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ALLY FINANCIAL INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

Edgar Online, Inc.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operation (MD&A), as well as other portions of this Form 10-K, may
contain certain statements that constitute forward-looking statements within the
meaning of the federal securities laws. The words "expect," "anticipate,"
"estimate," "forecast," "initiative," "objective," "plan," "goal," "project,"
"outlook," "priorities," "target," "intend," "evaluate," "pursue," "seek,"
"may," "would," "could," "should," "believe," "potential," "continue," or the
negatives of any of these words or similar expressions are intended to identify
forward-looking statements. All statements herein, other than statements of
historical fact, including without limitation statements about future events and
financial performance, are forward-looking statements that involve certain risks
and uncertainties. You should not place undue reliance on any forward-looking
statement and should consider all uncertainties and risks discussed in this
report, including those under Item 1A, Risk Factors, as well as those provided
in any subsequent SEC filings. Forward-looking statements apply only as of the
date they are made, and Ally undertakes no obligation to update any
forward-looking statement to reflect events or circumstances that arise after
the date the forward-looking statement are made.
Overview
Ally Financial Inc. (formerly GMAC Inc.) is a leading, independent, 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 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
(internet, telephone, mobile, and mail) banking market.
Our Business
Dealer Financial Services
Our Dealer Financial Services operations offer a wide range of financial
services and insurance products to almost 15,000 automotive dealerships and
approximately 4 million of their retail customers. We have deep dealer
relationships that have been built over our greater-than 90-year history and our
dealer-focused business model makes us a preferred automotive finance company
for many automotive dealers. Our broad set of product offerings and
customer-focused marketing programs differentiate Ally in the marketplace and
help drive higher product penetration in our dealer relationships. Our ability
to generate attractive automotive assets is driven by our platform and scale,
strong relationships with automotive dealers, a full suite of dealer financial
products, automotive loan-servicing capabilities, dealer-based incentive
programs, and superior customer service.
Our automotive financial services include providing retail installment sales
financing, loans, and leases, offering term loans to dealers, financing dealer
floorplans and other lines of credit to dealers, fleet leasing, and vehicle
remarketing services. We also offer vehicle service contracts and commercial
insurance, primarily covering dealers' wholesale vehicle inventories. We are a
leading provider of vehicle service contracts, and maintenance coverages.
We have a longstanding relationship with General Motors Company (GM) and have
developed strong relationships directly with GM-franchised dealers. We are a
preferred financing provider to GM and Chrysler Group LLC (Chrysler) (including
Fiat) for incentivized retail loans. Our agreements with GM and Chrysler expire
on December 31, 2013 and April 30, 2013, respectively. Ally currently competes
in the marketplace for all other parts of the business with GM and Chrysler
dealers including wholesale financing, standard rate consumer financing, and
leasing. Ally expects to continue to play a significant role with GM and
Chrysler dealers in the future as the dealer is Ally's direct customer for the
majority of business that is conducted.
We have further diversified our customer base by establishing agreements to
become preferred financing providers with other vehicle manufacturers including,
Thor Industries, Maserati, The Vehicle Production Group LLC, Forest River, and
Mitsubishi Motors. During 2010 our primary emphasis was on originating loans of
higher credit tier borrowers. For this reason, our current operating results
continue to reflect higher credit quality, lower yielding loans with lower
credit loss experience. Ally however seeks to be a meaningful lender to a wide
spectrum of borrowers. In 2010 we enhanced our risk management practices and
efforts on risk-based pricing. We have gradually increased volumes in lower
credit tiers in 2011 and 2012. We plan to continue to increase the proportion of
our non-GM and Chrysler business, as we focus on maintaining and growing our
dealer-customer base through our full suite of products, our dealer
relationships, the scale of our platform, and our dealer-based incentive
programs.
Our Insurance operations offer both consumer finance and insurance products sold
primarily through the automotive dealer channel, and commercial insurance
products sold to dealers. As part of our focus on offering dealers a broad range
of consumer finance and insurance products, we provide vehicle service
contracts, maintenance coverage, and Guaranteed Automobile Protection (GAP)
products. We also underwrite selected commercial insurance coverage, which
primarily insures dealers' wholesale vehicle inventory in the United States.
Change in Reportable Segments
During the fourth quarter of 2012, we announced that we had reached agreements
to sell substantially all of our International operations. As a result,
beginning in the fourth quarter of 2012, we are presenting our continuing
Automotive Finance activities under one reportable operating segment, Automotive
Finance operations. Previously our Automotive Finance operations were presented
as two reportable operating segments, North American Automotive Finance
operations and International Automotive Finance operations.

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  Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Mortgage

New Strategy to avoid RMDs

The principal ongoing Mortgage operations are conducted through Ally Bank. We
intend to continue to originate a modest level of jumbo and conventional
conforming residential mortgages for our own portfolio through a select group of
correspondent lenders. Our Mortgage operations also consist of noncore business
activities including portfolios in run-off.
On October 26, 2012, we announced that Ally Bank had begun to explore strategic
alternatives for its agency mortgage servicing rights portfolio and its business
lending operations. On February 28, 2013, we sold our business lending
operations to Walter Investment Management Corp. The majority of Ally Bank's
serviced mortgage assets are subserviced by GMAC Mortgage, LLC (GMACM), a
subsidiary of ResCap, pursuant to a servicing agreement. Additionally, in July
2012, we announced our intention to shut down our U.S. Warehouse Lending
business and, as of December 31, 2012, we successfully managed receivables down
to $0 with no commitments outstanding. Our intent is to significantly reduce or
eliminate our mortgage-related activities with respect to the origination of
conforming mortgage loans with the intent to sell into securitizations sponsored
by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan
Mortgage Corporation (Freddie Mac), or Government National Mortgage Association
(Ginnie Mae) (collectively, the Government-sponsored Enterprises, or GSEs), the
retention of mortgage servicing rights, and the extension of credit to
third-party mortgage originators (warehouse lending).
Residential Capital, LLC (ResCap) and certain of its wholly-owned subsidiaries
(collectively, the Debtors), filed voluntary petitions for relief under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York on May 14, 2012. Refer to Note 1 to the Consolidated
Financial Statements for further information regarding the Debtors' Bankruptcy
and the deconsolidation of ResCap.
Subsequent to the bankruptcy filing, ResCap announced the sale of certain assets
to third parties. Upon the closing of those sales, we do not expect ResCap to
continue to broker loans to us. This will primarily impact the production of
loans within the Direct Lending channel, which are currently sourced exclusively
from ResCap.
As the actions discussed continue to progress, we expect the level of loan
production and mortgage-related assets (with the exception of mortgage loans
held for investment), as well as the income before income tax expense from
Mortgage operations, to decline.
Change in Reportable Segments
On May 14, 2012, the Debtors filed for relief under Chapter 11 of the Bankruptcy
Code in the United States. As a result of the bankruptcy filing, ResCap was
deconsolidated from our financial statements; and beginning in the second
quarter of 2012, we began presenting our mortgage business activities under one
reportable operating segment, Mortgage operations. Previously our Mortgage
operations had been presented as two reportable operating segments, Origination
and Servicing operations and Legacy Portfolio and Other operations. The new
presentation is consistent with the organizational alignment of the business and
management's current view of the mortgage business.
Corporate and Other
Corporate and Other primarily consists of our centralized corporate treasury
activities, such as management of the cash and corporate investment securities
portfolios, short- and long-term debt, retail and brokered deposit liabilities,
derivative instruments, the amortization of the discount associated with new
debt issuances and bond exchanges, most notably from the December 2008 bond
exchange, and the residual impacts of our corporate funds-transfer pricing (FTP)
and treasury asset liability management (ALM) activities. Corporate and Other
also includes our Commercial Finance Group, certain equity investments,
reclassifications and eliminations between the reportable operating segments,
and overhead that was previously allocated to operations that have since been
sold or classified as discontinued operations. Our Commercial Finance Group
provides senior secured commercial-lending products to primarily U.S.-based
middle market companies.
The net financing revenue of our Automotive Finance and Mortgage operations
includes the results of an FTP process that insulates these operations from
interest rate volatility by matching assets and liabilities with similar
interest rate sensitivity and maturity characteristics. The FTP process assigns
charge rates to the assets and credit rates to the liabilities within our
Automotive Finance and Mortgage operations, respectively, based on anticipated
maturity and a benchmark index plus an assumed credit spread. The assumed credit
spread represents the cost of funds for each asset class based on a blend of
funding channels available to the enterprise, including unsecured and secured
capital markets, private funding facilities, and deposits. In addition, a
risk-based methodology, which incorporates each operations credit, market, and
operational risk components is used to allocate equity to these operations.
Change in Reportable Segments
During the fourth quarter of 2012, we began to allocate expenses associated with
certain deposit gathering activities and other additional costs of holding
liquidity to our Automotive Finance and Mortgage operations. These expenses were
previously included within our Corporate and Other activities. Additionally, we
began to include overhead that was previously allocated to operations that have
since been sold or moved into discontinued operations within our Corporate and
Other activities.
Ally BankAlly Bank, our direct banking platform, provides us with a stable and
diversified low-cost funding source. Our focus is on building a stable deposit
base driven by our compelling brand and strong value proposition. Ally Bank
raises deposits directly from customers through direct banking via the internet,
telephone, mobile, and mail channels. Ally Bank has established a strong and
growing retail banking franchise

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


which is based on a promise of being straightforward, easy to use, and offering
high-quality customer service. Ally Bank's products and services are designed to
develop long-term customer relationships and capitalize on the shift in consumer
preference for direct banking.
Ally Bank offers a full spectrum of deposit product offerings, such as checking,
savings, and certificates of deposit (CDs), as well as 48-month raise your rate
CDs, IRA deposit products, Popmoney person-to-person transfer service, eCheck
remote deposit capture, Ally Perks debit rewards program, and Mobile Banking. In
addition, brokered deposits are obtained through third-party intermediaries. At
December 31, 2012, Ally Bank had $46.9 billion of deposits, including $35.0
billion of retail deposits. The growth of our retail base from $7.2 billion at
the end of 2008 to $35.0 billion at December 31, 2012, has enabled us to reduce
our cost of funds during that period. The growth in deposits is primarily
attributable to our retail deposits while our brokered deposits have remained at
historical levels. Strong retention rates, reflecting the strength of the
franchise, have materially contributed to our growth in retail deposits.
Funding and Liquidity
Our funding strategy largely focuses on the development of diversified funding
sources which we manage across products, programs, markets, and investor groups.
We fund our assets primarily with a mix of retail and brokered deposits, public
and private asset-backed securitizations, asset sales, committed and uncommitted
credit facilities and public unsecured debt.
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. Throughout 2008 and 2009, the global credit markets
experienced extraordinary levels of volatility and stress. As a result, access
by market participants, including Ally, to the capital markets was significantly
constrained and borrowing costs increased. In response, numerous government
programs were established aimed at improving the liquidity position of U.S.
financial services firms. After converting to a bank holding company in late
2008, we participated in several of the programs, including Temporary Liquidity
Guaranty Program (TLGP), Term Auction Facility, and Term Asset-Backed Securities
Loan Facility. Our diversification strategy and participation in these programs
helped us to maintain sufficient liquidity during this period of financial
distress to meet all maturing unsecured debt obligations and to continue our
lending and operating activities. During 2012, we repaid the TLGP debt and the
other programs were discontinued prior to 2012.
As part of our overall transformation from an independent financial services
company to a bank holding company, we took actions to further diversify and
develop more stable funding sources and, in particular, embarked upon
initiatives to grow our consumer deposit-taking capabilities within Ally Bank.
In addition, we began distinguishing our liquidity management strategies between
bank funding and nonbank funding.
Maximizing bank funding continues to be the cornerstone of our long-term
liquidity strategy. We have made significant progress in migrating assets to
Ally Bank and growing our retail deposit base since becoming a bank holding
company. Retail deposits provide a low-cost source of funds that are less
sensitive to interest rate changes, market volatility or changes in our credit
ratings than other funding sources. At December 31, 2012, deposit liabilities
totaled $47.9 billion, which constituted 37% of our total funding. This compares
to just 14% at December 31, 2008.
In addition to building a larger deposit base, we continue to remain active in
the securitization markets to finance Ally Bank's automotive loan portfolios.
During 2012, we issued $11.8 billion in secured funding backed by retail
automotive loans and leases as well as dealer floorplan automotive loans of Ally
Bank. Continued structural efficiencies in securitizations combined with
improving capital market conditions have resulted in a reduction in the cost of
funds achieved through secured funding transactions, making them a very
attractive source of funding. Additionally, for retail loans and leases, the
term structure of the transaction locks in funding for a specified pool of loans
and leases for the life of the underlying asset. Once a pool of retail
automobile loans are selected and placed into a securitization, the underlying
assets and corresponding debt amortize simultaneously resulting in committed and
matched funding for the life of the asset. We manage the execution risk arising
from secured funding by maintaining a diverse investor base and maintaining
committed secured facilities.
As we have shifted our focus to migrating assets to Ally Bank and growing our
bank funding capabilities, our reliance on parent company liquidity has
consequently been reduced. Funding sources at the parent company generally
consist of longer-term unsecured debt, private credit facilities, and
asset-backed securitizations. In 2012, we issued over $3.6 billion of unsecured
debt globally through several issuances. At December 31, 2012, we had $1.3
billion and $5.6 billion of outstanding unsecured long-term debt with maturities
in 2013 and 2014, respectively. To fund these maturities, we expect to use
existing pre-issued liquidity combined with maintaining an opportunistic
approach to new issuance.
The strategies outlined above have allowed us to build and maintain a
conservative liquidity position. Total available liquidity at the parent company
was $15.6 billion and Ally Bank had $13.2 billion of available liquidity at
December 31, 2012. Parent company liquidity is defined as our consolidated
operations less Ally Bank and the subsidiaries of Ally Insurance's holding
company. At the same time, these strategies have also resulted in a cost of
funds improvement of approximately 95 basis points since the first quarter of
2011. Looking forward, given our enhanced liquidity and capital position and
generally improved credit ratings, we expect that our cost of funds will
continue to improve over time.
Credit Strategy
We are a full spectrum automotive finance lender with most of our automotive
loan originations underwritten within the prime-lending markets as we continue
to prudently expand in nonprime markets. During 2012, we continued to recognize
improvement in our credit risk profile as a result of proactive credit risk
initiatives that were taken in 2009 and 2010 and modest improvement in the
overall economic

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


environment. Additionally, we discontinued certain nonstrategic operations,
mainly in our international businesses. Within our Automotive Finance
operations, we exited certain underperforming dealer relationships. Within our
Mortgage operations, we have taken action with the intent to significantly
reduce or eliminate our mortgage-related activities with respect to the
origination of conforming mortgage loans with the intent to sell into
GSE-sponsored securitizations, the retention of mortgage servicing rights, and
the extension of credit to third-party mortgage originators (warehouse lending).
We intend to continue to originate a modest level of high-quality non-conforming
mortgages that exceed GSE limits (jumbo mortgages) for retention as mortgage
loans held for investment.
During the year ended December 31, 2012, the credit performance of our
portfolios remained strong overall as our asset quality trends within our
automotive and mortgage portfolios were stable. Nonperforming loans continued to
decline, benefiting from the deconsolidation of ResCap. Charge-offs also
declined primarily due to recoveries in the commercial portfolio. Our provision
for loan losses increased to $329 million in 2012 from $188 million in 2011 due
to higher asset levels in the consumer and commercial automotive portfolios and
our prudent expansion of underwriting strategy to originate volumes across a
broader credit spectrum, which was significantly narrowed during the recession.
We continue to see signs of economic stabilization in the housing and vehicle
markets, although our total credit portfolio will continue to be affected by
sustained levels of high unemployment and continued uncertainty in the housing
market.
Bank Holding Company and Treasury's Investments
During 2008, and continuing into 2009, the credit, capital, and mortgage markets
became increasingly disrupted. This disruption led to severe reductions in
liquidity and adversely affected our capital position. As a result, Ally sought
approval to become a bank holding company to obtain access to capital at a lower
cost to remain competitive in our markets. On December 24, 2008, Ally and IB
Finance Holding Company, LLC, the holding company of Ally Bank, were each
approved as bank holding companies under the Bank Holding Company Act of 1956.
At the same time, Ally Bank converted from a Utah-chartered industrial bank into
a Utah-chartered commercial nonmember bank. Ally Bank as an FDIC-insured
depository institution, is subject to the supervision and examination of the
Federal Deposit Insurance Corporation (FDIC) and the Utah Department of
Financial Institutions (UDFI). Ally Financial Inc. is subject to the supervision
and examination of the Board of Governors of the Federal Reserve System (FRB).
We are required to comply with regulatory risk-based and leverage capital
requirements, as well as various safety and soundness standards established by
the FRB, and are subject to certain statutory restrictions concerning the types
of assets or securities that we may own and the activities in which we may
engage.
As one of the conditions to becoming a bank holding company, the FRB required
several actions of Ally, including meeting a minimum amount of regulatory
capital. In order to meet this requirement, Ally took several actions, the most
significant of which were the execution of private debt exchanges and cash
tender offers to purchase and/or exchange certain of our and our subsidiaries
outstanding notes held by eligible holders for a combination of cash, newly
issued notes of Ally, and in the case of certain of the offers, preferred stock.
The transactions resulted in an extinguishment of all notes tendered or
exchanged into the offers and the new notes and stock were recorded at fair
value on the issue date. This resulted in a pretax gain on extinguishment of
debt of $11.5 billion in 2008 and a corresponding increase to our capital
levels. The gain included a $5.4 billion original issue discount representing
the difference between the face value and the fair value of the new notes and is
being amortized as interest expense over the term of the new notes. In addition,
the U.S. Department of Treasury (Treasury) made an initial investment in Ally on
December 29, 2008, pursuant to the Troubled Asset Relief Program (TARP) with a
$5.0 billion purchase of Ally perpetual preferred stock with a total liquidation
preference of $5.25 billion (Perpetual Preferred Stock).
On May 21, 2009, Treasury made a second investment of $7.5 billion in exchange
for Ally's mandatorily convertible preferred stock with a total liquidation
preference of approximately $7.9 billion (Old MCP), which included a $4 billion
investment to support our agreement with Chrysler to provide automotive
financing to Chrysler dealers and customers and a $3.5 billion investment
related to the FRB's Supervisory Capital Assessment Program requirements.
Shortly after this second investment, on May 29, 2009, Treasury acquired 35.36%
of Ally common stock when it exercised its right to acquire 190,921 shares of
Ally common stock from GM as repayment for an $884 million loan that Treasury
had previously provided to GM.
On December 30, 2009, we entered into another series of transactions with
Treasury under TARP, pursuant to which Treasury (i) converted 60 million shares
of Old MCP (with a total liquidation preference of $3.0 billion) into
259,200 shares of additional Ally common stock; (ii) invested $1.25 billion in
new Ally mandatorily convertible preferred stock with a total liquidation
preference of approximately $1.3 billion (the New MCP); and (iii) invested $2.54
billion in new trust preferred securities with a total liquidation preference of
approximately $2.7 billion (Trust Preferred Securities). At this time, Treasury
also exchanged all of its Perpetual Preferred Stock and remaining Old MCP
(following the conversion of Old MCP described above) into additional New MCP.
On December 30, 2010, Treasury converted 110 million shares of New MCP (with a
total liquidation preference of approximately $5.5 billion) into 531,850 shares
of additional Ally common stock. The conversion reduces dividends by
approximately $500 million per year, assists with capital preservation, and is
expected to improve profitability with a lower cost of funds.
On March 1, 2011, the Declaration of Trust and certain other documents related
to the Trust Preferred Securities were amended, and all of the outstanding Trust
Preferred Securities held by Treasury were designated 8.125% Fixed Rate/Floating
Rate Trust Preferred Securities, Series 2. On March 7, 2011, Treasury sold 100%
of the Series 2 Trust Preferred Securities in an offering registered with the
SEC. Ally did not receive any proceeds from the sale.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Following the transactions described above, Treasury currently holds 73.78% of
Ally common stock and approximately $5.9 billion in New MCP. As a result of its
current common stock investment, Treasury is entitled to appoint six of the
eleven total members of the Ally Board of Directors.
The following table summarizes the investments in Ally made by Treasury in 2008
and 2009.
                                                                   Cash
($ in millions)       Investment type             Date          investment       Warrants         Total
TARP             Preferred equity           December 29, 2008 $      5,000     $       250     $    5,250
GM Loan
Conversion (a)   Common equity                May 21, 2009             884               -            884
SCAP 1           Preferred equity (MCP)       May 21, 2009           7,500             375          7,875
SCAP 2           Preferred equity (MCP)     December 30, 2009        1,250              63          1,313
SCAP 2           Trust preferred securities December 30, 2009        2,540             127          2,667
Total cash
investments                                                   $     17,174     $       815     $   17,989

(a) In January 2009, Treasury loaned $884 million to General Motors. In

New Strategy to avoid RMDs

connection with that loan, Treasury acquired rights to exchange that loan for

190,921 shares. In May 2009, Treasury exercised that right.



The following table summarizes Treasury's investment in Ally at December 31,
2012.
December 31, 2012 ($ in millions)  Book Value      Face Value
MCP (a)                           $      5,685    $     5,938
Common equity (b)                                       73.78 %


(a) Reflects the exchange of face value of $5.25 billion of Perpetual Preferred

    Stock to MCP in December 2009 and the conversion of face value of $3.0
    billion and $5.5 billion of MCP to common equity in December 2009 and
    December 2010, respectively.

(b) Represents the current common equity ownership position by Treasury.



Discontinued Operations
During 2012, 2011, and 2010, we committed to dispose certain operations of our
Automotive Finance operations, Insurance operations, Mortgage operations, and
Commercial Finance Group, and have classified these operations as discontinued.
For all periods presented, all of the operating results for these operations
have been removed from continuing operations. Refer to Note 2 to the
Consolidated Financial Statements for more details. The MD&A has been adjusted
to exclude discontinued operations unless otherwise noted.
Sales transactions for our Automotive Finance operations are expected to close
in stages throughout 2013. It is anticipated that there could be significant
gains or losses occurring during interim periods of 2013 as the various stages
close. We believe that when all of the various stages are closed, we will
realize a gain on the sale of our Automotive Finance discontinued operations.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


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

Favorable/ Favorable/

                                                                          (unfavorable)   (unfavorable)
Year ended December 31, ($ in                                               2012-2011       2011-2010
millions)                               2012        2011        2010        % change        % change
Total net revenue (loss)
Dealer Financial Services
Automotive Finance operations         $ 3,149     $ 2,952     $ 3,421           7             (14)
Insurance operations                    1,214       1,398       1,801         (13)            (22)
Mortgage operations                     1,768       1,171       2,587          51             (55)
Corporate and Other                    (1,233 )    (1,543 )    (2,087 )        20              26
Total                                 $ 4,898     $ 3,978     $ 5,722          23             (30)
Income (loss) from continuing
operations before income tax
(benefit) expense
Dealer Financial Services
Automotive Finance operations         $ 1,389     $ 1,333     $ 1,757           4             (24)
Insurance operations                      160         316         557         (49)            (43)
Mortgage operations                       689        (622 )       772          n/m            (181)
Corporate and Other                    (2,993 )    (1,978 )    (2,694 )       (51)             27
Total                                 $  (755 )   $  (951 )   $   392          21              n/m


n/m = not meaningful

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


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.
                                                                            Favorable/      Favorable/
                                                                           (unfavorable)   (unfavorable)
Year ended December 31, ($ in                                                2012-2011       2011-2010
millions)                               2012         2011        2010        % change        % change
Net financing revenue
Total financing revenue and other
interest income                       $ 7,468     $  7,061     $ 8,017           6             (12)
Interest expense                        4,200        5,039       5,460          17               8
Depreciation expense on operating
lease assets                            1,399          941       1,251         (49)             25
Net financing revenue                   1,869        1,081       1,306          73             (17)
Other revenue
Net servicing income                      693          569       1,094          22             (48)
Insurance premiums and service
revenue earned                          1,059        1,170       1,371          (9)            (15)
Gain on mortgage and automotive
loans, net                                532          470       1,239          13             (62)
Loss on extinguishment of debt           (148 )        (64 )      (124 )       (131)            48
Other gain on investments, net            146          259         502         (44)            (48)
Other income, net of losses               747          493         334          52              48
Total other revenue                     3,029        2,897       4,416           5             (34)
Total net revenue                       4,898        3,978       5,722          23             (30)
Provision for loan losses                 329          188         357         (75)             47
Noninterest expense
Compensation and benefits expense       1,365        1,322       1,348          (3)              2
Insurance losses and loss
adjustment expenses                       461          483         547           5              12
Other operating expenses                3,498        2,936       3,078         (19)              5
Total noninterest expense               5,324        4,741       4,973         (12)              5
(Loss) income from continuing
operations before income tax
(benefit) expense                        (755 )       (951 )       392          21              n/m
Income tax (benefit) expense from
continuing operations                  (1,284 )         51         104          n/m             51
Net income (loss) from continuing
operations                            $   529     $ (1,002 )   $   288          153             n/m


n/m = not meaningful
2012 Compared to 2011
We earned net income from continuing operations of $529 million for the year
ended December 31, 2012, compared to a net loss from continuing operations of
$1.0 billion for the year ended December 31, 2011. Net income from continuing
operations for the year ended December 31, 2012, was favorably impacted by our
Automotive Finance operations, primarily due to an increase in consumer
automotive financing revenue related to growth in the retail loan and operating
lease portfolios. Additional favorability for the year ended December 31, 2012
was primarily the result of a more favorable servicing asset valuation, net of
hedge, compared to the same period in 2011, higher fee income and net
origination revenue related to increased consumer mortgage-lending production
associated with government-sponsored refinancing programs, higher net gains on
the sale of mortgage loans, and lower original issue discount (OID) amortization
expense related to bond maturities and normal monthly amortization. The increase
was partially offset by a $1.2 billion charge related to the Debtors' Chapter 11
filing, higher provision for loan losses, and lower investment income due to
impairment related to certain investment securities that we do not plan on
holding to recovery.
Total financing revenue and other interest income increased $407 million for the
year ended December 31, 2012, compared to 2011. The increase resulted primarily
from an increase in operating lease revenue and consumer financing revenue at
our Automotive Finance operations driven primarily by an increase in consumer
asset levels as a result of increased used vehicle automotive financing and
higher automotive industry sales, as well as limited use of whole-loan sales as
a funding source in recent periods. Additionally, we continue to prudently
expand our nonprime origination volume. The increase was partially offset by the
deconsolidation of ResCap effective May 14, 2012, which primarily impacted our
Mortgage operations, as well as a lower average yield mix as higher rate Ally
Bank mortgage loans run off.
Interest expense decreased 17% for the year ended December 31, 2012, compared to
2011. OID amortization expense decreased $576 million for the year ended
December 31, 2012, compared to 2011, due to bond maturities and normal monthly
amortization. Additionally, interest expense decreased at our Mortgage
operations due to the deconsolidation of ResCap and lower funding costs.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Depreciation expense on operating lease assets increased 49% for the year ended
December 31, 2012, compared to 2011, primarily due to higher lease asset
balances as a result of strong lease origination volume and lower lease
remarketing gains primarily due to lower lease remarketing volume. During the
latter half of 2009, we re-entered the U.S. leasing market with targeted lease
product offerings and have continued to expand lease volume since that time.
Net servicing income was $693 million for the year ended December 31, 2012,
compared to $569 million in 2011. The increase was primarily due to the
performance of the derivative servicing hedge as compared to a less favorable
hedge performance in 2011, partially offset by lower servicing fees due to the
deconsolidation of ResCap.
Insurance premiums and service revenue earned decreased 9% for the year ended
December 31, 2012, compared to 2011, primarily due to declining U.S. vehicle
service contracts written between 2007 and 2009 as a result of lower domestic
vehicle sales volume.
Gain on mortgage and automotive loans increased 13% for the year ended
December 31, 2012, compared to 2011. Though we deconsolidated ResCap during the
second quarter of 2012, the increase was primarily due to higher consumer
mortgage-lending production through our direct lending channel and margins
associated with government-sponsored refinancing programs, higher margins on
warehouse and correspondent lending due to decreased competition and more
selective originations from these channels, and improved gains on specified
pooled mortgage loans.
Loss on extinguishment of debt increased $84 million for the year ended
December 31, 2012, compared to the same period in 2011, primarily due to fees
incurred related to the early termination of FHLB debt as a result of replacing
our higher-cost long-term debt structure in favor of a lower-cost short-term
FHLB debt structure.
Other gain on investments, net, was $146 million for the year ended December 31,
2012, compared to $259 million in 2011. The decrease was primarily due to the
recognition of $61 million other-than-temporary impairment on certain equity
securities in 2012 and lower realized investment gains.
Other income, net of losses, increased 52% for the year ended December 31, 2012,
compared to 2011. The increase was primarily due to higher fee income and net
origination revenue related to increased consumer mortgage-lending production
associated with government-sponsored refinancing programs and a decrease in fair
value option election valuation losses related to the deconsolidation of ResCap,
partially offset by lower remarketing fee income from our Automotive Finance
operations driven by lower remarketing volumes through our proprietary
SmartAuction platform.
The provision for loan losses was $329 million for the year ended December 31,
2012, compared to $188 million in 2011. The increase was driven primarily by
higher asset levels in the consumer automotive portfolio and our prudent
expansion of underwriting strategy to originate volumes across a broader credit
spectrum, which was significantly narrowed during the recession.
Other operating expenses increased 19% for the year ended December 31, 2012,
compared to 2011. The increase was primarily due to a $1.2 billion charge
related to ResCap's Chapter 11 filing (refer to Note 1 for more information
regarding the Debtors' bankruptcy, deconsolidation, and this charge), a $90
million expense related to penalties imposed by certain regulators and other
governmental agencies in connection with mortgage foreclosure-related matters
during the second quarter of 2012, and higher professional services expense,
partially offset by lower mortgage representation and warranty expense related
to the deconsolidation of ResCap.
We recognized consolidated income tax benefit from continuing operations of $1.3
billion for the year ended December 31, 2012, compared to income tax expense of
$51 million in 2011. In 2011, we had a full valuation allowance against our
domestic net deferred tax assets and certain international net deferred tax
assets. For the year ended December 31, 2012, our results from operations
benefited $1.3 billion from the release of U.S. federal and state valuation
allowances and related effects on the basis of management's reassessment of the
amount of its deferred tax assets that are more likely than not to be realized.
Refer to Note 23 to the Consolidated Financial Statements for further
information.
2011 Compared to 2010
We incurred a net loss from continuing operations of $1.0 billion for the year
ended December 31, 2011, compared to net income from continuing operations of
$288 million for the year ended December 31, 2010. Continuing operations for the
year ended December 31, 2011, were unfavorably impacted by a decrease in net
servicing income due to a drop in interest rates and increased market
volatility, lower gains on the sale of loans, and a $230 million expense related
to penalties imposed by certain regulators and other governmental agencies in
connection with mortgage foreclosure-related matters. Partially offsetting these
decreases were lower representation and warranty expense and provision for loan
losses.
Total financing revenue and other interest income decreased by 12% for the year
ended December 31, 2011, compared to 2010. Operating lease revenue and the
related depreciation expense at our Automotive Finance operations declined due
to a lower average operating lease portfolio balance as a result of our decision
in late 2008 to significantly curtail leasing. Depreciation expense was also
impacted by lower lease remarketing gains resulting from lower lease termination
volumes. The decrease in our Mortgage operations resulted from a decline in
average asset levels due to loan sales, the deconsolidation of previously
on-balance sheet securitizations, and portfolio runoff. Partially offsetting the
decrease was an increase in consumer financing revenue at our Automotive Finance
operations driven primarily by an increase in consumer asset levels related to
strong loan origination volume during 2010 and 2011 resulting primarily from
higher automotive industry sales, increased used vehicle financing volume, and
higher on-balance sheet retention.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Interest expense decreased 8% for the year ended December 31, 2011, compared to
2010, primarily as a result of a change in our funding mix with an increased
amount of funding coming from deposit liabilities as well as favorable trends in
the securitization markets.
Net servicing income was $569 million for the year ended December 31, 2011,
compared to $1.1 billion in 2010. The decrease was primarily due to a decrease
in interest rates and increased market volatility compared to favorable
valuation adjustments in 2010. Additionally, 2011 includes a valuation
adjustment that estimates the impact of higher servicing costs related to
enhanced foreclosure procedures, establishment of single point of contact, and
other processes to comply with a consent order (the Consent Order) with the FRB
and the FDIC entered into on April 13, 2011.
Insurance premiums and service revenue earned decreased 15% for the year ended
December 31, 2011, compared to 2010. The decrease was primarily driven by the
sale of certain international insurance operations during the fourth quarter of
2010 and lower earnings from our U.S. vehicle service contracts written between
2007 and 2009 due to lower domestic vehicle sales volume.
Gain on mortgage and automotive loans decreased 62% for the year ended
December 31, 2011, compared to 2010. The decrease was primarily due to lower
margins on mortgage loan sales, a decrease in mortgage loan production, lower
whole-loan mortgage sales and mortgage loan resolutions in 2011, the absence of
the 2010 gain on the deconsolidation of an on-balance sheet securitization, and
the expiration of our automotive forward flow agreements during the fourth
quarter of 2010.
We incurred a loss on extinguishment of debt of $64 million for the year ended
December 31, 2011, compared to a loss of $124 million for the year ended
December 31, 2010. The activity in all periods related to the extinguishment of
certain Ally debt, which included $50 million of accelerated amortization of
original issue discount for 2011, compared to $101 million in 2010.
Other gain on investments was $259 million for the year ended December 31, 2011,
compared to $502 million in 2010. The decrease was primarily due to lower
realized investment gains on our Insurance operations investment portfolio.
Other income, net of losses, increased 48% for the year ended December 31, 2011,
compared to 2010. The increase during 2011 was primarily due to the positive
impact of a $121 million gain on the early settlement of a loss holdback
provision related to certain historical automotive whole-loan forward flow
agreements and a favorable change in the fair value option election adjustment.
The provision for loan losses was $188 million for the year ended December 31,
2011, compared to $357 million in 2010. The decrease during 2011 reflected
improved credit quality of the overall portfolio as a result of the decision to
curtail nonprime lending in 2009 and the continued runoff and improved loss
performance of our Nuvell nonprime automotive financing portfolio.
Insurance losses and loss adjustment expenses decreased 12% for the year ended
December 31, 2011, compared to 2010. The decrease was primarily due to lower
frequency and severity experienced in our U.S. vehicle service contract business
and the sale of certain international insurance operations during the fourth
quarter of 2010, which was partially offset by higher weather-related losses in
the United States on our dealer inventory insurance products.
Other operating expenses decreased 5% for the year ended December 31, 2011,
compared to 2010. The decrease was primarily related to a decrease of $346
million in mortgage representation and warranty reserve expense, lower insurance
commissions expense, and lower vehicle remarketing and repossession expense. The
decrease was partially offset by a $230 million expense related to penalties
imposed by certain regulators and other governmental agencies in connection with
mortgage foreclosure-related matters.
We recognized consolidated income tax expense of $51 million for the year ended
December 31, 2011, compared to $104 million in 2010. For those respective
periods, we had a full valuation allowance against our domestic net deferred tax
assets and certain international net deferred tax assets. Accordingly, tax
expense was driven by U.S. state income taxes in states where profitable
subsidiaries are required to file separately from other loss companies in the
group or where the use of prior losses is restricted, and foreign income taxes
on pretax profits within foreign jurisdictions. The decrease in income tax
expense for 2011, compared to 2010, was driven by increased foreign pretax
losses.

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  Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Dealer Financial Services
Results for Dealer Financial Services are presented by reportable segment, which
includes our Automotive Finance and Insurance operations.
Automotive Finance Operations
Results of Operations
The following table summarizes the operating results of our Automotive Finance
operations excluding discontinued operations for the periods shown. Automotive
Finance operations include the automotive activities of Ally Bank. The amounts
presented are before the elimination of balances and transactions with our other
reportable segments.
                                                                                Favorable/
                                                                               (unfavorable)   Favorable/(unfavorable)
Year ended December 31, ($ in                                                    2012-2011            2011-2010
millions)                                2012          2011          2010        % change             % change
Net financing revenue
Consumer                              $   2,827     $   2,411     $  1,953          17                   23
Commercial                                1,152         1,134        1,210           2                   (6)
Loans held-for-sale                          15             5          112          n/m                 (96)
Operating leases                          2,379         1,929        2,579          23                  (25)
Other interest income                        52            92          109         (43)                 (16)
Total financing revenue and other
interest income                           6,425         5,571        5,963          15                   (7)
Interest expense                          2,199         2,100        2,011          (5)                  (4)
Depreciation expense on operating
lease assets                              1,399           941        1,255         (49)                  25
Net financing revenue                     2,827         2,530        2,697          12                   (6)
Other revenue
Servicing fees                              109           161          227         (32)                 (29)
Gain on automotive loans, net                41            48          248         (15)                 (81)
Other income                                172           213          249         (19)                 (14)
Total other revenue                         322           422          724         (24)                 (42)
Total net revenue                         3,149         2,952        3,421           7                  (14)
Provision for loan losses                   253            89          260         (184)                 66
Noninterest expense
Compensation and benefits expense           416           395          352          (5)                 (12)
Other operating expenses                  1,091         1,135        1,052           4                   (8)
Total noninterest expense                 1,507         1,530        1,404           2                   (9)

Income before income tax expense $ 1,389$ 1,333$ 1,757

New Strategy to avoid RMDs

         4                  (24)
Total assets                          $ 128,411     $ 112,591     $ 97,961          14                   15


n/m = not meaningful
2012 compared to 2011
Our Automotive Finance operations earned income before income tax expense of
$1.4 billion for the year ended December 31, 2012, compared to $1.3 billion for
the year ended December 31, 2011. Results for the year ended December 31, 2012
were favorably impacted by higher consumer and operating lease revenues driven
by growth in the retail loan and operating lease portfolios. These items were
partially offset by higher provision for loan losses, lower operating lease
remarketing gains due primarily to lower remarketing volume, lower servicing
fees, and lower income generated from lease remarketing.
Consumer financing revenue increased 17% for the year ended December 31, 2012,
compared to 2011, due to an increase in consumer asset levels driven by limited
use of whole-loan sales as a funding source in recent periods, increased volumes
of used vehicle automotive financing, and higher automotive industry sales;
however, our GM and Chrysler penetration levels for new retail automotive loans
were lower than those in 2011. Additionally, we continue to prudently expand our
nonprime origination volume. The increase in consumer revenue from volume was
partially offset by lower yields as a result of the competitive market
environment for automotive financing.
Commercial financing revenue increased $18 million for the year ended
December 31, 2012, compared to 2011. The increase was primarily driven by higher
commercial loan balances due to growth in our wholesale dealer floorplan lending
and dealer loan portfolio, partially offset by lower yields as a result of
competitive markets for automotive commercial financing.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Operating lease revenue increased 23% for the year ended December 31, 2012,
compared to 2011, primarily due to higher lease asset balances as a result of
strong origination volume.
Interest expense increased $99 million for the year ended December 31, 2012,
compared to 2011. The increase was primarily due to higher levels of earning
assets, primarily as a result of growth in the retail loan and lease portfolios.
Depreciation expense on operating lease assets increased 49% for the year ended
December 31, 2012, compared to 2011, primarily due to higher lease asset
balances as a result of strong lease origination volume and lower lease
remarketing gains primarily due to lower lease remarketing volume.
Servicing fee income decreased 32% for the year ended December 31, 2012,
compared to 2011, due to lower levels of off-balance sheet retail serviced
assets.
Gains on the sale of automotive loans were $41 million for the year ended
December 31, 2012, compared to $48 million for 2011. We sold approximately $2.5
billion of retail automotive loans during 2012 compared to approximately $2.8
billion during 2011. While we continue to opportunistically utilize whole-loan
sales as a source of funding, we have primarily focused on securitization and
deposit-based funding sources.
Other income decreased 19% for the year ended December 31, 2012, compared to
2011, primarily due to lower remarketing fee income driven by lower remarketing
volumes through our proprietary SmartAuction platform.
The provision for loan losses was $253 million for the year ended December 31,
2012, compared to $89 million in 2011. The increase was primarily due to
continued growth in the consumer portfolio and our prudent expansion of
underwriting strategy to originate volumes across a broader credit spectrum,
which was significantly narrowed during the recession.
2011 Compared to 2010
Our Automotive Finance operations earned income before income tax expense of
$1.3 billion for the year ended December 31, 2011, compared to $1.8 billion for
the year ended December 31, 2010. Results for the year ended December 31, 2011,
were primarily driven by less favorable remarketing results in our operating
lease portfolio due primarily to lower lease terminations and the absence of
gains on the sale of automotive loans due to the expiration of our forward flow
agreements during the fourth quarter of 2010. These declines were partially
offset by increased consumer financing revenue driven by strong loan origination
volume related primarily to improvement in automotive industry sales, the growth
in used vehicle financing volume, and a lower loan loss provision due to an
improved credit mix and improved consumer credit performance.
Consumer financing revenue increased 23% for the year ended December 31, 2011,
compared to 2010, due to an increase in consumer asset levels primarily related
to strong loan origination volume during 2010 and 2011 resulting primarily from
higher automotive industry sales, increased used vehicle financing volume, and
higher on-balance sheet retention. Additionally, we continue to prudently expand
our nonprime origination volume and introduce innovative finance products to the
marketplace. The increase in consumer revenue was partially offset by lower
yields as a result of an increasingly competitive market environment and a
change in the consumer asset mix, including the runoff of the higher-yielding
Nuvell nonprime automotive financing portfolio.
Loans held-for-sale financing revenue decreased $107 million for the year ended
December 31, 2011, compared to 2010, due to the expiration of whole-loan forward
flow agreements during the fourth quarter of 2010. Subsequent to the expiration
of these agreements, consumer loan originations have largely been retained
on-balance sheet utilizing deposit funding from Ally Bank and on-balance sheet
securitization transactions.
Operating lease revenue decreased 25% for the year ended December 31, 2011,
compared to 2010. Operating lease revenue and depreciation expense declined due
to a lower average operating lease portfolio balance. Depreciation expense was
also impacted by lower remarketing gains due primarily to a decline in lease
termination volume. In 2008 and 2009, we significantly curtailed our lease
product offerings in the United States. During the latter half of 2009, we
re-entered the U.S. leasing market with targeted lease product offerings and
have continued to expand lease volume since that time.
Servicing fee income decreased $66 million for the year ended December 31, 2011,
compared to 2010, due to lower levels of off-balance sheet retail serviced
assets driven by a reduction of new whole-loan sales subsequent to the
expiration of our forward flow agreements in the fourth quarter of 2010.
Net gain on automotive loans decreased $200 million for the year ended December
31, 2011, compared to 2010, primarily due to the expiration of whole-loan
forward flow agreements during the fourth quarter of 2010.
The provision for loan losses was $89 million for the year ended December 31,
2011, compared to $260 million in 2010. The decrease was primarily due to
improved credit quality that drove improved loss performance in the consumer
loan portfolio and continued strength in the used vehicle market, partially
offset by continued growth in the consumer loan portfolio.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Automotive Finance Operations
Our Automotive Finance operations provide automotive financing services to
consumers and automotive dealers. For consumers, we provide retail financing and
leasing for new and used vehicles, and through our commercial automotive
financing operations, we fund dealer purchases of new and used vehicles through
wholesale or floorplan financing.
Consumer Automotive Financing
Historically, we have provided two basic types of financing for new and used
vehicles: retail installment sale contracts (retail contracts) and lease
contracts. In most cases, we purchase retail contracts and leases for new and
used vehicles from dealers when the vehicles are purchased or leased by
consumers. Our consumer automotive financing operations generate revenue through
finance charges or lease payments and fees paid by customers on the retail
contracts and leases. In connection with lease contracts, we also recognize a
gain or loss on the remarketing of the vehicle at the end of the lease.
The amount we pay a dealer for a retail contract is based on the negotiated
purchase price of the vehicle and any other products, such as service contracts,
less any vehicle trade-in value and any down payment from the consumer. Under
the retail contract, the consumer is obligated to make payments in an amount
equal to the purchase price of the vehicle (less any trade-in or down payment)
plus finance charges at a rate negotiated between the consumer and the dealer.
In addition, the consumer is also responsible for charges related to past-due
payments. When we purchase the contract, it is normal business practice for the
dealer to retain some portion of the finance charge as income for the
dealership. Our agreements with dealers place a limit on the amount of the
finance charges they are entitled to retain. Although we do not own the vehicles
we finance through retail contracts, we hold a perfected security interest in
those vehicles.
With respect to consumer leasing, we purchase leases (and the associated
vehicles) from dealerships. The purchase price of consumer leases is based on
the negotiated price for the vehicle less any vehicle trade-in and any down
payment from the consumer. Under the 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 or down payment) exceeds the contract
residual value (including residual support) of the vehicle at lease termination,
plus lease charges. The consumer is also generally responsible for charges
related to past due payments, excess mileage, excessive wear and tear, and
certain disposal fees where applicable. When the lease contract is entered into,
we estimate the residual value of the leased vehicle at lease termination. At
contract inception, we generally determine the projected residual values based
on independent data, including independent guides of vehicle residual values,
and analysis. These projected values may be upwardly adjusted as a marketing
incentive if the manufacturer considers above-market residual support necessary
to encourage consumers to lease vehicles. To the extent the actual residual
value of the vehicle, as reflected in the sales proceeds received upon
remarketing at lease termination, is less than the expected residual value for
the vehicle at lease inception, we incur additional depreciation expense and/or
a loss on the lease transaction.
Our standard U.S. leasing plan, SmartLease, requires a monthly payment by the
consumer. We also offer an alternative leasing plan, SmartLease Plus, that
requires one up-front payment of all lease amounts at the time the consumer
takes possession of the vehicle.
During 2011, we introduced the Ally Buyer's Choice product on new GM and
Chrysler vehicles to select states in the United States. The Ally Buyer's Choice
financing product allows customers to own their vehicle with a fixed rate and
payment with the option to sell it to us at a pre-determined point during the
contract term and at a pre-determined price.
Consumer leases are operating leases; therefore, credit losses on the operating
lease portfolio are not as significant as losses on retail contracts because
lease credit losses are primarily limited to payments and assessed fees. Since
some of these fees are not assessed until the vehicle is returned, these losses
on the lease portfolio are correlated with lease termination volume. U.S.
operating lease accounts past due over 30 days represented 0.73% and 0.66% of
the total portfolio at December 31, 2012 and 2011, respectively.
With respect to all financed vehicles, whether subject to a retail contract or a
lease contract, we require that property damage insurance be obtained by the
consumer. In addition, for lease contracts, we require that bodily injury,
collision, and comprehensive insurance be obtained by the consumer.
Total consumer financing revenue of our Automotive Finance operations was $2.8
billion, $2.4 billion, and $2.0 billion in 2012, 2011, and 2010, respectively.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Consumer Automotive Financing Volume The following table summarizes our new and used vehicle consumer financing volume, including lease, and our share of consumer sales in the United States.

                                             Consumer automotive              % Share of
                                              financing volume              consumer sales
Year ended December 31, (units in
thousands)                               2012        2011       2010     2012    2011    2010
GM new vehicles                           579         707        596        30      38      38
Chrysler new vehicles                     315         304        302       

26 32 45 Other non-GM / Chrysler new vehicles 81 68 33 Used vehicles

                             485         466        255
Total consumer automotive financing
volume                                  1,460       1,545      1,186


The decline in consumer automotive financing volume in 2012, compared to 2011,
was primarily driven by lower retail penetration at both GM and Chrysler in the
United States. Additionally, both used and non-GM/Chrysler originations were
higher due to the continued strategic focus within these markets. We continue to
increase our focus on used vehicle financing, primarily through franchised
dealers. The decrease in GM and Chrysler penetration during the year ended
December 31, 2012 was primarily due to the market for automotive financing
growing more competitive as more consumers are financing their vehicle purchases
and as more competitors continue to enter this market as a result of how well
automotive finance assets generally performed relative to other asset classes
during the 2008 economic downturn.
Manufacturer Marketing Incentives
Automotive manufacturers may elect to sponsor incentive programs (on both retail
contracts and leases) by supporting finance rates below the standard market
rates at which we purchase retail contracts. These marketing incentives are also
referred to as rate support or subvention. When automotive manufacturers utilize
these marketing incentives, we are compensated at contract inception for the
present value of the difference between the customer rate and our standard
rates. For retail loans, we defer and recognize this amount as a yield
adjustment over the life of the contract. For lease contracts, this payment
reduces our cost basis in the underlying lease asset.
Automotive manufacturers may also provide incentives on leased vehicles by
supporting an above-market residual value, referred to as residual support, to
encourage consumers to lease vehicles. Residual support results in a lower
monthly lease payment for the consumer. While we are compensated by the
manufacturer at the time of lease origination to raise the contract residual, we
may bear the risk of loss to the extent the value of the leased vehicle upon
remarketing is below the contract residual value of the vehicle at the time the
lease contract is signed. Under certain residual support programs, the
automotive manufacturer may reimburse us to the extent remarketing sales
proceeds are less than the residual value set forth in the lease contract and no
greater than our standard residual rates that would have otherwise been applied.
To the extent remarketing sales proceeds are more than the contract residual at
termination, we may reimburse the automotive manufacturer for a portion of the
higher residual value.
Under what we refer to as pull-ahead programs, consumers may be encouraged by
the manufacturer to terminate leases early in conjunction with the acquisition
of a new vehicle. As part of these programs, we waive all or a portion of the
customer's remaining payment obligation. Under most programs, the automotive
manufacturer compensates us for a portion of the foregone revenue from the
waived payments that are offset partially to the extent that our remarketing
sales proceeds are higher than otherwise would be realized if the vehicle had
been remarketed at lease contract maturity.
We are currently party to an agreement with GM pursuant to which GM initially
agreed to offer all vehicle financing incentives to customers through Ally.
However, the agreement, which was originally entered into in November 2006,
provides for annual reductions in the percentage of financing subvention
programs that GM is required to provide through Ally, and currently applies to a
limited percentage. The agreement expires on December 31, 2013.
We are also party to an agreement to make available automotive financing
products and services to Chrysler dealers and customers. We provide dealer
financing and services and retail financing to qualified Chrysler dealers and
customers as we deem appropriate according to our credit policies and in our
sole discretion, and Chrysler is obligated to use Ally for a designated minimum
threshold percentage of Chrysler retail financing subvention programs. On April
25, 2012, Chrysler provided us with notification of nonrenewal related to this
agreement and as a result, the agreement will expire on April 30, 2013.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table presents the total U.S. consumer origination dollars and percentage mix by product type.

                                              Consumer automotive                  % Share of
                                             financing originations              consumer sales
Year ended December 31, ($ in
billions)                                 2012         2011         2010      2012    2011    2010
GM new vehicles
New retail standard                    $  6,230     $  9,009     $  8,460        16      23      27
New retail subvented                      5,960        6,734        6,532        15      17      21
Lease                                     5,919        5,075        2,954        15      13       9
Total GM new vehicle originations        18,109       20,818       17,946
Chrysler new vehicles
New retail standard                       4,431        4,062        3,324        12      10      11
New retail subvented                      1,971        2,454        3,893         5       6      12
Lease                                     2,380        2,165          891         6       5       3
Total Chrysler new vehicle
originations                              8,782        8,681        8,108
Other new retail vehicles                 2,178        1,684          736         6       4       2
Other lease                                  93           76           43         -       -       -
Used vehicles                             9,581        8,990        4,736        25      22      15
Total consumer automotive financing
originations                           $ 38,743     $ 40,249     $ 31,569


At December 31, 2012, the percentage of U.S. new retail contracts acquired that
included rate subvention from GM and Chrysler decreased as a percentage of total
U.S. new retail contracts compared to 2011, primarily driven by lower retail
penetration at both GM and Chrysler in the United States as a result of the
continued evolution of our business model. Additionally, both used and
non-GM/Chrysler originations were higher due to the continued strategic focus
within these markets. We continue to increase our focus on used vehicle
financing, primarily through franchised dealers. The fragmented used vehicle
financing market provides an attractive opportunity that we believe will further
expand and support our dealer relationships and increase our volume of retail
loan originations.
Servicing
We have historically serviced all retail contracts and leases we retained
on-balance sheet. We historically sold a portion of the retail contracts we
originated and retained the right to service and earn a servicing fee for our
servicing functions. Ally Servicing LLC, a wholly owned subsidiary, performs
most servicing activities for U.S. retail contracts and consumer automobile
leases.
Servicing activities consist largely of collecting and processing customer
payments, responding to customer inquiries such as requests for payoff quotes,
processing customer requests for account revisions (such as payment extensions
and rewrites), maintaining a perfected security interest in the financed
vehicle, monitoring vehicle insurance coverage, and disposing of off-lease
vehicles. Servicing activities are generally consistent for our Automotive
Finance operations; however, certain practices may be influenced by local laws
and regulations.
Our U.S. customers have the option to receive monthly billing statements to
remit payment by mail or through electronic fund transfers, or to establish
online web-based account administration through the Ally Account Center.
Customer payments are processed by regional third-party processing centers that
electronically transfer payment data to customers' accounts.
Servicing activities also include initiating contact with customers who fail to
comply with the terms of the retail contract or lease, typically via telephone
or sending a reminder notice, when an account becomes 3 to 15 days past due.
Accounts that become 30 to 45 days past due are transferred to special
collection teams that track accounts more closely. The nature and timing of
these activities depend on the repayment risk of the account.
During the collection process, we may offer a payment extension to a customer
experiencing temporary financial difficulty. A payment extension enables the
customer to delay monthly payments for 30, 60, or 90 days, thereby deferring the
maturity date of the contract by the period of delay. Extensions granted to a
customer typically do not exceed 90 days in the aggregate during any 12-month
period or 180 days in aggregate over the life of the contract. During the
deferral period, we continue to accrue and collect interest on the contract as
part of the deferral agreement. If the customer's financial difficulty is not
temporary and management believes the customer could continue to make payments
at a lower payment amount, we may offer to rewrite the remaining obligation,
extending the term and lowering the monthly payment obligation. In those cases,
the principal balance generally remains unchanged while the interest rate
charged to the customer generally increases. Extension and rewrite collection
techniques help mitigate financial loss in those cases where management believes
the customer will recover from financial difficulty and resume regularly
scheduled payments or can fulfill the obligation with lower payments over a
longer period. Before offering an extension or rewrite, collection personnel
evaluate and take into account the capacity of the customer to meet the revised
payment terms. Generally, we do not consider extensions that fall within our
policy guidelines to represent more than an insignificant delay in payment and,
therefore, they are not considered Troubled Debt Restructurings (TDRs). Although
the granting of an extension could delay the eventual charge-off of an account,
typically we are able to repossess and sell the related collateral, thereby

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


mitigating the loss. As an indication of the effectiveness of our consumer
credit practices, of the total amount outstanding in the U. S. traditional
retail portfolio at December 31, 2009, only 7.5% of the extended or rewritten
balances were subsequently charged off through December 31, 2012. A three-year
period was utilized for this analysis as this approximates the weighted average
remaining term of the portfolio. At December 31, 2012, 7.6% of the total amount
outstanding in the servicing portfolio had been granted an extension or was
rewritten.
Subject to legal considerations, in the United States we normally begin
repossession activity once an account becomes greater than 60-days past due.
Repossession may occur earlier if management determines the customer is
unwilling to pay, the vehicle is in danger of being damaged or hidden, or the
customer voluntarily surrenders the vehicle. Approved third-party repossession
firms handle repossessions. Normally the customer is given a period of time to
redeem the vehicle by paying off the account or bringing the account current. If
the vehicle is not redeemed, it is sold at auction. If the proceeds do not cover
the unpaid balance, including unpaid earned finance charges and allowable
expenses, the resulting deficiency is charged off. Asset recovery centers pursue
collections on accounts that have been charged off, including those accounts
where the vehicle was repossessed, and skip accounts where the vehicle cannot be
located.
At December 31, 2012 and 2011, our total consumer automotive serviced portfolio
was $75.3 billion and $85.5 billion, respectively, compared to our consumer
automotive on-balance sheet portfolio of $67.3 billion and $73.2 billion at
December 31, 2012 and 2011, respectively. Refer to Note 11 to the Consolidated
Financial Statements for further information regarding servicing activities.
Remarketing and Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the vehicle from the
dealer. 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 through an auction. We generally bear the risk of
loss to the extent the value of a leased vehicle upon remarketing is below the
contract residual value determined at the time the lease contract is signed.
Automotive manufacturers may share this risk with us for certain leased
vehicles, as described previously under Manufacturer Marketing Incentives. Our
methods of vehicle sales in the United States at lease termination primarily
include the following:
•      Sale to dealer - After the lessee declines an option to purchase the

off-lease vehicle, the dealer who accepts the returned off-lease vehicle

has the opportunity to purchase the vehicle directly from us at a price we

define.

• Internet auctions - Once the lessee and dealer decline their options to

       purchase, we offer off-lease vehicles to dealers and certain other third
       parties in the United States through our proprietary internet site
       (SmartAuction). This internet sales program maximizes the net sales

proceeds from off-lease vehicles by reducing the time between vehicle

return and ultimate disposition, reducing holding costs, and broadening

the number of prospective buyers. We maintain the internet auction site,

set the pricing floors on vehicles, and administer the auction process. We

earn a service fee for every vehicle sold through SmartAuction, which, in

2012, was 221,000 vehicles.

• Physical auctions - We dispose of our off-lease vehicles not purchased at

termination by the lease consumer or dealer or sold on an internet auction

through traditional official manufacturer-sponsored auctions. We are

responsible for handling decisions at the auction including arranging for

inspections, authorizing repairs and reconditioning, and determining

whether bids received at auction should be accepted.



Commercial Automotive Financing
Automotive Wholesale Dealer Financing
One of the most important aspects of our dealer relationships is supporting the
sale of vehicles through wholesale or floorplan financing. We primarily support
automotive finance purchases by dealers of new and used vehicles manufactured
or distributed before sale or lease to the retail customer. Wholesale automotive
financing represents the largest portion of our commercial financing business
and is the primary source of funding for dealers' purchases of new and used
vehicles. During 2012, we financed an average commercial wholesale floorplan
receivables balance of $15.3 billion of new GM vehicles, representing a 71%
share of GM's U.S. dealer inventory. We also financed an average of $6.7 billion
of new Chrysler vehicles representing a 58% share of Chrysler's U.S. dealer
inventory. In addition, we financed an average of $2.2 billion of new
non-GM/Chrysler vehicles and $3.0 billion of used vehicles.
Wholesale credit is arranged through lines of credit extended to individual
dealers. In general, each wholesale credit line is secured by all vehicles and
typically by other assets owned by the dealer or the operator's or owner's
personal guarantee. As part of our floorplan financing arrangement, we typically
require repurchase agreements with the automotive manufacturer to repurchase new
vehicle inventory under certain circumstances. The amount we advance to dealers
is equal to 100% of the wholesale invoice price of new vehicles, which includes
destination and other miscellaneous charges, and a price rebate, known as a
holdback, from the manufacturer to the dealer in varying amounts stated as a
percentage of the invoice price. Interest on wholesale automotive financing is
generally payable monthly. Most wholesale automotive financing is structured to
yield interest at a floating rate indexed to the Prime Rate. The rate for a
particular dealer is based on, among other things, competitive factors, the
amount and status of the dealer's creditworthiness, and various incentive
programs.
Under the terms of the credit agreement with the dealer, we may demand payment
of interest and principal on wholesale credit lines at any time; however, unless
we terminate the credit line or the dealer defaults or the risk and exposure
warrant, we generally require payment of the principal amount financed for a
vehicle upon its sale or lease by the dealer to the customer.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Total commercial wholesale revenue of our Automotive Finance operations was
$999 million, $976 million, and $909 million in 2012, 2011, and 2010,
respectively.
Commercial Wholesale Financing Volume
The following table summarizes the average balances of our commercial wholesale
floorplan finance receivables of new and used vehicles and share of dealer
inventory in the United States.
                                                                                    % Share of
                                                 Average balance                 dealer inventory
Year ended December 31, ($ in
millions)                                 2012         2011         2010      2012     2011    2010
GM new vehicles (a)                    $ 15,331     $ 13,407     $ 10,941        71       78      82
Chrysler new vehicles (a)                 6,693        6,228        4,665  

58 67 72 Other non-GM / Chrysler new vehicles 2,230 1,844 1,704 Used vehicles

                             2,985        2,920        2,727
Total commercial wholesale finance
receivables                            $ 27,239     $ 24,399     $ 20,037


(a) Share of dealer inventory based on a 13 month average of dealer inventory

(excludes in-transit units).



Commercial wholesale financing average volume increased during 2012, compared to
2011, primarily due to growing dealer inventories required to support increasing
automobile sales. GM and Chrysler wholesale penetration decreased during 2012,
compared to 2011, as a result of increased competition in the wholesale
marketplace.
Other Commercial Automotive Financing
We also provide other forms of commercial financing for the automotive industry
including automotive dealer term loans and automotive fleet financing.
Automotive dealer term loans are loans that we make to dealers to finance other
aspects of the dealership business. These loans are typically secured by real
estate, other dealership assets, and are personally guaranteed by the individual
owners of the dealership. Automotive fleet financing may be obtained by dealers,
their affiliates, and other companies and be used to purchase vehicles, which
they lease or rent to others.
Servicing and Monitoring
We service all of the wholesale credit lines in our portfolio and the wholesale
automotive finance receivables that we have securitized. A statement setting
forth billing and account information is distributed on a monthly basis to each
dealer. Interest and other nonprincipal charges are billed in arrears and are
required to be paid immediately upon receipt of the monthly billing statement.
Generally, dealers remit payments to us through wire transfer transactions
initiated by the dealer through a secure web application.
Dealers are assigned a risk rating based on various factors, including capital
sufficiency, operating performance, financial outlook, and credit and payment
history. The risk rating affects the amount of the line of credit, the
determination of further advances, and the management of the account. We monitor
the level of borrowing under each dealer's account daily. When a dealer's
balance exceeds the credit line, we may temporarily suspend the granting of
additional credit or increase the dealer's credit line or take other actions
following evaluation and analysis of the dealer's financial condition and the
cause of the excess.
We periodically inspect and verify the existence of dealer vehicle inventories.
The timing of the verifications varies, and ordinarily no advance notice is
given to the dealer. Among other things, verifications are intended to determine
dealer compliance with the financing agreement and confirm the status of our
collateral.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Insurance Operations
Results of Operations
The following table summarizes the operating results of our Insurance operations
excluding discontinued operations for the periods shown. The amounts presented
are before the elimination of balances and transactions with our other
reportable segments.
                                                                           

Favorable/ Favorable/

                                                                          (unfavorable)   (unfavorable)
Year ended December 31, ($ in                                               2012-2011       2011-2010
millions)                               2012        2011        2010        % change        % change
Insurance premiums and other income
Insurance premiums and service
revenue earned                        $ 1,055     $ 1,153     $ 1,342          (8)            (14)
Investment income                         124         220         418         (44)            (47)
Other income                               35          25          41          40             (39)
Total insurance premiums and other
income                                  1,214       1,398       1,801         (13)            (22)
Expense
Insurance losses and loss
adjustment expenses                       454         452         511           -              12
Acquisition and underwriting
expense
Compensation and benefits expense          61          61          64           -               5
Insurance commissions expense             382         431         510          11              15
Other expenses                            157         138         159         (14)             13
Total acquisition and underwriting
expense                                   600         630         733           5              14
Total expense                           1,054       1,082       1,244           3              13
Income from continuing operations
before income tax expense             $   160     $   316     $   557         (49)            (43)
Total assets                          $ 8,439     $ 8,036     $ 8,789           5              (9)
Insurance premiums and service
revenue written                       $ 1,061     $ 1,039     $ 1,029           2               1
Combined ratio (a)                       98.3 %      93.1 %      90.6 %

(a) Management uses a combined ratio as a primary measure of underwriting

profitability with its components measured using accounting principles

generally accepted in the United States of America. 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.


2012 Compared to 2011
Our Insurance operations earned income from continuing operations before income
tax expense of $160 million for the year ended December 31, 2012, compared to
$316 million for the year ended December 31, 2011. The decrease was primarily
attributable to lower investment income, lower insurance premiums and service
revenue earned from our U.S. vehicle service contracts, and higher
weather-related losses, including the effects of Storm Sandy.
Insurance premiums and service revenue earned was $1.1 billion for the year
ended December 31, 2012, compared to $1.2 billion in 2011. The decrease was
primarily due to declining U.S. vehicle service contracts written between 2007
and 2009 as a result of lower domestic vehicle sales volume.
Investment income totaled $124 million for the year ended December 31, 2012,
compared to $220 million in 2011. The decrease was primarily due to the
recognition of other-than-temporary impairment on certain equity securities of
$61 million and lower realized investment gains.
Other income totaled $35 million for the year ended December 31, 2012, compared
to $25 million in 2011. The increase was primarily due to a gain of $8 million
on the sale of our Canadian personal lines business during the second quarter of
2012.
Insurance losses and loss adjustment expenses totaled $454 million for the year
ended December 31, 2012, compared to $452 million for the year ended
December 31, 2011. The slight increase was driven primarily by higher
weather-related losses in the United States on our dealer inventory insurance
products, including the effects of Storm Sandy, mostly offset by lower frequency
experienced in our vehicle service contract business and lower losses matching
our decrease in earned premium. Despite the decrease in insurance premiums and
service revenue earned, insurance losses and loss adjustment expenses increased
primarily due to the impacts of Storm Sandy, which further impacted the increase
in the combined ratio.
Acquisition and underwriting expense decreased 5% for the year ended
December 31, 2012, compared to 2011. The decrease was primarily a result of
lower commission expense in our U.S. dealership-related products matching our
decrease in earned premiums, partially offset by increased technology expense.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


2011 Compared to 2010
Our Insurance operations earned income from continuing operations before income
tax expense of $316 million for the year ended December 31, 2011, compared to
$557 million for the year ended December 31, 2010. The decrease was primarily
attributable to lower insurance premiums and service contract revenue earned
from our U.S. vehicle service contracts and lower realized investment gains.
Insurance premiums and service revenue earned was $1.2 billion for the year
ended December 31, 2011, compared to $1.3 billion in 2010. The decrease was
primarily due to the sale of certain international insurance operations during
the fourth quarter of 2010 and lower earnings from our U.S. vehicle service
contracts written between 2007 and 2009 due to lower domestic vehicle sales
volume.
Investment income totaled $220 million for the year ended December 31, 2011,
compared to $418 million in 2010. The decrease was primarily due to lower
realized investment gains.
Insurance losses and loss adjustment expenses totaled $452 million for the year
ended December 31, 2011, compared to $511 million in 2010. The decrease was
primarily due to lower frequency and severity experienced in our U.S. vehicle
service contract business and the sale of certain international insurance
operations during the fourth quarter of 2010, which was partially offset by
higher weather-related losses in the United States on our dealer inventory
insurance products.
Acquisition and underwriting expense decreased 14% for the year ended
December 31, 2011, compared to 2010. The decrease was primarily due to the sale
of certain international insurance operations during the fourth quarter of 2010
and lower commission expense in our U.S. dealership-related products matching
our decrease in earned premiums.
Premium and Service Revenue Written
The following table shows premium and service revenue written by insurance
product.
Year ended December 31, ($ in millions)     2012        2011        2010
Vehicle service contracts
New retail                                $   406     $   376     $   315
Used retail                                   509         514         517
Reinsurance                                  (119 )      (103 )       (91 )
Total vehicle service contracts               796         787         741
Wholesale                                     132         115         103
Other finance and insurance (a)               129         133         113
North American operations                   1,057       1,035         957
International and Corporate (b)                 4           4          72
Total                                     $ 1,061     $ 1,039     $ 1,029


(a) Other finance and insurance includes Guaranteed Automobile Protection (GAP)

coverage, excess wear and tear, wind-down of Canadian personal lines, and

other ancillary products.

(b) International and Corporate includes certain international operations that

were sold during the fourth quarter of 2010 and other run-off products.



Insurance premiums and service revenue written was $1.1 billion for the year
ended December 31, 2012, compared to $1.0 billion in 2011 and 2010. Insurance
premiums and service revenue written increased slightly due to higher written
premiums in our new retail vehicle service contract and dealer inventory
insurance products. Vehicle service contract revenue is earned over the life of
the service contract on a basis proportionate to the anticipated cost pattern.
Accordingly, the majority of earnings from vehicle service contracts written
during 2012 will be recognized as income in future periods.
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, liquidity requirements, regulatory requirements, and
rating agency considerations, among other factors.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table summarizes the composition of our Insurance operations cash
and investment portfolio at fair value.
December 31, ($ in millions)            2012       2011
Cash
Noninterest-bearing cash              $   129    $   211
Interest-bearing cash                     488        629
Total cash                                617        840
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies      1,090        496
Foreign government                        303        678
Mortgage-backed                           714        590
Asset-backed                                8         95
Corporate debt                          1,264      1,491
Other debt                                  -         23
Total debt securities                   3,379      3,373
Equity securities                       1,148      1,054
Total available-for-sale securities     4,527      4,427
Total cash and securities             $ 5,144    $ 5,267



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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Mortgage Operations
Results of Operations
The following table summarizes the operating results for our Mortgage operations
excluding discontinued operations for the periods shown. Our Mortgage operations
include the ResCap legal entity (prior to its deconsolidation from Ally
Financial as of May 14, 2012) and the mortgage operations of Ally Bank. Refer to
Note 1 to the Consolidated Financial Statements for further details on ResCap.
The amounts presented are before the elimination of balances and transactions
with our other reportable segments.
                                                                            

Favorable/ Favorable/

                                                                             (unfavorable)   (unfavorable)
Year ended December 31, ($ in                                                  2012-2011       2011-2010
millions)                                2012         2011         2010        % change        % change
Net financing revenue
Total financing revenue and other
interest income                       $    743     $  1,147     $  1,711         (35)            (33)
Interest expense                           592          937        1,122          37              16
Net financing revenue                      151          210          589         (28)            (64)
Servicing fees                             592        1,198        1,261         (51)             (5)
Servicing asset valuation and hedge
activities, net                             (8 )       (789 )       (394 )        99             (100)
Total servicing income, net                584          409          867          43             (53)
Gain on mortgage loans, net                529          395          990          34             (60)
Other income, net of losses                504          157          141          n/m             11
Total other revenue                      1,617          961        1,998          68             (52)
Total net revenue                        1,768        1,171        2,587          51             (55)
Provision for loan losses                   86          150          144          43              (4)
Noninterest expense
Compensation and benefits expense          252          394          322          36             (22)

Representation and warranty expense 67 324 670

      79              52
Other operating expenses                   674          925          679          27             (36)
Total noninterest expense                  993        1,643        1,671          40               2
Income (loss) from continuing
operations before income tax
expense                               $    689     $   (622 )   $    772          n/m            (181)
Total assets                          $ 14,744     $ 33,906     $ 36,786         (57)             (8)


n/m = not meaningful
2012 Compared to 2011
Our Mortgage operations earned income from continuing operations before income
tax expense of $689 million for the year ended December 31, 2012, compared to
losses from continuing operations before income tax expense of $622 million for
the year ended December 31, 2011. During 2011, we experienced an unfavorable
servicing asset valuation, net of hedge, that did not recur in 2012.
Additionally, during 2012, we earned higher fee income and net origination
revenue related to increased consumer mortgage-lending production associated
with government-sponsored refinancing programs, and higher net gains on the sale
of mortgage loans. We incurred lower representation and warranty expense and
operating expenses resulting from the deconsolidation of ResCap during the
second quarter of 2012. Refer to Note 1 to the Consolidated Financial Statements
for further information regarding ResCap.
Net financing revenue was $151 million for the year ended December 31, 2012,
compared to $210 million in 2011. The decrease in net financing revenue was
primarily due to the deconsolidation of ResCap during the second quarter of
2012. Additionally, total financing revenue and other interest income decreased
in 2012 due to lower average yield mix as higher-rate Ally Bank mortgage loans
continued to run off. Partially offsetting the decrease was lower interest
expense related to lower funding costs.
Total servicing income, net was $584 million for the year ended December 31,
2012, compared to $409 million in 2011. The increase was primarily due to the
performance of the derivative servicing hedge as compared to a less favorable
hedge performance in 2011. The increase was partially offset by lower servicing
fees due to the deconsolidation of ResCap.
The net gain on mortgage loans increased 34% for the year ended December 31,
2012, compared to 2011. Though we deconsolidated ResCap during the second
quarter of 2012, the increase was primarily due to higher consumer
mortgage-lending production through our direct lending channel and margins
associated with government-sponsored refinancing programs, higher margins on
warehouse and correspondent lending due to decreased competition and more
selective originations from these channels, and improved market gains on
specified pooled loans.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Other income, net of losses, was $504 million for the year ended December 31,
2012, compared to $157 million in 2011. The increase was primarily due to higher
fee income and net origination revenue related to increased consumer
mortgage-lending production associated with government-sponsored refinancing
programs and a decrease in fair value option election valuation losses resulting
from the deconsolidation of ResCap.
The provision for loan losses was $86 million for the year ended December 31,
2012, compared to $150 million in 2011. The decrease for the year ended
December 31, 2012, was primarily due to lower net charge-offs in 2012 due to the
continued runoff of legacy mortgage assets and improvements in home prices.
Total noninterest expense decreased 40% for the year ended December 31, 2012,
compared to 2011. The decrease was primarily driven by lower representation and
warranty expense and compensation and benefits expense resulting from the
deconsolidation of ResCap. The decrease was partially offset by a $90 million
expense related to penalties imposed by certain regulators and other
governmental agencies in connection with mortgage foreclosure-related matters
during the second quarter of 2012.
2011 Compared to 2010
Our Mortgage operations incurred a loss before income tax expense of $622
million for the year ended December 31, 2011, compared to income before income
tax expense of $772 million for the year ended December 31, 2010. The decrease
was primarily driven by lower net gains on the sale of mortgage loans,
unfavorable servicing asset valuation, net of hedge, lower financing revenue
related to a decrease in asset levels, and a $230 million expense related to
penalties imposed by certain regulators and other governmental agencies in
connection with mortgage foreclosure-related matters. The decrease was partially
offset by lower representation and warranty expense.
Net financing revenue was $210 million for the year ended December 31, 2011,
compared to $589 million in 2010. The decrease was driven by lower financing
revenue and other interest income due primarily to a decline in average asset
levels related to loan sales, the deconsolidation of previously on-balance sheet
securitizations, and portfolio runoff. The decrease was partially offset by
lower interest expense related to a reduction in average borrowings commensurate
with a smaller asset base.
Total servicing income, net was $409 million for the year ended December 31,
2011, compared to $867 million in 2010. The decrease was primarily due to a drop
in interest rates and increased market volatility compared to favorable
valuation adjustments in 2010. Additionally, 2011 includes a valuation
adjustment that estimates the impact of higher servicing costs related to
enhanced foreclosure procedures, establishment of single point of contact, and
other processes to comply with the Consent Order.
The net gain on mortgage loans was $395 million for the year ended December 31,
2011, compared to $990 million in 2010. The decrease during 2011 was primarily
due to lower margins and production, lower whole-loan sales, lower gains on
mortgage loan resolutions, and the absence of the 2010 gain on the
deconsolidation of an on-balance sheet securitization. Refer to Note 10 to the
Consolidated Financial Statements for information on the deconsolidation.
Total noninterest expense decreased 2% for the year ended December 31, 2011,
compared to 2010. The decrease was primarily driven by lower representation and
warranty expense in 2011 as 2010 included a significant increase in expense to
cover anticipated repurchase requests and settlements with key counterparties.
The decrease was partially offset by a $230 million expense related to penalties
imposed by certain regulators and other governmental agencies in connection with
mortgage foreclosure-related matters, higher loan processing and underwriting
fees, and an increase in compensation and benefits expense due to an increase in
headcount related to expansion activities in our broker, retail, and servicing
operations.
Loan Production
U.S. Mortgage Loan Production Channels
Ally Bank continues to perform certain mortgage activities as a result of the
ResCap bankruptcy process. Subsequent to the bankruptcy filing, ResCap announced
the sale of certain assets to third parties. Upon the closing of those sales, we
do not expect ResCap to continue to broker loans to us. This will primarily
impact the production of loans within the direct lending channel, which are
currently sourced exclusively from ResCap. We expect the level of loan
production to continue to decline.
We have three primary channels for residential mortgage loan production: the
purchase of loans in the secondary market (primarily from Ally Bank
correspondent lenders), the origination of loans through our direct-lending
network, and the origination of loans through our mortgage brokerage network.
•      Correspondent lender and secondary market purchases - Loans purchased from

correspondent lenders are originated or purchased by the correspondent

lenders and subsequently sold to us. All of the purchases from

correspondent lenders are conducted through Ally Bank. We qualify and

approve any correspondent lenders who participate in the loan purchase

       programs. We intend to continue to originate a modest level of jumbo and
       conventional conforming residential mortgages for our own portfolio
       through a select group of correspondent lenders.

• Direct-lending network - Our direct-lending network consists of internet

and telephone-based call center operations as well as our retail network.

       Virtually all of the residential mortgage loans of this channel are
       brokered to Ally Bank.



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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


• Mortgage brokerage network - Residential mortgage loans originated through

mortgage brokers. We review and underwrite the application submitted by

the mortgage broker, approve or deny the application, set the interest

rate and other terms of the loan, and, upon acceptance by the borrower and

the satisfaction of all conditions required by us, fund the loan through

Ally Bank. We qualify and approve all mortgage brokers who generate

mortgage loans and continually monitor their performance.



The following table summarizes U.S. consumer mortgage loan production by
channel.
                                            2012                                2011                                2010
                                                     Dollar                              Dollar                              Dollar
Year ended December 31, ($ in                       amount of                           amount of                           amount of
millions)                      Number of loans        loans        Number of loans        loans        Number of loans        loans
Correspondent lender and
secondary market purchases             58,766     $    14,224             196,964     $    45,349             263,963     $    61,465
Direct lending                         75,096          14,640              37,743           7,414              36,064           7,586
Mortgage brokers                       12,996           3,601              12,018           3,495               2,035             491
Total U.S. production                 146,858     $    32,465             246,725     $    56,258             302,062     $    69,542


The following table summarizes the composition of our U.S. consumer mortgage
loan production. ResCap was deconsolidated from Ally as of May 14, 2012. Refer
to Note 1 to the Consolidated Financial Statements for further details on
ResCap.
                                            2012                                2011                                2010
                                                     Dollar                              Dollar                              Dollar
Year ended December 31, ($ in                       amount of                           amount of                           amount of
millions)                      Number of loans        loans        Number of loans        loans        Number of loans        loans
Ally Bank                             146,074     $    32,324             245,849     $    56,130             300,738     $    69,320
ResCap                                    784             141                 876             128               1,324             222
Total U.S. production                 146,858     $    32,465             246,725     $    56,258             302,062     $    69,542


Mortgage Loan Production by Type
We intend to continue to originate a modest level of jumbo and conventional
conforming residential mortgages for our held-for-investment portfolio through a
select group of correspondent lenders. During 2012, 2011, and 2010, we primarily
originated prime conforming and government-insured residential mortgage loans.
We define prime as mortgage loans with a FICO score of 660 and above. Our
mortgage loans are categorized as follows.
•      Prime conforming mortgage loans - Prime credit quality first-lien mortgage

loans secured by 1-4 family residential properties that meet or conform to

       the underwriting standards established by the GSEs for inclusion in their
       guaranteed mortgage securities programs.

• Prime nonconforming mortgage loans - Prime credit quality first-lien

mortgage loans secured by 1-4 family residential properties that either

(1) do not conform to the underwriting standards established by the GSEs

because they had original principal amounts exceeding GSE limits, which

are commonly referred to as jumbo mortgage loans, or (2) have alternative

documentation requirements and property or credit-related features

(e.g., higher loan-to-value or debt-to-income ratios) but are otherwise

       considered prime credit quality due to other compensating factors.


•      Prime second-lien mortgage loans - Open- and closed-end mortgage loans
       secured by a second or more junior-lien on single-family residences, which
       include home equity mortgage loans and lines of credit. We ceased
       originating prime second-lien mortgage loans during 2008.


•      Government mortgage loans - First-lien mortgage loans secured by 1-4

family residential properties that are insured by the Federal Housing

Administration or guaranteed by the Veterans Administration.

• Nonprime mortgage loans - First-lien and certain junior-lien mortgage

loans secured by single-family residences made to individuals with credit

profiles that do not qualify for a prime loan, have credit-related

features that fall outside the parameters of traditional prime mortgage

       products, or have performance characteristics that otherwise exposes us to
       comparatively higher risk of loss. Nonprime includes mortgage loans the
       industry characterizes as "subprime," as well as high combined
       loan-to-value second-lien loans that fell out of our standard loan
       programs due to noncompliance with one or more criteria. We ceased
       originating nonprime mortgage loans during 2007.



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The following table summarizes our U.S. consumer mortgage loan production by
type.
                                            2012                                2011                                2010
                                                     Dollar                              Dollar                              Dollar
Year ended December 31, ($ in                       amount of                           amount of                           amount of
millions)                      Number of loans        loans        Number of loans        loans        Number of loans        loans
Prime conforming                      133,359     $    27,920             209,031     $    47,511             228,936     $    53,721
Prime nonconforming                     2,706           2,211               2,008           1,679               1,837           1,548
Government                             10,793           2,334              35,686           7,068              71,289          14,273
Total U.S. production                 146,858     $    32,465             246,725     $    56,258             302,062     $    69,542


U.S. Warehouse Lending
Historically, we provided warehouse-lending facilities to correspondent lenders
and other mortgage originators in the United States. These facilities enabled
lenders and originators to finance residential mortgage loans until they were
sold in the secondary mortgage loan market. In July 2012, we announced our
intention to shut down this business and, as of December 31, 2012, we
successfully managed receivables down to $0 with no commitments outstanding. At
December 31, 2011, we had total warehouse line of credit commitments of $2.8
billion, against which we had $1.9 billion of advances outstanding.
Loans Outstanding
Consumer mortgage loans held-for-sale and consumer mortgage loans
held-for-investment as of December 31, 2012, represent loans held by Ally Bank.
ResCap was deconsolidated from Ally Financial as of May 14, 2012. Refer to Note
1 to the Consolidated Financial Statements for further details on ResCap.
Consumer mortgage loans held-for-sale were as follows.
December 31, ($ in millions)               2012       2011
Prime conforming                         $ 2,407    $ 3,345
Prime nonconforming                            -        571
Prime second-lien                              -        545
Government (a)                                 8      3,294
Nonprime                                       -        561
International                                  -         17
Total (b)                                  2,415      8,333
Net premiums (discounts)                      26       (221 )

Fair value option election adjustment 49 60 Lower-of-cost or fair value adjustment - (60 ) Total, net (c)

$ 2,490$ 8,112

(a) Includes loans subject to conditional repurchase options of $0 million and

$2.3 billion sold to Ginnie Mae-guaranteed securitizations at December 31,

2012, and December 31, 2011, respectively. The corresponding liability is

recorded in accrued expenses and other liabilities on the Consolidated

Balance Sheet.

(b) Includes unpaid principal write-down of $0 million and $1.5 billion at

December 31, 2012, and December 31, 2011, respectively. The amounts are

write-downs taken upon the transfer of mortgage loans from

held-for-investment to held-for-sale during the fourth quarter of 2009 and

charge-offs taken in accordance with our charge-off policy.

(c) Includes loans subject to conditional repurchase options of $0 million and

$106 million sold to off-balance sheet private-label securitizations at

December 31, 2012, and December 31, 2011, respectively. The corresponding

    liability is recorded in accrued expenses and other liabilities on the
    Consolidated Balance Sheet.



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Consumer mortgage loans held-for-investment were as follows.
December 31, ($ in millions)              2012         2011
Prime conforming                        $   245     $    278
Prime nonconforming                       8,322        8,069
Prime second-lien                         1,137        2,200
Government                                    -            -
Nonprime                                      -        1,349
International                                 -          422
Total                                     9,704       12,318
Net premiums                                 43           38
Fair value option election adjustment         -       (1,601 )
Allowance for loan losses                  (432 )       (495 )
Other                                         8            -
Total, net (a)                          $ 9,323     $ 10,260

(a) At December 31, 2012, and December 31, 2011, the carrying value of mortgage

loans held-for-investment relating to securitization transactions accounted

for as on-balance sheet securitizations and pledged as collateral totaled

$0 million and $837 million, respectively. The investors in these on-balance

sheet securitizations have no recourse to our other assets beyond the loans

pledged as collateral other than market customary representation and warranty

    provisions.


Mortgage Loan Servicing
Our retained mortgage servicing rights consist of primary servicing rights. When
we act as primary servicer, we collect and remit mortgage loan payments, respond
to borrower inquiries, account for principal and interest, hold custodial and
escrow funds for payment of property taxes and insurance premiums, counsel or
otherwise work with delinquent borrowers, supervise foreclosures and property
dispositions, and generally administer the loans. The majority of our serviced
mortgage assets are subserviced by GMAC Mortgage, LLC, a subsidiary of ResCap,
pursuant to a servicing agreement. Historically, we acted as a master servicer.
When we acted as master servicer, we collected mortgage loan payments from
primary servicers and distributed those funds to investors in mortgage-backed
and mortgage-related asset-backed securities and whole-loan packages. Key
services in this regard include loan accounting, claims administration,
oversight of primary servicers, loss mitigation, bond administration, cash flow
waterfall calculations, investor reporting, and tax-reporting compliance. In
return for performing these functions, we receive servicing fees equal to a
specified percentage of the outstanding principal balance of the loans being
serviced and may also be entitled to other forms of servicing compensation, such
as late payment fees or prepayment penalties. Servicing compensation also
includes interest income or the float earned on collections that are deposited
in various custodial accounts between their receipt and the
scheduled/contractual distribution of the funds to investors. Refer to Note 11
to the Consolidated Financial Statements for additional information.
The value of mortgage servicing rights is sensitive to changes in interest rates
and other factors. We have developed and implemented an economic hedge program
to, among other things, mitigate the overall risk of loss due to a change in the
fair value of our mortgage servicing rights. Accordingly, we hedge the change in
the total fair value of our mortgage servicing rights. The effectiveness of this
economic hedging program may have a material effect on the results of
operations. Refer to the Critical Accounting Estimates section of this MD&A and
Note 22 to the Consolidated Financial Statements for further discussion. On
October 26, 2012, we announced that Ally Bank began to explore strategic
alternatives for its agency mortgage servicing rights portfolio, including a
potential sale of the asset. A sale alternative would require GSE approval.
The following table summarizes our primary consumer mortgage loan-servicing
portfolio by product category.
December 31, ($ in millions)                   2012         2011
U.S. primary servicing portfolio
Prime conforming                            $ 117,544    $ 226,239
Prime nonconforming                            11,628       47,767
Prime second-lien                               1,136        6,871
Government                                         16       49,027
Nonprime                                            -       20,753
International primary servicing portfolio           -        5,773

Total primary servicing portfolio (a) $ 130,324$ 356,430

(a) Excludes loans for which we acted as a subservicer. Subserviced loans totaled

$0 billion and $26.4 billion at December 31, 2012 and 2011, respectively.




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Ally Financial Inc. • Form 10-K


Corporate and Other
The following table summarizes the activities of Corporate and Other excluding
discontinued operations for the periods shown. Corporate and Other primarily
consists of our centralized corporate treasury activities, such as management of
the cash and corporate investment securities portfolios, short- and long-term
debt, retail and brokered deposit liabilities, derivative instruments, the
amortization of the discount associated with new debt issuances and bond
exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset
liability management (ALM) activities. Corporate and Other also includes our
Commercial Finance Group, certain equity investments, overhead that was
previously allocated to operations that have since been sold or classified as
discontinued operations, and reclassifications and eliminations between the
reportable operating segments. Our Commercial Finance Group provides senior
secured commercial-lending products to primarily U.S.-based middle market
companies.
                                                                              Favorable/      Favorable/
                                                                             (unfavorable)   (unfavorable)
Year ended December 31, ($ in                                                  2012-2011       2011-2010
millions)                                2012         2011         2010        % change        % change
Net financing loss
Total financing revenue and other
interest income                       $    157     $    196     $    206         (20)             (5)
Interest expense
Original issue discount
amortization                               349          925        1,204          62              23
Other interest expense                     981          992        1,055           1               6
Total interest expense                   1,330        1,917        2,259          31              15
Net financing loss (a)                  (1,173 )     (1,721 )     (2,053 )        32              16
Other (expense) revenue
Loss on extinguishment of debt            (148 )        (64 )       (124 )       (131)            48
Other gain on investments, net              69           84          146         (18)            (42)
Other income, net of losses                 19          158          (56 )       (88)             n/m
Total other (expense) revenue              (60 )        178          (34 )       (134)            n/m
Total net loss                          (1,233 )     (1,543 )     (2,087 )        20              26
Provision for loan losses                  (10 )        (51 )        (47 )       (80)              9
Noninterest expense
Compensation and benefits expense          636          472          610         (35)             23
Other operating expense (b)
Accrual related to ResCap
Bankruptcy and deconsolidation (c)         750            -            -          n/m              -
Impairment of investment in ResCap
(c)                                        442            -            -          n/m              -
Other                                      (58 )         14           44          n/m             68
Total other operating expense            1,134           14           44          n/m             68
Total noninterest expense                1,770          486          654          n/m             26
Loss from continuing operations
before income tax expense             $ (2,993 )   $ (1,978 )   $ (2,694 )       (51)             27
Total assets                          $ 30,753     $ 29,526     $ 28,472           4               4

n/m = not meaningful (a) Refer to the table that follows for further details on the components of net

financing loss.

(b) Includes a reduction of $814 million for the year ended December 31, 2012,

and $757 million for each of the years ended December 31, 2011, and 2010,

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.

(c) Refer to Note 1 to the Consolidated Financial Statements for further

    information regarding the deconsolidation of ResCap.



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The following table summarizes the components of net financing losses for
Corporate and Other.
At and for the year ended December 31, ($ in
millions)                                                  2012         2011         2010
Original issue discount amortization
2008 bond exchange amortization                         $   (320 )   $   (886 )   $ (1,158 )
Other debt issuance discount amortization                    (29 )        (39 )        (46 )
Total original issue discount amortization (a)              (349 )       

(925 ) (1,204 ) Net impact of the funds transfer pricing methodology Unallocated liquidity costs (b)

                             (586 )       (564 )       (495 )
Funds-transfer pricing / cost of funds mismatch (c)          170           42         (364 )
Unassigned equity costs (d)                                 (467 )       (364 )        (77 )
Total net impact of the funds transfer pricing
methodology                                                 (883 )       (886 )       (936 )
Other (including Commercial Finance Group net
financing revenue)                                            59           90           87

Total net financing losses for Corporate and Other $ (1,173 ) $ (1,721 ) $ (2,053 ) Outstanding original issue discount balance

$  1,840     $  

2,194 $ 3,169

(a) Amortization is included as interest on long-term debt in the Consolidated

Statement of Comprehensive Income.

(b) Represents the unallocated cost of funding our cash and investment portfolio.

(c) Represents our methodology to assign funding costs to classes of assets and

liabilities based on expected duration and the London interbank offer rate

(LIBOR) swap curve plus an assumed credit spread. Matching duration allocates

interest income and interest expense to the reportable segments so the

respective reportable segments results are insulated from interest rate risk.

The balance above is the resulting benefit (loss) due to holding interest

rate risk at Corporate and Other.

(d) Primarily represents the unassigned cost of maintaining required capital

positions for certain of our regulated entities, primarily Ally Bank and Ally

Insurance.

The following table presents the scheduled remaining amortization of the original issue discount at December 31, 2012.

                                                                                           2018 and
Year ended December 31, ($                                                                thereafter
in millions)                    2013        2014        2015        2016        2017         (a)         Total
Original issue discount
Outstanding balance           $ 1,579     $ 1,391     $ 1,335     $ 1,272     $ 1,197         $-
Total amortization (b)            261         188          56          63          75       1,197      $ 1,840
2008 bond exchange
amortization (c)                  241         166          43          53          66       1,059        1,628

(a) The maximum annual scheduled amortization for any individual year is

$158 million in 2030 of which $152 million is related to 2008 bond exchange

amortization.

(b) The amortization is included as interest on long-term debt on the

Consolidated Statement of Comprehensive Income.

(c) 2008 bond exchange amortization is included in total amortization.



2012 Compared to 2011
Loss from continuing operations before income tax expense for Corporate and
Other was $3.0 billion for the year ended December 31, 2012, compared to $2.0
billion for the year ended December 31, 2011. Corporate and Other's loss from
continuing operations before income tax expense was driven by net financing
losses, which primarily represents original issue discount amortization expense
and the net impact of our FTP methodology, which includes the unallocated cost
of maintaining our liquidity and investment portfolios.
The higher loss from continuing operations before income tax expense for the
year ended December 31, 2012 was primarily due to a $1.2 billion charge related
to ResCap's filing for relief under Chapter 11 of the bankruptcy code in the
United States. Refer to Note 1 to the Consolidated Financial Statements for
additional information related to ResCap. Additionally, higher losses for the
year ended December 31, 2012 were impacted by the early prepayment of certain
Federal Home Loan Bank debt to further reduce funding costs, the absence of a
$121 million gain on the early settlement of a loss holdback provision related
to certain historical automotive whole-loan forward flow agreements recognized
during 2011, and an increase in compensation and benefits expense as a result of
increased incentive compensation and pension-related expenses. The
pension-related expenses resulted from our decision to de-risk our long-term
pension liability through lump-sum buyouts and annuity placements for former
subsidiaries. Refer to Note 24 to the Consolidated Financial Statements for
further detail on these certain pension actions. Partially offsetting the higher
losses for the year ended December 31, 2012 were decreases in OID amortization
expense related to bond maturities and normal monthly amortization.
Additionally, we incurred no accelerated amortization of OID for the year ended
December 31, 2012, compared to $50 million for the year ended December 31, 2011.
Corporate and Other also includes the results of our Commercial Finance Group.
Our Commercial Finance Group earned income from continuing operations before
income tax expense of $48 million for the year ended December 31, 2012, compared
to $141 million for the year ended December 31, 2011. The decrease was primarily
related to lower net revenue resulting from a decline in income from servicer
advance collections, lower accelerated fee income due to fewer early loan
payoffs during 2012, compared to 2011. Additionally, provision

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Ally Financial Inc. • Form 10-K


expense was less favorable in 2012 due to a greater decline in portfolio-level
reserves in 2011 associated with higher recoveries on nonperforming exposures,
combined with the runoff of the majority of our higher-risk non-core portfolio.
2011 Compared to 2010
Loss from continuing operations before income tax expense for Corporate and
Other was $2.0 billion for the year ended December 31, 2011, compared to $2.7
billion for the year ended December 31, 2010. Corporate and Other's loss from
continuing operations before income tax expense for both periods was driven by
net financing losses, which primarily represents original issue discount
amortization expense and the net impact of our FTP methodology, which includes
the unallocated cost of maintaining our liquidity and investment portfolios.
The improvement in the loss from continuing operations before income tax expense
for the year ended December 31, 2011, was primarily due to a decrease in
original issue discount amortization expense related to bond maturities and
normal monthly amortization and favorable net impact of the FTP methodology. The
net FTP methodology improvement was primarily the result of favorable
unallocated interest costs due to lower non-earning assets and unamortized
original issue discount balance. Additionally, 2011 was favorably impacted by a
$121 million gain on the early settlement of a loss holdback provision related
to certain historical automotive whole-loan forward flow agreements, a reduction
in debt fees driven by the restructuring of our secured facilities and the
termination of our automotive forward flow agreements, and by a lower loss on
the extinguishment of certain Ally debt (which included accelerated amortization
of original issue discount of $50 million for the year ended December 31, 2011,
compared to $101 million in 2010).
Corporate and Other also includes the results of our Commercial Finance Group.
Our Commercial Finance Group earned income from continuing operations before
income tax expense of $141 million for the year ended December 31, 2011,
compared to $182 million for the year ended December 31, 2010. The decrease was
primarily due to lower asset levels partially offset by lower expenses and
favorable loss provisions.
Cash and Securities
The following table summarizes the composition of the cash and securities
portfolio held at fair value by Corporate and Other.
December 31, ($ in millions)               2012        2011
Cash
Noninterest-bearing cash                 $    944    $  1,768
Interest-bearing cash                       5,942       9,781
Total cash                                  6,886      11,549
Trading securities
Mortgage-backed                                 -         589
Total trading securities                        -         589
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies          1,124       1,051
U.S. states and political subdivisions          -           1
Foreign government                              -         106
Mortgage-backed                             6,191       6,722
Asset-backed                                2,332       2,520
Other debt (a)                                  -         305
Total debt securities                       9,647      10,705
Equity securities                               4           4

Total available-for-sale securities 9,651 10,709 Total cash and securities

$ 16,537$ 22,847

(a) Includes intersegment eliminations.

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Risk Management
Managing the risk/reward trade-off is a fundamental component of operating our
businesses. Our risk management program is overseen by the Ally Board of
Directors (the Board), various risk committees, and the executive leadership
team. The Board sets the risk appetite across our company while the risk
committees and executive leadership team identify and monitor potential risks
and manage the risk to be within our risk appetite. Ally's primary risks include
credit, lease residual, market, operational, insurance/underwriting, country,
and liquidity.
•      Credit risk - The risk of loss arising from a creditor not meeting its
       financial obligations to our firm.

• Lease Residual risk - The risk of loss arising from the possibility that

the actual proceeds realized upon the sale of returned vehicles will be

lower than the projection of the values used in establishing the pricing

at lease inception.

• Market risk - The risk of loss arising from changes in the fair value of

our assets or liabilities (including derivatives) caused by movements in

       market variables, such as interest rates, foreign-exchange rates, and
       equity and commodity prices.

• Operational risk - The risk of loss arising from inadequate or failed

processes or systems, human factors, or external events.

• Insurance/Underwriting risk - The risk of loss associated with either (i)

fortuitous occurrences (e.g., fires, hurricanes, tortuous conduct) and/or

(ii) the failure to consider the frequency of losses, severity of losses

or the correlation of losses with multiple events.

• Country risk - The risk that economic, social and political conditions,

       and events in foreign countries will adversely affect our financial
       interests.

• Liquidity risk - The risk that our financial condition or overall safety

and soundness is adversely affected by an inability, or perceived

inability, to meet our financial obligations, and to withstand unforeseen

liquidity stress events (see Liquidity Management, Funding, and Regulatory

Capital discussion within this MD&A).



While risk oversight is ultimately the responsibility of the Board, our
governance structure starts within each line of business, including committees
established to oversee risk in their respective areas. The lines of business are
responsible for executing on risk strategies, policies, and controls that are
fundamentally sound and compliant with global risk management policies and with
applicable laws and regulations. The line of business risk committees, which
report up to the Risk and Compliance Committee of the Board, monitor the
performance within each portfolio and determine whether to amend any risk
practices based upon portfolio trends.
In addition, the Global Risk Management and Compliance organizations are
accountable for independently monitoring, measuring, and reporting on our
various risks. They are also responsible for monitoring that our risks remain
within the tolerances established by the Board, developing and maintaining
policies, and implementing risk management methodologies.
All lines of business and global functions are subject to full and unrestricted
audits by Audit Services. Audit Services reports to the Audit Committee of the
Board, and is primarily responsible for assisting the Audit Committee in
fulfilling its governance and oversight responsibilities. Audit Services is
granted free and unrestricted access to any and all of our records, physical
properties, technologies, management, and employees.
In addition, our Global Loan Review Group provides an independent assessment of
the quality of Ally's credit risk portfolios and credit risk management
practices. This group reports its findings directly to the Risk and Compliance
Committee. The findings of this group help to strengthen our risk management
practices and processes throughout the organization.

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Loan and Lease Exposure
The following table summarizes the exposures from our loan and lease activities.
December 31, ($ in millions)                   2012         2011
Finance receivables and loans
Dealer Financial Services                   $  86,542    $ 100,734
Mortgage operations                             9,821       12,753
Corporate and Other                             2,692        1,268
Total finance receivables and loans            99,055      114,755
Held-for-sale loans
Dealer Financial Services                           -          425
Mortgage operations                             2,490        8,112
Corporate and Other                                86           20
Total held-for-sale loans                       2,576        8,557
Total on-balance sheet loans                $ 101,631    $ 123,312
Off-balance sheet securitized loans
Dealer Financial Services                   $   1,495    $       -
Mortgage operations                           119,384      326,975
Corporate and Other                                 -            -
Total off-balance sheet securitized loans   $ 120,879    $ 326,975
Operating lease assets
Dealer Financial Services                   $  13,550    $   9,275
Mortgage operations                                 -            -
Corporate and Other                                 -            -
Total operating lease assets                $  13,550    $   9,275
Serviced loans and leases
Dealer Financial Services                   $ 134,122    $ 122,881
Mortgage operations (a)                       130,324      356,430
Corporate and Other                             1,344        1,762
Total serviced loans and leases             $ 265,790    $ 481,073


(a) Includes primary mortgage loan-servicing portfolio only.



The risks inherent in our loan and lease exposures are largely driven by changes
in the overall economy, used vehicle and housing price levels, unemployment
levels, and their impact to our borrowers. The potential financial statement
impact of these exposures varies depending on the accounting classification and
future expected disposition strategy. We retain the majority of our automobile
loans as they complement our core business model, but we do sell loans from time
to time on an opportunistic basis. We primarily originate mortgage loans with
the intent to sell them and, as such, retain only a small percentage of the
loans that we originate or purchase. Mortgage loans that we do not intend to
retain are sold to investors, primarily through securitizations guaranteed by
GSEs. However, we may retain an interest or right to service these loans. We
ultimately manage the associated risks based on the underlying economics of the
exposure. Given our recent strategic actions, we intend to continue to originate
a modest level of jumbo and conventional conforming residential mortgages
through a select group of correspondent lenders with the intent to retain within
our held-for-investment portfolio.
•      Finance receivables and loans - Loans that we have the intent and ability

to hold for the foreseeable future or until maturity or loans associated

with an on-balance sheet securitization classified as secured financing.

These loans are recorded at the principal amount outstanding, net of

unearned income and premiums and discounts. Probable credit-related losses

inherent in our finance receivables and loans carried at historical cost

are reflected in our allowance for loan losses and recognized in current

period earnings. We manage the economic risks of these exposures,

including credit risk, by adjusting underwriting standards and risk

limits, augmenting our servicing and collection activities (including loan

       modifications and restructurings), and optimizing our product and
       geographic concentrations. Additionally, we had historically elected to
       carry certain mortgage loans of ResCap at fair value. Changes in the fair

value of these loans are recognized in a valuation allowance separate from

the allowance for loan losses and were reflected in current period

earnings. We used market-based instruments, such as derivatives, to hedge

changes in the fair value of these loans. Refer to the Critical Accounting

       Estimates discussion within this MD&A and Note 1 to the Consolidated
       Financial Statements for further information.



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•      Held-for-sale loans - Loans that we have the intent to sell. These loans
       are recorded on our balance sheet at the lower of cost or estimated fair
       value and are evaluated by portfolio and product type. Changes in the
       recorded value are recognized in a valuation allowance and reflected in

current period earnings. We manage the economic risks of these exposures,

       including market and credit risks, in various ways including the use of
       market-based instruments such as derivatives. Refer to the Critical
       Accounting Estimates discussion within this MD&A and Note 1 to the
       Consolidated Financial Statements for further information.

• Off-balance sheet securitized loans - Loans that we transfer off-balance

sheet to nonconsolidated variable interest entities. We primarily report

this exposure as cash, servicing rights, or retained interests (if

applicable). Similar to finance receivables and loans, we manage the

economic risks of these exposures, including credit risk, through

activities including servicing and collections. Refer to the Critical

       Accounting Estimates discussion within this MD&A and Note 1 to the
       Consolidated Financial Statements for further information.

• Operating lease assets - The net book value of the automobile assets we

       lease are based on the expected residual values upon remarketing the
       vehicles at the end of the lease. We are exposed to fluctuations in the
       expected residual value upon remarketing the vehicle at the end of the
       lease, and as such at contract inception, we generally determine the

projected residual values based on independent data, including independent

guides of vehicle residual values, and analysis. A valuation allowance

related to lease credit losses is recorded directly against the lease rent

receivable balance which is a component of Other Assets. An impairment to

the carrying value of the assets may be deemed necessary if there is an

unfavorable and unrecoverable change in the value of the recorded asset.

Refer to the Critical Accounting Estimates discussion within this MD&A and

Note 1 to the Consolidated Financial Statements for further information.

• Serviced loans and leases - Loans that we service on behalf of our

customers or another financial institution. As such, these loans can be on

or off our balance sheet. For our mortgage servicing rights, we record an

asset or liability (at fair value) based on whether the expected servicing

benefits will exceed the expected servicing costs. Changes in the fair

value of the mortgage servicing rights are recognized in current period

earnings. We also service consumer automobile loans. We do not record

servicing rights assets or liabilities for these loans because we receive

a fee that adequately compensates us for the servicing costs. We manage

the economic risks of these exposures, including market and credit risks,

in part through market-based instruments such as derivatives and

securities. Refer to the Critical Accounting Estimates discussion within

this MD&A and Note 1 to the Consolidated Financial Statements for further

       information.


Credit Risk Management
Credit risk is defined as the potential failure to receive payments when due
from a creditor in accordance with contractual obligations. Therefore, credit
risk is a major source of potential economic loss to us. To mitigate the risk,
we have implemented specific processes across all lines of business utilizing
both qualitative and quantitative analyses. Credit risk is monitored by global
and line of business committees and the Global Risk Management organization.
Together they oversee the credit decisioning and management processes and
monitor that credit risk exposures are managed in a safe-and-sound manner and
are within our risk appetite. In addition, our Global Loan Review Group provides
an independent assessment of the quality of our credit portfolios and credit
risk management practices, and directly reports its findings to the Risk and
Compliance Committee on a regular basis.
We have policies and practices that reflect our commitment to maintain an
independent and ongoing assessment of credit risk and credit quality. Our
policies require an objective and timely assessment of the overall quality of
the consumer and commercial loan and lease portfolios. This includes the
identification of relevant trends that affect the collectability of the
portfolios, segments of the portfolios that are potential problem areas, loans
and leases with potential credit weaknesses, and assessment of the adequacy of
internal credit risk policies and procedures to monitor compliance with relevant
laws and regulations. In addition, we maintain limits and underwriting
guidelines that reflect our risk appetite.
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. To mitigate risk concentrations, we may take part in loan
sales and syndications.
Additionally, we have implemented numerous initiatives in an effort to mitigate
loss and provide ongoing support to customers in financial distress. For
automobile loans, we offer several types of assistance to aid our customers.
Loss mitigation includes changing the maturity date, extending payments, and
rewriting the loan terms. We have implemented these actions with the intent to
provide the borrower with additional options in lieu of repossessing their
vehicle. For mortgage loans, as part of our participation in certain
governmental programs, we offer mortgage loan modifications to qualified
borrowers. Numerous initiatives, such as the Home Affordable Modification
Program (HAMP) are in place to provide support to our mortgage customers in
financial distress, including principal forgiveness, maturity extensions,
delinquent interest capitalization, and changes to contractual interest rates.
Furthermore, we manage our counterparty credit exposure based on the risk
profile of the counterparty. Within our policies, we have established minimum
standards and requirements for managing counterparty risk exposures in a
safe-and-sound manner. Counterparty credit risk is derived from multiple
exposure types, including derivatives, securities trading, securities financing
transactions, financial futures, cash balances (e.g. due from depository
institutions, restricted accounts and cash equivalents), and investment in debt
securities. For more information on Derivative Counterparty Credit Risk, refer
to Note 22 to the Consolidated Financial Statements.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


During 2012, the U.S. economy continued to expand and the labor market recovered
further. Within the U.S. automotive portfolio, encouraging trends include higher
automotive industry sales when compared to the previous year. Additionally, the
housing market continued to recover with strong home price appreciation in late
2012 and existing home sales registered their highest annual level since 2007.
We continue to be cautious with the outlook due to weak manufacturing activity,
slow global economic growth and pending budgets cuts to the U.S. federal
government.
On-balance Sheet Portfolio
Our on-balance sheet portfolio includes both finance receivables and loans and
held-for-sale loans. At December 31, 2012, this primarily included $86.5 billion
of automobile finance receivables and loans and $12.3 billion of mortgage
finance receivables and loans. Within our on-balance sheet portfolio, we had
historically elected to account for certain mortgage loans of ResCap at fair
value. The valuation allowance recorded on fair value-elected loans is separate
from the allowance for loan losses. Changes in the fair value of loans are
classified as gain on mortgage and automotive loans, net, in the Consolidated
Statement of Comprehensive Income.
During 2012, we further executed on our strategy of discontinuing and selling or
liquidating nonstrategic operations. Refer to Note 2 to the Consolidated
Financial Statements for additional information.
The following table presents our total on-balance sheet consumer and commercial
finance receivables and loans reported at carrying value before allowance for
loan losses.
                                                                                           Accruing past due 90 days or
                                     Outstanding                Nonperforming (a)                    more (b)
December 31, ($ in
millions)                        2012          2011             2012            2011            2012             2011
Consumer
Finance receivables and
loans
Loans at historical cost      $  63,536     $  73,452     $     642          $    567     $             1     $       4
Loans at fair value                   -           835             -               210                   -             -
Total finance receivables
and loans                        63,536        74,287           642               777                   1             4
Loans held-for-sale               2,490         8,537            25             2,820                   -            73
Total consumer loans             66,026        82,824           667             3,597                   1            77
Commercial
Finance receivables and
loans
Loans at historical cost         35,519        40,468           216               339                   -             -
Loans at fair value                   -             -             -                 -                   -             -
Total finance receivables
and loans                        35,519        40,468           216               339                   -             -
Loans held-for-sale                  86            20             -                 -                   -             -
Total commercial loans           35,605        40,488           216               339                   -             -
Total on-balance sheet
loans                         $ 101,631     $ 123,312     $     883          $  3,936     $             1     $      77

(a) Includes nonaccrual troubled debt restructured loans of $419 million and

$934 million at December 31, 2012, and December 31, 2011, respectively.

(b) Generally, loans that are 90 days past due and still accruing represent loans

with government guarantees. This includes no troubled debt restructured loans

classified as 90 days past due and still accruing at December 31, 2012, and

$42 million at December 31, 2011.



Total on-balance sheet loans outstanding at December 31, 2012, decreased $21.7
billion to $101.6 billion from December 31, 2011 reflecting a decrease of $16.8
billion in the consumer portfolio and a decrease of $4.9 billion in the
commercial portfolio. The decrease in total on-balance sheet loans outstanding
was primarily driven by the reclassification of foreign Automotive Finance
operations to discontinued operations and the deconsolidation of ResCap,
partially offset by domestic automobile originations which outpaced portfolio
runoff. Refer to Note 1 and Note 2 to the Consolidated Financial Statements for
additional information related to ResCap and discontinued operations,
respectively.
The total TDRs outstanding at December 31, 2012, decreased $744 million to $1.2
billion from December 31, 2011, due to the deconsolidation of ResCap.
During the third quarter of 2012, the Office of the Comptroller of the Currency
(OCC) advised the banks for which they serve as the primary bank regulatory
agency that certain loans that are current, have been discharged in a Chapter 7
Bankruptcy and have not been reaffirmed by the borrower should be accounted for
as TDRs and written down to collateral value regardless of their current payment
history and expected continued performance. The OCC is not our primary
regulator, and our primary regulator has not provided definitive guidance. It is
expected that all of the banking regulators will be evaluating this issue in the
first quarter of 2013; however, due to industry practice, we have determined
that these loans should be accounted for as TDRs on a prospective basis. The
write down based on the discounted expected cash flows of these assets has
already been considered in our allowance for loan and lease losses recorded at
December 31, 2012. The impact of any change will not be material.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Total nonperforming loans at December 31, 2012, decreased $3.1 billion to $883
million from December 31, 2011, reflecting a decrease of $2.9 billion of
consumer nonperforming loans and a decrease of $123 million of commercial
nonperforming loans. The decrease in total nonperforming loans from December 31,
2011, was primarily due to the deconsolidation of ResCap. Nonperforming loans
include finance receivables and loans on nonaccrual status when the principal or
interest has been delinquent for 90 days or when full collection is determined
not to be probable. Refer to Note 1 to the Consolidated Financial Statements for
additional information.
The following table includes consumer and commercial net charge-offs from
finance receivables and loans at historical cost and related ratios reported at
carrying value before allowance for loan losses.
                                                Net charge-offs (recoveries)          Net charge-off ratios (a)
Year ended December 31, ($ in millions)           2012                 2011               2012             2011

Consumer

Finance receivables and loans at
historical cost                             $         507         $         514            0.7  %            0.7 %

Commercial

Finance receivables and loans at
historical cost                                       (33 )                  39           (0.1 )             0.1
Total finance receivables and loans at
historical cost                             $         474         $         553            0.4               0.5


(a) Net charge-off ratios are calculated as net charge-offs divided by average

outstanding finance receivables and loans excluding loans measured at fair

value and loans held-for-sale during the year for each loan category.



Net charge-offs were $474 million for the year ended December 31, 2012, compared
to $553 million for the year ended December 31, 2011. The decrease in net
charge-offs for the year ended December 31, 2012, was largely due to recoveries
in the commercial portfolio. Loans held-for-sale are accounted for at the
lower-of-cost or fair value, and therefore we do not record charge-offs.
The Consumer Credit Portfolio and Commercial Credit Portfolio discussions that
follow relate to consumer and commercial finance receivables and loans recorded
at historical cost. Finance receivables and loans recorded at historical cost
have an associated allowance for loan losses. Finance receivables and loans
measured at fair value were excluded from these discussions since those
exposures are not accounted for within our allowance for loan losses.
Consumer Credit Portfolio
Our consumer portfolio primarily consists of automobile loans, first mortgages,
and home equity loans (we ceased originating home equity loans in 2009). Loan
losses in our consumer portfolio are influenced by general business and economic
conditions including unemployment rates, bankruptcy filings, and home and used
vehicle prices. Additionally, our consumer credit exposure is significantly
concentrated in automobile lending (largely through GM and Chrysler
dealerships). Due to our subvention relationships, we are able to mitigate some
interest income exposure to certain consumer defaults by receiving a rate
support payment directly from the automotive manufacturers at origination.
Credit risk management for the consumer portfolio begins with the initial
underwriting and continues throughout a borrower's credit cycle. We manage
consumer credit risk through our loan origination and underwriting policies,
credit approval process, and servicing capabilities. We use proprietary
credit-scoring models to differentiate the expected default rates of credit
applicants enabling us to better evaluate credit applications for approval and
to tailor the pricing and financing structure according to this assessment of
credit risk. We regularly review the performance of the credit scoring models
and update them for historical information and current trends. These and other
actions mitigate but do not eliminate credit risk. Improper evaluations of a
borrower's creditworthiness, fraud, and/or changes in the applicant's financial
condition after approval could negatively affect the quality of our receivables
portfolio, resulting in loan losses.
Our servicing activities are another key factor in managing consumer credit
risk. Servicing activities consist largely of collecting and processing customer
payments, responding to customer inquiries such as requests for payoff quotes,
and processing customer requests for account revisions (such as payment
extensions and refinancings). Servicing activities are generally consistent
across our operations; however, certain practices may be influenced by local
laws and regulations.
During the year ended December 31, 2012, the credit performance of the consumer
portfolio remained strong as our charge-off rate was relatively stable. For
information on our consumer credit risk practices and policies regarding
delinquencies, nonperforming status, and charge-offs, refer to Note 1 to the
Consolidated Financial Statements.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table includes consumer finance receivables and loans recorded at historical cost reported at carrying value before allowance for loan losses.

                                                                                          Accruing past due 90 days or
                                    Outstanding                Nonperforming (a)                    more (b)
December 31, ($ in
millions)                        2012         2011             2012             2011           2012            2011
Domestic
Consumer automobile           $ 53,713     $ 46,576     $     260            $    139     $         -       $       -
Consumer mortgage
1st Mortgage                     7,173        6,867           342                 258               1               1
Home equity                      2,648        3,102            40                  58               -               -
Total domestic                  63,534       56,545           642                 455               1               1
Foreign
Consumer automobile                  2       16,883             -                  89               -               3
Consumer mortgage
1st Mortgage                         -           24             -                  23               -               -
Home equity                          -            -             -                   -               -               -
Total foreign                        2       16,907             -                 112               -               3
Total consumer finance
receivables and loans         $ 63,536     $ 73,452     $     642            $    567     $         1       $       4

(a) Includes nonaccrual troubled debt restructured loans of $373 million and

$180 million at December 31, 2012, and December 31, 2011, respectively.

(b) There were no troubled debt restructured loans classified as 90 days past due

and still accruing at December 31, 2012, and December 31, 2011.



Total consumer outstanding finance receivables and loans decreased $9.9 billion
at December 31, 2012 compared with December 31, 2011. This decrease was related
to the reclassification of foreign Automotive Finance operations to discontinued
operations. This was partially offset by an increase in our core domestic
business driven by automobile consumer loan originations, which outpaced
portfolio runoff, primarily due to increased industry sales and growth in used
and non-GM/Chrysler originations. Additionally, we continued to prudently expand
our nonprime originations.
Total consumer nonperforming finance receivables and loans at December 31, 2012,
increased $75 million to $642 million from December 31, 2011, reflecting an
increase of $32 million of consumer automobile nonperforming finance receivables
and loans and an increase of $43 million of consumer mortgage nonperforming
finance receivables and loans. Nonperforming consumer domestic automotive
finance receivables and loans increased due in part to seasoning of the domestic
portfolio as well as increased TDRs as we continue to provide additional options
in lieu of repossessing vehicles. Nonperforming consumer domestic mortgage
finance receivables and loans increased primarily due to increased TDRs as we
continue foreclosure prevention and loss mitigation procedures along with our
participation in a variety of government-sponsored refinancing programs. Refer
to Note 8 to the Consolidated Financial Statements for additional information.
Nonperforming consumer finance receivables and loans as a percentage of total
outstanding consumer finance receivables and loans were 1.0% and 0.8% at
December 31, 2012 and December 31, 2011, respectively.
Consumer domestic automotive loans accruing and past due 30 days or more
increased $290 million to $1.1 billion at December 31, 2012, compared with
December 31, 2011. The increase is primarily due to asset growth, prudent
expansion of underwriting strategy, which was significantly narrowed during the
recession, and seasoning of the portfolio.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table includes consumer net charge-offs from finance receivables and loans at historical cost and related ratios reported at carrying value before allowance for loan losses.

                                                      Net charge-offs            Net charge-off ratios (a)
Year ended December 31, ($ in millions)              2012            2011          2012             2011
Domestic
Consumer automobile                            $     267          $    249           0.5 %             0.6 %
Consumer mortgage
1st Mortgage                                          82               115           1.2               1.7
Home equity                                           56                74           2.0               2.3
Total domestic                                       405               438           0.7               0.8
Foreign
Consumer automobile                                  102                72           0.6               0.4
Consumer mortgage
1st Mortgage                                           -                 4           4.4               1.2
Home equity                                            -                 -             -                 -
Total foreign                                        102                76           0.6               0.4

Total consumer finance receivables and loans $ 507$ 514

          0.7               0.7


(a) Net charge-off ratios are calculated as net charge-offs divided by average

outstanding finance receivables and loans excluding loans measured at fair

value and loans held-for-sale during the year for each loan category.



Our net charge-offs from total consumer automobile finance receivables and loans
were $369 million for the year ended December 31, 2012, compared to $321 million
for the year ended December 31, 2011. The $18 million increase in net
charge-offs from the domestic automobile finance receivables and loans for the
year ended December 31, 2012, was driven primarily by higher outstandings as the
net charge-off rate improved.
Our net charge-offs from total consumer mortgage receivables and loans were $138
million for the year ended December 31, 2012, compared to $193 million in 2011.
The decrease was driven by the improved mix of remaining loans as the lower
quality legacy loans continued to runoff.
The following table summarizes the unpaid principal balance of total consumer
loan originations for the periods shown. Total consumer loan originations
include loans classified as finance receivables and loans and loans
held-for-sale during the period.
Year ended December 31, ($ in millions)     2012         2011
Domestic
Consumer automobile                       $ 30,351    $  32,933
Consumer mortgage
1st Mortgage                                32,465       56,258
Home equity                                      -            -
Total domestic                              62,816       89,191
Foreign
Consumer automobile                          9,653        9,983
Consumer mortgage
1st Mortgage                                     -        1,403
Home equity                                      -            -
Total foreign                                9,653       11,386

Total consumer loan originations $ 72,469$ 100,577



Total automobile-originated loans decreased $2.9 billion for the year ended
December 31, 2012, compared to 2011. The decrease was primarily due to lower
retail penetration at both GM and Chrysler. Total mortgage-originated loans
decreased $25.2 billion for the year ended December 31, 2012. The decline in
loan production was primarily driven by the reduction in correspondent lending.
Consumer loan originations retained on-balance sheet as held-for-investment were
$42.2 billion at December 31, 2012, compared to $44.6 billion at December 31,
2011. The decrease was primarily due to lower retail penetration at both GM and
Chrysler.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table shows the percentage of total consumer finance receivables
and loans recorded at historical cost reported at carrying value before
allowance for loan losses by state and foreign concentration. Total automobile
loans were $53.7 billion and $63.5 billion at December 31, 2012, and
December 31, 2011, respectively. Total mortgage and home equity loans were $9.8
billion and $10.0 billion at December 31, 2012, and December 31, 2011,
respectively.
                                                       2012 (a)                           2011
                                                          1st Mortgage and                 1st Mortgage and
December 31,                                Automobile      home equity      Automobile      home equity
Texas                                            12.9 %          5.8 %             9.5 %          5.5 %
California                                        5.6           29.2               4.6           25.7
Florida                                           6.7            3.6               4.8            4.0
Michigan                                          5.0            4.1               4.0            4.8
Pennsylvania                                      5.2            1.6               3.6            1.6
Illinois                                          4.3            4.8               3.1            5.0
New York                                          4.6            2.0               3.5            2.3
Ohio                                              4.0            0.8               2.9            1.0
Georgia                                           3.7            1.9               2.5            1.8
North Carolina                                    3.3            2.0               2.2            2.1
Other United States                              44.7           44.2              32.9           45.9
Foreign (b)                                         -              -              26.4            0.3
Total consumer loans                            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 December 31, 2012.

(b) Foreign consumer finance receivables and loans as of December 31, 2012, was

$2 million. These remaining foreign balances are within Finland and the Czech

Republic.



We monitor our consumer loan portfolio for concentration risk across the
geographies in which we lend. The highest concentrations of loans in the United
States are in Texas and California, which represented an aggregate of 21.0% and
16.4% of our total outstanding consumer finance receivables and loans at
December 31, 2012, and December 31, 2011, respectively.
Concentrations in our Mortgage operations are closely monitored given the
volatility of the housing markets. Our consumer mortgage loan concentrations in
California, Florida, and Michigan receive particular attention as the real
estate value depreciation in these states has been amongst the most severe.
Repossessed and Foreclosed Assets
We classify an asset as repossessed or foreclosed (included in other assets on
the Consolidated Balance 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.
Repossessed assets in our Automotive Finance operations at December 31, 2012,
increased $6 million to $62 million from December 31, 2011. Foreclosed mortgage
assets at December 31, 2012, decreased $71 million to $6 million from
December 31, 2011, primarily due to the deconsolidation of ResCap.
Higher-Risk Mortgage Loans
Since 2009, we primarily focused our origination efforts on prime conforming and
government-insured residential mortgages in the United States. However, we
continued to hold mortgage loans originated in prior years that have features
that expose us to potentially higher credit risk including high original
loan-to-value mortgage loans (prime or nonprime), payment-option adjustable-rate
mortgage loans (prime nonconforming), interest-only mortgage loans (classified
as prime conforming or nonconforming for domestic production and prime
nonconforming or nonprime for international production), and below-market rate
(teaser) mortgages (prime or nonprime).
In circumstances when a loan has features such that it falls into multiple
categories, it is classified to a category only once based on the following
hierarchy: (1) high original loan-to-value (LTV) mortgage loans,
(2) payment-option adjustable-rate mortgage loans, (3) interest-only mortgage
loans, and (4) below-market rate (teaser) mortgages. Given the continued stress
within the housing market, we believe this hierarchy provides the most relevant
risk assessment of our nontraditional products.
•      High loan-to-value mortgages - Defined as first-lien loans with original

loan-to-value ratios equal to or in excess of 100% or second-lien loans

that when combined with the underlying first-lien mortgage loan result in

an original loan-to-value ratio equal to or in excess of 100%. We ceased

       originating these loans with the intent to retain during 2009.



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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


• Payment-option adjustable-rate mortgages - Permit a variety of repayment

options. The repayment options include minimum, interest-only, fully

amortizing 30-year, and fully amortizing 15-year payments. The minimum

payment option generally sets the monthly payment at the initial interest

rate for the first year of the loan. The interest rate resets after the

first year, but the borrower can continue to make the minimum payment. The

interest-only option sets the monthly payment at the amount of interest

       due on the loan. If the interest-only option payment would be less than
       the minimum payment, the interest-only option is not available to the

borrower. Under the fully amortizing 30- and 15-year payment options, the

borrower's monthly payment is set based on the interest rate, loan

balance, and remaining loan term. We ceased originating these loans during

2008.

• Interest-only mortgages - Allow interest-only payments for a fixed time.

       At the end of the interest-only period, the loan payment includes
       principal payments and can increase significantly. The borrower's new
       payment, once the loan becomes amortizing (i.e., includes principal

payments), will be greater than if the borrower had been making principal

       payments since the origination of the loan. We ceased originating these
       loans with the intent to retain during 2010.

• Below-market rate (teaser) mortgages - Contain contractual features that

       limit the initial interest rate to a below-market interest rate for a
       specified time period with an increase to a market interest rate in a
       future period. The increase to the market interest rate could result in a

significant increase in the borrower's monthly payment amount. We ceased

originating these loans with the intent to retain during 2008.



The following table summarizes mortgage finance receivables and loans by
higher-risk loan type. These finance receivables and loans are recorded at
historical cost and reported at carrying value before allowance for loan losses.
                                                      2012                                                          2011
December 31, ($ in                                                 Accruing past due                                             Accruing past due
millions)                    Outstanding       Nonperforming        90 days
or more        Outstanding       Nonperforming        90 days or more
Interest-only mortgage
loans (a)                  $       2,063     $           125     $                 -     $       2,947     $           147     $                 -
Below-market rate
(teaser) mortgages                   192                   3                       -               248                   6                       -
Total higher-risk
mortgage loans             $       2,255     $           128     $                 -     $       3,195     $           153     $                 -

(a) The majority of the interest-only mortgage loans are expected to start

principal amortization in 2015 or beyond.



High original LTV mortgage finance receivables and loans and payment-option
adjustable-rate mortgage finance receivables and loans remained flat at $1
million and $3 million, respectively, at December 31, 2012 and December 31,
2011. There were no high original LTV mortgage loans or payment-option
adjustable-rate mortgage loans classified as nonperforming or 90 days past due
and still accruing at December 31, 2012 and December 31, 2011.
The allowance for loan losses was $104 million, or 4.6%, of total higher-risk
held-for-investment mortgage loans recorded at historical cost based on carrying
value outstanding before allowance for loans losses at December 31, 2012.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table includes our five largest state concentrations based on our
higher-risk mortgage finance receivables and loans recorded at historical cost
and reported at carrying value before allowance for loan losses.
                                                         Below-market           Total
                                     Interest-only      rate (teaser)        higher-risk
December 31, ($ in millions)        mortgage loans        mortgages        mortgage loans
2012
California                         $            500    $            60    $            560
Virginia                                        216                  9                 225
Maryland                                        166                  5                 171
Illinois                                        107                  6                 113
Michigan                                        106                  5                 111
Other United States                             968                107               1,075
Total higher-risk mortgage loans   $          2,063    $           192    $          2,255
2011
California                         $            748    $            78    $            826
Virginia                                        274                 10                 284
Maryland                                        217                  6                 223
Illinois                                        153                  8                 161
Michigan                                        199                  9                 208
Other United States                           1,356                137               1,493
Total higher-risk mortgage loans   $          2,947    $           248    $ 

3,195



Commercial Credit Portfolio
Our commercial portfolio consists primarily of automotive loans (wholesale
floorplan, dealer term loans including real estate loans, and automotive fleet
financing), and some commercial finance loans. In general, the credit risk of
our commercial portfolio is impacted by overall economic conditions in the
countries in which we operate and the financial health of the automotive
manufacturers that provide the inventory we floorplan. As part of our floorplan
financing arrangements, we typically require repurchase agreements with the
automotive manufacturer to repurchase new vehicle inventory under certain
circumstances.
Our credit risk on the commercial portfolio is markedly different from that of
our consumer portfolio. Whereas the consumer portfolio represents
smaller-balance homogeneous loans that exhibit fairly predictable and stable
loss patterns, the commercial portfolio exposures can be less predictable. We
utilize an internal credit risk rating system that is fundamental to managing
credit risk exposure consistently across various types of commercial borrowers
and captures critical risk factors for each borrower. The ratings are used for
many areas of credit risk management, such as loan origination, portfolio risk
monitoring, management reporting, and loan loss reserves analyses. Therefore,
the rating system is critical to an effective and consistent credit risk
management framework.
During the year ended December 31, 2012, the credit performance of the
commercial portfolio remained strong as nonperforming finance receivables and
loans and net charge-offs declined. 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.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table includes total commercial finance receivables and loans reported at carrying value before allowance for loan losses.

                                                                                                Accruing past due
                                    Outstanding                Nonperforming (a)               90 days or more (b)
December 31, ($ in
millions)                        2012         2011             2012             2011           2012            2011
Domestic
Commercial and industrial
Automobile                    $ 30,270     $ 26,552     $     146            $    105     $         -       $       -
Mortgage                             -        1,887             -                   -               -               -
Other (c)                        2,679        1,178            33                  22               -               -
Commercial real estate
Automobile                       2,552        2,331            37                  56               -               -
Mortgage                             -            -             -                   -               -               -
Total domestic                  35,501       31,948           216                 183               -               -
Foreign
Commercial and industrial
Automobile                           -        8,265             -                 118               -               -
Mortgage                             -           24             -                   -               -               -
Other (c)                           18           63             -                  15               -               -
Commercial real estate
Automobile                           -          154             -                  11               -               -
Mortgage                             -           14             -                  12               -               -
Total foreign                       18        8,520             -                 156               -               -
Total commercial finance
receivables and loans         $ 35,519     $ 40,468     $     216            $    339     $         -       $       -

(a) Includes nonaccrual troubled debt restructured loans of $29 million and

$21 million at December 31, 2012, and December 31, 2011, respectively.

(b) There were no troubled debt restructured loans classified as 90 days past due

and still accruing at December 31, 2012 and December 31, 2011.

(c) Other commercial primarily includes senior secured commercial lending.



Total commercial finance receivables and loans outstanding decreased $4.9
billion to $35.5 billion at December 31, 2012, from December 31, 2011. The
domestic commercial and industrial outstandings increased $3.3 billion primarily
due to increased automotive industry sales and corresponding rise in inventories
as well as ResCap's debtor-in-possession financing, partially offset by the
wind-down of the mortgage warehouse lending's portfolio. The foreign commercial
and industrial outstandings decreased $8.3 billion primarily due to the
reclassification of foreign Automotive Finance operations to discontinued
operations.
Total domestic commercial nonperforming finance receivables and loans were $216
million at December 31, 2012, an increase of $33 million compared to
December 31, 2011. However, portfolio performance was stable during 2012, and
total nonperforming commercial finance receivables and loans as a percentage of
outstanding commercial finance receivables and loans declined from 0.8% as of
December 31, 2011 to 0.6% as of December 31, 2012.

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The following table includes total commercial net charge-offs from finance receivables and loans at historical cost and related ratios reported at carrying value before allowance for loan losses.

                                                    Net charge-offs (recoveries)        Net charge-off ratios (a)
Year ended December 31, ($ in millions)                2012                2011            2012            2011
Domestic
Commercial and industrial
Automobile                                       $           2         $        7             -  %             -  %
Mortgage                                                    (1 )               (3 )        (0.1 )           (0.3 )
Other                                                       (3 )               (7 )        (0.2 )           (0.5 )
Commercial real estate
Automobile                                                  (1 )                6             -              0.3
Mortgage                                                     -                 (1 )           -              n/m
Total domestic                                              (3 )                2             -                -
Foreign
Commercial and industrial
Automobile                                                  (2 )               (1 )           -                -
Mortgage                                                     -                  8           2.2             25.0
Other                                                      (28 )                2         (75.3 )            0.8
Commercial real estate
Automobile                                                   -                  1           0.3              0.3
Mortgage                                                     -                 27          (7.1 )           60.9
Total foreign                                              (30 )               37          (0.4 )            0.4

Total commercial finance receivables and loans $ (33 ) $

    39          (0.1 )            0.1


n/m = not meaningful (a) Net charge-off ratios are calculated as net charge-offs divided by average

outstanding finance receivables and loans excluding loans measured at fair

value and loans held-for-sale during the year for each loan category.



Our net charge-offs from commercial finance receivables and loans resulted in
recoveries of $33 million for the year ended December 31, 2012, compared to net
charge-offs of $39 million in 2011. The decrease in net charge-offs during 2012
was largely driven by strong recoveries in certain wind-down portfolios and an
improved mix of loans in the existing portfolios.
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 $2.6 billion and $2.5 billion at December 31, 2012,
and December 31, 2011, respectively.

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The following table presents the percentage of total commercial real estate
finance receivables and loans by geographic region and property type. These
finance receivables and loans are reported at carrying value before allowance
for loan losses.
December 31,                                                  2012      2011
Geographic region
Texas                                                         13.0 %    12.4 %
Michigan                                                      12.6      14.1
Florida                                                       11.7      12.4
California                                                     9.3       9.3
New York                                                       4.9       3.5
Virginia                                                       3.9       4.1
North Carolina                                                 3.9       2.1
Pennsylvania                                                   3.3       2.9
Georgia                                                        3.0       2.5
Tennessee                                                      2.3       1.8
Other United States                                           32.1      28.3
Foreign                                                          -       6.6
Total commercial real estate finance receivables and loans   100.0 %   100.0 %
Property type
Automotive dealers                                           100.0 %    99.4 %
Other                                                            -       0.6

Total commercial real estate finance receivables and loans 100.0 % 100.0 %



Commercial Criticized Exposure
Finance receivables and loans classified as special mention, substandard, or
doubtful are deemed 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 economic loss.
The following table presents the percentage of total commercial criticized
finance receivables and loans by industry concentrations. These finance
receivables and loans are reported at carrying value before allowance for loan
losses.
December 31,                                                 2012      2011
Industry
Automotive                                                   85.7 %    82.9 %
Manufacturing                                                 5.5       1.8
Services                                                      4.9       1.9
Other                                                         3.9      13.4

Total commercial criticized finance receivables and loans 100.0 % 100.0 %



Total criticized exposures declined $1.4 billion to $1.7 billion at December 31,
2012 from December 31, 2011, primarily due to the reclassification of foreign
Automotive Finance operations to discontinued operations as well as improvements
in dealer financial condition within the domestic automotive industry. The
increase in our automotive criticized concentration rate was driven primarily by
the decrease in overall criticized outstandings.

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Selected Loan Maturity and Sensitivity Data
The table below shows the commercial finance receivables and loans portfolio and
the distribution between fixed and floating interest rates based on the stated
terms of the commercial loan agreements. This portfolio is reported at carrying
value before allowance for loan losses.
December 31, 2012 ($ in millions)     Within 1 year (a)       1-5 years       After 5 years       Total (b)
Commercial and industrial           $            31,107     $     1,798     $            44     $    32,949
Commercial real estate                              131           2,004                 417           2,552
Total domestic                                   31,238           3,802                 461          35,501
Foreign                                               3              15                   -              18
Total commercial finance
receivables and loans               $            31,241     $     3,817     $           461     $    35,519
Loans at fixed interest rates                               $     1,809     $           381
Loans at variable interest rates                                  2,008                  80
Total commercial finance
receivables and loans                                       $     3,817     $           461

(a) Includes loans (e.g., floorplan) with revolving terms.

(b) Loan maturities are based on the remaining maturities under contractual

terms.



Allowance for Loan Losses
The following tables present an analysis of the activity in the allowance for
loan losses on finance receivables and loans.
                                    Consumer        Consumer        Total
($ in millions)                    automobile       mortgage       consumer       Commercial         Total
Allowance at January 1, 2012      $      766      $      516     $    1,282     $      221        $   1,503
Charge-offs
Domestic                                (438 )          (149 )         (587 )           (8 )           (595 )
Foreign                                 (178 )             -           (178 )           (3 )           (181 )
Total charge-offs                       (616 )          (149 )         (765 )          (11 )           (776 )

Recoveries

Domestic                                 171              11            182             11              193
Foreign                                   76               -             76             33              109
Total recoveries                         247              11            258             44              302
Net charge-offs                         (369 )          (138 )         (507 )           33             (474 )
Provision for loan losses                257              86            343            (14 )            329
Foreign provision for loan
losses                                   115               -            115            (50 )             65
Deconsolidation of ResCap                  -              (9 )           (9 )            -               (9 )
Other (a)                               (194 )            (3 )         (197 )          (47 )           (244 )

Allowance at December 31, 2012 $ 575 $ 452 $ 1,027

     $      143        $   1,170
Allowance for loan losses to
finance receivables and loans
outstanding at December 31,
2012 (b)                                 1.1 %           4.6 %          1.6 %          0.4  %           1.2 %
Net charge-offs to average
finance receivables and loans
outstanding at December 31,
2012 (b)                                 0.5 %           1.4 %          0.7 %         (0.1 )%           0.4 %
Allowance for loan losses to
total nonperforming finance
receivables and loans at
December 31, 2012 (b)                  221.3 %         118.0 %        159.8 %         66.4  %         136.3 %
Ratio of allowance for loans
losses to net charge-offs at
December 31, 2012                        1.6             3.3            2.0           (4.3 )            2.5


(a) Other includes the allowance of foreign Automotive Finance operations finance

receivables and loans that were reclassified as discontinued operations.

(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 unpaid principal balance, net of premiums and discounts.



The allowance for consumer loan losses at December 31, 2012, declined $255
million compared to December 31, 2011. The decline reflects the reclassification
of the foreign Automotive Finance operations to discontinued operations and the
runoff of legacy portfolios, which was partially offset by an increase in loans
outstanding.

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The allowance for commercial loan losses declined $78 million at December 31,
2012, compared to December 31, 2011, primarily related to the ongoing strength
in dealer performance, the reclassification of foreign Automotive Finance
operations to discontinued operations, and general overall improvement in the
Commercial Finance Group's portfolio.
                                    Consumer        Consumer        Total
($ in millions)                    automobile       mortgage       consumer      Commercial        Total
Allowance at January 1, 2011      $      970      $      580     $    1,550     $      323      $   1,873
Charge-offs
Domestic                                (435 )          (205 )         (640 )          (27 )         (667 )
Foreign                                 (145 )            (5 )         (150 )          (63 )         (213 )
Total charge-offs                       (580 )          (210 )         (790 )          (90 )         (880 )
Recoveries
Domestic                                 186              16            202             25            227
Foreign                                   73               1             74             26            100
Total recoveries                         259              17            276             51            327
Net charge-offs                         (321 )          (193 )         (514 )          (39 )         (553 )
Provision for loan losses                102             129            231            (43 )          188
Foreign provision for loan
losses                                    52               -             52            (21 )           31
Other                                    (37 )             -            (37 )            1            (36 )

Allowance at December 31, 2011 $ 766 $ 516 $ 1,282

     $      221      $   1,503
Allowance for loan losses to
finance receivables and loans
outstanding at December 31,
2011 (a)                                 1.2 %           5.2 %          1.7 %          0.5 %          1.3 %
Net charge-offs to average
finance receivables and loans
outstanding at December 31,
2011 (a)                                 0.5 %           1.9 %          0.7 %          0.1 %          0.5 %
Allowance for loan losses to
total nonperforming finance
receivables and loans at
December 31, 2011 (a)                  335.8 %         152.1 %        226.0 %         65.3 %        165.9 %
Ratio of allowance for loans
losses to net charge-offs at
December 31, 2011                        2.4             2.7            2.5            5.7            2.7


(a) 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 unpaid principal balance, net of premiums and discounts.



The allowance for consumer loan losses was $1.3 billion at December 31, 2011,
compared to $1.6 billion at December 31, 2010. The decline reflected overall
improved credit quality of newer vintages reflecting tightened underwriting
standards which was partially offset by an increase in loans outstanding.
The allowance for commercial loan losses was $221 million at December 31, 2011,
compared to $323 million at December 31, 2010. The decline was primarily related
to improvement in dealer performance and continued wind-down of non-core
commercial assets.

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Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses
by product type.
                                                2012                                                   2011
                                                              Allowance as                                           Allowance as
                                             Allowance as        a % of                             Allowance as        a % of
December 31, ($ in        Allowance for      a % of loans     allowance for      Allowance for      a % of loans     allowance for
millions)                  loan losses       outstanding       loan losses        loan losses       outstanding       loan losses
Consumer
Domestic
Consumer automobile     $           575            1.1 %            49.2 %     $           600            1.3 %            39.9 %
Consumer mortgage
1st Mortgage                        245            3.4              20.9                   275            4.0              18.3
Home equity                         207            7.8              17.7                   237            7.7              15.8
Total domestic                    1,027            1.6              87.8                 1,112            2.0              74.0
Foreign
Consumer automobile                   -              -                 -                   166            1.0              11.1
Consumer mortgage
1st Mortgage                          -              -                 -                     4           14.5               0.2
Home equity                           -              -                 -                     -              -                 -
Total foreign                         -              -                 -                   170            1.0              11.3
Total consumer loans              1,027            1.6              87.8                 1,282            1.7              85.3
Commercial
Domestic
Commercial and
industrial
Automobile                           55            0.2               4.7                    62            0.2               4.0
Mortgage                              -              -                 -                     1              -               0.1
Other                                48            1.8               4.1                    52            4.4               3.5
Commercial real
estate
Automobile                           40            1.6               3.4                    39            1.7               2.6
Mortgage                              -              -                 -                     -              -                 -
Total domestic                      143            0.4              12.2                   154            0.5              10.2
Foreign
Commercial and
industrial
Automobile                            -              -                 -                    48            0.6               3.2
Mortgage                              -              -                 -                    10           43.1               0.7
Other                                 -              -                 -                     1            1.9               0.1
Commercial real
estate
Automobile                            -              -                 -                     3            1.7               0.2
Mortgage                              -              -                 -                     5           33.2               0.3
Total foreign                         -              -                 -                    67            0.8               4.5
Total commercial
loans                               143            0.4              12.2                   221            0.5              14.7
Total allowance for
loan losses             $         1,170            1.2             100.0 %     $         1,503            1.3             100.0 %



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Provision for Loan Losses
The following table summarizes the provision for loan losses by product type.
Year ended December 31, ($ in millions)    2012      2011      2010
Consumer
Domestic
Consumer automobile                       $ 257     $ 102     $ 228
Consumer mortgage
1st Mortgage                                 52        68        72
Home equity                                  34        55        90
Total domestic                              343       225       390
Foreign
Consumer automobile                           -         -        (2 )
Consumer mortgage
1st Mortgage                                  -         6         2
Home equity                                   -         -         -
Total foreign                                 -         6         -
Total consumer loans                        343       231       390
Commercial
Domestic
Commercial and industrial
Automobile                                   (3 )      (3 )       2
Mortgage                                     (1 )      (3 )     (13 )
Other                                       (10 )     (51 )     (47 )
Commercial real estate
Automobile                                    -       (10 )      34
Mortgage                                      -        (1 )     (10 )
Total domestic                              (14 )     (68 )     (34 )
Foreign
Commercial and industrial
Automobile                                    -         -        (2 )
Mortgage                                      -         5        (5 )
Other                                         -         -         -
Commercial real estate
Automobile                                    -         -         -
Mortgage                                      -        20         8
Total foreign                                 -        25         1
Total commercial loans                      (14 )     (43 )     (33 )
Total provision for loan losses           $ 329     $ 188     $ 357


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. The following
factors most significantly influence lease residual risk. For additional
information on our valuation of automobile lease assets and residuals, refer to
the Critical Accounting Estimates - Valuation of Automobile Lease Assets and
Residuals section within this MD&A.
•      Used vehicle market - We have exposure to changes in used vehicle prices.
       General economic conditions, used vehicle supply and demand, and new
       vehicle market prices heavily influence used vehicle prices.

• Residual value projections - We establish risk adjusted residual values at

       lease inception by consulting independently published guides and
       proprietary statistical models. The residual values are consistently
       monitored during the lease term. These values are



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projections of expected values in the future (typically between two and four
years) based on current assumptions for the respective make and model. Actual
realized values often differ.
•      Remarketing abilities - Our ability to efficiently process and effectively

market off-lease vehicles affects the disposal costs and the proceeds

realized from vehicle sales.

• Manufacturer vehicle and marketing programs - Automotive manufacturers

       influence lease residual results in the following ways:


?         The brand image of automotive manufacturers and consumer demand for
          their products affect residual risk.


?         Automotive manufacturer marketing programs may influence the used

vehicle market for those vehicles through programs such as incentives

on new vehicles, programs designed to encourage lessees to terminate

their leases early in conjunction with the acquisition of a new vehicle

(referred to as pull-ahead programs), and special rate used vehicle

programs.

? Automotive manufacturers may provide support to us for certain residual

deficiencies.



The following table summarizes the volume of our serviced lease terminations in
the United States over recent periods. It also summarizes the average sales
proceeds on 24-, 36-, and 48-month scheduled lease terminations for those same
periods. The mix of terminated vehicles in 2012 was used to normalize results
over previous periods to more clearly demonstrate market pricing trends.
Year ended December 31,                                   2012        2011  

2010

Off-lease vehicles remarketed (in units)                 63,315     248,624 

376,203

Average sales proceeds on scheduled lease terminations
($ per unit)
24-month (a)                                           $ 22,586         n/m     $ 22,400
36-month (b)                                                n/m         n/m          n/m
48-month                                                 18,124      16,134       14,289

n/m = not meaningful (a) During 2011, 24-month lease terminations were not materially sufficient to

create a historical comparison due to our temporary curtailment of leasing in

2009.

(b) The 36-month lease terminations were not materially sufficient to create a

historical multi-year comparison from that term due to our temporary

curtailment of leasing in 2009.



The number of off-lease vehicles remarketed in 2012 reached a historic low,
declining 75% from 2011. The significant decrease was due to our temporary
curtailment of leasing in late 2008 through 2009. Sales proceeds have
strengthened since 2009 due primarily to the lower supply of attractive used
vehicles, which can be largely attributed to the significant drop in new vehicle
sales and leasing activity during the last economic downturn. For information on
our Investment in Operating Leases, refer to Note 9 to the Consolidated
Financial Statements.
Market Risk
Our automotive financing, mortgage, and insurance activities give rise to market
risk representing the potential loss in the fair value of assets or liabilities
and earnings caused by movements in market variables, such as interest rates,
foreign-exchange rates, equity prices, market perceptions of credit risk, and
other market fluctuations that affect the value of securities, assets
held-for-sale, and operating leases. We are exposed to interest rate risk
arising from changes in interest rates related to financing, investing, and cash
management activities. More specifically, we have entered into contracts to
provide financing, to retain mortgage servicing rights, and to retain various
assets related to securitization activities all of which are exposed in varying
degrees to changes in value due to movements in interest rates. Interest rate
risk arises from the mismatch between assets and the related liabilities used
for funding. We enter into various financial instruments, including derivatives,
to maintain the desired level of exposure to the risk of interest rate and other
fluctuations. Refer to Note 22 to the Consolidated Financial Statements for
further information.
We are also exposed to foreign-currency risk arising from the possibility that
fluctuations in foreign-exchange rates will affect future earnings or asset and
liability values related to our global operations. We enter into hedges to
mitigate foreign exchange risk.
We also have exposure to equity price risk, primarily in our Insurance
operations, which invests in equity securities that are subject to price risk
influenced by capital market movements. We enter into equity options to
economically hedge our exposure to the equity markets.
Although the diversity of our activities from our complementary lines of
business may partially mitigate market risk, we also actively manage this risk.
We maintain risk management control systems to monitor interest rates,
foreign-currency exchange rates, equity price risks, and any of their related
hedge positions. Positions are monitored using a variety of analytical
techniques including market value, sensitivity analysis, and value at risk
models.

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Fair Value Sensitivity Analysis
The following table and subsequent discussion presents a fair value sensitivity
analysis of our assets and liabilities using isolated hypothetical movements in
specific market rates. The analysis assumes adverse instantaneous, parallel
shifts in market-exchange rates, interest rate yield curves, and equity prices.
Additionally, since only adverse fair value impacts are included, the natural
offset between asset and liability rate sensitivities that arise within a
diversified balance sheet, such as ours, is not considered.
                                                          2012                           2011
December 31, ($ in millions)                   Nontrading        Trading       Nontrading       Trading
Financial instruments exposed to changes in:
Interest rates
Estimated fair value                                  (a)     $         -             (a)     $     549
Effect of 10% adverse change in rates                 (a)               -             (a)            (2 )
Foreign-currency exchange rates
Estimated fair value                          $     2,791     $         -     $     6,724     $       -
Effect of 10% adverse change in rates                (279 )             -            (672 )           -
Equity prices
Estimated fair value                          $     1,152     $         -     $     1,059     $       -
Effect of 10% decrease in prices                     (115 )             -            (106 )           -


(a) Refer to the next section titled Net Interest Income Sensitivity Analysis for

information on the interest rate sensitivity of our nontrading financial

instruments.



The fair value of our foreign-currency exchange-rate sensitive financial
instruments decreased during the year ended December 31, 2012, compared to 2011,
due to decreases in finance receivables and loans that were reclassified to
discontinued operations partially offset by a decrease in foreign-denominated
short-term borrowings and foreign-denominated long-term debt that were also
reclassified to discontinued operations. The net decrease consequently drove the
decrease in the fair value estimate and associated adverse 10% change in rates
impact. The increase in the fair value of our equity sensitive financial
instruments was due to a slightly higher equity investment balance compared to
prior year. This change in equity exposure drove our increased sensitivity to a
10% decrease in equity prices.
Net Interest Income Sensitivity Analysis
We use net interest income sensitivity analysis as our primary metric to measure
and manage the interest rate sensitivities of our nontrading financial
instruments. Interest rate risk represents the most significant market risk to
the nontrading exposures. We actively monitor the level of exposure so that
movements in interest rates do not adversely affect future earnings.
We prepare forward-looking forecasts of net interest income, which take into
consideration anticipated future business growth, asset/liability positioning,
and interest rates based on the implied forward curve. Simulations are used to
assess changes in net interest income in multiple interest rates scenarios
relative to the baseline forecast. The changes in net interest income relative
to the baseline are defined as the sensitivity. The net interest income
sensitivity tests measure the potential change in our pretax net interest income
over the following twelve months. A number of alternative rate scenarios are
tested including immediate parallel shocks to the forward yield curve,
nonparallel shocks to the forward yield curve, and stresses to certain term
points on the yield curve in isolation to capture and monitor a number of risk
types.
Included in our forward-looking forecast is the planned sale of our
international and Canadian operations. These instruments were moved to
discontinued operations at year end 2012 based on their expected sale in 2013.
Consequently, the interest income and expense from these instruments is not
included in net interest income and their interest sensitivity is managed using
a fair value approach. Therefore, we no longer include the interest sensitivity
of these financial instruments in our net interest income simulations.
Our twelve-month pretax net interest income sensitivity based on the
forward-curve was as follows.
Year ended December 31, ($ in millions)  2012     2011
Parallel rate shifts
 -100 basis points                      $ (7 )   $ 73
 +100 basis points                       (46 )    (84 )
 +200 basis points                        48       88


The adverse change in net interest income in the -100 basis point scenario in
the 2012 analysis is mainly due to the low interest rate environment as further
declines in deposit and short funding rates are limited. The positive change in
net interest income in the +200 basis point scenario is mainly due to income on
certain commercial loans that have rate index floors. Interest income on these
loans increases significantly as interest rates and the related rate index rises
above the level of the floor.

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The change in net interest income sensitivity from the prior year was due to the
lower and flatter yield curve and to a lesser extent the planned sale of our
international operations.
Operational Risk
We define operational risk as the risk of loss resulting from inadequate or
failed processes or systems, human factors, or external events. Operational risk
is an inherent risk element in each of our businesses and related support
activities. Such risk can manifest in various ways, including errors, business
interruptions, and inappropriate behavior of employees, and can potentially
result in financial losses and other damage to us. Examples of operational risk
include legal/compliance, vendor management, model, reputational, and
representation and warranty obligation risks (See the Purchase Obligations
discussion within this MD&A).
To monitor and control such risk, we maintain a system of policies and a control
framework designed to provide a sound and well-controlled operational
environment. This framework employs practices and tools designed to maintain
risk governance, risk and control assessment and testing, risk monitoring, and
transparency through risk reporting mechanisms. The goal is to maintain
operational risk at appropriate levels in view of our financial strength, the
characteristics of the businesses and the markets in which we operate, and the
related competitive and regulatory environment.
Notwithstanding these risk and control initiatives, we may incur losses
attributable to operational risks from time to time, and there can be no
assurance these losses will not be incurred in the future.
Insurance / Underwriting Risk
In underwriting our vehicle service contracts and insurance policies, we assess
the particular risk involved, including losses and loss adjustment expenses, and
determine the acceptability of the risk as well as the categorization of the
risk for appropriate pricing. We base our determination of the risk on various
assumptions tailored to the respective insurance product. With respect to
vehicle service contracts, assumptions include the quality of the vehicles
produced, the price of replacement parts, repair labor rates in the future, and
new model introductions. Insurance risk also includes event risk, which is
synonymous with pure risk, hazard risk, or insurance risk, and presents no
chance of gain, only of loss.
In some instances, reinsurance is used to reduce the risk associated with
volatile businesses, such as catastrophe risk in U.S. dealer vehicle inventory
insurance. Our commercial products business is covered by traditional
catastrophe protection, aggregate stop loss protection, and an extension of
catastrophe coverage for hurricane events. In addition, loss control techniques,
such as hail nets or storm path monitoring to assist dealers in preparing for
severe weather, help to mitigate loss potential.
We mitigate losses by the active management of claim settlement activities using
experienced claims personnel and the evaluation of current period reported
claims. Losses for these events may be compared to prior claims experience,
expected claims, or loss expenses from similar incidents to assess the
reasonableness of incurred losses.
In accordance with industry and accounting practices and applicable insurance
laws and regulatory requirements, we maintain reserves for reported losses,
losses incurred but not reported, and loss adjustment expenses. The estimated
values of our prior reported loss reserves and changes to the estimated values
are routinely monitored by credentialed actuaries. Our reserve estimates are
regularly reviewed by management; however, since the reserves are based on
estimates and numerous assumptions, the ultimate liability may differ from the
amount estimated.
Country Risk
We have exposures to obligors domiciled in foreign countries; and therefore, our
portfolio is subject to country risk. Country risk is the risk that conditions
in a foreign country will impair the value of our assets, restrict our ability
to repatriate equity or profits, or adversely impact the ability of the
guarantor to uphold their obligations to us. Country risk includes risks arising
from the economic, political, and social conditions prevalent in a country, as
well as the strengths and weaknesses in the legal and regulatory framework.
These conditions may have potentially favorable or unfavorable consequences for
our investments in a particular country.
Country risk is measured by determining our cross-border outstandings in
accordance with Federal Financial Institutions Examination Council guidelines.
Cross-border outstandings are reported as assets within the country of which the
obligor or guarantor resides. Furthermore, outstandings backed by tangible
collateral are reflected under the country in which the collateral is held. For
securities received as collateral, cross-border outstandings are assigned to the
domicile of the issuer of the securities. Resale agreements are presented based
on the domicile of the counterparty.

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The following table lists all countries in which cross-border outstandings exceed 1.0% of consolidated assets.

                                                                                                                     Total
                                                                      Net local country                           cross-border
($ in millions)             Banks        Sovereign       Other             assets             Derivatives       outstandings (a)
2012 (b)
Canada                    $    396     $       305     $    190     $             2,953     $           6     $            3,850
Germany                         10              30            3                   3,340               450                  3,833
United Kingdom                 265               -           16                   2,348               237                  2,866
2011 (b)
Canada                    $    343     $       250     $    451     $             3,746     $          20     $            4,810
Germany                         47              32            5                   3,219               576                  3,879
United Kingdom                 311               6           13                     962             1,356                  2,648

(a) As we continue to execute on our strategy of selling or liquidating our

nonstrategic operations, our total cross-border outstandings will

significantly decline upon the completion of the transactions.

(b) Our total cross-border exposure to Portugal, Ireland, Italy, Greece, and

Spain was $649 million and $327 million as of December 31, 2012, and 2011,

    respectively, most of which was nonsovereign exposure.



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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to ensure our ability to meet changes in
loan and lease demand, debt maturities, deposit withdrawals, and other cash
commitments under both normal operating conditions as well as periods of
economic or financial stress. Our primary objective is to maintain
cost-effective, stable and diverse sources of funding capable of sustaining the
organization throughout all market cycles. Sources of liquidity include both
retail and brokered deposits and secured and unsecured market-based funding
across various maturity, interest rate, currency, and investor profiles. Further
liquidity is available through a pool of unencumbered highly liquid securities,
borrowing facilities, repurchase agreements, as well as funding programs
supported by the Federal Reserve and the Federal Home Loan Bank of
Pittsburgh (FHLB).
We define liquidity risk as the risk that an institution's financial condition
or overall safety and soundness is adversely affected by an inability, or
perceived inability, to meet its financial obligations, and to withstand
unforeseen liquidity stress events. Liquidity risk can arise from a variety of
institution specific or market-related events that could have a negative impact
on cash flows available to the organization. Effective management of liquidity
risk helps ensure an organization's preparedness to meet uncertain cash flow
obligations caused by unanticipated events. The ability of financial
institutions to manage liquidity needs and contingent funding exposures has
proven essential to their solvency.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and
is responsible for monitoring Ally's liquidity position, funding strategies and
plans, contingency funding plans, and counterparty credit exposure arising from
financial transactions. Corporate Treasury is responsible for managing the
liquidity positions of Ally within prudent operating guidelines and targets
approved by ALCO and the Risk and Compliance Committee of the Ally Financial
Board of Directors. We manage liquidity risk at the business segment, legal
entity, and consolidated levels. Each business segment, along with Ally Bank,
prepares periodic forecasts depicting anticipated funding needs and sources of
funds with oversight and monitoring by Corporate Treasury. Corporate Treasury
manages liquidity under baseline economic projections as well as more severe
economic stressed environments. Corporate Treasury, in turn, plans, and executes
our funding strategies.
Ally uses multiple measures to frame the level of liquidity risk, manage the
liquidity position, or identify related trends as early warning indicators.
These measures include coverage ratios that measure the sufficiency of the
liquidity portfolio and stability ratios that measure longer-term structural
liquidity. In addition, we have established several 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 senior
management in the execution of its structured funding strategy and risk
management accountabilities.
We maintain available liquidity in the form of cash, unencumbered highly liquid
securities, and available credit facility capacity that, taken together, allows
us to operate and to meet our contractual and contingent obligations in the
event of market-wide disruptions and enterprise-specific events. We maintain
available liquidity at various entities and consider regulatory restrictions and
tax implications that may limit our ability to transfer funds across entities.
At December 31, 2012, we maintained $15.6 billion of total available parent
company liquidity and $13.2 billion of total available liquidity at Ally Bank.
Parent company liquidity is defined as our consolidated operations less Ally
Bank and the subsidiaries of Ally Insurance's holding company. To optimize cash
and secured facility capacity between entities, the parent company lends cash to
Ally Bank on occasion under an intercompany loan agreement. At December 31,
2012, $1.6 billion was outstanding under the intercompany loan agreement.
Amounts outstanding are repayable to the parent company upon demand, subject to
five days notice. As a result, this amount is included in the parent company
available liquidity and excluded from the available liquidity at Ally Bank.
In December 2010, the Basel Committee on Banking Supervision issued "Basel III:
International framework for liquidity risk measurement, standards and
monitoring", which includes two minimum liquidity risk standards. The first
standard is the Liquidity Coverage Ratio (LCR). The LCR measures the ratio of
unencumbered, high-quality liquid assets to liquidity needs for a
30-calendar-day time horizon under a severe liquidity stress scenario specified
by supervisors. The second standard is the Net Stable Funding Ratio (NSFR). The
NSFR is structured to ensure that long term assets are funded with at least a
minimum amount of stable liabilities in relation to their liquidity risk
profiles. It aims to encourage better assessment of liquidity risk across all
on- and off-balance sheet items. In January 2013, the Group of Governors and
Heads of Supervision (GHOS), the oversight body of the Basel Committee on
Banking Supervision unanimously endorsed amendments to the Liquidity Coverage
Ratio announced in December 2010. A summary of changes include: a phased-in
implementation with minimum ratio of 60% in 2015, growing by 10% per year to
reach 100% by 2019; an expanded definition of high quality liquid assets; and
adjustments to net cash outflows. The GHOS indicated that the NSFR will be a
priority for the Basel Committee over the next two years and the scheduled
implementation date remains unchanged at January 2018. We continue to monitor
the potential impacts of these developments and expect to be able to meet the
final requirements.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on our timely and
cost-effective access to retail deposits and funding in different segments of
the capital markets. We continue to be focused on maintaining and enhancing our
liquidity. Our funding strategy largely focuses on the development of
diversified funding sources across a global investor base to meet all our
liquidity needs throughout different market cycles, including periods of
financial distress. These funding sources include unsecured debt capital
markets, unsecured retail term notes, public and private asset-backed
securitizations, committed and uncommitted credit facilities, brokered
certificates of deposits, and retail deposits. We also supplement these sources
with a modest amount of short-term borrowings, including Demand Notes, unsecured
bank loans, and repurchase arrangements. The diversity of our funding sources
enhances funding flexibility, limits dependence on any one source, and

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Ally Financial Inc. • Form 10-K


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 the maturity profiles of both. In
addition, we further distinguish our funding strategy between Ally Bank funding
and parent company or nonbank funding.
We diversify Ally Bank's overall funding in order to reduce reliance on any one
source of funding and to achieve a well-balanced funding portfolio across a
spectrum of risk, duration, and cost of funds characteristics. Over the past few
years, we have been focused on diversifying our funding sources, in particular
at Ally Bank by growing retail deposits, expanding public and private
securitization programs, maintaining the maturity profile of our brokered
deposit portfolio while not exceeding a $10.0 billion portfolio, establishing
repurchase agreements, and continuing to access funds from the Federal Home Loan
Banks.
Since 2009, we have been directing new bank-eligible assets in the United States
to Ally Bank in order to reduce and minimize our nonbanking exposures and
funding requirements and utilize our growing consumer deposit-taking
capabilities. This has allowed us to use bank funding for a wider array of our
automotive finance assets and to provide a sustainable long-term funding channel
for the business, while also improving the cost of funds for the enterprise.
Ally BankAlly Bank raises deposits directly from customers through the direct banking
channel via the internet and over the telephone. These deposits provide our
Automotive Finance and Mortgage operations with a stable and low-cost funding
source. At December 31, 2012, Ally Bank had $46.9 billion of total external
deposits, including $35.0 billion of retail deposits.
At December 31, 2012, Ally Bank maintained cash liquidity of $2.7 billion and
unencumbered highly liquid U.S. federal government and U.S. agency securities of
$5.9 billion. In addition, at December 31, 2012, Ally Bank had unused capacity
in committed secured funding facilities of $6.2 billion, including an equal
allocation of shared unused capacity of $3.0 billion from a facility also
available to the parent company. Our ability to access this unused capacity
depends on having eligible assets to collateralize the incremental funding and,
in some instances, the execution of interest rate hedges. To optimize use of
cash and secured facility capacity between entities, Ally Financial lends cash
to Ally Bank from time to time under an intercompany agreement. Amounts
outstanding on this loan are repayable to Ally Financial at any time. Ally Bank
has total available liquidity of $13.2 billion at December 31, 2012, which
excludes the intercompany loan of $1.6 billion.
Maximizing bank funding continues to be a key part of our long-term liquidity
strategy. We have made significant progress in migrating assets to Ally Bank and
growing our retail deposit base since becoming a bank holding company in
December 2008. Retail deposit growth is key to further reducing our cost of
funds and decreasing our reliance on the capital markets. We believe deposits
provide a stable, low-cost source of funds that are less sensitive to interest
rate changes, market volatility, or changes in our credit ratings when compared
to other funding sources. We have continued to expand our deposit gathering
efforts through our direct and indirect marketing channels. Current retail
product offerings consist of a variety of products including certificates of
deposits (CDs), savings accounts, money market accounts, IRA deposit products,
as well as an interest checking product. In addition, we utilize brokered
deposits, which are obtained through third-party intermediaries. During 2012,
the deposit base at Ally Bank grew $7.3 billion, ending the year at $46.9
billion from $39.6 billion at December 31, 2011. The growth in deposits has been
primarily attributable to our retail deposit portfolio, particularly within our
savings and money market checking accounts, and our CDs. Strong retention rates
continue to materially contribute to our growth in retail deposits. In the
fourth quarter of 2012 we retained 93% of maturing CD balances up for renewal in
the same period. In addition to retail and brokered deposits, Ally Bank had
access to funding through a variety of other sources including FHLB advances,
public securitizations, private secured funding arrangements, and the Federal
Reserve's Discount Window. At December 31, 2012, debt outstanding from the FHLB
totaled $4.8 billion with no debt outstanding from the Federal Reserve. Also, as
part of our liquidity and funding plans, Ally Bank utilizes certain securities
as collateral to access funding from repurchase agreements with third parties.
Repurchase agreements are generally short-term. At December 31, 2012, Ally Bank
had no debt outstanding under repurchase agreements. Refer to Note 14 to the
Consolidated Financial Statements for a summary of deposit funding by type.
The following table shows Ally Bank's number of accounts and deposit balances by
type as of the end of each quarter since 2011.
                   4th Quarter    3rd Quarter    2nd Quarter    1st Quarter    4th Quarter
($ in millions)        2012           2012           2012           2012          2011        3rd Quarter 2011     2nd Quarter 2011     1st Quarter 2011
Number of retail
accounts             1,219,791      1,142,837      1,082,753      1,036,468       976,877              919,670              851,991              798,622
Deposits
Retail            $     35,041   $     32,139   $     30,403   $     29,323   $    27,685   $           26,254   $           24,562   $           23,469
Brokered                 9,914          9,882          9,905          9,884         9,890                9,911                9,903                9,836
Other (a)                1,977          2,487          2,411          2,314         2,029                2,704                2,405                2,064
Total deposits    $     46,932   $     44,508   $     42,719   $     41,521   $    39,604   $           38,869   $           36,870   $           35,369

(a) Other deposits include mortgage escrow and other deposits (excluding

intercompany deposits).



In addition to building a larger deposit base, we continue to remain active in
the securitization markets to finance our Ally Bank automotive loan portfolios.
During 2012, Ally Bank completed eleven term securitization transactions backed
by retail and dealer floorplan automotive loans and lease notes raising $11.8
billion. Securitization has proven to be a reliable and cost-effective funding
source. Additionally, for retail automotive loans and lease notes, the term
structure of the transaction locks in funding for a specified pool of loans

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


and leases for the life of the underlying asset creating an effective tool for
managing interest rate and liquidity risk. We manage the execution risk arising
from secured funding by maintaining a diverse investor base and maintaining
capacity in our committed secured facilities. At December 31, 2012, Ally Bank
had exclusive access to $8.5 billion from committed credit facilities. Ally Bank
also had access to a $4.1 billion committed facility that is shared with the
parent company.
Nonbank Funding
At December 31, 2012, the parent company maintained liquid cash in the amount of
$4.2 billion and unencumbered highly liquid U.S. federal government and
U.S. agency securities of $0.9 billion. In addition, at December 31, 2012, the
parent company had available liquidity from unused capacity in committed credit
facilities of $7.2 billion, including an equal allocation of shared unused
capacity of $3.0 billion from a facility also available to Ally Bank. Parent
company funding is defined as our consolidated operations less our Insurance
operations and Ally Bank. Our ability to access unused capacity in secured
facilities depends on the availability of eligible assets to collateralize the
incremental funding and, in some instances, the funding also relies on the
execution of interest rate hedges. Funding sources at the parent company
generally consist of longer-term unsecured debt, unsecured retail term notes,
committed credit facilities, asset-backed securitizations, and a modest amount
of short-term borrowings. To optimize use of cash and secured facility capacity
between entities, Ally Financial lends cash to Ally Bank from time to time under
an intercompany agreement. Amounts outstanding on this loan are repayable to
Ally Financial at any time. The parent company has total available liquidity of
$15.6 billion at December 31, 2012, which includes the intercompany loan of $1.6
billion. The total available liquidity amount at December 31, 2012 also includes
$1.7 billion of availability that is sourced from certain committed funding
arrangements generally reliant upon the origination of future automotive
receivables over the next twelve months.
During 2012, we completed five transactions totaling $3.6 billion in funding
through the U.S. debt capital markets. We will continue to access the unsecured
debt capital markets on an opportunistic basis to help pre-fund upcoming debt
maturities. In addition, we have short-term and long-term unsecured debt
outstanding from a legacy retail term note program known as SmartNotes. This
program generally consisted of fixed-rate instruments with fixed-maturity dates
ranging from 9 months to 30 years that were issued through a network of
participating broker-dealers. During 2012, we launched a new retail term note
program known as Ally Term Notes. There were $7.9 billion and $9.0 billion of
combined retail term notes outstanding at December 31, 2012, and December 31,
2011, respectively.
We also 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 $3.1 billion at December 31, 2012, compared to $2.8 billion at December 31,
2011. Unsecured short-term bank loans also provide short-term funding. At
December 31, 2012, we had $167 million in short-term bank loans, a decrease of
$1.4 billion from December 31, 2011. Refer to Note 15 and Note 16 to the
Consolidated Financial Statements for additional information about our
outstanding short-term borrowings and long-term unsecured debt, respectively.
Secured funding continues to be a significant source of financing at the parent
company. During 2012, the parent company completed automotive-related
transactions that included the renewal and extension of $22.3 billion of
committed secured funding capacity, the creation of incremental private secured
funding capacity totaling $7.1 billion, and $2.4 billion in public term
securitizations in Europe and Canada. In January 2013 we completed a public
retail securitization using the Capital Auto Receivables Asset Trust (CARAT)
platform, our first since 2008, raising more than $1.5 billion. We continue to
maintain significant funding capacity at the parent company to fund
automotive-related assets, including a $7.5 billion syndicated facility that can
fund automotive retail and commercial loans, as well as leases. In March 2012,
this facility was renewed by a syndicate of nineteen lenders and extended such
that half of the capacity will mature in March 2013 and the other half will
mature in March 2014. In addition to this facility, there are a variety of
others that provide funding in various countries. At December 31, 2012, the
parent company had $30.3 billion of exclusive commitments globally in various
facilities secured by automotive assets. The parent company also had access to a
$4.1 billion committed facility that is shared with Ally Bank.
Recent Funding Developments
In summary, during 2012, we completed funding transactions totaling more than
$28.0 billion and renewed key existing funding facilities as we realized access
to both the public and private markets. Key funding highlights from 2012 and
2013 to date were as follows:
•      We accessed the unsecured debt capital markets in February, June, August,
       and December of 2012 and raised $3.6 billion.


•      In 2012, we have continued to access the public asset-backed

securitization markets completing eleven U.S. transactions that raised

$11.8 billion. Included within the total amount is Ally Bank's inaugural

       term lease transaction in the U.S. totaling $1.3 billion in funding.
       Additionally, we completed European and Canadian (retail and dealer
       floorplan) transactions that raised $1.9 billion and $516 million,
       respectively.


• We created $7.1 billion of new private capacity to fund automotive assets.


•      We renewed and extended more than $22.0 billion of key automotive funding

facilities. The automotive facility renewal amount includes the March 2012

refinancing of $15.0 billion in credit facilities at both the parent

company and Ally Bank with a syndicate of nineteen lenders. The $15.0

billion capacity is secured by retail, lease and dealer floorplan

automotive assets and is allocated to two separate $7.5 billion

facilities, one of which is available to the parent company and a Canadian

subsidiary while the other is available to Ally Bank. Half of the capacity

matures in March 2013 and the other half matures in March 2014. We are

currently working on the renewal of the $15.0 billion facility and expect

       to reduce the total capacity.



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Ally Financial Inc. • Form 10-K


• In January 2013, Ally Financial issued its first public securitization

since 2008 using its existing CARAT platform. This transaction raised more

       than $1.5 billion in funding.


•      In February 2013, Ally Bank issued a public dealer floorplan
       securitization. This deal raised $1.0 billion in funding.


In October and December of 2012, we repaid $2.9 billion and $4.5 billion in debt
issued under the FDIC's Temporary Liquidity Guarantee Program, respectively. As
of December 31, 2012, there is no outstanding TLGP debt.
Funding Sources
The following table summarizes debt and other sources of funding and the amount
outstanding under each category for the periods shown.
As a result of our funding strategy to maximize funding sources at Ally Bank and
grow our retail deposit base, the percentage of funding sources from Ally Bank
has increased in 2012 from 2011 levels. In addition, deposits represent a larger
portion of the overall funding mix.
December 31, ($ in millions)                  Bank       Nonbank      Total       %
2012
Secured financings                          $ 29,161    $ 15,950    $  45,111     35
Institutional term debt                            -      22,200       22,200     17
Retail debt programs (a)                           -      13,451       13,451     10
Bank loans and other                               2         164          166      -
Total debt (b)                                29,163      51,765       80,928     62
Deposits (c)                                  46,932         983       47,915     38
Total on-balance sheet funding              $ 76,095    $ 52,748    $ 128,843    100
2011
Secured financings                          $ 25,533    $ 27,432    $  52,965     37
Institutional term debt                            -      22,456       22,456     15
Retail debt programs (a)                           -      14,148       14,148     10
Temporary Liquidity Guarantee Program (d)          -       7,400        7,400      5
Bank loans and other                               1       2,446        2,447      2
Total debt (b)                                25,534      73,882       99,416     69
Deposits (c)                                  39,604       5,446       45,050     31
Total on-balance sheet funding              $ 65,138    $ 79,328    $ 144,466    100
Off-balance sheet securitizations
Mortgage loans                              $      -    $ 60,630    $  

60,630

Total off-balance sheet securitizations $ - $ 60,630$ 60,630

(a) Primarily includes $7.9 billion and $9.0 billion of Retail Term Notes at

December 31, 2012 and December 31, 2011, respectively.

(b) Excludes fair value adjustment as described in Note 25 to the Consolidated

Financial Statements.

(c) Bank deposits include retail, brokered, mortgage escrow, and other deposits.

Nonbank deposits include dealer deposits. Intercompany deposits are not

included.

(d) The $7.4 billion of TLGP matured and was repaid in the fourth quarter of

2012.



Refer to Note 16 to the Consolidated Financial Statements for a summary of the
scheduled maturity of long-term debt at December 31, 2012.
Funding Facilities
We utilize both committed and uncommitted credit facilities. The financial
institutions providing the uncommitted facilities are not contractually
obligated to advance funds under them. The amounts outstanding under our various
funding facilities are included on our Consolidated Balance Sheet.
The total capacity in our committed funding facilities is provided by banks and
other financial institutions through private transactions. The committed secured
funding facilities can be revolving in nature and allow for additional funding
during the commitment period, or they can be amortizing and not allow for any
further funding after the closing date. At December 31, 2012, $34.3 billion of
our $43.0 billion of committed capacity was revolving. Our revolving facilities
generally have an original tenor ranging from 364 days to two years. As of
December 31, 2012, we had $13.9 billion of committed funding capacity from
revolving facilities with a remaining tenor greater than 364 days.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Committed Funding Facilities

                                    Outstanding               Unused capacity (a)               Total capacity
December 31, ($ in
billions)                        2012         2011             2012              2011         2012          2011
Bank funding
Secured - U.S.                $    3.8     $    5.8     $      4.7            $    3.7     $     8.5     $    9.5
Nonbank funding
Unsecured
Automotive Finance - U.S.            -            -              -                 0.5             -          0.5
Automotive Finance -
International                      0.1          0.3              -                   -           0.1          0.3
Secured
Automotive Finance - U.S.
(b) (c)                           12.9          4.2            5.4                10.2          18.3         14.4
Automotive Finance -
International (b)                  9.6         10.1            2.4                 3.0          12.0         13.1
Mortgage operations                  -          0.7              -                 0.5             -          1.2
Total nonbank funding             22.6         15.3            7.8                14.2          30.4         29.5
Shared capacity (d)
U.S.                               1.0          1.5            3.0                 2.5           4.0          4.0
International                      0.1          0.1              -                   -           0.1          0.1
Total committed facilities    $   27.5     $   22.7     $     15.5            $   20.4     $    43.0     $   43.1

(a) Funding from committed secured facilities is available on request in the

event excess collateral resides in certain facilities or is available to the

extent incremental collateral is available and contributed to the facilities.

(b) Total unused capacity includes $2.2 billion as of December 31, 2012, and $4.9

billion as of December 31, 2011, from certain committed funding arrangements

that are generally reliant upon the origination of future automotive

receivables and that are available in 2013.

(c) Includes the secured facilities of our Commercial Finance Group.

(d) Funding is generally available for assets originated by Ally Bank or the

parent company, Ally Financial Inc.

Uncommitted Funding Facilities

                                    Outstanding                 Unused capacity                Total capacity
December 31, ($ in
billions)                        2012          2011            2012            2011           2012           2011
Bank funding
Secured - U.S.
Federal Reserve funding
programs                      $       -     $      -     $     1.8          $    3.2     $     1.8        $    3.2
FHLB advances                       4.8          5.4           0.4                 -           5.2             5.4
Total bank funding                  4.8          5.4           2.2               3.2           7.0             8.6
Nonbank funding
Unsecured
Automotive Finance -
International                       2.1          1.9           0.4               0.5           2.5             2.4
Secured
Automotive Finance -
International                       0.1          0.1           0.1               0.1           0.2             0.2
Mortgage operations                   -            -             -               0.1             -             0.1
Total nonbank funding               2.2          2.0           0.5               0.7           2.7             2.7
Total uncommitted
facilities                    $     7.0     $    7.4     $     2.7          $    3.9     $     9.7        $   11.3


Ally Bank Funding Facilities
Facilities for Automotive Finance Operations - Secured
At December 31, 2012, Ally Bank had exclusive access to $8.5 billion from
committed credit facilities. Ally Bank's largest facility is a $7.5 billion
revolving syndicated credit facility secured by automotive receivables. During
the first quarter of 2012, we renewed this facility with half of this facility
maturing in March 2013, and the remainder maturing in March 2014. At
December 31, 2012, the amount outstanding under this facility was $3.8 billion.
Ally Bank also had access to a $4.1 billion committed facility that is shared
with the parent company. In the event these facilities are not renewed in the
future, the outstanding debt will be repaid over time as the underlying
collateral amortizes.

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Nonbank Funding Facilities
Facilities for Automotive Finance Operations - Unsecured
We maintain $144 million in revolving committed unsecured bank facilities in our
international operations, most of which mature in March 2013.
Facilities for Automotive Finance Operations - Secured
The parent company's largest facility is a $7.5 billion revolving syndicated
credit facility secured by automotive receivables. During the first quarter of
2012, we renewed this facility with half of this facility maturing in March
2013, and the remainder maturing in March 2014. In the event this facility is
not renewed at maturity, the outstanding debt will be repaid over time as the
underlying collateral amortizes. At December 31, 2012, there was $7.5 billion
outstanding under this facility.
In addition to our syndicated revolving credit facility, we also maintain
various bilateral and multilateral secured credit facilities in multiple
countries that fund our Automotive Finance operations. These are primarily
private securitization facilities that fund a specific pool of automotive
assets. Many of the facilities have revolving commitments and allow for the
funding of additional assets during the commitment period. At December 31, 2012,
the parent company maintained exclusive access to $30.3 billion of committed
secured credit facilities and forward purchase commitments to fund automotive
assets, and also had access to a $4.1 billion committed facility that is shared
with Ally Bank.
Cash Flows
Net cash provided by operating activities was $5.0 billion for the year ended
December 31, 2012, compared to $5.5 billion for the same period in 2011. During
the year ended December 31, 2012, the net cash inflow from sales and repayment
of mortgage and automotive loans held-for-sale exceeded cash outflow from new
originations and purchases of such loans by $1.0 billion. During the year ended
December 31, 2011, this activity resulted in a net cash inflow of $0.9 billion.
Net cash used in investing activities was $16.6 billion for the year ended
December 31, 2012, compared to $14.1 billion for the same period in 2011. The
net cash outflow from finance receivables and loans decreased $4.5 billion for
the year ended December 31, 2012, compared to 2011. The cash outflow to purchase
operating lease assets exceeded cash inflows from disposals of such assets by
$5.7 billion for the year ended December 31, 2012, compared to a net cash
outflow of $1.0 billion for the year ended December 31, 2011. The increase in
net cash outflows associated with leasing activities compared to the prior year
was primarily due to a decrease in cash received on lease dispositions. Cash
received from sales, maturities, and repayments of available-for-sale investment
securities, net of purchases, increased $0.7 billion during the year ended
December 31, 2012, compared to 2011.
Net cash provided by financing activities for the year ended December 31, 2012,
totaled $8.0 billion, compared to $10.1 billion in the same period in 2011. Cash
provided by short-term debt increased $2.2 billion in the year ended
December 31, 2012, compared to 2011, while cash provided by bank deposits
increased by $1.7 billion. Cash used to repay long-term debt exceeded cash
generated from long-term debt issuances by $0.5 billion for the year ended
December 31, 2012. In 2011, cash from issuances of long-term debt exceed
repayments by $4.3 billion.
Capital Planning and Stress Tests
As a bank holding company with $50 billion or more of consolidated assets, Ally
is required to conduct periodic stress tests and submit a proposed capital
action plan to the FRB every January, which the FRB must take action on by the
following March. The proposed capital action plan must include a description of
all planned capital actions over a nine-quarter planning horizon, including any
issuance of a debt or equity capital instrument, any capital distribution, and
any similar action that the FRB determines could have an impact on Ally's
consolidated capital. The proposed capital action plan must also include a
discussion of how Ally will maintain capital above the minimum regulatory
capital ratios and above a Tier 1 common equity-to-total risk-weighted assets
ratio of 5 percent, and serve as a source of strength to Ally Bank. The FRB must
approve Ally's proposed capital action plan before Ally may take any proposed
capital action covered by the new regime. Ally submitted its annual capital plan
in January 2012, and then submitted a revised capital plan in June of 2012. In
connection with its reviews, the FRB provided notice of non-objection to Ally's
planned preferred dividends and interest on the trust preferred securities and
subordinated debt. We continue to have active, frequent and constructive
dialogue with the FRB, and have submitted the required 2013 capital plan on
January 7, 2013.
Regulatory Capital
Refer to Note 21 to the Consolidated Financial Statements.
Credit Ratings
The cost and availability of unsecured financing are influenced by credit
ratings, which are intended to be an indicator of the creditworthiness of a
particular company, security, or obligation. Lower ratings result in higher
borrowing costs and reduced access to capital markets. This is particularly true
for certain institutional investors whose investment guidelines require
investment-grade ratings on term debt and the two highest rating categories for
short-term debt (particularly money market investors).

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Nationally recognized statistical rating organizations rate substantially all
our debt. The following table summarizes our current ratings and outlook by the
respective nationally recognized rating agencies.
Rating agency           Short-term    Senior debt       Outlook        Date of last action
                                                      Rating Watch
Fitch                       B             BB-           Negative       April 18, 2012 (a)
Moody's                 Not-Prime          B1           Positive      February 25, 2013 (b)
S&P                         C              B+           Positive        May 17, 2012 (c)
                                                        Review -
DBRS                       R-4           BB-Low        Developing       May 15, 2012 (d)

(a) Fitch placed our senior debt on Rating Watch Negative and affirmed the

short-term rating of B on April 18, 2012.

(b) Moody's confirmed our senior debt rating of B1 and changed the outlook to

Positive on February 25, 2013.

(c) Standard & Poor's affirmed our senior debt rating of B+ and the short-term

rating of C, and changed the outlook to Positive on May 17, 2012.

(d) DBRS placed our ratings Under Review - Developing on May 15, 2012.



Insurance Financial Strength Ratings
Substantially all of our Insurance operations have a Financial Strength Rating
(FSR) and an Issuer Credit Rating (ICR) from the A.M. Best Company. The FSR is
intended to be an indicator of the ability of the insurance company to meet its
senior most obligations to policyholders. Lower ratings generally result in
fewer opportunities to write business as insureds, particularly large commercial
insureds, and insurance companies purchasing reinsurance have guidelines
requiring high FSR ratings. On February 14, 2013, A.M. Best affirmed the FSR of
B++ (good) and the ICR of BBB.
Off-balance Sheet Arrangements
Refer to Note 10 to the Consolidated Financial Statements.
Securitization
Securitization of assets allows us to diversify funding sources by enabling us
to convert assets into cash earlier than what would have occurred in the normal
course of business. Information regarding our securitization activities is
further described in Note 10 to the Consolidated Financial Statements. As part
of these activities, assets are generally sold to securitization entities. These
securitization entities are separate legal entities that assume the risk and
reward of ownership of the receivables. Neither we nor those subsidiaries are
responsible for the other entities' debts, and the assets of the subsidiaries
are not available to satisfy our claim or those of our creditors. In turn, the
securitization entities establish separate trusts to which they transfer the
assets in exchange for the proceeds from the sale of asset- or mortgage-backed
securities issued by the trust. The trusts' activities are generally limited to
acquiring the assets, issuing asset- or mortgage-backed securities, making
payments on the securities, and periodically reporting to the investors. We may
account for the transfer of assets as a sale if we either do not hold a
significant variable interest or do not provide servicing or asset management
functions for the financial assets held by the securitization entity.
Certain of our securitization transactions, while similar in legal structure to
the transaction described in the foregoing do not meet the required criteria to
be accounted for as off-balance sheet arrangements; therefore, they are
accounted for as secured financings. As secured financings, the underlying
automobile finance retail contracts, wholesale loans, automobile leases,
commercial loans, or mortgage loans remain on our Consolidated Balance Sheet
with the corresponding obligation (consisting of the beneficial interests issued
by the securitization entity) reflected as debt. We recognize interest income on
the finance receivables, automobile leases and loans, and interest expense on
the beneficial interests issued by the securitization entity; and we provide for
loan losses on the finance receivables and loans as incurred or adjust to fair
value for fair value-elected loans. At December 31, 2012 and 2011, $68.0 billion
and $78.5 billion of our total assets, respectively, were related to secured
financings. Refer to Note 16 to the Consolidated Financial Statements for
further discussion.
As part of our securitization activities, we typically agree to service the
transferred assets for a fee, and we may earn other related ongoing income. The
amount of the fees earned is disclosed in Note 11 to the Consolidated Financial
Statements. We may also retain a portion of senior and subordinated interests
issued by the trusts; these interests are reported as investment securities, or
other assets on our Consolidated Balance Sheet and are disclosed in Note 6 and
Note 13 to the Consolidated Financial Statements. For secured financings,
retained interests are not recognized as a separate asset on our Consolidated
Balance Sheet. 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.
The FDIC, which regulates Ally Bank, promulgated safe harbor regulation for
securitizations by banks. Compliance with this regulation requires the
sponsoring bank to retain either five percent of each class of beneficial
interests issued in the securitization or a representative sample of similar
financial assets equal to five percent of the securitized financial assets to
comply with the regulation. The retained interests or assets must be held for
the life of the securitization and may not be sold, pledged or hedged, except
that interest rate and currency hedging is permitted. This risk retention
requirement adversely affects the efficiency of securitizations, because it
reduces the amount of funds that can be raised against a given pool of financial
assets.
We sometimes use derivative financial instruments to facilitate securitization
activities, as further described in Note 22 to the Consolidated Financial
Statements.

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Our economic exposure related to the securitization trusts is generally limited
to cash reserves, our other interests retained in financial asset sales, and our
customary representation and warranty provisions described in Note 10 to the
Consolidated Financial Statements. The trusts have a limited life and generally
terminate upon final distribution of amounts owed to investors or upon exercise
by us, as servicer of a cleanup call option, when the servicing of the sold
contracts becomes burdensome. In addition, the trusts do not invest in our
equity or in the equity of any of our affiliates.
Purchase Obligations
Certain of the structures related to whole-loan sales, securitization
transactions, and other off-balance sheet activities contain provisions that are
standard in the whole-loan sale and securitization markets where we may (or, in
certain limited circumstances, are obligated to) purchase specific assets from
entities. Our obligations are as follows.
Loan Repurchases and Obligations Related to Loan Sales
ResCap Bankruptcy Filing
As described in Note 1 and Note 29 to the Consolidated Financial Statements, on
May 14, 2012, Residential Capital, LLC (ResCap) and certain of its wholly owned
direct and indirect subsidiaries (collectively, the Debtors) filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York. As a result of
the deconsolidation of ResCap, a significant portion of our representation and
warranty reserve was eliminated. Representation and warranty reserve was $105
million at December 31, 2012 with respect to Ally Bank's sold and serviced
loans.
Overview
Ally Bank, within our Mortgage operations, sells loans that take the form of
securitizations guaranteed by Fannie Mae and Freddie Mac. In connection with
securitizations and loan sales, the trustee, for the benefit of the related
security holders, is provided various representations and warranties related to
the loans sold. The specific representations and warranties typically relate to,
among other things, the ownership of the loan, the validity of the lien securing
the loan, the loan's compliance with the criteria for inclusion in the
transaction, including compliance with underwriting standards or loan criteria
established by the buyer, the ability to deliver required documentation and
compliance with applicable laws. In general, the representations and warranties
described above may be enforced against Ally Bank at any time unless a sunset
provision is in place. Upon discovery of a breach of a representation or
warranty, the breach is corrected in a manner conforming to the provisions of
the sale agreement. This may require Ally Bank to repurchase the loan, indemnify
the investor for incurred losses, or otherwise make the investor whole. See
Repurchase Process below.
Originations
Representation and warranty risk-mitigation strategies include, but are not
limited to, pursuing settlements with investors where economically beneficial in
order to resolve a pipeline of demands in lieu of loan-by-loan assessments that
could result in repurchasing loans, aggressively contesting claims we do not
consider valid (rescinding claims), or seeking recourse against correspondent
lenders from whom we purchased loans wherever appropriate.
The following table summarizes domestic mortgage loans sold by ResCap where Ally
Bank maintained the mortgage servicing rights; and following the deconsolidation
of ResCap, the loans that were sold by Ally Bank. The following table presents
domestic mortgage loans sold categorized by GSE (original unpaid principal
balance).
Year ended December 31, ($ in billions)    2012      2011      2010      2009      2008      2007
Fannie Mae                                $ 21.5    $ 33.8    $ 35.2    $ 21.1    $ 17.7    $ 6.7
Freddie Mac                                  6.9      15.8      15.7       8.5       8.6      2.3
Total sales (a)                           $ 28.4    $ 49.6    $ 50.9    $ 29.6    $ 26.3    $ 9.0

(a) Representation and warranty obligations vary by loan and may not apply to all

loans sold by Ally Bank.



Representation and Warranty Obligation Reserve Methodology
The liability for representation and warranty obligations reflects management's
best estimate of probable lifetime losses at Ally Bank. We consider historical
and recent demand trends in establishing the reserve. The methodology used to
estimate the reserve considers a variety of assumptions including borrower
performance (both actual and estimated future defaults), repurchase demand
behavior, historical loan defect experience, historical mortgage insurance
rescission experience, and historical and estimated future loss experience,
which includes projections of future home price changes as well as other
qualitative factors including investor behavior. In cases where we may not be
able to reasonably estimate losses, a liability is not recognized. Management
monitors the adequacy of the overall reserve and makes adjustments to the level
of reserve, as necessary, after consideration of other qualitative factors
including ongoing dialogue and experience with counterparties.
At the time a loan is sold, an estimate of the fair value of the liability is
recorded and classified in accrued expenses and other liabilities on our
Consolidated Balance Sheet and recorded as a component of gain (loss) on
mortgage and automotive loans, net, in our Consolidated Statement of
Comprehensive Income. We recognize changes in the liability when additional
relevant information becomes available. Changes in the estimate are recorded as
other operating expenses in our Consolidated Statement of Comprehensive Income.
The repurchase reserve at December 31, 2012, relates exclusively to GSE
exposure. Ally Bank experienced a decrease in new claims for the year ended
December 31,

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2012 compared to 2011. The decrease in repurchase claims was driven by
significantly fewer new claims during the fourth quarter of 2012. The following
table presents Ally Bank's new claims by GSEs (original unpaid principal
balance).
Year ended December 31, ($ in millions)    2012     2011
Fannie Mae                                $ 255    $ 210
Freddie Mac                                 108      160
Total claims                              $ 363    $ 370


The following table presents the total number and original unpaid principal
balance (UPB) of loans related to unresolved representation and warranty demands
(indemnification claims or repurchase demands). The table includes demands that
we have requested be rescinded but have not been agreed to by the investor.
Total unresolved representation and warranty demands where Ally Bank has
requested the investor to rescind increased to $23 million or 40% of outstanding
claims at December 31, 2012, compared to $11 million or 24% of outstanding
claims at December 31, 2011.
                                                      2012                             2011
                                         Number of    Original UPB of     Number of    Original UPB of
December 31, ($ in millions)               Loans           Loans            Loans           Loans
Fannie Mae                                     187   $             41            72   $             15
Freddie Mac                                     72                 17           138                 31
Total number of loans and unpaid
principal balance                              259   $             58           210   $             46


Repurchase Process
After receiving a claim under representation and warranty obligations, Ally Bank
will review the claim to determine the appropriate response (e.g., appeal and
provide or request additional information) and take appropriate action (rescind,
repurchase the loan, or remit indemnification payment). Historically, repurchase
demands were generally related to loans that became delinquent within the first
few years following origination. As a result of market developments over the
past several years, investor repurchase demand behavior has changed
significantly. GSEs are more likely to submit claims for loans at any point in
the loan's life cycle, including requests for loans that become delinquent or
loans that incur a loss. Representation and warranty claims are generally
reviewed on a loan-by-loan basis to validate if there has been a breach
requiring a potential repurchase or indemnification payment. Ally Bank actively
contests claims to the extent they are not considered valid. Ally Bank is not
required to repurchase a loan or provide an indemnification payment where claims
are not valid.
The risk of repurchase or indemnification and the associated credit exposure is
managed through underwriting and quality assurance practices and by servicing
mortgage loans to meet investor standards. Ally Bank believes that, in general,
the longer a loan performs prior to default, the less likely it is that an
alleged breach of representation and warranty will be found to have a material
and adverse impact on the loan's performance. When loans are repurchased, Ally
Bank bears the related credit loss on the loans. Repurchased loans are
classified as held-for-sale and initially recorded at fair value.
The following table presents Ally Bank's new claims by vintage (original unpaid
principal balance).
Year ended December 31, ($ in millions)    2012     2011
Pre 2008                                  $  73    $  42
2008                                        181      149
Post 2008                                   109      179
Total claims                              $ 363    $ 370


Private Mortgage Insurance
Mortgage insurance is required for certain consumer mortgage loans sold to the
GSEs and certain securitization trusts. Mortgage insurance is typically required
for first-lien consumer mortgage loans having a loan-to-value ratio at
origination of greater than 80 percent. Mortgage insurers are, in certain
circumstances, permitted to rescind existing mortgage insurance that covers
consumer loans if they demonstrate certain loan underwriting requirements have
not been met. Upon receipt of a rescission notice, Ally Bank will assess the
notice and, if appropriate, refute the notice, or if the notice cannot be
refuted, Ally Bank attempts to remedy the defect. In the event the mortgage
insurance cannot be reinstated, Ally Bank may be obligated to repurchase the
loan or provide an indemnification payment in the event of a loss, subject to
contractual limitations. While Ally Bank makes every effort to reinstate the
mortgage insurance, it has had limited success and as a result, most of these
requests result in rescission of the mortgage insurance. At December 31, 2012,
Ally Bank has approximately $9 million in original unpaid principal balance of
outstanding mortgage insurance rescission notices where it has not received a
repurchase demand. However, this unpaid principal amount is not representative
of expected future losses.
Guarantees
Guarantees are defined as contracts or indemnification agreements that
contingently require us to make payments to third parties based on changes in an
underlying agreement that is related to a guaranteed party. Our guarantees
include standby letters of credit and certain

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contract provisions regarding securitizations and sales. Refer to Note 28 to the
Consolidated Financial Statements for more information regarding our outstanding
guarantees to third parties.
Aggregate Contractual Obligations
The following table provides aggregated information about our outstanding
contractual obligations disclosed elsewhere in our Consolidated Financial
Statements.
                                                                Payments due by period
                                                         Less than        1-3          3-5         More than
December 31, 2012 ($ in millions)           Total         1 year         years        years         5 years
Description of obligation
Long-term debt
Total (a)                                $  75,307     $    12,834     $ 32,881     $ 11,797     $    17,795
Scheduled interest payments for
fixed-rate long-term debt                   23,123           2,473        4,410        3,004          13,236
Estimated interest payments for
variable-rate long-term debt (b)             1,053             437          516           94               6
Estimated net payments under interest
rate swap agreements (b)                        68               -            -            -              68
Originate/purchase mortgages or
securities                                   4,249           4,249            -            -               -
Commitments to provide capital to
investees                                       86              80            2            3               1
Home equity lines of credit                    411               -            4           38             369
Lending commitments                            768             184          176          380              28
Lease commitments                              252              70          112           47              23
Purchase obligations                           511             253          159           74              25
Bank certificates of deposit                31,084          15,688       10,469        4,927               -
Total                                    $ 136,912     $    36,268     $ 48,729     $ 20,364     $    31,551

(a) Total amount reflects the remaining principal obligation and excludes

original issue discount of $1.8 billion and fair value adjustments of $1.1

billion related to fixed-rate debt designated as a hedged item.

(b) Estimate utilized a forecasted variable interest model, when available, or

the applicable variable interest rate as of the most recent reset date prior

to December 31, 2012.



The foregoing table does not include our reserves for insurance losses and loss
adjustment expenses, which total $341 million at December 31, 2012. While
payments due on insurance losses are considered contractual obligations because
they related to insurance policies issued by us, the ultimate amount to be paid
and the timing of payment for an insurance loss is an estimate subject to
significant uncertainty. Furthermore, the timing on payment is also uncertain;
however, the majority of the balance is expected to be paid out in less than
five years. Similarly, due to uncertainty in the timing of future cash flows
related to our unrecognized tax benefits, the contractual obligations detailed
above do not include $102 million in unrecognized tax benefits.
The following provides a description of the items summarized in the preceding
table of contractual obligations.
Long-term Debt
Amounts represent the scheduled maturity of long-term debt at December 31, 2012,
assuming that no early redemptions occur. The maturity of secured debt may vary
based on the payment activity of the related secured assets. The amounts
presented are before the effect of any unamortized discount or fair value
adjustment. Refer to Note 15 and Note 16 to the Consolidated Financial
Statements for additional information on our debt obligations.
Originate/Purchase Mortgages or Securities
As part of our Mortgage operations, we enter into commitments to originate and
purchase mortgages and MBS. Refer to Note 28 to the Consolidated Financial
Statements for additional information.
Commitments to Provide Capital to Investees
As part of arrangements with specific private equity funds, we are obligated to
provide capital to investees. Refer to Note 28 to the Consolidated Financial
Statements for additional information.
Home Equity Lines of Credit
We are committed to fund the future remaining balance on unused lines of credit
on mortgage loans. The funding is subject to customary lending conditions, such
as a satisfactory credit rating, delinquency status, and adequate home equity
value. Refer to Note 28 to the Consolidated Financial Statements for additional
information.

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Lending Commitments
Our Automotive Finance operations and Commercial Finance Group have outstanding
revolving lending commitments with customers. The amounts presented represent
the unused portion of those commitments at December 31, 2012. Refer to Note 28
to the Consolidated Financial Statements for additional information.
Lease Commitments
We have obligations under various operating lease arrangements (primarily for
real property) with noncancelable lease terms that expire after December 31,
2012. Refer to Note 28 to the Consolidated Financial Statements for additional
information.
Purchase Obligations
We enter into multiple contractual arrangements for various services. The
arrangements represent fixed payment obligations under our most significant
contracts and primarily relate to contracts with information technology
providers. Refer to Note 28 to the Consolidated Financial Statements for
additional information.
Bank Certificates of Deposit
Refer to Note 14 to the Consolidated Financial Statements for additional
information.
Critical Accounting Estimates
Accounting policies are integral to understanding our Management's Discussion
and Analysis of Financial Condition and Results of Operations. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America (GAAP) requires management to make
certain judgments and assumptions, on the basis of information available at the
time of the financial statements, in determining accounting estimates used in
the preparation of these statements. Our significant accounting policies are
described in Note 1 to the Consolidated Financial Statements; critical
accounting estimates are described in this section. An accounting estimate is
considered critical if the estimate requires management to make assumptions
about matters that were highly uncertain at the time the accounting estimate was
made. If actual results differ from our judgments and assumptions, then it may
have an adverse impact on the results of operations and cash flows. Our
management has discussed the development, selection, and disclosure of these
critical accounting estimates with the Audit Committee of the Board, and the
Audit Committee has reviewed our disclosure relating to these estimates.
Fair Value of Financial Instruments
We use fair value measurements to record fair value adjustments to certain
instruments and to determine fair value disclosures. Refer to Note 25 to the
Consolidated Financial Statements for description of 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. We follow the fair value hierarchy set forth in Note 25 to the
Consolidated Financial Statements in order to prioritize the inputs utilized to
measure fair value. We review and modify, as necessary, our fair value hierarchy
classifications on a quarterly basis. As such, there may be reclassifications
between hierarchy levels.
The following table summarizes assets and liabilities measured at fair value and
the amounts measured using Level 3 inputs. The table includes recurring and
nonrecurring measurements.
Year ended December 31, ($ in millions)             2012         2011
Assets at fair value                             $ 20,408     $ 30,172
As a percentage of total assets                        11 %         16 %
Liabilities at fair value                        $  2,468     $  6,299
As a percentage of total liabilities                    2 %          4 %

Assets at fair value using Level 3 inputs $ 1,288$ 4,666 As a percentage of assets at fair value

                 6 %         15 %

Liabilities at fair value using Level 3 inputs $ 3 $ 878 As a percentage of liabilities at fair value n/m

           14 %


n/m = not meaningful
Level 3 assets declined 72% or $3.4 billion primarily due to the deconsolidation
of ResCap during the year ended December 31, 2012, which resulted in a
significant decline in mortgage servicing rights, mortgage loans held-for-sale,
net, and consumer mortgage finance receivables and loans, net. Refer to Note 1
to the Consolidated Financial Statements for further information on the
deconsolidation of ResCap. As the value of the consumer mortgage finance
receivables and loans, net, declined, the value of the related on-balance sheet
securitization debt also declined, which was the primary reason Level 3
liabilities declined by 99.9% or $875 million.
We have numerous internal controls in place to ensure the appropriateness of
fair value measurements. Significant fair value measures are subject to detailed
analytics and management review and approval. We have an established model
validation policy and program in place that covers all models used to generate
fair value measurements. This model validation program ensures a controlled
environment is used for the development, implementation, and use of the models
and change procedures. Further, this program uses a risk-based approach to
select

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models to be reviewed and validated by an independent internal risk group to
ensure the models are consistent with their intended use, the logic within the
models is reliable, and the inputs and outputs from these models are
appropriate. Additionally, a wide array of operational controls are in place to
ensure the fair value measurements are reasonable, including controls over the
inputs into and the outputs from the fair value measurement models. For example,
we backtest the internal assumptions used within models against actual
performance. We also monitor the market for recent trades, market surveys, or
other market information that may be used to benchmark model inputs or outputs.
Certain valuations will also be benchmarked to market indices when appropriate
and available. We have scheduled model and/or input recalibrations that occur on
a periodic basis but will recalibrate earlier if significant variances are
observed as part of the backtesting or benchmarking noted above.
Considerable judgment is used in forming conclusions from market observable data
used to estimate our Level 2 fair value measurements and in estimating inputs to
our internal valuation models used to estimate our Level 3 fair value
measurements. Level 3 inputs such as interest rate movements, prepayment speeds,
credit losses, and discount rates are inherently difficult to estimate. Changes
to these inputs can have a significant effect on fair value measurements.
Accordingly, our estimates of fair value are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
Allowance for Loan Losses
We maintain an allowance for loan losses (the allowance) to absorb probable loan
credit losses inherent in the held-for-investment portfolio, excluding those
loans measured at fair value in accordance with applicable accounting standards.
The allowance is maintained at a level that management considers to be adequate
based upon ongoing quarterly assessments and evaluations of collectability and
historical loss experience in our lending portfolio. The allowance is
management's estimate of incurred losses in our lending portfolio and involves
significant judgment. Management performs quarterly analysis of these portfolios
to determine if impairment has occurred and to assess the adequacy of the
allowance based on historical and current trends and other factors affecting
credit losses. Additions to the allowance are charged to current period earnings
through the provision for loan losses; amounts determined to be uncollectible
are charged directly against the allowance, while amounts recovered on
previously charged-off accounts increase the allowance. Determining the
appropriateness of the allowance requires management to exercise significant
judgment about matters that are inherently uncertain, including the timing,
frequency, and severity of credit losses that could materially affect the
provision for loan losses and, therefore, net income. The methodology for
determining the amount of the allowance differs between the consumer automobile,
consumer mortgage, and commercial portfolio segments. For additional information
regarding our portfolio segments and classes, refer to Note 8 to the
Consolidated Financial Statements. While we attribute portions of the allowance
across our lending portfolios, the entire allowance is available to absorb
probable loan losses inherent in our total lending portfolio.
The consumer portfolio segments consist of smaller-balance, homogeneous loans.
Excluding certain loans that are identified as individually impaired, the
allowance for each consumer portfolio segment (automobile and mortgage) is
evaluated collectively. The allowance is based on aggregated portfolio segment
evaluations that begin with estimates of incurred losses in each portfolio
segment based on various statistical analyses. We leverage proprietary
statistical models, including vintage and migration analyses, based on recent
loss trends, to develop a systematic incurred loss reserve. These statistical
loss forecasting models are utilized to estimate incurred losses and consider
several credit quality indicators including, but not limited to, historical loss
experience, estimated foreclosures or defaults based on observable trends,
delinquencies, and general economic and business trends. Management believes
these factors are relevant to estimate incurred losses and are updated on a
quarterly basis in order to incorporate information reflective of the current
economic environment, as changes in these assumptions could have a significant
impact. In order to develop our best estimate of probable incurred losses
inherent in the loan portfolio, management reviews and analyzes the output from
the models and may adjust the reserves to take into consideration environmental,
qualitative and other factors that may not be captured in the models. These
adjustments are documented and reviewed through our risk management processes.
Management reviews, updates, and validates its systematic process and loss
assumptions on a periodic basis. This process involves an analysis of loss
information, such as a review of loss and credit trends, a retrospective
evaluation of actual loss information to loss forecasts, and other analyses.
The commercial loan portfolio segment is primarily composed of larger-balance,
nonhomogeneous exposures within our Automotive Finance operations, Commercial
Finance Group, and Mortgage operations. As of December 31, 2012, we no longer
have any commercial loans within our mortgage operations. These loans are
primarily evaluated individually and are risk-rated based on borrower,
collateral, and industry-specific information that management believes is
relevant in determining the occurrence of a loss event and measuring impairment.
A loan is considered impaired when it is probable that we will be unable to
collect all amounts due according to the contractual terms of the loan agreement
based on current information and events. Management establishes specific
allowances for commercial loans determined to be individually impaired based on
the present value of expected future cash flows, discounted at the loans'
effective interest rate, observable market price or the fair value of
collateral, whichever is determined to be the most appropriate. Estimated costs
to sell or realize the value of the collateral on a discounted basis are
included in the impairment measurement, when appropriate. In addition to the
specific allowances for impaired loans, loans that are not identified as
individually impaired are grouped into pools based on similar risk
characteristics and collectively evaluated. These allowances are based on
historical loss experience, concentrations, current economic conditions, and
performance trends within specific geographic locations. The commercial
historical loss experience is updated quarterly to incorporate the most recent
data reflective of the current economic environment.
The determination of the allowance is influenced by numerous assumptions and
many factors that may materially affect estimates of loss, including volatility
of loss given default, probability of default, and rating migration. The
critical assumptions underlying the allowance include: (1) segmentation of each
portfolio based on common risk characteristics; (2) identification and
estimation of portfolio indicators and other factors that management believes
are key to estimating incurred credit losses; and (3) evaluation by management
of borrower, collateral,

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and geographic information. Management monitors the adequacy of the allowance
and makes adjustments as the assumptions in the underlying analyses change to
reflect an estimate of incurred loan losses at the reporting date, based on the
best information available at that time. In addition, the allowance related to
the commercial portfolio segment is influenced by estimated recoveries from
automotive manufacturers relative to guarantees or agreements with them to
repurchase vehicles used as collateral to secure the loans. If an automotive
manufacturer is unable to fully honor its obligations, our ultimate loan losses
could be higher. To the extent that actual outcomes differ from our estimates,
additional provision for credit losses may be required that would reduce
earnings.
Valuation of Automobile Lease Assets and Residuals
We have significant investments in vehicles in our operating lease portfolio. In
accounting for operating leases, management must make a determination at the
beginning of the lease contract of the estimated realizable value
(i.e., residual value) of the vehicle at the end of the lease. Residual value
represents an estimate of the market value of the vehicle at the end of the
lease term, which typically ranges from two to four years. At contract
inception, we generally determine the projected residual values based on
independent data, including independent guides of vehicle residual values, and
analysis. Risk adjustments are determined at lease inception and are based on
current auction results adjusted for key variables that historically have shown
an impact on auction values (as further described in the Lease Residual Risk
discussion in the Risk Management section of this MD&A). The customer is
obligated to make payments during the term of the lease for the difference
between the purchase price and the contract residual value plus a finance
charge. However, since the customer is not obligated to purchase the vehicle at
the end of the contract, we are exposed to a risk of loss to the extent the
value of the vehicle is below the residual value estimated at contract
inception. Management periodically performs a detailed review of the estimated
realizable value of leased vehicles to assess the appropriateness of the
carrying value of lease assets.
To account for residual risk, we depreciate automobile operating lease assets to
estimated realizable value on a straight-line basis over the lease term. The
estimated realizable value is initially based on the residual value established
at contract inception. Over the life of the lease, management evaluates the
adequacy of the estimate of the realizable value and may make adjustments to the
extent the expected value of the vehicle at lease termination changes. Any
adjustments would result in a change in the depreciation rate of the lease
asset, thereby affecting the carrying value of the operating lease asset.
In addition to estimating the residual value at lease termination, we must also
evaluate the current value of the operating lease assets and test for impairment
to the extent necessary in accordance with applicable accounting standards.
Impairment is determined to exist if the undiscounted expected future cash flows
(including the expected residual value) are lower than the carrying value of the
asset. There were no such impairment charges in 2012, 2011, or 2010.
Our depreciation methodology on operating lease assets considers management's
expectation of the value of the vehicles upon lease termination, which is based
on numerous assumptions and factors influencing used vehicle values. The
critical assumptions underlying the estimated carrying value of automobile lease
assets include: (1) estimated market value information obtained and used by
management in estimating residual values, (2) proper identification and
estimation of business conditions, (3) our remarketing abilities, and
(4) automotive manufacturer vehicle and marketing programs. Changes in these
assumptions could have a significant impact on the value of the lease residuals.
Expected residual values include estimates of payments from automotive
manufacturers related to residual support and risk-sharing agreements. To the
extent an automotive manufacturer is not able to fully honor its obligation
relative to these agreements, our depreciation expense would be negatively
impacted.
Valuation of Mortgage Servicing Rights
Mortgage servicing rights represent the capitalized value of the right to
receive future cash flows from the servicing of mortgage loans for others.
Mortgage servicing rights are a significant source of value derived from the
sale or securitization of mortgage loans. Because residential mortgage loans
typically contain a prepayment option, borrowers may often elect to prepay their
mortgage loans by refinancing at lower rates during declining interest rate
environments. The borrower's ability to prepay is at times impacted by other
factors in the current environment that may limit their eligibility to refinance
(e.g. a high loan-to-value ratio). When this occurs, the stream of cash flows
generated from servicing the original mortgage loan is terminated. As such, the
market value of mortgage servicing rights has historically been very sensitive
to changes in interest rates and tends to decline as market interest rates
decline and increase as interest rates rise.
We capitalize mortgage servicing rights on residential mortgage loans that we
have originated and purchased based on the fair market value of the servicing
rights associated with the underlying mortgage loans at the time the loans are
sold or securitized. GAAP requires that the value of mortgage servicing rights
be determined based on market transactions for comparable servicing assets, if
available. In the absence of representative market trade information, valuations
should be based on other available market evidence and modeled market
expectations of the present value of future estimated net cash flows that market
participants would expect from servicing. When observable prices are not
available, management uses internally developed discounted cash flow models to
estimate the fair value. These internal valuation models estimate net cash flows
based on internal operating assumptions that we believe would be used by market
participants, combined with market-based assumptions for loan prepayment rates,
interest rates, default rates and discount rates that management believes
approximate yields required by investors for these assets. Servicing cash flows
primarily include servicing fees, escrow account income, ancillary income and
late fees, less operating costs to service the loans. The estimated cash flows
are discounted using an option-adjusted spread-derived discount rate. Management
considers the best available information and exercises significant judgment in
estimating and assuming values for key variables in the modeling and discounting
process. All of our mortgage servicing rights are carried at estimated fair
value.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


We use the following key assumptions in our valuation approach. • Prepayment - The most significant drivers of mortgage servicing rights

value are actual and forecasted portfolio prepayment behavior. Prepayment

speeds represent the rate at which borrowers repay their mortgage loans

prior to scheduled maturity. Prepayment speeds are influenced by a number

of factors such as the value of collateral, competitive market factors,

government programs or incentives, or levels of foreclosure activity.

       However, the most significant factor influencing prepayment speeds is
       generally the interest rate environment. As interest rates rise,
       prepayment speeds generally slow, and as interest rates decline,
       prepayment speeds generally accelerate. When mortgage loans are paid or

expected to be paid earlier than originally estimated, the expected future

cash flows associated with servicing such loans are reduced. We primarily

       use third-party models to project residential mortgage loan payoffs. In
       other cases, we estimate prepayment speeds based on historical and
       expected future prepayment rates. We measure model performance by
       comparing prepayment predictions against actual results at both the
       portfolio and product level.


•      Discount rate - The cash flows of our mortgage servicing rights are
       discounted at prevailing market rates, which include an appropriate
       risk-adjusted spread, which management believes approximates yields
       required by investors for these assets.

• Base mortgage rate - The base mortgage rate represents the current market

       interest rate for newly originated mortgage loans. This rate is a key
       component in estimating prepayment speeds of our portfolio because the

difference between the current base mortgage rate and the interest rates

on existing loans in our portfolio is an indication of the borrower's

       likelihood to refinance.


•      Cost to service - In general, servicing cost assumptions are based on
       internally projected actual expenses directly related to servicing. These
       servicing cost assumptions are compared to market-servicing costs when

market information is available. Our servicing cost assumptions include

expenses associated with our activities related to loans in default.

• Volatility - Volatility represents the expected rate of change of interest

rates. The volatility assumption used in our valuation methodology is

intended to estimate the range of expected outcomes of future interest

rates. We use implied volatility assumptions in connection with the

valuation of our mortgage servicing rights. Implied volatility is defined

as the expected rate of change in interest rates derived from the prices

at which options on interest rate swaps, or swaptions, are trading. We

update our volatility assumptions for the change in implied swaptions

volatility during the period, adjusted by the ratio of historical mortgage

to swaption volatility.

We also periodically perform a series of reasonableness tests as we deem appropriate, including the following. • Review and compare data provided by an independent third-party broker. We

evaluate and compare our fair value price, multiples, and underlying

assumptions to data provided by independent third-party broker, including

       prepayment speeds, discount rates, cost to service, and fair value
       multiples.

• Review and compare pricing of publicly traded interest-only securities. We

       evaluate and compare our fair value to publicly traded interest-only
       stripped MBS by age and coupon for reasonableness.

• Review and compare fair value price and multiples. We evaluate and compare

       our fair value price and multiples to market fair value price and
       multiples in external surveys produced by third parties.

• Compare actual monthly cash flows to projections. We reconcile actual

monthly cash flows to those projected in the mortgage servicing rights

valuation. Based on the results of this reconciliation, we assess the need

to modify the individual assumptions used in the valuation. This process

ensures the model is calibrated to actual servicing cash flow results.

• Review and compare recent bulk mortgage servicing right acquisition

activity. We evaluate market trades for reliability and relevancy and then

consider, as appropriate, our estimate of fair value of each significant

transaction to the traded price. Currently, there are limited market

transactions that are directly observable, which are the best indicators

of fair value. However, we continue to monitor and track market activity

on an ongoing basis.



We generally expect our valuation to be within a reasonable range of that
implied by these tests. Changes in these assumptions could have a significant
impact on the determination of fair market value. In order to develop our best
estimate of fair value, management reviews and analyzes the output from the
models and may adjust the assumptions to take into consideration other factors
that may not be captured. If we determine our valuation has exceeded the
reasonable range, we may adjust it accordingly. At December 31, 2012, based on
the market information obtained, we determined that our mortgage servicing
rights valuations and assumptions used to value those servicing rights were
reasonable and consistent with what an independent market participant would use
to value the asset.
The assumptions used in modeling expected future cash flows of mortgage
servicing rights have a significant impact on the fair value of mortgage
servicing rights and potentially a corresponding impact to earnings. Refer to
Note 11 to the Consolidated Financial Statements for sensitivity analysis.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Goodwill

The accounting for goodwill is discussed in Note 1 to the Consolidated Financial
Statements. Goodwill is reviewed for potential impairment at the reporting unit
level on an annual basis, as of August 31, or in interim periods if events or
circumstances indicate a potential impairment. Goodwill is allocated to the
reporting units at the date the goodwill is initially recorded. Once goodwill
has been allocated to the reporting units, it generally no longer retains its
identification with a particular acquisition, but instead becomes identified
with the reporting unit as a whole. As a result, all of the fair value of each
reporting unit is available to support the value of goodwill allocated to the
unit. Goodwill impairment testing is performed at the reporting unit level, one
level below the business segment. For more information on our segments, refer to
Note 26 to the Consolidated Financial Statements.
Goodwill impairment testing involves management's judgment, requiring an
assessment of whether the carrying value of the reporting unit can be supported
by the fair value of the individual reporting unit using widely accepted
valuation techniques, such as the market approach (earnings, transaction,
pricing multiples and/or other market intelligence that would indicate what a
market participant would pay) and the income approach (discounted cash flow
methods). In applying these methodologies we utilize a number of factors,
including actual operating results, future business plans, economic projections,
and market data. A combination of methodologies is used and weighted
appropriately for each reporting unit. If actual results differ from these
estimates, it may have an adverse impact on the valuation of goodwill that could
result in a reduction of the excess over carrying value and possible impairment
of goodwill. At December 31, 2012, we did not have material goodwill at our
reporting units that is at risk of failing Step 1 of the goodwill impairment
test.
Legal and Regulatory Reserves
Our legal and regulatory reserves reflect management's best estimate of probable
losses on legal and regulatory matters. As a legal or regulatory matter
develops, management, in conjunction with internal and external counsel handling
the matter, evaluates on an ongoing basis whether such matter presents a loss
contingency that is both probable and estimable. If, at the time of evaluation,
the loss contingency related to a legal or regulatory matter is not both
probable and estimable, the matter will continue to be monitored for further
developments that would make such loss contingency both probable and estimable.
When the loss contingency related to a legal or regulatory matter is deemed to
be both probable and estimable, we will establish a liability with respect to
such loss contingency and record a corresponding amount to other operating
expenses. To estimate the probable loss, we evaluate the individual facts and
circumstances of the case including information learned through the discovery
process, rulings on dispositive motions, settlement discussions, our prior
history with similar matters and other rulings by courts, arbitrators or others.
The reserves are continuously monitored and updated to reflect the most recent
information related to each matter.
Additionally, in matters for which a loss event is not deemed probable, but
rather reasonably possible to occur, we would attempt to estimate a loss or
range of loss related to that event, if possible. For these matters, we do not
record a liability. However, if we are able to estimate a loss or range of loss,
we would disclose this loss, if it is material to our financial statements. To
estimate a range of probable or reasonably possible loss, we evaluate each
individual case in the manner described above. We do not accrue for matters for
which a loss event is deemed remote.
For details regarding the nature of all material contingencies, refer to Note 29
to the Consolidated Financial Statements.
Loan Repurchase and Obligations Related to Loan Sales
The liability for representation and warranty obligations reflects management's
best estimate of probable lifetime losses. We consider historical and recent
demand trends in establishing the reserve. The methodology used to estimate the
reserve considers a variety of assumptions including borrower performance (both
actual and estimated future defaults), repurchase demand behavior, historical
loan defect experience, historical mortgage insurance rescission experience, and
historical and estimated future loss experience, which includes projections of
future home price changes as well as other qualitative factors including
investor behavior. In cases where we may not be able to reasonably estimate
losses, a liability is not recognized. Management monitors the adequacy of the
overall reserve and makes adjustments to the level of reserve, as necessary,
after consideration of other qualitative factors including ongoing dialogue and
experience with counterparties.
Determination of Provision for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for
unrecognized tax benefits reflect management's best assessment of estimated
current and future taxes to be paid. We are subject to income taxes in both the
United States and numerous foreign jurisdictions. Significant judgments and
estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and
financial statement recognition of revenue and expense. In evaluating our
ability to recover our deferred tax assets within the jurisdiction from which
they arise, we consider all available positive and negative evidence, including
scheduled reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies, and results of recent operations. In projecting
future taxable income, we begin with historical results adjusted for the results
of discontinued and deconsolidated operations and incorporate assumptions about
the amount of future state, federal and foreign pretax operating income. These
assumptions about future taxable income require significant judgment and are
consistent with the plans and estimates we are using to manage the underlying
businesses. In evaluating the objective evidence that historical results
provide, we consider three years of cumulative operating income (loss).

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


A valuation allowance of $1.6 billion and $2.1 billion was recorded against the
net U.S. deferred tax asset balance as of December 31, 2012, and December 31,
2011, respectively. For the year ended December 31, 2012, our results from
operations benefited $1.3 billion from the release of U.S. federal and state
valuation allowances and related effects on the basis of management's
reassessment of the amount of its deferred tax assets that are more likely than
not to be realized.
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. As of December 31, 2012, we determined that positive
evidence existed to conclude that it is more likely than not that
ordinary-in-character deferred tax assets are realizable, and therefore, we
reduced the valuation allowance accordingly. Positive evidence in this
assessment consisted of forecasts of future taxable income that are sufficient
to realize net operating loss carryforwards before their expiration, coupled
with our emergence from a cumulative three-year U.S. pretax loss (after removing
the effects of non-recurring charges and discontinued operations). Certain U.S.
deferred tax assets remain offset with a valuation allowance as discussed below.
We believe it is more likely than not that the benefit for certain U.S. net
operating loss, capital loss, and foreign tax credit carryforwards will not be
realized. In recognition of this risk, we have provided a valuation allowance of
$1.6 billion on the deferred tax assets relating to these carryforwards. In
particular, the deferred tax assets and liabilities as of December 31, 2012,
reflect the U.S. income tax effects of the anticipated sale of entities
held-for-sale at net book value. In concluding to maintain a valuation allowance
against our capital loss carryforwards, we considered the positive evidence that
we have entered into agreements to sell our held-for-sale entities for amounts
in excess of book value. We also considered and ultimately weighted more heavily
the negative evidence that we have historically had difficulty generating
significant capital gains; capital loss carryforwards have a relatively short
carryforward period; the timing of disposal of the held-for-sale entities is
uncertain; and the disposal of the held-for-sale entities are subject to various
levels of regulatory approval in numerous countries. Successful completion
during 2013 of the sales of entities currently held-for-sale may result in
capital gains that would allow us to realize capital loss carryforwards. A
related reversal of valuation allowance on these deferred tax assets would be
recognized as an income tax benefit upon such utilization.
For additional information regarding our provision for income taxes, refer to
Note 23 to the Consolidated Financial Statements.
Recently Issued Accounting Standards
Refer to Note 1 to the Consolidated Financial Statements for further information
related to recently adopted and recently issued accounting standards.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Statistical Table
The accompanying supplemental information should be read in conjunction with the
more detailed information, including our Consolidated Financial Statements and
the notes thereto, which appears elsewhere in this Annual Report.
Net Interest Margin Table
The following table presents an analysis of net interest margin excluding
discontinued operations for the periods shown.
                                                 2012                                       2011                                      2010
                                                    Interest                                  Interest                                  Interest
                                                    income/                                   income/                                   income/

Year ended December 31, ($ Average interest Yield/

  Average         interest     Yield/       Average         interest     Yield/
in millions)                     balance (a)        expense       rate      balance (a)       expense       rate      balance (a)       expense       rate
Assets
Interest-bearing cash and
cash equivalents               $       10,731     $       26      0.24 %   $     10,939     $       21      0.19 %   $     12,634     $       34      0.27 %
Trading assets                            273             13      4.76              359             19      5.29              163             15      9.20
Investment securities (b)              12,336            262      2.12           13,100            326      2.49           10,200            306      

3.00

Loans held-for-sale, net                4,406            155      3.52            9,062            332      3.66           13,165            587     

4.46

Finance receivables and
loans, net (c) (d)                     95,715          4,603      4.81           84,392          4,409      5.22           67,296          4,475      

6.65

Investment in operating
leases, net (e)                        11,185            980      8.76            7,968            988     12.40            8,827          1,332     

15.09

Total interest-earning
assets                                134,646          6,039      4.49          125,820          6,095      4.84          112,285          6,749      6.01
Noninterest-bearing cash
and cash equivalents                    1,917                                     1,180                                       427
Other assets                           17,500                                    22,274                                    30,492
Allowance for loan losses              (1,246 )                                  (1,543 )                                  (2,113 )
Assets of discontinued
operations (f)                         30,924                                    33,106                                    35,594
Total assets                   $      183,741                              $    180,837                              $    176,685
Liabilities
Interest-bearing deposit
liabilities                    $       42,440     $      644      1.52 %   

$ 37,423 $ 614 1.64 % $ 30,456 $ 579 1.90 % Short-term borrowings

                   3,945             90      2.28            4,345            116      2.67            5,309            141     

2.66

Long-term debt (g) (h) (i)             79,044          3,466      4.38           76,780          4,309      5.61           72,526          4,740      

6.54

Total interest-bearing
liabilities (g) (h) (j)               125,429          4,200      3.35          118,548          5,039      4.25          108,291          5,460      5.04
Noninterest-bearing deposit
liabilities                             2,261                                     2,237                                     2,070
Total funding
sources (h) (k)                       127,690          4,200      3.29          120,785          5,039      4.17          110,361          5,460      4.95
Other liabilities                       6,207                                     6,877                                    10,068
Liabilities of discontinued
operations (f)                         30,924                                    33,106                                    35,594
Total liabilities                     164,821                                   160,768                                   156,023
Total equity                           18,920                                    20,069                                    20,662
Total liabilities and
equity                         $      183,741                              $    180,837                              $    176,685
Net financing revenue                             $    1,839                                $    1,056                                $    1,289
Net interest spread (l)                                           1.14 %                                    0.59 %                                    0.97 %
Net interest spread excluding original issue
discount (l)                                                      1.46 %                                    1.43 %                                    2.21 %
Net interest spread excluding original issue
discount and including noninterest-bearing
deposit liabilities (l)                                           1.51 %                                    1.49 %                                    2.28 %
Net yield on
interest-earning assets (m)                                       1.37 %                                    0.84 %                                    1.15 %
Net yield on interest-earning assets excluding
original issue discount (m)                                       1.62 %                                    1.56 %                                    2.22 %

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

average methodologies.

(b) Excludes income on equity investments of $30 million, $25 million, and $17

million at December 31, 2012, 2011, and 2010, respectively. Yields on

available-for-sale debt securities are based on fair value as opposed to

historical cost.

(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.

(d) Includes other interest income of $5 million, $5 million, and $3 million at

December 31, 2012, 2011, and 2010, respectively.

(e) Includes gains on sale of $116 million, $217 million, and $555 million at

December 31, 2012, 2011, and 2010, respectively. Excluding these gains on

sale, the annualized yield would be 7.72%, 9.68%, and 8.80% at December 31,

2012, 2011, and 2010, respectively.

(f) Average balances and rates are impacted by allocations made to match assets

of discontinued operations with liabilities of discontinued operations.

(g) Includes the effects of derivative financial instruments designated as

hedges.

(h) Average balance includes $1,927 million, $2,522 million, and $3,710 million

related to original issue discount at December 31, 2012, 2011, and 2010,

respectively. Interest expense includes original issue discount amortization

of $336 million, $912 million, and $1,204 million during the year ended

December 31, 2012, 2011, and 2010, respectively.

(i) Excluding original issue discount the rate on long-term debt was 3.87%,

4.28%, and 4.64% at December 31, 2012, 2011, and 2010, respectively.

(j) Excluding original issue discount the rate on total interest-bearing

liabilities was 3.03%, 3.41%, and 3.80% at December 31, 2012, 2011, and 2010,

respectively.

(k) Excluding original issue discount the rate on total funding sources was

2.98%, 3.35%, and 3.73% at December 31, 2012, 2011, and 2010, respectively.

(l) Net interest spread represents the difference between the rate on total

interest-earning assets and the rate on total interest-bearing liabilities.

(m) Net yield on interest-earning assets represents net financing revenue as a

    percentage of total interest-earning assets.



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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


The following table presents an analysis of the changes in net interest income,
volume and rate.
                                                         2012 vs 2011                           2011 vs 2010
                                                     Increase (decrease)                    Increase (decrease)
                                                          due to (a)                             due to (a)
Year ended December 31, ($ in millions)       Volume      Yield/rate      Total      Volume      Yield/rate      Total
Assets
Interest-bearing cash and cash equivalents   $     -     $         5     $    5     $    (4 )   $        (9 )   $  (13 )
Trading assets                                    (4 )            (2 )       (6 )        12              (8 )        4
Investment securities                            (18 )           (46 )      (64 )        78             (58 )       20
Loans held-for-sale, net                        (164 )           (13 )     (177 )      (162 )           (93 )     (255 )
Finance receivables and loans, net               562            (368 )      194       1,005          (1,071 )      (66 )
Investment in operating leases, net              331            (339 )       (8 )      (121 )          (223 )     (344 )
Total interest-earning assets                $   707     $      (763 )   $  (56 )   $   808     $    (1,462 )   $ (654 )
Liabilities
Interest-bearing deposit liabilities         $    78     $       (48 )   $   30     $   121     $       (86 )   $   35
Short-term borrowings                            (10 )           (16 )      (26 )       (26 )             1        (25 )
Long-term debt                                   124            (967 )     (843 )       267            (698 )     (431 )
Total interest-bearing liabilities           $   192     $    (1,031 )   $ (839 )   $   362     $      (783 )   $ (421 )
Net financing revenue                        $   515     $       268     $  783     $   446     $      (679 )   $ (233 )

(a) Changes in interest not solely due to volume or yield/rate are allocated in

proportion to the absolute dollar amount of change in volume and yield/rate.




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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Outstanding Finance Receivables and Loans
The following table presents the composition of our on-balance sheet finance
receivables and loans.
December 31, ($ in millions)                2012         2011          2010          2009         2008
Consumer
Domestic
Consumer automobile                      $ 53,713     $  46,576     $  34,604     $ 12,514     $  16,281
Consumer mortgage
1st Mortgage                                7,173         6,997         7,057        7,960        13,542
Home equity                                 2,648         3,575         3,964        4,238         7,777
Total domestic                             63,534        57,148        45,625       24,712        37,600
Foreign
Consumer automobile                             2        16,883        16,650       17,731        21,705
Consumer mortgage
1st Mortgage                                    -           256           742          405         4,604
Home equity                                     -             -             -            1            54
Total foreign                                   2        17,139        17,392       18,137        26,363
Total consumer loans                       63,536        74,287        63,017       42,849        63,963
Commercial
Domestic
Commercial and industrial
Automobile (a)                             30,270        26,552        24,944       19,604        16,913
Mortgage                                        -         1,887         1,540        1,572         1,627
Other                                       2,679         1,178         1,795        2,688         3,257
Commercial real estate
Automobile                                  2,552         2,331         2,071        2,008         1,941
Mortgage                                        -             -             1          121         1,696
Total domestic                             35,501        31,948        30,351       25,993        25,434
Foreign
Commercial and industrial
Automobile (b)                                  -         8,265         8,398        7,943        10,749
Mortgage                                        -            24            41           96           195
Other                                          18            63           312          437           960
Commercial real estate
Automobile                                      -           154           216          221           167
Mortgage                                        -            14            78          162           260
Total foreign                                  18         8,520         9,045        8,859        12,331
Total commercial loans                     35,519        40,468        39,396       34,852        37,765
Total finance receivables and loans (c)  $ 99,055     $ 114,755     $ 102,413     $ 77,701     $ 101,728
Loans held-for-sale                      $  2,576     $   8,557     $  11,411     $ 20,625     $   7,919

(a) Amount includes Notes Receivable from General Motors of $3 million at

December 31, 2009.

(b) Amounts include no Notes Receivable from General Motors at December 31, 2012

and $529 million, $484 million, $908 million, and $1.7 billion at

December 31, 2011, 2010, 2009, and 2008, respectively.

(c) Includes historical cost, fair value, and repurchased loans.

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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Nonperforming Assets
The following table summarizes the nonperforming assets in our on-balance sheet
portfolio.
December 31, ($ in millions)               2012        2011        2010        2009        2008
Consumer
Domestic
Consumer automobile                      $   260     $   139     $   129     $   267     $   294
Consumer mortgage
1st Mortgage                                 342         316         452         782       2,547
Home equity                                   40          91         108         114         540
Total domestic                               642         546         689       1,163       3,381
Foreign
Consumer automobile                            -          89          78         119         125
Consumer mortgage
1st Mortgage                                   -         142         261          33       1,034
Home equity                                    -           -           -           -           -
Total foreign                                  -         231         339         152       1,159
Total consumer (a)                           642         777       1,028       1,315       4,540
Commercial
Domestic
Commercial and industrial
Automobile                                   146         105         261         281       1,448
Mortgage                                       -           -           -          37         140
Other                                         33          22          37         856          64
Commercial real estate
Automobile                                    37          56         193         256         153
Mortgage                                       -           -           1          56       1,070
Total domestic                               216         183         492       1,486       2,875
Foreign
Commercial and industrial
Automobile                                     -         118          35          66           7
Mortgage                                       -           -          40          35           -
Other                                          -          15          97         131          19
Commercial real estate
Automobile                                     -          11           6          24           2
Mortgage                                       -          12          70         141         143
Total foreign                                  -         156         248         397         171
Total commercial (b)                         216         339         740       1,883       3,046
Total nonperforming finance receivables
and loans                                    858       1,116       1,768       3,198       7,586
Foreclosed properties                          8          82         150         255         787
Repossessed assets (c)                        62          56          47          58          95
Total nonperforming assets               $   928     $ 1,254     $ 1,965     $ 3,511     $ 8,468
Loans held-for-sale                      $    25     $ 2,820     $ 3,273     $ 3,390     $   731

(a) Interest revenue that would have been accrued on total consumer finance

receivables and loans at original contractual rates was $54 million during

the year ended December 31, 2012. Interest income recorded for these loans

was $23 million during the year ended December 31, 2012.

(b) Interest revenue that would have been accrued on total commercial finance

receivables and loans at original contractual rates was $21 million during

the year ended December 31, 2012. Interest income recorded for these loans

was $15 million during the year ended December 31, 2012.

(c) Repossessed assets exclude $3 million, $3 million, $14 million, $23 million,

and $34 million of repossessed operating lease assets at December 31, 2012,

    2011, 2010, 2009, and 2008, respectively.



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Ally Financial Inc. • Form 10-K


Accruing Finance Receivables and Loans Past Due 90 Days or More
The following table presents our on-balance sheet accruing loans past due
90 days or more as to principal and interest.
December 31, ($ in millions)                2012         2011         2010         2009         2008
Consumer
Domestic
Consumer automobile                      $      -     $      -     $      -     $      -     $     19
Consumer mortgage
1st Mortgage                                    1            1            1            1           33
Home equity                                     -            -            -            -            -
Total domestic                                  1            1            1            1           52
Foreign
Consumer automobile                             -            3            5            5           40
Consumer mortgage
1st Mortgage                                    -            -            -            1            -
Home equity                                     -            -            -            -            -
Total foreign                                   -            3            5            6           40
Total consumer                                  1            4            6            7           92
Commercial
Domestic
Commercial and industrial
Automobile                                      -            -            -            -            -
Mortgage                                        -            -            -            -            -
Other                                           -            -            -            -            -
Commercial real estate
Automobile                                      -            -            -            -            -
Mortgage                                        -            -            -            -            -
Total domestic                                  -            -            -            -            -
Foreign
Commercial and industrial
Automobile                                      -            -            -            -            -
Mortgage                                        -            -            -            -            -
Other                                           -            -            -            3            -
Commercial real estate
Automobile                                      -            -            -            -            -
Mortgage                                        -            -            -            -            -
Total foreign                                   -            -            -            3            -
Total commercial                                -            -            -            3            -
Total accruing finance receivables and
loans past due 90 days or more           $      1     $      4     $      6     $     10     $     92
Loans held-for-sale                      $      -     $     73     $     25     $     33     $      7



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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Allowance for Loan Losses
The following table presents an analysis of the activity in the allowance for
loan losses on finance receivables and loans.
($ in millions)                            2012        2011        2010        2009        2008
Balance at January 1,                    $ 1,503     $ 1,873     $ 2,445     $ 3,433     $ 2,755
Cumulative effect of change in
accounting principles (a)                      -           -         222           -        (616 )
Charge-offs
Domestic                                    (595 )      (667 )    (1,297 )    (3,380 )    (2,192 )
Foreign                                     (181 )      (213 )      (349 )      (633 )      (347 )
Write-downs related to transfers to
held-for-sale                                  -           -           -      (3,438 )         -
Total charge-offs                           (776 )      (880 )    (1,646 )    (7,451 )    (2,539 )
Recoveries
Domestic                                     193         227         363         276         219
Foreign                                      109         100          85          76          71
Total recoveries                             302         327         448         352         290
Net charge-offs                             (474 )      (553 )    (1,198 )    (7,099 )    (2,249 )
Provision for loan losses                    329         188         357       5,174       2,857
Foreign provision for loan losses             65          31          81         996         553
Deconsolidation of ResCap                     (9 )         -           -           -           -
Other                                       (244 )       (36 )       (34 )       (59 )       133
Balance at December 31,                  $ 1,170     $ 1,503     $ 1,873     $ 2,445     $ 3,433

(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. • Form 10-K


Allowance for Loan Losses by Type
The following table summarizes the allocation of the allowance for loan losses
by product type.
                                      2012               2011               2010                2009                2008
                                           % of               % of               % of                % of                % of
December 31, ($ in millions)      Amount   total     Amount   total     Amount   total     Amount    total      Amount   total
Consumer
Domestic
Consumer automobile             $    575    49.2   $    600    39.9   $    769    41.0   $    772    31.6     $  1,115    32.5
Consumer mortgage
1st Mortgage                         245    20.9        275    18.3        322    17.2        387    15.8          525    15.3
Home equity                          207    17.7        237    15.8        256    13.7        251    10.3          177     5.2
Total domestic                     1,027    87.8      1,112    74.0      1,347    71.9      1,410    57.7        1,817    53.0
Foreign
Consumer automobile                    -       -        166    11.1        201    10.7        252    10.2          279     8.1
Consumer mortgage
1st Mortgage                           -       -          4     0.2          2     0.1          2     0.1          409    11.9
Home equity                            -       -          -       -          -       -          -       -           31     0.9
Total foreign                          -       -        170    11.3        203    10.8        254    10.3          719    20.9
Total consumer loans               1,027    87.8      1,282    85.3      1,550    82.7      1,664    68.0        2,536    73.9
Commercial
Domestic
Commercial and industrial
Automobile                            55     4.7         62     4.0         73     3.9        157     6.4          178     5.2
Mortgage                               -       -          1     0.1          -       -         10     0.4           93     2.7
Other                                 48     4.1         52     3.5         97     5.2        322    13.2           65     1.9
Commercial real estate
Automobile                            40     3.4         39     2.6         54     2.9          -       -            -       -
Mortgage                               -       -          -       -          -       -         54     2.2          458    13.3
Total domestic                       143    12.2        154    10.2        224    12.0        543    22.2          794    23.1
Foreign
Commercial and industrial
Automobile                             -       -         48     3.2         33     1.7         54     2.2           45     1.3
Mortgage                               -       -         10     0.7         12     0.7         20     0.8            3     0.1
Other                                  -       -          1     0.1         39     2.1        111     4.6            9     0.3
Commercial real estate
Automobile                             -       -          3     0.2          2     0.1          -       -            -       -
Mortgage                               -       -          5     0.3         13     0.7         53     2.2           46     1.3
Total foreign                          -       -         67     4.5         99     5.3        238     9.8          103     3.0
Total commercial loans               143    12.2        221    14.7       

323 17.3 781 32.0 897 26.1 Total allowance for loan losses $ 1,170 100.0 $ 1,503 100.0 $ 1,873 100.0 $ 2,445 100.0 $ 3,433 100.0




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Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K


Deposit Liabilities
The following table presents the average balances and interest rates paid for
types of domestic deposits.
                                                 2012                               2011                               2010

Year ended December 31, ($ in Average Average Average Average

           Average          Average
millions)                            balance (a)      deposit rate      

balance (a) deposit rate balance (a) deposit rate Domestic deposits Noninterest-bearing deposits $ 2,262

              - %     $       2,237              - %     $       2,071              - %
Interest-bearing deposits
Savings and money market checking
accounts                                  10,953           0.88               9,696           0.88               8,015           1.21
Certificates of deposit                   29,972           1.64              26,109           1.77              21,153           2.04
Dealer deposits                            1,515           3.81               1,685           3.87               1,288           4.00
Total domestic deposit liabilities $      44,702           1.44 %     $      39,727           1.55 %     $      32,527           1.78 %


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

average methodologies.



The following table presents the amount of domestic certificates of deposit in
denominations of $100 thousand or more segregated by time remaining until
maturity.
                                                 Over three months       Over six months
December 31, 2012 ($ in       Three months            through                through               Over
millions)                        or less            six months            twelve months        twelve months       Total
Domestic certificates of
deposit ($100,000 or more)   $       1,735     $             1,793     $           2,779     $         5,666     $ 11,973



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