Ally Bank 2012 Annual Report Download - page 189

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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.
• Loans held-for-sale, net — Loans held-for-sale classified as Level 2 include all GSE-eligible mortgage loans valued predominantly
using published forward agency prices. It also includes any domestic loans and foreign loans where recently negotiated market
prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are
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 are priced on a discounted cash flow basis utilizing cash flow projections
from internally developed models that utilize prepayment, default, and discount rate assumptions. To the extent available, we will
utilize market observable inputs such as interest rates and market spreads. If market observable inputs are not available, we are
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 was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each
category of finance receivables (an income approach using Level 3 inputs). The carrying value of commercial receivables in certain
markets and certain other automotive- and mortgage-lending 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 mortgage loans held-for-investment used as collateral for securitization debt, we used a portfolio approach with Level 3
inputs to measure these loans at fair value. The objective in fair valuing these loans (which are legally isolated and beyond the reach
of our creditors) and the related collateralized borrowings is to reflect our retained economic position in the securitizations. For
mortgage loans held-for-investment that are not securitized, 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.
• Debt — Level 2 debt was valued using quoted market prices in inactive markets. Debt valued using internally derived inputs, such
as prepayment speeds and discount rates, was classified as Level 3.
26. Segment and Geographic Information
Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and
expenses incurred for which discrete financial information is available that is evaluated regularly by our chief operating decision maker in
deciding how to allocate resources and in assessing performance.
We report our results of operations on a line-of-business basis through three operating segments - Automotive Finance operations,
Insurance operations, and Mortgage operations, with the remaining activity reported in Corporate and Other. The operating segments are
determined based on the products and services offered, and reflect the manner in which financial information is currently evaluated by
management. The following is a description of each of our reportable operating segments.
Automotive Finance operations — Provides automotive financing services to consumers and automotive dealers and includes the
automotive activities of Ally Bank. For consumers, we offer retail automotive financing and leasing for new and used vehicles, and
through our commercial automotive financing operations, we fund dealer purchases of new and used vehicles through wholesale or
floorplan financing.
Insurance operations — Offers both consumer finance and insurance products sold primarily through the automotive dealer
channel, and commercial insurance products sold to dealers. As part of our focus on offering dealers a broad range of consumer
finance and insurance products, we provide vehicle service contracts, maintenance coverage, and GAP products. We also underwrite
selected commercial insurance coverages, which primarily insure dealers' wholesale vehicle inventory in the United States.
Mortgage operations — Our ongoing Mortgage operations are conducted through Ally Bank. We intend to continue to originate a
modest level of jumbo and conventional conforming residential mortgages for our own portfolio through a select group of
correspondent lenders. Our Mortgage operations also include noncore business activities that are winding down or were business
activities of ResCap, which was deconsolidated on May 14, 2012, including, among other things: portfolios in runoff; and our
mortgage reinsurance business.
Corporate and Other primarily consists of our centralized corporate treasury activities, such as management of the cash and corporate
investment securities portfolios, short- and long-term debt, retail and brokered deposit liabilities, derivative instruments, the amortization of
the discount associated with new debt issuances and bond exchanges, most notably from the December 2008 bond exchange, and the residual
impacts of our corporate funds-transfer pricing (FTP) and treasury asset liability management (ALM) activities. Corporate and Other also
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K