Ally Bank 2014 Annual Report Download - page 106

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
94
Finance Receivables and Loans
Finance receivables and loans are reported at the principal amount outstanding, net of unearned income, premiums and discounts, and
allowances. Unearned income, which includes unearned rate support received from an automotive manufacturer on certain automotive loans
and deferred origination fees reduced by origination costs, is amortized over the contractual life of the related finance receivable or loan using
the effective interest method. We make incentive payments for consumer automotive loan originations to automotive dealers under our Ally
Dealer Rewards Program and account for these payments as direct loan origination costs. Loan commitment fees are generally deferred and
amortized over the commitment period. Additionally, we make incentive payments to certain commercial automobile wholesale borrowers
under our Ally Dealer Rewards Program and account for these payments as a reduction to interest income in the period they are earned. For
information on finance receivables and loans, refer to Note 8.
We classify finance receivables and loans as either loans held-for-sale or loans held-for-investment based on management's assessment
of our intent and ability to hold loans for the foreseeable future or until maturity. Management's intent and ability with respect to certain loans
may change from time to time depending on a number of factors including economic, liquidity, and capital conditions. Management's view of
the foreseeable future is based on the longest reasonably reliable net income, liquidity, and capital forecast period. Loans classified as held-
for-sale are carried at the lower of cost or market, unless the fair value option was elected, in which case those loans are carried at fair value.
Our portfolio segments are based on the level at which we develop and document our methodology for determining the allowance for
loan losses. Additionally, the classes of finance receivables are based on several factors including the method for monitoring and assessing
credit risk, the method of measuring carrying value, and the risk characteristics of the finance receivable. Based on an evaluation of our
process for developing the allowance for loan losses including the nature and extent of exposure to credit risk arising from finance
receivables, we have determined our portfolio segments to be consumer automotive, consumer mortgage, and commercial.
• Consumer automotive — Consists of retail automotive financing for new and used vehicles.
• Consumer mortgage — Consists of first mortgage, subordinate-lien mortgages and home equity loans.
• Commercial — Consists of the following classes of finance receivables.
• Commercial and Industrial
• Automotive — Consists of financing operations to fund dealer purchases of new and used vehicles through
wholesale or floorplan financing. Additional commercial offerings include automotive dealer term loans,
revolving lines of credit, and dealer fleet financing.
• Other — Consists of senior secured commercial lending.
• Commercial Real Estate — Automotive — Consists of term loans to finance dealership land and buildings.
Nonaccrual Loans
Revenue recognition is suspended when any finance receivables and loans are placed on nonaccrual status. Generally, all classes of
finance receivables and loans are placed on nonaccrual status when principal or interest has been delinquent for 90 days or when full
collection is determined not to be probable. Exceptions include commercial real estate loans that are placed on nonaccrual status when
delinquent for 60 days. These loans are reported as nonperforming loans in Note 8. Revenue accrued, but not collected, at the date finance
receivables and loans are placed on nonaccrual status is reversed and subsequently recognized only to the extent it is received in cash or until
it qualifies for return to accrual status. However, where there is doubt regarding the ultimate collectability of loan principal, all cash received
is applied to reduce the carrying value of such loans. Finance receivables and loans are restored to accrual status only when contractually
current and the collection of future payments is reasonably assured.
Generally, we recognize all classes of loans as past due when they are 30 days delinquent on making a contractually required payment.
Impaired Loans
All classes of loans are considered impaired when we determine it is probable that we will be unable to collect all amounts due (both
principal and interest) according to the terms of the loan agreement.
For all classes of consumer loans, impaired loans include all loans that have been modified in troubled debt restructurings (TDRs).
All classes of commercial loans are considered impaired on an individual basis and reported as impaired when we determine it is
probable that we will be unable to collect all amounts due according to the terms of the loan agreement.
With the exception of certain consumer TDRs that have been returned to accruing status, for all classes of impaired loans, income
recognition is consistent with that of nonaccrual loans discussed above. For collateral dependent loans, if the recorded investment in impaired
loans exceeds the fair value of the collateral, a charge-off is recorded consistent with the TDR discussion below.