Ally Bank 2014 Annual Report Download - page 105

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
93
1. Description of Business, Basis of Presentation, and Changes in Significant Accounting Policies
Ally Financial Inc. (formerly GMAC Inc. and referred to herein as Ally, we, our, or us) is a leading, independent, diversified, financial
services firm. Founded in 1919, we are a leading financial services company with approximately 95 years of experience providing a broad
array of financial products and services, primarily to automotive dealers and their customers. We operate as a financial holding company
(FHC) and a bank holding company (BHC). 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.
Consolidation and Basis of Presentation
The Consolidated Financial Statements include our accounts and accounts of our majority-owned subsidiaries, after eliminating
intercompany balances and transactions, and include all variable interest entities (VIEs) in which we are the primary beneficiary. Refer to
Note 10 for further details on our VIEs. Our accounting and reporting policies conform to accounting principles generally accepted in the
United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed
by bank regulatory authorities.
In the past, we have operated our international subsidiaries in a similar manner as we operate in the United States of America
(U.S. or United States), subject to local laws or other circumstances that may cause us to modify our procedures accordingly. The financial
statements of subsidiaries that operate outside of the United States generally are measured using the local currency as the functional currency.
All assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. The resulting translation
adjustments are recorded in accumulated other comprehensive income. Income and expense items are translated at average exchange rates
prevailing during the reporting period. The majority of our international operations have ceased and are included in discontinued and held-for-
sale operations.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that
affect income and expenses during the reporting period and related disclosures. In developing the estimates and assumptions, management
uses all available evidence; however, actual results could differ because of uncertainties associated with estimating the amounts, timing, and
likelihood of possible outcomes.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and certain highly liquid investment securities with maturities of three months or less
from the date of purchase. Cash and cash equivalents that have restrictions on our ability to withdraw the funds are included in other assets on
our Consolidated Balance Sheet. The book value of cash equivalents approximates fair value because of the short maturities of these
instruments. Certain securities with original maturities less than 90 days that are held as a portion of longer-term investment portfolios,
primarily held by our Insurance operations, are classified as investment securities.
Securities
Our portfolio of securities includes government securities, corporate bonds, asset-backed securities (ABS), mortgage-backed securities
(MBS), interests in securitization trusts, equity securities, and other investments. Securities are classified based on management's intent. Our
securities are primarily classified as available-for-sale and carried at fair value with unrealized gains and losses included in accumulated other
comprehensive income or loss, on an after-tax basis. Premiums and discounts on debt securities are amortized as an adjustment to investment
yield generally over the stated maturity of the security. For ABS and MBS, amortization is adjusted for expected prepayments. We employ a
methodology that considers available evidence in evaluating potential other-than-temporary impairment of our investments classified as
available-for-sale. If the cost of an investment exceeds its fair value, we evaluate, among other factors, the magnitude and duration of the
decline in fair value. We also evaluate the financial health of and business outlook for the issuer, the performance of the underlying assets for
interests in securitized assets, and our intent and ability to hold the investment.
Once a decline in fair value of a debt security is determined to be other-than-temporary, an impairment charge for the credit component
is recorded to other gain (loss) on investments, net, in our Consolidated Statement of Income, and a new cost basis in the investment is
established. Noncredit component losses of a debt security are recorded in other comprehensive income (loss) when we do not intend to sell
the security or it is not more likely than not that we will have to sell the security prior to the security's anticipated recovery. Unrealized losses
that we have determined to be other-than-temporary on equity securities are recorded to other gain (loss) on investments, net in our
Consolidated Statement of Income. Subsequent increases and decreases to the fair value of available-for-sale securities are included in other
comprehensive income (loss), so long as they are not attributable to another other-than-temporary impairment.
Realized gains and losses on investment securities are reported in other gain (loss) on investments, net, and are determined using the
specific identification method.
For information on investment securities, refer to Note 6.