Ally Bank 2012 Annual Report Download - page 122

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An impairment test on an asset group to be sold or otherwise disposed of is performed upon occurrence of a triggering event or when
certain criteria are met (e.g., the asset is planned to be disposed of within twelve months, appropriate levels of authority have approved the
sale, there is an active program to locate a buyer, etc), which cause the disposal group to be classified as held-for-sale. Long-lived assets held-
for-sale are recorded at the lower of their carrying amount or estimated fair value less cost to sell. If the carrying value of the assets held-for-
sale exceeds the fair value less cost to sell, we recognize an impairment loss based on the excess of the carrying amount over the fair value of
the assets less cost to sell. During 2012, 2011, and 2010, impairment losses were recognized on asset groups that were classified as held-for-
sale or disposed of by sale. Refer to Note 2 for a discussion of discontinued and held-for-sale operations.
Property and Equipment
Property and equipment stated at cost, net of accumulated depreciation and amortization, are reported in other assets on our Consolidated
Balance Sheet. Included in property and equipment are certain buildings, furniture and fixtures, leasehold improvements, company vehicles,
IT hardware and software, and capitalized software costs. Depreciation is computed on the straight-line basis over the estimated useful lives
of the assets, which generally ranges from three to thirty years. Capitalized software is generally amortized on a straight-line basis over its
useful life, which generally ranges from three to five years. Capitalized software that is not expected to provide substantive service potential
or for which development costs significantly exceed the amount originally expected is considered impaired and written down to fair value.
Software expenditures that are considered general, administrative, or of a maintenance nature are expensed as incurred.
Unearned Insurance Premiums and Service Revenue
Insurance premiums, net of premiums ceded to reinsurers, and service revenue are earned over the terms of the policies. The portion of
premiums and service revenue written applicable to the unexpired terms of the policies is recorded as unearned insurance premiums or
unearned service revenue. For extended service and maintenance contracts, premiums and service revenues are earned on a basis
proportionate to the anticipated cost emergence. For other short duration contracts, premiums and unearned service revenue are earned on a
pro rata basis. For further information, refer to Note 3.
Deferred Policy Acquisition Costs
Commissions, including compensation paid to sellers of vehicle service contracts and other costs of acquiring insurance that are
primarily related to and vary with the production of business, are deferred and recorded in other assets. Deferred policy acquisition costs are
amortized over the terms of the related policies and service contracts on the same basis as premiums and revenue are earned except for direct
response advertising costs, which are amortized over their expected future benefit. We group costs incurred for acquiring like contracts and
consider anticipated investment income in determining the recoverability of these costs.
Reserves for Insurance Losses and Loss Adjustment Expenses
Reserves for insurance losses and loss adjustment expenses are reported in accrued expenses and other liabilities. They are established
for the unpaid cost of insured events that have occurred as of a point in time. More specifically, the reserves for insurance losses and loss
adjustment expenses represent the accumulation of estimates for both reported losses and those incurred, but not reported, including claims
adjustment expenses relating to direct insurance and assumed reinsurance agreements. Estimates for salvage and subrogation recoverable are
recognized at the time losses are incurred and netted against provision for insurance losses and loss adjustment expenses. Reserves are
established for each business at the lowest meaningful level of homogeneous data. Since the reserves are based on estimates, the ultimate
liability may vary from such estimates. The estimates are regularly reviewed and adjustments, which can potentially be significant, are
included in earnings in the period in which they are deemed necessary.
Legal and Regulatory Reserves
Reserves for legal and regulatory matters are established when those matters present loss contingencies that are both probable and
estimable, with a corresponding amount recorded to other noninterest expense. In cases where we have an accrual for losses, it is our policy to
include an estimate for probable and estimable legal expenses related to the case. If, at the time of evaluation, the loss contingency related to a
litigation or regulatory matter is not both probable and estimable, we do not establish an accrued liability. We continue to monitor legal and
regulatory matters for further developments that could affect the requirement to establish a liability or that may impact the amount of a
previously established liability. There may be exposure to loss in excess of any amounts recognized. For certain other matters where the risk
of loss is determined to be reasonably possible, estimable, and material to the financial statements, disclosure regarding details of the matter
and an estimated range of loss is required. The estimated range of possible loss does not represent our maximum loss exposure. Financial
statement disclosure is also required for matters that are deemed probable or reasonably possible, material to the financial statements, but for
which an estimated range of loss is not possible to determine. While we believe our reserves are adequate, the outcome of legal and regulatory
proceedings is extremely difficult to predict and we may settle claims or be subject to judgments for amounts that differ from our estimates.
For information regarding the nature of all material contingencies, refer to Note 29.
Loan Repurchase and Obligations Related to Loan Sales
Our Mortgage operations sell loans that take the form of securitizations guaranteed by the GSEs or by whole-loan purchasers. In
addition, we infrequently sell securities to investors through private-label securitizations. In connection with these activities we provide to the
GSEs, investors, whole-loan purchasers, and financial guarantors (monolines) various representations and warranties related to the loans sold.
These representations and warranties generally relate to, among other things, the ownership of the loan, the validity of the lien securing the
loan, the loan's compliance with the criteria for inclusion in the transaction, including compliance with underwriting standards or loan criteria
established by the buyer, ability to deliver required documentation and compliance with applicable laws. Generally, the representations and
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K