Form 10-Q
Table of Contents

 

 

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 June 30, 2011, 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.)

200 Renaissance Center

P.O. Box 200, Detroit, Michigan

48265-2000

(Address of principal executive offices)

(Zip Code)

(866) 710-4623

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing for the past 90 days.

Yes þ                    No ¨

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

Yes þ                    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨    Accelerated filer ¨    Non-accelerated filer þ   Smaller reporting company ¨
      (Do not check if a smaller reporting company)  

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 August 9, 2011, the number of shares outstanding of the Registrant’s common stock was 1,330,970 shares.

 

 

 


Table of Contents

ALLY FINANCIAL INC.

INDEX

 

        

Page

 
Part I — Financial Information   
Item 1.   Financial Statements      3   
  Condensed Consolidated Statement of Income (unaudited) for the Three and Six Months Ended June 30, 2011 and 2010      3   
  Condensed Consolidated Balance Sheet (unaudited) at June 30, 2011 and December 31, 2010      5   
  Condensed Consolidated Statement of Changes in Equity (unaudited) for the Six Months Ended June 30, 2011 and 2010      7   
  Condensed Consolidated Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2011 and 2010      8   
  Notes to Condensed Consolidated Financial Statements (unaudited)      10   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      88   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      152   
Item 4.   Controls and Procedures      152   
Part II — Other Information   
Item 1.   Legal Proceedings      153   
Item 1A.   Risk Factors      153   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      158   
Item 3.   Defaults Upon Senior Securities      159   
Item 4.   (Removed and Reserved)      159   
Item 5.   Other Information      159   
Item 6.   Exhibits      159   
Signatures      160   
Index of Exhibits      161   

 

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3

Item 1. Financial Statements

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

    Three months
ended June  30,
    Six months
ended June  30,
 
($ in millions)       2011             2010             2011             2010      

Financing revenue and other interest income

       

Interest and fees on finance receivables and loans

  $ 1,676      $ 1,617      $ 3,299      $ 3,235   

Interest on loans held-for-sale

    98        156        206        371   

Interest on trading securities

    3        6        6        7   

Interest and dividends on available-for-sale investment securities

    108        90        212        189   

Interest-bearing cash

    15        18        27        32   

Operating leases

    620        1,011        1,300        2,174   

 

 

Total financing revenue and other interest income

    2,520        2,898        5,050        6,008   

Interest expense

       

Interest on deposits

    175        155        347        313   

Interest on short-term borrowings

    108        99        234        210   

Interest on long-term debt

    1,334        1,409        2,744        2,842   

 

 

Total interest expense

    1,617        1,663        3,325        3,365   

Depreciation expense on operating lease assets

    192        526        477        1,182   

 

 

Net financing revenue

    711        709        1,248        1,461   

Other revenue

       

Servicing fees

    353        384        724        769   

Servicing asset valuation and hedge activities, net

    (105     (21     (192     (154

 

 

Total servicing income, net

    248        363        532        615   

Insurance premiums and service revenue earned

    433        477        866        945   

Gain on mortgage and automotive loans, net

    115        266        207        537   

Loss on extinguishment of debt

    (25     (3     (64     (121

Other gain on investments, net

    92        112        176        255   

Other income, net of losses

    253        173        469        255   

 

 

Total other revenue

    1,116        1,388        2,186        2,486   

Total net revenue

    1,827        2,097        3,434        3,947   

Provision for loan losses

    51        218        164        362   

Noninterest expense

       

Compensation and benefits expense

    424        388        858        814   

Insurance losses and loss adjustment expenses

    244        224        430        435   

Other operating expenses

    916        832        1,688        1,714   

 

 

Total noninterest expense

    1,584        1,444        2,976        2,963   

Income from continuing operations before income tax expense

    192        435        294        622   

Income tax expense from continuing operations

    82        33        14        69   

 

 

Net income from continuing operations

    110        402        280        553   

 

 

Income (loss) from discontinued operations, net of tax

    3        163        (21     174   

 

 

Net income

  $ 113      $ 565      $ 259      $ 727   

 

 

 

Statement continues on the next page.

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


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4

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

    Three months
ended June 30,
    Six months
ended June 30,
 
($ in millions except per share data)       2011             2010             2011             2010      

Net (loss) income attributable to common shareholders

       

Net income from continuing operations

  $ 110      $ 402      $ 280      $ 553   

Preferred stock dividends — U.S. Department of Treasury

    (134            (267     (386

Preferred stock dividends

    (57     (25     (127     (142

Impact of preferred stock amendment

                  32          

 

 

Net (loss) income from continuing operations attributable to common shareholders (a)

    (81     377        (82     25   

 

 

Income (loss) from discontinued operations, net of tax

    3        163        (21     174   

 

 

Net (loss) income attributable to common shareholders

  $ (78   $ 540      $ (103   $ 199   

 

 

Basic weighted-average common shares outstanding

    1,330,970        799,120        1,330,970        799,120   

 

 

Diluted weighted-average common shares outstanding (a)

    1,330,970        1,787,320        1,330,970        799,120   

 

 

Basic earnings per common share

       

Net (loss) income from continuing operations

  $ (61   $ 472      $ (62   $ 32   

Income (loss) from discontinued operations, net of tax

    2        204        (16     217   

 

 

Net (loss) income

  $ (59   $ 676      $ (78   $ 249   

 

 

Diluted earnings per common share (a)

       

Net (loss) income from continuing operations

  $ (61   $ 211      $ (62   $ 32   

Income (loss) from discontinued operations, net of tax

    2        91        (16     217   

 

 

Net (loss) income

  $ (59   $ 302      $ (78   $ 249   

 

 
(a) Due to the antidilutive effect of converting the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock into common shares and the net loss attributable to common shareholders for the for the three and six months ended June 30, 2011 and the six months ended June 30, 2010, income attributable to common shareholders and basic weighted-average common shares outstanding were used to calculate basic and diluted earnings per share.

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


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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

 

($ in millions)    June 30, 2011     December 31, 2010  

Assets

    

Cash and cash equivalents

    

Noninterest-bearing

   $ 2,039      $ 1,714   

Interest-bearing

     12,862        9,956   

 

 

Total cash and cash equivalents

     14,901        11,670   

Trading securities

     311        240   

Investment securities

     15,961        14,846   

Loans held-for-sale, net ($2,545 and $6,424 fair value-elected)

     7,168        11,411   

Finance receivables and loans, net

    

Finance receivables and loans, net ($946 and $1,015 fair value-elected)

     110,725        102,413   

Allowance for loan losses

     (1,739     (1,873

 

 

Total finance receivables and loans, net

     108,986        100,540   

Investment in operating leases, net

     9,015        9,128   

Mortgage servicing rights

     3,701        3,738   

Premiums receivable and other insurance assets

     2,124        2,181   

Other assets

     16,722        18,254   

 

 

Total assets

   $ 178,889      $ 172,008   

 

 

Liabilities

    

Deposit liabilities

    

Noninterest-bearing

   $ 2,405      $ 2,131   

Interest-bearing

     39,857        36,917   

 

 

Total deposit liabilities

     42,262        39,048   

Short-term borrowings

     7,130        7,508   

Long-term debt ($899 and $972 fair value-elected)

     91,723        86,612   

Interest payable

     1,734        1,829   

Unearned insurance premiums and service revenue

     2,845        2,854   

Reserves for insurance losses and loss adjustment expenses

     782        862   

Accrued expenses and other liabilities ($19 and $ — fair value-elected)

     11,990        12,806   

 

 

Total liabilities

     158,466        151,519   

Equity

    

Common stock and paid-in capital

     19,668        19,668   

Mandatorily convertible preferred stock held by U.S. Department of Treasury

     5,685        5,685   

Preferred stock

     1,255        1,287   

Accumulated deficit

     (6,508     (6,410

Accumulated other comprehensive income

     323        259   

 

 

Total equity

     20,423        20,489   

 

 

Total liabilities and equity

   $ 178,889      $ 172,008   

 

 

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

 

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ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

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

($ in millions)    June 30, 2011     December 31, 2010  

Assets

    

Loans held-for-sale, net

   $ 10      $ 21   

Finance receivables and loans, net

    

Finance receivables and loans, net ($946 and $1,015 fair value-elected)

     40,497        33,483   

Allowance for loan losses

     (287     (238

 

 

Total finance receivables and loans, net

     40,210        33,245   

Investment in operating leases, net

     971        1,065   

Other assets

     3,156        3,279   

 

 

Total assets

   $ 44,347      $ 37,610   

 

 

Liabilities

    

Short-term borrowings

   $ 924      $ 964   

Long-term debt ($899 and $972 fair value-elected)

     29,863        24,466   

Interest payable

     15        15   

Accrued expenses and other liabilities

     393        397   

 

 

Total liabilities

   $ 31,195      $ 25,842   

 

 

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

 

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7

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Six Months Ended June 30, 2011 and 2010

 

($ in millions)   Common
stock and
paid-in
capital
    Mandatorily
convertible
preferred
stock
held by
U.S.
Department
of Treasury
    Preferred
stock
   

Accumulated

deficit

    Accumulated
other
comprehensive
income
    Total
equity
    Comprehensive
income
 

Balance at January 1, 2010, before cumulative effect of adjustments

  $ 13,829      $ 10,893      $ 1,287      $ (5,630   $ 460      $ 20,839     

Cumulative effect of a change in accounting principle, net of tax (a)

          (57     4        (53  

 

 

Balance at January 1, 2010, after cumulative effect of adjustments

  $ 13,829      $ 10,893      $ 1,287      $ (5,687   $ 464      $ 20,786     

Net income

          727          727      $ 727   

Preferred stock dividends paid to the U.S. Department of Treasury

          (386       (386  

Preferred stock dividends

          (142       (142  

Dividends to shareholders

          (7       (7  

Other comprehensive loss

            (279     (279     (279

Other (b)

          74          74     

 

 

Balance at June 30, 2010

  $ 13,829      $ 10,893      $ 1,287      $ (5,421   $ 185      $ 20,773      $ 448   

 

 

Balance at January 1, 2011

  $ 19,668      $ 5,685      $ 1,287      $ (6,410   $ 259      $ 20,489     

Net income

          259          259      $ 259   

Preferred stock dividends paid to the U.S. Department of Treasury

          (267       (267  

Preferred stock dividends

          (127       (127  

Series A preferred stock amendment (c)

        (32     32         

Other comprehensive income

            64        64        64   

Other (b)

          5          5     

 

 

Balance at June 30, 2011

  $ 19,668      $ 5,685      $ 1,255      $ (6,508   $ 323      $ 20,423      $ 323   

 

 
(a) Cumulative effect of change in accounting principle, net of tax, due to adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
(b) Represents a reduction of the estimated payment accrued for tax distributions as a result of the completion of the GMAC LLC U.S. Return of Partnership Income for the tax period January 1, 2009 through June 30, 2009.
(c) Refer to Note 16 to the Condensed Consolidated Financial Statements for further details.

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


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8

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Six months ended June 30, ($ in millions)    2011     2010  

Operating activities

    

Net income

   $ 259      $ 727   

Reconciliation of net income to net cash provided by operating activities

    

Depreciation and amortization

     1,418        2,249   

Other impairment

     6        16   

Changes in fair value of mortgage servicing rights

     115        944   

Provision for loan losses

     163        382   

Gain on sale of loans, net

     (215     (559

Net gain on investment securities

     (183     (256

Loss on extinguishment of debt

     64        116   

Originations and purchases of loans held-for-sale

     (25,874     (27,600

Proceeds from sales and repayments of loans held-for-sale

     29,166        35,564   

Net change in:

    

Trading securities

     (154     (28

Deferred income taxes

     (66     (198

Interest payable

     (111     61   

Other assets

     (1,288     1,322   

Other liabilities

     1,815        375   

Other, net

     (752     (1,532

 

 

Net cash provided by operating activities

     4,363        11,583   

 

 

Investing activities

    

Purchases of available-for-sale securities

     (10,982     (11,994

Proceeds from sales of available-for-sale securities

     8,423        9,854   

Proceeds from maturities of available-for-sale securities

     2,386        2,535   

Net increase in finance receivables and loans

     (8,669     (8,175

Proceeds from sales of finance receivables and loans

     1,346        2,362   

Purchases of operating lease assets

     (3,817     (1,491

Disposals of operating lease assets

     3,621        4,435   

Proceeds from sale of business units, net (a)

     47        (12

Other, net

     871        1,678   

 

 

Net cash used in investing activities

     (6,774     (808

 

 

 

Statement continues on the next page.

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


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9

ALLY FINANCIAL INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

 

Six months ended June 30, ($ in millions)    2011     2010  

Financing activities

    

Net change in short-term borrowings

     (227     (3,827

Net increase in bank deposits

     2,570        2,720   

Proceeds from issuance of long-term debt

     26,225        20,996   

Repayments of long-term debt

     (22,951     (32,307

Dividends paid

     (419     (532

Other, net

     551        773   

 

 

Net cash provided by (used in) financing activities

     5,749        (12,177

Effect of exchange-rate changes on cash and cash equivalents

     (78     619   

 

 

Net increase (decrease) in cash and cash equivalents

     3,260        (783

Adjustment for change in cash and cash equivalents of operations held-for-sale (a)(b)

     (29     343   

Cash and cash equivalents at beginning of year

     11,670        14,788   

 

 

Cash and cash equivalents at June 30,

   $ 14,901      $ 14,348   

 

 

Supplemental disclosures

    

Cash paid for

    

Interest

   $ 2,886      $ 3,209   

Income taxes

     471        306   

Noncash items

    

Increase in finance receivables and loans due to a change in accounting principle (c)

            17,990   

Increase in long-term debt due to a change in accounting principle (c)

            17,054   

Transfer of mortgage servicing rights into trading securities through certification

     266          

Other disclosures

    

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

     110        249   

 

 
(a) The amounts are net of cash and cash equivalents of $88 million at June 30, 2011, and $745 million at June 30, 2010, of business units at the time of disposition.
(b) Cash flows of discontinued operations are reflected within operating, investing, and financing activities in the Condensed Consolidated Statement of Cash Flows. The cash balance of these operations is reported as assets of operations held-for-sale on the Condensed Consolidated Balance Sheet.
(c) Relates to the adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.

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


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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is a leading, independent, globally diversified, financial services firm. Founded in 1919, we are a leading automotive financial services company with over 90 years experience providing a broad array of financial products and services to automotive dealers and their customers. We are also one of the largest residential mortgage companies in the United States. We became a bank holding company on December 24, 2008, under the Bank Holding Company Act of 1956, as amended. Our banking subsidiary, Ally Bank, is an indirect wholly owned subsidiary of Ally Financial Inc. and a leading franchise in the growing direct (online and telephonic) banking market.

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 at the date of the financial statements and that affect income and expenses during the reporting period. 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.

The Condensed Consolidated Financial Statements at June 30, 2011, and for the three months and six months ended June 30, 2011, and 2010, 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, 2010, as filed on February 25, 2011, with the U.S. Securities and Exchange Commission (SEC).

Residential Capital, LLC

Residential Capital, LLC (ResCap), one of our mortgage subsidiaries, was negatively impacted by the events and conditions in the mortgage banking industry and the broader economy beginning in 2007. The market deterioration led to fewer sources of, and significantly reduced levels of, liquidity available to finance ResCap’s operations. ResCap is highly leveraged relative to its cash flow and previously recognized credit and valuation losses resulting in a significant deterioration in capital. ResCap may also be negatively impacted by exposure to representation and warranty obligations, adverse outcomes with respect to current or future litigation, fines, penalties, or settlements related to our mortgage-related activities and additional expenses to address regulatory requirements. ResCap’s consolidated tangible net worth, as defined, was $772 million at June 30, 2011, and ResCap remained in compliance with all of its consolidated tangible net worth covenants. For this purpose, consolidated tangible net worth is defined as ResCap’s consolidated equity excluding intangible assets. There continues to be a risk that ResCap may not be able to meet its debt service obligations, may default on its financial debt covenants due to insufficient capital, and/or may be in a negative liquidity position in future periods.

ResCap actively manages its liquidity and capital positions and is continually working on initiatives to address its debt covenant compliance and liquidity needs including debt maturing in the next twelve months and other risks and uncertainties. ResCap’s initiatives could include, but are not limited to, the following: continuing to work with key credit providers to optimize all available liquidity options; possible further reductions in assets and other restructuring activities; focusing production on conforming and government-insured residential mortgage loans; and continued exploration of opportunities for funding and capital support from Ally and its affiliates. The outcomes of most of these initiatives are to a great extent outside of ResCap’s control resulting in increased uncertainty as to their successful execution.

During 2009 and 2010, we performed a strategic review of our mortgage business. As a result of this, we effectively exited the European mortgage market through the sale of our U.K. and continental Europe operations. We also completed the sale of certain higher-risk legacy mortgage assets and settled representation and warranty claims with certain counterparties. The ongoing focus of our Mortgage Origination and Servicing operations will be predominately the origination and sale of conforming and government-insured residential mortgages and mortgage servicing.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

In the future, Ally and ResCap may take additional actions with respect to ResCap as each party deems appropriate. These actions may include Ally providing or declining to provide additional liquidity and capital support for ResCap; refinancing or restructuring some or all of ResCap’s existing debt; the purchase or sale of ResCap debt securities in the public or private markets for cash or other consideration; entering into derivative or other hedging or similar transactions with respect to ResCap or its debt securities; Ally purchasing assets from ResCap; or undertaking corporate transactions such as a tender offer or exchange offer for some or all of

ResCap’s outstanding debt securities, asset sales, or other business reorganization or similar action with respect to all or part of ResCap and/or its affiliates. In this context, Ally and ResCap typically consider a number of factors to the extent applicable and appropriate including, without limitation, the financial condition, results of operations, and prospects of Ally and ResCap; ResCap’s ability to obtain third-party financing; tax considerations; the current and anticipated future trading price levels of ResCap’s debt instruments; conditions in the mortgage banking industry and general economic conditions; other investment and business opportunities available to Ally and/or ResCap; and any nonpublic information that ResCap may possess or that Ally receives from ResCap.

ResCap remains heavily dependent on Ally and its affiliates for funding and capital support, and there can be no assurance that Ally or its affiliates will continue such actions or that Ally will choose to execute any further strategic transactions with respect to ResCap or that any transactions undertaken will be successful.

Although our continued actions through various funding and capital initiatives demonstrate support for ResCap, there are currently no commitments or assurances for future capital support. Consequently, there remains substantial doubt about ResCap’s ability to continue as a going concern. Should we no longer continue to support the capital or liquidity needs of ResCap or should ResCap be unable to successfully execute other initiatives, it would have a material adverse effect on ResCap’s business, results of operations, and financial position.

Ally has extensive financing and hedging arrangements with ResCap that could be at risk of nonpayment if ResCap were to file for bankruptcy. At June 30, 2011, we had $1.9 billion in secured financing arrangements with ResCap of which $1.3 billion in loans was utilized. At June 30, 2011, there was no net exposure under the hedging arrangements because the arrangements were fully collateralized. Amounts outstanding under the secured financing and hedging arrangements fluctuate. If ResCap were to file for bankruptcy, ResCap’s repayments of its financing facilities, including those with us, could be slower. In addition, we could be an unsecured creditor of ResCap to the extent that the proceeds from the sale of our collateral are insufficient to repay ResCap’s obligations to us. It is possible that other ResCap creditors would seek to recharacterize our loans to ResCap as equity contributions or to seek equitable subordination of our claims so that the claims of other creditors would have priority over our claims. In addition, should ResCap file for bankruptcy, our $772 million investment related to ResCap’s equity position would likely be reduced to zero. If a ResCap bankruptcy were to occur and a substantial amount of our credit exposure is not repaid to us, it would have an adverse impact on our near-term net income and capital position, but we do not believe it would have a materially adverse impact on Ally’s consolidated financial position over the longer term.

Relationship and Transactions with General Motors Company

General Motors Company (GM), GM dealers, and GM-related employees compose a significant portion of our customer base, and our Global Automotive Services operations are highly dependent on GM production and sales volume. As a result, a significant adverse change in GM’s business, including significant adverse changes in GM’s liquidity position and access to the capital markets, the production or sale of GM vehicles, the quality or resale value of GM vehicles, the use of GM marketing incentives, GM’s relationships with its key suppliers, GM’s relationship with the United Auto Workers and other labor unions, and other factors impacting GM or its employees could have a significant adverse effect on our profitability and financial condition.

GM is no longer considered a related party for purposes of applicable disclosure within the Notes to Condensed Consolidated Financial Statements, as it beneficially owns less than 10% of the voting interests in Ally and does not control or have the ability to significantly influence the management and policies of Ally. In addition, the Federal Reserve has determined that GM is no longer considered an “affiliate” of Ally Bank for purposes of Sections 23A and 23B of the Federal Reserve Act, which impose limitations on transactions between banks and their affiliates.

Refer to Note 26 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for a summary of related party transactions with GM during 2010.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Significant Accounting Policies

Earnings per Common Share

We compute earnings (loss) per common share by dividing net income (loss) (after deducting dividends on preferred stock) by the weighted-average number of common shares outstanding during the period. We compute diluted earnings (loss) per common share by dividing net income (loss) (after deducting dividends on preferred stock) by the weighted-average number of common shares outstanding during the period plus the dilution resulting from the conversion of convertible preferred stock, if applicable.

Refer to Note 1 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K regarding additional significant accounting policies.

Recently Adopted Accounting Standards

Receivables — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20)

During the three months ended March 31, 2011, Accounting Standards Update (ASU) 2010-20 required us to disclose a rollforward of the allowance for loan losses, additional activity-based disclosures for both financing receivables, and the allowance for each reporting period. We early adopted the rollforward requirement during the December 31, 2010, reporting period. Since the guidance relates only to disclosures, adoption did not have a material impact on our consolidated financial condition or results of operations.

Revenue Recognition — Revenue Arrangements with Multiple Deliverables (ASU 2009-13)

As of January 1, 2011, we adopted ASU 2009-13, which amends Accounting Standards Codification (ASC) 605, Revenue Recognition. The guidance significantly changed the accounting for revenue recognition in arrangements with multiple deliverables and eliminated the residual method, which allocated the discount of a multiple deliverable arrangement among the delivered items. The guidance requires entities to allocate the total consideration to all deliverables at inception using the relative selling price and to allocate any discount in the arrangement proportionally to each deliverable based on each deliverable’s selling price. The adoption did not have a material impact to our consolidated financial condition or results of operations.

Recently Issued Accounting Standards

Financial Services — Insurance — Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26)

In December 2010, the FASB issued ASU 2010-26, which amends ASC 944, Financial Services — Insurance. The amendments in this ASU specify which costs incurred in the acquisition of new and renewal insurance contracts should be capitalized. All other acquisition-related costs should be expensed as incurred. If the initial application of the amendments in this ASU results in the capitalization of acquisition costs that had not been previously capitalized, an entity may elect not to capitalize those types of costs. The ASU will be effective for us on January 1, 2012.

We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

Receivables — A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-02)

In April 2011, the FASB issued ASU 2011-02, which amends ASC 310, Receivables. The amendments in this ASU clarify which loan modifications constitute a troubled debt restructuring. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The ASU was effective for us on July 1, 2011, and must be applied retrospectively to modifications made subsequent to the beginning of the annual period of adoption, which for us is January 1, 2011.

If, as a result of applying these amendments, we identify receivables that are newly considered impaired, we are required to apply the measurement portion of the amendments to these newly identified impairments at the end of the reporting period

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

of adoption. Effective September 30, 2011, we will also be required to retrospectively disclose the total amount of receivables and the allowance for credit losses as of January 1, 2011, related to those receivables that are newly considered impaired for which impairment was previously measured under ASC 450-20, Contingencies — Loss Contingencies.

We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

Fair Value Measurement — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS) (ASU 2011-04)

In May 2011, the FASB issued ASU 2011-04, which amends ASC 820, Fair Value Measurements. The amendments in this ASU clarify how to measure fair value. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and IFRS. The ASU will be effective for us on January 1, 2012, and must be applied prospectively.

Early adoption is permitted. We do not expect the adoption to have a material impact to our consolidated financial condition or results of operations.

Comprehensive Income — Presentation of Comprehensive Income (ASU 2011-05)

In June 2011, the FASB issued ASU 2011-05, which amends ASC 220, Comprehensive Income. The amendments will increase the prominence of items reported in other comprehensive income and facilitate convergence between GAAP and IFRS. This ASU will require that nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU will be effective for us on January 1, 2012.

Early adoption is permitted. Since the guidance relates only to disclosures, the adoption will have no impact to our consolidated financial condition or results of operations.

 

2. Discontinued Operations

We classified certain operations as discontinued when operations and cash flows will be eliminated from our ongoing operations and we will not have any significant continuing involvement in their operations after the respective sale transactions. For all periods presented, all of the operating results for these operations were removed from continuing operations and are presented separately as discontinued operations, net of tax. The Notes to the Condensed Consolidated Financial Statements were adjusted to exclude discontinued operations unless otherwise noted.

Select Insurance Operations

During the second quarter of 2011, we completed the sale of our U.K. consumer property and casualty insurance business.

Select International Automotive Finance Operations

We completed the sale of our Ecuador operations during the first quarter of 2011. We expect to complete the sale of our Venezuela operations by December 31, 2011.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Select Financial Information

The pretax income or loss recognized for the discontinued operations, including the direct costs to transact a sale, could differ from the ultimate sales price due to the fluidity of ongoing negotiations, price volatility, changing interest rates, changing foreign-currency rates, and future economic conditions.

Selected financial information of discontinued operations is summarized below.

 

     Three months ended
June  30,
     Six months ended
June  30,
 
($ in millions)        2011             2010              2011             2010      

Select Insurance operations

         

Total net revenue

   $ 40      $ 61       $ 96      $ 300   

Pretax income (loss) including direct costs to transact a sale (a)

     6        (6      13        (6

Tax (benefit)

            (5             (1

Select International operations

         

Total net revenue

   $ 5      $ 39       $ 10      $ 80   

Pretax (loss) income including direct costs to transact a sale (a)

     (3     59         (34     64   

Tax (benefit) expense

            (6             2   

Select Mortgage — Legacy and Other operations

         

Total net revenue

   $      $ 16       $      $ 44   

Pretax income including direct costs to transact a sale

            89                102   

Tax (benefit)

            (9             (8

Select Commercial Finance operations

         

Total net revenue

   $      $ 3       $      $ 11   

Pretax (loss) income including direct costs to transact a sale (a)

            (3             7   

Tax (benefit)

            (4               

 

 
(a) Includes certain income tax activity recognized by Corporate and Other.

 

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)        2011             2010              2011             2010      

Securitization income (loss) other

   $ 127      $ 3       $ 149      $ (46

Mortgage processing fees and other mortgage income

     44        41         88        94   

Remarketing fees

     31        36         68        67   

Late charges and other administrative fees

     24        35         57        72   

Income from equity-method investments

     20        13         42        25   

Full-service leasing fees

     9        13         24        41   

Real estate services, net

            2                9   

Change due to fair value option elections (a)

     (22     (56      (39     (129

Fair value adjustment on derivatives (b)

     (65     (2      (79     (58

Other, net

     85        88         159        180   

 

 

Total other income, net of losses

   $ 253      $ 173       $ 469      $ 255   

 

 
(a) Refer to Note 21 for a description of fair value option elections.
(b) Refer to Note 19 for a description of derivative instruments and hedging activities.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

4. Other Operating Expenses

Details of other operating expenses were as follows.

 

     Three months ended
June  30,
       Six months ended
June  30,
 
($ in millions)        2011              2010                2011              2010      

Mortgage representation and warranty, net

   $ 184       $ 97         $ 210       $ 146   

Insurance commissions

     124         150           249         296   

Technology and communications

     116         134           236         272   

Professional services

     79         63           147         119   

Lease and loan administration

     45         35           89         66   

Advertising and marketing

     41         50           95         74   

Vehicle remarketing and repossession

     37         47           73         102   

State and local non-income taxes

     35         36           66         60   

Regulatory and licensing fees

     34         25           71         55   

Premises and equipment depreciation

     24         20           50         38   

Occupancy

     23         26           46         51   

Full-service leasing vehicle maintenance costs

     11         6           22         36   

Restructuring

     6         14           3         56   

Other

     157         129           331         343   

 

 

Total other operating expenses

   $ 916       $ 832         $ 1,688       $ 1,714   

 

 

 

5. Trading Securities

The composition of trading securities was as follows.

 

($ in millions)    June 30, 2011      December 31, 2010  

U.S. Treasury

   $       $ 77   

Mortgage-backed residential

     311         69   

Asset-backed

             94   

 

 

Total trading securities

   $ 311       $ 240   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

6. Investment Securities

Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, notes, interests in securitization trusts, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.

 

     June 30, 2011      December 31, 2010  
     Cost      Gross unrealized     Fair
value
     Cost      Gross unrealized     Fair
value
 
($ in millions)       gains      losses           gains      losses    

Available-for-sale securities

                     

Debt securities

                     

U.S. Treasury and federal agencies

   $ 1,155       $ 14       $      $ 1,169       $ 3,307       $ 22       $ (11   $ 3,318   

States and political subdivisions

     1                        1         3                 (1     2   

Foreign government

     1,308         19         (1     1,326         1,231         19         (2     1,248   

Mortgage-backed residential (a)

     7,869         55         (77     7,847         5,844         60         (79     5,825   

Asset-backed

     2,195         31         (5     2,221         1,934         15         (1     1,948   

Corporate debt

     1,543         18         (8     1,553         1,537         34         (13     1,558   

Other

     674                        674         152                 (1     151   

 

 

Total debt securities (b)

     14,745         137         (91     14,791         14,008         150         (108     14,050   

Equity securities

     1,171         57         (58     1,170         766         60         (30     796   

 

 

Total available-for-sale securities (c)

   $ 15,916       $ 194       $ (149   $ 15,961       $ 14,774       $ 210       $ (138   $ 14,846   

 

 
(a) Residential mortgage-backed securities include agency-backed bonds totaling $6,161 million and $4,503 million at June 30, 2011, and December 31, 2010, respectively.
(b) In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $57 million and $153 million of primarily U.K. Treasury securities were pledged as collateral at June 30, 2011, and December 31, 2010, respectively.
(c) Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $15 million and $12 million at June 30, 2011, and December 31, 2010, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause actual maturities to differ from scheduled 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 (a)
 
($ in millions)   Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  

June 30, 2011

                   

Fair value of available-for-sale debt securities (b)

                   

U.S. Treasury and federal agencies

  $ 1,169        0.6   $ 10        4.6   $ 1,152        0.6   $ 7        3.2   $       

States and political subdivisions

    1        8.9                                                  1        8.9   

Foreign government

    1,326        3.3        106        2.6        1,017        3.4        203        3.4                 

Mortgage-backed residential

    7,847        2.7                      3        6.3        51        5.8        7,793        2.7   

Asset-backed

    2,221        1.2        22        0.3        1,367        0.9        360        1.3        472        2.0   

Corporate debt

    1,553        4.5        11        2.6        672        3.6        724        5.2        146        5.6   

Other

    674        1.4        674        1.4                                             

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total available-for-sale debt securities

  $ 14,791        2.5      $ 823        1.6      $ 4,211        1.8      $ 1,345        3.9      $ 8,412        2.7   

 

 

Amortized cost of available-for-sale debt securities

  $ 14,745        $ 822        $ 4,168        $ 1,336        $ 8,419     

 

 

December 31, 2010

                   

Fair value of available-for-sale debt securities (b)

                   

U.S. Treasury and federal agencies

  $ 3,318        1.4   $ 124        1.2   $ 3,094        1.3   $ 100        3.7   $       

States and political subdivisions

    2        8.7                                                  2        8.7   

Foreign government

    1,248        3.1        7        2.2        1,092        3.1        149        3.5                 

Mortgage-backed residential

    5,825        3.8                      57        3.2        64        4.4        5,704        3.8   

Asset-backed

    1,948        2.5                      1,146        2.2        500        2.4        302        4.0   

Corporate debt

    1,558        3.9        22        5.7        811        3.5        593        4.3        132        4.0   

Other

    151        1.5        151        1.5                                             

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total available-for-sale debt securities

  $ 14,050        3.0      $ 304        1.7      $ 6,200        2.1      $ 1,406        3.5      $ 6,140        3.8   

 

 

Amortized cost of available-for-sale debt securities

  $ 14,008        $ 305        $ 6,152        $ 1,388        $ 6,163     

 

 
(a) Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.
(b) Yields on tax-exempt obligations are computed on a tax-equivalent basis.

The balances of cash equivalents were $6.9 billion and $5.3 billion at June 30, 2011, and December 31, 2010, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.

The following table presents gross gains and losses realized upon the sales of available-for-sale securities. During the three months and six months ended June 30, 2011, we did not recognize other-than-temporary impairment on available-for-sale securities.

 

    Three months ended
June  30,
    Six months ended
June  30,
 
($ in millions)       2011             2010             2011             2010      

Gross realized gains

  $ 100      $ 126      $ 194      $ 277   

Gross realized losses

    (8     (13     (18     (21

Other-than-temporary impairment

           (1            (1

 

 

Net realized gains

  $ 92      $ 112      $ 176      $ 255   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents interest and dividends on available-for-sale securities.

 

     Three months ended
June  30,
     Six months ended
June  30,
 
($ in millions)        2011              2010              2011              2010      

Taxable interest

   $ 102       $ 83       $ 201       $ 171   

Taxable dividends

     6         4         11         8   

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

             3                 10   

 

 

Total interest and dividends on available-for-sale securities

   $ 108       $ 90       $ 212       $ 189   

 

 

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of June 30, 2011, we did not have the intent to sell the debt 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 of June 30, 2011, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, 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 June 30, 2011. Refer to Note 1 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.

 

    June 30, 2011     December 31, 2010  
    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

  $ 64      $      $      $      $ 702      $ (11   $      $   

States and political subdivisions

    1                             2        (1              

Foreign government

    462        (1                   323        (2              

Mortgage-backed residential

    3,878        (77     1               3,159        (77     11        (2

Asset-backed

    474        (5                   238        (1     2          

Corporate debt

    627        (8                   653        (13     5          

Other

    61                             80        (1              

 

 

Total temporarily impaired debt securities

    5,567        (91     1               5,157        (106     18        (2

Temporarily impaired equity securities

    422        (38     137        (20     250        (27     26        (3

 

 

Total temporarily impaired available-for-sale securities

  $ 5,989      $ (129   $ 138      $ (20   $ 5,407      $ (133   $ 44      $ (5

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

7. Loans Held-for-sale, Net

The composition of loans held-for-sale, net, was as follows.

 

     June 30, 2011      December 31, 2010  
($ in millions)    Domestic      Foreign      Total      Domestic      Foreign      Total  

Consumer mortgage

                 

1st Mortgage

   $ 6,188       $ 223       $ 6,411       $ 10,191       $ 364       $ 10,555   

Home equity

     757                 757         856                 856   

 

 

Total loans held-for-sale (a)(b)

   $ 6,945       $ 223       $ 7,168       $ 11,047       $ 364       $ 11,411   

 

 
(a) Fair value option-elected domestic consumer mortgages were $2.5 billion and $6.4 billion at June 30, 2011, and December 31, 2010, respectively. Refer to Note 21 for additional information.
(b) Totals are net of unamortized premiums and discounts and deferred fees and costs. Included in the totals are net unamortized discounts of $246 million and $161 million at June 30, 2011, and December 31, 2010, respectively.

The following table summarizes held-for-sale mortgage loans reported at carrying value by higher-risk loan type.

 

($ in millions)    June 30, 2011      December 31, 2010  

High original loan-to-value (greater than 100%) mortgage loans

   $ 273       $ 331   

Payment-option adjustable-rate mortgage loans

     10         16   

Interest-only mortgage loans

     460         481   

Below-market rate (teaser) mortgages

     129         151   

 

 

Total (a)

   $ 872       $ 979   

 

 
(a) The majority of these loans are held by our Mortgage Legacy Portfolio and Other operations at June 30, 2011, and December 31, 2010.

 

8. Finance Receivables and Loans, Net

The composition of finance receivables and loans, net, reported at carrying value before allowance for loan losses was as follows.

 

     June 30, 2011      December 31, 2010  
($ in millions)    Domestic      Foreign      Total      Domestic      Foreign      Total  

Consumer automobile

   $ 41,495       $ 17,240       $ 58,735       $ 34,604       $ 16,650       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     6,857         286         7,143         6,917         390         7,307   

Home equity

     3,269                 3,269         3,441                 3,441   

 

 

Total consumer mortgage

     10,126         286         10,412         10,358         390         10,748   

Commercial

                 

Commercial and industrial

                 

Automobile

     26,125         9,250         35,375         24,944         8,398         33,342   

Mortgage

     1,185         28         1,213         1,540         41         1,581   

Other

     1,432         234         1,666         1,795         312         2,107   

Commercial real estate

                 

Automobile

     2,129         208         2,337         2,071         216         2,287   

Mortgage

             41         41         1         78         79   

 

 

Total commercial

     30,871         9,761         40,632         30,351         9,045         39,396   

Loans at fair value (a)

     618         328         946         663         352         1,015   

 

 

Total finance receivables and loans (b)

   $ 83,110       $ 27,615       $ 110,725       $ 75,976       $ 26,437       $ 102,413   

 

 
(a) Includes domestic consumer mortgages at fair value as a result of fair value option election. Refer to Note 21 for additional information.
(b) Totals are net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $3.0 billion and $2.9 billion at June 30, 2011, and December 31, 2010, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

Three months ended June 30, 2011 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at April 1, 2011

   $ 916      $ 563      $ 327      $ 1,806   

Charge-offs

        

Domestic

     (95     (48     (12     (155

Foreign

     (33     (2     (17     (52

 

 

Total charge-offs

     (128     (50     (29     (207

 

 

Recoveries

        

Domestic

     51        6        6        63   

Foreign

     17               6        23   

 

 

Total recoveries

     68        6        12        86   

 

 

Net charge-offs

     (60     (44     (17     (121

Provision for loan losses

     51        39        (39     51   

Other

     4               (1     3   

 

 

Allowance at June 30, 2011

   $ 911      $ 558      $ 270      $ 1,739   

 

 
Three months ended June 30, 2010 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at April 1, 2010

   $ 1,120      $ 634      $ 726      $ 2,480   

Charge-offs

        

Domestic

     (151     (77     (91     (319

Foreign

     (50            (49     (99

 

 

Total charge-offs

     (201     (77     (140     (418

 

 

Recoveries

        

Domestic

     74        4        5        83   

Foreign

     18        1        9        28   

 

 

Total recoveries

     92        5        14        111   

 

 

Net charge-offs

     (109     (72     (126     (307

Provision for loan losses

     117        97        4        218   

Discontinued operations

     2        1        (2     1   

Other

     (10     (1     (4     (15

 

 

Allowance at June 30, 2010

   $ 1,120      $ 659      $ 598      $ 2,377   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Six months ended June 30, 2011 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at January 1, 2011

   $ 970      $ 580      $ 323      $ 1,873   

Charge-offs

        

Domestic

     (234     (108     (18     (360

Foreign

     (75     (2     (48     (125

 

 

Total charge-offs

     (309     (110     (66     (485

 

 

Recoveries

        

Domestic

     101        9        12        122   

Foreign

     36               17        53   

 

 

Total recoveries

     137        9        29        175   

 

 

Net charge-offs

     (172     (101     (37     (310

Provision for loan losses

     104        79        (19     164   

Other

     9               3        12   

 

 

Allowance at June 30, 2011

   $ 911      $ 558      $ 270      $ 1,739   

 

 

Allowance for loan losses

        

Individually evaluated for impairment

   $      $ 94      $ 57      $ 151   

Collectively evaluated for impairment

     899        464        213        1,576   

Loans acquired with deteriorated credit quality

     12                      12   

Finance receivables and loans at historical cost

        

Ending balance

     58,735        10,412        40,632        109,779   

Individually evaluated for impairment

            549        1,070        1,619   

Collectively evaluated for impairment

     58,612        9,863        39,562        108,037   

Loans acquired with deteriorated credit quality

     123                      123   

 

 
Six months ended June 30, 2010 ($ in millions)   

Consumer

automobile

   

Consumer

mortgage

    Commercial     Total  

Allowance at January 1, 2010

   $ 1,024      $ 640      $ 781      $ 2,445   

Cumulative effect of change in accounting principles (a)

     222                      222   

Charge-offs

        

Domestic

     (437     (109     (152     (698

Foreign

     (109     (2     (53     (164

 

 

Total charge-offs

     (546     (111     (205     (862

 

 

Recoveries

        

Domestic

     177        8        9        194   

Foreign

     35        1        9        45   

 

 

Total recoveries

     212        9        18        239   

 

 

Net charge-offs

     (334     (102     (187     (623

Provision for loan losses

     225        115        22        362   

Discontinued operations

     5               (3     2   

Other

     (22     6        (15     (31

 

 

Allowance at June 30, 2010

   $ 1,120      $ 659      $ 598      $ 2,377   

 

 

Allowance for loan losses

        

Individually evaluated for impairment

   $      $ 102      $ 277      $ 379   

Collectively evaluated for impairment

     1,090        557        321        1,968   

Loans acquired with deteriorated credit quality

     30                      30   

Finance receivables and loans at historical cost

        

Ending balance

     41,715        11,286        37,370        90,371   

Individually evaluated for impairment

            398        1,727        2,125   

Collectively evaluated for impairment

     41,490        10,888        35,643        88,021   

Loans acquired with deteriorated credit quality

     225                      225   

 

 
(a) Effect of change in accounting principle due to adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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.

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

 

($ in millions)    Three months ended
June 30, 2011
     Six months ended
June 30, 2011
 

Sales

     

Consumer automobile

   $ 1,318       $ 1,318   

Consumer mortgage

     28         93   

Commercial

             6   

 

 

Total sales

   $ 1,346       $ 1,417   

 

 

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

 

($ in millions)   

Unpaid

principal

balance

     Carrying
value before
allowance
    

Impaired

with no

allowance

    

Impaired

with an

allowance

    

Allowance
for

impaired

loans

 

June 30, 2011

              

Consumer mortgage

              

1st Mortgage

   $ 465       $ 459       $       $ 459       $ 54   

Home equity

     90         91                 91         40   

 

 

Total consumer mortgage

     555         550                 550         94   

Commercial

              

Commercial and industrial

              

Automobile

     388         388         56         332         27   

Mortgage

     29         29         1         28         5   

Other

     58         55         19         36         7   

Commercial real estate

              

Automobile

     129         129         78         51         16   

Mortgage

     38         38         8         30         2   

 

 

Total commercial

     642         639         162         477         57   

 

 

Total consumer and commercial

   $ 1,197       $ 1,189       $ 162       $ 1,027       $ 151   

 

 

December 31, 2010

              

Consumer mortgage

              

1st Mortgage

   $ 410       $ 404       $       $ 404       $ 59   

Home equity

     82         83                 83         40   

 

 

Total consumer mortgage

     492         487                 487         99   

Commercial

              

Commercial and industrial

              

Automobile

     340         356         33         323         23   

Mortgage

     44         40                 40         14   

Other

     135         133         20         113         51   

Commercial real estate

              

Automobile

     206         197         108         89         29   

Mortgage

     71         71         28         43         10   

 

 

Total commercial

     796         797         189         608         127   

 

 

Total consumer and commercial

   $ 1,288       $ 1,284       $ 189       $ 1,095       $ 226   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

     2011      2010  
Three months ended June 30, ($ in millions)   

Average

balance

    

Interest

income

    

Average

balance

    

Interest

income

 

Consumer mortgage

           

1st Mortgage

   $ 448       $ 4       $ 307       $ 3   

Home equity

     90         1         60         1   

 

 

Total consumer mortgage

     538         5         367         4   

Commercial

           

Commercial and industrial

           

Automobile

     360         1         345         1   

Mortgage

     32                           

Other

     99                 877         1   

Commercial real estate

           

Automobile

     140                 279         1   

Mortgage

     45                 193           

 

 

Total commercial

     676         1         1,694         3   

 

 

Total consumer and commercial

   $ 1,214       $ 6       $ 2,061       $ 7   

 

 
     2011      2010  
Six months ended June 30, ($ in millions)   

Average

balance

    

Interest

income

    

Average

balance

    

Interest

income

 

Consumer mortgage

           

1st Mortgage

   $ 435       $ 8       $ 276       $ 5   

Home equity

     88         2         51         2   

 

 

Total consumer mortgage

     523         10         327         7   

Commercial

           

Commercial and industrial

           

Automobile

     353         1         391         1   

Mortgage

     36         5                   

Other

     113         1         918         1   

Commercial real estate

           

Automobile

     162                 279         1   

Mortgage

     55         1         229         1   

 

 

Total commercial

     719         8         1,817         4   

 

 

Total consumer and commercial

   $ 1,242       $ 18       $ 2,144       $ 11   

 

 

At June 30, 2011, and December 31, 2010, commercial commitments to lend additional funds to debtors owing receivables whose terms had been modified in a troubled debt restructuring were $11 million and $15 million, respectively.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table presents an analysis of our past due finance receivables and loans.

 

($ 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, 2011

                 

Consumer automobile

   $ 727       $ 159       $ 169       $ 1,055       $ 57,680       $ 58,735   

Consumer mortgage

                 

1st Mortgage

     100         46         184         330         6,813         7,143   

Home equity

     22         9         11         42         3,227         3,269   

 

 

Total consumer mortgage

     122         55         195         372         10,040         10,412   

Commercial

                 

Commercial and industrial

                 

Automobile

     14         15         126         155         35,220         35,375   

Mortgage

                     1         1         1,212         1,213   

Other

                     1         1         1,665         1,666   

Commercial real estate

                 

Automobile

             3         50         53         2,284         2,337   

Mortgage

                     38         38         3         41   

 

 

Total commercial

     14         18         216         248         40,384         40,632   

 

 

Total consumer and commercial

   $ 863       $ 232       $ 580       $ 1,675       $ 108,104       $ 109,779   

 

 

December 31, 2010

                 

Consumer automobile

   $ 828       $ 175       $ 197       $ 1,200       $ 50,054       $ 51,254   

Consumer mortgage

                 

1st Mortgage

     115         67         205         387         6,920         7,307   

Home equity

     20         12         13         45         3,396         3,441   

 

 

Total consumer mortgage

     135         79         218         432         10,316         10,748   

Commercial

                 

Commercial and industrial

                 

Automobile

     21         19         85         125         33,217         33,342   

Mortgage

             36         4         40         1,541         1,581   

Other

                     20         20         2,087         2,107   

Commercial real estate

                 

Automobile

             4         78         82         2,205         2,287   

Mortgage

                     71         71         8         79   

 

 

Total commercial

     21         59         258         338         39,058         39,396   

 

 

Total consumer and commercial

   $ 984       $ 313       $ 673       $ 1,970       $ 99,428       $ 101,398   

 

 

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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

 

($ in millions)    June 30, 2011      December 31, 2010  

Consumer automobile

   $ 184       $ 207   

Consumer mortgage

     

1st Mortgage

     344         500   

Home equity

     54         61   

 

 

Total consumer mortgage

     398         561   

Commercial

     

Commercial and industrial

     

Automobile

     360         296   

Mortgage

     29         40   

Other

     55         134   

Commercial real estate

     

Automobile

     127         199   

Mortgage

     38         71   

 

 

Total commercial

     609         740   

 

 

Total consumer and commercial

   $ 1,191       $ 1,508   

 

 

Management performs a quarterly analysis of the consumer automobile, consumer mortgage, and commercial portfolios using a range of credit quality indicators to assess the adequacy of the allowance based on historical and current trends. The tables below present select credit quality indicators that are used in the determination of allowance for our consumer automobile, 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.

 

     June 30, 2011      December 31, 2010  
($ in millions)    Performing      Nonperforming      Total      Performing      Nonperforming      Total  

Consumer automobile

   $ 58,551       $ 184       $ 58,735       $ 51,047       $ 207       $ 51,254   

 

 

Consumer mortgage

                 

1st Mortgage

     6,799         344         7,143         6,807         500         7,307   

Home equity

     3,215         54         3,269         3,380         61         3,441   

 

 

Total consumer mortgage

   $ 10,014       $ 398       $ 10,412       $ 10,187       $ 561       $ 10,748   

 

 

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

 

     June 30, 2011      December 31, 2010  
($ in millions)    Pass      Criticized (a)      Total      Pass      Criticized (a)      Total  

Commercial

                 

Commercial and industrial

                 

Automobile

   $ 32,790       $ 2,585       $ 35,375       $ 31,254       $ 2,088       $ 33,342   

Mortgage

     1,134         79         1,213         1,504         77         1,581   

Other

     1,025         641         1,666         1,041         1,066         2,107   

Commercial real estate

                 

Automobile

     2,123         214         2,337         2,013         274         2,287   

Mortgage

     1         40         41                 79         79   

 

 

Total commercial

   $ 37,073       $ 3,559       $ 40,632       $ 35,812       $ 3,584       $ 39,396   

 

 
(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.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table summarizes held-for-investment mortgage finance receivables and loans recorded at historical cost and reported at carrying value before allowance for loan losses by higher-risk loan type.

 

($ in millions)    June 30, 2011      December 31, 2010  

High original loan-to-value (greater than 100%) mortgage loans

   $ 5       $ 5   

Payment-option adjustable-rate mortgage loans

     4         5   

Interest-only mortgage loans

     3,284         3,681   

Below-market rate (teaser) mortgages

     266         284   

 

 

Total (a)

   $ 3,559       $ 3,975   

 

 
(a) The majority of these loans are held by our Mortgage Legacy Portfolio and Other operations at June 30, 2011, and December 31, 2010.

 

9. Investment in Operating Leases, Net

Investments in operating leases were as follows.

 

($ in millions)    June 30, 2011     December 31, 2010  

Vehicles and other equipment

   $ 11,622      $ 13,571   

Accumulated depreciation

     (2,607     (4,443

 

 

Investment in operating leases, net

   $ 9,015      $ 9,128   

 

 

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

 

     Three months ended
June  30,
    Six months ended
June 30,
 
($ in millions)        2011             2010             2011             2010      

Depreciation expense on operating lease assets (excluding remarketing gains)

   $ 356      $ 725      $ 759      $ 1,565   

Gross remarketing gains

     (164     (199     (282     (383

 

 

Depreciation expense on operating lease assets

   $ 192      $ 526      $ 477      $ 1,182   

 

 

 

10. Securitizations and Variable Interest Entities

Overview

We are involved in several types of securitization and financing transactions that utilize special-purpose entities (SPEs). An SPE is an entity that is designed to fulfill a specified limited need of the sponsor. Our principal use of SPEs is to obtain liquidity and favorable capital treatment by securitizing certain of our financial assets.

The SPEs involved in securitization and other financing transactions are generally considered variable interest entities (VIEs). VIEs are entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the ability to control the entity’s activities.

Securitizations

We provide a wide range of consumer and commercial automobile loans, operating leases, and mortgage loan products to a diverse customer base. We often securitize these loans and leases (which we collectively describe as loans or financial assets) through the use of securitization entities, which may or may not be consolidated on our Condensed Consolidated Balance Sheet. We securitize consumer and commercial automobile loans through private-label securitizations. We securitize consumer mortgage loans through transactions involving the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Government National Mortgage Association (Ginnie Mae) (collectively the Government-Sponsored Enterprises or GSEs), or private-label mortgage securitizations. During the six months ended June 30, 2011 and 2010, our consumer mortgage loans were primarily securitized through the GSEs.

 

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ALLY FINANCIAL INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

In executing a securitization transaction, we typically sell pools of financial assets to a wholly owned, bankruptcy-remote SPE, which then transfers the financial assets to a separate, transaction-specific securitization entity for cash, servicing rights, and in some transactions, other retained interests. The securitization entity is funded through the issuance of beneficial interests in the securitized financial assets. The beneficial interests take the form of either notes or trust certificates, which are sold to investors and/or retained by us. These beneficial interests are collateralized by the transferred loans and entitle the investors to specified cash flows generated from the securitized loans. In the aggregate, these beneficial interests have the same average life as the transferred financial assets. In addition to providing a source of liquidity and cost-efficient funding, securitizing these financial assets also reduces our credit exposure to the borrowers beyond any economic interest we may retain. We securitize conforming residential mortgage loans through GSE securitizations and nonconforming mortgage loans through private-label securitizations.

Each securitization is governed by various legal documents that limit and specify the activities of the securitization entity. The securitization entity is generally allowed to acquire the loans, to issue beneficial interests to investors to fund the acquisition of the loans, and to enter into derivatives or other yield maintenance contracts (e.g., coverage by monoline bond insurers) to hedge or mitigate certain risks related to the financial assets or beneficial interests of the entity. Additionally, the securitization entity is required to service the assets it holds and the beneficial interests it issues. A servicer, who is generally us, is appointed pursuant to the underlying legal documents to perform these functions. Servicing functions include, but are not limited to, making certain payments of property taxes and insurance premiums, default and property maintenance payments, as well as advancing principal and interest payments before collecting them from individual borrowers. Our servicing responsibilities, which constitute continued involvement in the transferred financial assets, consist of primary servicing (i.e., servicing the underlying transferred financial assets) and/or master servicing (i.e., servicing the beneficial interests that result from the securitization transactions). Certain securitization entities also require the servicer to advance scheduled principal and interest payments due on the beneficial interests issued by the entity regardless of whether cash payments are received on the underlying transferred financial assets. Accordingly, we are required to provide these servicing advances when applicable. Refer to Note 11 for additional information regarding our servicing rights.

The GSEs provide a guarantee of the payment of principal and interest on the beneficial interests issued in securitizations. In private-label securitizations, cash flows from the assets initially transferred into the securitization entity represent the sole source for payment of distributions on the beneficial interests issued by the securitization entity and for payments to the parties that perform services for the securitization entity, such as the servicer or the trustee. In certain private-label securitization transactions, a liquidity facility may exist to provide temporary liquidity to the entity. The liquidity provider generally is reimbursed prior to other parties in subsequent distribution periods. Monoline insurance may also exist to cover certain shortfalls to certain investors in the beneficial interests issued by the securitization entity. As noted above, in certain private-label securitizations, the servicer is required to advance scheduled principal and interest payments due on the beneficial interests regardless of whether cash payments are received on the underlying transferred financial assets. The servicer is allowed to reimburse itself for these servicing advances. Additionally, certain private-label securitization transactions may allow for the acquisition of additional loans subsequent to the initial loan transfer. Principal collections on other loans and/or the issuance of new beneficial interests, such as variable funding notes, generally fund these loans; we are often contractually required to invest in these new interests.

We may retain beneficial interests in our private-label securitizations, which may represent a form of significant continuing economic interest. These retained interests include, but are not limited to, senior or subordinate mortgage- or asset-backed securities, interest-only strips, principal-only strips, and residuals. Certain of these retained interests provide credit enhancement to the trust as they may absorb credit losses or other cash shortfalls. Additionally, the securitization agreements may require cash flows to be directed away from certain of our retained interests due to specific over-collateralization requirements, which may or may not be performance-driven.

We generally hold certain conditional repurchase options that allow us to repurchase assets from the securitization entity. The majority of the securitizations provide us, as servicer, with a call option that allows us to repurchase the remaining transferred financial assets or outstanding beneficial interests at our discretion once the asset pool reaches a predefined level, which represents the point where servicing becomes burdensome (a clean-up call option). The repurchase price is typically the par amount of the loans plus accrued interest. Additionally, we may hold other conditional repurchase options that allow us to

 

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NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

repurchase a transferred financial asset if certain events outside our control are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan or contract if it exceeds a certain prespecified delinquency level. We have complete discretion regarding when or if we will exercise these options, but generally, we would do so only when it is in our best interest.

Other than our customary representation and warranty provisions, these securitizations are nonrecourse to us, thereby transferring the risk of future credit losses to the extent the beneficial interests in the securitization entities are held by third parties. Our obligation to provide support is limited to the customary representation and warranty provisions. Representation and warranty provisions generally require us to repurchase loans or indemnify the investor for incurred losses to the extent it is determined that the loans were ineligible or were otherwise defective at the time of sale. Refer to Note 24 for detail on representation and warranty provisions. We did not provide any noncontractual financial support to any of these entities during the six months ended June 30, 2011 and 2010.

Other Variable Interest Entities

Servicer Advance Funding Entity

To assist in the financing of our servicer advance receivables, we formed an SPE that issues term notes to third-party investors that are collateralized by servicer advance receivables. These servicer advance receivables are transferred to the SPE and consist of delinquent principal and interest advances we made as servicer to various investors; property taxes and insurance premiums advanced to taxing authorities and insurance companies on behalf of borrowers; and amounts advanced for mortgages in foreclosure. The SPE funds the purchase of the receivables through financing obtained from the third-party investors and subordinated loans or an equity contribution from our mortgage activities. This SPE is consolidated on our balance sheet at June 30, 2011, and December 31, 2010. The beneficial interest holder of this SPE does not have legal recourse to our general credit. We do not have a contractual obligation to provide any type of financial support in the future, nor have we provided noncontractual financial support to the entity during the six months ended June 30, 2011 and 2010.

Other

In 2010, we sold a portfolio of resort finance-backed receivables to a third party that financed the acquisition through an SPE. We provided seller financing for the purchase of these assets and also hold a contingent value right in the SPE, which were both recorded at fair value. We do not consolidate the SPE because we have no control over the activities of the SPE.

We have involvements with various other on-balance sheet, immaterial SPEs. Most of these SPEs are used for additional liquidity whereby we sell certain financial assets into the VIE and issue beneficial interests to third parties for cash.

We also provide long-term guarantee contracts to certain nonconsolidated affordable housing entities. 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.

Involvement with Variable Interest Entities

The determination of whether financial assets transferred by us to these VIEs (and related liabilities) are consolidated on our balance sheet (also referred to as on-balance sheet) or not consolidated on our balance sheet (also referred to as off-balance sheet) depends on the terms of the related transaction and our continuing involvement (if any) with the SPE. Subsequent to the adoption of ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, on January 1, 2010, we are deemed the primary beneficiary and therefore consolidate VIEs for which we have both (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the VIE’s economic performance, and (b) a variable interest (or variable interests) that (i) obligates us to absorb losses that could potentially be significant to the VIE and/or (ii) provides us the right to receive residual returns of the VIE that could potentially be significant to the VIE. We determine whether we hold a significant variable interest in a VIE based on a consideration of both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We assess whether we are the primary beneficiary of a VIE on an ongoing basis.

 

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NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Our involvement with consolidated and nonconsolidated VIEs in which we hold variable interests is presented below.

 

($ in millions)    Consolidated
involvement
with VIEs
    Assets of
nonconsolidated
VIEs (a)
    Maximum exposure to
loss in nonconsolidated
VIEs
 

June 30, 2011

      

On-balance sheet variable interest entities

      

Consumer automobile

   $ 24,684      $      $   

Consumer mortgage — private-label

     1,244                 

Commercial automobile

     17,469                 

Other

     950                 

Off-balance sheet variable interest entities

      

Consumer mortgage — Ginnie Mae

     2,876 (b)      42,324        42,324 (c) 

Consumer mortgage — CMHC

     93 (b)      3,882        93 (d) 

Consumer mortgage — private-label

     178 (b)      4,977        4,977 (c) 

Consumer mortgage — other

            (e)      19 (f) 

Commercial other

     398 (g)      (h)      598   

 

 

Total

   $ 47,892      $ 51,183      $ 48,011   

 

 

December 31, 2010

      

On-balance sheet variable interest entities

      

Consumer automobile

   $ 20,064      $      $   

Consumer mortgage — private-label

     1,397                 

Commercial automobile

     15,114                 

Other

     1,035                 

Off-balance sheet variable interest entities

      

Consumer mortgage — Ginnie Mae

     2,909 (b)      43,595        43,595 (c) 

Consumer mortgage — CMHC

     124 (b)      4,222        124 (d) 

Consumer mortgage — private-label

     183 (b)      5,371        5,371 (c) 

Commercial other

     483 (g)      (h)      698   

 

 

Total

   $ 41,309      $ 53,188      $ 49,788   

 

 
(a) Asset values represent the current unpaid principal balance of outstanding consumer finance receivables and loans within the VIEs.
(b) Includes $2.4 billion and $2.5 billion classified as mortgage loans held-for-sale, $126 million and $162 million classified as trading securities or other assets, and $601 million and $569 million classified as mortgage servicing rights at June 30, 2011, and December 31, 2010, respectively. CMHC is the Canada Mortgage and Housing Corporation.
(c) Maximum exposure to loss represents the current unpaid principal balance of outstanding loans based on our customary representation and warranty provisions. This measure is based on the unlikely event that all of the loans have underwriting defects or other defects that trigger a representation and warranty provision and the collateral supporting the loans are worthless. This required disclosure is not an indication of our expected loss.
(d) Due to combination of the credit loss insurance on the mortgages and the guarantee by CMHC on the issued securities, the maximum exposure to loss would be limited to the amount of the retained interests. Additionally, the maximum loss would occur only in the event that CMHC dismisses us as servicer of the loans due to servicer performance or insolvency.
(e) Includes a VIE for which we have no management oversight and therefore we are not able to provide the total assets of the VIE. However, in Ma