Ally Bank 2014 Annual Report Download - page 151

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
139
DSU Awards
DSU awards are granted to senior executives as phantom shares of Ally and are included as part of their base salary. DSU awards are
generally granted ratably each pay period throughout the year, vest immediately upon grant, and are paid in cash. DSUs awarded in 2012,
2013 and 2014 will generally be redeemable in three equal installments: the first on the final payroll date of the respective year of grant, the
second ratably over the first year following the grant date, and the third ratably over the second year following the grant date. The DSU
awards require liability treatment and are remeasured monthly at fair value based on market price until they are paid, with each change in
value fully charged to compensation expense in the period in which the change occurs. At December 31, 2014 and December 31, 2013, there
were a total of 3,009,942 and 3,714,029 DSU awards outstanding, respectively. We recognized expense related to DSU awards of $42 million,
$65 million, and $57 million for the years ended December 31, 2014, 2013, and 2012, respectively, for the outstanding awards. These costs
were recorded as compensation and benefits expense in our Consolidated Statement of Income.
IRSU Awards
IRSU awards are incentive awards that have been granted to senior executives as phantom shares of Ally and vest based on continued
service with Ally. IRSU awards from 2009 and 2010 have fully vested. The majority of IRSU awards from 2011 are also fully vested, with
any remaining awards scheduled to vest by the end of 2014. There were no IRSU awards granted to senior executives in 2012. IRSU awards
from 2013 vest two-thirds after two years from grant date and in full three years from grant date. IRSU awards from 2014 vest in 2016. After
the vesting requirement is met, IRSU awards are paid in cash, and payouts are made only as we repay our TARP obligations. Payouts are
allowed in 25% increments based on the percentage of TARP obligations that have been repaid, as determined in accordance with the
established guidelines for determining "repayment." As of December 31, 2014, Ally had repaid 100% of its TARP obligations, allowing
payments to be made. The vested IRSU awards that were being deferred until repayment of TARP obligations were paid out in January 2015.
Payouts are based on fair value of Ally shares at the time of the payout. The awards require liability treatment and are remeasured monthly at
fair value based on market price until they are paid. The compensation costs related to these awards are ratably charged to expense over the
requisite service period. Changes in value relating to the portion of the awards that have vested and have not been paid are recognized in
earnings in the period in which the changes occur. At December 31, 2014 and December 31, 2013, there were a total of 690,355 and 763,334
IRSU award shares outstanding, respectively. We recognized a reduction of expense related to IRSU awards of $2 million for the year ended
December 31, 2014, and expense of $8 million and $23 million for the years ended December 31, 2013, and 2012, respectively, for the
outstanding awards. These costs were recorded as compensation and benefits expense in our Consolidated Statement of Income.
25. Fair Value
Fair Value Measurements
For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a
liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement
date. Fair value is based on the assumptions market participants would use when pricing an asset or liability. Additionally, entities are required
to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring the fair value of a liability.
GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest
priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e.,
unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its
valuation. The following is a description of the three hierarchy levels.
Level 1 Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity
must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.
Level 2 Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive
markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable
market data by correlation or other means for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management's best
assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are
valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment
or estimation.
Transfers Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfer occurred.
For the year ended December 31, 2014, transfers from Level 3 into Level 2 included $78 million of derivative contracts in a
receivable position and $81 million of derivative contracts in a payable position based on increased observability of
significant inputs related to the valuation of our interest rate caps. Transfers from Level 2 into Level 3 included $3 million
of fair value option-elected mortgage loans held-for-sale based on decreased observability of significant inputs resulting
from no longer being an active seller of mortgage loans to GSEs.