Ally Bank 2014 Annual Report Download - page 158

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
146
each category of finance receivables and loans (an income approach using Level 3 inputs). The carrying value of commercial
receivables in certain markets and certain automotive and other receivables for which interest rates reset on a short-term basis with
applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest
rate adjustment feature. The fair value of commercial receivables in other markets was based on discounted future cash flows using
applicable spreads to approximate current rates applicable to similar assets in those markets.
For consumer mortgage loans, we used valuation methods and assumptions similar to those used for mortgage loans held-for-
sale. These valuations consider unique attributes of the loans such as geography, delinquency status, product type, and other factors.
Refer to the section above titled Loans held-for-sale, net, for a description of methodologies and assumptions used to determine the
fair value of mortgage loans held-for-sale.
• Deposit liabilities — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and
dealer deposits. The fair value of deposits at Level 3 were estimated by discounting projected cash flows based on discount factors
derived from the forward interest rate swap curve.
• Short-term borrowings and Long-term debt — Level 2 debt was valued using quoted market prices for similar instruments, when
available, or other means for substantiation with observable inputs. Debt valued using internally derived inputs, such as prepayment
speeds and discount rates, was classified as Level 3.
26. Offsetting Assets and Liabilities
Our qualifying master netting agreements are written, legally enforceable bilateral agreements that (1) create a single legal obligation for
all individual transactions covered by the agreement to the non-defaulting entity upon an event of default of the counterparty, including
bankruptcy, insolvency, or similar proceeding, and (2) provide the non-defaulting entity the right to accelerate, terminate, and close-out on a
net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default of the counterparty. As it
relates to derivative instruments, in certain instances we have the option to report derivatives that are subject to a qualifying master netting
agreement on a net basis, we have elected to report these instruments as gross assets and liabilities on the Consolidated Balance Sheet.
To further mitigate the risk of counterparty default related to derivative instruments, we maintain collateral agreements with certain
counterparties. The agreements require both parties to maintain collateral in the event the fair values of the derivative financial instruments
meet established thresholds. In the event that either party defaults on the obligation, the secured party may seize the collateral. Generally, our
collateral arrangements are bilateral such that we and the counterparty post collateral for the value of our total obligation to each other.
Contractual terms provide for standard and customary exchange of collateral based on changes in the market value of the outstanding
derivatives. The securing party posts additional collateral when their obligation rises or removes collateral when it falls, such that the net
replacement cost of the non-defaulting party is covered in the event of counterparty default.
The composition of offsetting derivative instruments, financial assets, and financial liabilities was as follows.
Gross
Amounts of
Recognized
Assets/
(Liabilities)
Gross
Amounts
Offset in the
Consolidated
Balance
Sheet
Net Amounts
of Assets/
(Liabilities)
Presented in
the
Consolidated
Balance Sheet
Gross Amounts Not Offset in
the Consolidated Balance
Sheet
December 31, 2014 ($ in millions)
Financial
Instruments Collateral (a)
Net
Amount
Assets
Derivative assets in net asset positions $ 216 $ — $ 216 $ (60) $ (68) $ 88
Derivative assets in net liability positions 47 — 47 (47) — —
Total assets (b) $ 263 $ — $ 263 $ (107) $ (68) $ 88
Liabilities
Derivative liabilities in net liability
positions $ (188) $ — $ (188) $ 47 $ 54 $ (87)
Derivative liabilities in net asset positions (60) — (60) 60 — —
Derivative liabilities with no offsetting
arrangements (4) — (4) — — (4)
Total derivative liabilities (b) (252) — (252) 107 54 (91)
Securities sold under agreements to
repurchase (c) (774) — (774) — 774 —
Total liabilities $ (1,026) $ — $ (1,026) $ 107 $ 828 $ (91)
(a) Financial collateral received/pledged shown as a balance based on the sum of all net asset and liability positions between Ally and each individual
derivative counterparty.
(b) For additional information on derivative instruments and hedging activities, refer to Note 22.
(c) For additional information on securities sold under agreements to repurchase, refer to Note 15.