Ally Bank 2012 Annual Report Download - page 115

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the United States of America (GAAP). Additionally, where applicable, the policies conform to the accounting and reporting guidelines
prescribed by bank regulatory authorities.
We operate 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.
Correction of Immaterial Error
We have revised our consolidated financial statements for the years ended December 31, 2010 and 2009, for the correction of an
immaterial error related to the accounting for a fair value derivative hedge associated with a specific bond affected by our 2008 bond
exchange. The correction of the error resulted in an increase in long-term debt and an associated increase in interest on long-term debt that
reduced previously reported net income by $46 million and $45 million for the years ended December 31, 2010 and 2009, respectively. Total
equity at December 31, 2010 has also been reduced by $91 million compared to amounts previously reported. We concluded based on our
quantitative and qualitative analysis that these related amounts are not material to our results of operations or financial condition.
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 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- and mortgage-backed securities (MBS), interests in
securitization trusts, equity securities, and other investments. Securities are classified based on management's intent. Our trading assets
primarily consisted of MBS and retained and purchased interests in certain securitizations. The trading assets are carried at fair value with
changes in fair value recorded in current period earnings. All other securities are 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. We employ a systematic
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 an equity 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.
Noncredit component losses are amortized over the remaining life of the debt security by offsetting the recorded value of the asset.
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.
Loans Held-for-sale
Loans held-for-sale may include consumer automobile, consumer mortgage, and commercial receivables and loans. Loans held-for-sale
are carried at either fair value because of the fair value option election or lower of cost or estimated fair value. Loan origination fees, as well
as discount points and incremental direct origination costs, are initially recorded as an adjustment of the cost basis of the loan and are
reflected in the gain or loss on sale of loans when sold. Fair value is determined by type of loan and is generally based on contractually
established commitments from investors, current investor yield requirements, current secondary market pricing, or cash flow models using
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K