1,169			1,169			1,032			1,032			1,030			1,030
Qualifying allowance for credit losses and other adjustments	1,243			1,243			1,087			1,087			1,221			1,221			1,198			1,198
Total capital	$	17,891		$	17,882		$	17,343		$	17,321		$	18,572		$	18,572		$	17,926		$	17,926
Risk-weighted assets (d)	$	135,603		$	135,971		$	135,522		$	135,958		$	145,874		$	146,030		$	141,605		$	141,892

(a)

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


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


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


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

6775

Table of Contents

~~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 otherwise requires, ~~otherwise,~~ Ally, the Company,or we, us, or our) is a leading digital financial-services company. As a customer-centric company with passionate customer service and innovative financial solutions, we are relentlessly focused on “Doing It Right” and being a trusted financial-services provider to our consumer, commercial, and corporate customers. We are one of the largest full-service automotive finance operations in the country and offer a wide range of financial services ~~company~~ and ~~top 25 U.S. financial holding company (FHC) offering diversified financial~~insurance products to dealerships and consumers. Our award-winning online bank (Ally Bank, Member FDIC and Equal Housing Lender) offers mortgage-lending services and a variety of deposit and other banking products, including savings, money-market, and checking accounts, certificates of deposit (CDs), and individual retirement accounts (IRAs). Additionally, we offer securities-brokerage and investment-advisory services through Ally Invest. Our robust corporate finance business offers capital for ~~consumers, businesses, automotive dealers,~~equity sponsors and ~~corporate clients. Our legacy dates back to 1919, and Ally was redesigned in 2009 with a distinctive brand, innovative approach, and relentless focus on our customers.~~ middle-market companies. 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~~ a financial holding company 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 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 a variety of deposit and banking products including CDs, online savings, money market and checking accounts, IRA products, a cash back credit card, and mortgage lending offerings through Ally Home. 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 offer lending solutions to middle-market companies.amended.

Discontinued Operations

During 2013 and 2012, certain disposal groups met the criteria to be presented as discontinued operations. The remaining activity relates to previous discontinued operations for which we continue to have wind-down, legal, and minimal operational costs. For all periods presented, the operating results for these operations have been removed from continuing operations. ~~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 Business 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.~~business lines. The following table summarizes the operating results excluding discontinued operations of each ~~line of business.~~business line. Operating results for each of the business 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 June 30,							Six months ended June 30,
($ in millions)	2017		2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Total net revenue
Dealer Financial Services
Automotive Finance	$	1,032	$	1,007		2	$	3,064		$	2,986		3	$	1,083		$	988		10	$	2,131		$	1,963		9
Insurance	287		278			3	825			821			—	301			279			8	673			537			25
Mortgage Finance	34		25			36	101			71			42	50			46			9	102			90			13
Corporate Finance	44		34			29	154			101			52	71			71			—	136			125			9
Corporate and Other	65		40			63	148			90			64	47			74			(36)	108			146			(26)
Total	$	1,462	$	1,384		6	$	4,292		$	4,069		5	$	1,552		$	1,458		6	$	3,150		$	2,861		10
Income (loss) from continuing operations before income tax expense
Income (loss) from continuing operations before income tax (benefit) expense
Dealer Financial Services
Automotive Finance	$	300	$	319		(6)	$	935		$	1,082		(14)	$	459		$	382		20	$	788		$	650		21
Insurance	69		56			23	88			88			—	—			11			(100)	145			38			n/m
Mortgage Finance	2		8			(75)	18			19			(5)	14			14			—	27			22			23
Corporate Finance	22		15			47	82			40			105	46			58			(21)	59			87			(32)
Corporate and Other	2		(7		)	129	(26		)	(28		)	7	(25		)	(4		)	n/m	(39		)	(8		)	n/m
Total	$	395	$	391		1	$	1,097		$	1,201		(9)	$	494		$	461		7	$	980		$	789		24

n/m = not meaningful

Our Dealer Financial Services is one of the largest full service automotive finance operations in the country and offers a wide range of financial services and insurance products to ~~approximately 18,500~~ automotive dealerships and ~~approximately 4.3 million of their~~ customers. Dealer Financial Services consists of two separate reportable segments—Automotive Finance and Insurance operations.

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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

consumer capabilities and ~~other~~provides a digital platform for consumers seeking financing. Additionally, we continue to identify and cultivate relationships with automotive ~~finance providers purchase~~retailers including those with leading eCommerce platforms. We believe these ~~loans and leases from automotive dealers. As the marketplace evolves, our growth strategy continues~~actions will enable us to ~~focus on diversifying the franchise by expanding into different products, responding~~respond to the growing trends for a more streamlined and digital automotive financing process to serve both dealers and consumers, and continuing to strengthen and expand our network of dealer relationships. In the first quarter of 2017, we 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.consumers.

The Growth channel was established to focus on developing dealer relationships beyond ~~our existing~~those 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~~. The Growth channel was ~~recently~~ expanded to include ~~our~~ direct-to-consumer ~~lending offering,~~financing through Clearlane and other channels and our arrangements with online automotive retailers. We have established relationships with thousands of Growth channel dealers through our customer-centric approach and specialized incentive ~~programs.~~programs designed to drive loyalty amongst dealers to our products and services. The success of the Growth channel has been a key enabler to converting our business model from a focused captive finance company to a leading market competitor. In this channel, we currently have ~~nearly 12,000~~over 11,000 dealer relationships, of which ~~over 10,500~~approximately 88% are franchised dealers ~~from~~(including 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. We serve approximately 2.4 million end consumers and have active relationships with approximately 4,600 dealerships nationwide across Finance and Insurance (F&I) and Property and Casualty (P&C) products. As part of our focus on offering dealers a broad range of consumer financial and insurance products, we ~~provide~~offer 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~~VSC 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 portfolios. Our held-for-investment portfolio ~~which~~ includes bulk purchases of high-quality jumbo and low-to-moderate income (LMI) mortgage loans originated by third ~~parties.~~parties, and a direct-to-consumer mortgage offering under the Ally Home brand.

Through the bulk loan channel, we purchase loans from several qualified sellers including direct originators and large aggregators who have the financial capacity to support strong representations and warranties and the industry knowledge and experience to originate high-quality assets. Bulk purchases are made on a servicing-released basis, allowing us to directly oversee servicing activities and manage prepayments through retention modification or refinancing through our direct-to-consumer channel. During the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, we purchased ~~$1.2 billion~~$678 million and ~~$2.3~~$1.9 billion of mortgage loans that were originated by third parties. InOur mortgage loan purchases are held-for-investment.

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

The combination of our bulk portfolio purchase program and our direct-to-consumer strategy provides the capacity to expand revenue sources and further grow and diversify our ~~core product offerings through~~finance receivable portfolio with an attractive asset class while also deepening relationships with existing Ally ~~Home, in March 2017, we broadened our product suite with the addition of the HomeReady® mortgage loan, a Fannie Mae product designed to serve creditworthy, low- to moderate-income borrowers.~~

customers.

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

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,~~ 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~~which enables us to complement our competitive deposit products with low-cost investing through the platform we acquired from the June 2016 acquisition of TradeKing Group, Inc. (TradeKing) ~~in June 2016~~. Through Ally Invest, we are able to offer a broader array of personal finance products through a fully integrated digital consumer platform centered around self-directed products and digital advisory services. Our value proposition is based on the combination of attractive pricing, a broad product offering for active and passive investors, and outstanding client-focused and user-friendly customer service that is accessible twenty-four hours a day, seven days a week, via the phone, web or email—consistent with ~~our award-winning online banking products in a single, convenient customer experience that provides low-cost investing with competitive deposit products.~~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 to build~~customer experience with integrated features across product lines on our ~~existing foundation of approximately 5.6 million consumer automotive financing and primary deposit customers,~~digital platform, build upon our strong brand, and leverage our 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.

7078

Table of Contents

~~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.~~business line.


	Three months ended September 30,						Nine months ended September 30,							Three months ended June 30,						Six months ended June 30,
($ in millions)	2017			2016		Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2019			2018		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	2,088		$	2,060	1	$	6,226		$	6,238		—	$	2,491		$	2,232	12	$	4,924	$	4,348	13
Total interest expense	735			656		(12)	2,117			1,955			(8)	1,095			873		(25)	2,150		1,667		(29)
Net depreciation expense on operating lease assets	272			408		33	982			1,352			27	239			265		10	485		538		10
Net financing revenue and other interest income	1,081			996		9	3,127			2,931			7	1,157			1,094		6	2,289		2,143		7
Other revenue
Insurance premiums and service revenue earned	252			238		6	720			704			2	261			239		9	522		495		5
Gain on mortgage and automotive loans, net	15			—		n/m	65			4			n/m	2			1		100	12		2		n/m
Loss on extinguishment of debt	(4		)	—		n/m	(6		)	(4		)	(50)
Other gain on investments, net	23			52		(56)	73			145			(50)	39			27		44	147		15		n/m
Other income, net of losses	95			98		(3)	313			289			8	93			97		(4)	180		206		(13)
Total other revenue	381			388		(2)	1,165			1,138			2	395			364		9	861		718		20
Total net revenue	1,462			1,384		6	4,292			4,069			5	1,552			1,458		6	3,150		2,861		10
Provision for loan losses	314			258		(22)	854			650			(31)	177			158		(12)	459		419		(10)
Noninterest expense
Compensation and benefits expense	264			248		(6)	814			742			(10)	296			292		(1)	614		598		(3)
Insurance losses and loss adjustment expenses	65			69		6	278			287			3	127			101		(26)	186		164		(13)
Other operating expenses	424			418		(1)	1,249			1,189			(5)	458			446		(3)	911		891		(2)
Total noninterest expense	753			735		(2)	2,341			2,218			(6)	881			839		(5)	1,711		1,653		(4)
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)
Income from continuing operations before income tax (benefit) expense														494			461		7	980		789		24
Income tax (benefit) expense from continuing operations														(90		)	113		180	21		189		89
Net income from continuing operations	$	280		$	261	7	$	747		$	865		(14)	$	584		$	348	68	$	959	$	600	60

n/m = not meaningful

We earned net income from continuing operations of ~~$280~~$584 million and ~~$747~~$959 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$261~~$348 million and ~~$865~~$600 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016. The increase for~~2018. During the three months and six months ended ~~September~~ June 30, ~~2017, was primarily driven~~2019, results were favorably impacted by an income tax benefit from the release of valuation allowance of approximately $200 million on foreign tax credit carryforwards during the second quarter of 2019, and higher net financing revenue across ~~all~~our 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 Financedriven primarily by higher yields and ~~Corporate Finance operations, and higher interest and dividends from~~ growth in ~~our investment securities portfolio.~~earning assets. Results for the six months ended June 30, 2019, were also favorably impacted by higher ~~gains on the sale~~market values of ~~automotive loans, higher insurance premiums earned coupled with lower weather-related insurance losses~~equity investments 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.within our Insurance operations. 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,~~for loan losses, 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 net financing revenue due to increased income from our 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.expense.

Net financing revenue and other interest income increased ~~$85~~$63 million and ~~$196~~$146 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the ~~same periods in 2016.~~three months and six months ended June 30, 2018. Within our Automotive Finance operations, consumer automotive financing revenue benefited from improved portfolio yields as a result of our continued focus on expanding risk-adjusted returns, and higher average retail asset levels resulting from sustained asset growth. Commercial automotive net financing revenue also increased due primarily to higher yields resulting from higher benchmark interest rates. Income from ~~our portfolio of~~interest and dividends on 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~~$60 million and ~~$148~~$132 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively,~~2019, compared to the same periods in 2018, due ~~primarily~~ to ~~growth~~both higher yields and higher balances 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 financingFinancing revenue and other interest income within our Mortgage Finance operations was favorably impacted ~~in both periods~~ by increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage ~~loans. Net financing~~loans and direct-to-consumer originations. 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~~The increases to financing revenue and other interest income were partially offset by increases of 25% and 29% in total interest expense ~~increased 12% and 8%~~ for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the ~~same periods in 2016.~~three months and six months ended June 30, 2018. 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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

and unsecured debt, interest expense increased as a result of higher ~~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 $17.6 billion to ~~higher market rates across funding sources.~~$116.3 billion as of June 30, 2019, as compared to $98.7 billion as of June 30, 2018.

Insurance premiums and service revenue earned ~~increased $14~~was $261 million and ~~$16~~$522 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to $239 million and $495 million for the same periods in 2018. The increases for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016,~~2019, were primarily due to higher vehicle inventory insurance rates ~~partially offset by ceding of premiums under a reinsurance agreement we entered into in April 2017.~~and portfolio growth.

Gain on mortgage and automotive loans increased ~~$15~~$1 million and ~~$61~~$10 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively,~~2019, as compared to the same periods in ~~2016. During~~2018. We continue to selectively utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and capital utilization, including the ~~three months and nine months ended September 30, 2017, we sold certain~~sale of previously written-down ~~retail~~consumer 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.~~.

Other gain on investments was ~~$23~~$39 million and ~~$73~~$147 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$52~~$27 million and ~~$145~~$15 million for the same periods in ~~2016.~~2018. During the three months ended June 30, 2019, gross realized gains from our available-for-sale securities portfolio increased $23 million due to favorable market conditions as compared to the same period in 2018. This increase was partially offset by lower realized and unrealized gains on equity securities. The ~~decreases were due primarily to higher levels~~gain on investments for the six months ended June 30, 2019, includes $75 million of ~~sales~~unrealized gains as a result of ~~investment securities in 2016 that did not recur~~changes in the ~~current period.~~fair value of our portfolio of equity securities, compared to $32 million of unrealized losses in the fair value of our portfolio of equity securities for the six months ended June 30, 2018.

Other income decreased $3$4 million and ~~increased $24~~$26 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the same periods in ~~2016.~~2018. The ~~increase~~decreases for the ~~nine~~three months and six months ended ~~September~~ June 30, ~~2017, was~~2019, were primarily due to ~~contributions~~lower syndication income, lower servicing fee income resulting from ~~our Corporate Finance operations, which included an $11 million~~lower levels of off-balance sheet consumer automotive serviced loans, and lower remarketing income related to lower operating lease termination volume. Additionally, other income decreased during the six months ended June 30, 2019, due to lower income related to certain equity ~~investment gain in the first quarter of 2017, and an increase in loan syndication income in the second quarter of 2017.~~hedges.

The provision for loan losses was ~~$314~~$177 million and ~~$854~~$459 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$258~~$158 million and ~~$650~~$419 million for the same periods in ~~2016.~~2018. The ~~increases~~increase in provision for loan losses ~~were~~was primarily driven by our consumer automotive portfolio, where we experienced higher net charge-offs as a result of our focus on originating across a broader credit spectrum by focusing on risk-adjusted returns. Provision expense increased due to estimated impacts ofreserve reductions during the three and six months ended June 30, 2018, associated with hurricane activity experienced during ~~the third quarter of~~ 2017 ~~resulting in an increase in provision expense of $53 million, which most notably impacted~~within our retail automotive loan ~~portfolio.~~portfolio, and a recovery of $6 million recognized within our corporate finance portfolio both during the three months and six months ended June 30, 2018. Additionally, for the six months ended June 30, 2019, provision expense was unfavorably impacted by two specific corporate finance loan exposures which were within separate industries, each with unique considerations. These items were partially offset by lower net charge-offs in our retail automotive loan portfolio, despite continued loan portfolio growth, as we continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries. Refer to the Risk Management section of this MD&A for further ~~discussion.~~discussion on our provision for loan losses.

Noninterest expense ~~was $753~~increased $42 million and ~~$2.3 billion~~$58 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively,~~2019, as compared to ~~$735 million and $2.2 billion for~~ the same periods in ~~2016.~~2018. The increases for the three months ended June 30, 2019, were ~~primarily~~ driven by ~~expenses related~~higher weather-related losses due to specific weather events within our Insurance operations. Additionally, noninterest expense increased for three months and six months ended June 30, 2019, to support the growth of our consumer and commercial ~~products, including the addition and integration of Ally Invest and Clearlane, as well as the expansion of our direct-to-consumer mortgage offering as we~~product suite. We continue to make investments 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 and drive retail deposit growth.

We recognized total income tax benefit from continuing operations of $90 million and income tax expense of $21 million for ~~consumers and dealers. These increases were partially offset by lower insurance losses and loss adjustment expenses during~~ the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to $113 million and $189 million for the same periods in 2018. The decreases in income tax expense for the three months and six months ended June 30, 2019, compared to the same periods in ~~2016,~~2018, were primarily due to a release of valuation allowance of approximately $200 million on foreign tax credit carryforwards during the ~~ceding~~second quarter of ~~weather-related losses subject to a reinsurance agreement and lower VSC losses.~~

~~We recognized total income tax expense from continuing operations of $115 million and $350 million for~~2019. The valuation allowance release during the three months ended June 30, 2019, was primarily driven by our current capacity to engage in certain securitization transactions and ~~nine months ended September 30, 2017, respectively, compared~~the market demand from investors related to ~~$130 million and $336 million for~~these transactions, coupled with the ~~same periods in 2016. The~~anticipated timing of the forecasted expiration of certain tax credit carryforwards. Additionally, the decrease in income tax expense for the ~~three~~six months ended ~~September~~ June 30, ~~2017,~~2019, 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 the nine months ended September 30, 2017, compared to the same period in 2016, was primarily driven by a nonrecurring tax benefit in the second quarter 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 benefit2018, was partially offset by the ~~establishment~~tax effects of ~~a valuation allowance on capital loss carryforwards in the second quarter of 2016, and a decrease~~an increase 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.~~

7280

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 June 30,					Six months ended June 30,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2017		2016		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Consumer	$	987	$	911	8	$	2,873	$	2,654	8	$	1,184	$	1,058	12	$	2,314	$	2,070	12
Commercial	341		267		28	970		781		24	412		371		11	834		713		17
Loans held-for-sale											—		—		—	1		—		n/m
Operating leases	434		649		(33)	1,465		2,119		(31)	363		374		(3)	724		756		(4)
Other interest income	2		3		(33)	5		8		(38)	3		1		n/m	4		3		33
Total financing revenue and other interest income	1,764		1,830		(4)	5,313		5,562		(4)	1,962		1,804		9	3,877		3,542		9
Interest expense	542		489		(11)	1,557		1,452		(7)	701		614		(14)	1,390		1,170		(19)
Net depreciation expense on operating lease assets	272		408		33	982		1,352		27	239		265		10	485		538		10
Net financing revenue and other interest income	950		933		2	2,774		2,758		1	1,022		925		10	2,002		1,834		9
Other revenue
Gain on automotive loans, net	14		—		n/m	73		10		n/m	—		—		—	8		—		n/m
Other income	68		74		(8)	217		218		—	61		63		(3)	121		129		(6)
Total other revenue	82		74		11	290		228		27	61		63		(3)	129		129		—
Total net revenue	1,032		1,007		2	3,064		2,986		3	1,083		988		10	2,131		1,963		9
Provision for loan losses	312		270		(16)	846		649		(30)	180		170		(6)	442		429		(3)
Noninterest expense
Compensation and benefits expense	124		119		(4)	378		363		(4)	127		130		2	263		261		(1)
Other operating expenses	296		299		1	905		892		(1)	317		306		(4)	638		623		(2)
Total noninterest expense	420		418		—	1,283		1,255		(2)	444		436		(2)	901		884		(2)
Income from continuing operations before income tax expense	$	300	$	319	(6)	$	935	$	1,082	(14)
Income from continuing operations before income tax (benefit) expense											$	459	$	382	20	$	788	$	650	21
Total assets	$	112,141	$	113,669	(1)	$	112,141	$	113,669	(1)	$	114,955	$	114,915	—	$	114,955	$	114,915	—

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 June 30,							Six months ended June 30,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Net operating lease revenue
Operating lease revenue	$	434		$	649		(33)	$	1,465		$	2,119		(31)	$	363		$	374		(3)	$	724		$	756		(4)
Depreciation expense
Depreciation expense on operating lease assets (excluding remarketing gains)	323			470			31	1,062			1,555			32	262			281			7	523			572			9
Remarketing gains	(51		)	(62		)	(18)	(80		)	(203		)	(61)
Remarketing gains, net															(23		)	(16		)	44	(38		)	(34		)	12
Net depreciation expense on operating lease assets	272			408			33	982			1,352			27	239			265			10	485			538			10
Total net operating lease revenue	$	162		$	241		(33)	$	483		$	767		(37)	$	124		$	109		14	$	239		$	218		10
Investment in operating leases, net	$	8,931		$	12,689		(30)	$	8,931		$	12,689		(30)	$	8,407		$	8,639		(3)	$	8,407		$	8,639		(3)

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

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~



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


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


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


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


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

(e)

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

Our Automotive Finance operations earned income from continuing operations before income tax expense of ~~$300~~$459 million and ~~$935~~$788 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$319~~$382 million and ~~$1.1 billion~~$650 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016.~~2018. During the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, we continued to focus on ~~repositioning our origination profile to focus on~~driving capital optimization and expanding risk-adjusted returns. As a result, we experienced higher consumer loan financing revenue, primarily due to an increase in ~~retail~~consumer loan 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~~Growth in ~~gains on~~finance revenue for both the ~~sale of automotive loans of $14 million and $63 million during the~~ three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively. These favorable items were more than~~2019, was partially offset by ~~a decrease~~higher interest expense driven by higher funding costs and growth in ~~net operating lease~~our consumer loan portfolio.

Consumer loan financing revenue ~~primarily resulting from the runoff of our GM lease portfolio~~increased $126 million and $244 million for the three months and ~~nine~~six months ended ~~September~~ June 30, 2017, compared to the same periods in 2016, as well as less favorable remarketing activity for the nine months ended September 30, 2017, compared to the same period in 2016, due to lower used vehicle prices and a decline in lease termination volume. We also experienced higher provision for 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.

~~Consumer financing revenue increased $76 million and $219 million for the three months and nine months ended September 30, 2017,~~2019, respectively, compared to the same periods in ~~2016.~~2018. 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~~and higher average retail asset levels resulting from sustained asset ~~growth.~~growth, including a continued focus on the used-vehicle portfolio primarily through franchised dealers. Additionally, we have continued to identify and grow relationships with automotive retailers including those with leading eCommerce platforms. Through these actions, we continue to optimize our origination mix and achieve greater portfolio diversification.

Commercial loan financing revenue increased ~~$74~~$41 million and ~~$189~~$121 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the same periods in ~~2016.~~2018. The increases were primarily due to higher yields resulting from higher benchmark interest ~~rates and an~~rates. For the three months ended June 30, 2019, the increase was partially offset by a decrease in average outstanding floorplan assets ~~resulting from higher average vehicle prices.~~compared to the same period in 2018.

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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

We ~~recognized~~recorded gains from the sale of automotive loans of ~~$14 million and $73~~$8 million for the six months ended June 30, 2019, compared to no gains for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively, compared~~2018. We continue to ~~$0 million~~selectively utilize whole-loan sales to proactively manage our credit exposure, asset levels, funding, and ~~$10 million for~~capital utilization, including the ~~same periods in 2016. During the three months and nine months ended September 30, 2017, we sold certain~~sale of previously written-down ~~retail~~consumer automotive loans related to consumers in Chapter 13 bankruptcy ~~where borrowers continue to make payments to proactively manage our overall credit exposure, asset levels,~~. There were no such sales during the three months ended June 30, 2019, or the six months ended June 30, 2018.

Other income decreased 3% and ~~capital utilization. A portion of the total gains on sale~~6% for the ~~nine months ended September 30, 2017, was offset within Corporate and Other as a result of our FTP methodology.~~

~~Total net operating lease revenue decreased 33% and 37% for the~~ three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the same periods in ~~2016,~~2018. The decreases were primarily due to a decrease in remarketing fee income resulting from lower operating lease termination volume, as well as a decrease in servicing fee income resulting from lower levels of off-balance sheet consumer automotive serviced loans.

Total net operating lease revenue increased $15 million and $21 million for the three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018. These increases were primarily due to favorable performance in our outstanding portfolio of trucks and sport utility vehicles, as well as a more favorable shift in portfolio mix of vehicle type, as our share of sport utility vehicles has increased compared to the same periods in 2018. Additionally, we recognized remarketing gains of $23 million and $38 million for the three months and six months ended June 30, 2019, compared to $16 million and $34 million for the same periods in 2018. The increases were primarily due to higher gain per unit, partially offset by a lower number of terminated units. This was partially offset by a reduction in our outstanding portfolio of leased vehicles, primarily due to the runoff of our legacy GM operating lease portfolio, which was substantially wound-down as ~~well as less favorable remarketing activity. We recognized remarketing gains~~ of ~~$51 million and $80 million for the three months and nine months September~~June 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~~2018. Refer 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. Refer to theOperating Lease Residual Risk Management section of this MD&A for further discussion.

The provision for loan losses was ~~$312~~$180 million and ~~$846~~$442 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$270~~$170 million and ~~$649~~$429 million for the same periods in ~~2016.~~2018. The ~~increase in provision for loan losses for~~increases were largely driven by reserve reductions during the three months and six months ended ~~September~~ June 30, 2018, associated with hurricane activity experienced during 2017 within our retail automotive loan portfolio. This activity was ~~primarily due to estimated impacts of Hurricanes Harvey and Irma, which increased provision expense in our consumer automotive portfolio~~largely offset by ~~$48 million. Additionally, the increase in provision for loan losses for the nine months ended September 30, 2017, was primarily due to higher~~lower net charge-offs, indespite continued growth within our ~~consumer~~retail automotive ~~portfolio~~loan portfolio. We continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as ~~a result of our focus on originating across a broader credit spectrum~~well as continued disciplined underwriting, and ~~retail asset growth.~~higher recoveries. Refer to the Risk Management section of this MD&A for further discussion.

7483

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Automotive Financing Volume

Consumer Automotive Financing

~~During~~For the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, our ~~average buy rate~~portfolio yield for ~~retail originations~~consumer automotive loans increased 3150 and 4354 basis points, respectively, relative to the same periods in ~~2016.~~2018. We set our buy rates using a granular, risk-based methodology factoring in several variables including interest costs, projected net average annualized loss rates ~~(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 interest rates~~our continued focus on risk adjusted returns and ~~our strategy to increase our targeted return on equity and more focused deployment~~increased levels of ~~shareholder capital. While~~used vehicle loan volume. Over the past several years, we have ~~seen an increase in provision expense~~continued to focus on portfolio diversification and ~~charge-offs in~~the used vehicle segment, primarily through franchised dealers, which has contributed to higher yields on our consumer automotive loan ~~portfolio over the past year in part due to deteriorating credit performance in our lower credit tiers,~~portfolio. Commensurate with this ~~increase was also a result of a deliberate~~ shift in origination mix, ~~designed~~we continue to ~~achieve higher risk-adjusted returns.~~maintain consistent, disciplined underwriting within our new and used consumer automotive loan originations. The carrying value of our nonprime consumer automotive loans before allowance for loan losses was ~~$8.9~~$8.5 billion, or approximately ~~13.3%~~11.6% of our total consumer automotive loans at ~~September~~June 30, ~~2017,~~2019, as compared to ~~$9.1~~$8.3 billion, or approximately ~~13.8%~~11.7% of our total consumer automotive loans at December 31, ~~2016.~~2018.

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, 2017
S	$	2.7	38	751
A	2.9		40	668
B	1.4		19	641
C	0.2		3	607
Total retail originations	$	7.2	100	691
Three months ended September 30, 2016
S	$	2.7	32	762
A	3.4		41	670
B	1.9		22	643
C	0.4		5	610
Total retail originations	$	8.4	100	689
Nine months ended September 30, 2017
S	$	7.7	34	758
A	9.5		42	666
B	4.6		20	640
C	0.8		4	608
Total retail originations	$	22.6	100	689
Nine months ended September 30, 2016
Three months ended June 30, 2019
S	$	7.9	32	759	$	1.3	25	738	$	1.5	44	743
A	10.6		42	669	2.2		42	678	1.4		41	676
B	5.2		21	642	1.2		23	645	0.4		12	644
C	1.3		5	607	0.4		8	607	0.1		3	613
D	0.1		—	577	0.1		2	519	—		—	579
Total retail originations	$	25.1	100	686	$	5.2	100	678	$	3.4	100	698
Three months ended June 30, 2018
S					$	1.3	27	738	$	1.6	46	746
A					2.1		43	675	1.3		37	675
B					1.2		24	644	0.5		14	645
C					0.3		6	612	0.1		3	616
Total retail originations					$	4.9	100	680	$	3.5	100	700
Six months ended June 30, 2019
S					$	2.7	26	738	$	3.0	46	744
A					4.3		41	677	2.5		38	676
B					2.5		24	644	0.8		13	643
C					0.8		8	608	0.2		3	612
D					0.1		1	537	—		—	571
Total retail originations					$	10.4	100	680	$	6.5	100	699
Six months ended June 30, 2018
S					$	2.7	28	738	$	3.4	48	747
A					4.1		42	674	2.5		35	675
B					2.3		24	643	1.0		14	645
C					0.6		6	609	0.2		3	614
Total retail originations					$	9.7	100	681	$	7.1	100	702

(a)

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

2018.

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.

7584

Table of Contents

~~Management's~~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 June 30,				Six months ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018
0–71	20	%	18	%	19	%	18	%
72–75	66		66		67		67
0–71									19	%	19	%	20	%	20	%
72–75									66		68		66		67
76 +	14		16		14		15		15		13		14		13
Total retail originations (a)	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%


(a)	Excludes RV loans.

~~As we continue the execution of our targeted underwriting strategy to originate consumer automotive assets across a broad risk spectrum, retail~~Retail originations with a term of 76 months or more represented 15% and 14% of total retail originations for ~~both~~ the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~16%~~13% for both the three months and ~~15%, respectively, for the same periods in 2016.~~six months ended June 30, 2018. Substantially all of the loans originated with a term of 76 months or more during the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016,~~2018, were considered to be prime and in credit tiers S, A, or B. We define prime ~~retail~~consumer automotive loans primarily as those loans with a FICO® Score (or an equivalent score) at origination of 620 or greater.

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


September 30,	2017		2016
Pre-2013	2	%	6	%
2013	4		8
2014	8		15
June 30,					2019		2018
Pre-2015					3	%	7	%
2015	22		35		7		14
2016	33		36		14		23
2017	31		—		22		33
2018					32		23
2019					22		—
Total	100	%	100	%	100	%	100	%

The ~~2017, 2016,~~2019, 2018, and ~~2015~~2017 vintages comprise ~~86%~~76% of the overall retail portfolio as of ~~September~~June 30, ~~2017,~~2019, 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 operating 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
Three months ended June 30, ($ in millions)							2019		2018		2019	2018
Used retail							$	5,259	$	4,924	54	51
New retail standard	$	3,537	$	4,477	43	48	3,368		3,365		34	35
Used retail	3,640		3,759		45	40
Lease	922		986		11	11	1,060		1,228		11	13
New retail subvented	41		119		1	1	56		62		1	1
Total consumer automotive financing originations (a)	$	8,140	$	9,341	100	100	$	9,743	$	9,579	100	100


(a)	Includes Commercial Services Group (CSG) originations of ~~$849 million~~$1.0 billion and ~~$877~~$892 million for the three months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016,~~2018, respectively, and RV originations of ~~$106 million and $133~~$90 million for the three months ended ~~September~~ June 30, ~~2017, and 2016, respectively.~~2018.



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


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

7685

Table of Contents

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

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

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

During the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, total consumer loan and operating lease originations increased $164 million and decreased ~~$1.2 billion and $2.2 billion,~~$149 million, respectively, compared to the same periods in ~~2016. The decreases were~~2018. For the three months ended June 30, 2019, the increase was primarily due to increased originations from the Growth channel, which was partially offset by lower originations from the Chrysler and GM channels. For the six months ended June 30, 2019, the decrease was primarily due to lower ~~volume~~originations from the Chrysler and GM ~~and Chrysler~~ channels, ~~and~~which was partially offset by increased originations from the Growth channel. Over the past several years we have continued to diversify our portfolio through the Growth channel, including increased levels of used vehicle loan volume, which we view as an attractive asset class consistent with our continued focus on 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 —~~ Volume—Acquisition and Underwriting within the MD&A ~~included~~ in our ~~2016~~2018 Annual Report on Form 10-K.

The following ~~table presents~~tables present the percentage of ~~total~~ retail loan and operating 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 June 30,									2019		2018		2019		2018		2019		2018
740 +	26	%	25	%	25	%	23	%	17	%	18	%	23	%	25	%	50	%	48	%
739–660	35		36		35		37
659–620	23		24		24		24
619–540	9		9		10		10
660–739									39		39		35		34		34		35
620–659									25		28		20		22		10		10
540–619									13		12		7		6		4		5
< 540	1		1		1		1		2		1		1		1		—		—
Unscored (a)	6		5		5		5		4		2		14		12		2		2
Total consumer automotive financing originations	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%


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



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


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

Originations with a FICO® Score of less than 620 (considered nonprime) represented ~~10%~~11% of total consumer loan and operating lease originations for both the three months and six months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016, and 11% of total consumer originations~~10% for both the ~~nine~~three months and six months ended ~~September~~ June 30, ~~2017, and 2016.~~2018. Consumer loans and operating leases with FICO® Scores of less than 540 continued to comprise only 1% of total originations for ~~both~~ the

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017.~~2019. Nonprime applications that are not automatically declined by our proprietary credit-scoring models for risk reasons are manually reviewed and decisioned by an experienced underwriting team. The nonprime portfolio is

~~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 the section titled Automotive Financing Volume—Manufacturer Marketing Incentives within the MD&A in our 2018 Annual Report on Form ~~10-K for the year ended December 31, 2016, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Automotive Finance Operations.~~10-K.

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 June 30,						Six months ended June 30,
($ in millions)	2017		2016		2017		2016		2019			2018			2019			2018
GM new vehicles	$	17,528	$	15,368	$	17,658	$	14,897	41		%	42		%	40		%	42		%
Chrysler new vehicles	8,112		9,025		8,692		9,076		33			31			33			30
Growth new vehicles	4,480		4,138		4,555		4,161		14			14			14			15
Used vehicles	3,874		3,903		3,996		3,874		12			13			13			13
Total									100		%	100		%	100		%	100		%
Total commercial wholesale finance receivables	$	33,994	$	32,434	$	34,901	$	32,008	$	29,031		$	29,309		$	29,508		$	29,334

~~Commercial~~Average commercial wholesale financing ~~average volume~~receivables outstanding decreased $278 million and increased ~~$1.6 billion and $2.9 billion~~$174 million during the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the same periods in ~~2016,~~2018. The decrease for the three months ended June 30, 2019, was primarily driven by a reduction in the number of GM dealer relationships due to the competitive environment across the automotive lending market, partially offset by higher ~~dealer~~average vehicle prices. The increase for the six months ended June 30, 2019, was primarily driven by higher average vehicle prices, as well as increased inventory levels at GM and ~~an increase~~Chrysler dealers. These two factors were partially offset by a reduction in ~~our mix~~the number of ~~trucks~~GM and ~~sport utility vehicles, which have higher average prices than cars.~~Chrysler dealer relationships due to the competitive environment across the automotive lending market. Dealer inventory levels are dependent on a number of factors, including manufacturer production schedules and vehicle mix, sales incentives, and industry sales—all of which can influence future wholesale balances.

Other Commercial Automotive Financing

We also provide other forms of commercial financing for the automotive industry including automotive dealer term and revolving loans and automotive fleet financing. Automotive dealer term and revolving loans are loans that we make to dealers to finance other aspects of the dealership business, including acquisitions. These loans are usually secured by real estate ~~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 decreased 7% and ~~municipalities~~8% for the ~~acquisition~~three months and six months ended June 30, 2019, respectively, compared to the same periods in 2018, to an average of ~~transportation assets including tractors~~$5.7 billion and ~~trailers, among other things.~~$5.6 billion.

7887

Table of Contents

~~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 June 30,							Six months ended June 30,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Insurance premiums and other income
Insurance premiums and service revenue earned	$	252		$	238		6	$	720		$	704		2	$	261		$	239		9	$	522		$	495		5
Investment income, net (a)	32			36			(11)	94			104			(10)
Interest and dividends on investment securities and cash and cash equivalents, net (a)															15			13			15	27			25			8
Other gain on investments, net (b)															23			25			(8)	118			11			n/m
Other income	3			4			(25)	11			13			(15)	2			2			—	6			6			—
Total insurance premiums and other income	287			278			3	825			821			—	301			279			8	673			537			25
Expense
Insurance losses and loss adjustment expenses	65			69			6	278			287			3	127			101			(26)	186			164			(13)
Acquisition and underwriting expense
Compensation and benefits expense	17			16			(6)	54			51			(6)	20			18			(11)	41			39			(5)
Insurance commissions expense	106			99			(7)	309			290			(7)	117			109			(7)	231			219			(5)
Other expenses	30			38			21	96			105			9	37			40			8	70			77			9
Total acquisition and underwriting expense	153			153			—	459			446			(3)	174			167			(4)	342			335			(2)
Total expense	218			222			2	737			733			(1)	301			268			(12)	528			499			(6)
Income from continuing operations before income tax expense	$	69		$	56		23	$	88		$	88		—
Income from continuing operations before income tax (benefit) expense															$	—		$	11		(100)	$	145		$	38		n/m
Total assets	$	7,432		$	7,259		2	$	7,432		$	7,259		2	$	8,241		$	7,634		8	$	8,241		$	7,634		8
Insurance premiums and service revenue written	$	272		$	252		8	$	732		$	711		3	$	314		$	278		13	$	619		$	553		12
Combined ratio (b)	86.0		%	92.5		%		101.5		%	103.2		%
Combined ratio (c)															114.4		%	111.2		%		100.0		%	99.6		%

n/m = not meaningful

(a)

Includes ~~realized gains on investments~~interest expense of $19 million and ~~$55~~$38 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, and ~~$24~~$16 million and ~~$67~~$32 million for the three months and ~~nine~~six months ended ~~September~~ June 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 for the~~ ~~three months and nine months ended~~ ~~September 30, 2016.~~2018.


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


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

Our Insurance operations ~~earned~~ income from continuing operations before income tax expense ~~of $69~~was $0 million during the three months ended June 30, 2019, and ~~$88~~$145 million for the six months ended June 30, 2019, compared to $11 million and $38 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively, compared to income of $56 million and $88 million~~2018, respectively. The decrease for the ~~three months and nine months ended September 30, 2016, respectively. The increase for the~~ three months ended ~~September~~ June 30, ~~2017,~~2019, was primarily due to higher ~~vehicle inventory insurance rates, and~~weather losses in 2019, compared to lower ~~weather-related~~than average weather losses ~~as a result of a reinsurance agreement entered into in April 2017, partially offset by lower investment income. Income~~ for the ~~nine~~three months ended ~~September~~ June 30, ~~2017,~~2018. The increase for the six months ended June 30, 2019, was ~~relatively flat,~~primarily driven by $118 million of gains related to equity investments, compared to $11 million of gains for 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.~~six months ended June 30, 2018.

Insurance premiums and service revenue earned was ~~$252~~$261 million and ~~$720~~$522 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$238~~$239 million and ~~$704~~$495 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016.~~2018. The increases for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, were primarily due to higher vehicle inventory insurance rates ~~partially offset by ceding of premiums under a reinsurance agreement we entered into in April 2017.~~and portfolio growth.

Insurance losses and loss adjustment expenses totaled ~~$65~~$127 million and ~~$278~~$186 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$69~~$101 million and ~~$287~~$164 million for the same periods in ~~2016.~~2018. The ~~decreases~~increases for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, were primarily driven by higher weather-related losses due to ~~the ceding of weather-related~~specific weather events and portfolio growth within our vehicle inventory insurance business. Higher weather losses ~~subject~~contributed to ~~a reinsurance agreement and lower VSC losses. The ceding of weather-related losses primarily drove the decrease~~an increase in the combined ratio to ~~86.0%~~114.4% and ~~101.5%~~100.0% for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~92.5%~~111.2% and ~~103.2%~~99.6% for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016.~~2018. In April 2019, we renewed our annual reinsurance program and continue to utilize this coverage to manage our risk of weather-related loss.

7988

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Premium and Service Revenue Written

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
($ in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Vehicle service contracts
New retail	$	122		$	124		$	333		$	332		$	117		$	124		$	217		$	231
Used retail	119			109			351			327			167			143			325			273
Reinsurance (a)	(53		)	(50		)	(153		)	(139		)	(45		)	(42		)	(100		)	(88		)
Total vehicle service contracts (b)	188			183			531			520			239			225			442			416
Vehicle inventory insurance(c)	58			49			130			135			44			27			120			89
Other finance and insurance (c)	26			20			71			56
Other (d)													31			26			57			48
Total	$	272		$	252		$	732		$	711		$	314		$	278		$	619		$	553


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


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


(c)	~~Other finance and~~Vehicle inventory insurance includes dealer ancillary products.


(d)	Other products include GAP coverage, ~~excess wear and tear,~~VMCs, ClearGuard, and other ancillary products.

Insurance premiums and service revenue written was ~~$272~~$314 million and ~~$732~~$619 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$252~~$278 million and ~~$711~~$553 million for the same periods in ~~2016.~~2018. The ~~increase~~increases for the three months and six months ended ~~September~~ June 30, ~~2017, was~~2019, were primarily due to ~~higher~~growth in VSC and vehicle inventory insurance ~~rates, and growth~~products, with continued momentum in the Growth channel, which represents 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 reinsurance agreement.non-GM volume.

Cash and Investments

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

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


($ in millions)	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Cash
Noninterest-bearing cash	$	262	$	273	$	182	$	252
Interest-bearing cash	915		612		916		644
Total cash	1,177		885		1,098		896
Equity securities					582		766
Available-for-sale securities
Debt securities
U.S. Treasury	358		299
U.S. Treasury and federal agencies					625		460
U.S. States and political subdivisions	772		744		513		691
Foreign government	157		162		149		145
Agency mortgage-backed residential	632		633		1,095		758
Mortgage-backed residential	184		227		128		135
Mortgage-backed commercial	40		39
Asset-backed	—		6
Corporate debt	1,291		1,443		1,348		1,241
Total debt securities	3,434		3,553
Equity securities	525		595
Total available-for-sale securities	3,959		4,148		3,858		3,430
Total cash and securities	$	5,136	$	5,033	$	5,538	$	5,092

8089

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Mortgage Finance

Results of Operations

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2017		2016		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change	2019		2018		Favorable/(unfavorable) % change
Net financing revenue and other interest income
Total financing revenue and other interest income	$	78	$	64	22	$	221	$	185	19	$	150	$	114	32	$	296	$	219	35
Interest expense	46		39		(18)	123		114		(8)	104		70		(49)	200		132		(52)
Net financing revenue and other interest income	32		25		28	98		71		38	46		44		5	96		87		10
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	2		1		100	2		1		100
Total other revenue	2		—		n/m	3		—		n/m	4		2		100	6		3		100
Total net revenue	34		25		36	101		71		42	50		46		9	102		90		13
Provision for loan losses	4		1		n/m	6		4		(50)	—		—		—	2		2		—
Noninterest expense
Compensation and benefits expense	6		4		(50)	16		10		(60)	9		8		(13)	17		16		(6)
Other operating expenses	22		12		(83)	61		38		(61)	27		24		(13)	56		50		(12)
Total noninterest expense	28		16		(75)	77		48		(60)	36		32		(13)	73		66		(11)
Income from continuing operations before income tax expense	$	2	$	8	(75)	$	18	$	19	(5)
Income from continuing operations before income tax (benefit) expense											$	14	$	14	—	$	27	$	22	23
Total assets	$	9,804	$	7,933	24	$	9,804	$	7,933	24	$	16,584	$	13,385	24	$	16,584	$	13,385	24

~~n/m = not meaningful~~

Our Mortgage Finance operations earned income from continuing operations before income tax expense of $2$14 million and ~~$18~~$27 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to $8$14 million and ~~$19~~$22 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016.~~2018. The ~~decreases~~increase for the ~~three~~six months ~~and nine months~~ ended ~~September~~ June 30, ~~2017, were~~2019, was primarily due to ~~increases~~growth in our mortgage loan portfolio and an increase in gain on sale of mortgage loans held-for-sale, partially offset by accelerated premium amortization due to higher prepayment activity and higher noninterest expense driven primarily by continued ~~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~~during the three months ended June 30, 2019. For the three months ended June 30, 2019, growth in net financing revenue ~~and other interest income~~ driven by ~~increased~~mortgage portfolio ~~loan balances as a result~~growth and higher gains on the sale of ~~bulk purchases of high-quality jumbo~~mortgage loans were offset by accelerated premium amortization due to higher prepayment activity and ~~LMI mortgage loans.~~higher noninterest expenses driven primarily by continued asset growth.

Net financing revenue and other interest income was ~~$32~~$46 million and ~~$98~~$96 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$25~~$44 million and ~~$71~~$87 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016.~~2018. The increases in net financing revenue and other interest income were primarily due to increased loan balances as a result of bulk purchases of high-quality jumbo and LMI mortgage ~~loans.~~loans and direct-to-consumer originations. These increases were partially offset by accelerated premium amortization due to higher prepayment activity during the three months ended June 30, 2019. During the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, we purchased ~~$1.2~~$678 million and $1.9 billion ~~and $2.3 billion, respectively,~~ of mortgage loans that were originated by third parties, compared to ~~$467~~$852 million and ~~$2.9~~$2.1 billion ~~for~~during the ~~same periods in 2016.~~three months and six months ended June 30, 2018, respectively.

Gain on sale of mortgage loans, ~~increased~~net, was $2 million and $4 million for the three months and six months ended June 30, 2019, respectively, compared to $1 million and $2 million for ~~both~~ the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, compared to the same periods in 2016,~~2018, as a result of higher direct-to-consumer mortgage originations and the subsequent sale of these loans to our fulfillment ~~partner.~~provider.

The provision for loan losses increased $3 million and $2 million for the three months and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The increase for the three months and nine months ended September 30, 2017, were primarily due to estimated impacts 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 ~~$28~~$36 million and ~~$77~~$73 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$16~~$32 million and ~~$48~~$66 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016.~~2018. The increases were primarily driven by continued ~~expansion of the direct-to-consumer offering and~~ asset growth.

8190

Table of Contents

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

Ally Financial Inc. • Form 10-Q

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



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

The following table presents the net ~~unpaid principal balance (UPB),~~UPB, net UPB as a percentage of total, weighted-average coupon (WAC), premium net of discounts, ~~loan-to-value (LTV),~~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
June 30, 2019
Adjustable-rate	$	2,507	26	3.35	%	$	40	58.28	%	774	$	2,638	16	3.42	%	$	34	53.97	%	775
Fixed-rate	7,045		74	4.04		168		62.21		771	13,557		84	4.20		256		61.89		774
Total	$	9,552	100	3.86		$	208	61.17		772	$	16,195	100	4.08		$	290	60.60		774
December 31, 2016
December 31, 2018
Adjustable-rate	$	2,488	31	3.34	%	$	42	57.94	%	773	$	2,828	19	3.40	%	$	37	53.69	%	775
Fixed-rate	5,633		69	4.02		131		60.47		772	12,042		81	4.15		248		60.97		774
Total	$	8,121	100	3.81		$	173	59.69		772	$	14,870	100	4.01		$	285	59.58		774


(a)	Represents UPB net of charge-offs.


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


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

8291

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Corporate Finance

Results of Operations

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,						Six months ended June 30,
($ in millions)	2017		2016		Favorable/(unfavorable) % change	2017		2016		Favorable/(unfavorable) % change	2019		2018			Favorable/(unfavorable) % change	2019		2018			Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans	$	62	$	48	29	$	186	$	138	35	$	95	$	84		13	$	184	$	158		16
Interest on loans held-for-sale											2		5			(60)	3		5			(40)
Interest expense	23		18		(28)	65		51		(27)	36		32			(13)	72		60			(20)
Net financing revenue and other interest income	39		30		30	121		87		39	61		57			7	115		103			12
Total other revenue	5		4		25	33		14		136	10		14			(29)	21		22			(5)
Total net revenue	44		34		29	154		101		52	71		71			—	136		125			9
Provision for loan losses	3		3		—	15		12		(25)	3		(6		)	(150)	26		(6		)	n/m
Noninterest expense
Compensation and benefits expense	12		9		(33)	36		29		(24)	13		12			(8)	32		27			(19)
Other operating expenses	7		7		—	21		20		(5)	9		7			(29)	19		17			(12)
Total noninterest expense	19		16		(19)	57		49		(16)	22		19			(16)	51		44			(16)
Income from continuing operations before income tax expense	$	22	$	15	47	$	82	$	40	105
Income from continuing operations before income tax (benefit) expense											$	46	$	58		(21)	$	59	$	87		(32)
Total assets	$	3,699	$	3,232	14	$	3,699	$	3,232	14	$	4,980	$	4,458		12	$	4,980	$	4,458		12

n/m = not meaningful

Our Corporate Finance operations earned income from continuing operations before income tax expense of ~~$22~~$46 million and ~~$82~~$59 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to $15 million and $40 million for the same periods in 2016. The increases for the three months and nine months ended September 30, 2017, were driven by our strategy to responsibly grow assets and extend our product suite while selectively pursuing opportunities to broaden industry and product diversification. Results for the nine months ended September 30, 2017, were also favorably impacted by a gain on an equity investment in 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.

~~Net financing revenue and other interest income was $39 million and $121 million for the three months and nine months ended September 30, 2017, respectively, compared to $30~~$58 million and $87 million for the same periods in ~~2016.~~2018. The decreases were due primarily to higher provision for loan losses, partially offset by higher net financing revenue and other interest income resulting from higher asset levels.

Net financing revenue and other interest income was $61 million and $115 million for the three months and six months ended June 30, 2019, respectively, compared to $57 million and $103 million for the same periods in 2018. The increases were primarily due to ~~asset~~the growth ~~across all business verticals, which resulted in~~of our loan portfolio, represented by a ~~16%~~15% increase in the gross carrying value of finance receivables and loans as of ~~September~~June 30, ~~2017,~~2019, compared to ~~September~~June 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.2018.

Other revenue was $5$10 million and ~~$33~~$21 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to $4$14 million and ~~$14~~$22 million for the same periods in ~~2016.~~2018. The ~~increase~~decreases for the ~~nine~~three months and six months ended ~~September~~ June 30, ~~2017, was~~2019, were primarily driven by ~~an $11 million gain on the sale of an~~lower syndication income, partially offset by higher gains related to our 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 million for the nine months ended September 30, 2017,~~investments, as compared to the same periods in ~~2016.~~ 2018.

The ~~increase~~provision for loan losses increased $9 million and $32 million for the ~~nine~~three months and six months ended ~~September~~ June 30, ~~2017, was primarily due to higher provision expense for individually impaired loans,~~2019, respectively, compared to the same ~~period~~periods in ~~2016.~~2018. The increases for the three months and six months ended June 30, 2019, were impacted by a $6 million recovery recognized during the second quarter of 2018 that did not reoccur. Additionally, the increase in provision expense for the six months ended June 30, 2019, was driven by higher reserves associated with two loan exposures, within separate industries, each with unique considerations.

Total noninterest expense was $22 million and $51 million for the three months and six months ended June 30, 2019, respectively, compared to $19 million and ~~$57~~$44 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively, compared to $16 million and $49 million for the same periods in 2016.~~2018. 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.

8392

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Credit Portfolio

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


($ in millions)	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Loans held-for-sale, net	$	9	$	—	$	195	$	47
Finance receivables and loans	3,703		3,180		$	4,795	$	4,636
Unfunded lending commitments (a)	1,601		1,483		$	2,240	$	2,141
Total serviced loans					$	5,655	$	5,501

(a)

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

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


	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Industry
Services	28.5	%	27.4	%	28.4	%	25.6	%
Health services	14.5		12.0		25.7		24.5
Automotive and transportation	12.3		13.5		13.5		12.3
Machinery, equipment, and electronics					6.9		6.0
Wholesale	8.2		8.9		5.2		7.5
Machinery, equipment, and electronics	7.3		6.6
Food and beverages					4.3		5.0
Chemicals and metals					4.1		4.9
Other manufactured products	7.1		8.8		3.9		4.7
Chemicals and metals	6.4		5.8
Food and beverages	4.4		4.2
Paper, printing, and publishing					2.3		2.8
Retail trade	3.4		5.1		2.0		1.3
Paper, printing, and publishing	2.9		3.2
Other	5.0		4.5		3.7		5.4
Total finance receivables and loans	100.0	%	100.0	%	100.0	%	100.0	%

8493

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Corporate and Other

The following table summarizes the activities of Corporate and ~~Other. Corporate and~~ Other, which primarily ~~consists~~consist of ~~activity related to~~ centralized corporate treasury activities such as management of the cash and corporate investment securities and loan portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, ~~the amortization of the~~original issue discount, ~~associated with 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 June 30,							Six months ended June 30,
($ in millions)	2017			2016			Favorable/(unfavorable) % change	2017			2016			Favorable/(unfavorable)% change	2019			2018			Favorable/(unfavorable) % change	2019			2018			Favorable/(unfavorable) % change
Net financing revenue and other interest income
Interest and fees on finance receivables and loans (a)															$	20		$	21		(5)	$	41		$	31		32
Interest on loans held-for-sale															1			1			—	1			1			—
Interest and dividends on investment securities and other earning assets	$	131		$	77		70	$	361		$	229		58	215			162			33	428			312			37
Finance revenue (a)	18			18			—	52			50			4
Interest on cash and cash equivalents	9			1			n/m	18			3			n/m	16			14			14	35			27			30
Other, net	(2		)	(4		)	50	(6		)	(9		)	33	(4		)	(2		)	(100)	(6		)	(4		)	(50)
Total financing revenue and other interest income	156			92			70	425			273			56	248			196			27	499			367			36
Interest expense
Original issue discount amortization (b)	23			21			(10)	66			57			(16)	10			25			60	20			49			59
Other interest expense (c)	88			77			(14)	269			245			(10)	225			116			(94)	430			224			(92)
Total interest expense	111			98			(13)	335			302			(11)	235			141			(67)	450			273			(65)
Net financing revenue and other interest income	45			(6		)	n/m	90			(29		)	n/m	13			55			(76)	49			94			(48)
Other revenue
Loss on mortgage and automotive loans, net	—			—			n/m	(10		)	(6		)	(67)
Loss on extinguishment of debt	(4		)	—			n/m	(6		)	(4		)	(50)
Other gain on investments, net	4			28			(86)	18			78			(77)	14			1			n/m	23			7			n/m
Other income, net of losses	20			18			11	56			51			10	20			18			11	36			45			(20)
Total other revenue	20			46			(57)	58			119			(51)	34			19			79	59			52			13
Total net revenue	65			40			63	148			90			64	47			74			(36)	108			146			(26)
Provision for loan losses	(5		)	(16		)	(69)	(13		)	(15		)	(13)	(6		)	(6		)	—	(11		)	(6		)	83
Total noninterest expense (d)	68			63			(8)	187			133			(41)	78			84			7	158			160			1
Income (loss) from continuing operations before income tax expense	$	2		$	(7	)	129	$	(26	)	$	(28	)	7
Loss from continuing operations before income tax (benefit) expense															$	(25	)	$	(4	)	n/m	$	(39	)	$	(8	)	n/m
Total assets	$	30,937		$	25,304		22	$	30,937		$	25,304		22	$	35,688		$	30,953		15	$	35,688		$	30,953		15

n/m = not meaningful


(a)	Primarily related to impacts associated with hedging activities within our consumer automotive loan portfolio and financing revenue from our legacy mortgage ~~portfolio 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 ~~$194~~$219 million and ~~$606~~$448 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, and ~~$190~~$206 million and ~~$578~~$426 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016, respectively,~~2018, related to the allocation of corporate overhead expenses to other segments. The receiving segments record their allocation of corporate overhead expense within other operating expense.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

The following table presents the scheduled remaining amortization of the original issue discount at ~~September~~June 30, ~~2017.~~2019.


Year ended December 31, ($ in millions)	2017		2018		2019		2020		2021		2022 and thereafter (a)		Total		2019		2020		2021		2022		2023		2024 and thereafter (a)		Total
Original issue discount
Outstanding balance at year end	$	1,235	$	1,135	$	1,096	$	1,057	$	1,014	$	—			$	1,101	$	1,058	$	1,012	$	961	$	904	$	—
Total amortization (b)	24		100		39		39		43		1,014		$	1,259	21		43		46		51		57		904		$	1,122


(a)	The maximum annual scheduled amortization for any individual year is ~~$153~~$147 million in 2030.


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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Corporate and Other ~~earned income~~incurred a loss from continuing operations before income tax expense of $2$25 million and ~~incurred~~$39 million for the three months and six months ended June 30, 2019, respectively, compared to a loss of ~~$26~~$4 million and $8 million for the three months and ~~nine~~six months ended ~~September~~ June 30, 2017, respectively, compared to losses of $7 million and $28 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 to an increase in2018. Total financing revenue and other interest income increased for both the three months and six months ended June 30, 2019, compared to the same periods in 2018, primarily driven by ~~an increase in interest and dividends on~~our investment securities ~~and other earning assets, partially~~portfolio. This increase was more than 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 financingfunding costs.

Financing revenue and other interest income was $248 million and $499 million for the three months and six months ended June 30, 2019, respectively, compared to $196 million and $367 million for the three months and six months ended June 30, 2018. The increases were primarily driven by ~~an increase in~~higher interest and dividends onfrom investment securities, primarily as a result of higher yields and ~~other earning assets. The decrease~~growth in ~~loss was partially offset by an increase in noninterest expense driven by an increase in compensation and benefits to support~~ the ~~growth~~size of the ~~business, a decrease in gains on sales of~~ investment ~~securities,~~portfolio. Results for the three months and ~~an increase~~six months ended June 30, 2019, were also favorably impacted by increases in interest on cash and cash equivalents, as a result of higher yields.

Total interest expense was $235 million and $450 million for the three months and six months ended June 30, 2019, respectively, compared to $141 million and $273 million for the three months and six months ended June 30, 2018. The increases were primarily driven by increased interest on deposits resulting from higher market rates and deposit growth, ~~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. The increases were primarily driven by increased interest and dividends from investment securities and other earning assets compared to the same periods in 2016, primarily as a result of growth in the size of the investment portfolio.

Interest expense was $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, driven primarily by increased interest on deposits resulting from deposit growth and increased LIBOR rates on secured borrowings. The increase was partially offset by a decrease in higher-cost ~~unsecured~~secured debt ~~borrowings as maturities are replaced with lower cost funding.~~borrowings.

~~Other gain on investments~~Total other revenue was $4$34 million and ~~$18~~$59 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to ~~$28~~$19 million and ~~$78~~$52 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2016. The decreases were due primarily 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, 2016.2018. The increases were primarily due to increased ~~expenses from~~realized investment gains, partially offset by lower income related to certain equity hedges during the ~~Ally Invest integration and operations included in our results subsequent to acquisition in the second quarter of 2016 and increased expenses to support the growth of the business.~~six months ended June 30, 2019.

Total assets were ~~$30.9~~$35.7 billion as of ~~September~~June 30, ~~2017,~~2019, compared to ~~$25.3~~$31.0 billion as of ~~September~~June 30, ~~2016. The~~2018. This increase was primarily the result of growth ofin our available-for-sale and held-to-maturity securities portfolios. The increase was partially offset by the continued runoff of our legacy mortgage portfolio. At ~~September~~June 30, ~~2017,~~2019, the gross carrying value of the legacy mortgage portfolio was ~~$2.3~~$1.3 billion, compared to ~~$2.9~~$1.8 billion at ~~September~~June 30, ~~2016.~~2018.

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

Cash and Securities

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


($ in millions)	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Cash
Noninterest-bearing cash	$	525	$	1,249	$	454	$	535
Interest-bearing cash	2,699		3,770		1,988		3,083
Total cash	3,224		5,019		2,442		3,618
Available-for-sale securities
Debt securities
U.S. Treasury	1,715		1,321
U.S. Treasury and federal agencies					1,393		1,391
U.S. States and political subdivisions	79		38		85		111
Agency mortgage-backed residential	13,712		9,657		18,005		16,380
Mortgage-backed residential	2,126		1,870		2,806		2,551
Agency mortgage-backed commercial					1,351		3
Mortgage-backed commercial	469		498		713		714
Asset-backed	1,039		1,394		477		723
Total available-for-sale securities	19,140		14,778		24,830		21,873
Held-to-maturity securities
Debt securities
Agency mortgage-backed residential	1,767		789		2,468		2,264
Asset-backed retained notes	40		—		31		43
Total held-to-maturity securities	1,807		789		2,499		2,307
Total cash and securities	$	24,171	$	20,586	$	29,771	$	27,798

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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~~which enables us to complement our competitive deposit products with low-cost investing through the platform we acquired from the June 2016 acquisition of TradeKing ~~with our award-winning online banking platform.~~. 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~~of 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		2nd quarter 2019		1st quarter 2019		4th quarter 2018		3rd quarter 2018		2nd quarter 2018
Trading days (a)	62.5		63		62		62.5		64		63.0		61.0		62.0		62.5		64.0
Average customer trades per day (in thousands)	15.5		16.5		19.1		17.5		17.1		18.3		19.5		19.6		19.1		18.0
Funded accounts (b) (in thousands)	255		250		251		244		240		337		320		302		287		271
Total net customer assets ($ in millions)	$	5,204	$	5,007	$	4,987	$	4,771	$	4,678	$	7,149	$	6,796	$	5,804	$	6,608	$	5,990
Total customer cash balances ($ in millions)	$	1,168	$	1,154	$	1,232	$	1,253	$	1,177	$	1,229	$	1,209	$	1,159	$	1,178	$	1,166


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


(b)	Represents open and funded brokerage accounts.

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

8796

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Risk Management

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


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


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


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

Our ~~risk management program~~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 primary types of risk include credit, lease residual, market, operational, insurance/underwriting, business/strategic, reputation, and liquidity.~~ For more information on our risk management process, refer to the Risk Management MD&A section of our ~~2016~~2018 Annual Report on Form 10-K.

Loan and Operating Lease Exposure

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


($ in millions)	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Finance receivables and loans
Automotive Finance	$	103,082	$	104,646	$	106,473	$	108,463
Mortgage Finance	9,760		8,294		16,485		15,155
Corporate Finance	3,703		3,180		4,795		4,636
Corporate and Other (a)	2,326		2,824		1,457		1,672
Total finance receivables and loans	118,871		118,944		129,210		129,926
Loans held-for-sale
Automotive Finance					—		210
Mortgage Finance (b)	9		—		22		8
Corporate Finance	9		—		195		47
Corporate and Other					58		49
Total loans held-for-sale	18		—		275		314
Total on-balance sheet loans	118,889		118,944		129,485		130,240
Off-balance sheet securitized loans
Automotive Finance (c)	2,293		2,392		796		1,235
Whole-loan sales
Automotive Finance (c)	1,655		3,164		392		634
Total off-balance sheet loans					1,188		1,869
Operating lease assets
Automotive Finance(c)	8,931		11,470
Total loan and lease exposure	$	131,768	$	135,970
Serviced loans and leases
Automotive Finance	$	115,630	$	121,480	8,407		8,417
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
Total loan and operating lease exposure					$	139,080	$	140,526


(a)	Includes ~~$2.3~~$1.3 billion and ~~$2.8~~$1.5 billion of consumer mortgage loans in our legacy mortgage portfolio at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.


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


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

The risks inherent in our loan and operating lease exposures are largely driven by changes in the overall economy, used vehicle and housing price levels, unemployment levels, and their impact 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 consumer automotive loans as they complement our core business model, but we do sell loans from time to time on an opportunistic basis. We ultimately manage the associated risks based on the underlying economics of the exposure. Our operating lease residual risk, which may be more volatile than credit risk in stressed macroeconomic scenarios, has declined ~~with~~over the ~~decrease in the lease portfolio.~~

~~Since the end of 2014,~~past several years as we have experienced growth in our consumer ~~retail~~

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

automotive loan portfolio and a significant reduction in lease assets. This shift in our portfolio mix 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 as ouroperating lease assets ~~have declined materially and will continue to decline as the number of lease terminations continues to outpace lease originations. All~~since 2014.While all operating 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 to $8.9 billion at September 30, 2017, from $11.5 billion at December 31, 2016.~~

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~~manage credit risk exposures ~~to ensure they are managed in a 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 operating lease portfolios. This includes the identification of relevant trends that affect the collectability of the portfolios, segments of the portfolios that are potential problem areas, loans and operating leases with potential credit weaknesses, and the assessment of the adequacy of internal credit risk policies and ~~procedures to ensure and monitor compliance with relevant laws and regulations.~~procedures. Our consumer and commercial loan and operating lease portfolios are subject to regular stress tests that are based on plausible, but unexpected, economic scenarios to ~~ensure that we can withstand~~assess how the portfolios may perform in 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~~with the aim of generating 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 consumer automotive loans, we work with customers when they become delinquent on their monthly payment. In lieu of repossessing their vehicle, we may offer several types of assistance to aid our customers based on their willingness and ability to repay their loan. Loss mitigation may include ~~extension~~payment extensions and rewrites 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 toNote 1917 to the Condensed Consolidated Financial ~~Statements.~~Statements.

We employ an internal team of economists to enhance our planning and forecasting capabilities. This team conducts industry and market research, monitors economic risks, and helps support various forms of scenario planning. This group closely ~~monitor macro-economic~~monitors macroeconomic trends given the nature of our business and the potential impacts on our exposure to credit risk. During the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the U.S. economy continued to modestly expand, and consumer confidence remained ~~strong.~~elevated. The labor market remained healthy during the period, with the unemployment rate ~~falling to 4.2%~~at 3.7% as of ~~September~~June 30, ~~2017.~~2019. Within the U.S. automotive market, new light vehicle sales have moderated from both historic highs and ~~were down~~

~~Table of Contents~~

~~Management's Discussion~~year-over-year pace, to an average 17.0 million and ~~Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~modestly year over year at a~~16.9 million Seasonally Adjusted Annual Rate ~~of 17.1 million~~ for the three months and six months ended ~~September~~ June 30, ~~2017.~~ 2019, respectively. We ~~continue~~expect to experience modest downward pressure on used vehicle values ~~and expect that to continue throughout 2017.~~

~~On-balance Sheet Portfolio~~

~~Our on-balance sheet portfolio includes both finance receivables and loans, and loans held-for-sale. At~~ ~~September 30, 2017, this primarily included~~ ~~$103.1 billion~~ ~~of automotive finance receivables and loans and~~ ~~$12.0 billion~~ of consumer mortgage finance receivables and loans. Our Mortgage Finance operations consist of the management of our held-for-investment mortgage loan portfolio which includes bulk purchases of high-quality jumbo 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.

~~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
($ in millions) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Consumer
Finance receivables and loans
Loans at gross carrying value $ 79,092
$ 76,843
$ 661
$ 697
$ —
$ —
Loans held-for-sale 9
—
—
—
—
—
Total consumer loans (b) 79,101
76,843
661
697
—
—
Commercial
Finance receivables and loans
Loans at gross carrying value 39,779
42,101
146
122
—
—
Loans held-for-sale 9
—
—
—
—
—
Total commercial loans 39,788

42,101

146

122

—

—
Total on-balance sheet loans $ 118,889
$ 118,944
$ 807
$ 819
$ —
$ —


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


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

~~Total on-balance sheet loans outstanding at~~ ~~September 30, 2017~~, ~~decreased$55 million~~ to ~~$118.9 billion~~ ~~from~~ ~~December 31, 2016~~, reflecting a decrease of $2,313 million in the commercial portfolio and an increase of $2,258 million in the consumer portfolio. 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 the execution of bulk loan purchases in our Mortgage Finance portfolio, and our consumer automotive loan originations which outpaced portfolio runoff.

Total TDRs outstanding at September 30, 2017, increased $52 million to $715 million from December 31, 2016. The increase was primarily driven by our retail automotive loan portfolio where we experienced a deliberate shift 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. Refer to Note 8 to the Condensed Consolidated Financial Statements for additional information.2019.

~~Total nonperforming loans at~~ ~~September 30, 2017~~, ~~decreased$12 million~~ to ~~$807 million~~ ~~from~~ ~~December 31, 2016~~, reflecting a decrease of $36 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 the downgrade of ten accounts within the commercial automotive portfolio. Nonperforming loans include finance receivables and loans on nonaccrual status when the principal or interest has been delinquent for 90 days or when full collection is determined not to be probable. Refer to Note 1 to the Consolidated Financial Statements included in our 2016 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,
Net charge-offs Net charge-off ratios (a) Net charge-offs Net charge-off ratios (a)
($ in millions) 2017 2016 2017 2016 2017 2016 2017 2016
Consumer $ 243
$ 213
1.2 % 1.1 % $ 695
$ 544
1.2 % 1.0 %
Commercial 10
—
0.1
—
10
—
—
—
Total finance receivables and loans at gross carrying value $ 253
$ 213
0.8
0.8
$ 705
$ 544
0.8
0.6


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

~~Net charge-offs were $253 million and $705 million for the~~ ~~three months and nine months endedSeptember 30, 2017, respectively, compared to~~ ~~$213 million~~ ~~and $544 million for the~~ ~~three months and nine months endedSeptember 30, 2016. The increases during the~~ ~~three months and nine months endedSeptember 30, 2017~~, were driven by the seasoning of recent vintages reflecting our underwriting strategy to originate consumer automotive assets across a broad risk spectrum and expand our risk-adjusted returns, as well as lower average sales proceeds on repossessed vehicles.

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

Consumer Credit Portfolio

During the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, the credit performance of the consumer loan portfolio reflected both our underwriting strategy to originate a diversified portfolio of consumer automotive loan 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%~~11.6% of our total consumer automotive loans at ~~September~~June 30, ~~2017,~~2019, compared to approximately ~~13.8%~~11.7% at December 31, ~~2016.~~2018. For information on our consumer credit risk practices and policies regarding

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the Consolidated Financial Statements ~~included~~ in our ~~2016~~2018 Annual Report on Form 10-K.

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


	Outstanding				Nonperforming (a)				Accruing past due 90 days or more				Outstanding				Nonperforming (a)				Accruing past due 90 days or more (b)
($ in millions)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Consumer automotive (b) (c)	$	67,077	$	65,793	$	573	$	598	$	—	$	—
Consumer automotive (c) (d)													$	72,898	$	70,539	$	642	$	664	$	—	$	—
Consumer mortgage
Mortgage Finance	9,760		8,294		7		10		—		—		16,485		15,155		12		9		—		—
Mortgage — Legacy	2,255		2,756		81		89		—		—		1,315		1,546		53		70		—		—
Total consumer finance receivables and loans	$	79,092	$	76,843	$	661	$	697	$	—	$	—	$	90,698	$	87,240	$	707	$	743	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$199~~$232 million and ~~$240~~$257 million at ~~September~~June 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, respectively.

(b)

~~Includes $24 million and $43 million of fair value adjustment~~Loans are generally in nonaccrual status when principal or interest has been delinquent for ~~loans in hedge accounting relationships at September 30, 2017, and December 31, 2016, respectively.~~90 days or more, or when full collection is not expected. Refer to Note 191 to the ~~Condensed~~ Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for ~~additional information.~~a description of our accounting policies for finance receivables and loans.


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


(d)	Includes outstanding CSG loans of ~~$7.0~~$8.1 billion and ~~$6.7~~$7.9 billion at ~~September~~June 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, respectively, and RV loans of ~~$1.8~~$1.5 billion and $1.7 billion at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018, respectively.

Total consumer ~~outstanding~~ finance receivables and loans increased$~~2.2~~3.5 billion at ~~September~~June 30, ~~2017~~2019, compared with December 31, ~~2016. The~~2018, reflecting an increase ~~in the Mortgage Finance portfolio was primarily due to the execution~~ of ~~bulk loan purchases, partially offset by portfolio runoff.~~$2.4 billion of consumer automotive finance receivables and loans and an increase of $1.1 billion of consumer mortgage finance receivables and loans. The increase in consumer automotive finance receivables and loans was primarily related to continued momentum in our Growth channel. The increase in consumer mortgage finance receivables and loans was primarily due to the execution of bulk loan ~~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~~purchases totaling $1.9 billion during the ~~second quarter of 2017 and the related purchase of approximately $521 million of retail automotive loans.~~six months ended June 30, 2019.

Total consumer nonperforming finance receivables and loans at ~~September~~June 30, ~~2017~~, 2019, decreased~~$36~~ $36 million to ~~$661~~$707 million from December 31, ~~2016~~,2018, reflecting a decrease of ~~$25~~$22 million of consumer automotive finance receivables and loans and a decrease of ~~$11~~$14 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.seasonality. The decrease in nonperforming consumer mortgage finance receivables and loans was primarily due to ~~a strong~~run-off in our legacy mortgage portfolio, as well as favorable macroeconomic ~~environment.~~conditions. 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~~June 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, respectively.

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

Consumer automotive loans accruing and past due 30 days or more decreased ~~$117~~$388 million to ~~$2.0~~$2.1 billion at ~~September~~June 30, ~~2017~~,2019, compared ~~with~~ to December 31, ~~2016~~,2018, primarily due to ~~seasonal trends.~~seasonality. Compared to June 30, 2018, consumer automotive loans accruing and past due 30 days or more increased $153 million at June 30, 2019, driven by growth in the overall size of the consumer automotive loan portfolio, as well as slightly higher delinquency rates as part of our continued diversification strategy.

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


	Three months ended September 30,									Nine months ended September 30,								Three months ended June 30,									Six months ended June 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 (recoveries)					Net charge-off ratios (a)
($ in millions)	2017		2016			2017		2016		2017		2016		2017		2016		2019			2018		2019		2018		2019			2018		2019		2018
Consumer automotive	$	242	$	219		1.4	%	1.4	%	$	692	$	540	1.4	%	1.1	%	$	172		$	182	1.0	%	1.0	%	$	406		$	435	1.1	%	1.3	%
Consumer mortgage
Mortgage Finance	1		—			—		—		1		—		—		—		—			1		—		—		—			2		—		—
Mortgage — Legacy	—		(6		)	—		(0.9	)	2		4		0.1		0.1		(2		)	1		(0.6	)	0.2		(4		)	6		(0.6	)	0.6
Total consumer finance receivables and loans	$	243	$	213		1.2		1.1		$	695	$	544	1.2		1.0		$	170		$	184	0.8		0.9		$	402		$	443	0.9		1.1


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

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Our net charge-offs from total consumer finance receivables and loans were ~~$243~~$170 million and ~~$695~~$402 million for the three months and ~~nine~~six months ended~~September~~ June 30, ~~2017~~,2019, respectively, compared to ~~$213~~$184 million and ~~$544~~$443 million for the three months and ~~nine~~six months ended~~September~~ June 30, ~~2016~~.2018. The ~~increases during~~decreases in net charge-offs for both the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, 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,~~loan portfolio where we experienced strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as ~~lower average sales proceeds on repossessed vehicles. The increases were partially offset by our limited collection actions~~continued disciplined underwriting and ~~extension program for borrowers within the hurricane-affected areas that likely delayed potential losses during the three months ended September 30, 2017.~~higher recoveries.

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


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
($ in millions)	2017		2016		2017		2016		2019		2018		2019		2018
Consumer automotive	$	7,218	$	8,355	$	22,643	$	25,079	$	8,683	$	8,351	$	16,951	$	16,768
Consumer mortgage (a)	87		—		131		7		552		194		903		345
Total consumer loan originations	$	7,305	$	8,355	$	22,774	$	25,086	$	9,235	$	8,545	$	17,854	$	17,113


(a)	~~Includes $49~~Excludes bulk loan purchases associated with our Mortgage Finance operations and includes $155 million and ~~$72~~$244 million of loans originated as held-for-sale for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, respectively.~~2019, respectively, and $72 million and $132 million for the three months and six months ended June 30, 2018.

Total ~~automotive-originated loans decreased $1.1 billion~~consumer loan originations increased $690 million and ~~$2.4 billion~~$741 million for the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the ~~same periods~~three months and six months ended June 30, 2018, reflecting increases of $358 million and $558 million of consumer mortgage loans and increases of $332 million and $183 million of consumer automotive loans. The increases in ~~2016. The decreases~~consumer mortgage loan originations for the three months and six months ended June 30, 2019, were primarily due to ~~lower~~growth in the direct-to-consumer mortgage business. The increases in consumer automotive loan originations for the three months and six months ended June 30, 2019, were primarily due to higher used volume in the Growth channel, partially offset by lower new retail volume from GM and ~~Chrysler channels and our continued focus on selective originations based on improved risk-adjusted returns.~~Chrysler.

~~Table of Contents~~

~~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~~72.9 billion and $~~65.8~~70.5 billion at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018, respectively. Total consumer mortgage ~~and home equity~~ loans were ~~$12.0~~$17.8 billion and ~~$11.1~~$16.7 billion at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018, respectively.


	September 30, 2017 (a)				December 31, 2016				June 30, 2019 (a)				December 31, 2018
	Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage		Consumer automotive		Consumer mortgage
California									8.4	%	36.7	%	8.4	%	36.9	%
Texas	13.3	%	6.8	%	13.6	%	6.6	%	12.6		6.3		12.8		6.2
California	8.1		34.1		7.8		34.2
Florida	8.3		4.8		8.2		4.4		8.8		5.0		8.8		4.7
Pennsylvania	4.6		1.4		4.7		1.5		4.6		1.4		4.5		1.4
Illinois	4.2		3.3		4.3		3.4		4.1		2.8		4.1		3.0
Georgia	4.2		2.4		4.3		2.2		4.0		2.8		4.1		2.8
North Carolina	3.7		1.7		3.6		1.6		3.9		1.8		3.9		1.7
New York									3.1		2.5		3.1		2.4
Ohio	3.5		0.4		3.5		0.5		3.6		0.4		3.5		0.4
New York	3.1		2.1		3.2		1.9
Missouri	2.9		1.0		2.8		1.2
New Jersey									2.8		2.2		2.7		2.1
Other United States	44.1		42.0		44.0		42.5		44.1		38.1		44.1		38.4
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~~June 30, ~~2017~~2019.

We monitor our consumer loan portfolio for concentration risk across the states in which we lend. The highest concentrations of consumer loans are in ~~Texas~~California and ~~California,~~Texas, which represented an aggregate of ~~24.3%~~25.3% and ~~24.2%~~25.4% of our total outstanding consumer finance receivables and loans at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018, respectively. Our consumer mortgage loan portfolio concentration within California, which is primarily composed of high-quality jumbo mortgage loans, generally aligns to the California share of jumbo mortgages nationally.

Repossessed and Foreclosed Assets

We classify an asset as repossessed or foreclosed, ~~(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~~2018 Annual Report on Form 10-K.

100

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Repossessed consumer automotive loan assets in our Automotive Finance operations at ~~September 30, 2017~~, decreased ~~$8 million to $127~~$2 million from December 31, ~~2016~~.2018, to $134 million at June 30, 2019. Foreclosed mortgage assets at ~~September~~June 30, ~~2017~~2019, ~~decreased $2 million to $11~~remained flat at $11 million from December 31, ~~2016~~.2018.

Commercial Credit Portfolio

During the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, the credit performance of the commercial portfolio remained strong as nonperforming finance receivables and loans decreased, and our 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~~2018 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 (b)
($ in millions)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Commercial and industrial
Automotive	$	31,985	$	35,041	$	78	$	33	$	—	$	—	$	29,382	$	33,672	$	89	$	203	$	—	$	—
Other ~~(b)~~(c)	3,774		3,248		61		84		—		—		4,353		4,205		101		142		—		—
Commercial real estate — Automotive	4,020		3,812		7		5		—		—
Commercial real estate													4,777		4,809		6		4		—		—
Total commercial finance receivables and loans	$	39,779	$	42,101	$	146	$	122	$	—	$	—	$	38,512	$	42,686	$	196	$	349	$	—	$	—


(a)	Includes nonaccrual TDR loans of ~~$75~~$96 million and ~~$46~~$86 million at ~~September~~June 30, ~~2017~~2019, and December 31, ~~2016~~2018, respectively.


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


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

Total commercial finance receivables and loans outstanding decreased$~~2.3~~4.2 billion from December 31, ~~2016~~2018, to ~~$39.8~~$38.5 billion at ~~September~~June 30, ~~2017~~2019. The decrease was primarily due to lower dealer inventory levels and a reduction in the number of dealer relationships due to the competitive environment across the automotive lending ~~market, as well as seasonality and lower dealer inventory levels.~~market. This decrease was ~~slightly~~partially offset by ~~the ongoing demand for automotive dealer term loans and from~~ growth in our Corporate Finance ~~portfolio in line with our business strategy.~~portfolio.

Total commercial nonperforming finance receivables and loans were ~~$146~~$196 million at ~~September~~June 30, ~~2017,~~2019, reflecting ~~an increase~~a decrease of ~~$24~~$153 million when compared to December 31, ~~2016.~~2018. The ~~increase~~decrease was primarily due to reduced exposure to one larger dealer group that was placed into default in the ~~downgrade~~fourth quarter of ~~ten~~2018, as well as the partial liquidation and charge-off of 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~~decreased to ~~0.4%~~0.5% at ~~September~~June 30, ~~2017~~,2019, compared to ~~0.3%~~0.8% at December 31, ~~2016~~.2018.

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

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


	Three months ended September 30,								Nine months ended September 30,								Three months ended June 30,									Six months ended June 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 (recoveries)					Net charge-off ratios (a)
($ in millions)	2017		2016		2017		2016		2017		2016		2017		2016		2019		2018			2019		2018		2019		2018			2019		2018
Commercial and industrial
Automotive	$	1	$	—	—	%	—	%	$	1	$	—	—	%	—	%	$	1	$	2		—	%	—	%	$	1	$	2		—	%	—	%
Other	9		—		1.0		—		9		—		0.3		—		11		(6		)	1.0		(0.5	)	16		(6		)	0.7		(0.3	)
Commercial real estate																	—		—			—		—		—		—			—		—
Total commercial finance receivables and loans	$	10	$	—	0.1		—		$	10	$	—	—		—		$	12	$	(4	)	0.1		—		$	17	$	(4	)	0.1		—


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

Our net charge-offs from total commercial finance receivables and loans were ~~$10~~$12 million and $17 million for the three months and six months ended June 30, 2019, respectively, compared to net recoveries of $4 million for both the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, compared to no~~

101

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

2018. The increases in net charge-offs for the ~~same periods in 2016. The increases in the~~ three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, were primarily driven by ~~one account~~partial charge-offs of two accounts within ~~the~~our Corporate Finance ~~portfolio that was restructured during the period, resulting in the recognition of a partial charge-off.~~portfolio.

Commercial Real Estate

The commercial real estate portfolio consists of finance receivables and loans issued primarily to automotive dealers. Commercial real estate finance receivables and loans were ~~$4.0 billion and $3.8~~$4.8 billion at ~~September~~both June 30, ~~2017~~2019, and December 31, ~~2016, respectively.~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

2018.

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


	September 30, 2017		December 31, 2016		June 30, 2019			December 31, 2018
Texas	16.0	%	16.1	%	15.2	%		15.5	%
Florida	9.4		10.2		11.9			11.6
California	8.5		7.9		7.6			8.3
Michigan	7.6		7.6		6.8			6.8
New Jersey	3.8		4.2
North Carolina					4.7			3.6
New York					4.6			4.8
Georgia	3.7		3.6		4.0			4.0
South Carolina	3.7		2.7		3.5			3.4
North Carolina	3.6		3.6
Pennsylvania	3.2		3.1
Missouri	2.5		2.5
New Jersey					3.0			3.1
Utah					2.8			2.6
Other United States	38.0		38.5		35.9		��	36.3
Total commercial real estate finance receivables and loans	100.0	%	100.0	%	100.0	%		100.0	%

Commercial Criticized Exposure

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

Total criticized exposures ~~increased $95~~decreased $190 million from December 31, ~~2016,~~2018, to ~~$2.8~~$3.8 billion at ~~September~~June 30, ~~2017.~~2019. The ~~increase~~decrease was primarily due to declining dealer inventory levels and the ~~Corporate Finance portfolio and is~~reduced exposure to one larger dealer group that defaulted in ~~line with~~ the ~~overall growth in Corporate Finance loan balances.~~fourth quarter of 2018.

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


	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
Industry
Automotive	75.5	%	81.2	%	81.0	%	80.6	%
Services	7.4		6.3		5.3		5.0
Health/Medical	3.8		2.3
Electronics					4.4		2.3
Other	13.3		10.2		9.3		12.1
Total commercial criticized finance receivables and loans	100.0	%	100.0	%	100.0	%	100.0	%

95102

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Allowance for Loan Losses

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

Three months ended 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



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

(a)

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

n/m = not meaningful

(a)

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~~2018 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.

96103

Table of Contents

~~Management's~~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



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

(a)

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~~2018 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.

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



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

n/m = not meaningful

(a)

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~~2018 Annual Report on Form 10-K for more information regarding our charge-off policies.


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


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

The allowance for consumer loan losses at ~~September~~June 30, ~~2017,~~2019, increased ~~$143~~$8 million compared to ~~September~~June 30, ~~2016.~~2018, reflecting an increase of $25 million in the consumer automotive allowance and a decrease of $17 million in the consumer mortgage allowance. The increase in our consumer automotive allowance was primarily driven by portfolio growth as finance receivable balances are up $2.4 billion from the prior-year period, partially offset by lower hurricane-related reserves. The decrease in the consumer mortgage allowance was primarily driven by run-off in our legacy mortgage portfolio and lower hurricane-related reserves, partially offset by growth in our Mortgage Finance portfolio as finance receivable balances are up $3.2 billion from the prior-year period.

The allowance for commercial loan losses increased $17 million at June 30, 2019, compared to June 30, 2018. The increase was primarily driven by higher reserves in our ~~consumer automotive~~Corporate Finance portfolio ~~and reflects~~as balances are up $611 million from 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 theprior-year 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~~higher reserves for individually impaired accounts, which was primarily associated with one lending exposure in our ~~allowance for loan losses. This increase was partially offset by a decrease~~Corporate Finance portfolio. Overall credit performance in the ~~allowance for loan losses in our legacy mortgage~~Corporate Finance portfolio ~~as it continues to run off.~~remains stable.

97104

Table of Contents

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

Ally Financial Inc. • Form 10-Q

The allowance for commercial loan losses increased $9 million at September 30, 2017, compared to September 30, 2016. The increase was primarily driven by growth experienced in our Corporate Finance portfolio. There was no increase to the allowance for 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.

Allowance for Loan Losses by Type

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


	2017						2016						2019						2018
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
June 30, ($ in millions)													Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses		Allowance for loan losses		Allowance as a % of loans outstanding		Allowance as a % of total allowance for loan losses
Consumer
Consumer automotive	$	1,074	1.6	%	83.5	%	$	912	1.4	%	80.4	%	$	1,078	1.5	%	84.1	%	$	1,053	1.5	%	83.7	%
Consumer mortgage
Mortgage Finance	16		0.2		1.2		19		0.2		1.7		18		0.1		1.4		18		0.1		1.5
Mortgage — Legacy	65		2.9		5.1		81		2.8		7.2		31		2.3		2.4		48		2.7		3.8
Total consumer mortgage	81		0.7		6.3		100		0.9		8.9		49		0.3		3.8		66		0.4		5.3
Total consumer loans	1,155		1.5		89.8		1,012		1.3		89.3		1,127		1.2		87.9		1,119		1.3		89.0
Commercial
Commercial and industrial
Automotive	36		0.1		2.8		33		0.1		2.9		42		0.1		3.3		42		0.1		3.4
Other	71		1.9		5.5		65		2.0		5.7		87		2.0		6.8		69		1.7		5.5
Commercial real estate — Automotive	24		0.6		1.9		24		0.6		2.1
Commercial real estate													26		0.6		2.0		27		0.6		2.1
Total commercial loans	131		0.3		10.2		122		0.3		10.7		155		0.4		12.1		138		0.3		11.0
Total allowance for loan losses	$	1,286	1.1		100.0	%	$	1,134	1.0		100.0	%	$	1,282	1.0		100.0	%	$	1,257	1.0		100.0	%

Provision for Loan Losses

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


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
($ in millions)	2017			2016			2017			2016			2019			2018			2019			2018
Consumer
Consumer automotive	$	314		$	269		$	841		$	644		$	180		$	168		$	437		$	421
Consumer mortgage
Mortgage Finance	4			1			6			4			—			—			2			2
Mortgage — Legacy	(4		)	(16		)	(12		)	(14		)	(5		)	(4		)	(10		)	(5		)
Total consumer mortgage	—			(15		)	(6		)	(10		)	(5		)	(4		)	(8		)	(3		)
Total consumer loans	314			254			835			634			175			164			429			418
Commercial
Commercial and industrial
Automotive	(1		)	2			5			4			—			3			6			7
Other	2			3			14			11			2			(8		)	25			(8		)
Commercial real estate — Automotive	(1		)	(1		)	—			1
Commercial real estate													—			(1		)	(1		)	2
Total commercial loans	—			4			19			16			2			(6		)	30			1
Total provision for loan losses	$	314		$	258		$	854		$	650		$	177		$	158		$	459		$	419

The provision for consumer loan losses ~~increased $60~~was $175 million and ~~$201~~$429 million for the three months and ~~nine~~six months ended~~September~~ June 30, ~~2017~~,2019, respectively, compared to $164 million and $418 million for three months and six months ended June 30, 2018. The provision for consumer automotive loan losses increased $12 million and $16 million during the three months and six months ended June 30, 2019, as compared to the same periods in ~~2016~~.the prior year. The increases were driven primarily by reserve reductions during the three and six months ended June 30, 2018, associated with hurricane activity experienced during 2017. This activity was largely offset by lower net charge-offs, which occurred despite continued growth within our retail automotive loan portfolio. We continue to experience strong overall credit performance driven by favorable macroeconomic conditions including low unemployment, as well as continued disciplined underwriting and higher recoveries. The provision for consumer mortgage loan losses decreased $1 million and $5 million during the three months and ~~nine~~six months ended ~~September~~ June 30, ~~2017, were~~2019, primarily driven by overall lower net charge-offs and strong credit performance as the legacy mortgage portfolio continues to run-off and we continue to grow our consumer automotive portfolio. The increase 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 of our consumer automotive portfolio by $48 million and increased provision expense in our consumer mortgage loan portfolio by $5Mortgage Finance business.

98105

Table of Contents

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

Ally Financial Inc. • Form 10-Q

million. Additionally, the increase in provision for loan losses for the nine months ended September 30, 2017, was primarily due to higher net charge-offs in our consumer automotive portfolio as a result of our focus on originating across a broader credit spectrum and retail asset growth.

The provision for commercial loan losses ~~decreased $4~~increased $8 million and $29 million for the three months and six months ended ~~September~~ June 30, ~~2017,~~2019, respectively, compared to the three months and ~~increased $3 million~~six months ended June 30, 2018. The increases in provision for commercial loan losses for the ~~nine~~three months and six months ended ~~September~~ June 30, ~~2017. The decrease~~2019, were impacted by our Corporate Finance portfolio where we recognized a $6 million recovery during the three months ended ~~September~~June 30, ~~2017,~~2018, which did not reoccur. Additionally, the increase in provision expense for the six months ended June 30, 2019, was primarily driven by higher reserves associated with two specific ~~reserve releases~~exposures which were within separate industries, each with unique considerations. Overall credit performance in the current period in our commercial automotive portfolio. The increase for the nine months ended September 30, 2017, was primarily due to higher provision expense for individually impaired loans within the Corporate Finance portfolio ~~compared to the same period in 2016.~~

~~Lease Residual Risk Management~~

We are exposed to residual risk on vehicles in the consumer lease portfolio. This lease residual risk represents the possibility that the actual proceeds realized upon the sale of returned vehicles will be lower than the projection of these values used in establishing the pricing at lease inception. However, certain automotive manufacturers have provided their guarantee for portions of our residual exposure for lease programs with them. For information on our valuation of automotive lease residuals including periodic revisions through adjustments to depreciation expense based on current and forecasted market conditions, refer to the section titled ~~Critical Accounting Estimates~~ — ~~Valuation of Automotive Lease Assets and Residuals~~ ~~within the MD&A included in our 2016 Annual Report on Form 10-K.~~

~~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 of leased vehicles by type, based on volume of units.~~

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

16
Car
21

33
remains stable.

Market Risk

Our ~~automotive~~ financing, ~~mortgage,~~investing, and insurance activities give rise to market risk, ~~representing~~or the potential ~~loss~~change in the ~~fair~~ value of our assets or(including securities, assets held-for-sale, and operating leases) and liabilities (including deposits and ~~earnings caused by~~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 ~~perceptions of credit risk, and other market fluctuations that affect the value of securities, assets held-for-sale, and operating leases.~~risk. We ~~are exposed~~primarily use interest rate derivatives to manage our interest rate risk ~~arising from changes in~~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 related to financing, investing, and cash management activities. More specifically, we have entered into contracts to provide financing and to retain various assets related to securitization activities all of

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used~~that an investor would demand for ~~funding. We enter into various financial instruments, including derivatives, to maintain the desired level of~~taking exposure to the credit risk of ~~interest rate and other fluctuations. Refer to Note 19 to the Condensed Consolidated Financial Statements for further information.~~an instrument. Generally, an increase in credit spreads would result in a decrease in a fair value measurement.

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 changes in the value of equity ~~price risk, primarily in our Insurance operations, which invests in equity securities that are subject to price risk influenced by capital market movements.~~securities. We ~~enter into equity options to economically hedge our exposure to the equity markets. Additionally, we~~ have exposure to equity ~~price risk~~securities with readily determinable fair values primarily related to ~~certain share-based compensation programs.~~our Insurance operations. For such equity securities, we use equity derivatives to manage our exposure to equity price fluctuations. In addition, we are exposed to changes in the value of other equity investments without readily determinable fair market values. Refer to Note 10 to the Condensed Consolidated Financial Statements for additional information. We may experience changes in the valuation of these investments, which may cause volatility in our earnings.

~~Although the diversity~~The composition of our ~~activities from our complementary lines of business may~~balance sheet, including shorter-duration consumer automotive loans and variable-rate commercial loans, coupled with the continued funding shift toward retail deposits, partially ~~mitigate~~mitigates market ~~risk,~~risk. Additionally, we ~~also actively manage this risk. We~~ maintain ~~risk management control systems to~~risk-management controls that measure and monitor ~~interest rates, foreign-currency exchange rates, equity price risks, and any of their related hedge positions. Positions are monitored~~market risk using a variety of analytical techniques including market value, sensitivity analysis, and value at risk models. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information.

LIBOR Transition

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

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

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

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

106

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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~~to movements in interest rates ~~do not adversely affect~~and take actions to mitigate adverse impacts these movements may have on future earnings. We use net financing revenue sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our financial instruments.

We prepare our forward-looking baseline forecasts of net financing revenue taking into consideration anticipated future business growth, asset/liability positioning, and interest rates based on the implied forward curve. ~~During~~The analysis is highly dependent upon a variety of assumptions including the ~~first~~repricing characteristics of retail deposits with both contractual and non-contractual maturities. Based on current market conditions, actual beta on our total retail deposits portfolio has been approximately 48% relative to the increase in the federal funds rate since the third quarter of ~~2017 we implemented a dynamic pass-through modeling assumption on our retail~~liquid products deposits portfolio, whereby deposit pass-through levels increase as the absolute level of market interest rates rise. As a result, our baseline forecast assumes a medium-term deposit beta 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 $60 million if interest rates remain unchanged.

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


	September 30, 2017						December 31, 2016						June 30, 2019						December 31, 2018
Change in interest rates ($ in millions)	Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
($ in millions)													Gradual (a)			Instantaneous			Gradual (a)			Instantaneous
Change in interest rates
-100 basis points	$	12		$	43		$	(14	)	$	46		$	(60	)	$	(147	)	$	(20	)	$	(34	)
+100 basis points	(1		)	(62		)	(2		)	(62		)	43			28			51			10
+200 basis points	(50		)	(261		)	(19		)	(153		)	91			(11		)	81			(10		)


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

The implied forward rate curve ~~has flattened since~~was lower across all tenors compared to December 31, ~~2016, as short-end rates have increased~~2018, and ~~long-end rates have decreased.~~includes multiple projected declines in the Federal Funds Target in the forecast horizon. The impact of this change is reflected in our baseline net financing revenue projections. ~~We remain moderately liability-sensitive as~~As of ~~September~~June 30, ~~2017, in the upward~~2019, our net interest ~~rate shock scenarios as our simulation models assume liabilities will initially reprice faster than assets~~. ~~Exposure~~income sensitivity in the +100 and +200 basis point instantaneous shock ~~scenario is largely unchanged as~~scenarios has primarily been impacted by lower rates and the impact of ~~September 30, 2017, as positive impacts~~funding sources shifting from ~~changes in our~~short-term market-based funding ~~mix and deposit repricing assumptions were~~to retail deposits, partially offset by ~~changes to our derivative hedging position that increased liability sensitivity during the period. The exposure~~year-to-date notional decreases in ~~the +200~~pay-fixed interest rate ~~shock has increased largely as a result of our assumption that deposit pass-through levels increase with higher interest rates.~~swaps on certain automotive assets.

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

~~The future repricing behavior of retail deposit liabilities, particularly non-maturity deposits, remains~~2019, primarily due to mortgage prepayment risk in a ~~significant driver of~~lower interest rate sensitivity. Our upward interest rate shock scenarios assume a longer-term liquid products deposit beta of approximately 75%. We continue to believe our deposits may ultimately be less sensitive to interest rate changes, which would reduce our overall exposure to rising interest rateenvironment.

~~100~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~shocks. Assuming a static retail deposit beta of 50% would result in a consolidated interest rate risk position that is asset-sensitive in the upward interest rate shock scenarios.~~

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~~primarily consists of interest rate swaps designated as fair value hedges of certain fixed-rate assets and fixed-rate debt instruments, and pay-fixed interest rate swaps designated as cash flow hedges of certain floating-rate ~~secured~~ debt instruments. During the first half of 2019, we also initiated a hedge program of interest rate floor contracts designated as cash flow hedges on certain floating-rate assets. The size, maturity, and mix of our hedging activities ~~changes frequently~~are adjusted as ~~we adjust~~ our ~~broader~~balance sheet, ALM ~~objectives.~~objectives, and interest rate environment evolve over time.

Operating Lease Residual Risk Management

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

~~101~~107

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Operating Lease Vehicle Terminations and Remarketing

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



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

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

Operating Lease Portfolio Mix

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

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

Information Technology/Security Risk

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

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

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

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

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

108

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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

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

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

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

109

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

Liquidity Management, Funding, and Regulatory Capital

Overview

The purpose of liquidity management is to ~~ensure our ability~~enable us to meet loan and operating lease demand, debt maturities, deposit withdrawals, and other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources of funding include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate, and investor profiles. Additional liquidity is available through a pool of unencumbered highly liquid securities, ~~borrowing~~committed secured credit facilities, repurchase agreements, ~~as well as funding programs supported by the FRB~~ and advances from 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~~facilitates 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 funding and liquidity ~~funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions.~~strategies. Corporate Treasury is responsible for managing our liquidity positions within ~~prudent operating guidelines and targets~~limits approved by ALCO and the RC. As part of managing liquidity risk, we prepare periodic forecasts depicting anticipated funding needs and sources of funds with oversight and monitoring by the Liquidity Risk ~~group~~Group within Corporate Treasury. Corporate Treasury executes our funding strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.

Funding Strategy

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

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

~~Since becoming a BHC in December 2008, a significant portion of~~Essentially all asset originations ~~have been~~are 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~~allows us to use bank funding for ~~a wider array~~an increasing proportion of our automotive finance and other assets and to provide a sustainable long-term funding channel for the business, while also improving the cost of funds for the enterprise. 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~~measure the level of liquidity risk, manage the liquidity position, ~~and~~ identify related ~~trends.~~trends, and monitor such trends and metrics against established limits. These metrics include coverage ratios and comprehensive stress tests that measure the sufficiency of the liquidity portfolio over stressed horizons ranging from overnight to more than twelve months, stability ratios that measure longer-term structural liquidity, and concentration ratios that ~~ensure~~enable prudent funding diversification. In addition, we have established internal management routines designed to review all aspects of liquidity and funding plans, evaluate the adequacy of liquidity buffers, review stress testing results, and assist management in the execution of its funding strategy and ~~risk management~~risk-management accountabilities.

~~102~~110

Table of Contents

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

Ally Financial Inc. • Form 10-Q

We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available committed secured credit facility ~~capacity~~capacity. Our liquidity stress testing is designed to enable an ongoing total liquidity position that ~~taken together,~~ would allow us to operate our businesses and to meet our contractual and contingent obligations, ~~in the event that~~including unsecured debt maturities, for at least twelve months, assuming severe 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)
($ in millions)			June 30, 2019		December 31, 2018
Unencumbered highly liquid U.S. federal government and U.S. agency securities	$	12,434	$	21,541	$	12,849
Liquid cash and equivalents	4,243		3,157		4,227
Committed funding facilities
Committed secured credit facilities
Total capacity	14,675		3,250		8,600
Outstanding	9,530		1,615		6,665
Unused capacity (a)	5,145		1,635		1,935
Total available liquidity	$	21,822	$	26,333	$	19,011


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

As of September 30, 2017, assuming a long-term capital markets stress, we expect that our available liquidity 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.

In addition, our average Modified Liquidity Coverage Ratio ~~exceeded~~was 125% for the three months ended June 30, 2019, which exceeds the regulatory required minimum of 100% ~~at September 30, 2017.~~. Refer to Note 1816 to the Condensed Consolidated Financial Statements and the section titled Regulation and Supervisionin Part I, Item 1 of our ~~2016~~2018 Annual Report on Form 10-K for further discussion of our liquidity requirements.

Recent Funding Developments

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

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

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


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

Funding Sources

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



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


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


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

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

Deposits

Ally Bank, ~~gathers~~which is a direct bank with no branch network, obtains 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~~is less sensitive to interest rate changes, market

111

Table of Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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~~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.~~2018.


	3rd Quarter 2017		2nd Quarter 2017		1st Quarter 2017		4th Quarter 2016		3rd Quarter 2016		2nd Quarter 2016		1st Quarter 2016		2nd quarter 2019		1st quarter 2019		4th quarter 2018		3rd quarter 2018		2nd quarter 2018		1st quarter 2018
Number of retail bank accounts (in thousands)	2,603		2,474		2,366		2,269		2,203		2,134		2,062		3,712		3,503		3,238		3,079		2,947		2,864
Deposits ($ in millions)
Retail	$	74,928	$	71,094	$	69,971	$	66,584	$	63,880	$	61,239	$	58,977	$	98,600	$	95,423	$	89,121	$	84,629	$	81,736	$	81,657
Brokered (a)	15,045		14,937		14,327		12,187		11,570		11,269		10,979		17,562		17,734		16,914		16,567		16,839		15,661
Other (b)	143		152		188		251		294		294		309		163		142		143		183		159		128
Total deposits	$	90,116	$	86,183	$	84,486	$	79,022	$	75,744	$	72,802	$	70,265	$	116,325	$	113,299	$	106,178	$	101,379	$	98,734	$	97,446


(a)	Brokered deposit balances include a deposit related to Ally Invest customer cash balances deposited at Ally Bank by a third party of $1.1 billion as of June 30, 2019, March 31, 2019, and December 31, 2018, and $1.2 billion as of the end of each other quarter ~~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~~six months of ~~2017,~~2019, our total deposit base grew ~~$11.1 billion.~~ $10.1 billion and we added approximately 100 thousand retail deposit customers, resulting in nearly 1.9 million total retail deposit customers as of June 30, 2019. The recent growth in total deposits has been primarily attributable to our retail deposit ~~portfolio,~~ portfolio—particularly within our online savings product and ~~money market accounts.~~retail CDs. 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.

Securitizations and Secured Financings

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

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

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

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

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

During the first ~~nine~~six months of ~~2017,~~2019, we raised ~~$5.8~~$1.8 billion through the completion of term securitization

~~103~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

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~~consumer automotive loans. Additionally, for ~~retail~~consumer automotive loans and ~~lease notes,~~operating leases, the term structure of the transaction locks in funding for a specified pool of loans and operating leases, ~~for the life of the underlying asset,~~ creating an effective tool for managing interest rate and liquidity risk.

We manage ~~secured funding~~securitization execution risk by maintaining a diverse investor base and available ~~committed credit facility capacity. We have access to~~capacity from private committed ~~funding~~secured credit facilities ~~the largest of which is a syndicated credit facility of sixteen lenders secured~~provided by automotive receivables. This facility can fund automotive retail and dealer floorplan loans, as well as leases. During March 2016, this facility was renewed with $11.0 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. 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, there was $5.6 billion outstanding under this facility.banks. Our ability to access the unused capacity in ~~the secured facility~~these facilities depends on the availability of eligible assets to collateralize the incremental funding and, in some instances, on the execution of interest rate hedges.

~~The total capacity in~~ We maintain bilateral facilities, which fund our ~~committed secured funding facilities is provided by banks through private transactions.~~Automotive Finance operations. The ~~committed secured funding~~ facilities can be revolving in ~~nature~~nature—generally having an original tenor ranging from 364 days to two years and ~~allow~~allowing for additional funding during the commitment ~~period,~~ period—or they can be amortizing and not allow for any further funding after the ~~closing date.~~ commitment period. At ~~September~~ June 30, ~~2017,~~ 2019, all of our ~~$14.7~~ $3.3 billion of ~~secured committed~~ capacity was ~~revolving. Our~~ revolving ~~facilities generally have an original tenor ranging~~and of this balance, $2.0 billion was from ~~364 days to two years. As of September 30, 2017, we had $2.6 billion of committed funding capacity from revolving~~ facilities with a remaining tenor greater than 364 days. In addition to our syndicated revolving credit facility, we also maintain various bilateral secured credit facilities that fund our Automotive Finance operations. These are primarily private securitization facilities that fund a specific pool

112

Table of ~~automotive assets.~~Contents

Management’s Discussion and Analysis

Ally Financial Inc. • Form 10-Q

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~~June 30, ~~2017,~~2019, we had pledged ~~$21.4~~$27.4 billion of assets ~~and investment securities~~ to the FHLB resulting in ~~$16.0~~$20.8 billion in total funding capacity with ~~$14.0~~$18.4 billion of debt outstanding.

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

Unsecured Financings

We obtain unsecured funding from the sale of floating-rate demand notes under our Demand Notes program. The holder has the option to require us to redeem these notes at any time without restriction. Demand Notes outstanding were ~~$3.4~~$2.5 billion at ~~September~~June 30, ~~2017.~~2019. We also have short-term and long-term unsecured debt outstanding from retail term note programs. These programs are composed of callable fixed-rate instruments with fixed-maturity dates and floating-rate notes. There were ~~$431~~$292 million of retail term notes outstanding at ~~September~~June 30, ~~2017.~~2019. The remainder of our unsecured debt is composed of institutional term debt. In May 2019, we accessed the unsecured debt capital markets and raised $750 million through the issuance of senior notes. Refer to Note 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~~securities sold in repurchase agreements include U.S. government and federal agency ~~obligations, and certificated residual interests related to asset-backed securitizations.~~obligations. As of ~~September~~June 30, ~~2017,~~2019, we had ~~$1.2 billion~~$432 million of debt outstanding under repurchase agreements.

Additionally, we have access to the FRB Discount Window and can borrow funds to meet short-term liquidity demands. However, the FRB is not a primary source of funding for ~~day to day~~day-to-day business. Instead, it is a liquidity source that can be accessed in stressed environments or periods of market disruption. We ~~have~~had assets pledged and restricted as collateral to the FRB totaling ~~$2.3 billion.~~$2.4 billion as of June 30, 2019. We had no debt outstanding with the FRB as of ~~September~~June 30, ~~2017.~~

~~Recent Funding Developments~~

During the first nine months of 2017, 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 billion. Key funding highlights from January 1, 2017, to date were as follows:

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

~~104~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

We continued to access the public and private term asset-backed securitization markets raising $5.8 billion during the nine months ended September 30, 2017. In the first nine months of 2017, we raised approximately $4.4 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. We also raised $1.4 billion through public securitizations backed by dealer floorplan automotive assets.

~~In October 2017, we reduced the capacity of our largest private committed funding facility by $1.5 billion to $8.0 billion.~~

~~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
($ in millions) On-balance sheet funding % Share of funding On-balance sheet funding % Share of funding
Secured financings
$ 34,687
24 $ 43,140
30
Institutional term debt and unsecured bank funding
16,526
11 19,276
13
Retail debt programs (a)
3,810
3 4,070
3
Total debt (b)
55,023
38 66,486
46
Deposits
90,116
62 79,022
54
Total on-balance sheet funding
$ 145,139
100 $ 145,508
100


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


~~(b)~~	~~Excludes fair value adjustment as described in~~ ~~Note 19~~ ~~to the~~ ~~Condensed Consolidated Financial Statements~~.

~~Refer to~~ ~~Note 14~~ ~~to the Condensed Consolidated Financial Statements for a summary of the scheduled maturity of long-term debt at~~ ~~September 30, 2017~~.2019.

Cash Flows

The following summarizes the activity reflected on the Condensed Consolidated Statement of Cash ~~Flows.~~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~~$1.8 billion and $2.0 billion for the ~~nine~~six months ended ~~September~~ June 30, ~~2017, compared to $3.6 billion for the same period in 2016.~~2019, and 2018, respectively. Activity was largely consistent year-over-year, as cash flows from our consumer and commercial lending activities offset ~~declines~~a decline in our leasing business.

Net cash used in investing activities was ~~$3.7~~$2.5 billion for the ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, compared to ~~$2.8~~$6.1 billion for the same period in ~~2016.~~2018. The ~~change~~decrease was ~~the result of an increase in~~primarily due to a $3.8 billion 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 of $0.7 billion. This was partially offset by a decrease in net~~ cash outflows from purchases, sales, originations and repayments of finance receivables and loans, as repayments outpaced originations. This decrease was also driven by a $266 million increase in proceeds from equity securities, net of ~~$3.3 billion, and~~purchases. This was partially offset by a ~~decrease of $0.4 billion~~$562 million increase in net ~~cash used by nonmarketable equity investments due primarily to the purchase~~outflows from purchases of ~~FRB stock in 2016 as a requirement~~available-for-sale securities, net 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.sales and repayments.

Net cash used in financing activities for the ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, was ~~$1.2 billion,~~$696 million, compared to ~~$2.9~~net cash provided by of $3.8 billion for the ~~nine months ended September 30, 2016.~~same period in 2018. The ~~reduction~~increase in net cash used in financing activities was primarily attributable to an $8.4 billion decrease in net cash inflows due to issuance of long-term debt and an increase in ~~cash flows associated with deposits of approximately $1.8 billion, and the nonrecurring~~ net cash ~~outflow of $0.7 billion~~outflows related to repayments of long-term debt of $1.6 billion between the ~~repurchase and redemption of Series A preferred stock in 2016.~~two periods. This was partially offset by an increase of $4.7 billion from net cash inflows associated with deposits and a ~~$0.8 billion increase~~decrease in net cash outflows ~~due~~related to ~~a larger decline in~~ short-term borrowings ~~during the nine months ended September 30, 2017, compared to the same period in 2016, driven by a reduction in FHLB borrowings.~~of $837 million.

Capital Planning and Stress Tests

~~As a BHC with $50 billion or more~~Pending the adoption of ~~consolidated assets,~~ proposals issued by the FRB and other U.S. banking agencies during the fourth quarter of 2018 that would implement the Economic Growth, Regulatory Relief, and Consumer Protection Act, as further described in Note 16 to the Condensed Consolidated Financial Statements, Ally is required to conduct semi-annual company-run stress tests, is subject to an annual supervisory stress test conducted by the FRB, and must submit ~~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~~will serve as a source of strength to Ally Bank. The FRB ~~must approve Ally's~~will either object to Ally’s proposed capital plan, ~~before~~in whole or in part, or provide a notice of non-objection. If the FRB objects to the proposed capital plan, or if certain material events occur after approval of the plan, Ally ~~may take any~~must submit a revised capital ~~action.~~plan within 30 days. Even ~~with an approved~~if the FRB does not object to our capital plan, Ally ~~must seek~~may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval ~~of the FRB before making a capital distribution if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution.~~under certain

~~105~~113

Table of Contents

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

Ally Financial Inc. • Form 10-Q

~~As part of the 2017 Comprehensive Capital Analysis~~circumstances—for example, when we would not meet minimum regulatory capital ratios and ~~Review (CCAR) process, on April 5, 2017, we submitted our 2017~~ capital ~~plan and stress test results~~buffers after giving effect 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-objection to our capital plan from the FRB, including the proposed capital actions contained in our submission. The 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 submitted to the FRB the results 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.distributions.



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


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


(b)	On ~~October 10, 2017,~~July 16, 2019, the ~~Ally~~ Board ~~of Directors~~ declared a quarterly cash dividend ~~payment~~ of ~~$0.12~~$0.17 per share on all common stock, payable on ~~November~~August 15, ~~2017.~~2019. Refer to Note 2624 to the Condensed Consolidated Financial Statements for further information regarding this common ~~share~~stock dividend.

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

Regulatory Capital

Refer to Note 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~~money-market investors).

~~106~~114

Table of Contents

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

Ally Financial Inc. • Form 10-Q

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~~Ba2	Stable	~~October 20, 2015~~February 11, 2019 (b)
S&P	B	BB+	~~Stable~~Positive	October ~~16, 2017~~17, 2018 (c)
DBRS	R-3	BBB (Low)	~~Stable~~Positive	May ~~3, 2017~~20, 2019 (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~~Ba2 from ~~B1,~~Ba3, affirmed our short-term rating of Not Prime, and ~~changed the~~maintained a Stable outlook ~~to Stable~~ on ~~October 20, 2015.~~February 11, 2019. 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 unsecured 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~~changed the outlook from Stable ~~outlook on all ratings~~to Positive on May ~~3, 2017.~~20, 2019.

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

~~Substantially all~~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 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, A.M. Best affirmed the FSR of B++ (good) and affirmed the ICR of bbb+.any other rating.

Off-balance Sheet Arrangements

Refer to Note 109 to the Condensed Consolidated Financial ~~Statements.~~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

During ~~2017,~~2019, we did not substantively change any material aspect of our overall methodologies and processes used in developing the above estimates from what was described in the Consolidated Financial Statements in our ~~2016~~2018 Annual Report on Form 10-K.

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

~~107~~115

Table of Contents

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

Ally Financial Inc. • Form 10-Q

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									2019							2018							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
Three months ended June 30, ($ in millions)																								Average balance (a)			Interest income/interest expense		Yield/rate		Average balance (a)			Interest income/interest expense		Yield/rate		Volume			Yield/rate		Total
Assets
Interest-bearing cash and cash equivalents	$	3,148		$	11	1.39	%	$	2,530		$	3	0.47	%	$	1		$	7		$	8		$	3,713		$	21	2.27	%	$	3,048		$	17	2.24	%	$	4		$	—	$	4
Investment securities (b)	24,197			150		2.46		18,139			101		2.22		34			15			49			31,244			227		2.91		25,748			173		2.69		37			17		54
Loans held-for-sale, net	6			—		—		1			—		—		—			—			—			191			3		6.30		358			6		6.72		(3		)	—		(3		)
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)																								129,950			1,860		5.74		124,516			1,647		5.31		72			141		213
Investment in operating leases, net ~~(e)~~(d)	9,320			162		6.90		13,232			241		7.25		(71		)	(8		)	(79		)	8,370			124		5.94		8,583			109		5.09		(3		)	18		15
Other earning assets	914			7		3.04		—			—		—		7			—			7			1,202			17		5.67		1,239			15		4.86		—			2		2
Total interest-earning assets	156,636			1,816		4.60		147,196			1,652		4.46								164			174,670			2,252		5.17		163,492			1,967		4.83							285
Noninterest-bearing cash and cash equivalents	720							1,369																544							526
Other assets	7,740							8,764																6,722							7,505
Allowance for loan losses	(1,226		)					(1,103		)														(1,284		)					(1,274		)
Total assets	$	163,870						$	156,226															$	180,652						$	170,249
Liabilities
Liabilities and equity
Interest-bearing deposit liabilities	$	88,115		$	285	1.28	%	$	74,166		$	212	1.14	%	$	40		$	33		$	73		$	114,257		$	651	2.29	%	$	97,351		$	399	1.64	%	$	69		$	183	$	252
Short-term borrowings	9,137			34		1.48		5,194			14		1.07		11			9			20			5,887			37		2.52		8,767			40		1.83		(13		)	10		(3		)
Long-term debt ~~(d)~~(b)	47,965			416		3.44		58,425			430		2.93		(77		)	63			(14		)	40,222			407		4.06		45,802			434		3.80		(53		)	26		(27		)
Total interest-bearing liabilities	145,217			735		2.01		137,785			656		1.89								79			160,366			1,095		2.74		151,920			873		2.30							222
Noninterest-bearing deposit liabilities	106							97																135							126
Total funding sources	145,323			735		2.01		137,882			656		1.89											160,501			1,095		2.74		152,046			873		2.30
Other liabilities	5,001							4,674																6,357							5,134
Total liabilities	150,324							142,556																166,858							157,180
Total equity	13,546							13,670																13,794							13,069
Total liabilities and equity	$	163,870						$	156,226															$	180,652						$	170,249
Net financing revenue and other interest income				$	1,081						$	996									$	85					$	1,157						$	1,094								$	63
Net interest spread ~~(f)~~(e)						2.59	%						2.57	%															2.43	%						2.53	%
Net yield on interest-earning assets ~~(g)~~(f)						2.74	%						2.69	%															2.66	%						2.68	%


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

(b)

~~Amounts~~Includes the effects of derivative financial instruments designated as hedges. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information about the ~~three months ended~~ ~~September 30, 2016, were adjusted to include previously excluded equity investments with an average balance~~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~~2018 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 $23 million and ~~$62~~$16 million for the three months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016,~~2018, respectively. Excluding these gains on sale, the annualized yield would be ~~4.73%~~4.84% and ~~5.38% at September~~4.35% for the three months ended June 30, ~~2017,~~2019, and ~~2016,~~2018, 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.

~~108~~116

Table of Contents

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

Ally Financial Inc. • Form 10-Q


	2017							2016							Increase (decrease) due to									2019							2018							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
Six months ended June 30, ($ in millions)																								Average balance (a)			Interest income/interest expense		Yield/rate		Average balance (a)			Interest income/interest expense		Yield/rate		Volume			Yield/rate		Total
Assets
Interest-bearing cash and cash equivalents	$	2,837		$	23	1.08	%	$	2,700		$	10	0.49	%	$	1		$	12		$	13		$	3,961		$	44	2.24	%	$	3,274		$	32	1.97	%	$	7		$	5	$	12
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			30,291			449		2.99		25,491			336		2.66		63			50		113
Loans held-for-sale, net	3			—		—		12			—		—		—			—			—			190			5		5.31		217			6		5.58		(1		)	—		(1		)
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)																								129,310			3,667		5.72		123,506			3,190		5.21		150			327		477
Investment in operating leases, net (d)																								8,379			239		5.75		8,606			218		5.11		(6		)	27		21
Other earning assets	859			22		3.42		—			—		—		15			7			22			1,215			35		5.81		1,175			28		4.81		1			6		7
Total interest-earning assets	154,897			5,244		4.53		147,434			4,886		4.43								358			173,346			4,439		5.16		162,269			3,810		4.73							629
Noninterest-bearing cash and cash equivalents	1,013							1,515																494							521
Other assets	7,827							8,816																6,641							7,383
Allowance for loan losses	(1,181		)					(1,084		)														(1,266		)					(1,278		)
Total assets	$	162,556						$	156,681															$	179,215						$	168,895
Liabilities
Liabilities and equity
Interest-bearing deposit liabilities	$	85,403		$	766	1.20	%	$	71,286		$	608	1.14	%	$	120		$	38		$	158		$	111,729		$	1,243	2.24	%	$	96,330		$	750	1.57	%	$	120		$	373	$	493
Short-term borrowings	8,798			94		1.43		5,445			39		0.96		24			31			55			6,467			81		2.53		8,556			72		1.70		(18		)	27		9
Long-term debt (d)	50,395			1,257		3.33		61,318			1,308		2.85		(233		)	182			(51		)
Long-term debt (b)																								41,303			826		4.03		45,669			845		3.73		(81		)	62		(19		)
Total interest-bearing liabilities	144,596			2,117		1.96		138,049			1,955		1.89								162			159,499			2,150		2.72		150,555			1,667		2.23							483
Noninterest-bearing deposit liabilities	98							94																136							120
Total funding sources	144,694			2,117		1.96		138,143			1,955		1.89											159,635			2,150		2.72		150,675			1,667		2.23
Other liabilities	4,385							4,873																6,002							5,081
Total liabilities	149,079							143,016																165,637							155,756
Total equity	13,477							13,665																13,578							13,139
Total liabilities and equity	$	162,556						$	156,681															$	179,215						$	168,895
Net financing revenue and other interest income				$	3,127						$	2,931									$	196					$	2,289						$	2,143								$	146
Net interest spread (f)						2.57	%						2.54	%
Net yield on interest-earning assets (g)						2.70	%						2.66	%
Net interest spread (e)																													2.44	%						2.50	%
Net yield on interest-earning assets (f)																													2.66	%						2.66	%


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

(b)

~~Amounts~~Includes the effects of derivative financial instruments designated as hedges. Refer to Note 17 to the Condensed Consolidated Financial Statements for further information about the ~~nine months ended~~ ~~September 30, 2016, were adjusted to include previously excluded equity investments with an average balance~~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~~2018 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 $38 million and ~~$203~~$34 million for the ~~nine~~six months ended ~~September~~ June 30, ~~2017,~~2019, and ~~2016,~~2018, respectively. Excluding these gains on sale, the annualized yield would be ~~5.33%~~4.84% and ~~5.23% at September~~4.31% for the six months ended June 30, ~~2017,~~2019, and ~~2016,~~2018, 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.

~~109~~117

Table of Contents

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

Ally Financial Inc. • Form 10-Q

Recently Issued Accounting Standards

Refer to Note 1 to the ~~Condensed Consolidated Financial Statements.~~

~~Cautionary Notice About Forward-Looking Statements and Other Terms~~

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;

~~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;~~

~~changes in the automotive industry or the markets for new or used vehicles;~~

~~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;~~

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

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

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

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

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

~~adverse publicity or other reputational harm to us;~~

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

~~110~~

~~Table of Contents~~

~~Management's Discussion and Analysis~~

~~Ally Financial Inc. • Form 10-Q~~

~~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;~~

~~our ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or facilities, including our capacity to withstand cyber-attacks;~~

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

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

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

~~our ability to successfully make and integrate acquisitions;~~

~~the adequacy of our succession planning for key executives or other personnel and 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.~~

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~~118

Table of Contents

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~~June 30, ~~2017,~~2019, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

~~112~~119

Table of Contents

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 3029 to the Consolidated Financial Statements in our ~~2016~~2018 Annual Report on Form 10-K.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors described in our ~~2016~~2018 Annual Report on Form 10-K.

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

We did not have any unregistered sales of equity securities during the three months ended ~~September~~ June 30, ~~2017.~~2019.

Purchases of Equity Securities by the Issuer

The following table presents repurchases of our common stock, by month, for the three months ended ~~September~~ June 30, ~~2017.~~2019.

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


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


(b)	Excludes brokerage commissions.

(c)

On June 28, ~~2017,~~2018, we announced a common ~~stock repurchase~~stock-repurchase program of up to ~~$760 million.~~$1.0 billion. The program commenced in the third quarter of ~~2017~~2018 and ~~will expire~~expired on June 30, ~~2018.~~2019. Additionally, on April 1, 2019, we announced a common stock-repurchase program of up to $1.25 billion to commence in the third quarter of 2019 through the second quarter of 2020. Refer to Note 1816 to the Condensed Consolidated Financial Statements for ~~a discussion of our 2017 capital plan.~~further details.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

~~113~~120

Table of Contents

Ally Financial Inc. • Form 10-Q

Item 6. Exhibits

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



Exhibit	Description	Method of Filing

124.1	Action of the Executive Committee of Ally Financial Inc. dated as of May 16, 2019	Filed as ~~Computation~~Exhibit 4.1 to the Company’s Current Report on Form 8-K dated as of ~~Ratio of Earnings to Fixed Charges~~May 21, 2019, (File No. 1-03754), incorporated herein by reference.	~~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~~quarter ended ~~September~~June 30, ~~2017,~~2019, formatted in iXBRL (Inline eXtensible Business Reporting ~~Language:~~Language): (i) Condensed Consolidated Statement of Comprehensive Income (unaudited), (ii) Condensed Consolidated Balance Sheet (unaudited), (iii) Condensed Consolidated Statement of Changes in Equity (unaudited), (iv) Condensed Consolidated Statement of Cash Flows (unaudited), and (v) the Notes to the Condensed Consolidated Financial Statements (unaudited).	Filed herewith.

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

~~114~~121

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~~Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, this ~~31st~~1st day of ~~October, 2017~~August, 2019.




	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~~122



($ 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



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

Sport utility vehicle