Ally Bank 2014 Annual Report Download - page 157

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
145
Fair Value of Financial Instruments
The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a
recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to
determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation
methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is
required in interpreting market data to develop estimates of fair value, so the estimates are not necessarily indicative of the amounts that could
be realized or would be paid in a current market exchange. The effect of using different market assumptions or estimation methodologies
could be material to the estimated fair values. Fair value information presented herein was based on information available at December 31,
2014 and 2013.
Estimated fair value
December 31, ($ in millions)
Carrying
value Level 1 Level 2 Level 3 Total
2014
Financial assets
Loans held-for-sale, net $ 2,003 $ — $ 485 $ 1,554 $ 2,039
Finance receivables and loans, net 98,971 — — 99,430 99,430
Nonmarketable equity investments 271 — 246 33 279
Financial liabilities
Deposit liabilities $ 58,222 $ — $ — $ 58,777 $ 58,777
Short-term borrowings 7,062 — — 7,063 7,063
Long-term debt 66,558 — 25,224 44,084 69,308
2013
Financial assets
Loans held-for-sale, net $ 35 $ — $ 17 $ 18 $ 35
Finance receivables and loans, net 99,120 — — 100,090 100,090
Nonmarketable equity investments 337 — 308 38 346
Financial liabilities
Deposit liabilities $ 53,350 $ — $ — $ 54,070 $ 54,070
Short-term borrowings 8,545 — — 8,545 8,545
Long-term debt (a) 69,824 — 31,067 42,297 73,364
(a) The carrying value includes deferred interest for zero-coupon bonds of $359 million at December 31, 2013.
The following describes the methodologies and assumptions used to determine fair value for the significant classes of financial
instruments. In addition to the valuation methods discussed below, we also followed guidelines for determining whether a market was not
active and a transaction was not distressed. As such, we assumed the price that would be received in an orderly transaction (including a
market-based return) and not in forced liquidation or distressed sale.
• Cash and cash equivalents — Included in cash and cash equivalents are highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty
on withdrawal. Classified as Level 1 under the fair value hierarchy, cash and cash equivalents generally expose us to limited credit
risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. As such, the
carrying value approximates the fair value of these instruments.
• Loans held-for-sale, net — Loans held-for-sale classified as Level 2 as of December 31, 2014 represent mortgage TDR loans
valued using quoted prices in active markets for similar assets. Loans held-for-sale classified as Level 2 as of December 31, 2013
included all GSE-eligible mortgage loans valued predominantly using published forward agency prices. It also included any
domestic loans where recently negotiated market prices for the loan pool existed with a counterparty (which approximated fair
value) or quoted market prices for similar loans were available. Loans held-for-sale classified as Level 3 include all loans valued
using internally developed valuation models because observable market prices were not available. The loans were priced on a
discounted cash flow basis utilizing cash flow projections from internally developed models that utilized prepayment, default, and
discount rate assumptions. To the extent available, we utilized market observable inputs such as interest rates and market spreads. If
market observable inputs were not available, we were required to utilize internal inputs, such as prepayment speeds, credit losses,
and discount rates.
• Finance receivables and loans, net — With the exception of mortgage loans held-for-investment, the fair value of finance
receivables and loans was based on discounted future cash flows using applicable spreads to approximate current rates applicable to